SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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 Section240.14a-11(c) or
Section240.14a-12
PROMUS HOTEL 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):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, par value $0.01 per share, of Promus Hotel
Corporation
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
84,587,822 shares of Promus Common Stock(A)
----------------------------------------------------------
(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):
$32.22(B)
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$2,725,419,625(B)
----------------------------------------------------------
(5) Total fee paid:
$545,084
----------------------------------------------------------
(A) Based on the sum of (1) 78,692,352, the total number of
outstanding shares of Promus common stock, and
(2) 5,895,470, the shares of Promus common stock issuable
pursuant to exercisable options and warrants.
(B) Calculated based on the average of the high and low prices
of a share of Promus common stock on the New York Stock
Exchange on October 15, 1999. Estimated solely for
purposes of calculating the filing fee pursuant to
Exchange Act Rule 0-11.
/X/ Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
$592,511
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Schedule 14A
----------------------------------------------------------
(3) Filing Party:
Hilton Hotels Corporation and Promus Hotel Corporation
----------------------------------------------------------
(4) Date Filed:
October 1, 1999
----------------------------------------------------------
[LOGO]
Dear Fellow Stockholder: October 21, 1999
We are pleased to enclose information about a Special Meeting of
Stockholders of Promus Hotel Corporation on November 30, 1999. At the meeting,
you will be asked to approve an Agreement and Plan of Merger dated as of
September 3, 1999, as amended, among Promus, Hilton Hotels Corporation and PRH
Acquisition Corporation.
The merger agreement provides for Hilton's acquisition of Promus. In the
acquisition, you may elect to receive, for each share of Promus common stock,
either (1) $38.50 in cash or (2) not less than 2.9096 shares or more than 3.2158
shares of Hilton common stock, determined by a formula in the merger agreement.
Your election may be subject to proration to ensure that 55% of the outstanding
Promus shares are converted into cash, while the remaining 45% are converted to
Hilton common stock. Receipt of the Hilton stock may or may not be a taxable
event to you, depending on the circumstances described in the enclosed Joint
Proxy Statement/Prospectus. We urge you to read the Joint Proxy
Statement/Prospectus carefully.
The acquisition represents an attractive transaction because of the
strategic fit between Promus and Hilton. Promus's own strategic planning process
had identified several strategic needs which the acquisition specifically
addresses, such as the need for: (1) a global brand which could provide
overarching support for market acceptance of our family of brands; (2) a
stronger national sales force and international market access which could draw
group business; (3) a customer loyalty/frequency program which could increase
property-level revenues; (4) further expansion of cross-selling efforts which
could drive revenue growth; and (5) the acquisition or development of
owner/operator time-sharing expertise to complement our strong position in this
market.
In each case, we believe the combination with Hilton satisfies our strategic
needs, resulting in a compelling strategic fit. Hilton is probably the most
recognized global brand in the industry. Our Doubletree brand will benefit from
the new brand affiliation. Hilton has one of the most effective national sales
forces. Its strategic alliance with Hilton International will also provide
Promus with global market access. Hilton HHonors frequency program is one of the
most recognized and effective in the industry. With a total of approximately
1700 hotels and very large, high quality Hilton hotels in major urban markets
(e.g., Waldorf Astoria in New York City), the opportunity for cross-selling and
regional cost synergies are significant. Hilton is an established owner/operator
of time-sharing resorts which provides expertise to be more successful in this
market. Moreover, our Harrison Conference Centers business will fit nicely with
Hilton's existing conference centers and large-scale hotels.
This transaction will benefit all of our stakeholders. Our stockholders
benefit from a purchase premium and the opportunity to become stockholders in a
larger, more competitive company with greater profit potential. Our owners and
franchisees will benefit from significant revenue and cost synergies as well as
their involvement with a company which has a broader array of quality brands.
Our guests will benefit from our continued high-quality service, involvement in
the Hilton HHonors program and a broader selection of brands and locations. Our
employees can benefit from being involved with a larger company, which will
offer greater career opportunities.
MY FELLOW DIRECTORS AND I HAVE UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMEND YOU VOTE FOR ITS APPROVAL.
[LOGO]
Norman P. Blake, Jr.
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
HILTON HOTELS CORPORATION PROMUS HOTEL CORPORATION
9336 CIVIC CENTER DRIVE 755 CROSSOVER LANE
BEVERLY HILLS, CALIFORNIA 90210 MEMPHIS, TENNESSEE 38117
JOINT PROXY STATEMENT/PROSPECTUS
Hilton Hotels Corporation and Promus Hotel Corporation have entered into a
merger agreement that provides for Hilton's acquisition of Promus. In the
acquisition, Promus stockholders will receive, at their election, for each share
of Promus common stock, either:
- $38.50 in cash; or
- not less than 2.9096 shares or more than 3.2158 shares of Hilton common
stock, determined as described below.
Each Promus stockholder's election may be subject to proration depending on
the form of consideration other Promus stockholders elect to receive. The
proration will ensure that 55% of the outstanding Promus shares will be
converted into cash, while the remaining 45% will be converted into Hilton
common stock.
Promus stockholders who receive Hilton common stock will receive a number of
shares equal to $38.50 divided by the average Hilton stock price, but in any
event not less than 2.9096 shares or more than 3.2158 shares for each share of
Promus common stock. The average Hilton stock price is the average of the volume
weighted average per share sales price of Hilton common stock on the NYSE for 20
trading days selected by lot from the 30 trading days ending on the fifth
trading day before the closing of the acquisition.
The acquisition requires the approval of both Promus and Hilton
stockholders.
Hilton is also asking its stockholders to approve an amendment to Hilton's
certificate of incorporation to increase the authorized number of shares of
Hilton common stock from 400 million shares to 500 million shares. If approved,
the amendment to the certificate of incorporation will take effect only if the
acquisition is completed. Hilton is also asking its stockholders to approve an
amendment to Hilton's by-laws to change the authorized number of directors from
12 to a range of 10 to 20 directors, with the exact number to be set from time
to time by the Hilton board of directors. If approved, the amendment to the
by-laws will take effect regardless of the outcome of the votes on the
acquisition and the amendment to Hilton's certificate of incorporation. APPROVAL
OF THE MERGER AGREEMENT AND COMPLETION OF THE ACQUISITION ARE NOT DEPENDENT ON
APPROVAL OF THE PROPOSED AMENDMENTS TO THE HILTON CERTIFICATE OF INCORPORATION
OR BY-LAWS.
THE BOARDS OF DIRECTORS OF HILTON AND PROMUS UNANIMOUSLY RECOMMEND THAT YOU
VOTE IN FAVOR OF THE ACQUISITION AND, IN THE CASE OF HILTON, THE OTHER MATTERS.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend a meeting, please
take the time to vote by completing and mailing the enclosed proxy card to us or
voting by telephone.
This joint proxy statement/prospectus provides you with detailed information
about the acquisition, a description of which begins on page 32. YOU SHOULD ALSO
CAREFULLY READ THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 23 FOR A
DISCUSSION OF SPECIFIC RISKS THAT YOU SHOULD CONSIDER IN DETERMINING HOW TO VOTE
ON THE PROPOSED ACQUISITION.
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATOR HAS APPROVED THE
SECURITIES TO BE ISSUED UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS OR
DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated October 21, 1999, and is
first being mailed to stockholders of Hilton and Promus on October 25, 1999
[LOGO]
PROMUS HOTEL CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 30, 1999
To the stockholders of Promus Hotel Corporation:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Promus
Hotel Corporation, a Delaware corporation, will be held at the Fogelman
Executive Center, Room 136, Lower Level, at The University of Memphis,
330 Deloach Street, Memphis, Tennessee 38152, on November 30, 1999, at
1:00 p.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of September 3, 1999, as amended, by and among Promus
Hotel Corporation, Hilton Hotels Corporation and Hilton's wholly-owned
subsidiary, PRH Acquisition Corporation, formerly known as Chicago
Hilton, Inc., and to approve the acquisition of Promus by Hilton.
We anticipate that the acquisition will be effected by the merger of
Promus into PRH Acquisition, with PRH Acquisition being the surviving
corporation. We call this the forward merger structure. However, we will
use a reverse merger structure in which PRH Acquisition will merge into
Promus, with Promus being the surviving corporation and a wholly-owned
subsidiary of Hilton, if either of the following occurs:
- the value of the Hilton stock delivered in the acquisition is less than
40% of the total consideration paid in connection with the acquisition;
or
- legal opinions as to the tax-free nature of the acquisition cannot
otherwise be delivered.
Because the value of the Hilton common stock for tax purposes will be
determined on the closing date, we will not know at the time of the
stockholder meeting whether the forward merger structure or the reverse
merger structure will be used. The structure of the acquisition will
affect the tax consequences to you of the acquisition. If the forward
merger structure is used, you will be taxed on any gain realized only to
the extent of the cash consideration received in exchange for your shares
of Promus stock. However, if the reverse merger structure is used, you
will be taxed on any gain realized regardless of the form of
consideration that you receive in exchange for your shares of Promus
stock. Details are provided in the joint proxy statement/prospectus.
Based on current information, we will use the forward merger structure so
long as the volume weighted average per share sales price of Hilton
common stock on the closing date is at least $9.84. The volume weighted
average per share sales price of Hilton stock on October 18, 1999 was
$8.97. Accordingly, if the closing had occurred on that day, we would
have used the reverse merger structure and you would have been taxed on
any gain realized, regardless of the form of consideration you received.
2. To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the meeting.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE ACQUISITION IS
IN THE BEST INTERESTS OF PROMUS AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU
VOTE TO APPROVE THE ACQUISITION. Each of the items of business to be submitted
to a vote at the Promus meeting is more fully described in this proxy
statement/prospectus, which we urge you to read carefully.
Stockholders of record on the close of business on October 15, 1999 are
entitled to notice of and to vote at the special meeting and any adjournment or
postponement of the meeting. Approval of the acquisition will require the
affirmative vote of holders of Promus common stock representing a majority of
the outstanding shares of Promus common stock. Stockholders are cordially
invited to attend the special meeting in person.
YOUR VOTE IS VERY IMPORTANT. TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT
THE SPECIAL MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND
MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING IN PERSON. ANY EXECUTED BUT UNMARKED PROXY CARDS
WILL BE VOTED FOR APPROVAL OF THE ACQUISITION. YOU MAY ALSO VOTE BY CALLING THE
TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD AND FOLLOWING THE
INSTRUCTIONS ON THE PROXY CARD. YOU MAY REVOKE YOUR PROXY IN THE MANNER
DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/ PROSPECTUS AT ANY TIME
BEFORE IT HAS BEEN VOTED AT THE SPECIAL MEETING. ANY STOCKHOLDER ATTENDING THE
SPECIAL MEETING MAY VOTE IN PERSON EVEN IF THE STOCKHOLDER HAS RETURNED A PROXY
OR VOTED BY TELEPHONE.
By Order of the Board of Directors
/s/ J. Kendall Huber
J. Kendall Huber
EXECUTIVE VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
Memphis, Tennessee
October 21, 1999
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE
ACQUISITION......................... iii
SUMMARY............................... 1
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION............... 15
Historical Financial Information.... 15
Unaudited Pro Forma Financial
Information....................... 15
Selected Pro Forma Financial
Information....................... 16
Selected Historical Financial
Information--Hilton............... 18
Selected Historical Financial
Information--Promus............... 20
COMPARATIVE PER SHARE MARKET PRICE AND
DIVIDEND INFORMATION................ 22
RISK FACTORS.......................... 23
Risks Relating to the Acquisition... 23
Risks Relating to the Business of
Hilton After the Acquisition...... 26
THE MEETINGS--GENERAL PROXY
INFORMATION......................... 28
The Hilton Stockholders Meeting..... 28
General; Date, Time and Place of
the Special Meeting............. 28
Matters to be Considered at the
Special Meeting................. 28
Record Date for Voting on the
Acquisition; Stockholders
Entitled to Vote................ 28
Security Ownership................ 28
Voting and Revocation of
Proxies......................... 29
Proxy Solicitation................ 29
Stockholder Vote Required for
Hilton Proposals................ 29
Hilton Board Recommendation....... 29
The Promus Stockholders Meeting..... 30
General; Date, Time and Place of
the Special Meeting............. 30
Matters to be Considered at the
Special Meeting................. 30
Security Ownership................ 30
Record Date for Voting on the
Acquisition; Stockholders
Entitled to Vote................ 30
Voting and Revocation of
Proxies......................... 30
Proxy Solicitation................ 31
Stockholder Vote Required to
Approve the Acquisition......... 31
Promus Board Recommendation....... 31
THE ACQUISITION....................... 32
General............................. 32
Background of the Acquisition....... 32
Reasons for the Acquisition......... 35
Hilton's Reasons for the
Acquisition..................... 35
Promus' Reasons for the
Acquisition..................... 36
Opinions of Hilton Financial
Advisors.......................... 39
Opinion of Morgan Stanley & Co.
Incorporated.................... 39
Opinion of Donaldson, Lufkin &
Jenrette Securities
Corporation..................... 46
Opinion of Promus Financial
Advisor........................... 51
Opinion of Salomon Smith Barney
Inc............................. 51
Structure of the Acquisition........ 55
Interests of Certain Persons in the
Acquisition....................... 56
Directors and Executive
Officers........................ 56
Incentive Compensation and Stock
Ownership Arrangements.......... 56
Severance Agreements and
Arrangements.................... 58
Arrangements with Mr. Blake....... 59
Deferred Compensation Benefits.... 59
Other Employee Benefits........... 60
Directors' and Officers'
Insurance; Indemnification of
Promus Directors and Officers... 60
Governmental and Regulatory
Matters........................... 60
Certain Federal Income Tax
Consequences of the Acquisition... 60
Summary........................... 61
Tax Consequences of the Forward
Merger Structure................ 62
The Receipt of Solely Hilton
Common Stock by a Promus
Stockholder in Exchange for
Promus Common Stock under the
Forward Merger Structure........ 62
The Receipt of a Combination of
Cash and Hilton Common Stock by
a Promus Stockholder in Exchange
for Promus Common Stock under
the Forward Merger Structure.... 62
The Receipt of Solely Cash by a
Promus Stockholder in Exchange
for Promus Common Stock under
the Forward Merger Structure.... 64
Tax Consequences of the Reverse
Merger Structure................ 64
Cash Received in Lieu of
Fractional Shares............... 65
Transfer Taxes.................... 65
Backup Withholding................ 65
i
Delisting and Deregistration of
Promus Common Stock; Listing of
Hilton Common Stock Issued in
Connection with the Acquisition... 65
Accounting Treatment................ 65
Recent Litigation................... 66
Dissenters' Appraisal Rights of
Promus Stockholders............... 66
THE MERGER AGREEMENT.................. 68
Closing............................. 68
Consideration to be Received for
Promus Common Stock in the
Acquisition....................... 68
Election and Proration.............. 68
Election.......................... 68
Proration......................... 69
Procedures for Exchange of Promus
Common Stock...................... 71
Treatment of Fractional Shares...... 71
Treatment of Promus Employee and
Director Stock Options............ 72
Treatment of GE Warrants and
Options........................... 72
Registration and Listing of Hilton
Common Stock...................... 72
Representations and Warranties...... 72
Covenants Regarding Conduct of
Business Before the Acquisition... 73
Conditions to the Completion of the
Acquisition....................... 75
Termination of the Merger
Agreement......................... 75
Termination Fees and Expenses....... 76
No Solicitation; Covenant to
Recommend......................... 77
Amendment or Waiver of the Merger
Agreement......................... 77
HILTON AFTER THE ACQUISITION.......... 78
Management.......................... 78
Directors......................... 78
Executive Officers................ 78
Hilton Capital Stock................ 78
Description of Hilton's Bank Credit
Facilities........................ 79
Independent Accountants............. 79
Transfer Agent and Registrar........ 80
Exchange Agent...................... 80
HILTON UNAUDITED PRO FORMA FINANCIAL
STATEMENTS.......................... 81
INFORMATION ABOUT HILTON.............. 88
HILTON'S RECENT DEVELOPMENTS.......... 88
INFORMATION ABOUT PROMUS.............. 88
PROMUS' RECENT DEVELOPMENTS........... 88
COMPARISON OF STOCKHOLDER RIGHTS...... 89
Classes of Common Stock of Hilton
and Promus........................ 89
Classified Board of Directors....... 89
Removal of Directors................ 89
Filling Vacancies on the Board of
Directors......................... 90
Limits on Stockholder Action by
Written Consent................... 90
Ability to Call Special Meetings.... 90
Advance Notice Provisions for
Stockholder Nominations and
Proposals......................... 90
Preferred Stock..................... 90
Amendment of Certificate of
Incorporation and By-Laws......... 90
Delaware Anti-Takeover Statutes..... 91
Limitation of Liability of
Directors......................... 92
Indemnification of Directors and
Officers.......................... 92
Stockholder Rights Plan............. 93
AMENDMENT TO HILTON'S CERTIFICATE OF
INCORPORATION....................... 93
AMENDMENT TO HILTON'S BY-LAWS......... 93
STOCKHOLDER PROPOSALS................. 93
EXPERTS............................... 94
LEGAL MATTERS......................... 94
WHERE YOU CAN FIND MORE INFORMATION... 94
APPENDICES:
A-- Agreement and Plan of Merger
B-- Opinion of Morgan Stanley & Co.
Incorporated, financial advisor to
Hilton
C-- Opinion of Donaldson, Lufkin &
Jenrette Securities Corporation,
financial advisor to Hilton
D-- Opinion of Salomon Smith Barney
Inc., financial advisor to Promus
E-- Section 262 of the Delaware
General Corporation Law--Appraisal
Rights
F-- Amendment to Hilton's Restated
Certificate of Incorporation
G--Amendment to Hilton's By-Laws
ii
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: HILTON STOCKHOLDERS: You are being asked to approve:
- the merger agreement and the issuance of Hilton common stock in the
acquisition.
- the amendment of Hilton's certificate of incorporation to increase the
authorized number of shares of Hilton common stock from 400 million to 500
million. If approved, the amendment to the certificate of incorporation
will take effect only if the acquisition is completed.
- the amendment to Hilton's by-laws to change the authorized number of
directors from 12 to a range of 10 to 20, with the exact number to be set
from time to time by the board of directors. If approved, the amendment to
the by-laws will take effect regardless of the outcome of the votes on the
acquisition and the amendment to the certificate of incorporation.
Approval of the merger agreement and completion of the acquisition are not
dependent on approval of the proposed amendments to the Hilton certificate
of incorporation or by-laws.
PROMUS STOCKHOLDERS: You are being asked to approve the acquisition and the
merger agreement, which provides that Promus will become a wholly-owned
subsidiary of Hilton.
Q: WHAT WILL I RECEIVE IN THE ACQUISITION?
A: HILTON STOCKHOLDERS: You will not receive any consideration in the
acquisition.
PROMUS STOCKHOLDERS: You will receive, for each share of Promus common
stock you hold, at your election but subject to proration depending on the
form of consideration other stockholders elect to receive in the merger,
either:
- $38.50 in cash; or
- not less than 2.9096 shares or more than 3.2158 shares of Hilton common
stock, depending on the average Hilton common stock price before the
closing of the acquisition. The formula for calculating the number of
shares is described in detail on page 69 of this joint proxy
statement/prospectus.
Q: IF I AM A PROMUS STOCKHOLDER, HOW DO I ELECT THE FORM OF PAYMENT I PREFER?
A: You will receive in a separate mailing a form of election and letter of
transmittal. You should return your completed and executed form of election
and letter of transmittal to the exchange agent, together with your Promus
stock certificates, in the appropriate envelope. DO NOT MAIL YOUR FORM OF
ELECTION OR YOUR STOCK CERTIFICATES WITH YOUR PROXY. IN ORDER TO BE
CONSIDERED VALID, YOUR ELECTION MUST BE RECEIVED BY THE EXCHANGE AGENT BY
5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 29, 1999.
Q: IF I AM A PROMUS STOCKHOLDER, CAN I MAKE ONE ELECTION FOR SOME OF MY SHARES
AND ANOTHER ELECTION FOR THE REST?
A: Yes. You may elect to receive a combination of cash and Hilton stock by
electing cash for some of your Promus shares and Hilton stock for your
remaining shares, subject to proration.
Q: IF I AM A PROMUS STOCKHOLDER, HOW SHOULD I SEND IN MY STOCK CERTIFICATES?
A: If you make an election of consideration by returning a completed form of
election, you must send in your Promus stock certificates with your completed
form of election and letter of transmittal to the exchange agent. If you do
not make an election, then you must keep your stock certificates until after
the closing, when you will receive a letter of transmittal describing how you
may exchange your certificates for acquisition consideration. DO NOT SEND
YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD.
iii
Q: HOW DOES MY BOARD OF DIRECTORS RECOMMEND THAT I VOTE ON THE PROPOSALS?
A: HILTON STOCKHOLDERS: The Hilton board of directors unanimously recommends
that you vote FOR:
- the merger agreement and the issuance of Hilton common stock in the
acquisition;
- the amendment to Hilton's certificate of incorporation; and
- the amendment to Hilton's by-laws.
PROMUS STOCKHOLDERS: The Promus board of directors unanimously recommends
that you vote FOR the proposal to approve the merger agreement.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
A: HILTON STOCKHOLDERS: The three proposals to be voted upon by the Hilton
stockholders will require the following votes:
- holders of a majority of the shares of Hilton common stock represented at
the special meeting must approve the merger agreement and the issuance of
Hilton common stock in the acquisition;
- holders of a majority of the outstanding shares of Hilton common stock
must approve the amendment to Hilton's certificate of incorporation to
increase the authorized number of shares of Hilton common stock; and
- holders of 75% of the outstanding shares of Hilton common stock must
approve the amendment to Hilton's by-laws to change the authorized number
of directors.
PROMUS STOCKHOLDERS: Approval of the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of
Promus common stock.
Q: WHAT DO I NEED TO DO NOW?
A: VOTING: After you read and consider the information in this document, just
mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the appropriate
stockholders meeting. You may also vote by calling the toll-free number on
your proxy card and following the telephonic procedures for delivering your
proxy. You should return your proxy card or vote telephonically whether or
not you plan to attend your stockholders meeting. If you attend your
stockholders meeting, you may revoke your proxy at any time before it is
voted and vote in person if you wish.
ELECTION: If you are a Promus stockholder, you will receive a form of
election and a letter of transmittal in a separate mailing. To make an
election as to the form of consideration you would like to receive, you must
send in your completed form of election to the exchange agent by 5:00 p.m.,
New York City time, on November 29, 1999.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I HAVE SENT IN MY PROXY CARD
OR VOTED BY TELEPHONE?
A: You can change your vote at any time before your proxy is voted at the
meetings. You can do this in one of three ways. You can send a written notice
stating that you would like to revoke your proxy. You can also complete and
submit a new proxy card or vote by telephone at a later date. If you choose
either of these methods, you must submit your notice of revocation or your
new proxy card to Hilton or Promus, as the case may be, or vote by telephone,
before your stockholders meeting. Finally, you can attend your meeting and
vote in person. Simply attending your meeting, however, will not revoke your
proxy. If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change your vote.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: HILTON STOCKHOLDERS: Your broker will vote your shares on the proposal to
approve the merger agreement and the issuance of Hilton common stock in the
acquisition and
iv
the proposal to amend the certificate of incorporation only if you provide
instructions on how to vote. For the proposal to amend the by-laws, your
broker may vote your shares without instructions from you. You should follow
the directions provided by your broker regarding how to instruct your broker
to vote your shares.
PROMUS STOCKHOLDERS: Your broker will vote your shares only if you provide
instructions on how to vote. You should follow the directions provided by
your broker regarding how to instruct your broker to vote your shares.
Q: WHAT CONSTITUTES A QUORUM AT THE STOCKHOLDERS' MEETINGS?
A: A quorum is a majority of the outstanding shares entitled to vote which are
present or represented by proxy at the special meetings. A quorum must exist
for the transaction of business at the special meeting. If you submit a
properly executed proxy card or a telephonic proxy, even if you abstain from
voting, your shares will be considered part of the quorum. Broker non-votes,
which are shares held by a broker or nominee that are represented at the
special meeting, but with respect to which the broker or nominee is not
empowered to vote on a proposal, are included in determining the presence of
a quorum.
Q: WHO CAN I CALL WITH QUESTIONS?
A: HILTON STOCKHOLDERS:
D.F. King & Co. at (800) 714-3310.
PROMUS STOCKHOLDERS:
Morrow & Co., Inc. at (800) 566-9061.
v
SUMMARY
THIS IS A SUMMARY AND IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. EVEN THOUGH WE HAVE HIGHLIGHTED WHAT WE BELIEVE IS THE MOST
IMPORTANT INFORMATION FOR YOU, WE ENCOURAGE YOU TO READ THE ENTIRE JOINT PROXY
STATEMENT/PROSPECTUS FOR A COMPLETE UNDERSTANDING OF THE PROPOSED ACQUISITION.
SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 94.
THE COMPANIES
Hilton Hotels Corporation (page 88)....... Hilton is primarily engaged in the ownership, management
and franchising of hotels. As of September 30, 1999, all
of these properties were located in the United States,
with the exception of 19 hotels which are located in 10
foreign countries.
On September 30, 1999, Hilton owned an interest in or
leased and operated 43 hotels and managed 23 hotels
owned by third parties. In addition, 217 hotels were
operated under the Hilton-Registered Trademark-, Hilton
Garden Inn-Registered Trademark- and Hilton Suites-TM-
names by others pursuant to franchises granted by
Hilton. Hilton operates vacation ownership resorts under
the Hilton Grand Vacations name. Hilton is also engaged
in various other activities related to the operation of
hotels.
Hilton's address is:
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, California 90210
Tel.: (310) 278-4321
Promus Hotel Corporation (page 88)........ Promus franchises and manages hotels with the following
brands: Doubletree, Doubletree Guest Suites, Club Hotel
by Doubletree, Embassy Suites, Hampton Inn, Hampton
Inn & Suites, Homewood Suites and Red Lion Inn. Promus
may also own all or a portion of these hotels or lease
these hotels from others. In addition, Promus leases and
manages some hotels that are not Promus-branded.
As of September 30, 1999, Promus franchised 1,112 hotels
and operated 331 hotels, of which 184 were managed for
third party owners, 51 were wholly-owned, 23 were
partially-owned through joint ventures and 73 were
leased from third parties. These hotels are located in
all 50 states, the District of Columbia, Puerto Rico,
the U.S. Virgin Islands and six foreign countries.
Promus also operates and franchises vacation interval
ownership systems under the Embassy Vacation Resort and
Hampton Vacation Resort names.
Promus' address is:
Promus Hotel Corporation
755 Crossover Lane
Memphis, Tennessee 38117
Tel.: (901) 374-5000
1
Share Price Information................... Hilton common stock is currently listed on the New York
Stock Exchange under the symbol "HLT."
Promus common stock is currently listed on the NYSE
under the symbol "PRH."
On August 31, 1999, the last trading day before the
issuance of a press release confirming the acquisition
discussions between the managements of Hilton and
Promus, the closing price on the NYSE of Hilton common
stock was $12.25 per share and of Promus common stock
was $29.0625 per share. On September 3, 1999, the last
trading day before the public announcement of the
acquisition, the closing price on the NYSE of Hilton
common stock was $11.8125 per share and of Promus common
stock was $31.375 per share. On October 18, 1999, the
closing price on the NYSE of Hilton common stock was
$9.00 per share and of Promus common stock was $31.875
per share.
You may obtain more recent stock price quotations from
most newspapers, the Internet or other financial
sources.
THE MEETINGS (PAGE 28)
Time, Date and Place...................... The Hilton stockholders meeting will be held at
10:00 a.m., local time, on November 30, 1999 at:
Hilton Beverly Hills
9876 Wilshire Boulevard
Beverly Hills, California 90210
The Promus stockholders meeting will be held at
1:00 p.m., local time, on November 30, 1999 at:
Fogelman Executive Center
Room 136, Lower Level
The University of Memphis
330 Deloach Street
Memphis, Tennessee 38152
Record Dates, Shares Entitled to Vote and
Votes Required.......................... Hilton stockholders may cast one vote per share of
Hilton common stock that they held on the close of
business on October 15, 1999. On that date, 254,978,461
shares of Hilton common stock were outstanding and
entitled to vote, of which 29,272,946 shares were held
by Hilton's directors and executive officers. The three
proposals to be voted upon by the Hilton stockholders
will require the following votes:
- holders of a majority of the shares of Hilton
common stock represented at the special meeting
must approve the merger agreement and the issuance
of Hilton common stock in the acquisition;
- holders of a majority of the outstanding shares of
Hilton common stock must approve the amendment to
2
Hilton's certificate of incorporation to increase
the authorized number of shares of Hilton common
stock; and
- holders of 75% of the outstanding shares of Hilton
common stock must approve the amendment to
Hilton's by-laws to change the authorized number
of directors.
Promus stockholders may cast one vote per share of
Promus common stock they held on the close of business
on October 15, 1999. On that date, 78,692,352 shares of
Promus common stock were outstanding and entitled to
vote, of which 1,634,477 shares were held by Promus'
directors and executive officers. The holders of a
majority of outstanding shares of Promus common stock
must approve the acquisition.
Matters to be Considered at the
Meetings................................ At the Hilton stockholders meeting, Hilton's
stockholders will consider and vote upon:
- the merger agreement and the issuance of Hilton
common stock in the acquisition;
- the amendment to Hilton's certificate of
incorporation to increase the authorized number of
shares of Hilton common stock from 400 million
shares to 500 million shares;
- the amendment to Hilton's by-laws to change the
authorized number of directors from 12 to a range
of 10 to 20 directors, with the exact number to be
set from time to time by the Hilton board of
directors; and
- such other business as may properly come before
the special meeting or any postponement or
adjournment of the special meeting.
If approved, the amendment to the certificate of
incorporation will take effect only if the acquisition
is completed. If approved, the amendment to the by-laws
will take effect regardless of the outcome of the votes
on the acquisition and the amendment to Hilton's
certificate of incorporation. APPROVAL OF THE MERGER
AGREEMENT AND COMPLETION OF THE ACQUISITION ARE NOT
DEPENDENT ON APPROVAL OF THE PROPOSED AMENDMENTS TO THE
HILTON CERTIFICATE OF INCORPORATION OR BY-LAWS.
At the Promus stockholders meeting, Promus stockholders
will consider and vote upon:
- the merger agreement and the acquisition; and
- such other business as may properly come before
the special meeting or any postponement or
adjournment of the special meeting.
3
REASONS FOR THE ACQUISITION (PAGE 35)..... Hilton and Promus believe that the acquisition will
provide the opportunity to:
- enhance Hilton's competitive position as a multi-
branded owner, operator, manager and franchisor of
hotels, comparable in size to its principal
competitors;
- diversify and balance the income stream for Hilton
by significantly increasing its revenues from
third party-owned hotel management and
franchising;
- consolidate corporate functions and regional
offices by combining strengths in all core
functional areas, such as finance, legal, human
resources, operations, technology and development;
- achieve significant economies of scale in such
areas as marketing, purchasing, operations and
technology;
- expand more aggressively with multiple brands and
market segments, including growing the Embassy
Suites and Hampton Inns brands and growing and
maintaining Doubletree as a complementary brand to
Hilton;
- blend both companies' products in the
extended-stay, conference hotel and time-share
markets;
- include the Promus brands in Hilton's
award-winning HHonors-TM- frequent guest program
and its central reservation system, Hilton
Reservations Worldwide, as well as Hilton's
international sales organization, consisting of 39
sales offices worldwide, Hilton.com and Hilton
Direct, Hilton's group business booking operation;
and
- spread fixed overhead expenses across a wider base
of properties.
For a detailed description of the factors considered by
the Hilton board of directors and the Promus board of
directors in approving the acquisition, see "The
Acquisition--Reasons for the Acquisition."
Recommendations of Boards of Directors
(pages 29 and 31)....................... The Hilton board of directors believes that the terms of
the acquisition are fair to and in the best interests of
Hilton's stockholders, has unanimously approved the
acquisition and unanimously recommends that Hilton's
stockholders vote to approve the merger agreement and
the issuance of Hilton common stock in the acquisition.
The Hilton board of directors also unanimously
recommends that Hilton stockholders vote to approve the
amendments to the certificate of incorporation and the
by-laws.
The board of directors of Promus believes that the terms
of the acquisition are fair to and in the best interests
of Promus'
4
stockholders, has unanimously approved the acquisition
and unanimously recommends that Promus' stockholders
vote to approve the merger agreement and the
transactions contemplated by the merger agreement.
Appraisal Rights (page 66)................ If the acquisition is completed, Promus stockholders who
file a written objection with Promus prior to the Promus
stockholders meeting and do not vote for the acquisition
are entitled to dissenters' appraisal rights under
Delaware law. Hilton stockholders will have no
dissenters' appraisal rights.
STRUCTURE OF THE ACQUISITION (PAGE 55).... As long as the value, as measured on the closing date,
of the Hilton common stock to be delivered in the
acquisition is at least 40% of the total consideration
paid in connection with the acquisition, the acquisition
will be effected by the forward merger structure, in
which Promus will merge into PRH Acquisition, a
wholly-owned subsidiary of Hilton, with PRH Acquisition
being the surviving corporation.
However, we will use the reverse merger structure in
which PRH Acquisition will merge into Promus, with
Promus being the surviving corporation and a
wholly-owned subsidiary of Hilton, if the value of the
shares of Hilton common stock to be delivered in the
acquisition is less than 40% of the total consideration
paid in connection with the acquisition or if legal
opinions as to the tax-free nature of the transaction
cannot otherwise be delivered. The purpose of this
modification to the structure is to avoid the
substantial corporate level tax that would result if the
acquisition were to be structured as a forward merger
and were to fail to satisfy the requirements for a
tax-free reorganization under Section 368(a) of the
Internal Revenue Code.
Because the value of the shares of Hilton common stock
for purposes of the 40% test will be determined on the
closing date, we will not know at the time of the
stockholder meeting whether the forward merger structure
or the reverse merger structure will be used. The
structure of the acquisition will affect the tax
consequences of the acquisition to Promus stockholders.
If the forward merger structure is used, Promus
stockholders will be taxed on any gain realized only to
the extent of cash received in exchange for their shares
of Promus stock. However, if the reverse merger
structure is used, Promus stockholders will be taxed on
any gain realized regardless of the form of
consideration that they receive in exchange for their
shares of Promus stock. Based on current information,
the forward merger structure will be used so long as the
volume weighted average per share sales price of Hilton
common stock on the closing date is at least $9.84. The
volume weighted average per share sales price of Hilton
stock on October 18, 1999 was $8.97. Accordingly, if the
closing had occurred on that date, we would have used
the reverse merger structure. Details of the tax
consequences of the acquisition to
5
Promus stockholders are more fully described under "The
Acquisition--Certain Federal Income Tax Consequences of
the Acquisition" on page 60.
ACQUISITION STEPS
General................................... The rights and obligations of all parties under the
merger agreement are governed by the exact language of
the merger agreement, not the description in this joint
proxy statement/ prospectus. A copy of the merger
agreement is included in this joint proxy
statement/prospectus as Appendix A.
Election of Cash or Hilton Shares
(page 68)............................... Subject to the requirement that 55% of the Promus shares
be converted into $38.50 in cash per share and the
balance be converted into Hilton common stock, Promus
stockholders will have the right to elect to receive
either cash or Hilton common stock for each share of
Promus common stock. Subject to proration, a Promus
stockholder may elect to receive all cash, all stock or
a combination of cash and stock for Promus shares.
Promus is sending a form of election and letter of
transmittal to its stockholders in a separate mailing.
Dissenting stockholders must follow the procedures
provided under Delaware law and are not entitled to make
an election. Promus stockholders must submit their
completed forms of election to the exchange agent, First
Union National Bank, by the election deadline of
5:00 p.m., New York City time, on November 29, 1999.
Stockholders electing the form of consideration to be
received must include the Promus stock certificates that
represent the shares subject to their election.
Promus stockholders who do any of the following will be
deemed to have made a non-election:
- fail to submit a form of election prior to the
election deadline;
- submit and then revoke their forms of election and
do not re-submit forms of election and other
required documents that are timely received by the
exchange agent; or
- submit forms of election without corresponding
certificates or a guarantee of delivery.
Stockholders who are deemed to have made a non-election
will receive cash or shares of Hilton common stock as
described below.
Cash Election (page 68)................... Promus stockholders who make a cash election will
receive $38.50 for each share of Promus common stock
covered by the cash election, subject to proration
described below.
Stock Election (page 68).................. Promus stockholders who have made a stock election will
receive shares of Hilton common stock for each share of
Promus common stock covered by the stock election,
subject
6
to proration described below. The number of shares of
Hilton common stock deliverable for each share of Promus
common stock will depend on an exchange ratio determined
by the average of the volume weighted average per share
sales price of Hilton common stock on the NYSE for 20
trading days selected by lot from the 30 trading days
ending on the fifth trading day before the closing of
the acquisition. The exchange ratio will be fixed as
follows:
- If the average Hilton stock price is between
$11.97 and $13.23, the exchange ratio will equal
$38.50 divided by the average Hilton stock price.
- If the average Hilton stock price is more than
$13.23, the exchange ratio will be 2.9096.
- If the average Hilton stock price is less than
$11.97, the exchange ratio will be 3.2158.
We will issue a press release prior to closing that
announces the exchange ratio.
Cash or Stock Proration (page 69)......... Hilton has agreed to pay for 55% of the outstanding
shares of Promus common stock in cash and to pay for the
remaining 45% of the outstanding shares of Promus common
stock in shares of Hilton common stock. If Promus
stockholders as a group elect to receive more cash or
more shares of Hilton common stock in the acquisition
than the amount available, those stockholders who make
an election for the oversubscribed category will not
receive the acquisition consideration entirely in the
form that they elect. Instead, their election will be
prorated as described below, so that on an overall basis
Hilton will pay the acquisition consideration in the
agreed-upon percentages of cash and shares of Hilton
common stock.
If Promus stockholders make cash elections for more than
55% of the outstanding shares of Promus common stock,
the acquisition consideration will be allocated as
follows:
- shares for which a stock election or a
non-election has been made will be converted into
Hilton common stock; and
- shares for which a cash election has been made
will be converted into both cash and the Hilton
common stock on a pro rata basis in accordance
with the merger agreement. The maximum permitted
number of shares, as described above, will be
converted into cash. The remaining shares will be
converted into shares of Hilton common stock.
7
If Promus stockholders make stock elections for more
than 45% of the outstanding shares of Promus common
stock, the acquisition consideration will be allocated
as follows:
- shares for which a cash election or a non-election
has been made will be converted into cash; and
- shares for which a stock election has been made
will be converted into both Hilton common stock
and cash on a pro rata basis in accordance with
the merger agreement. The maximum permitted number
of shares, as described above, will be converted
into shares of Hilton common stock. The remaining
shares will be converted into cash.
THE FORM OF THE CONSIDERATION ULTIMATELY RECEIVED BY A
PROMUS STOCKHOLDER WILL DEPEND UPON THE ELECTIONS MADE
BY OTHER PROMUS STOCKHOLDERS AND THE PRORATION
PROCEDURES DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS.
Promus Employee and Director Stock Options
(page 72)............................... Generally, each outstanding Promus employee and director
stock option will be canceled in the acquisition.
Payment for each stock option will equal an amount of
cash determined by multiplying:
- the excess, if any, of $38.50 over the exercise
price of the Promus stock option by
- the number of Promus shares the option holder
could have purchased, assuming full vesting of the
option, had the holder exercised the option in
full immediately prior to the effective time.
If the payment is made at the closing, Promus will pay
the holder of the stock option. If the payment is made
after the closing, Hilton will pay the holder.
Opinions of Financial Advisors (pages 39,
46 and 51).............................. In deciding to approve the proposed acquisition, the
Hilton board considered the opinion of Morgan Stanley &
Co. Incorporated that, as of the date of the opinion,
the consideration that Hilton will pay in the
acquisition pursuant to the merger agreement was fair to
Hilton from a financial point of view. In addition, the
Hilton board considered the opinion of Donaldson,
Lufkin & Jenrette Securities Corporation, that, as of
the date of the opinion, the consideration that Hilton
will pay in the acquisition, taken as a whole, was fair
to Hilton and its stockholders from a financial point of
view. The opinions are subject to the qualifications and
limitations referred to in their text. We attach copies
of the Morgan Stanley opinion as Appendix B and the DLJ
opinion as Appendix C and encourage you to read each of
them.
8
Promus' financial advisor, Salomon Smith Barney Inc.,
has given a written opinion to the Promus board that, as
of the date of the opinion, the acquisition
consideration for the Promus common stock, taken as a
whole, was fair to Promus stockholders from a financial
point of view. The opinion is subject to the
qualifications and limitations referred to in the
opinion. We attach a copy of the Salomon Smith Barney
opinion as Appendix D and encourage you to read it.
Conditions to Completing the Acquisition
(page 75)............................... Hilton and Promus will complete the acquisition only if
the conditions specified in the merger agreement are
either satisfied or waived. These conditions include:
- the Hilton stockholders and the Promus
stockholders approve the acquisition;
- there is no law or court order prohibiting the
acquisition;
- the representations and warranties of the
respective parties made in the merger agreement
remain accurate in all material respects, with
permitted exceptions;
- each of Hilton and Promus has performed in all
material respects all of its respective
obligations under the merger agreement;
- if the forward merger structure is used, Hilton
and Promus receive legal opinions as to tax
matters relating to the acquisition; and
- funds are available to Hilton in an amount
sufficient to pay the cash consideration
contemplated by the acquisition, to refinance
certain existing indebtedness of Promus and to pay
related fees and expenses, subject to specified
limitations.
Termination of the Merger Agreement
(page 75)............................... Both companies may mutually agree to terminate the
merger agreement at any time without completing the
acquisition. Either company may terminate the merger
agreement if:
(1) the acquisition is not completed by March 31,
2000, unless funds are not available to Hilton
because of a Year 2000 problem that causes a
material adverse change in the financial
markets, in which case the deadline is extended
to April 30, 2000. Neither Hilton nor Promus may
terminate the merger agreement on this basis,
however, if its breach of the merger agreement
results in the acquisition not being completed
by the applicable deadline;
(2) a court or other governmental authority issues a
final, non-appealable order prohibiting the
acquisition, or any law or regulation makes
completion of the
9
acquisition illegal. Neither Hilton nor Promus
may terminate the merger agreement on this
basis, however, if its breach of the merger
agreement results in the imposition of the order
or the application of the law or regulation to
the acquisition; or
(3) the Hilton stockholders or the Promus
stockholders do not approve the acquisition.
In addition, Hilton may terminate the merger agreement
if any of the following events occurs:
(4) any person or group of persons acting in
concert, other than Hilton or its affiliates,
acquires beneficial ownership of more than 50%
of the shares of Promus common stock;
(5) the Promus board of directors withdraws or
amends in a manner adverse to Hilton its
recommendation of the acquisition and approves a
proposal deemed by the Promus board of directors
to be superior to the Hilton acquisition, as
described under the "The Merger
Agreement--Termination of the Merger Agreement";
or
(6) Promus enters into or announces its intention to
enter into an agreement with a third party based
on a superior proposal.
Furthermore, Promus may terminate the merger agreement
if any of the following events occurs:
(7) the Promus board of directors approves a
superior, unsolicited proposal or withdraws or
amends in a manner adverse to Hilton its
recommendation of the acquisition, so long as
Promus has complied with the requirements of the
non-solicitation, board recommendation, notice
and termination fee provisions of the merger
agreement and Hilton has not offered adjustments
to the merger agreement that would allow the
Promus board of directors to recommend the
acquisition by Hilton; or
(8) the Hilton board of directors withdraws or
amends in a manner adverse to Promus its
recommendation of the acquisition.
Termination Fees and Expenses
(page 76)............................... Promus has agreed to pay Hilton a termination fee of
$75 million if:
- the merger agreement is terminated in the
circumstances described in paragraphs (4), (5),
(6) or (7) above;
10
- the merger agreement is terminated by Hilton under
the circumstances described in paragraph
(1) above and:
--prior to the termination, a third party has
made a proposal for an alternative transaction
with Promus and, after the proposal is made,
Promus materially and intentionally breaches
any of its material obligations under the
merger agreement; and
--within 12 months of the termination, Promus
enters into an agreement for or consummates an
alternative transaction with any third party;
or
- the merger agreement is terminated by Hilton
because the Promus stockholders do not approve the
merger agreement and:
--any person or group of persons acting in
concert, other than Hilton or its affiliates,
acquires beneficial ownership of 25% or more
of the outstanding shares of Promus common
stock and, within 12 months of termination of
the merger agreement, Promus enters into an
agreement for an alternative transaction with
that person or group; or
--prior to the Promus stockholder meeting, a
third party has made a proposal for an
alternative transaction with Promus and,
within 12 months of termination of the merger
agreement, Promus enters into an agreement for
or consummates an alternative transaction with
any third party.
Hilton has agreed to pay Promus a termination fee of
$150 million if Hilton or Promus terminates the merger
agreement in the circumstances described in paragraph
(1) above, and all of the following have occurred:
- funds have not been made available to Hilton in an
amount sufficient to pay the cash consideration,
to refinance certain Promus indebtedness and to
pay merger related fees and expenses;
- other conditions to the completion of the
acquisition specified in the merger agreement have
been satisfied; and
- the unavailability of the funds is not due to a
breach of any representation or warranty in
Hilton's financing agreements that is attributable
solely to facts and circumstances relating to
Promus.
11
No Solicitation (page 77)................. The merger agreement prohibits Promus from negotiating
or engaging in discussions with a third party regarding
an acquisition transaction with Promus unless:
- Promus has received an unsolicited proposal for
the transaction from that third party;
- Promus has notified Hilton about the proposal;
- the Promus board of directors determines in good
faith that, based on the terms and conditions
contained in the proposal, the proposal could
reasonably be expected to constitute a superior
proposal, as described in the merger agreement;
and
- the third party executes a confidentiality
agreement with terms substantially similar to
those contained in the confidentiality agreement
between Hilton and Promus.
Accounting Treatment (page 65)............ Hilton will treat the acquisition as a purchase for
accounting and financial reporting purposes.
Certain Federal Income Tax Consequences of
the Acquisition (page 60)............... The tax consequences resulting from the acquisition will
differ depending on whether the forward merger structure
or the reverse merger structure is used. Since the
structure that we will use to complete the acquisition
will depend on several factors, including, in
particular, the value of Hilton common stock on the
closing date, we will not know at the time of the
stockholder meeting which structure will be used. As a
result, Promus stockholders will not know which of the
alternative tax consequences described below will be
applicable to them at the time they vote on the
acquisition.
IF THE FORWARD MERGER STRUCTURE IS USED, THE ACQUISITION
WILL QUALIFY AS A REORGANIZATION UNDER SECTION 368(a) OF
THE INTERNAL REVENUE CODE. In that case, generally:
- a Promus stockholder who receives solely Hilton
common stock in exchange for shares of Promus
common stock will not recognize any gain or loss,
except for any gain or loss attributable to cash
received in lieu of fractional shares;
- a Promus stockholder who receives solely cash in
exchange for shares of Promus common stock will be
required to recognize gain, and should be
permitted to recognize loss, equal to the
difference between the amount of cash received by
the stockholder and the stockholder's adjusted tax
basis in the shares of Promus common stock that
the stockholder surrenders in the acquisition; and
12
- a Promus stockholder who receives both Hilton
common stock and cash in exchange for shares of
Promus common stock will not recognize loss, but
will recognize gain to the extent of the lesser
of:
-- the cash received; or
-- the excess of the sum of the fair market
value of the Hilton common stock and the amount
of cash received over the stockholder's
adjusted tax basis in the shares of Promus
common stock that the stockholder surrenders
in the acquisition.
Under certain circumstances, gain recognized by a Promus
stockholder may be treated as a dividend, and thus as
ordinary income, rather than as capital gain.
IF THE REVERSE MERGER STRUCTURE IS USED, THE ACQUISITION
WILL NOT QUALIFY AS A REORGANIZATION UNDER SECTION
368(a) OF THE INTERNAL REVENUE CODE, BUT RATHER WILL BE
TREATED AS A SALE OF PROMUS STOCK FULLY TAXABLE TO THE
PROMUS STOCKHOLDERS. In that case, each Promus
stockholder will recognize gain or loss equal to the
difference between:
- the cash received plus the fair market value of
the Hilton common stock received; and
- the stockholder's adjusted tax basis in the shares
of Promus common stock that the stockholder
surrenders in the acquisition.
We would use the reverse merger structure to avoid the
substantial corporate level tax that would result if the
acquisition were to be structured as a forward merger
and were to fail to satisfy the requirements for a
tax-free reorganization under Section 368(a) of the
Internal Revenue Code.
For further details, see "The Acquisition--Certain
Federal Income Tax Consequences of the Acquisition" on
page 60.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX
CONSEQUENCES OF THE ACQUISITION TO EACH STOCKHOLDER WILL
DEPEND ON THE STOCKHOLDER'S PARTICULAR FACTS AND
CIRCUMSTANCES. STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS TO UNDERSTAND FULLY THE TAX
CONSEQUENCES OF THE ACQUISITION.
Governmental and Regulatory Matters
(page 60)............................... We have filed the required notification under the
Hart-Scott-Rodino Act, and, on October 14, 1999, the
required waiting period was terminated.
13
OTHER MATTERS
Forward-Looking Statements May Prove
Inaccurate.............................. We have each made forward-looking statements in this
document that are subject to risks and uncertainties.
Forward-looking statements include expectations
concerning matters that are not historical facts. Words
such as "believes," "expects," "anticipates" or similar
expressions indicate forward-looking statements. For
more information regarding factors that could cause
actual results to differ from these expectations, you
should refer to "Risk Factors" on page 23.
Who Can Help Answer Your Questions........ If you have questions about the acquisition, you should
contact:
FOR HILTON STOCKHOLDERS:
D.F. King & Co.:
77 Water Street
New York, New York 10005
Telephone: (800) 714-3310
FOR PROMUS STOCKHOLDERS:
Morrow & Co., Inc.
445 Park Avenue
New York, New York 10022
Telephone: (800) 566-9061
14
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
HISTORICAL FINANCIAL INFORMATION
We are providing or incorporating by reference in this joint proxy
statement/prospectus selected historical financial information for Hilton and
Promus to help you in your analysis of the financial aspects of the acquisition.
We derived this information from the audited and unaudited financial
statements of Hilton and Promus for the periods presented. The information is
only a summary and you should read it together with the financial information
included or incorporated by reference in this joint proxy statement/ prospectus.
See "Where You Can Find More Information" on page 94.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
We are also providing unaudited pro forma financial information in this
joint proxy statement/ prospectus to show you how Hilton might have looked if
the acquisition had been completed on January 1, 1998 for results of operations
purposes and on June 30, 1999 for balance sheet purposes.
The pro forma financial information was prepared using the purchase method
of accounting.
If Hilton had actually completed the acquisition on those dates, the
acquired companies might have performed differently. You should not rely on the
pro forma financial information as an indication of the results that Hilton
would have achieved if the acquisition had taken place earlier or the future
results that Hilton will experience after completion of the acquisition.
15
SELECTED PRO FORMA FINANCIAL INFORMATION
In the table below, Hilton provides you with unaudited selected pro forma
financial information as if the acquisition had been completed on January 1,
1998 for results of operations purposes and as of June 30, 1999 for balance
sheet purposes.
This unaudited selected pro forma financial information should be read in
conjunction with the separate historical financial statements and accompanying
notes of Hilton and Promus that are incorporated by reference in this joint
proxy statement/prospectus. It is also important that you read the unaudited pro
forma financial information and accompanying discussion starting on page 81. You
should not rely on the unaudited selected pro forma financial information as an
indication of the results of operations or financial position that would have
been achieved if the acquisition had taken place earlier or of the future
results of operations or financial position of Hilton after completion of the
acquisition.
HILTON PROMUS HILTON
HISTORICAL HISTORICAL PRO FORMA(1)
----------- ----------- -------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED OR AS OF JUNE 30, 1999
RESULTS OF OPERATIONS:
Total revenue............................................ $1,014 547 1,561
Operating income......................................... 270 153 378
Income from continuing operations........................ 108 80(2) 120(2)
Income from continuing operations per share--Basic....... .42 .97 .32
Income from continuing operations per share--Diluted..... .41 .97 .32
Dividends per common share............................... .04 -- .04
OTHER OPERATING DATA:
EBITDA(3)................................................ $ 354 213 567
BALANCE SHEET:
Cash and equivalents..................................... $ 65 33 98
Total assets............................................. 4,203(4) 2,505 9,248(4)
Total debt............................................... 3,386(4) 911 6,195(4)
Total stockholders' equity............................... 213 1,092 1,238
Book value per common share.............................. .84 13.88 3.36
YEAR ENDED DECEMBER 31, 1998
RESULTS OF OPERATIONS:
Total revenue............................................ $1,769 1,107 2,876
Operating income......................................... 464 303 676
Income from continuing operations(5)..................... 188 154 200
Income from continuing operations per share--Basic....... .71 1.79 .52
Income from continuing operations per share--Diluted..... .71 1.78 .52
Dividends per common share............................... .32 -- .32
OTHER OPERATING DATA:
EBITDA(3)................................................ $ 596 419 1,015
- ------------------------
footnotes on following page
16
EQUIVALENT SHARE DATA
The following information shows the effect of the acquisition from the
perspective of an owner of Promus common stock. The information was computed by
multiplying the Hilton pro forma information by an assumed exchange ratio of
3.2158 shares of Hilton common stock for each share of Promus common stock.
SIX MONTHS ENDED
OR YEAR ENDED
AS OF JUNE 30, 1999 DECEMBER 31, 1998
------------------- -----------------
Equivalent income from continuing operations per
share--Basic........................................ $ 1.03 1.67
Equivalent income from continuing operations per
share--Diluted...................................... 1.03 1.67
Equivalent dividends per common share................ .13 1.03
Equivalent book value per common share............... 10.80 --
- --------------------------
(1) Pro forma results do not reflect any operational efficiencies, cost savings
associated with greater economies of scale or revenue enhancement
opportunities which Hilton expects to achieve after the acquisition. Hilton
expects to realize pre-tax annual revenue enhancements and pre-tax cost
savings, including operating efficiencies, totaling approximately
$90 million upon full integration of Promus. Hilton expects to realize
approximately $55 million of benefits in 2000, and the entire $90 million of
benefits beginning in 2001. However, the estimated benefits are based on
projections and assumptions, not actual experiences. As a result, Hilton's
ability to realize these benefits could be adversely impacted by
difficulties integrating Promus into Hilton, the inability to achieve
certain economies of scale or other risks associated with achieving
projected revenues and cost savings. Hilton cannot assure you that these
revenue enhancements and cost savings will be achieved.
(2) Includes after-tax non-recurring Promus charges totaling $5 million in
employment-related expenses associated with the management change following
the 1997 Promus/Doubletree merger.
(3) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items. EBITDA can be computed by adding depreciation, amortization,
interest and dividend income from investments related to operating
activities and non-cash items to operating income. EBITDA is presented
supplementally because management believes it allows for a more complete
analysis of results of operations. Non-cash items, such as asset write-downs
and impairment losses, are excluded from EBITDA as these items do not impact
EBITDA on a recurring basis. You should not consider this information as an
alternative to any measure of performance reported under generally accepted
accounting principles, such as operating income or income from continuing
operations, nor should you consider it as an indicator of the overall
financial performance of either Hilton or Promus before the acquisition or
after the acquisition. Our method of calculating EBITDA may be different
from methods used by other companies, and therefore comparability may be
limited.
(4) Includes $625 million of long-term debt which, although allocated under a
debt assumption agreement to Park Place Entertainment Corporation, remains
the legal obligation of Hilton. At the time of the spin-off of Hilton's
gaming operations to its stockholders on December 31, 1998, Park Place
assumed and agreed to pay 100% of the amount of each payment required to be
made by Hilton under the terms of the indentures governing Hilton's
$300 million 7.375% Senior Notes due 2002 and its $325 million 7% Senior
Notes due 2004. These notes remain in Hilton's long-term debt balance and a
long-term receivable from Park Place in an equal amount is included in
Hilton's consolidated balance sheet. If the interest rate on these notes
increases due to specified Hilton actions, Hilton will be required to
reimburse Park Place for the increase.
(5) Includes after-tax non-recurring Hilton charges totaling $10 million,
representing Hilton's proportionate share of costs associated with the
spin-off of Park Place, and after-tax non-recurring Promus net charges
aggregating $26 million, including a $27 million charge for severance and
employment related expenses associated with the 1997 Promus/Doubletree
merger, a $6 million charge for accrued severance and employment related
expenses associated with the resignations of Promus' Chief Executive Officer
and President in 1998, gains of $6 million on the sale of real estate and
securities and a gain of $1 million on the sale of excess joint venture
land.
17
SELECTED HISTORICAL FINANCIAL INFORMATION--HILTON
In the table below, Hilton provides you with its selected historical
financial data. Hilton prepared this information using its consolidated
financial statements as of the dates indicated and for each of the fiscal years
in the five-year period ended December 31, 1998 and the six-month periods ended
June 30, 1999 and 1998. Hilton derived the results of operations data below for
each of the five years in the period ended December 31, 1998, and the balance
sheet data at December 31, 1998 from financial statements audited by Arthur
Andersen LLP. Hilton derived the remaining data from unaudited financial
statements. In the opinion of Hilton management, the unaudited data reflect all
adjustments, consisting only of normal or recurring adjustments, necessary to
present the data fairly for each interim period.
When you read the selected historical financial information, you should read
along with it the historical financial statements and accompanying notes that
Hilton has included in its Annual Report on Form 10-K for the year ended
December 31, 1998. You can obtain this report by following the instructions
under "Where You Can find More Information" on page 94.
SIX MONTHS ENDED
OR AS OF JUNE 30, YEARS ENDED OR AS OF DECEMBER 31,
------------------- ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- --------- --------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS:
Total revenue.................. $1,014 823 1,769 1,475 947 715 622
Operating income............... 270 236 464 395 237 190 124
Income from continuing
operations................... 108 103 188(1) 183(2) 120(3) 88 43
Income from continuing
operations per
share--Basic................. .42 .39 .71 .68 .61 .46 .22
Income from continuing
operations per
share--Diluted............... .41 .39 .71 .68 .61 .45 .22
Dividends per common share..... .04 .16 .32 .32 .305 .30 .30
OTHER OPERATING DATA:
EBITDA(4)...................... $ 354 295 596 497 361 290 224
BALANCE SHEET:
Cash and equivalents........... $ 65 47
Total assets(5)................ 4,203 3,944
Total debt(5).................. 3,386 3,099
Total stockholders' equity..... 213 187
- ------------------------------
(1) Includes after-tax non-recurring charges totaling $10 million, representing
Hilton's proportionate share of costs associated with the spin-off of Park
Place on December 31, 1998.
(2) Includes after-tax non-recurring charges totaling $10 million, primarily
related to the write-off of net costs related to Hilton's efforts to acquire
ITT Corporation.
(3) Includes after-tax non-recurring charges totaling $24 million, primarily
related to the write-down of certain investments and notes receivable to
estimated fair market value.
(4) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items. EBITDA can be computed by adding depreciation, amortization,
interest and dividend income from investments related to operating
activities and non-cash items to operating income. EBITDA is presented
supplementally because management believes it allows for a more complete
analysis of results of operations. Non-cash items, such as asset write-downs
and impairment losses, are excluded from EBITDA as these items do not impact
operating results on a recurring basis. Hilton pre-tax non-cash items for
the year ended December 31, 1997 resulted in a
18
credit of $2 million, primarily from the reversal of a 1996 non-cash
write-down. Hilton pre-tax non-cash items for the year ended December 31,
1996 totaled $22 million and relate to the write-down of certain investments
and notes receivable to estimated fair market value. You should not consider
this information as an alternative to any measure of performance reported
under generally accepted accounting principles, such as operating income or
income from continuing operations, nor should you consider it as an
indicator of the overall financial performance of Hilton. Our method of
calculating EBITDA may be different from the methods used by other
companies, and therefore comparability may be limited.
(5) Includes $625 million of long-term debt which, although allocated under a
debt assumption agreement to Park Place, remains the legal obligation of
Hilton. At the time of the spin-off of Hilton's gaming operations to its
stockholders, Park Place assumed and agreed to pay 100% of the amount of
each payment required to be made by Hilton under the terms of the indentures
governing Hilton's $300 million 7.375% Senior Notes due 2002 and its
$325 million 7% Senior Notes due 2004. These notes remain in Hilton's
long-term debt balance and a long-term receivable from Park Place in an
equal amount is included in Hilton's consolidated balance sheet. If the
interest rate on these notes increases due to specified Hilton actions,
Hilton will be required to reimburse Park Place for the increase.
19
SELECTED HISTORICAL FINANCIAL INFORMATION--PROMUS
In the table below, Promus provides you with its selected historical
financial data. Promus prepared this information using its consolidated
financial statements as of the dates indicated and for each of the fiscal years
in the five-year period ended December 31, 1998 and the six-month periods ended
June 30, 1999 and 1998. The information below reflects the December 19, 1997,
merger between Promus and Doubletree Corporation. This merger was accounted for
as a pooling of interests, and all periods before and including fiscal 1997 were
restated to combine the historical results of Promus and Doubletree.
Promus derived the results of operations data below for each of the four
years in the period ended December 31, 1998, and the balance sheet data at
December 31, 1998 from financial statements audited by Arthur Andersen LLP, with
certain reliance placed on other auditors. Promus derived the remaining data
from unaudited financial statements. In the opinion of Promus' management, the
unaudited data reflect all adjustments, consisting only of normal or recurring
adjustments, necessary to present the data fairly for each interim period.
When you read the selected historical financial information, you should read
along with it the historical financial statements and accompanying notes that
Promus has included in its Annual Report on Form 10-K for the year ended
December 31, 1998. You can obtain this report by following the instructions
under "Where You Can Find More Information" on page 94.
SIX MONTHS ENDED
OR AS OF JUNE 30, YEARS ENDED OR AS OF DECEMBER 31,
-------------------- ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- -------- --------- --------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS:
Revenue.................. $ 547 545 1,107 1,038 560 422 327
Operating income......... 153 164 303 184 165 124 110
Income from continuing
operations............. 80(1) 88(2) 154(3) 95(4) 91(5) 62 50
Income from continuing
operations per share--
Basic.................. .97 1.02 1.79 1.10 1.25 .89(6) .73(6)
Income from continuing
operations per share--
Diluted................ .97 1.00 1.78 1.09 1.23 .88(6) .73(6)
Dividends per common
share.................. -- -- -- -- -- -- --
OTHER OPERATING DATA:
EBITDA(7)................ $ 213 221 419 325 231 170 147
BALANCE SHEET:
Cash and equivalents..... $ 33 6
Total assets............. 2,505 2,474
Total debt............... 911 771
Total stockholders'
equity................. 1,092 1,159
- ------------------------------
(1) Includes after-tax non-recurring charges totaling $5 million in
employment-related expenses associated with the management change following
the Promus/Doubletree merger.
(2) Includes after-tax non-recurring gains totaling $2 million, comprised of a
$1 million gain on the sale of excess joint venture land and the prior sale
of hotels and a $1 million gain on the sale of securities.
20
(3) Includes net after-tax non-recurring charges totaling $26 million, including
a $27 million charge for severance and employment related expenses
associated with the Promus/Doubletree merger, a $6 million charge for
accrued severance and employment related expenses associated with the
resignations of Promus' Chief Executive Officer and President, gains of
$6 million on the sale of real estate and securities and a gain of
$1 million on the sale of excess joint venture land.
(4) Includes net after-tax non-recurring charges totaling $47 million, including
a provision for business combination expenses of $81 million, a $7 million
break-up fee received in connection with the terminated Renaissance Hotel
Group transaction, $26 million of gains on the sale of real estate and
securities and other net gains of $1 million.
(5) Includes an after-tax non-recurring gain of $2 million on the sale of real
estate and securities.
(6) Before June 30, 1995, Promus was a division of The Promus Companies
Incorporated. In June 1995, Promus was spun off by its parent. For periods
before the spin-off, weighted average shares outstanding are assumed to be
equal to the actual shares outstanding at the spin-off. For the period
January 1, 1994 through June 30, 1994, the date of Doubletree's initial
public offering, shares outstanding were assumed to be equal to the number
of shares issued on June 30, 1994.
(7) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items. EBITDA can be computed by adding depreciation, amortization,
interest and dividend income from investments related to operating
activities and non-cash items to operating income. EBITDA is presented
supplementally because management believes it allows for a more complete
analysis of results of operations. Non-cash items, such as asset write-downs
and impairment losses, are excluded from EBITDA as these items do not impact
operating results on a recurring basis. Promus' pre-tax non-cash items for
the year ended December 31, 1997 totaled $32 million and relate to the
provision for business combination expenses. Promus' presentation of EBITDA
has been changed to conform with Hilton's presentation. You should not
consider this information as an alternative to any measure of performance
reported under generally accepted accounting principles, such as operating
income or income from continuing operations, nor should you consider it as
an indicator of the overall financial performance of Promus. Our method of
calculating EBITDA may be different from the methods used by other
companies, and therefore comparability may be limited.
21
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Hilton common stock is traded on the New York Stock Exchange under the
symbol "HLT" and Promus common stock is traded on the NYSE under the symbol
"PRH." The following table shows, for the periods indicated, the high and low
reported sales prices per share of Hilton common stock and Promus common stock
on the NYSE, as well as quarterly dividends paid per share of Hilton common
stock and Promus common stock. THE SALES PRICES FOR HILTON COMMON STOCK IN 1999
REFLECT THE HILTON COMMON STOCK TRADING ON A STAND-ALONE BASIS AFTER THE
SPIN-OFF OF PARK PLACE ENTERTAINMENT CORPORATION ON DECEMBER 31, 1998. No
information is provided for Promus prior to the merger of the former Promus
Hotel Corporation and Doubletree Corporation on December 19, 1997. The timing
and amounts of dividends have depended on each company's result of operations,
financial condition, cash requirements and other factors deemed relevant by its
board of directors. Hilton cannot assure you that dividends will be paid in the
future.
PROMUS HILTON
------------------------------- -------------------------------
PRICE RANGE OF PRICE RANGE OF
COMMON STOCK CASH COMMON STOCK CASH
------------------- DIVIDEND/ ------------------- DIVIDEND/
HIGH LOW SHARE HIGH LOW SHARE
-------- -------- --------- -------- -------- ---------
1997 QUARTER ENDED:
March 31............................ N/A N/A N/A $30.00 $24.00 $0.08
June 30............................. N/A N/A N/A 30.13 24.25 0.08
September 30........................ N/A N/A N/A 34.06 26.75 0.08
December 31......................... $43.13 $36.50 $0.00 35.81 26.06 0.08
1998 QUARTER ENDED:
March 31............................ 49.63 40.75 0.00 35.50 27.50 0.08
June 30............................. 48.31 37.13 0.00 34.00 28.13 0.08
September 30........................ 43.63 26.50 0.00 29.38 16.56 0.08
December 31......................... 36.63 20.56 0.00 22.81 12.50 0.08
1999 QUARTER ENDED:
March 31............................ 38.50 28.75 0.00 16.69 13.81 0.02
June 30............................. 37.75 23.63 0.00 16.94 13.38 0.02
September 30........................ 35.19 24.69 0.00 15.00 9.75 0.02
December 31 (through October 18).... 32.81 31.63 N/A 10.13 8.75 N/A
22
RISK FACTORS
You should consider the following risk factors, together with the other
information included and incorporated by reference in this joint proxy
statement/prospectus, in deciding whether to vote to approve the acquisition.
RISKS RELATING TO THE ACQUISITION
WE MAY EXPERIENCE DIFFICULTIES INTEGRATING PROMUS WITH HILTON
After the acquisition's completion, we intend to integrate the operations of
Promus with those of Hilton. We cannot assure you that Hilton will be able to
integrate the operations without encountering difficulties. These difficulties
could include integrating different business strategies with respect to
franchising, managing, owning and leasing hotels; integrating personnel with
disparate business backgrounds and corporate cultures; integrating different
reservations systems and other technology; and managing relationships with hotel
owners, franchisees and other business parties. The integration of operations
may temporarily distract management from the day-to-day business of Hilton after
the acquisition. Hilton also may lose key Promus or Hilton personnel because of
the acquisition and the consolidation of Promus' corporate headquarters with
Hilton's. For these reasons, Hilton cannot assure you that it will be able
successfully to integrate the Promus operations in the anticipated time frame.
WE MAY NOT ACHIEVE THE EXPECTED SYNERGIES FROM THE ACQUISITION
Hilton's management believes that the acquisition of Promus will allow
Hilton to achieve approximately $90 million of pre-tax annual synergistic
benefits once Promus is fully integrated. Hilton expects to realize
approximately $55 million of benefits in 2000, and the entire $90 million of
benefits beginning in 2001. The anticipated benefits relate to operational
efficiencies, cost savings associated with greater economies of scale and
revenue enhancement opportunities. However, the estimated benefits are based on
projections and assumptions, not actual experience. As a result, Hilton cannot
assure you that it will realize the anticipated benefits. Hilton's ability to
realize these benefits could be adversely impacted by difficulties in
integrating Promus into Hilton, the inability to achieve certain economies of
scale and other risks associated with achieving expected revenue enhancements
and cost savings.
PROMUS STOCKHOLDERS MAY RECEIVE HILTON COMMON STOCK THAT HAS A VALUE OF LESS
THAN $38.50
No assurances can be given to Promus stockholders of the value of the shares
of Hilton common stock to be issued in the merger. Upon completion of the
acquisition, 45% of the shares of Promus common stock will be exchanged for a
number of shares of Hilton common stock that will be determined as described in
this joint proxy statement/prospectus, but in no case more than 3.2158 shares of
Hilton common stock per Promus share. The 3.2158 exchange ratio will apply if
the average Hilton stock price is less than $11.97 per share. Therefore, if the
value of Hilton common stock is less than $11.97 per share, the value of Hilton
common stock exchanged for Promus shares will be less than $38.50 per share. The
volume weighted average per share sales price of the Hilton stock on
October 18, 1999 was $8.97. Neither party is permitted to terminate the merger
agreement because of changes in the market price of Hilton or Promus common
stock. You are urged to obtain recent market quotations for Hilton and Promus
common stock. We cannot predict or give any assurances as to the market price of
Hilton common stock at any time before or after the acquisition.
PROMUS STOCKHOLDERS MAY RECEIVE ACQUISITION CONSIDERATION IN A FORM THAT
DIFFERS FROM THEIR ELECTIONS OF CASH OR STOCK CONSIDERATION
Although Promus stockholders may elect to receive cash, Hilton common stock,
or a combination of cash and stock in exchange for their shares of Promus common
stock, 55% of the outstanding shares
23
of Promus common stock will be converted into cash and 45% of the outstanding
shares of Promus common stock will be converted into Hilton common stock. If a
Promus stockholder elects to receive cash, and cash elections are
oversubscribed, then the holder will receive a portion of the acquisition
consideration in shares of Hilton common stock. As described in the preceding
risk factor, the value of the stock consideration delivered at closing may be
below $38.50 per Promus share. Similarly, if a holder elects to receive Hilton
common stock and stock elections are oversubscribed, then the holder will
receive a portion of the acquisition consideration in cash. The form of the
consideration ultimately received by a Promus stockholder will depend upon the
election and proration procedures described in this joint proxy
statement/prospectus and the elections made by other Promus stockholders.
PROMUS STOCKHOLDERS WILL NOT KNOW THE FEDERAL INCOME TAX CONSEQUENCES TO
THEM OF THE ACQUISITION AT THE TIME THEY MAKE AN ELECTION AS TO THE FORM OF
CONSIDERATION OR AT THE TIME THEY VOTE
The federal income tax consequences of the acquisition to each Promus
stockholder will vary depending on whether we complete the acquisition through
the use of the forward merger structure or the reverse merger structure. These
tax consequences will also vary depending on whether a Promus stockholder
receives cash, stock, or a combination of cash and stock in exchange for the
stockholder's shares of Promus common stock. At the time that a Promus
stockholder makes an election as to the form of the consideration to be received
in the acquisition and at the time that the stockholder votes on the
acquisition, the stockholder will not know if, or to what extent, the
consideration proration procedures will be applicable. Therefore, a Promus
stockholder will not know at those times the extent to which the stockholder's
elected forms of acquisition consideration will be given effect. Additionally,
at the time of making the election and voting on the acquisition, the Promus
stockholders will not know which of the two alternative structures we will use
to complete the acquisition. Accordingly, although the federal tax treatment of
both of these alternative structures is described in this joint proxy
statement/prospectus, the actual federal income tax consequences to each Promus
stockholder will not be ascertainable at that time. Based on the volume weighted
per share sales price of Hilton stock of $8.97 on October 18, 1999, if the
closing had occurred on that date, we would have used the reverse merger
structure. However, the structure actually used will not be determined until the
closing date.
THIS ACQUISITION MAY LIMIT HILTON'S ABILITY TO OPERATE THE COMBINED BUSINESS
IN SOME GEOGRAPHIC AREAS
A number of Hilton's and Promus' franchise, management and license
agreements purport to restrict Hilton's or Promus' right to own, manage or
franchise additional hotels, or in some cases brands, in a specified geographic
area. After the acquisition, Hilton will own, manage or franchise additional
hotels in some of these areas and, consequently, may be in violation of some of
these purported restrictions. If Hilton is unable to renegotiate successfully or
otherwise resolve the effects of these restrictions, the agreements may be
terminated, Hilton may be required to pay monetary damages or Hilton may be
required to sell certain of these hotels. We cannot predict or give any
assurances that Hilton will be able to renegotiate successfully or otherwise
resolve the effects of these restrictions. See "The Acquisition--Recent
Litigation" at page 66 for a description of a recently filed lawsuit which
alleges that the acquisition will violate the territorial restriction in one of
Hilton's hotel management agreements.
IF SUFFICIENT FUNDS ARE NOT AVAILABLE TO HILTON, THE ACQUISITION WILL LIKELY
NOT BE CONSUMMATED
The acquisition's completion is conditioned upon funds being available to
Hilton in an amount sufficient to pay the cash component of the consideration to
the Promus stockholders, to refinance certain existing indebtedness of Promus
and to pay fees and expenses. If these funds are not available and Hilton is not
in material breach of the financing-related provisions of the merger agreement
or the provisions of Hilton's financing agreements, Hilton will not be required
to complete the acquisition. Hilton has obtained a fully underwritten commitment
from Bank of America N.A. for financing that,
24
together with existing credit capacity and available cash, Hilton believes is
sufficient to complete the acquisition. That commitment is subject to customary
closing conditions, including a provision that no material adverse change in or
material disruption of conditions in the financial, banking or capital markets
has occurred. We cannot assure you that all of the conditions to the
consummation of the financing will be met. We expect to close the acquisition
before December 31, 1999. We cannot predict what impact the Year 2000 issue,
relating to the ability of computer software, hardware and hardware systems to
properly process data containing dates on or after January 1, 2000, may have on
the financial markets generally. If the financing under the commitment were not
available, Hilton would attempt to obtain financing from other sources, although
Hilton cannot assure you that it would be able to do so on favorable terms or at
all. If Hilton's costs of financing are greater than anticipated, its future
results may be adversely affected. If we do not complete the acquisition because
sufficient funds are not available to Hilton other than as a result of a breach
of any representation or warranty attributable solely to facts and circumstances
relating to Promus, Hilton would be obligated to pay Promus a fee of
$150 million if other conditions to the closing of the acquisition that are
specified in the merger agreement have been satisfied. For further information,
see "The Merger Agreement--Termination Fees and Expenses" on page 76.
WE CANNOT ASSURE YOU THAT THIS ACQUISITION WILL NOT IMPACT THE TAX
CONSEQUENCES OF HILTON'S 1998 SPIN-OFF OF PARK PLACE
On December 31, 1998, Hilton distributed the stock of Park Place
Entertainment Corporation, then a wholly-owned subsidiary of Hilton, to its
stockholders. Hilton received a ruling from the Internal Revenue Service to the
effect that the Park Place distribution was tax-free to Hilton and its
stockholders pursuant to Sections 355(a) and (c) of the Internal Revenue Code.
However, despite that ruling, the Park Place distribution would not be a
tax-free distribution as far as Hilton is concerned if the distribution were
deemed to be part of a plan or series of related transactions, pursuant to which
one or more persons acquired, directly or indirectly, stock representing a 50%
or greater interest in Hilton or Park Place, as set forth in Section 355(e) of
the Internal Revenue Code. Hilton has received an opinion from its counsel to
the effect that the acquisition will not cause the Park Place distribution to
fail to qualify as a tax-free transaction based on the application of Section
355(e) of the Internal Revenue Code. Moreover, as a condition to the obligation
of Promus to complete the acquisition, the opinion must be confirmed as of the
closing of the acquisition. In rendering the tax opinions, counsel has relied
and will rely on factual representations and statements made by Hilton. Any
inaccuracy or change with respect to the factual representations or statements
could adversely affect the conclusions reached in the opinions. The tax opinion
received at signing does, and the tax opinion to be delivered at closing will,
represent tax counsel's best judgment as to the effect of the acquisition on the
Park Place distribution, but will not be binding on the Internal Revenue
Service. There can be no assurance that the Internal Revenue Service will not
contest the conclusions reached in the opinions of counsel. If Hilton's
acquisition of Promus or other transactions involving acquisition of the stock
or assets of Hilton or Park Place were to affect the tax-free nature of the Park
Place distribution, Hilton would be subject to tax on the gain inherent in the
stock of Park Place at the time of the distribution. Hilton would, however, be
entitled to indemnification from Park Place if Park Place entered into a
transaction that caused the distribution to fail to comply with Section 355.
PROMUS STOCKHOLDERS WILL HAVE A REDUCED OWNERSHIP AND VOTING INTEREST AFTER
THE ACQUISITION
After the acquisition's completion, Promus stockholders will own a
significantly smaller percentage of Hilton than they currently own of Promus.
Consequently, Promus stockholders may be able to exercise less influence over
the management and policies of Hilton than they currently exercise over the
management and policies of Promus.
25
PROMUS' DIRECTORS AND OFFICERS HAVE INTERESTS THAT DIFFER IN SOME RESPECTS
FROM PROMUS STOCKHOLDERS
In considering the recommendation of the Promus board of directors to
approve the acquisition, Promus stockholders should consider that some of
Promus' directors and officers have interests in the acquisition that differ
from, or are in addition to, their interests as Promus stockholders. Promus'
directors and officers may receive benefits from the acquisition not available
to Promus stockholders generally. These benefits include the receipt of cash in
connection with Promus stock options, potential payments under Promus' severance
agreements and the continuation of existing indemnification policies and
agreements. These and additional interests are described under the headings "The
Acquisition--Interests of Certain Persons in the Acquisition" on page 56 and
"Hilton After the Acquisition--Management" on page 78.
RISKS RELATING TO THE BUSINESS OF HILTON AFTER THE ACQUISITION
HILTON WILL HAVE TO COMPETE FOR CUSTOMERS, MANAGEMENT CONTRACTS, LEASES AND
FRANCHISE AGREEMENTS
Hilton's hotels will compete for customers with a wide range of lodging
facilities offering full-service, limited-service and all-suite lodging options
to the public. Companies in the lodging industry compete based on factors such
as room rates, quality of accommodations, name recognition, service levels,
marketing programs and convenience of location. We cannot assure you that our
competitors will not significantly expand or improve facilities, adjust prices
or implement new or improved marketing programs in markets in which Hilton's
hotels compete so that Hilton's operations are adversely affected. Hilton also
will compete for management contracts, leases and franchise agreements with
other hotel management companies and national brand franchisers, including
Marriott, Starwood, Hyatt, Cendant and Wyndham, as well as hotel management
companies, including some that do not have their own brand. We cannot assure you
that Hilton will be successful in retaining current, or competing for
additional, management contracts, leases or franchise agreements.
HILTON MAY EXPERIENCE ADVERSE EFFECTS OR INCUR LIABILITY AS A RESULT OF ITS
OWNERSHIP AND LEASING OF REAL ESTATE
Hilton owns and leases, and will continue to own and lease, hotels and will
therefore be subject to varying degrees of risk generally related to leasing and
owning real estate. In addition to general risks related to the lodging
industry, these risks include liability for long-term lease obligations, changes
in national, regional and local economic conditions, local real estate market
conditions, changes in interest rates and in the availability, cost and terms of
financing, the potential for uninsured casualty and other losses, the impact of
present or future environment legislation and compliance with environmental
laws, and adverse changes in zoning laws and other regulations, many of which
are beyond the control of Hilton. Additionally, real estate investments are
relatively illiquid, which means that the ability of Hilton to vary its
portfolio of hotels in response to changes in economic and other conditions may
be limited.
Under various federal, state, and local environmental laws and regulations,
a current or previous owner, lessee or operator of real property may be liable
for the costs of removal or remediation of hazardous or toxic substances on,
under or in such property. These laws often impose liability whether or not the
owner, lessee or operator knew of or was responsible for the presence of such
hazardous or toxic substances. For example, liability may arise as a result of
the historical use of a site or from the migration of contamination from
adjacent or nearby properties. Any such contamination or liability may also
reduce the value of the property. Additionally, environmental laws govern the
removal, encapsulation or disturbance of asbestos-containing materials when
those materials are in poor condition or in the event of a building remodeling,
renovation or demolition. These laws and common law principles could be used to
impose liability for the release of asbestos-containing materials into the air,
and third parties may seek recovery from owners or operators of real properties
for personal injury
26
associated with exposure to such materials. In connection with the ownership,
lease or operation of hotels, including properties managed or franchised by
Hilton or Promus, Hilton may be potentially liable for any such costs. While we
are currently involved in several remedial projects, we are not currently aware
of any obligations to perform any remediation that will have a material adverse
effect on Hilton. We cannot assure you, however, that Hilton's or Promus'
properties have not been or will not be adversely affected by the historical or
current uses of such properties or the activities in the vicinity of such
properties or that the potential liability resulting from non-compliance or
other claims relating to environmental matters will not have a material adverse
effect on Hilton.
HILTON'S BUSINESS WILL CONTINUE TO BE REGULATED
The lodging industry is subject to federal, state and local government
regulations, including those relating to the preparation and sale of food and
beverages, such as health and liquor license laws, and building and zoning
requirements. Also, Hilton and its customers are subject to laws governing their
relationships with employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. Hilton will also be subject to
federal regulations and state laws that govern the offer and sale of franchises,
including state laws that require approvals before franchises can be offered or
sold in that state. The failure to obtain or retain liquor licenses or approvals
to sell franchises, or an increase in the minimum wage rate, employee benefit
costs or other costs associated with employees, could harm Hilton.
Under the Americans with Disabilities Act of 1990, all public accommodations
are required to meet federal requirements related to access and use by disabled
persons. We believe that the hotels that we own or that are under our management
are substantially in compliance with these requirements. However, a
determination that these hotels are not in compliance with the law could result
in the imposition of fines, an award of damages to private litigants or
significant expense to Hilton in bringing these hotels into compliance.
Hilton operates a riverboat casino in Kansas City, Missouri, which it has
agreed to sell to a third party. Hilton also owns a 50% interest in the
consortium that operates the Casino Windsor in Windsor, Ontario, Canada. These
operations are subject to regulation by the Missouri Gaming Commission and the
Ontario Alcohol and Gaming Commission. These regulations are more fully
described in Hilton's filings with the SEC. For information on how you can
obtain copies of these filings, see "Where You Can Find More Information" on
page 94 of this joint proxy statement/prospectus.
27
THE MEETINGS--GENERAL PROXY INFORMATION
THE HILTON STOCKHOLDERS MEETING
GENERAL; DATE, TIME AND PLACE OF THE SPECIAL MEETING
Hilton's board of directors is sending this joint proxy statement/prospectus
to Hilton's stockholders in connection with the Hilton board's solicitation of
proxies for use at the special meeting of Hilton stockholders to be held on
November 30, 1999, at 10:00 a.m., local time, at:
Hilton Beverly Hills
9876 Wilshire Boulevard
Beverly Hills, California 90210
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, Hilton stockholders will be asked:
- to approve the merger agreement and the issuance of Hilton common stock in
the acquisition.
- to approve the amendment to Hilton's certificate of incorporation to
increase the authorized number of shares of Hilton common stock from
400 million shares to 500 million shares. This is designed to allow for
future stock issuances by Hilton for purposes such as raising funds to
repay debt, making acquisitions or granting employee incentives. Assuming
that approximately 113 million shares are issued in the acquisition,
Hilton would have approximately 368 million shares of common stock
outstanding. If approved, the amendment to the certificate of
incorporation will take effect only if the acquisition is completed.
- to approve an amendment to Hilton's by-laws to change the authorized
number of directors from the fixed number of 12 to a range of 10 to 20,
with the exact number to be set from time to time by the board of
directors. The amendment to Hilton's by-laws is designed to provide Hilton
greater flexibility in the composition of its board of directors. If
Hilton stockholders approve the amendment to the by-laws, Hilton intends
to set the authorized number of directors at 14 and add to its board two
new directors chosen from Promus' current board. If approved, the
amendment to the bylaws will take effect regardless of the outcome of the
votes on the acquisition and the amendment to Hilton's certificate of
incorporation.
- to transact other business that properly comes before the special meeting
or any postponements or adjournments of the special meeting.
APPROVAL OF THE MERGER AGREEMENT AND COMPLETION OF THE ACQUISITION ARE NOT
DEPENDENT ON APPROVAL OF THE PROPOSED AMENDMENTS TO THE HILTON CERTIFICATE OF
INCORPORATION AND BYLAWS.
RECORD DATE FOR VOTING ON THE ACQUISITION; STOCKHOLDERS ENTITLED TO VOTE
Only Hilton stockholders of record at the close of business on October 15,
1999 are entitled to notice of and to vote at the special meeting. As of the
close of business on that record date, there were 254,978,461 shares of Hilton
common stock outstanding and entitled to vote, which were held of record by
11,533 stockholders. Each Hilton stockholder is entitled to one vote for each
share of Hilton common stock held as of the record date.
SECURITY OWNERSHIP
Hilton's previous SEC filings contain information on the security ownership
of certain beneficial owners and the security ownership of management. For
information on how you may obtain copies of these filings, please see the
section entitled "Where You Can Find More Information" on page 94.
28
VOTING AND REVOCATION OF PROXIES
The proxy for the Hilton stockholders meeting is solicited on behalf of
Hilton's board of directors. Hilton stockholders are requested to complete, date
and sign the Hilton proxy and promptly return it in the accompanying envelope or
otherwise mail it to Hilton. All properly executed proxies received by Hilton
before the special meeting that are not revoked will be voted at the special
meeting in accordance with the instructions indicated on the proxies or, if no
direction is indicated, to approve the merger agreement and the issuance of
Hilton common stock in the acquisition and the amendments to Hilton's
certificate of incorporation and by-laws. Hilton stockholders may also vote by
calling the toll-free telephone number on the proxy card and following the
instructions on the proxy card.
A Hilton stockholder that has given a proxy may revoke it at any time before
it is exercised at the special meeting by doing any of the following:
- delivering to the Secretary of Hilton a written notice, bearing a date
later than the date of the proxy, stating that the proxy is revoked;
- signing and delivering a proxy relating to the same shares and bearing a
later date than the date of the previous proxy, or submitting a telephonic
proxy at a later date, before the vote at the special meeting; or
- attending the special meeting and voting in person.
PROXY SOLICITATION
In addition to this mailing, Hilton employees may solicit proxies
personally, electronically or by telephone. Hilton is also paying D. F. King &
Co. a fee of $13,500 plus expenses to help with the solicitation.
STOCKHOLDER VOTE REQUIRED FOR HILTON PROPOSALS
Hilton stockholders' approval of the merger agreement and the issuance of
Hilton common stock in the acquisition requires the affirmative vote of the
holders of a majority of the shares of Hilton common stock represented at the
special meeting. Hilton stockholders' approval of the amendment to Hilton's
certificate of incorporation requires the affirmative vote of the holders of a
majority of the outstanding shares of Hilton common stock. Hilton stockholders'
approval of the amendment to the by-laws requires the affirmative vote of the
holders of 75% of the outstanding shares of Hilton common stock.
Abstentions and broker non-votes are not counted as voting with respect to
the approval of the merger agreement and the issuance of shares and will have no
effect on this vote. Abstentions and broker non-votes are not counted as
affirmative votes with respect to the proposed amendment to Hilton's certificate
of incorporation and will have the same effect as votes against approval of the
amendment. Abstentions are not counted as affirmative votes with respect to the
proposed amendment to Hilton's by-laws and will have the same effect as votes
against approval of the amendment.
In addition, the required vote of the Hilton stockholders with respect to
the proposed amendments to the certificate of incorporation and the by-laws is
based upon the number of outstanding shares of Hilton common stock rather than
upon the shares actually voted in person or by proxy at the special meeting.
Therefore, if a stockholder fails either to submit a proxy or to vote in person
at the special meeting, it will have the same effect as a vote against approval
of the amendments.
HILTON BOARD RECOMMENDATION
HILTON'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ACQUISITION AND
BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE
ACQUISITION IS IN THE BEST INTERESTS OF, HILTON AND ITS
29
STOCKHOLDERS. HILTON'S BOARD HAS ALSO UNANIMOUSLY APPROVED THE AMENDMENTS TO
HILTON'S CERTIFICATE OF INCORPORATION AND BY-LAWS. HILTON'S BOARD OF DIRECTORS
THEREFORE UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF HILTON COMMON STOCK VOTE TO
APPROVE THE MERGER AGREEMENT AND THE ISSUANCE OF HILTON COMMON STOCK IN THE
ACQUISITION AND THE AMENDMENTS TO HILTON'S CERTIFICATE OF INCORPORATION AND BY-
LAWS.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE HILTON STOCKHOLDERS. ACCORDINGLY, HILTON'S STOCKHOLDERS ARE URGED TO READ
AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR VOTE BY TELEPHONE.
THE PROMUS STOCKHOLDERS MEETING
GENERAL; DATE, TIME AND PLACE OF THE SPECIAL MEETING
Promus' board of directors is sending this joint proxy statement/prospectus
to Promus' stockholders in connection with the Promus board's solicitation of
proxies for use at the special meeting of Promus stockholders to be held on
November 30, 1999, at 1:00 p.m., local time, at:
Fogelman Executive Center
Room 136, Lower Level
The University of Memphis
330 Deloach Street
Memphis, Tennessee 38152
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, Promus stockholders will be asked to approve the
acquisition and the merger agreement and to transact such other business as may
properly come before the special meeting or any postponements or adjournments of
the special meeting.
SECURITY OWNERSHIP
Promus' previous SEC filings contain information on the security ownership
of certain beneficial owners and the security ownership of management. For
information on how you may obtain copies of these filings, please see the
section entitled "Where You Can Find More Information" on page 94.
RECORD DATE FOR VOTING ON THE ACQUISITION; STOCKHOLDERS ENTITLED TO VOTE
Only Promus stockholders of record at the close of business on October 15,
1999 are entitled to notice of and to vote at the special meeting. As of the
close of business on that record date, there were 78,692,352 shares of Promus
common stock outstanding and entitled to vote, which were held of record by
9,907 stockholders. Each Promus stockholder is entitled to one vote for each
share of Promus common stock held as of the record date.
VOTING AND REVOCATION OF PROXIES
The proxy for the Promus stockholders meeting is solicited on behalf of
Promus' board of directors. Promus stockholders are requested to complete, date
and sign the Promus proxy and promptly return it in the accompanying envelope or
otherwise mail it to Promus. All properly executed proxies received by Promus
before the special meeting that are not revoked will be voted at the special
meeting in accordance with the instructions indicated on the proxies or, if no
direction is indicated, to approve the acquisition. Promus stockholders may also
vote by calling the toll-free telephone number on the proxy card and following
the instructions on the proxy card.
30
A Promus stockholder that has given a proxy may revoke it at any time before
it is exercised at the special meeting by doing any of the following:
- delivering to the Secretary of Promus a written notice, bearing a date
later than the date of the proxy, stating that the proxy is revoked;
- signing and delivering a proxy relating to the same shares and bearing a
later date than the date of the previous proxy or voting by telephone at a
later date, before the vote at the special meeting; or
- attending the special meeting and voting in person.
PROXY SOLICITATION
In addition to this mailing, Promus employees may solicit proxies
personally, electronically or by telephone. Morrow & Co., Inc. has also been
engaged to assist with proxy solicitation. Morrow & Co., Inc. was previously
engaged by Promus to perform strategic consulting, stock watch/nominee
identification and related consulting services for a fee of $125,000.
Subsequently, Morrow & Co., Inc. agreed to perform proxy solicitation services
at no additional charge other than reimbursement of out-of-pocket expenses.
STOCKHOLDER VOTE REQUIRED TO APPROVE THE ACQUISITION
Promus stockholders' approval of the acquisition requires the affirmative
vote of the holders of a majority of the outstanding shares of Promus common
stock. Abstentions and broker non-votes are not affirmative votes and will have
the same effect as votes against approval of the acquisition. IN ADDITION, THE
REQUIRED VOTE OF THE PROMUS STOCKHOLDERS IS BASED UPON THE NUMBER OF OUTSTANDING
SHARES OF PROMUS COMMON STOCK RATHER THAN UPON THE SHARES ACTUALLY VOTED IN
PERSON OR BY PROXY AT THE SPECIAL MEETING. THEREFORE, IF A STOCKHOLDER FAILS
EITHER TO SUBMIT A PROXY OR TO VOTE IN PERSON AT THE SPECIAL MEETING, IT WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST APPROVAL OF THE ACQUISITION.
PROMUS BOARD RECOMMENDATION
PROMUS' BOARD OF DIRECTORS HAS APPROVED THE ACQUISITION AND BELIEVES THAT
THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE ACQUISITION IS IN
THE BEST INTERESTS OF, PROMUS AND ITS STOCKHOLDERS. PROMUS' BOARD OF DIRECTORS
THEREFORE RECOMMENDS THAT THE HOLDERS OF PROMUS COMMON STOCK VOTE TO APPROVE THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE PROMUS STOCKHOLDERS. ACCORDINGLY, PROMUS' STOCKHOLDERS ARE URGED TO READ
AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR VOTE BY TELEPHONE.
PROMUS STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. Instead, Promus stockholders who make an election as to the form of
consideration that they are to receive should send in their stock certificates
with their completed forms of election and letters of transmittal, which are
being distributed in a separate mailing. Stockholders who do not elect the form
of consideration to be received should hold their stock certificates until after
the closing, when they will receive a letter of transmittal instructing them on
how to exchange their certificates for acquisition consideration. For more
information regarding the procedures for completing the forms of election and
exchanging Promus stock certificates for Hilton stock certificates, please see
the section entitled "The Merger Agreement--Election and Proration" on page 68.
31
THE ACQUISITION
GENERAL
Each of our boards of directors has approved the merger agreement, which
provides for an acquisition of Promus by Hilton. As a result of the acquisition,
Promus stockholders will receive in the aggregate for their shares
approximately:
- $1.66 billion in cash; and
- 113 million shares of Hilton common stock; this number of shares is based
on what the exchange ratio would be if the average Hilton stock price were
$9.00, which was the closing price on October 18, 1999.
BACKGROUND OF THE ACQUISITION
Hilton has from time to time considered expanding its operations through
acquisitions of other lodging companies, including Promus. On April 14, 1999,
Stephen Bollenbach, Hilton's President and Chief Executive Officer, and Matthew
Hart, Hilton's Executive Vice President, Chief Financial Officer and Treasurer,
met at Hilton's initiative with Norman Blake, Promus' Chairman, President and
Chief Executive Officer, and Dan Hale, Promus' Executive Vice President and
Chief Financial Officer. The Hilton representatives expressed an interest in
exploring a business combination of the two companies. Mr. Blake indicated that
Promus was not interested in pursuing a transaction, and no further contact
occurred between Hilton and Promus until July 1999.
On May 25, 1999, Promus announced that it had lowered its earnings
expectation for 1999 as a result of softening market conditions, costs to be
incurred as a result of repositioning both the Doubletree and Red Lion brands
and deteriorating performance of Doubletree and Red Lion hotels. Promus' stock
price declined from $30.50 on May 24 to a low of $23.75 on June 2, 1999.
In light of the Promus announcement, Hilton again reviewed a possible
acquisition of Promus. From July 6, 1999 to July 15, 1999, Hilton acquired
500,000 shares of Promus common stock in the open market, for a total price of
approximately $14.2 million.
Hilton sent a letter dated July 16, 1999 to Mr. Blake, in which Hilton
discussed a potential acquisition of Promus. The proposed purchase price was
$37.00 per share, which was a 32% premium over the closing price of Promus stock
on July 15, 1999. Hilton proposed paying for the acquisition with 50% cash and
50% Hilton stock. On July 19, 1999, Mr. Blake informed Mr. Bollenbach that a
Promus board meeting was scheduled for July 29 and 30, 1999, and that the Hilton
proposal would be reviewed with the Promus board at that meeting in conjunction
with the already scheduled presentations of Promus's new operating and strategic
plan. Mr. Blake informed the Promus board of the Hilton proposal at a special
meeting held on July 20, 1999.
On July 29, the Promus board of directors held a regular meeting at which,
among other things, the Promus board received a presentation from management
regarding a new operating and strategic plan for Promus. The Promus board of
directors met again the following day to continue discussions about the
strategic plan and also to discuss the proposal outlined in Hilton's July 16th
letter. At that meeting, the Promus board of directors determined not to proceed
with Hilton's proposal and instructed Promus management to explore Promus'
strategic alternatives, including remaining independent and third party
transactions that might further Promus' strategic goals and the interests of
Promus and its stockholders.
On August 2, 1999, Mr. Blake called Mr. Bollenbach and said that Hilton's
proposal had been rejected by the Promus board. Later that day, Hilton faxed a
letter to Promus indicating that Hilton intended to issue a press release
regarding Hilton's recent acquisition of Promus shares, Hilton's intent
32
to buy more shares and its interest in Promus. After discussion between
Mr. Bollenbach and Mr. Blake, Hilton agreed not to issue the proposed press
release at that time.
During the week of August 2nd, Promus management and Salomon Smith Barney,
Promus' financial advisor, contacted a number of companies in the hotel industry
to gauge their interest in a business combination or other strategic transaction
with Promus. The following week, Promus signed confidentiality agreements with
several of these parties and began discussions concerning potential
transactions.
On August 9, Mr. Blake and Mr. Bollenbach met in Houston, Texas. At the
meeting, Mr. Bollenbach and Mr. Blake discussed the strategic fit and potential
synergies between Hilton and Promus, as well as a possible acquisition of Promus
by Hilton. Mr. Bollenbach gave Mr. Blake a draft form of merger agreement that
Hilton believed was appropriate for the proposed transaction. Mr. Blake informed
Mr. Bollenbach that the Promus board of directors had instructed Promus
management to explore Promus' strategic alternatives, including remaining
independent and third party transactions, and that, as part of this strategic
review, Promus would be willing to consider any proposal from Hilton that was
superior to the proposal in Hilton's July 16th letter. Mr. Blake invited Hilton
to participate in a series of due diligence meetings with Promus management,
similar to meetings being held with other parties.
Hilton responded that it was not interested in pursuing a transaction under
circumstances involving the solicitation of interest of other parties because
Hilton believed that such a process inevitably would become public and risk
significant damage to the business and value of Promus.
At a special meeting of the Promus board of directors on August 13, Promus
management and Salomon Smith Barney apprised the Promus board of Mr. Blake's
conversations with Mr. Bollenbach and the contents of a letter from Hilton dated
August 11 indicating that Hilton would withdraw its proposal effective
August 16 if Promus' process with third parties continued. Promus management and
Salomon Smith Barney also reported on the status of discussions with other
parties. The Promus board of directors authorized management to continue with
its review of Promus' strategic alternatives, including possible further
discussions with Hilton. On August 16, 1999, Hilton's July 16, 1999 proposal was
withdrawn.
During the week of August 16th, Promus management met with, and provided
information about Promus to, the third parties that had executed confidentiality
agreements. These parties were asked to present preliminary indications of
interest and value ranges as promptly as practicable.
At a special meeting of the Promus board of directors on August 23, Promus
management and Salomon Smith Barney updated the Promus board on the status of
their discussions with the other parties. The Promus board of directors
authorized management and Salomon Smith Barney to continue these discussions and
also to initiate negotiations with Hilton.
Between August 17 and August 24, 1999, financial advisors representing
Hilton and Promus had various discussions in anticipation of a potential meeting
between the parties. On August 25, 1999, a confidentiality agreement was
executed by the parties. On August 26, 1999, Mr. Bollenbach, Mr. Blake and
others from Promus and Hilton and their advisors met in Denver, Colorado to
discuss an acquisition. At this meeting, Promus' representatives urged Hilton to
make its best offer. In response, Hilton proposed a per share purchase price of
$38.50, with the total consideration consisting of 55% cash and 45% stock,
including a "collar" centered on the Hilton stock price, and the cash-out of
outstanding Promus stock options. Mr. Blake stated that he would present this
proposal to the Promus board of directors and would communicate Promus' response
to Mr. Bollenbach. Subject to approval by the Promus board of directors, the
parties scheduled negotiating and diligence sessions for the following week.
33
At a special meeting of the Promus board of directors on August 27, Promus
management and Salomon Smith Barney informed the Promus board about the meeting
with Hilton and the status of the discussions with other parties. Based on this
report, the Promus board of directors decided that no other third party had
proposed a transaction that was as favorable to Promus stockholders as the
Hilton proposal. The Promus board of directors authorized Promus management to
proceed with further discussions with Hilton to determine whether a definitive
agreement could be reached.
During the week of August 30, 1999, Hilton and Promus, together with their
legal and financial advisors, met in New York to conduct due diligence and to
negotiate the terms of the merger agreement. Negotiations continued throughout
the week.
On September 1, in response to press reports about a possible transaction
between Hilton and Promus, Hilton and Promus each issued statements confirming
that discussions were taking place.
On September 3, 1999, the boards of directors of Hilton and Promus met
separately to consider the proposed transaction. At the Hilton board meeting,
senior management and Hilton's financial and legal advisors discussed the
following with the board:
- the status of the negotiations with respect to the proposed transaction;
- the potential benefits and risks associated with an acquisition of Promus;
and
- the principal terms and conditions of the merger agreement.
Hilton's financial advisors reviewed the strategic rationale for, and
financial analyses relating to, the acquisition. Morgan Stanley delivered its
oral opinion to the Hilton board, which was subsequently confirmed in writing,
that, as of such date and based upon and subject to the matters stated in the
opinion, the proposed consideration to be paid pursuant to the merger agreement
was fair to Hilton from a financial point of view. In addition, DLJ delivered
its oral opinion to the Hilton board, which was subsequently confirmed in
writing, that, as of such date and based upon and subject to the matters stated
in the opinion, the proposed transaction was fair to Hilton and its stockholders
from a financial point of view.
The Hilton board then discussed the terms of the proposed acquisition and
the analyses presented by the financial advisors, unanimously approved the
acquisition, and authorized management to finalize the terms of the merger
agreement.
At the Promus board meeting, the Promus board received presentations from
Promus management, Salomon Smith Barney and Davis Polk & Wardwell, the law firm
engaged to represent Promus, regarding the terms and conditions of the proposed
merger agreement. As part of its financial presentation to the Promus board,
Salomon Smith Barney delivered its oral opinion to the Promus board, which was
subsequently confirmed in writing, that, as of such date and based upon and
subject to the matters stated in the opinion, the consideration to be received
in the acquisition by Promus stockholders was fair from a financial point of
view to Promus stockholders. After discussion and due consideration, the Promus
board of directors unanimously approved the acquisition and authorized
management to finalize the terms of the merger agreement.
The acquisition was jointly announced by Hilton and Promus on the morning of
September 7.
34
REASONS FOR THE ACQUISITION
HILTON'S REASONS FOR THE ACQUISITION
Hilton's board of directors believes that the acquisition will benefit
Hilton and its stockholders for the following reasons:
- ENHANCED COMPETITIVE POSITION. The acquisition will enhance Hilton's
competitive position as a multi-branded owner, operator, manager and
franchisor of hotels, comparable in size to its principal competitors in
terms of number of properties, market segments served and profitability.
- INCREASE REVENUES FROM MANAGEMENT AND FRANCHISING. Due to the number of
Promus' management and franchise properties, the acquisition will increase
Hilton's revenues from fees relating to management, franchising,
purchasing and other services from approximately 13% of total revenues to
approximately 30% of total revenues. This addition to Hilton's portfolio
will create a more diversified and balanced income stream.
- COMPLEMENTARY PORTFOLIO OF HOTEL BRANDS AND GEOGRAPHIC
DIVERSIFICATION. Upon completion of the acquisition, Hilton will offer
brands in most industry categories, including upscale to mid-priced
products in the full service, all suite, extended stay and limited service
segments, as well as vacation ownership. Doubletree will serve as a
complementary brand to Hilton's full service product. Promus' Embassy
Suites and Homewood Suites will expand Hilton's offerings in the all-
suites and extended stay segments of the market, while Hampton Inns will
give Hilton a stronger presence in the limited service segment. The
addition of the Promus' properties will also diversify Hilton's
geographical asset concentration and expand its presence throughout the
United States.
- SYNERGIES AND ECONOMIES OF SCALE. Hilton believes that the acquisition
will result in significant synergies and revenue enhancements from
consolidating corporate functions and regional offices by combining
strengths in all core functional areas such as finance, legal, human
resources, operations, technology and development. In addition, Hilton
believes that the acquisition will result in significant economies of
scale in such areas as marketing and purchasing. By way of example, Hilton
believes that the acquisition will result in economies of scale by:
-- providing greater opportunity for expansion with multiple brands and
market segments, including growing the Embassy Suites and Hampton Inns
brands and extended stay product, and growing and maintaining
Doubletree as a complementary brand to Hilton;
-- blending both companies' products in the extended-stay, conference
hotel and time-share markets;
-- including the Promus brands in Hilton's award-winning HHonors frequent
guest program and its central reservation system, Hilton Reservations
Worldwide, as well as Hilton's international sales organization,
consisting of 39 sales offices worldwide, Hilton.com and Hilton
Direct, Hilton's group business booking operation; and
-- spreading fixed overhead expense across a wider base of properties.
Hilton's board of directors consulted with Hilton's senior management, as
well as its legal and financial advisers, in reaching its decision to approve
the acquisition. Among the factors considered by Hilton's board in its
deliberations were the following:
- historical information concerning Hilton's and Promus' financial
performance, results of operations, assets, liabilities, operations, brand
development, management and competitive position;
35
- management's view of the financial condition, results of operations,
assets, liabilities, businesses and prospects of Hilton and Promus after
giving effect to the acquisition;
- current market conditions and historical trading information with respect
to Hilton and Promus common stock;
- comparable merger transactions in the lodging industry;
- the terms and conditions of the merger agreement, including closing
conditions, termination fees and no solicitation provisions;
- the analysis prepared by Morgan Stanley and presented to Hilton's board of
directors and the oral opinion of Morgan Stanley, subsequently confirmed
in writing, that the consideration to be paid by Hilton pursuant to the
merger agreement was fair, from a financial point of view, to Hilton as
described more fully in the text of the entire opinion attached as
Appendix B to this joint proxy statement/prospectus; and
- the analysis prepared by DLJ and presented to Hilton's board of directors
and the oral opinion of DLJ, subsequently confirmed in writing, that the
consideration to be paid by Hilton in the acquisition was fair, from a
financial point of view, to Hilton and its stockholders, as described more
fully in the text of the entire opinion attached as Appendix C to this
joint proxy statement/ prospectus.
Hilton's board of directors does not intend the discussion of information
and factors to be exhaustive, but believes the discussion to include all of the
material factors that it considered. In view of the complexity and wide variety
of information and factors that it considered, Hilton's board did not find it
practical to quantify or otherwise assign relative or specific weights to the
factors considered. However, after taking into consideration all of the factors
discussed above, Hilton's board concluded that the merger agreement and
acquisition were fair to, and in the best interests of, Hilton and its
stockholders and that Hilton should proceed with the acquisition.
PROMUS' REASONS FOR THE ACQUISITION
At its September 3, 1999 meeting, the Promus board of directors unanimously
determined that the acquisition is fair to and in the best interests of Promus
and Promus' stockholders. Accordingly, the Promus board of directors has
unanimously approved the merger agreement and recommends that Promus'
stockholders vote "FOR" approval of the merger agreement and the acquisition.
In the course of reaching its decision to adopt the merger agreement, the
Promus board of directors consulted with Promus' management, as well as its
outside legal counsel and its financial advisor, and considered a number of
factors, including:
- the Promus board's view of the need to reposition the business and
brand portfolio of Promus in order to sustain and drive long-term
growth, and the significant short- and medium-term costs associated
with executing such a long-term strategic plan as an independent entity
and the risks associated with implementation of such plan, balanced
against the possible long-term benefits that would result from
execution of such plan;
- a review of the feasibility of other possible strategic alternatives to
the acquisition, including the fact that, notwithstanding an
investigation of potential third-party interest conducted by management
and Salomon Smith Barney, no other third party proposed a transaction
that was as favorable to Promus stockholders as the acquisition;
- current industry, economic and market conditions, including softening
in the market segments in which Promus operates and the risks to Promus
associated with remaining independent amidst industry-wide
consolidation;
36
- the presentations made by Salomon Smith Barney to the Promus board of
directors, and Salomon Smith Barney's opinion to the effect that, as of
September 3, 1999, the acquisition consideration was fair, from a
financial point of view, to Promus' stockholders;
- the fact that Promus stockholders may elect to receive the acquisition
consideration in the form of cash or Hilton stock, subject to
proration;
- the fact that the value of the stock portion of the acquisition
consideration is not fixed if the average Hilton stock price prior to
the closing (calculated as described under "The Merger
Agreement--Consideration to be Received for Promus Common Stock in the
Acquisition" on page 69) is below $11.97 or above $13.23, and that the
closing price of the Hilton stock on September 2, 1999 was below
$11.97;
- the fact that if the average Hilton stock price prior to the closing is
below $11.97, Promus stockholders would receive 3.2158 shares of Hilton
stock for each Promus share, but if the average Hilton stock price
prior to the closing is above $13.23, Promus stockholders would receive
2.9096 shares of Hilton stock, and accordingly share in any
appreciation or depreciation in the Hilton stock prior to the closing;
- the historical trading prices of the Promus stock and the fact that an
acquisition consideration of $38.50 represented a premium of
approximately
-- 32.5% over the closing price of Promus stock on August 31, 1999,
the date prior to announcement that Hilton and Promus were in
discussions regarding a possible transaction, and
-- 21.5% over the closing price of Promus stock on September 2, 1999,
the date prior to the Promus board meeting;
- the potential for appreciation and the risk of depreciation in value of
the Hilton stock as a result of the acquisition or for other reasons,
and the ability of Promus stockholders to have a significant equity
participation in the combined company through ownership of
approximately 30% of the outstanding stock of the combined company
after the acquisition;
- the strategic benefits of a combination with Hilton, including:
-- the global nature of Hilton's brand which could provide
overarching support for market awareness of Promus' brands,
-- Hilton's strong national sales force and international market
access which could enhance group business,
-- Hilton's established customer loyalty/frequency program which
could increase property-level revenues,
-- Promus' franchising expertise which could add incremental growth
to Hilton's brands,
-- the opportunity to extend Hampton Inn, Hampton Inn & Suites and
Homewood Suites development and franchising in the western part of
the U.S. by leveraging Hilton's regional presence, and
-- the opportunity for near- and longer-term synergies resulting from
the combination;
- the fact that after the acquisition the combined company would be
significantly more leveraged on a relative basis than Promus, the
possible implications of such increased leverage on the credit rating
of the long term debt of the combined company and the associated risks,
including increased interest costs under Hilton's outstanding debt;
- the risks and difficulties of integrating the two companies, and other
risks of the transaction and to the business, as more fully described
under "Risk Factors," on page 23;
37
- an evaluation of the likelihood that the acquisition would be
consummated, including the terms and conditions of the financing
commitment that Hilton has obtained to fund the cash portion of the
consideration and the fact that the availability of such funds is
(except in circumstances of material breach of representations,
warranties, covenants or agreements or material failure by Hilton to
take any action necessary under any financing agreements) a condition
to Hilton's obligation to consummate the acquisition, and the
circumstances under which Hilton's failure to obtain financing could
result in a payment of $150 million to Promus;
- the intention of the parties that the acquisition be treated as a
tax-free reorganization for U.S. federal income tax purposes, such that
Promus stockholders would be taxed on any gain realized only to the
extent of cash consideration received by them, the circumstances under
which the acquisition would not be so treated and the likelihood or
unlikelihood of such circumstances developing;
- that if the fair market value for tax purposes of all shares of Hilton
stock to be delivered in connection with the acquisition is less than
40% of the sum of the total consideration paid in connection with the
acquisition or if the opinions as to the tax-free nature of the
transaction could not otherwise be delivered, the acquisition would not
constitute a tax-free reorganization for U.S. federal income tax
purposes and the Promus stockholders would be taxed on any gain
realized regardless of the form of consideration received by them;
- the terms and conditions of the merger agreement, including the
provisions that permit Promus to furnish information to and participate
in discussions or negotiations with a third party if the Promus board
of directors determines in good faith that such third party has
presented an acquisition proposal that could reasonably be expected to
constitute a superior proposal, as described under "The Merger
Agreement--No Solicitation; Covenant to Recommend," on page 77, and to
terminate the merger agreement to accept such superior proposal upon
prior notice to Hilton and payment of a $75 million termination fee;
- that two of the Promus board members would become directors of Hilton;
and
- the interests that certain executive officers and directors of Promus
may have with respect to the acquisition in addition to their interests
as stockholders of Promus generally. See "Interests of Certain Persons
in the Acquisition" on page 56.
In view of the wide variety of factors considered in connection with its
evaluation of the acquisition and the complexity of these matters, the Promus
board of directors did not find it useful to and did not attempt to quantify,
rank or otherwise assign relative weights to these factors. The Promus board
relied on the experience and expertise of Salomon Smith Barney, its financial
advisor, for quantitative analysis of the financial terms of the acquisition.
See "Opinions of Financial Advisors--Opinion of Salomon Smith Barney Inc." on
page 51. In addition, the Promus board did not undertake to make any specific
determination as to whether any particular factor, or any aspect of any
particular factor, was favorable or unfavorable to the Promus board's ultimate
determination, but rather the Promus board conducted an overall analysis of the
factors described above, including through discussions with and questioning of
Promus' management and legal and financial advisors. In considering the factors
described above, individual members of the Promus board of directors may have
given different weight to different factors.
OPINIONS OF HILTON FINANCIAL ADVISORS
OPINION OF MORGAN STANLEY & CO. INCORPORATED
In a letter agreement dated August 11, 1999, Hilton retained Morgan Stanley
to render a financial opinion in connection with the acquisition, based on
Morgan Stanley's qualifications, expertise and
38
reputation. On September 3, 1999, Morgan Stanley delivered an oral opinion,
subsequently confirmed in writing on September 7, 1999, to the effect that,
based upon and subject to the considerations set forth in the opinion, the
consideration to be paid by Hilton pursuant to the merger agreement is fair from
a financial point of view to Hilton.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION, DATED AS OF SEPTEMBER 7,
1999, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS. HILTON'S
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS
ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED TO HILTON'S BOARD OF DIRECTORS,
ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION TO BE PAID BY HILTON FROM A
FINANCIAL POINT OF VIEW, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE
ACQUISITION OR CONSTITUTE A RECOMMENDATION TO ANY HILTON STOCKHOLDER AS TO HOW
TO VOTE AT THE SPECIAL MEETING. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Promus and Hilton;
- reviewed certain internal financial statements and other financial and
operating data concerning Promus prepared by the management of Promus;
- reviewed certain financial projections prepared by the management of
Promus;
- discussed the past and current operations and financial condition and the
prospects of Promus, including information relating to certain strategic,
financial and operational benefits anticipated from the acquisition, with
senior executives of Promus;
- discussed the past and current operations and financial condition and the
prospects of Promus, including information relating to certain strategic,
financial and operational benefits anticipated from the acquisition, with
senior executives of Hilton;
- reviewed certain internal financial statements and other financial and
operating data concerning Hilton prepared by the management of Hilton;
- reviewed certain financial projections prepared by the management of
Hilton;
- discussed the past and current operations and financial condition and the
prospects of Hilton, including information relating to certain strategic,
financial and operational benefits anticipated from the acquisition, with
senior executives of Hilton;
- reviewed with senior executives of Hilton the pro forma impact of the
acquisition on Hilton's earnings per share, consolidated capitalization
and financial ratios;
- reviewed the reported prices and trading activity for Promus common stock
and Hilton common stock;
- compared the financial performance of Promus and the prices and trading
activity of Promus common stock with those of certain other comparable
publicly traded companies and their securities;
- compared the financial performance of Hilton and the prices and trading
activity of Hilton common stock with those of certain other comparable
publicly traded companies and their securities;
- reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
39
- participated in discussions and negotiations among representatives of
Promus and Hilton and their financial and legal advisors;
- reviewed a draft of the merger agreement and certain related documents;
and
- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the acquisition, Morgan Stanley assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of Promus and Hilton. Morgan
Stanley has also relied upon, without independent verification, the assessment
of Hilton of the strategic, financial and operational benefits expected to
result from the acquisition. In addition, Morgan Stanley has assumed that the
acquisition will be consummated in accordance with the terms set forth in the
merger agreement. Morgan Stanley has not made any independent valuation or
appraisal of the assets or liabilities of Promus, nor was Morgan Stanley
furnished with any such appraisals. Morgan Stanley's opinion is necessarily
based on financial, economic, market and other conditions as in effect on, and
the information made available to it as of, September 7, 1999.
The following is a summary of certain analyses performed by Morgan Stanley
in connection with its oral opinion and the preparation of its written opinion
letter dated September 7, 1999. These summaries of financial analyses include
information presented in tabular format. In order to fully understand the
financial analyses used by Morgan Stanley, the tables must be read together with
the text of each summary. The tables alone do not constitute a complete
description of the financial analyses.
HISTORICAL STOCK PRICE TRADING ANALYSIS. Using the closing price for
Hilton's and Promus' common stock on the NYSE, Morgan Stanley reviewed the
closing prices over a 12-month period ending August 31, 1999. Morgan Stanley
noted that the trading range per share for Hilton over the period examined was
between a low of $12.06 and a high of $16.82. Morgan Stanley noted that the
trading range per share for Promus over the period examined was between a low of
$20.50 and a high of $38.50.
PROMUS COMPARABLE COMPANY ANALYSIS. Using publicly available information,
Morgan Stanley performed an analysis comparing Promus' current trading value and
the implied multiples for a variety of operating statistics to those of selected
publicly traded companies that share some of the same characteristics of Promus.
In particular, Morgan Stanley focused on the following companies:
- Choice Hotels International, Inc.
- Hilton
- Marriott International, Inc.
- Starwood Hotels & Resorts Worldwide, Inc.
- Wyndham International Inc.
Morgan Stanley reviewed financial information including the price to
forecasted calendar year 1999 and calendar year 2000 earnings multiples and the
aggregate value to forecasted calendar year 1999 and 2000 earnings before
interest, taxes, depreciation and amortization ("EBITDA") multiples. The
40
financial information was based on a compilation of earnings projections by
securities research analysts. The tables below summarize these analyses and the
relevant statistics for Promus as of August 31, 1999.
LOW HIGH
-------- --------
COMPARABLE COMPANIES
Price to Forecasted 1999 Earnings........................... 15.1x 20.7x
Price to Forecasted 2000 Earnings........................... 13.3 17.7
Aggregate Value to Forecasted 1999 EBITDA................... 7.1 11.8
Aggregate Value to Forecasted 2000 EBITDA................... 6.6 10.1
PROMUS
Price to Forecasted 1999 Earnings........................... 13.4x
Price to Forecasted 2000 Earnings........................... 12.6
Aggregate Value to Forecasted 1999 EBITDA................... 7.5
Aggregate Value to Forecasted 2000 EBITDA................... 7.2
Morgan Stanley applied these multiples from the comparable companies to
Promus' corresponding financial statistics to arrive at a range of per share
equity values for Promus. Using this methodology, Morgan Stanley observed that,
assuming a 25% - 35% control premium, the implied value per share of Promus
common stock ranged from $38.08 to $54.39. Morgan Stanley noted that the
acquisition consideration based on the merger agreement was $38.50 per share. No
company considered in the foregoing analysis is identical to Promus. In
evaluating comparable companies, Morgan Stanley made judgments and assumptions
with regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Hilton and Promus, such as the impact of competition on Promus and the industry
generally, industry growth and the absence of any adverse material change in the
financial condition and prospects of Promus or the industry or in the financial
markets in general. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using comparable company data.
PROMUS SELECTED TRANSACTION ANALYSIS. Using publicly available information,
Morgan Stanley examined the terms of certain transactions involving acquisitions
of companies in businesses that were similar in some characteristics to the
business of Promus. These transactions included the following transactions:
ACQUIREE ACQUIROR
- ----------------------------------------------- ---------------------------------------------
Red Roof Inns, Inc............................. Accor, S.A.
Stakis plc..................................... Hilton Group plc
Inter-Continental Hotels & Resorts
Corporation.................................. Bass plc
Arcadian International plc..................... Patriot American Hospitality, Inc.
La Quinta Inns, Inc............................ Meditrust Companies Corporation
Interstate Hotels Company...................... Patriot American Hospitality, Inc.
Starwood Hotels and Resorts &
ITT Corporation................................ Worldwide, Inc.
Starwood Hotels and Resorts &
Westin Hotels LP............................... Worldwide, Inc.
Doubletree Corporation......................... Promus
Wyndham International, Inc..................... Patriot American Hospitality, Inc.
Renaissance Hotel Group N.V.................... Marriott International, Inc.
Red Lion Hotels, Inc........................... Doubletree Corporation
Based on this review, Morgan Stanley selected a range of 10.0-12.0 times
next 12 months EBITDA for the purposes of determining a valuation. Applying this
range to Promus' next 12 months EBITDA produced an implied value per share of
Promus common stock between $45.54 and $56.91. Morgan
41
Stanley also analyzed each of the above transactions to determine the premium
offered by the acquiror to the acquiree's stockholders one month before the
announcement of the transaction. Based on this analysis, Morgan Stanley selected
a range of premiums of 25% to 35% for purposes of determining a valuation.
Applying this range to the average closing price for Promus, measured from 90 to
30 days before August 31, 1999, produced an implied value per share of Promus
common stock between $36.06 and $38.95.
No transaction utilized in the analysis of selected precedent transactions
is identical to the acquisition in timing and size, and, accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning financial and operating characteristics
of Promus and other factors that would affect the acquisition value of companies
to which it is being compared. In evaluating the precedent transactions, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Hilton and Promus, such as the impact of
competition on Promus and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of Promus or the industry or in the financial markets in general. Mathematical
analysis (such as determining the average or median) is not in itself a
meaningful method of using selected transaction data.
PROMUS SUM OF THE PARTS ANALYSIS. Morgan Stanley performed an analysis of
Promus assuming separation of Promus into its material components based on its
operating units.
Morgan Stanley compared financial information of each operating unit with
publicly available information in the lodging industry. For this analysis,
Morgan Stanley examined a range of estimates based on securities research
analysts. The following table presents, as of August 31, 1999, the low and high
for the operating units of the estimated aggregate value to projected calendar
year 1999 EBITDA multiples based on the relevant lodging industry information:
LODGING
INDUSTRY
MULTIPLES
-------------------
OPERATING UNIT LOW HIGH
- -------------- -------- --------
Promus Managed/Franchised Assets............................ 11.0x 12.0x
Promus Owned Assets......................................... 7.5x 8.5x
Doubletree Managed/Franchised Assets........................ 8.5x 9.5x
Doubletree Leased Assets.................................... 7.5x 8.5x
Red Lion Owned Assets....................................... 7.5x 8.5x
Red Lion Leased Assets...................................... 7.5x 8.5x
Red Lion Joint Ventures..................................... 7.5x 8.5x
Red Lion Managed Assets..................................... 7.5x 8.5x
Morgan Stanley applied these multiples to Promus' corresponding financial
statistics, and using publicly available data for the value of Promus
outstanding debt, general and administrative expenses, land and other
investments, Morgan Stanley arrived at a range of per share equity values for
Promus of $40.85 to $46.35. In evaluating selected multiples, Morgan Stanley
made judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Hilton and Promus, such as the impact of
competition on Promus and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of Promus or the industry or in the financial markets in general. Mathematical
analysis is not in itself a meaningful method of using comparable company data.
42
PROMUS DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted
cash flow analysis for Promus based upon publicly available information, equity
research estimates and financial projections provided by the management of
Hilton, the "base case." Morgan Stanley calculated unlevered free cash flows,
defined as net income plus the aggregate of depreciation and amortization, other
non-cash expenses and after-tax interest expense less the sum of capital
expenditures and investment in non-cash working capital.
Morgan Stanley calculated terminal values by applying a range of multiples
from 8.5x to 9.5x to last 12 months EBITDA. The cash flow streams and terminal
values were then discounted to the present using an estimated range of the
weighted average cost of capital for Promus of 11.5% to 12.5%. Morgan Stanley
performed its analysis both including and excluding assumed operational benefits
from the transaction prepared by the management of Hilton. The results of this
analysis as of August 31, 1999 are summarized in the table below.
ESTIMATED VALUE
PER SHARE OF
CASE PROMUS
- ---- ---------------
Base case--without operational benefits..................... $36.75 - $42.75
Base case--with operational benefits........................ $45.25 - $52.25
HILTON COMPARABLE COMPANY ANALYSIS. Using publicly available information,
Morgan Stanley performed an analysis comparing Hilton's current trading value
and the implied multiples for a variety of operating statistics, both historical
and projected, to those of selected publicly traded companies that share some of
the same characteristics of Hilton. In particular, Morgan Stanley focused on the
following companies:
- Marriott International, Inc.
- Promus
- Starwood Hotels & Resorts Worldwide, Inc.
- Wyndham International, Inc.
Morgan Stanley reviewed financial information including the price to
forecasted calendar year 1999 and calendar year 2000 earnings multiples and
aggregate value to forecasted calendar year 1999 and calendar year 2000 EBITDA
multiples. The financial information was based on a compilation of earnings
projections by securities research analysts. The tables below summarize these
analyses and the relevant statistics for Hilton as of August 31, 1999.
LOW HIGH
-------- --------
COMPARABLE COMPANIES
Price to Forecasted 1999 Earnings........................... 13.4x 20.7x
Price to Forecasted 2000 Earnings........................... 12.6 17.7
Aggregate Value to Forecasted 1999 EBITDA................... 7.1 11.8
Aggregate Value to Forecasted 2000 EBITDA................... 6.6 10.0
HILTON
Price to Forecasted 1999 Earnings........................... 15.1x
Price to Forecasted 2000 Earnings........................... 13.3
Aggregate Value to Forecasted 1999 EBITDA................... 8.2
Aggregate Value to Forecasted 2000 EBITDA................... 7.7
43
Morgan Stanley applied these multiples from the comparable companies to
Hilton's corresponding financial statistics to arrive at a range of per share
equity values for Hilton. Using this methodology, Morgan Stanley observed that
the implied value per share of Hilton common stock ranged from $9.74 to $14.21.
Morgan Stanley noted that as of August 31, 1999, Hilton's closing price on the
New York Stock Exchange was $12.25. No company used in the foregoing analysis is
identical to Hilton. In evaluating comparable companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Hilton, such as the impact of competition on Hilton and
the industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of Hilton or the industry or in
the financial markets in general. Mathematical analysis, such as determining the
average or median, is not in itself a meaningful method of using comparable
company data.
HILTON SUM OF THE PARTS ANALYSIS. Morgan Stanley performed an analysis of
Hilton assuming separation of Hilton into its material components based on its
operating units.
Morgan Stanley compared financial information of each operating unit with
publicly available information in the lodging industry. For this analysis,
Morgan Stanley examined a range of estimates based on securities research
analysts. The following table presents, as of August 31, 1999 the low and high
for the operating units of the estimated aggregate value to projected calendar
year 1999 EBITDA multiples based on the relevant lodging industry information:
LODGING
INDUSTRY
MULTIPLES
-------------------
OPERATING UNIT LOW HIGH
- -------------- -------- --------
Top Ten Owned Hotels........................................ 9.0x 10.0x
Other Owned Hotels.......................................... 8.0x 9.0x
Managed/Franchised Hotels................................... 11.0x 12.0x
Morgan Stanley applied these multiples to Hilton's corresponding financial
statistics, and using information regarding the value of debt outstanding,
corporate hedging, and general and administrative expenses from Hilton, Morgan
Stanley arrived at a range of per share equity values for Hilton of $14.02 to
$16.84. In evaluating selected multiples, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Hilton and Promus, such as the impact of competition on Hilton and
the industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of Hilton or the industry or in
the financial markets in general. Mathematical analysis is not in itself a
meaningful method of using comparable company data.
HILTON DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted
cash flow analysis for Hilton based upon publicly available information, equity
research estimates and financial projections provided by the management of
Hilton, the "base case." Morgan Stanley calculated unlevered free cash flows,
and calculated terminal values by applying a range of multiples from 8.0x to
9.0x to last 12 months EBITDA. The cash flow streams and terminal values were
then discounted to the present using an estimated range of the weighted average
cost of capital for Hilton of 12.5% to 13.5%. The results of this analysis as of
August 31, 1999 are summarized in the table below.
ESTIMATED VALUE
PER SHARE OF
CASE HILTON
- ---- ---------------
Base case................................................... $13.50 - $16.75
44
PRO FORMA ANALYSIS OF THE ACQUISITION. Morgan Stanley analyzed the pro
forma impact of the acquisition on Hilton's earnings per share ("EPS") and cash
EPS, defined as the sum of EPS and annual goodwill amortization per share. The
analysis was performed utilizing estimates for Hilton and Promus and
incorporated assumed operational benefits anticipated from the acquisition
prepared by the management of Hilton. Based on these forecasts and assuming
Hilton's share price of $12.65 and the achievement of the assumed benefits,
while the acquisition is not expected to be accretive to Hilton's EPS in 2000,
the acquisition is expected to be accretive to Hilton's cash EPS in 2000.
In connection with the review of the acquisition by Hilton's board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion given in connection therewith. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to a partial analysis or summary description. In arriving at its
opinion, Morgan Stanley considered the results of all of its analyses as a whole
and did not attribute any particular weight to any analysis or factor considered
by it. Morgan Stanley believes that the summary set forth and the analyses
described above must be considered as a whole and that selecting portions
thereof, without considering all its analyses, would create an incomplete view
of the process underlying its analyses and opinion. In addition, Morgan Stanley
may have given various analyses and factors more or less weight than other
analyses and factors and may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuations resulting from
any particular analysis described above should therefore not be taken to be
Morgan Stanley's view of the actual value of Hilton or Promus.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Hilton or Promus. Any
estimates contained in Morgan Stanley's analysis are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates. The analyses performed were
prepared solely as a part of Morgan Stanley's analysis of the fairness from a
financial point of view to Hilton of the consideration to be paid pursuant to
the merger agreement and were conducted in connection with the delivery of
Morgan Stanley's opinion dated September 7, 1999 to Hilton's board of directors.
Morgan Stanley's analyses do not purport to be appraisals or to reflect the
prices at which shares of Promus' or Hilton's common stock might actually trade.
The consideration to be paid pursuant to the merger agreement was determined
through arm's length negotiations between Hilton and Promus and was approved by
Hilton's board of directors. Morgan Stanley did not recommend any specific
consideration to Hilton or that any specific consideration constituted the only
appropriate consideration for the acquisition.
In addition, as described above, Morgan Stanley's opinion and presentation
to Hilton's board of directors was one of many factors taken into consideration
by the board in making its determination to recommend adoption of the merger
agreement. Consequently, the Morgan Stanley analyses described above should not
be viewed as determinative of the opinion of the board or the view of the
management of Hilton with respect to the value of Promus or of whether the board
would have been willing to agree to different consideration.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking and financial
advisory business, is continuously engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the ordinary course of Morgan Stanley's trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, trade or otherwise effect transactions, for its own account or for
the account of customers, in the securities or senior loans of Hilton or Promus.
45
Pursuant to an engagement letter dated August 11, 1999 between Hilton and
Morgan Stanley, Hilton has agreed to pay to Morgan Stanley a fee of
approximately $7,200,000 and to reimburse Morgan Stanley for its expenses
incurred in performing its services. In the past, Morgan Stanley and its
affiliates have provided financial advisory and financing services to Doubletree
Corporation, which merged with Promus, and have received fees for its services.
Furthermore, Hilton has also agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities under federal
securities laws, related to or arising out of Morgan Stanley's engagement and
any related transactions. Morgan Stanley may receive additional fees for
providing financing services in connection with this transaction.
OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
Hilton asked DLJ as its financial advisor to render an opinion to the Hilton
board of directors as to the fairness to Hilton and the Hilton stockholders,
from a financial point of view, of the acquisition consideration pursuant to the
terms of the merger agreement. DLJ was not retained as an advisor or agent to
Hilton's stockholders or any other person, other than as an advisor to the
Hilton board of directors. On September 3, 1999, DLJ delivered an oral opinion,
subsequently confirmed in writing on September 7, 1999, to the effect that as of
the date of such opinion, and based upon and subject to the assumptions,
limitations and qualifications set forth in such opinion, the acquisition
consideration was fair to Hilton and the Hilton stockholders from a financial
point of view.
THE FULL TEXT OF DLJ'S OPINION IS ATTACHED TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AS APPENDIX C. HILTON STOCKHOLDERS ARE URGED TO READ DLJ'S
OPINION IN ITS ENTIRETY FOR ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS
CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH OPINION.
DLJ'S OPINION WAS PREPARED FOR THE HILTON BOARD OF DIRECTORS AND IS DIRECTED
ONLY TO THE FAIRNESS OF THE ACQUISITION CONSIDERATION TO HILTON AND THE HILTON
STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW AND DOES NOT ADDRESS THE MERITS OF
THE UNDERLYING DECISION BY HILTON TO ENGAGE IN THE ACQUISITION OR OTHER BUSINESS
STRATEGIES CONSIDERED BY THE HILTON BOARD OF DIRECTORS. DLJ'S OPINION DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HILTON STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE HILTON STOCKHOLDERS MEETING.
DLJ's opinion does not constitute an opinion as to the price at which the
Promus common stock or the Hilton common stock will actually trade at any time.
The acquisition consideration was determined in arms-length negotiations between
Hilton and Promus. DLJ advised Hilton in connection with these negotiations. No
restrictions or limitations were imposed by Hilton upon DLJ with respect to the
investigations made or the procedures followed by DLJ in rendering its opinion.
In arriving at its opinion, DLJ reviewed, among other things, an executed
copy of the merger agreement, dated as of September 3, 1999. DLJ also reviewed
financial and other information that was publicly available or furnished to DLJ
by Hilton and Promus including information provided during discussions with
their respective management. Included in the information provided during
discussions with the respective management were certain financial projections of
Promus for the period beginning July 31, 1999 and ending December 31, 2003
prepared by the management of Hilton and certain financial projections of Hilton
for the period beginning July 31, 1999 and ending December 31, 2003 prepared by
the management of Hilton. In addition, DLJ compared certain financial and
securities data of Hilton and Promus with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the common stock of Promus and Hilton, reviewed prices
and premiums paid in certain other business combinations and conducted such
other financial studies, analyses and investigations as DLJ deemed appropriate
for purposes of its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
DLJ from public sources, that was provided to
46
DLJ by Hilton and Promus or their respective representatives, or that was
otherwise reviewed by DLJ. In particular, DLJ relied upon the estimates of the
management of Hilton of the projected operating synergies possible as a result
of the acquisition and upon its discussion of such synergies with the management
of Promus. With respect to the financial projections supplied to DLJ by Hilton,
DLJ relied on representations of Hilton that they were reasonably prepared on
the basis reflecting the best currently available estimates and judgments of the
management of Hilton as to the future operating and financial performance of
Hilton and Promus. DLJ has not assumed any responsibility for making any
independent evaluation of any assets or liabilities or for making any
independent verification of any of the information reviewed by DLJ. DLJ has also
assumed that the acquisition will result in no corporate level taxation for
Hilton or Promus.
DLJ's opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to DLJ as of,
the date of its opinion. It should be understood that, although subsequent
developments may affect its opinion, DLJ does not have any obligation to, nor
did it, update, revise or reaffirm its opinion. DLJ is expressing no opinion as
to the prices at which Hilton or Promus securities will actually trade at any
time. DLJ's opinion does not address the relative merits of the acquisition and
the other business strategies being considered by Hilton's or Promus' board of
directors, nor does it address either company's board of director's decision to
proceed with the acquisition. DLJ's opinion does not constitute a recommendation
to any stockholder as to how such stockholder should vote on the proposed
transaction or as to what election regarding form of consideration any such
stockholder should make.
Included in the textual discussion below are summaries of certain of the
statistical information appearing in such discussion presented in a tabular
format. While these tables are presented for the purpose of clarity and ease of
reference, they are not substitutes for, and must be read along with, all of the
information appearing under the captions immediately preceding them as well as
all of the information under the caption "Opinions of Hilton Financial
Advisors--Opinion of Donaldson, Lufkin & Jenrette Securities Corporation."
SUMMARY OF FINANCIAL ANALYSIS PERFORMED BY DLJ. The following is a summary
of the principal aspects of certain financial analysis performed by DLJ in
connection with its oral opinion and the presentation of its written opinion
dated September 7, 1999:
ACCRETION/DILUTION ANALYSIS. DLJ analyzed the pro forma financial
impact of the acquisition assuming the acquisition would close at the end of
fiscal year 1999. DLJ compared the projected earnings per share, cash earnings
per share and after-tax cash flows per share of Hilton, assuming the acquisition
had not occurred, to that of the new company based on projections for both
Hilton and Promus provided by Hilton management. Earnings per share were
calculated as net income to common stock divided by the fully diluted shares
outstanding using the treasury method and adjusted for any dilutive effects of
Hilton's convertible notes and the acquisition on a pro forma basis, as
appropriate. Cash earnings per share were calculated as net income to common
stock plus goodwill amortization expense divided by the fully diluted shares
outstanding using the treasury method and adjusted for any dilutive effects of
the convertible notes and the acquisition on a pro forma basis, as appropriate.
After-tax cash flows per share were calculated as net income to common stock
plus depreciation and amortization expense divided by the fully diluted shares
outstanding using the treasury method and adjusted for any dilutive effects of
the convertible notes and the acquisition on a pro forma basis, as appropriate.
DLJ used Hilton management's assumptions with respect to Hilton and Promus
operating synergies, including the phase-in period for achieving those
synergies. DLJ's analysis of the acquisition, assuming the maximum exchange
ratio under the merger agreement, showed that, in 2000, the acquisition,
compared to continued operation of Hilton on a stand-alone basis, would be
dilutive to earnings per share, modestly dilutive to cash earnings per share,
and accretive to after-tax cash flow per share. DLJ's analysis of the
acquisition, assuming the minimum exchange ratio under the merger agreement,
showed that, in 2000, the acquisition, compared to continued operation of Hilton
on a
47
stand-alone basis, would be dilutive to earnings per share, modestly accretive
to cash earnings per share, and accretive to after-tax cash flow per share.
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES. DLJ compared selected
common stock prices, earnings and operating and financial ratios for Promus,
based on consideration per share for Promus common stock of $38.50 both taking
into account and excluding the anticipated operating synergies, to the
corresponding data and ratios of certain comparable companies whose securities
are publicly traded, including Hilton, based on September 2, 1999 prices for the
common stock of these comparable companies. The comparable companies were chosen
because they possess general business, operating and financial characteristics
representative of companies in the industry in which Promus operates. The
comparable companies consisted of Marriott International, Inc., Choice Hotels
International, Inc., Starwood Hotels & Resorts Worldwide, Inc., Wyndham
International, Inc. and Hilton. For each company, DLJ calculated common stock
price to projected calendar 1999 and calendar 2000 earnings per share multiples
and multiples representing ratios of enterprise value, aggregate market equity
value, plus total debt, preferred equity and minority interests, less cash and
cash equivalents and investments in unconsolidated affiliates, to projected
calendar 1999 and 2000 EBITDA, earnings before interest, taxes, depreciation and
amortization expense. Hilton and Promus EBITDA and earnings per share
projections were provided by Hilton management. Projections for comparable
companies were based on published research analysts' reports in the case of
EBITDA and First Call Corporation consensus estimates in the case of earnings
per share. The average enterprise value to calendar 1999 EBITDA ratio for the
comparable companies was 9.2x with no premium for control, as compared to 9.3x
for Promus based on an assumed consideration per share for Promus common stock
of $38.50 in the acquisition.
SUMMARY OF COMPARABLE COMPANY ANALYSIS
ENTERPRISE VALUE/ PRICE/EARNINGS
EBITDA RATIO PER SHARE RATIO
--------------------- ---------------------
CALENDAR CALENDAR CALENDAR CALENDAR
YEAR 1999 YEAR 2000 YEAR 1999 YEAR 2000
--------- --------- --------- ---------
Promus at Transaction Price of $38.50,
excluding synergies.................. 9.3x 9.0x 17.7x 17.0x
Promus at Transaction Price of $38.50,
including synergies.................. 8.5 8.0 -- --
Promus, at 9/2/99 Market Price......... 7.7 7.4 14.5 14.0
--- --- ---- ----
Hilton................................. 7.6 6.8 14.5 11.9
Average of Comparable Companies,
including Hilton..................... 9.2 8.2 17.2 14.5
=== === ==== ====
DLJ's analysis of certain comparable publicly traded companies necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of Hilton and Promus and other factors
that could affect the public trading values of Hilton, Promus and the other
companies included in such analysis.
COMPARABLE TRANSACTION ANALYSIS. DLJ reviewed the following 13 selected
comparable acquisitions announced since September 1996 involving companies DLJ
deemed to be relevant (Acquiror/Target):
- Accor SA/Red Roof Inns, Inc.,
- Hilton Group plc/Stakis plc,
48
- Bass plc/Inter-Continental Hotels & Resorts Corporation,
- Patriot American Hospitality, Inc./Arcadian International plc,
- Meditrust Companies Corporation/La Quinta Inns, Inc.,
- Patriot American Hospitality, Inc./Interstate Hotels Company,
- Starwood Hotels & Resorts Worldwide, Inc./ITT Corporation,
- Starwood Hotels & Resorts Worldwide, Inc./Westin Hotels LP,
- Promus/Doubletree Corporation,
- Patriot American Hospitality, Inc./Wyndham International, Inc.,
- Marriott International, Inc./Renaissance Hotel Group N.V.,
- Extended Stay America, Inc./Studio Plus Hotels Inc.,
- Doubletree Corporation/Red Lion Hotels, Inc.
For purposes of the comparable transaction analysis, total transaction value
was calculated as the aggregate purchase price of equity, in the case of stock
purchases, or the aggregate purchase price of the assets, in the case of asset
purchases, plus total debt, preferred equity and minority interests, less cash
and cash equivalents and investments in unconsolidated affiliates. Investments
in unconsolidated affiliates was only subtracted if the related investment
income was excluded from EBITDA. For each of the comparable transactions, DLJ
calculated an EBITDA multiple representing the ratio of transaction value to the
next full calendar year EBITDA estimate. Promus forward EBITDA was provided by
Hilton management. Forward EBITDA for comparable companies was based on
published research analysts' reports. The analysis resulted in an average EBITDA
multiple of 11.2x for the comparable transactions, compared to 9.0x for Promus,
excluding synergies, based on an assumed consideration per share for Promus
common stock of $38.50 in the acquisition.
SUMMARY OF COMPARABLE TRANSACTION ANALYSIS
FORWARD EBITDA
MULTIPLES
--------------
Promus at Transaction Price of $38.50 (excluding
synergies)................................................ 9.0x
Promus at Transaction Price of $38.50 (including
synergies)................................................ 8.0
Promus at Market Price on 9/2/99............................ 7.4
----
Average for Selected Group.................................. 11.2
High for Selected Group..................................... 14.3
Low for Selected Group...................................... 7.8
====
No transaction utilized in the comparable transaction analysis is identical
to the acquisition. Accordingly, such analysis necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of Hilton and Promus and other factors that could affect the
acquisition value of the companies to which they are being compared.
PREMIUMS PAID ANALYSIS. DLJ determined the premiums paid or to be paid
over the common stock trading prices for selected acquisitions of publicly
traded companies announced since January 1, 1999 with total transaction values
greater than $1.0 billion. For each selected transaction, DLJ calculated such
premiums paid or to be paid for one-day, one-week, and four-weeks prior to the
announcement of the transaction. The mean premiums for these transactions over
the closing prices
49
one day, one week and four weeks prior to the announcement of the transactions
were 33.1%, 40.3% and 47.9%, as compared to 21.5%, 34.4% and 44.2% based on
Promus' respective closing common stock prices and consideration per share for
Promus common stock of $38.50 in the acquisition.
No transaction utilized in the premiums paid analysis is identical to the
acquisition. Accordingly, such analysis necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of Hilton and Promus and other factors that could affect the
acquisition value of the companies to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. DLJ performed a discounted cash flow
analysis to estimate a range of present values per share of Promus common stock
assuming it continued to operate as a stand-alone entity. DLJ performed this
analysis both including and excluding the synergies estimated by the management
of Hilton as set forth above. These ranges were determined by adding the present
value of the estimated future free cash flow that Hilton management estimated
Promus could generate through December 31, 2003 and the present value of the
"terminal value" of Promus at December 31, 2003. Free cash flow is defined as
earnings before interest and taxes, net of tax expenses, plus depreciation and
amortization expense, less changes in working capital and capital expenditures.
DLJ determined the range of present values per share of Promus common stock
using the terminal year multiples and discount rates that DLJ viewed as
appropriate for companies with its risk characteristics. DLJ relied on Hilton
management estimates of Promus' future cash flows and operating data.
In calculating a terminal value of Promus common stock at December 31, 2003,
DLJ applied multiples ranging from 8.0x to 10.0x to forecasted EBITDA for fiscal
year 2003. The free cash flows and terminal values were then discounted back to
December 31, 1999 using discount rates ranging from 10.0% to 13.0%. Based on
these assumptions, the stand-alone present value of Promus common stock ranged
from $31.86 to $46.10 per share. Assuming the amount of all the synergies
described above were to be reflected in the future value of Promus, the present
value of Promus common stock ranged from $39.62 to $56.31.
The discounted cash flow analyses are not necessarily indicative of actual
values or actual future results and do not purport to reflect the prices at
which any securities may trade at the present time or at any time in the future.
Discounted cash flow analysis is a widely used valuation methodology, but the
results of this methodology are highly dependent upon the numerous assumptions
that must be made, including earnings growth rates, working capital growth,
capital expenditure growth, terminal values and discount rates.
The summary set forth above describes the material elements of the
presentation made by DLJ to the Hilton board on September 3, 1999. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Each of the analyses conducted
by DLJ was carried out in order to provide a different perspective on the
transaction and add to the total mix of information available. DLJ did not form
a conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness from a financial point
of view. Rather, in reaching its conclusion, DLJ considered the results of the
analyses in light of each other and ultimately reached its opinion based on the
results of all analyses taken as a whole. DLJ did not place particular reliance
or weight on any individual analysis, but instead concluded that its analyses,
taken as a whole, supported its determination. Accordingly, notwithstanding the
separate factors summarized above, DLJ believes that its analyses must be
considered as a whole and that selecting portions of its analysis and the
factors considered by it, without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying its
opinions. In performing its analyses, DLJ made numerous assumptions with respect
to industry performance, business and economic conditions and
50
other matters. The analyses performed by DLJ are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses.
Pursuant to the terms of an engagement letter, dated September 3, 1999,
Hilton agreed to pay DLJ (a) a fee of $600,000 payable promptly upon the
execution of a definitive agreement providing for the acquisition of the Promus
by Hilton and (b) an additional cash compensation of $4.8 million, less the
initial $600,000 fee, payable upon consummation of the acquisition. Hilton has
also agreed to reimburse DLJ promptly for all out-of-pocket expenses, including
the reasonable fees and out-of-pocket expenses of counsel, incurred by DLJ in
connection with its engagement, and to indemnify DLJ and related persons against
liabilities in connection with its engagement, including liabilities under the
federal securities laws. The terms of the fee arrangement with DLJ, which DLJ
and Hilton believe are customary in transactions of this nature, were negotiated
at arms-length between Hilton and DLJ and the Hilton board of directors was
aware of such arrangement, including the fact that a significant portion of the
aggregate fee payable to DLJ is contingent upon consummation of the acquisition.
In the ordinary course of business, DLJ may actually trade the securities of
both Hilton and Promus for its own account and for the accounts of its customers
and accordingly, may at any time hold a long or short position in such
securities.
DLJ, as part of its investment banking services, is regularly engaged in the
valuation of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for Hilton in the past and has
been compensated for such services. DLJ co-managed $200 million of Senior Notes
due 2009 and $200 million of Senior Notes due 2017 for the Company in
December 1997, lead-managed a $773 million offering of the Company's common
stock in April 1998, delivered a fairness opinion to the Company in connection
with a spin-off of its gaming assets to its shareholders and the simultaneous
acquisition of the gaming business of Grand Casinos, Inc. in June 1998 and acted
as dealer manager and lead consent solicitation agent for Park Place
Entertainment Corporation, a wholly owned subsidiary of the Company at the time,
in connection with a tender offer and consent solicitation for $450 million of
Grand Casinos' First Mortgage Notes due 2003 in December 1998. DLJ received
usual and customary compensation in connection with these transactions.
OPINION OF PROMUS FINANCIAL ADVISOR
OPINION OF SALOMON SMITH BARNEY INC.
Salomon Smith Barney was retained by Promus to act as its financial advisor
in connection with the acquisition and the merger agreement. In connection with
such engagement, Promus requested that Salomon Smith Barney evaluate the
fairness, from a financial point of view, to holders of Promus common stock of
the consideration to be received by such holders pursuant to the terms of the
merger agreement. On September 3, 1999, at a meeting of the Promus board of
directors held to approve the merger agreement, Salomon Smith Barney delivered
an oral opinion, which was subsequently confirmed in writing, to the Promus
board of directors to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the consideration to be
received in the acquisition by holders of Promus common stock was fair from a
financial point of view to the stockholders.
In arriving at its opinion, Salomon Smith Barney reviewed the merger
agreement and held discussions with certain officers and employees of Promus and
Hilton concerning the business, operations, financial condition and prospects of
Promus and Hilton. Salomon Smith Barney examined certain publicly available
information relating to Promus and Hilton as well as certain other financial
information concerning Promus and Hilton which were provided to or otherwise
discussed with Salomon Smith Barney by Promus and Hilton respectively. Salomon
Smith Barney reviewed the financial terms of the acquisition in relation to,
among other things: (i) current and historical market
51
prices and trading volumes of the Promus common stock; (ii) the historical and
projected earnings and other operating data of Promus; and (iii) the
capitalization and financial condition of Promus. Salomon Smith Barney also
considered, to the extent publicly available, the financial terms of certain
other similar transactions effected which Salomon Smith Barney considered
relevant in evaluating the acquisition and analyzed certain financial, stock
market and other publicly available information relating to the businesses of
other companies whose operations Salomon Smith Barney considered relevant in
evaluating those of Promus. In addition to the foregoing, Salomon Smith Barney
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as Salomon Smith Barney deemed
appropriate in arriving at its opinion. Salomon Smith Barney noted that its
opinion was necessarily based upon information available and conditions as they
existed and could be evaluated on the date of its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney. With respect to the
financial forecasts of Promus and Hilton, Salomon Smith Barney has assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Promus and Hilton as to
the future financial performance of Promus and Hilton and Salomon Smith Barney
expresses no opinion with respect to such forecasts. Salomon Smith Barney did
not make and was not provided with an independent evaluation or appraisal of any
of the assets or liabilities (contingent or otherwise) of Promus or Hilton nor
did Salomon Smith Barney make any physical inspection of the properties,
facilities or assets of Promus and Hilton.
At the meeting of the Promus board of directors held on September 3, 1999,
Salomon Smith Barney made a presentation to the Promus board of directors
regarding the acquisition. The following is a summary of the material financial
analyses of Salomon Smith Barney included in such presentation:
PUBLIC MARKET VALUATION. Using publicly available information, Salomon
Smith Barney analyzed the market values and trading multiples of the following
five publicly traded companies in the lodging industry:
- Choice Hotels
- Marriott International, Inc.
- Hilton
- Starwood Hotels & Resorts Worldwide, Inc.
- Wyndham International, Inc.
Salomon Smith Barney compared, among other things, equity values as a
multiple of estimated calendar years 1999 and 2000 earnings per share, commonly
called "EPS," and firm values, calculated as equity value, plus total debt and
minority interests, less cash, as multiples of estimated calendar year 1999 and
2000 earnings before interest, taxes, depreciation and amortization, commonly
called "EBITDA." All multiples were based on closing stock prices on September
2, 1999. Estimated financial data for the selected lodging companies were based
on publicly available research analysts' estimates and estimated financial data
for Promus were based on internal estimates of the management of Promus.
Applying a range of multiples derived from the selected lodging companies of
estimated calendar 1999 and 2000 EPS and estimated calendar 1999 and 2000 EBITDA
to corresponding financial data of Promus resulted in an implied equity
reference range for Promus of approximately $33.98 to $38.98 per share, as
compared to the acquisition consideration of approximately $38.50 per share.
52
PRIVATE MARKET VALUATION. Using publicly available information, Salomon
Smith Barney reviewed the purchase prices and implied transaction value
multiples paid or proposed to be paid in the following 12 selected transactions
in the lodging industry:
ACQUIROR TARGET
- --------------------------------------------------------- ----------------
Westbrook Partners....................................... Sunstone
Accor.................................................... Red Roof Inns
Hilton Plc............................................... Stakis
Felcor................................................... Bristol
CapStar.................................................. American General
Bass Plc................................................. Inter-Continental
Meditrust................................................ La Quinta Inns
Patriot American......................................... Interstate
Starwood................................................. ITT
Patriot American......................................... Wyndham Hotels
Marriott................................................. Renaissance
Doubletree............................................... Red Lion
Salomon Smith Barney compared purchase prices in the selected transactions
as a multiple of one-year forward EBITDA. All multiples were based on publicly
available financial information for the relevant transaction. Applying a range
of multiples derived from the selected transactions of one-year forward EBITDA
to estimated calendar year 2000 EBITDA of Promus resulted in an implied equity
reference range for Promus of approximately $44.67 to $56.16 per share, as
compared to the acquisition consideration of approximately $38.50 per share.
Salomon Smith Barney also employed the concept of an adjusted forward EBITDA
multiple analysis, which it believed was a more appropriate valuation measure
than that described in the previous paragraph given the current market
circumstances. The averages of the forward price to earnings multiples for
Marriott International, Hilton and Choice Hotels for the period January 1997 to
May 1998 were compared to those for the period May 1998 to July 1999. This
analysis revealed that the average multiples for the latter period were 26% less
than the earlier period. This discount of 26% was then applied to the forward
multiples of the precedent transactions that were announced in the January 1997
to May 1998 time period to derive an adjusted forward EBITDA multiple. Applying
a range of multiples derived from the adjusted forward multiple EBITDA analysis
to Promus' 2000 EBITDA resulted in an implied equity reference range for Promus
of approximately $34.23 to $43.41 per share, as compared to acquisition
consideration of approximately $38.50 per share.
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney performed a
discounted cash flow analysis of Promus to estimate a range of values for the
Promus common stock. The discounted cash flow analysis for Promus was based upon
certain financial forecasts for the years 1999 through 2003 prepared by the
management of Promus. Salomon Smith Barney performed a discounted cash flow
analysis of Promus in order to determine the aggregate net present value of the
unlevered free cash flows of Promus' businesses, net of the outstanding debt
balances. A terminal value multiple range of 8.5x to 10.5x was applied to the
projected EBITDA in year 2003. The unlevered free cash flows were then
discounted to present value using discount rates ranging from 9.5% to 11.5%.
This analysis of the forecasts for Promus indicated an implied equity value
range per share of Promus common stock of approximately $35.03 to $40.31 on a
fully diluted basis, as compared to the acquisition consideration of
approximately $38.50 per share.
Salomon Smith Barney also performed a discounted cash flow analysis of
Hilton to estimate a range of values for the common stock of Hilton. The
discounted cash flow analysis for Hilton was based upon certain financial
forecasts for the years 1999 through 2003 prepared by the management of
53
Hilton. Salomon Smith Barney performed a discounted cash flow analysis of Hilton
in order to determine the aggregate net present value of the unlevered free cash
flows of Hilton's businesses, net of the full payment of outstanding debt
balances. A terminal value multiple range of 7.5x to 9.5x was applied to the
projected EBITDA in year 2003. The unlevered free cash flows were then
discounted to present value using discount rates ranging from 10.0% to 12.0%.
This analysis of the forecasts for Hilton indicated an implied equity value
range per share of Hilton common stock of approximately $12.96 to $16.72 on a
fully diluted basis.
OTHER FACTORS. In rendering its opinion, Salomon Smith Barney also
reviewed and considered, among other things:
- a business, financial and shareholder profile of Promus and Hilton;
- the relationship between movements in Promus common stock and movements in
the common stock of selected companies in the lodging industry and the
relationship between movements in Hilton stock and movements in selected
companies in the lodging industry; and
- selected analysts' reports on Hilton, including reports containing 1999
and 2000 EPS estimates.
In preparing its opinion to the Promus board of directors, Salomon Smith
Barney performed a variety of financial and comparative analyses, including
those described above, in connection with its opinion dated September 3, 1999.
The summary of described analyses does not purport to be a complete description
of the analyses underlying Salomon Smith Barney's opinion. The preparation of a
fairness opinion is a complex analytic process involving various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of such analyses or any of the individual factors considered,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and its opinion. In
its analyses, Salomon Smith Barney made numerous assumptions with respect to
Promus, industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Promus.
The estimates contained in such analyses and the valuation ranges resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
Pursuant to the terms of Salomon Smith Barney's engagement, Promus has
agreed to pay Salomon Smith Barney for its services in connection with the
acquisition an estimated financial advisory fee of $14 million, a substantial
portion of which is contingent upon the consummation of the acquisition. Promus
has also agreed to indemnify Salomon Smith Barney and related persons against
certain liabilities, including liabilities under the federal securities laws,
arising out of Salomon Smith Barney's engagement.
Salomon Smith Barney has advised Promus that, in the ordinary course of
business, Salomon Smith Barney and its affiliates may actively trade or hold the
securities of Promus and Hilton for their own account or for the account of
customers and, accordingly, may at any time hold a long or short position in
such securities. Salomon Smith Barney has in the past provided certain
investment banking services to Hilton unrelated to the acquisition, for which
services Salomon Smith Barney has received customary compensation. In addition,
Salomon Smith Barney and its affiliates, including Citigroup Inc. and its
affiliates, may maintain relationships with Promus, Hilton and their respective
affiliates.
54
Salomon Smith Barney is a nationally recognized investment banking firm and
was selected by Promus based on its experience, expertise and familiarity with
Promus and Promus' business. Salomon Smith Barney regularly engages in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY DATED
SEPTEMBER 3, 1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX D AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF PROMUS COMMON STOCK ARE URGED TO
READ THIS OPINION CAREFULLY IN ITS ENTIRETY. SALOMON SMITH BARNEY'S OPINION IS
ADDRESSED TO THE BOARD OF DIRECTORS OF PROMUS AND RELATES ONLY TO THE FAIRNESS,
FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS
OF PROMUS COMMON STOCK IN THE ACQUISITION AND DOES NOT ADDRESS ANY OTHER ASPECT
OF THE ACQUISITION OR RELATED TRANSACTIONS. THE SUMMARY OF THE OPINION OF
SALOMON SMITH BARNEY SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
STRUCTURE OF THE ACQUISITION
In the acquisition, each share of Promus common stock other than shares held
by Hilton, Promus or any of their respective subsidiaries and shares with
respect to which dissenters' appraisal rights have been perfected will be
converted into either $38.50 in cash or a number of shares of Hilton common
stock determined as described elsewhere in this joint proxy
statement/prospectus, such that 55% of the number of shares of Promus common
stock outstanding immediately prior to the closing will be converted into cash
and the remaining 45% of the Promus shares will be converted into Hilton common
stock.
As long as the value of the Hilton common stock delivered in the acquisition
is at least 40% of the total consideration described below, the transaction will
be effected using the forward merger structure, under which Promus will merge
into PRH Acquisition, and PRH Acquisition will be the surviving corporation.
However, the companies will not use the forward merger structure in either of
the following circumstances:
- on the closing date, the fair market value, based on the volume weighted
average per share sales price of Hilton common stock on that day on the
NYSE, of all shares of Hilton common stock to be delivered in the
acquisition is less than 40% of the sum of:
-- the cash consideration paid in the acquisition, determined by:
* adding together the total number of shares of Promus common stock
that receive cash consideration in the acquisition and the total
number of shares of Promus common stock for which dissenters'
rights are exercised, and
* multiplying that number by $38.50;
-- $14.2 million, which is the amount of cash paid by Hilton to acquire
shares of Promus common stock within the two-year period before the
date of the acquisition; and
-- the fair market value of all shares of Hilton common stock to be
delivered in the acquisition; or
- the tax opinions described under "The Merger Agreement--Conditions to the
Completion of the Acquisition," on page 75 cannot otherwise be delivered,
assuming that the legally required minimum percentage of stock
consideration under the continuity of interest test applicable pursuant to
U.S. Treasury Regulations promulgated under the Internal Revenue Code is
40%.
55
Under either of these circumstances, the companies will implement the reverse
merger structure, under which PRH Acquisition will merge into Promus and Promus
will be the surviving corporation and a wholly-owned subsidiary of Hilton. The
purpose of this modification to the structure is to avoid the substantial
corporate level tax that would result if the acquisition were to be structured
as a forward merger and were to fail to satisfy the requirements for a tax-free
reorganization under Section 368(a) of the Internal Revenue Code.
The tax consequences to the Promus stockholders under each of the
acquisition structures will differ, and the structure will not be determined
until immediately before closing. As a result, Promus stockholders will not know
at the time they vote what the tax consequences of the acquisition will be.
These tax consequences are discussed in the section titled "The
Acquisition--Certain Federal Income Tax Consequences of the Acquisition" on page
60.
As an alternative to both the forward merger structure and the reverse
merger structure, the merger agreement provides that the companies will use
their best efforts to implement a holding company structure if both Hilton and
Promus agree that a holding company structure will not result in any material
adverse consequences under any material indebtedness of Hilton. Under this
structure, Hilton and Promus would form a new holding company, which in turn
would form two wholly-owned subsidiaries. One subsidiary would merge into
Hilton, with Hilton being the surviving corporation, and the other subsidiary
would merge into Promus, with Promus being the surviving corporation. As a
result, both Hilton and Promus would become subsidiaries of the new holding
company.
Under this structure, the stock consideration component of the acquisition
would be satisfied by the issuance of holding company common stock and each
outstanding share of Hilton common stock would be converted into one share of
holding company common stock. Promus stockholders would receive holding company
common stock based on the exchange ratio calculated on the Hilton common stock
trading price described in "The Merger Agreement--Consideration to be Received
for Promus Common Stock in the Acquisition," and Hilton stockholders would have
their Hilton shares converted into holding company shares on a one-for-one
basis. The result would be that Hilton and Promus stockholders would hold
holding company common stock in the same proportions as they would have held
Hilton common stock if either of the other structures had been used.
Implementation of the holding company structure would require amendments to the
merger agreement and a supplement to this joint proxy statement/prospectus.
Since Hilton and Promus have not agreed that the holding company structure will
not result in material adverse consequences under any material indebtedness of
Hilton, we do not currently intend to implement the holding company structure.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
In considering the recommendation of the Promus board of directors to
approve the acquisition, Promus stockholders should consider that some of
Promus' directors and officers have interests in the acquisition that differ
from, or are in addition to, their interests as Promus stockholders. Promus'
directors and officers may receive benefits from the acquisition not available
to Promus stockholders generally. The Promus board of directors was aware of
these interests and considered them, among other matters, in approving the
merger agreement and the transactions contemplated by the merger agreement.
DIRECTORS AND EXECUTIVE OFFICERS
See "Hilton After the Acquisition--Management" on page 78.
INCENTIVE COMPENSATION AND STOCK OWNERSHIP ARRANGEMENTS
Promus' key management employees and directors are participants in incentive
compensation and stock ownership plans currently maintained by Promus.
Generally, options outstanding under these
56
plans contain change of control provisions that provide for accelerated vesting
upon completion of the vote of Promus stockholders approving the acquisition.
Under the merger agreement, generally, each outstanding Promus employee and
directors stock option will be canceled at the closing of the acquisition, and
Promus or Hilton will pay the holder of the stock option, at or promptly after
the effective time, an amount in cash determined by multiplying:
- the excess, if any, of $38.50 over the applicable exercise price of such
Promus stock option by
- the number of Promus shares the option holder could have purchased,
assuming full vesting of the option, had the holder exercised the option
in full immediately prior to the effective time.
The following table shows the number of unvested options held by individuals
who were Promus' seven most highly compensated executive officers as of the end
of 1998, all other executive officers as a group, and all other directors as a
group, as well as the aggregate value of the unvested options, which are subject
to accelerated vesting as discussed earlier, assuming the acquisition is
completed on November 30, 1999. Unless otherwise noted, the information in the
following table is as of October 15, 1999.
NUMBER OF UNVESTED AGGREGATE VALUE OF
PROMUS OPTIONS THAT UNVESTED OPTIONS THAT
ACCELERATE AS A RESULT OF ACCELERATE AS A RESULT OF
NAME AND PRINCIPAL POSITIONS THE ACQUISITION(1) THE ACQUISITION(2)
- ---------------------------- ------------------------- -------------------------
Norman P. Blake, Jr., Chairman of the Board,
President and Chief Executive Officer.......... 800,000 $ 3,500,000
Raymond E. Schultz, former Chairman of the Board
and Chief Executive Officer(3)................. 187,500 --
Richard M. Kelleher, former President and Chief
Operating Officer(4)........................... 150,000 --
William L. Perocchi, former Executive Vice
President and Chief Financial Officer(5)....... 112,500 --
Thomas L. Keltner, President-- Brand Performance
and Development Group(6)....................... 193,750 $ 343,750
Thomas W. Storey, Executive Vice President--
Corporate Strategic Planning and Venture
Operations(7).................................. 243,750 $ 768,750
M. Ann Rhoades, former Executive Vice
President--Team Services(8).................... --
All other executive officers as a group (5
persons)....................................... 652,500 $ 2,523,438
All other directors as a group (13 persons)..... 105,000 $ 79,375
- --------------------------
(1) This represents the number of options estimated to be unvested as of
November 30, 1999.
(2) The estimated value of unvested options shown in this table reflects the
difference between $38.50 per share and the applicable option exercise
price, if any.
(3) Mr. Schultz retired as the Chairman of the Board and Chief Executive Officer
of Promus on December 3, 1998.
(4) Mr. Kelleher resigned as the President and Chief Operating Officer and as a
director of Promus on December 3, 1998.
(5) Mr. Perocchi resigned as an Executive Vice President and Chief Financial
Officer of Promus on January 11, 1999.
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(6) Mr. Keltner was an Executive Vice President and the Chief Development
Officer of Promus during 1998 and until his election to his current position
effective as of February 16, 1999.
(7) Mr. Storey was the Executive Vice President--Sales, Marketing and
Reservations of Promus during 1998 and until his election to his current
position effective as of February 16, 1999.
(8) Ms. Rhoades resigned as an Executive Vice President--Team Services of Promus
on March 31, 1999.
Independent directors who have been awarded deferred shares of Promus common
stock under the Promus Hotel Corporation 1996 Non-Management Director Incentive
Plan or the Independent Director Equity Participation Program under The 1997
Equity Participation Plan of Promus Hotel Corporation will have the same
opportunity to elect to receive cash or Hilton common stock for the deferred
shares, subject to proration, as Promus stockholders. As of October 15, 1999,
independent directors as a group were credited with 11,057 deferred shares of
Promus common stock under these two plans.
A more detailed description of the benefits under Promus' incentive
compensation and stock ownership plans may be found in Promus' 1998 Proxy
Statement under the heading "Executive Officer Compensation."
SEVERANCE AGREEMENTS AND ARRANGEMENTS
Specified Promus employees, including all executive officers named in the
preceding table, are parties to employment or severance agreements. Among other
things, the agreements provide for a lump sum payment based on a specified
multiple of annual base salary, bonus amount and a benefit allowance equal to
25% of the officer's then current annual base salary, as well as the payment of
earned or accrued and other customary severance benefits, in the event of a
termination of employment under circumstances specified in the agreements. An
executive officer who is covered by an employment or severance agreement is
entitled to receive severance benefits if (x) Hilton or the surviving
corporation terminates his or her employment without "cause," as defined in the
agreement, or (y) the executive terminates his or her employment with "good
reason," as defined in the agreement, in either case within two years following
the acquisition. For this purpose, "good reason" generally includes the
executive's voluntary termination for any reason within the 30-day period
immediately following the first anniversary of the completion of the
acquisition, except that under the agreements applicable to Messrs. Blake and
Keltner, "good reason" includes the executive's voluntary termination for any
reason during the two-year period following completion of the acquisition. In
connection with the merger agreement, Promus has also agreed to pay relocation
benefits to certain of its executive officers in the event of a termination of
their employment that results in the payment of severance benefits, in an amount
sufficient to make such officers whole for the costs (including loss in home
value) incurred in moving to another city.
Under the agreements, officers receiving severance benefits agree for a
two-year period to certain restrictions relating to confidentiality,
nonsolicitation of Promus employees and non-interference with hotel development
opportunities. They also agree for a period of three years to cooperate with
Promus on matters with which they were involved while employed.
Under the agreements, Promus is required, if necessary, to make an
additional gross-up payment to any covered employee to offset fully the effect
of any excise tax imposed by Section 4999 of the Internal Revenue Code on any
excess parachute payment, whether made to that employee under his or her
severance agreement or otherwise.
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The following table shows the estimated amount of aggregate severance
benefits which would be payable under these agreements to each individual who
was one of Promus' seven most highly compensated executive officers as of the
end of 1998, and all other executive officers as a group. The information in the
following table is as of October 15, 1998.
ESTIMATED AMOUNT OF
AGGREGATE SEVERANCE
NAME BENEFITS(1)
- ---- -------------------
Norman P. Blake, Jr....................................... $3,885,000
Raymond E. Schultz........................................ N/A
Richard M. Kelleher....................................... N/A
William L. Perocchi....................................... N/A
Thomas L. Keltner......................................... $2,358,750
Thomas W. Storey.......................................... $2,081,250
M. Ann Rhoades............................................ N/A
All other executive officers as a group (5 persons)....... $7,908,750
- ------------------------
(1) Amounts do not include the value of gross-up payments for excise tax under
Section 4999 of the Internal Revenue Code, or of the relocation benefits
payable in accordance with the merger agreement upon specified terminations
of employment.
A more detailed description of the severance benefits payable under these
agreements may be found in Promus' 1998 Proxy Statement under the heading
"Executive Officer Compensation--Severance Agreements."
Promus also maintains more broadly based severance agreements and plans that
will provide benefits to its other officers and employees in the event of
termination of employment under certain circumstances following the acquisition.
ARRANGEMENTS WITH MR. BLAKE
Norman P. Blake, Jr. serves as the Chairman of the Board, President and
Chief Executive Officer of Promus pursuant to an employment agreement entered
into as of December 3, 1998, and is also a party to a severance agreement
entered into as of January 13, 1999. Promus and Mr. Blake have agreed to
arrangements relating to the termination of Mr. Blake's employment effective
upon the closing of the acquisition. Pursuant to these arrangements, the parties
confirmed that the termination of Mr. Blake's employment on that date would be a
"Covered Termination" entitling him to severance benefits under his existing
severance agreement. The estimated amount of these severance benefits is stated
in the table above. In addition, Promus agreed to pay Mr. Blake an aggregate
amount of $5,128,000, minus withholding taxes, in full satisfaction of other
rights to benefits and entitlements under his employment and severance
agreements. The arrangements also confirm Mr. Blake's right to lifetime medical
benefits for himself and his wife, in accordance with his employment agreement.
More detailed descriptions of the terms of Mr. Blake's existing employment and
severance agreements may be found in Promus' 1998 Proxy Statement under the
headings "Executive Officer Compensation--Employment Agreements--Norman P.
Blake, Jr." and "Executive Officer Compensation--Severance Agreements--Norman P.
Blake, Jr."
DEFERRED COMPENSATION BENEFITS
Promus' Capital Accumulation Plan for Executives, a deferred compensation
plan in which many of Promus' executive officers participate, provides that upon
completion of a transaction such as the acquisition, participants will vest,
upon termination of employment within 24 months, in the right to a higher
interest crediting rate on their account balances than would otherwise apply.
59
In addition, certain funding arrangements maintained in connection with
Promus' deferred compensation plans, including the Capital Accumulation Plan for
Executives, contain provisions requiring enhanced or accelerated contributions
by Promus in the event of a transaction such as the acquisition. Any additional
funding required upon completion of the acquisition will serve as additional
security for the payment of benefits under the deferred compensation plans, but
will not itself affect the level of benefits to which participants are entitled
under the plans' terms.
OTHER EMPLOYEE BENEFITS
See "The Merger Agreement--Covenants Regarding Conduct of Business Before
the Acquisition" on page 73.
DIRECTORS' AND OFFICERS' INSURANCE; INDEMNIFICATION OF PROMUS DIRECTORS AND
OFFICERS
See "The Merger Agreement--Covenants Regarding Conduct of Business Before
the Acquisition" on page 73, "Comparison of Stockholder Rights--Limitation of
Liability of Directors" on page 92 and "--Indemnification of Directors and
Officers" on page 92.
GOVERNMENTAL AND REGULATORY MATTERS
We have filed the notifications required under the Hart-Scott-Rodino Act
and, on October 14, 1999, the required waiting period was terminated. The
Justice Department, the Federal Trade Commission or any state or foreign
governmental authority could take action under the antitrust laws as it deems
necessary in the public interest. This action could include seeking to enjoin
the acquisition or seeking Hilton's divestiture of Promus or Promus' divestiture
of all or some portion of its business. Private parties may also seek to take
legal action under the antitrust laws under certain circumstances.
Based on information available to us, we believe that the acquisition will
comply with all significant federal, state and foreign antitrust laws. We cannot
assure you, however, that there will not be a challenge to the acquisition on
antitrust grounds or that, if this challenge were made, we would prevail.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
The following discussion is a summary of the material federal income tax
consequences of the acquisition to Promus stockholders who hold their shares of
Promus common stock as capital assets. This summary is based upon provisions of
the Internal Revenue Code, applicable Treasury regulations promulgated under the
Internal Revenue Code, and judicial and administrative decisions currently in
effect. All of these authorities are subject to retroactive or prospective
change and to possibly differing interpretations. This discussion does not
address the federal income tax consequences applicable to holders of Promus
common stock who are subject to special treatment under the Internal Revenue
Code, such as foreign holders, holders who acquired their stock pursuant to the
exercise of employee stock options or otherwise as compensation, holders who are
dealers in securities, banks, insurance companies or tax exempt organizations,
and holders who hold their shares of Promus or Hilton common stock as part of a
hedge, straddle, or other risk reduction transaction. In addition, this
discussion does not address the tax consequences of the acquisition under
applicable foreign, state or local tax laws. STOCKHOLDERS ARE URGED TO CONSULT
WITH THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE ACQUISITION,
INCLUDING THE EFFECTS OF STATE, LOCAL AND FOREIGN TAX LAWS.
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SUMMARY
The federal income tax consequences resulting from the acquisition will
differ depending on whether the forward merger structure or the reverse merger
structure is used.
- If the forward merger structure is used, Hilton will receive an opinion
from its counsel, Gibson, Dunn & Crutcher LLP, and Promus will receive an
opinion from its counsel, Davis Polk & Wardwell, substantially to the
effect that the acquisition will qualify as a reorganization under Section
368(a) of the Internal Revenue Code. The federal income tax consequences
of the forward merger structure are discussed below under the heading "Tax
Consequences of the Forward Merger Structure" on page 62.
- If the reverse merger structure is used, the acquisition will not
constitute a reorganization under Section 368(a). Instead, it will be
treated as a sale of Promus common stock fully taxable to the Promus
stockholders as discussed below under the heading "Tax Consequences of the
Reverse Merger Structure" on page 64.
We will not know until the closing of the acquisition whether the forward
merger structure or the reverse merger structure will be used. As a result,
Promus stockholders will not know the tax consequences to them of the
acquisition at the time they vote on it. THE FORWARD MERGER STRUCTURE WILL BE
USED IF THE ACQUISITION QUALIFIES AS A REORGANIZATION UNDER SECTION 368(A) OF
THE INTERNAL REVENUE CODE. IF THE ACQUISITION DOES NOT SO QUALIFY, THE REVERSE
MERGER STRUCTURE WILL BE USED. The purpose of using the reverse merger structure
is to avoid the substantial corporate level tax that would result if the
acquisition were to be structured as a forward merger and were to fail to
satisfy the requirements for a tax-free reorganization under Section 368(a) of
the Internal Revenue Code. One of the requirements that must be satisfied in
order for the acquisition to qualify as a reorganization under Section
368(a) of the Internal Revenue Code is the continuity of interest requirement.
This requirement will be satisfied if the Promus stockholders exchange a
substantial portion of their proprietary interests in Promus for proprietary
interests in Hilton. The Internal Revenue Service takes the position for advance
ruling purposes that the continuity of interest requirement is satisfied in a
reorganization if the value of the acquiring corporation's stock received in the
reorganization by the acquired corporation's stockholders equals or exceeds 50%
of the total consideration paid for the stock of the acquired corporation in the
reorganization. However, these guidelines only describe the circumstances in
which the Internal Revenue Service will issue a favorable ruling in advance of
the completion of a transaction. They are not a statement of the substantive law
with regard to the continuity of interest requirement. The case law is less
restrictive than the ruling guidelines of the Internal Revenue Service in this
area and, in one early case, the Supreme Court held that the continuity
requirement was satisfied where the stockholders of the acquired company
received stock of the acquiring company having a value of approximately 38% of
the value of the formerly outstanding stock of the acquired company. Hilton and
Promus have thus been advised by their respective tax counsel that the
continuity of interest requirement will be satisfied if at least 40% of the
consideration received by the Promus stockholders in connection with the
acquisition is comprised of Hilton common stock.
The merger agreement contains a mechanism to ensure that the forward merger
structure is used only if the mix of stock and cash received by the Promus
stockholders is such that it satisfies the 40% continuity of interest threshold.
Pursuant to the merger agreement, the continuity of interest requirement will be
satisfied if on the closing date, the fair market value of the Hilton common
stock, as determined based on the volume weighted average per share sales price
of that stock on that date, delivered in the acquisition is greater than or
equal to 40% of the total consideration delivered in the acquisition. Whether
this requirement will be satisfied depends on certain variables, including in
particular the volume weighted average price of the Hilton common stock on the
closing date. Based on current information, if the price of Hilton common stock
on that date is at least $9.84, the value of the Hilton common stock delivered
to the Promus stockholders in connection with the acquisition will
61
be at least 40% of the value of the total consideration delivered to Promus
stockholders in the acquisition. In that case, the continuity of interest test
will be satisfied and the acquisition will be completed through the use of the
forward merger structure and will qualify as a reorganization under Section
368(a) of the Internal Revenue Code. However, if the price of Hilton common
stock on that date declines below $9.84, the value of the Hilton common stock
delivered to the Promus stockholders in the acquisition will be less than 40% of
the total consideration delivered to Promus stockholders in the acquisition. In
this event, the continuity of interest requirement will not be satisfied and the
acquisition will be completed through the use of the reverse merger structure
and will not qualify as a reorganization under Section 368(a) of the Internal
Revenue Code. Because the value of the Hilton common stock for purposes of the
40% test will be determined on the closing date, we will not know at the time of
the stockholder meeting whether the acquisition will qualify as a reorganization
under Section 368(a) of the Internal Revenue Code and, therefore, whether the
forward merger structure or the reverse merger structure will be used.
TAX CONSEQUENCES OF THE FORWARD MERGER STRUCTURE
If we use the forward merger structure, as conditions to the consummation of
the acquisition, Gibson, Dunn & Crutcher LLP and Davis Polk & Wardwell will give
opinions that the acquisition will qualify as a reorganization under Section
368(a) of the Internal Revenue Code. If the acquisition qualifies as a
reorganization, the federal income tax consequences of the acquisition to a
Promus stockholder will depend on whether the stockholder receives solely Hilton
common stock, solely cash, or a combination of cash and Hilton common stock in
the acquisition. The opinion of each counsel will represent counsel's best
judgment as to the tax treatment of the acquisition and as to the consequences
of the acquisition to Promus stockholders, but will not be binding on the
Internal Revenue Service or the courts. Additionally, these opinions will be
based on certain factual representations and statements by Hilton, Promus and
PRH Acquisition. Any inaccuracy or change in the representations and any future
actions by Hilton or Promus contrary to the representations could adversely
affect the conclusions reached in the opinions and the tax discussion set forth
below.
THE RECEIPT OF SOLELY HILTON COMMON STOCK BY A PROMUS STOCKHOLDER IN
EXCHANGE FOR PROMUS COMMON STOCK UNDER THE FORWARD MERGER STRUCTURE
A Promus stockholder who exchanges all of the shares of Promus common stock
owned by the stockholder for shares of Hilton common stock will not recognize
any gain or loss upon the exchange, except for any gain or loss attributable to
any cash received in lieu of a fractional share of Hilton common stock. The
aggregate tax basis of the shares of Hilton common stock received by the
stockholder in the exchange will be the aggregate tax basis of the shares of
Promus common stock surrendered in the exchange. Also, the stockholder's holding
period for the Hilton common stock received in exchange for shares of Promus
common stock will include the period during which the stockholder held shares of
Promus common stock that were surrendered in the exchange.
THE RECEIPT OF A COMBINATION OF CASH AND HILTON COMMON STOCK BY A PROMUS
STOCKHOLDER IN EXCHANGE FOR PROMUS COMMON STOCK UNDER THE FORWARD MERGER
STRUCTURE
A Promus stockholder who exchanges the shares of Promus common stock owned
by the stockholder for a combination of cash and shares of Hilton common stock
will not recognize any loss on the exchange. However, the stockholder will
recognize gain equal to the lesser of the amount of cash received and the gain
realized. The gain realized will be the excess of the sum of the fair market
value of Hilton common stock and the amount of cash received in exchange for the
stockholder's shares of Promus common stock that were surrendered in the
exchange over the stockholder's adjusted tax basis in those shares. For this
purpose, a Promus stockholder must calculate gain or loss separately for each
identifiable block of shares of Promus common stock that is surrendered in the
exchange, and
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the Promus stockholder may not offset a loss recognized on one block of the
shares against gain recognized on another block of the shares.
Any gain recognized by a Promus stockholder who receives a combination of
Hilton common stock and cash will generally be treated as capital gain. However,
if the receipt of the cash has "the effect of the distribution of a dividend"
for federal income tax purposes, any gain recognized by the stockholder will be
treated as ordinary dividend income to the extent of the stockholder's ratable
share of the accumulated earnings and profits of Hilton and/or Promus. Any gain
that is treated as capital gain will be long-term capital gain if the holding
period for shares of Promus common stock that are surrendered in the exchange is
greater than one year as of the date of the exchange.
For purposes of determining whether the cash received has the effect of a
distribution of a dividend for federal income tax purposes, a Promus stockholder
is treated as if the stockholder first exchanged all of the stockholder's shares
of Promus common stock solely for Hilton common stock and then Hilton
immediately redeemed a portion of the Hilton common stock in exchange for the
cash the stockholder actually received. This is called a "deemed redemption."
Under this analysis, in general, if the receipt of cash by the holder in the
deemed redemption results in a "substantially disproportionate" reduction in the
holder's voting stock interest in Hilton or is "not essentially equivalent to a
dividend," the receipt of the cash will not have the effect of the distribution
of a dividend.
The deemed redemption will be "substantially disproportionate," and,
therefore, will not have the effect of a distribution of a dividend with respect
to a Promus stockholder if the percentage of the outstanding Hilton common stock
that is actually and constructively owned by the stockholder immediately after
the deemed redemption is less than 80% of the percentage of the outstanding
Hilton common stock that is considered to be actually and constructively owned
by the stockholder immediately before the deemed redemption. The deemed
redemption will not be "essentially equivalent to a dividend," and, therefore,
will not have the effect of a distribution of a dividend with respect to a
Promus stockholder if it results in a "meaningful reduction" in the
stockholder's proportionate interest in Hilton. If a stockholder that is
considered to have a relatively minimal stock interest in Hilton and no right to
exercise control over corporate affairs suffers a reduction in the stockholder's
proportionate interest in Hilton, the stockholder should be regarded as having
suffered a meaningful reduction of his or her interest in Hilton. For example,
the Internal Revenue Service has held in a published ruling that, in the case of
a less than 1% stockholder who does not have management control over the
corporation, any reduction in the stockholder's proportionate interest will
constitute a "meaningful reduction."
In applying this deemed redemption analysis, certain attribution rules apply
in determining a Promus stockholder's ownership interest in Hilton immediately
after the acquisition, but before the deemed redemption, and after the deemed
redemption. Under those rules, a Promus stockholder is deemed to own stock held
by certain family members, estates and trusts of which the stockholder is a
beneficiary, a partnership in which the stockholder is a partner, and a
corporation in which the stockholder is a direct or indirect 50% stockholder, as
well as stock subject to options that are held by the stockholder or the
entities. Because these constructive ownership rules are complex, each Promus
stockholder who believes that he or she may be subject to these rules should
consult his or her tax advisor.
The aggregate tax basis of the Hilton common stock received by a Promus
stockholder who exchanges his or her shares of Promus common stock for a
combination of Hilton common stock and cash will be the same as the aggregate
tax basis of the shares Promus common stock surrendered in the exchange,
decreased by the amount of cash received, and increased by the amount of gain
recognized, including any portion of the gain that is treated as a dividend. The
holding period of the Hilton common stock received will include the holding
period of the shares of Promus common stock surrendered in exchange therefor. If
a Promus stockholder has differing tax bases and/or holding periods with respect
to the stockholder's shares of Promus common stock that the stockholder
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surrenders in the exchange, the stockholder should consult a tax advisor in
order to identify the particular tax bases and/or holding periods of the
particular shares of Hilton common stock received in the exchange.
THE RECEIPT OF SOLELY CASH BY A PROMUS STOCKHOLDER IN EXCHANGE FOR PROMUS
COMMON STOCK UNDER THE FORWARD MERGER STRUCTURE
Currently, the state of the law is unclear as to the analysis that must be
applied in determining the federal income tax consequences to a Promus
stockholder who exchanges all of the shares of Promus common stock owned by the
stockholder solely for cash. The stockholder may be treated as:
- having sold his or her shares of Promus common stock in a taxable sale or
exchange;
- having received shares of Hilton common stock in the merger of Promus into
PRH Acquisition and having had the shares redeemed by Hilton immediately
after the acquisition; or
- having had his or her shares of Promus common stock redeemed by Promus
prior to the merger.
However, in most circumstances, both the sales analysis and the redemption
analysis will yield the same tax result to the Promus stockholder.
If the sales analysis is applied, the Promus stockholder will recognize gain
or loss, measured by the difference between the amount of cash received and the
adjusted tax basis of the Promus common stock surrendered in exchange for the
cash.
If the redemption analysis is applied, the Promus stockholder will be
treated as having exchanged the Promus stock held by the stockholder for cash,
rather than having received a dividend distribution, if, after applying the
attribution rules discussed above, the redemption is:
- in complete redemption of all of the Promus stockholder's stock in either
Hilton or Promus, as the case may be;
- a substantially disproportionate reduction in the holder's voting stock
interest in either Hilton or Promus, as the case may be; or
- not essentially equivalent to a dividend.
If the redemption qualifies as an exchange, a Promus stockholder will
recognize any gain or loss realized on the exchange. If the redemption does not
qualify as an exchange, the cash received by the Promus stockholder will be
treated as a dividend distribution, and thus as ordinary income, to the extent
of the current and accumulated earnings and profits of the redeeming
corporation. Any excess will be treated as gain from the sale or exchange of the
Promus stock held by the stockholder. However, under those circumstances, the
Promus stockholder will not be permitted to recognize any loss.
Given the unclear state of the law with respect to the exchange of Promus
stock solely for cash, Promus stockholders who will receive solely cash are
urged to consult their own tax advisors with regard to the receipt of cash.
TAX CONSEQUENCES OF THE REVERSE MERGER STRUCTURE
If we complete the acquisition through the use of the reverse merger
structure, the obligations of Hilton and Promus to consummate the acquisition
will not be conditioned upon the issuance of opinions by tax counsel, and the
acquisition will not constitute a reorganization under Section 368(a). Instead,
it will be treated as a sale of Promus stock fully taxable to the Promus
stockholders. In this case, each Promus stockholder will recognize gain or loss
equal to the difference between:
- the amount of cash plus the fair market value of the Hilton common stock
received; and
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- the stockholder's adjusted tax basis in the shares of Promus common stock
surrendered in the exchange.
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES
A Promus stockholder who receives cash in lieu of a fractional share of
Hilton common stock will recognize gain or loss equal to the difference between
the amount of cash received and the portion of the adjusted tax basis of the
stockholder's shares of Promus common stock that are allocable to the fractional
interest. Such gain or loss will constitute capital gain or loss, and will
generally be long-term capital gain or loss if the holding period for the shares
was greater than one year as of the date of the exchange.
TRANSFER TAXES
Pursuant to the merger agreement, Hilton will pay certain federal, state,
local, foreign or provincial tax that is attributable to the transfer of real
property by Promus or its subsidiaries or that is attributable to the transfer
of Promus common stock or Hilton common stock and that arises from the
acquisition. Payments attributable to the transfer of Promus common stock may be
considered for federal income tax purposes to be additional consideration paid
to each holder of Promus common stock. In that event, each holder would be
treated as if the holder received cash equal to the amount of the taxes that are
paid on its behalf, which could result in additional taxable gain to the holder
and a corresponding increase in tax basis of the holder's shares of Hilton
common stock.
BACKUP WITHHOLDING
Under the Internal Revenue Code, a Promus stockholder may be subject, under
certain circumstances, to backup withholding at a 31% rate with respect to the
amount of consideration received pursuant to the acquisition unless the holder
provides proof of an applicable exemption or a correct taxpayer identification
number and otherwise complies with applicable requirements of the backup
withholding rules. Any amounts withheld under the backup withholding rules are
not an additional tax and may be refunded or credited against the holder's
federal income tax liability, provided the required information is furnished to
the Internal Revenue Service.
THE ABOVE DISCUSSION MAY NOT APPLY TO CERTAIN CATEGORIES OF STOCKHOLDERS
SUBJECT TO SPECIAL TREATMENT UNDER THE INTERNAL REVENUE CODE. STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE ACQUISITION, INCLUDING ANY FEDERAL, STATE, LOCAL OR OTHER
TAX CONSEQUENCES OF THE ACQUISITION.
DELISTING AND DEREGISTRATION OF PROMUS COMMON STOCK; LISTING OF HILTON COMMON
STOCK ISSUED IN CONNECTION WITH THE ACQUISITION
Promus common stock is currently listed on the NYSE under the symbol "PRH."
Upon the completion of the acquisition, Promus common stock will be delisted
from the NYSE and deregistered under the Securities Exchange Act.
Hilton common stock is currently listed on the NYSE under the symbol "HLT."
Hilton has agreed to use its reasonable best efforts to cause the shares of
Hilton common stock to be issued in the acquisition to be approved for listing
on the NYSE.
ACCOUNTING TREATMENT
Hilton will account for the acquisition as a purchase for accounting and
financial reporting purposes. As a result, Hilton will record Promus' assets and
liabilities at their estimated fair values and
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will record as goodwill the excess of the purchase price over the estimated net
fair values. Promus' operating results will be combined with Hilton's results
only from the date of the acquisition.
RECENT LITIGATION
On or around September 7, 1999, two actions were filed in the Court of
Chancery for the State of Delaware by alleged common stockholders of Promus on
behalf of a purported class of similarly situated Promus stockholders. The
actions are styled STEVEN GOLDSTEIN V. PROMUS HOTEL CORPORATION, ET AL., C.A.
No. 17410NC and JOSEPH CARCO V. PROMUS HOTEL CORPORATION, ET AL., C.A. No.
17411NC. The complaints in the actions, which are substantially similar, name as
defendants Promus, the members of the Promus board of directors and Hilton, and
allege that the Promus directors breached their fiduciary duties to Promus
stockholders by agreeing to the acquisition and by allegedly failing to obtain
the highest value for Promus stockholders, and that Hilton allegedly aided and
abetted such alleged breaches of fiduciary duty. The complaints seek injunctive
relief and monetary damages in an unspecified amount. Defendants intend to
defend the actions vigorously.
On or about October 11, 1999, an action was filed in the United States
District Court for the Southern District of Florida entitled HOTELRAMA
ASSOCIATES, LTD. V. HILTON HOTELS CORPORATION (Case No. 99-CV02717). The
plaintiff is the owner of the Fontainebleau Hilton Resort & Towers in Miami,
Florida, which is managed by Hilton. The complaint alleges that the acquisition
will cause Hilton to be in violation of territorial restrictions contained in
the management agreement. The complaint seeks an injunction enjoining Hilton
from violating the restrictive covenant by its acquisition of Promus and for the
entry of a judgment entitling the plaintiff to any and all remedies available
under Florida law. Hilton intends to defend the action vigorously.
DISSENTERS' APPRAISAL RIGHTS OF PROMUS STOCKHOLDERS
Promus' stockholders have the right to dissent from the acquisition and to
receive payment for their shares in accordance with the terms of Section 262 of
the Delaware General Corporation Law. The following discussion is a summary of
the dissenters' rights law under the Delaware law. The entire statute is
reprinted in Appendix E. ANY STOCKHOLDER THAT WISHES TO EXERCISE DISSENTERS'
RIGHTS OR PRESERVE THE RIGHT TO DO SO SHOULD REVIEW THE STATUTE CAREFULLY.
PROMUS STOCKHOLDERS THAT DO NOT COMPLY WITH THE PROCEDURES OF THE STATUTE WILL
LOSE THEIR DISSENTERS' RIGHTS.
A Promus stockholder that wishes to dissent from the acquisition must
satisfy both of the following conditions, among others:
- WRITTEN OBJECTION. The stockholder must file a written objection to the
acquisition with Promus at its offices at 755 Crossover Lane, Memphis,
Tennessee 38117, Attention: Secretary, before the vote is taken at the
Promus stockholders meeting.
- NO VOTE IN FAVOR. The stockholder must not vote in favor of the
acquisition.
Promus stockholders that file and do not withdraw a written objection to the
acquisition will not be entitled to elect between cash and Hilton common stock
as acquisition consideration. Any Promus stockholder in that circumstance that
later withdraws the stockholder's demand for appraisal will then receive the
combination of cash and Hilton common stock that is allocated to non-electing
Promus stockholders as a result of the proration procedure discussed in the
section titled "The Merger Agreement--Election and Proration" on page 68.
A negative vote alone will not constitute the written objection required
before the meeting. The written objection should specify the stockholder's name
and mailing address, the number of shares of Promus common stock owned by the
stockholder and that the stockholder is demanding appraisal of his or her
shares.
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If the Promus stockholders approve the acquisition, Promus will send written
notice to each dissenting stockholder that has filed an objection and not voted
in favor of the acquisition no later than 10 days after consummation of the
acquisition. The notice will state the date that the acquisition has become
effective.
Within 120 days after the effective time of the acquisition, any dissenting
stockholder that desires to have his or her shares appraised should file a
petition with the Delaware Court of Chancery demanding a determination of the
fair value of the shares of all the dissenting stockholders. Within the same
period, a dissenting stockholder may also make a written request to Promus
demanding a statement by Promus of the number of dissenting Promus stockholders
and the aggregate number of dissenting shares of Promus common stock. Promus
must mail the statement within 10 days after it receives the request.
If a proper petition for appraisal is timely filed, the Chancery Court will
determine which Promus stockholders, if any, are entitled to appraisal rights.
The Chancery Court may require any stockholders demanding appraisal rights to
submit their certificates of Promus common stock to the Register in Chancery for
notation on these certificates of the pendency of the appraisal proceedings.
Where the proceedings are not dismissed, the Chancery Court will appraise the
shares of Promus common stock owned by the dissenting stockholders by
determining the fair value of the shares exclusive of any element of value
arising out of the accomplishment or expectation of the acquisition and the fair
rate of interest, if any, on the amount determined to be the fair value. In
making this determination of fair value, the Chancery Court must consider the
following factors:
- market value;
- asset value;
- dividends;
- earnings prospects;
- the nature of the enterprise; and
- any other facts which could be ascertained as of the date of the
acquisition which would throw light on future prospects of the combined
corporation.
Promus stockholders considering seeking appraisal should recognize that the
fair value of their shares determined under Section 262 could be more than, the
same as or less than the consideration they are entitled to receive pursuant to
the merger agreement if they do not seek appraisal of their shares. The Chancery
Court may determine the cost of the appraisal proceedings and allocate the cost
against the dissenting stockholders and Promus as it deems equitable under the
circumstances.
After the acquisition is complete, any Promus stockholder who has demanded
appraisal in compliance with Section 262 will not be entitled to vote for any
purpose any shares subject to the demand or to receive payment of dividends or
other distributions on the shares, except for dividends or distributions payable
to stockholders of record on a date prior to the effective time of the
acquisition.
At any time within 60 days after the consummation of the acquisition, any
dissenting stockholder will have the right to withdraw his or her demand for
appraisal and to accept the terms offered in the acquisition. After this period,
the stockholder may withdraw the demand only with the written consent of Promus.
If no petition is filed by any dissenting stockholder within 120 days after the
effective time of the acquisition, Promus stockholders' rights as to appraisal
will cease and dissenting stockholders will be entitled only to receive the
consideration offered pursuant to the merger agreement. These stockholders also
will not be able to elect between cash and Hilton common stock. Instead, they
will receive whatever consideration is available as a result of the proration
procedure discussed in the section titled "The Merger Agreement--Election and
Proration" on page 68.
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THE MERGER AGREEMENT
THIS IS A DESCRIPTION OF THE TERMS OF THE MERGER AGREEMENT THAT WE BELIEVE
ARE IMPORTANT. HOWEVER, THE DESCRIPTION DOES NOT CONTAIN ALL THE TERMS OF THE
MERGER AGREEMENT. A COPY OF THE MERGER AGREEMENT, AS AMENDED, IS ATTACHED AS
APPENDIX A TO THE JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. WE ENCOURAGE YOU TO READ THE ENTIRE MERGER AGREEMENT.
CLOSING
The acquisition will become effective at the closing, which will take place
on the date on which the certificate of merger is filed with the Delaware
Secretary of State or at such later time as the certificate of merger specifies.
CONSIDERATION TO BE RECEIVED FOR PROMUS COMMON STOCK IN THE ACQUISITION
At the effective time, each share of Promus common stock, other than shares
held by dissenting stockholders and shares held by Promus or Hilton, will be
converted at the election of each holder, subject to proration as described
below, to the right to receive either:
- $38.50 in cash; or
- not less than 2.9096 shares or more than 3.2158 shares of Hilton common
stock determined by the exchange ratio.
Promus stockholders who receive Hilton common stock will receive a number of
shares equal to $38.50 divided by the average Hilton stock price, but in any
event not less than 2.9096 shares or more than 3.2158 shares, for each share of
Promus common stock.
- If the average Hilton stock price, as described below, is between $11.97
and $13.23, Promus stockholders who receive Hilton common stock will
receive for each Promus share a number of Hilton shares equal to $38.50
divided by the average Hilton stock price.
- If the average Hilton stock price is greater than $13.23, Promus
stockholders who receive Hilton common stock will receive 2.9096 Hilton
shares for each Promus share.
- If the average Hilton stock price is less than $11.97, Promus stockholders
who receive Hilton common stock will receive 3.2158 Hilton shares for each
Promus share.
The average Hilton stock price is the average of the volume weighted average
per share sales price of Hilton common stock on the NYSE for 20 trading days
selected by lot from the 30 trading days ending on the fifth trading day before
the closing of the acquisition.
After the effective time, all shares of Promus common stock will cease to be
outstanding and will automatically be canceled.
Each share of Promus common stock held by Promus as treasury stock or owned
by Hilton or any wholly-owned subsidiary of either company immediately before
the effective time of the acquisition will be canceled without any conversion or
payment.
ELECTION AND PRORATION
ELECTION
Promus stockholders who do not exercise their dissenters' appraisal rights
may elect, on a share-by-share basis, to receive $38.50 in cash or shares of
Hilton common stock. This election must be made by completing the form of
election and letter of transmittal distributed to Promus stockholders in a
separate mailing. Promus stockholders making an election must submit their
completed form of election and letter of transmittal as to any or all of their
shares to First Union National Bank, the
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exchange agent in this transaction, by 5:00 p.m. on November 29, 1999. Those
stockholders must also include the Promus stock certificates representing the
Promus shares that are the subject of their election.
Promus stockholders who do any of the following will be deemed to have made
a non-election, which means that the stockholder will receive cash or shares of
Hilton common stock based on the proration method described below:
- fail to submit a form of election prior to the election deadline;
- submit and then revoke the forms of election and not re-submit forms of
election prior to the election deadline; or
- submit a form of election without corresponding stock certificates or a
guarantee of delivery.
Notwithstanding a Promus stockholder's election, the conversion of Promus
common stock is limited as follows:
- the aggregate number of shares of Promus common stock that may be
converted into cash in the acquisition is equal to 55% of the number of
shares of Promus common stock outstanding immediately prior to the
closing, excluding shares held by Promus, Hilton or any of their wholly-
owned subsidiaries, less any dissenting shares. We refer to these shares
as the maximum cash shares; and
- the aggregate number of shares of Promus common stock that may be
converted into the right to receive shares of Hilton common stock in the
acquisition is equal to 45% of the number of shares of Promus common stock
outstanding immediately prior to the closing excluding shares held by
Promus, Hilton or any of their wholly-owned subsidiaries.
PRORATION
If cash elections are received for more than the maximum cash shares, the
acquisition consideration will be allocated as follows:
- shares for which a stock election or a non-election has been made will be
converted into Hilton common stock; and
- shares for which a cash election has been made will be converted into
Hilton common stock and cash as follows:
-- for each cash election, the number of shares of Promus common stock
covered by the cash election that will receive cash will be the
product of:
* the total number of shares covered by the cash election, times
* a proration fraction, the numerator of which is a number equal to
the maximum cash shares and the denominator of which is the
aggregate number of shares of Promus common stock covered by all
cash elections; and
-- all remaining shares of Promus common stock covered by a cash election
will be converted into shares of Hilton common stock.
If stock elections are received for more than 45% of the outstanding shares
of Promus common stock, the acquisition consideration will be allocated as
follows:
- shares for which a cash election or a non-election has been made will be
converted into cash;
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- shares for which a stock election has been made will be converted into
Hilton common stock and cash as follows:
-- for each stock election, the number of shares of Promus common stock
covered by such stock election that will be exchanged into Hilton
common stock will be the product of:
* the total number of shares covered by the stock election, times
* a proration fraction, the numerator of which is a number equal to
45% of the outstanding shares of Promus common stock (less shares
owned by Promus, Hilton or their subsidiaries) and the denominator
of which is the aggregate number of shares of Promus common stock
covered by all stock elections; and
-- all remaining shares of Promus common stock covered by a stock
election will be converted into cash.
If cash elections are received for less than the maximum cash shares and
stock elections are received for less than 45% of the outstanding shares of
Promus common stock, the acquisition consideration will be allocated as follows:
- shares for which a cash election has been made will be converted into
cash;
- shares for which a stock election has been made will be converted into
Hilton common stock; and
- shares for which a non-election has been made will be converted into cash
and Hilton common stock as follows:
-- the number of shares of Promus common stock covered by the
non-election that will receive cash will be the product of:
* the total number of shares covered by the non-election, times
* a proration fraction, the numerator of which is the number equal to
the amount by which the maximum cash shares exceeds the aggregate
number of shares of Promus common stock covered by all cash
elections and the denominator of which is the aggregate number of
shares of Promus common stock covered by all non-elections; and
-- all remaining shares of Promus common stock covered by a non-election
will be converted into shares of Hilton common stock.
The following are three examples of the proration of the acquisition
consideration received by a Promus stockholder who owns 100 shares of Promus
common stock and elects the type of acquisition consideration shown in the
examples. The examples assume there are no dissenting shares.
PRORATION IF CASH ELECTIONS RECEIVED FOR 75% OF OUTSTANDING SHARES OF PROMUS
COMMON STOCK
Shares Stockholder Elects to Convert to Cash................ 100
Proration Fraction (55%/75%)................................ 0.73
Shares Actually Converted to Cash........................... 73.33
Shares Actually Converted to Stock.......................... 26
Fractional Shares for which Cash will Be Paid............... 0.67
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PRORATION IF STOCK ELECTIONS RECEIVED FOR 75% OF OUTSTANDING SHARES OF PROMUS
COMMON STOCK
Shares Stockholder Elects to Convert to Stock............... 100
Proration Fraction (45%/75%)................................ 0.60
Shares Actually Converted to Stock.......................... 60
Shares Actually Converted to Cash........................... 40
PRORATION IF CASH ELECTIONS RECEIVED FOR 45% OF OUTSTANDING SHARES OF PROMUS
COMMON STOCK, STOCK ELECTIONS RECEIVED FOR 30% OF OUTSTANDING SHARES OF PROMUS
COMMON STOCK, AND NON-ELECTIONS RECEIVED FOR 25% OF OUTSTANDING SHARES OF PROMUS
COMMON STOCK
Shares for Which Stockholder Makes Non-Election............. 100
Proration Fraction ((55% - 45%)/25%)........................ 0.40
Shares Actually Converted to Cash........................... 40
Shares Actually Converted to Stock.......................... 60
PROCEDURES FOR EXCHANGE OF PROMUS COMMON STOCK
At the closing, Hilton will deposit with the exchange agent certificates
representing the shares of Hilton common stock and an estimated amount of the
cash to be paid to Promus stockholders in the acquisition. Each form of election
and letter of transmittal sent to Promus stockholders before closing includes
detailed instructions on how Promus stockholders may exchange their Promus
common stock for the consideration they will receive in the acquisition. After
the closing, the exchange agent will send to former Promus stockholders who
submitted their forms of election and letters of transmittal to the exchange
agent with their Promus share certificates new certificates for the Hilton
common stock, and a check for the cash and any fractional share interests or
dividends or distributions the stockholder is entitled to receive. No interest
will be paid on any cash to be paid pursuant to the acquisition.
In addition, soon after the acquisition is completed, Hilton will send to
Promus stockholders of record immediately before the closing, other than
dissenting stockholders and stockholders who have previously sent their stock
certificates to the exchange agent, a letter of transmittal instructing the
stockholders on how to exchange their Promus common stock for the consideration
they are entitled to receive in the acquisition.
Hilton will not pay Promus stockholders entitled to receive Hilton common
stock in the acquisition any dividends or other distributions with respect to
Hilton common stock with a record date occurring after the closing until those
stockholders have properly surrendered their Promus share certificates.
TREATMENT OF FRACTIONAL SHARES
Holders of Promus common stock will be paid cash instead of any fractional
shares of Hilton common stock they would otherwise receive. The amount of cash
to be received instead of the fractional share will be equal to:
- a fraction, the numerator of which is the fractional share interest to
which a holder would otherwise be entitled and the denominator of which is
the aggregate amount of fractional share interests to which all holders
would otherwise be entitled, multiplied by
- the net proceeds from the sale on the NYSE by the exchange agent of any
excess shares of Hilton common stock received from Hilton by the exchange
agent but not delivered to Promus stockholders receiving Hilton shares in
the acquisition.
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TREATMENT OF PROMUS EMPLOYEE AND DIRECTOR STOCK OPTIONS
In general, each outstanding Promus employee and director stock option will
be canceled in accordance with the terms of the plans under which such options
were issued. Payment for each stock option will equal an amount in cash
determined by multiplying:
- the excess, if any, of $38.50 over the applicable exercise price of such
Promus stock option by
- the number of Promus shares such holder could have purchased (assuming
full vesting of the option) had the holder exercised the option in full
immediately prior to the effective time.
If the payment is made at the closing, Promus will pay the holder of the
stock option. If the payment is made after the closing, Hilton will pay the
holder.
TREATMENT OF GE WARRANTS AND OPTIONS
An affiliate of General Electric Company holds warrants to purchase an
aggregate of 262,753 shares of Promus common stock. At the effective time of the
acquisition, Hilton will assume each outstanding GE warrant such that each
holder of a GE warrant will have the right to receive the same number of shares
of Hilton common stock as the holder would have been entitled to receive in the
acquisition if the holder had exercised its GE warrants in full immediately
prior to the effective time, had elected to receive Hilton common stock in the
acquisition and the stock consideration was not subject to proration.
Affiliates of General Electric hold options to purchase an aggregate of
22,500 shares of Promus common stock. At the effective time of the acquisition,
Hilton will assume each of these outstanding GE options such that each holder
will have the right to receive the same number of shares of Hilton common stock
as the holder would have been entitled to receive in the acquisition if the
holder had exercised its GE options in full immediately prior to the effective
time, had elected to receive common stock in the acquisition and the stock
consideration was not subject to proration.
REGISTRATION AND LISTING OF HILTON COMMON STOCK
Hilton has agreed to use its reasonable best efforts to register the shares
of Hilton common stock to be issued as consideration in the acquisition under
the Securities Act and to cause the shares to be listed on the NYSE. The
registration and listing are conditions to the obligations of Hilton and Promus
to consummate the acquisition. Hilton has registered the issuance of such shares
in the acquisition under the Securities Act pursuant to a registration statement
which the SEC has declared effective.
REPRESENTATIONS AND WARRANTIES
Promus and Hilton made certain customary representations and warranties to
each other, including as to:
- - corporate existence; - disclosure documents;
- - corporate authorization; - absence of certain changes;
- - government authorization; - no undisclosed material liabilities;
- - non-contravention; - compliance with laws;
- - capitalization; - litigation;
- - subsidiaries; - finders' fees;
- - SEC filings; - taxes;
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- - financial statements; - employee benefit plans;
- - environmental matters; - anti-takeover statutes and rights agreement;
- - director votes; - opinion of financial advisor;
- - insurance; - intellectual property; and
- - real property; - year 2000 compliance.
- - management and franchise
agreements;
Hilton has made an additional representation and warranty to Promus
regarding financing. The representations and warranties contained in the merger
agreement will not survive beyond the effective time of the acquisition.
COVENANTS REGARDING CONDUCT OF BUSINESS BEFORE THE ACQUISITION
Hilton and Promus have agreed to conduct their businesses from September 3,
1999 to the effective time in the ordinary course consistent with past practice
and use their reasonable best efforts to preserve intact their current business
organizations and relationships with third parties.
Promus has also agreed with certain exceptions not to take any action
outside the parameters specified in the merger agreement, such as:
- declaring or paying dividends or recapitalizing or redeeming its capital
stock;
- issuing, selling or encumbering any shares of its capital stock or options
to acquire shares of its capital stock;
- amending its organization documents;
- making acquisitions or capital expenditures, except in the ordinary course
or under its business plan;
- making loans, advances or capital contributions, except in the ordinary
course or under its business plan;
- selling, leasing or otherwise encumbering its property or assets, except
in the ordinary course or pursuant to existing commitments;
- incurring indebtedness, except in the ordinary course or under its
business plan;
- entering into or adopting a new, or amending an existing severance
arrangement, employee plan or employment or consulting agreement;
- increasing the compensation of its officers and employees;
- granting or awarding equity-based incentive awards;
- changing its accounting practices or its fiscal year;
- settling a federal, state, local or foreign tax liability for more than
$5 million;
- preparing or filing a tax return inconsistent with past practice;
- engaging in a transaction with any affiliate, director or officer of
Promus, except on an arms' length basis; or
- amending its rights agreement.
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In addition, Hilton has agreed with limited exceptions not to take any
action outside the parameters specified in the merger agreement, such as:
- amending its organization documents;
- amending any material terms of its outstanding securities;
- splitting, combining, subdividing or reclassifying any of its shares or
declaring, setting aside or paying a dividend with respect to its shares;
- taking any action that would impede the parties from consummating the
acquisition;
- changing its accounting practices or its fiscal year;
- entering into or acquiring a material new line of business;
- incurring indebtedness, other than indebtedness to finance the
acquisition, that would result in Hilton's senior debt receiving a
non-investment grade rating;
- making acquisitions or loans, advances or capital contributions;
- engaging in a transaction with any affiliate, director or officer of
Hilton, except on an arms' length basis; or
- acquiring the Promus shares except pursuant to the acquisition.
Hilton and the surviving corporation have agreed:
- to indemnify Promus' present and former officers and directors from
liability for six years for actions occurring at or prior to the effective
time;
- to honor Promus' employment and severance agreements, plans and accrued
and vested benefits;
- to provide for one year after the effective time employee benefits to
Promus' current employees that in the aggregate are comparable to Promus'
benefits immediately prior to the effective time; and
- to pay cash bonuses on or before March 15, 2000 with respect to Promus'
1999 bonus plan to all employees who, as of September 3, 1999,
participated in Promus' bonus plans, including those employees who are
involuntarily terminated without "cause" by Hilton, if the bonuses would
otherwise be payable to those employees.
Hilton has agreed:
- to take all action necessary to add to the Hilton board two current Promus
directors chosen by Hilton;
- to use its reasonable best efforts to cause the Hilton stock issuable in
the acquisition to be listed on the NYSE and Pacific Stock Exchange;
- not to take any action that, in the opinion of counsel, would cause the
distribution by Hilton of Park Place to fail to be qualified as a tax-free
transaction under Section 355(a) and (c) of the Internal Revenue Code;
- to use its best efforts to obtain financing for the cash consideration and
the other amounts contemplated by the merger agreement;
- to pay any gains or stock transfer taxes in connection with the
acquisition; and
- to enter into a registration rights agreement extending registration
rights to the parties to Promus' existing registration rights agreement
with respect to the shares of Hilton common stock issued in the
acquisition that are covered by the existing registration rights
agreement.
74
CONDITIONS TO THE COMPLETION OF THE ACQUISITION
Hilton and Promus will complete the acquisition only if the conditions
specified in the merger agreement are either satisfied or waived. The conditions
are:
- the Hilton stockholders and the Promus stockholders approve the
acquisition;
- there is no law or court order prohibiting the acquisition;
- the stock issuable in the acquisition is authorized for listing on the
NYSE;
- each of Hilton and Promus has performed in all material respects all of
their respective obligations under the merger agreement;
- the representations and warranties made by the other party in the merger
agreement remain accurate in all material respects, with such exceptions
as would not reasonably be expected to have a material adverse effect.
Material adverse effect excludes any effect resulting from changes in the
hotel industry or a geographic region generally, changes in general
economic or business conditions or the merger agreement;
- if the forward merger structure is used, Hilton and Promus receive legal
opinions as to tax matters relating to the acquisition; and
- funds are available to Hilton in an amount sufficient to pay the cash
consideration contemplated by the acquisition, to refinance certain
existing indebtedness of Promus and to pay related fees and expenses,
except that this condition will not apply if Hilton is in material breach
of the financing-related provisions of the merger agreement or any
provisions of Hilton's financing agreements, other than breaches of
representations and warranties in the financing agreements attributable
solely to facts and circumstances relating to Promus.
TERMINATION OF THE MERGER AGREEMENT
Both companies may mutually agree to terminate the merger agreement at any
time without completing the acquisition. Either company may terminate the merger
agreement if:
(1) the acquisition is not completed by March 31, 2000, unless funds are not
available to Hilton because of a "Year 2000 problem" that causes a
material adverse change in the financial markets, in which case the
deadline is extended to April 30, 2000. Neither Hilton nor Promus may
terminate the merger agreement on this basis, however, if that company's
breach of the merger agreement results in the acquisition not being
completed by the applicable deadline;
(2) a court or other governmental authority issues a final, non-appealable
order prohibiting the acquisition, or any law makes the acquisition
illegal. Neither Hilton nor Promus may terminate the merger agreement on
this basis, however, if its breach of the merger agreement results in the
imposition of the order or the application of the law or regulation to
the acquisition; or
(3) the Hilton stockholders or the Promus stockholders do not approve the
acquisition.
In addition, Hilton may terminate the merger agreement if:
(4) any person or group of persons acting in concert, other than Hilton or
its affiliates, acquires beneficial ownership of more than 50% of the
shares of Promus common stock;
(5) the Promus board of directors withdraws or amends in a manner adverse to
Hilton its recommendation of the acquisition and approves a superior
proposal; or
(6) Promus enters into or announces its intention to enter into an agreement
with a third party based on a superior proposal.
75
Furthermore, Promus may terminate the merger agreement if:
(7) the Promus board of directors approves a superior, unsolicited proposal
or withdraws or amends in a manner adverse to Hilton its recommendation
of the acquisition, so long as Promus has complied with the
non-solicitation, board recommendation, notice and termination fee
provisions of the merger agreement and Hilton has not offered adjustments
to the merger agreement that would allow the Promus board of directors to
recommend the acquisition by Hilton; or
(8) the Hilton board of directors withdraws or amends in a manner adverse to
Promus its recommendation to approve the acquisition.
TERMINATION FEES AND EXPENSES
Promus has agreed to pay Hilton a termination fee of $75 million if:
- the merger agreement is terminated in the circumstances described in
paragraphs (4), (5), (6) or (7) above;
- the merger agreement is terminated by Hilton under the circumstances
described in paragraph (1) above and:
- prior to the termination, a third party has made a proposal for an
alternative transaction with Promus and after the proposal is made,
Promus materially and intentionally breaches any of its material
obligations under the merger agreement; and
- within 12 months of the termination, Promus enters into an agreement
for or consummates an alternative transaction with any third party; or
- the merger agreement is terminated by Hilton because the Promus
stockholders do not approve the merger agreement and
- any person or group of persons acting in concert other than Hilton or
its affiliates acquires beneficial ownership of 25% or more of the
outstanding shares of Promus common stock and within 12 months of
termination of the merger agreement Promus enters into an agreement for
an alternative transaction with that person or group; or
- prior to the Promus stockholder meeting, a third party has made a
proposal for an alternative transaction with Promus and within 12
months of termination of the merger agreement, Promus enters into an
agreement for or consummates an alternative transaction with any third
party.
Hilton has agreed to pay Promus a termination fee of $150 million if Hilton
or Promus terminates the merger agreement in the circumstances described in
paragraph (1) above, and all of the following have occurred:
- funds have not been made available to Hilton in an amount sufficient to
pay the cash consideration, to refinance certain Promus indebtedness and
to pay merger related fees and expenses;
- other conditions to the completion of the acquisition specified in the
merger agreement have been satisfied; and
- the unavailability of the funds was not due to a breach of any
representation or warranty in Hilton's financing agreements that is
attributable solely to facts and circumstances relating to Promus.
76
NO SOLICITATION; COVENANT TO RECOMMEND
The merger agreement prevents Promus from negotiating or otherwise engaging
in discussions with, or furnishing information to, a third party regarding an
acquisition transaction with Promus unless:
- Promus has received an unsolicited proposal for the transaction from that
third party;
- Promus has notified Hilton about the proposal;
- the Promus board of directors determines in good faith that, based on the
terms and conditions contained in the proposal, the proposal could
reasonably be expected to constitute a superior proposal, as described
below; and
- the third party executes a confidentiality agreement with terms
substantially similar to those contained in the confidentiality agreement
between Hilton and Promus.
The Promus board of directors has agreed to recommend the approval and
adoption of the merger agreement and the acquisition to Promus stockholders.
However, the Promus board is permitted to withdraw, or modify in a manner
adverse to Hilton, its recommendation if:
- Promus has received an unsolicited proposal from a third party regarding
an acquisition transaction with Promus which the Promus board determines
in good faith would, if consummated, constitute a superior proposal;
- the Promus board determines in good faith, on the basis of advice of
outside legal counsel, that it must withdraw, or modify in a manner
adverse to Hilton, its recommendation in order to comply with its
fiduciary duties under applicable law;
- Promus delivers to Hilton a prior written notice advising Hilton that it
intends to withdraw, or modify in a manner adverse to Hilton, its
recommendation; and
- Promus concurrently terminates the merger agreement and pays the
$75 million termination fee.
A superior proposal is a bona fide written proposal from a third party for:
- a business combination transaction involving Promus; or
- the acquisition of more than 50% of the voting securities of Promus or a
substantial portion of Promus' assets,
which the Promus board of directors concludes in good faith, after consultation
with its financial advisors and legal counsel, taking into account all legal,
financial, regulatory and other aspects of the proposal including the nature and
sufficiency of financing for the proposal and the person making the proposal:
- would, if consummated, result in a transaction that is more favorable to
Promus stockholders from a financial point of view than the transactions
contemplated by the merger agreement; and
- is reasonably likely to be completed.
AMENDMENT OR WAIVER OF THE MERGER AGREEMENT
The parties may amend the merger agreement or waive its terms and conditions
before the effective time, but, after Promus' stockholders have approved the
merger agreement, the parties may not amend the merger agreement in a manner
that would reduce or change the kind of consideration Promus stockholders will
receive in the acquisition.
77
HILTON AFTER THE ACQUISITION
MANAGEMENT
DIRECTORS
In connection with the acquisition, Hilton has agreed to appoint two of
Promus' current directors to the Hilton board. Hilton is asking its stockholders
to approve at the special meeting an amendment to the Hilton by-laws to provide
for a board of directors comprised of between 10 and 20 members. See "Amendment
to Hilton's By-laws" on page 93. If the amendment is approved, Hilton intends to
increase the size of its board from 12 to 14, and to appoint two of the current
Promus directors chosen by Hilton to fill the vacancies. If the by-law amendment
is not approved at the special meeting, Hilton expects to appoint two of Promus'
current directors to replace two of Hilton's current directors. Hilton has not
yet chosen which two of the current Promus directors it will appoint. More
information about each of the members of Promus' board of directors is included
in Promus' filings with the SEC. For information on how you can obtain copies of
these filings, please see the section entitled "Where You Can Find More
Information" on page 94.
Following the acquisition, the directors of PRH Acquisition on the closing
date will be the directors of the surviving corporation. These directors are
Stephen F. Bollenbach, Thomas E. Gallagher and Matthew J. Hart. More information
about Messrs. Bollenbach, Gallagher and Hart is included in Hilton's filings
with the SEC. For information on how you can obtain copies of these filings,
please see the section entitled "Where You Can Find More Information" on
page 94.
EXECUTIVE OFFICERS
The composition of Hilton's management is not expected to change materially
as a result of the acquisition but certain officers of Promus may become
officers of Hilton in connection with the integration of management following
the acquisition. More information about each of Hilton's executive officers is
included in Hilton's filings with the SEC. For information on how you can obtain
copies of these filings, please see the section entitled "Where You Can Find
More Information" on page 94. Hilton may enter into retention or other
arrangements with Promus officers who are employed by the surviving corporation
following the acquisition.
The officers of Promus at the effective time will be the officers of the
surviving corporation, a wholly-owned subsidiary of Hilton. Hilton intends to
appoint new officers of the surviving corporation immediately after the closing
of the acquisition. These new officers will be selected from Hilton's and
Promus' officers. More information about each of Hilton's and Promus' executive
officers is included in Hilton's and Promus' respective filings with the SEC.
For information on how you can obtain copies of these filings, please see the
section entitled "Where You Can Find More Information" on page 94.
HILTON CAPITAL STOCK
As of September 3, 1999, Hilton was authorized to issue 400,000,000 shares
of Hilton common stock, of which 254,976,661 shares were issued, including
treasury shares of 10,337,356, and 24,832,700 shares of Hilton preferred stock,
of which no shares have been issued. If the Hilton stockholders approve the
amendment to Hilton's certificate of incorporation and the acquisition is
completed, then Hilton will be authorized to issue 500,000,000 shares of Hilton
common stock.
Each share of Hilton common stock entitles the holder to one vote on matters
submitted to a vote of the stockholders, and, subject to the prior preferences
of the Hilton preferred stock, if issued, a pro rata share of assets remaining
available for distribution to stockholders upon a liquidation of Hilton.
Dividends may be paid to the holders of the Hilton common stock when and if
declared by Hilton's board of directors out of funds legally available therefor,
but any dividend that exceeds $0.02 per share
78
per quarter may be declared only after consummation of the acquisition. Hilton
has in the past paid cash dividends on its common stock. Any determination to
pay cash dividends following the effective time will be at the discretion of
Hilton's board of directors and will depend upon the earnings of Hilton, its
financial condition, capital requirements and other factors as the board of
directors may deem relevant. Hilton common stock is not convertible or
redeemable and has no preemptive rights.
After giving effect to the acquisition, the former holders of Promus common
stock who receive Hilton common stock in the acquisition will hold approximately
30% of the outstanding shares of Hilton common stock. This percentage is based
on the number of shares of Hilton common stock and Promus common stock
outstanding as of October 15, 1999.
DESCRIPTION OF HILTON'S BANK CREDIT FACILITIES
In connection with the acquisition, Hilton has entered into a fully
underwritten commitment for a new $2 billion unsecured senior credit facility
with Bank of America N.A.
Bank of America's commitment is subject to customary closing conditions,
including no occurrence of a material adverse change in or disruption of
conditions in the financial banking or capital markets and the absence of any
material adverse change in Hilton's and Promus' pro forma combined condition,
business or assets since December 31, 1998. In connection with the new credit
facility, Hilton will obtain an amendment to its existing credit facility to
permit debt incurred under the new credit facility to be in compliance with
Hilton's leverage ratio covenant.
The existing credit facility provides for borrowings up to $1.75 billion,
and the new credit facility will provide for borrowings up to an additional
$2.0 billion. Proceeds of borrowings under the bank credit facilities will be
used to consummate the acquisition, refinance certain existing debt of Promus,
pay related fees and expenses and, after completion of the acquisition, for
general corporate purposes of Hilton.
Loans under the bank credit facilities will bear interest at a rate equal to
LIBOR or, at Hilton's option, Bank of America's prime rate, in either case plus
a margin determined by reference to Hilton's long-term senior unsecured debt
ratings or to the ratio of its consolidated total debt to its consolidated
EBITDA.
The existing credit facility matures on October 18, 2001 and may be extended
for successive one-year periods at the request of Hilton with the prior written
consent of the lenders. The new credit facility will consist of a $1.5 billion
five-year revolver and $500 million 364-day revolver. Hilton expects that the
maturity dates of the new credit facility will be extendible on substantially
the same terms as are applicable to the existing credit facility.
The bank credit facilities will contain customary affirmative and negative
covenants, substantially consistent with Hilton's existing credit facility,
including covenants that restrict, subject to specified exceptions, the
incurrence of liens and consolidations, mergers and sales of assets. In
addition, the bank credit facilities will require that Hilton maintain
compliance with specified financial covenants, including a maximum consolidated
total debt to consolidated EBITDA ratio and a minimum consolidated interest
coverage ratio. The bank credit facilities will contain customary events of
default substantially consistent with Hilton's existing credit facility,
including payment defaults, breaches of representations and warranties, covenant
defaults, certain events of bankruptcy and insolvency and cross defaults to
other material indebtedness.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP will remain the independent accountants for Hilton after
the acquisition. Arthur Andersen LLP currently also serves as the independent
accountants for Promus.
79
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Hilton common stock is ChaseMellon
Shareholder Services, L.L.C.
EXCHANGE AGENT
The exchange agent in the acquisition is First Union National Bank.
80
HILTON UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma statements of income and balance sheet of Hilton
illustrate the estimated effects of the acquisition. The unaudited pro forma
balance sheet of Hilton as of June 30, 1999 presents the financial position of
Hilton as if the acquisition had been completed as of such date. The unaudited
pro forma income statements of Hilton for the six month period ended June 30,
1999 and the year ended December 31, 1998 present the results of operations of
Hilton as if the acquisition had been completed as of January 1, 1998.
The unaudited pro forma statements of income and balance sheet of Hilton are
based upon the historical consolidated financial statements of Hilton and Promus
contained in each company's Annual Report on Form 10-K for the year ended
December 31, 1998 and Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, each of which is incorporated by reference in this joint proxy
statement/prospectus, and should be read in conjunction with those consolidated
financial statements and related notes. See "Where You Can Find More
Information" on page 94.
The unaudited pro forma statements of income of Hilton for the six months
ended June 30, 1999 and the year ended December 31, 1998 give effect to the
acquisition of Promus by applying the purchase method of accounting and certain
adjustments that are directly attributable to the acquisition as if the
transaction was consummated as of January 1, 1998.
The unaudited pro forma balance sheet of Hilton presents the combined
financial position of Hilton and Promus as of June 30, 1999. The unaudited pro
forma balance sheet reflects the acquisition of Promus applying the purchase
method of accounting and certain adjustments that are directly attributable to
the acquisition. Such data further assume that the transactions described above
were consummated as of June 30, 1999.
The pro forma financial data of Hilton does not purport to represent what
the financial position or results of operations of Hilton would have been if the
acquisition had in fact been consummated on such date or at the beginning of the
period indicated or to project the financial position or results of operations
for any future date or period. The pro forma adjustments are based upon
available information and upon certain assumptions that Hilton and Promus
management believe are reasonable. In the opinion of Hilton management, all
adjustments necessary to present fairly the unaudited pro forma financial
information have been made.
For the purposes of preparing the financial statements of Hilton, management
will undertake a study to establish the fair value of the acquired assets and
liabilities of Promus. The allocation of the purchase price to the assets and
liabilities acquired reflected in this pro forma financial data is preliminary.
Accordingly, the actual financial position and results of operations may differ
from these pro forma amounts.
81
HILTON HOTELS CORPORATION
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
HISTORICAL HISTORICAL MERGER PRO FORMA
HILTON(2) PROMUS(2) ADJUSTMENTS HILTON(1)
---------- ---------- ----------- ---------
Revenue
Owned hotels..................................... $ 868 212 -- 1,080
Leased hotels.................................... -- 191 -- 191
Management and franchise fees.................... 51 109 -- 160
Other fees and income............................ 95 35 -- 130
------ ---- ----- ------
1,014 547 -- 1,561
------ ---- ----- ------
Expenses
Owned hotels..................................... 560 135 -- 695
Leased hotels.................................... -- 171 -- 171
Depreciation and amortization.................... 81 43 45(3) 169
Other operating expenses......................... 78 21 -- 99
Corporate expense................................ 25 24 -- 49
------ ---- ----- ------
744 394 45 1,183
------ ---- ----- ------
Operating income................................... 270 153 (45) 378
Interest and dividend income..................... 26 10 -- 36
Interest expense................................. (106) (26) (62)(4) (194)
Interest expense, net, from unconsolidated
affiliates..................................... (1) (7) -- (8)
Loss on sale of real estate and securities....... -- (1) -- (1)
------ ---- ----- ------
Income from continuing operations before income tax
and minority interest............................ 189 129 (107) 211
Provision for income taxes....................... (76) (48) 39 (5) (85)
Minority interest, net........................... (5) (1) -- (6)
------ ---- ----- ------
Income from continuing operations.................. $ 108 80 (68) 120
====== ==== ===== ======
Income from continuing operations per share:
Basic............................................ $ .42 .32
====== ======
Diluted.......................................... $ .41 .32
====== ======
Weighted average common and equivalent shares:
Basic............................................ 259 373
====== ======
Diluted.......................................... 283 397
====== ======
82
HILTON HOTELS CORPORATION
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
HISTORICAL HISTORICAL MERGER PRO FORMA
HILTON(2) PROMUS(2) ADJUSTMENTS HILTON(1)
---------- ---------- ----------- ---------
Revenue
Owned hotels..................................... $1,485 401 -- 1,886
Leased hotels.................................... -- 415 -- 415
Management and franchise fees.................... 104 218 -- 322
Other fees and income............................ 180 73 -- 253
------ ------ ----- ------
1,769 1,107 -- 2,876
------ ------ ----- ------
Expenses
Owned hotels..................................... 964 249 -- 1,213
Leased hotels.................................... -- 367 -- 367
Depreciation and amortization.................... 125 79 91(3) 295
Business combination expenses.................... -- 28 -- 28
Other operating expenses......................... 152 41 -- 193
Corporate expense................................ 64 40 -- 104
------ ------ ----- ------
1,305 804 91 2,200
------ ------ ----- ------
Operating income................................... 464 303 (91) 676
Interest and dividend income..................... 13 21 -- 34
Interest expense................................. (137) (47) (134)(4) (318)
Interest expense, net, from unconsolidated
affiliates..................................... (4) (15) -- (19)
Gain on sale of real estate and securities....... -- 11 -- 11
------ ------ ----- ------
Income from continuing operations before income tax
and minority interest............................ 336 273 (225) 384
Provision for income taxes....................... (136) (116) 83(5) (169)
Minority interest, net........................... (12) (3) -- (15)
------ ------ ----- ------
Income from continuing operations.................. $ 188 154 (142) 200
====== ====== ===== ======
Income from continuing operations per share:
Basic............................................ $ .71 .52
====== ======
Diluted.......................................... $ .71 .52
====== ======
Weighted average common and equivalent shares:
Basic............................................ 250 364
====== ======
Diluted.......................................... 278 391
====== ======
83
HILTON HOTELS CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1999
(IN MILLIONS)
PRO FORMA
HISTORICAL HISTORICAL MERGER PRO FORMA
HILTON PROMUS ADJUSTMENTS HILTON
---------- ---------- ----------- ---------
Assets
Current assets
Cash and equivalents............................ $ 65 33 -- 98
Accounts receivable, net........................ 239 100 -- 339
Inventories..................................... 68 -- -- 68
Deferred income taxes........................... 49 -- 41 (6) 90
Other current assets............................ 53 33 -- 86
------ ------ ------ ------
Total current assets.............................. 474 166 41 681
Investments..................................... 301 281 76 (7) 658
Long-term receivable............................ 625 -- -- 625
Property and equipment, net..................... 2,703 1,139 151 (8) 3,993
Intangible assets............................... 47 807 2,251 (9) 3,105
Other assets.................................... 53 112 21 (10) 186
------ ------ ------ ------
Total investments, property and other assets...... 3,729 2,339 2,499 8,567
------ ------ ------ ------
Total assets........................................ $4,203 2,505 2,540 9,248
====== ====== ====== ======
Liabilities and stockholders' equity
Accounts payable and accrued expenses............. $ 347 145 -- 492
Current maturities of long-term debt.............. 62 2 -- 64
Income taxes payable.............................. 35 -- -- 35
------ ------ ------ ------
Total current liabilities....................... 444 147 -- 591
Long-term debt.................................... 3,324 909 1,898 (4) 6,131
Deferred income taxes............................. 78 275 709 (6) 1,062
Insurance reserves and other...................... 144 82 -- 226
------ ------ ------ ------
Total liabilities................................... 3,990 1,413 2,607 8,010
Stockholders' equity................................ 213 1,092 (67)(11) 1,238
------ ------ ------ ------
Total liabilities and stockholders' equity.......... $4,203 2,505 2,540 9,248
====== ====== ====== ======
84
HILTON HOTELS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following table sets forth the estimated determination and allocation of the
purchase price of Promus. In the acquisition, Promus stockholders will receive,
at their election, for each share of Promus common stock either:
- $38.50 in cash; or
- not less than 2.9096 shares or more than 3.2158 shares of Hilton common
stock determined as described below.
Each Promus stockholder's election may be subject to proration depending on
the consideration other stockholders elect to receive in the acquisition. The
proration will ensure that 55% of the outstanding Promus shares will be
converted into cash, while the remaining 45% will be converted into Hilton
common stock.
Promus stockholders who receive Hilton common stock will receive a number of
shares equal to $38.50 divided by the average Hilton stock price, but in any
event not less than 2.9096 shares or more than 3.2158 shares, for each share of
Promus common stock.
- If the average Hilton stock price, as described below, is between $11.97
and $13.23, Promus stockholders who receive Hilton common stock will
receive for each Promus share a number of Hilton shares equal to $38.50
divided by the average Hilton stock price.
- If the average Hilton stock price is greater than $13.23, Promus
stockholders who receive Hilton common stock will receive 2.9096 Hilton
shares for each Promus share.
- If the average Hilton stock price is less than $11.97, Promus stockholders
who receive Hilton common stock will receive 3.2158 Hilton shares for each
Promus share.
The average Hilton stock price is the average of the volume weighted average
per share sales price of Hilton common stock on the NYSE for 20 trading days
selected by lot from the 30 trading days ending on the fifth trading day before
the closing of the acquisition.
For purposes of the pro forma financial statements, an exchange ratio of
3.2158 has been computed based on the October 18, 1999 Hilton common stock
closing price of $9.00. The actual exchange ratio will be computed over the time
period described above. For a more detailed discussion of the exchange ratio,
see "The Merger Agreement--Consideration to be Received for Promus Common Stock
in the Acquisition" on page 68.
(IN MILLIONS)
Cash share purchase......................................... $1,666
Exchange of shares.......................................... 1,025
------
Net equity purchase price................................... 2,691
Assumption of Promus debt................................... 911
Transaction costs and expenses.............................. 209
------
$3,811
======
85
HILTON HOTELS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
The Hilton preliminary allocation of the pro forma purchase price is as
follows:
Investments................................................. $ 357
Property and equipment, net................................. 1,290
Identifiable intangible assets.............................. 1,968
Goodwill.................................................... 1,090
Other, net.................................................. (894)
------
$3,811
======
(1) Pro forma results do not reflect any operational efficiencies, cost savings
associated with greater economies of scale or revenue enhancement
opportunities which Hilton expects to achieve after the acquisition. Hilton
expects to realize pre-tax annual revenue enhancements and pre-tax cost
savings, including operating efficiencies, totaling approximately
$90 million upon full integration of Promus. Hilton expects to realize
approximately $55 million of benefits in 2000, and the entire $90 million
of benefits beginning in 2001. However, the estimated benefits are based on
projections and assumptions, not actual experiences. As a result, Hilton's
ability to realize these benefits could be adversely impacted by
difficulties integrating Promus into Hilton, the inability to achieve
certain economies of scale or other risks associated with achieving
projected revenues and cost savings. Hilton cannot assure you that these
revenue enhancements and cost savings will be achieved.
(2) There are no significant adjustments required to the historical financial
data of Promus to conform to the accounting policies of Hilton. Certain
reclassifications have been made to the historical balances of Hilton and
Promus to conform the financial presentation of Hilton and Promus. Hilton's
rooms, food and beverage and other revenue and expenses have been
reclassified as owned hotel revenues and expenses and depreciation and
amortization expense has been segregated. Promus' general and
administrative expenses have been reclassified as corporate and other
operating expenses. These reclassifications have no effect on historical or
pro forma operating income, income from continuing operations or earnings
per share.
(3) To adjust depreciation and amortization to reflect the revaluation of
acquired property and equipment, equity investments, identifiable
intangible assets and goodwill.
(4) To record the estimated increase in interest expense and long-term debt
associated with
- the cash portion of the acquisition consideration totaling $1,666
million,
- estimated change of control and severance costs relating to certain
Promus employees, and
- estimated direct acquisition costs of Hilton and Promus.
The estimated increase in interest expense for these items is computed at
an assumed weighted average borrowing rate of 6.29% for the six months
ended June 30, 1999 and 6.84% for the year ended December 31, 1998,
representing 30-day LIBOR plus 125 basis points. Change of control costs
include contractual payments for certain Promus executives, including
option cash-outs. Severance costs include termination benefits related to
the elimination of duplicative corporate office and operational support
functions. Direct acquisition costs include investment advisor fees and
bank financing costs. Each 1/8 percent change in the rate on this financing
would result in a change in interest expense of $1 million for the six
months ended June 30, 1999 and $2 million for the year ended December 31,
1998.
The pro forma adjustment to interest expense also includes amortization of
estimated debt issuance costs totaling $2 million for the six months ended
June 30, 1999 and $5 million for the year ended December 31, 1998.
86
HILTON HOTELS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) To record the tax effect of the pro forma adjustments to depreciation and
amortization expense, cost reductions associated with estimated operational
efficiencies, and interest expense. The amortization of goodwill is not tax
effected for financial accounting or tax purposes.
(6) To record the deferred tax effect of the pro forma balance sheet
adjustments, primarily related to property and equipment, equity
investments, identifiable intangible assets, severance and acquisition
costs.
(7) To increase Promus' equity hotel investments to estimated fair market
value.
(8) To increase Promus' property and equipment to estimated fair market value.
(9) To value Promus' identifiable intangible assets at fair market value and
reflect the excess purchase price over the estimated fair value of assets
acquired and liabilities assumed. Identifiable intangible assets include
management and franchise contracts, lease agreements and acquired brands
and trademarks, and are amortized over a weighted average life of 23 years.
Goodwill is amortized over 40 years.
(10) To record deferred costs associated with financing the cash portion of the
acquisition, net of deferred financing costs of Promus not valued in
purchase accounting.
(11) The net increase in stockholders' equity results from:
- the issuance of an estimated $1,025 million in Hilton equity
consideration in connection with the acquisition and
- the elimination of Promus' historical equity.
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INFORMATION ABOUT HILTON
The following is a brief description of Hilton's business. Additional
information regarding Hilton is contained in its filings with the SEC. For
information on how you can obtain copies of such filings, please see the section
entitled "Where You Can Find More Information" on page 94 of this joint proxy
statement/prospectus.
Hilton is primarily engaged in the ownership, management and franchising of
hotels. As of September 30, 1999, all of these properties were located in the
United States, with the exception of 19 hotels which are located in 10 foreign
countries.
On September 30, 1999, Hilton owned an interest in or leased and operated 43
hotels and managed 23 hotels owned by others. In addition, 217 hotels were
operated under the Hilton, Hilton Garden Inn and Hilton Suites names by third
parties pursuant to franchises granted by Hilton. Hilton operates vacation
ownership resorts under the Hilton Grand Vacations name. Hilton is also engaged
in various other activities related to the operation of hotels.
Hilton's principal executive offices are located at 9336 Civic Center Drive,
Beverly Hills, California 90210, and its telephone number is (310) 278-4321.
HILTON'S RECENT DEVELOPMENTS
Since the filing of Hilton's Quarterly Report on Form 10-Q for the period
ended June 30, 1999, Hilton has opened the new 600-room Hilton Boston Logan
Airport, located in the center of Boston's Logan Airport, and acquired a 100%
ownership interest in the Hilton Minneapolis & Towers, which has been managed by
Hilton since 1992.
INFORMATION ABOUT PROMUS
The following is a brief description of Promus' business. Additional
information regarding Promus is contained in its filings with the SEC. For
information on how you can obtain copies of such filings, please see the section
entitled "Where You Can Find More Information" on page 94.
Through its wholly-owned subsidiaries, Promus franchises and manages hotels
with the following brands: Doubletree, Doubletree Guest Suites, Club Hotel by
Doubletree, Embassy Suites, Hampton Inn, Hampton Inn & Suites, Homewood Suites
and Red Lion. Promus may also own all or a portion of these hotels or lease
these hotels from others. In addition, Promus leases and manages some hotels
that are not Promus-branded.
As of September 30, 1999, Promus franchised 1,112 hotels and operated 331
hotels, of which 184 were managed for third party owners, 51 were wholly-owned,
23 were partially-owned through joint ventures and 73 were leased from third
parties. These hotels are located in all 50 states, the District of Columbia,
Puerto Rico, the U.S. Virgin Islands and six foreign countries. Promus also
operates and franchises vacation interval ownership systems under the Embassy
Vacation Resort and Hampton Vacation Resort names.
Promus' principal executive offices are located at 755 Crossover Lane,
Memphis, Tennessee, 38117, and its telephone number is (901) 374-5000.
PROMUS' RECENT DEVELOPMENTS
In the third quarter of 1999, Promus identified 26 owned hotels to be sold
as part of a plan to reduce ownership of real estate. During September 1999,
Promus closed on sales of 14 of these hotels. The aggregate sales proceeds for
these hotels was approximately $135 million, of which $27 million was received
in the form of a note with a one year maturity. The total net book value for the
14 hotels was $81 million and the total gain on the sales was approximately $46
million. A portion of the gain will be
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recognized on the installment method as the note receivable is collected. Promus
signed franchise agreements for all of the sold hotels and will retain
management agreements for four of these hotels.
Promus is in negotiations with potential buyers or is actively marketing the
12 remaining hotels and expects these hotels to be sold within one year. For two
of these hotels, Promus recorded a write-down in the third quarter of
approximately $17 million to adjust the carrying value to estimated net
realizable value. After consideration of this write down, the total net book
value for the 12 hotels is approximately $95 million and will be reported in
Promus' September 30, 1999 consolidated balance sheet as assets held for sale.
COMPARISON OF STOCKHOLDER RIGHTS
THIS SECTION OF THE JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN
DIFFERENCES BETWEEN THE RIGHTS OF HOLDERS OF HILTON COMMON STOCK AND PROMUS
COMMON STOCK. WHILE WE BELIEVE THAT THIS DESCRIPTION COVERS THE IMPORTANT
DIFFERENCES BETWEEN THE TWO STOCKS, IT MAY NOT CONTAIN ALL OF THE INFORMATION
THAT IS IMPORTANT TO PROMUS STOCKHOLDERS. PROMUS STOCKHOLDERS SHOULD CAREFULLY
READ THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS THAT WE REFER TO FOR A MORE
COMPLETE UNDERSTANDING OF THE DIFFERENCES BETWEEN BEING A STOCKHOLDER OF HILTON
AND BEING A STOCKHOLDER OF PROMUS.
The rights of Promus stockholders are governed by Promus' restated
certificate of incorporation, as currently in effect, and Promus' amended and
restated by-laws. After completion of the acquisition, Promus stockholders may
become stockholders of Hilton. As a Hilton stockholder, your rights will be
governed by Hilton's restated certificate of incorporation and Hilton's by-laws,
each as currently in effect or as proposed to be amended as described in this
joint proxy statement/prospectus. Each of Hilton and Promus is incorporated
under the laws of the State of Delaware and, accordingly, the rights of Promus
stockholders will continue to be governed by the Delaware General Corporation
Law after completion of the acquisition.
CLASSES OF COMMON STOCK OF HILTON AND PROMUS
We each have one class of common stock issued and outstanding. Holders of
Hilton common stock and holders of Promus common stock are each entitled to one
vote for each share held. Neither of our certificates of incorporation permits
our respective stockholders to cumulate votes at any election of directors.
However, Hilton's by-laws provide that, except where a date shall have been
fixed as a stockholders record date for determination of the shares of Hilton
common stock entitled to vote, no share of stock that was transferred within 20
days prior to any election of directors may be voted at such election.
CLASSIFIED BOARD OF DIRECTORS
A classified board of directors is one with respect to which a certain
number of directors, but not necessarily all, are elected on a rotating basis
each year. Delaware law permits, but does not require, a classified board of
directors, pursuant to which the directors can be divided into as many as three
classes with staggered terms of office, with only one class of directors
standing for election each year. Each of our certificates of incorporation calls
for a division of each of our respective boards of directors into three classes,
as nearly equal in size as possible, with one class being elected annually and
with each director elected for a term of three years.
REMOVAL OF DIRECTORS
Any director or the entire board of Promus may be removed only for cause by
the holders of a majority of the shares of Promus stock entitled to vote
generally in the election of directors, voting together as a single class.
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Hilton's certificate of incorporation provides that any director of Hilton
may be removed with or without cause only by the affirmative vote of the holders
of 75% of the voting power of all shares of Hilton stock entitled to vote
generally in the election of directors, voting together as a single class.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Any newly created directorships or vacancies in either of our boards of
directors, resulting from any increase in the number of authorized directors or
death, resignation, disqualification, removal or other cause, may be filled
solely by the vote of a majority of the remaining members of such board of
directors, even though less than a quorum, or in the case of Promus, by a sole
remaining director, subject to the rights of holders of any outstanding series
of preferred stock. No decreases in the number of directors on either of our
respective boards of directors may shorten the term of any director then in
office.
LIMITS ON STOCKHOLDER ACTION BY WRITTEN CONSENT
Both Promus stockholders and Hilton stockholders may take action only at
annual or special meetings of stockholders, and they may not take action by
written consent.
ABILITY TO CALL SPECIAL MEETINGS
Promus' certificate of incorporation provides that only a majority of its
board of directors, the chairman of the board of directors or the president may
call a special meeting of the stockholders.
Hilton's certificate of incorporation provides that special meetings of the
stockholders may be called only by the chairman of the board or by the board of
directors pursuant to a resolution approved by a majority of the entire board of
directors.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
Promus' by-laws provide that to be timely, a stockholder's notice of
nomination of a director or other proposed business must be received not fewer
than 60 nor more than 90 calendar days before the annual meeting. If the public
announcement of such meeting is not made at least 70 days before the date of
such meeting, the stockholder must make the request no later than 10 calendar
days after the announcement of the meeting.
Hilton's by-laws provide that a stockholder's notice of a nomination of a
director or other proposed business to be brought before an annual meeting must
be received by the secretary not fewer than 60 calendar days prior to the
meeting.
PREFERRED STOCK
Both of our certificates of incorporation provide that our boards of
directors are authorized to provide for the issuance of shares of preferred
stock in one or more series, and to fix the designations, powers, preferences
and rights of the shares of each series and any qualifications, limitations or
restrictions on such shares.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BY-LAWS
Under Delaware law, a certificate of incorporation of a Delaware corporation
may be amended by approval of the board of directors of the corporation and the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote for the amendment, unless the corporation's certificate of incorporation
requires a higher vote. Stockholders entitled to vote have the power to adopt,
amend or repeal by-laws. In addition, a corporation may, in its certificate of
incorporation,
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confer that power upon the board of directors. The stockholders always have the
right to adopt, amend or repeal by-laws, even though the board of directors may
also be delegated such power.
Promus' certificate of incorporation provides that the affirmative vote of
the holders of at least 75% of the shares of Promus stock entitled to vote
generally in the election of directors, voting together as a single class, is
required to amend Promus' by-laws or, in certain circumstances, to amend the
business combination provision of Promus' certificate of incorporation.
Hilton's certificate of incorporation provides that the affirmative vote of
the holders of at least 75% of the shares of Hilton stock entitled to vote
generally in the election of directors, voting together as a single class, is
required to amend any of the following provisions of Hilton's certificate of
incorporation, among others:
- the number, election and terms of directors;
- nominating procedures;
- the bringing of stockholder business;
- removal of directors;
- filling of vacancies;
- procedures to amend the by-laws; and
- procedures to call a special meeting of Hilton's stockholders.
DELAWARE ANTI-TAKEOVER STATUTES
We are both subject to Section 203 of the Delaware General Corporation Law,
which, under certain circumstances, may make the consummation of various
business transactions by "Interested Stockholders," as defined in Section 203,
with either of us more difficult for a three-year period from the time that the
stockholder becomes an "Interested Stockholder." Under Delaware law, a
corporation may elect in its certificate of incorporation or by-laws not to be
governed by Section 203. Neither Hilton nor Promus has done so.
Hilton's certificate of incorporation requires that mergers, significant
asset sales, significant stock issuances and other significant transactions with
any entity that owns, directly or indirectly, 10% or more of Hilton's voting
stock be approved by the affirmative vote of at least 75% of the then
outstanding capital stock of Hilton entitled to vote generally in the election
of directors, voting together as a single class. This provision does not apply
if either of the following conditions is satisfied, in which case only the
affirmative vote of a majority of the Hilton voting stock is required for
approval: (i) the transaction is approved by a majority of disinterested
directors of Hilton or (ii) certain enumerated price and procedural requirements
are satisfied.
Promus' certificate of incorporation requires that acquisitions, mergers,
significant asset sales, significant stock issuances and other significant
transactions with any entity that owns, directly or indirectly, or publicly
discloses a plan to own 10% or more of Promus' voting stock be approved by the
affirmative vote of at least 75% of the then outstanding Promus stock entitled
to vote generally in the election of directors, voting together as single class,
and by a majority of the then outstanding Promus voting stock not held
beneficially by such 10% stockholder. This provision does not apply if either of
the following conditions is satisfied, in which case only the affirmative vote
of a majority of the Promus voting stock is required for approval:
- the transaction is approved by a majority of directors of Promus who are
not affiliates of the 10% stockholder and were members of Promus' board of
directors prior to the time that the 10% stockholder acquired 10% or more
Promus' voting stock, or
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- certain enumerated price and procedural requirements are satisfied.
LIMITATION OF LIABILITY OF DIRECTORS
The Delaware General Corporation Law permits a corporation to include a
provision in its certificate of incorporation eliminating or limiting the
personal liability of a director or officer to the corporation or its
stockholders for damages for a breach of the director's fiduciary duty, subject
to certain limitations.
Each of our respective certificates of incorporation includes a provision
eliminating personal liability of our respective directors to each of us or to
our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for any of the following:
- any breach of the director's duty of loyalty to the company or its
stockholders;
- any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful payment of dividends or unlawful stock purchases or redemptions;
or
- any transaction from which the director derived an improper personal
benefit.
In addition, Promus' certificate of incorporation provides that if the
Delaware General Corporation Law is amended to authorize corporate action
further limiting or eliminating the personal liability of directors, then the
liability of each Promus director will be limited or eliminated to the fullest
extent permitted by the Delaware General Corporation Law as so amended from time
to time.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their fiduciary duties, they do not eliminate
that duty. Accordingly, these provisions will have no effect on the availability
of equitable remedies such as an injunction or recission based on a director's
breach of his or her fiduciary duty.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law permits a corporation to indemnify
officers and directors for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful.
Both of our respective certificates of incorporation provide that any person
who was or is a party or is threatened to be made a party to or is involved in
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, other than an action by or in right
of the corporation, because that person is or was a director or officer, or is
or was serving at the request of either of us as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, will be indemnified against expenses, including attorney's fees,
judgments, fines and amounts paid in a settlement, and held harmless by each of
us to the fullest extent permitted by the Delaware General Corporation Law. In
the case of actions, suits or proceedings by or in right of the corporation,
both of our certificates of incorporation provide that an otherwise indemnified
person will be indemnified only for expenses, including attorneys' fees, and
only if such person was not adjudged to be liable to the corporation, subject to
certain exceptions. The indemnification rights conferred by each of us are not
exclusive of any other right to which persons seeking indemnification may be
entitled under any statute, our respective certificates of incorporation or
by-laws, any agreement, vote of stockholders or disinterested directors or
otherwise. In addition, each of us is authorized to, and does, purchase and
maintain insurance on behalf of its directors and officers.
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Additionally, each of us may pay expenses incurred by our directors or
officers in defending a civil or criminal action, suit or proceeding because
that person is a director or officer, in advance of the final disposition of
that action, suit or proceeding. However, such payment will be made only if we
receive an undertaking by or on behalf of that director or officer to repay all
amounts advanced if it is ultimately determined that he or she is not entitled
to be indemnified by us, as authorized by our respective certificates of
incorporation and by-laws.
Hilton's certificate of incorporation extends the indemnification,
advancement of expenses and authorization to maintain insurance provisions
described above to employees, agents and fiduciaries of Hilton and, if serving
at Hilton's request, to employees, agents and fiduciaries of other corporations,
joint ventures, partnerships, trusts or other enterprises.
STOCKHOLDER RIGHTS PLAN
Both Hilton and Promus have stockholder rights plans. In general, the Hilton
rights become exercisable only if a person or group acquires beneficial
ownership of 20% or more of the outstanding shares of Hilton common stock. Under
Promus' rights plan, the beneficial ownership threshold is 15% instead of 20%.
Barron Hilton and the Conrad N. Hilton Fund are excluded in determining whether
a person or group has crossed the 20% threshold in Hilton's rights plan. Promus
has taken all action necessary to render the Promus rights inapplicable to the
acquisition. More information about the Hilton and Promus rights plans are
included in their filings with the SEC. For information on how you can obtain
copies of these filings, please see the section entitled "Where You Can Find
More Information" on page 94.
AMENDMENT TO HILTON'S CERTIFICATE OF INCORPORATION
Hilton is asking its stockholders to approve an amendment to Hilton's
certificate of incorporation to increase the authorized number of shares of
Hilton common stock from 400 million shares to 500 million shares. A form of the
amendment is attached as Appendix F to this joint proxy statement/ prospectus.
This amendment is designed to allow for future stock issuances by Hilton for
purposes such as raising funds to repay debt, acquisition of assets or employee
incentives. If approved, the amendment to the certificate of incorporation will
take effect only if the acquisition is completed.
AMENDMENT TO HILTON'S BY-LAWS
Hilton is asking its stockholders to approve an amendment to Hilton's
by-laws to change the authorized number of directors from the fixed number of 12
to a range of 10 to 20, with the exact number of directors to be set from time
to time by the board of directors. A form of the amendment is attached as
Appendix G to this joint proxy statement/prospectus. This amendment is designed
to provide Hilton greater flexibility in the composition of its board. If
approved, the amendment to the bylaws will take effect regardless of the outcome
of the votes on the acquisition and the amendment to Hilton's certificate of
incorporation.
STOCKHOLDER PROPOSALS
Hilton's next annual meeting of stockholders is expected to be held on
May 11, 2000. If any Hilton stockholder intends to present a proposal at the
2000 Hilton annual meeting and wishes to have the proposal considered for
inclusion in the proxy materials for the meeting, the stockholder must submit
the proposal to the Secretary of Hilton in writing so that the proposal will be
received at Hilton's executive offices by December 2, 1999. The proposal must
meet the other requirements of the rules of the SEC relating to stockholder
proposals. Stockholder nominations or proposals must be duly submitted to the
Secretary of Hilton by March 13, 2000 in order to be eligible to be considered
at the 2000 annual meeting of Hilton stockholders.
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PROMUS WILL HAVE AN ANNUAL MEETING IN 2000 ONLY IF THE ACQUISITION IS NOT
COMPLETED. If you are a Promus stockholder and you wish to submit a proposal to
be considered for inclusion in Promus' proxy materials for its next annual
meeting, you must submit the proposal to the Secretary of Promus in writing so
that the proposal will be received at Promus' executive offices by November 26,
1999. Promus' by-laws provide that to be timely, a stockholder's notice of
nomination of a director or other proposed business must be received not fewer
than 60 nor more than 90 calendar days before the annual meeting. If the public
announcement of the meeting is not made at least 70 days before the date of the
meeting, the stockholder must make the request not later than 10 calendar days
after the announcement of the meeting.
EXPERTS
The consolidated financial statements of Hilton as of December 31, 1998 for
each of the three years in the period then ended and the consolidated financial
statements of Promus as of December 31, 1998 for each of the three years in the
period then ended, all of which are incorporated by reference in this joint
proxy statement/prospectus from Hilton's Annual Report on Form 10-K for the year
ended December 31, 1998 and from Promus' Annual Report on Form 10-K for the year
ended December 31, 1998, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports, which also are incorporated
by reference in this joint proxy statement/prospectus. These financial
statements have been incorporated in reliance on the authority of Arthur
Andersen as experts in accounting and auditing in giving the reports. The 1996
consolidated financial statements of Promus include the combined restated
results of Doubletree Corporation. The consolidated statements of operations,
stockholders' equity and cash flows of Doubletree Corporation and subsidiaries
for the year ended December 31, 1996 were audited by other auditors.
The consolidated financial statements of Promus for the year ended
December 31, 1996, incorporated by reference in this joint proxy
statement/prospectus from Promus' Annual Report on Form 10-K for the year ended
December 31, 1998, include the combined restated results of Doubletree
Corporation. The consolidated statements of operations, stockholders' equity and
cash flows of Doubletree Corporation and subsidiaries for the year ended
December 31, 1996, have been audited by KPMG LLP, independent auditors, as
stated in their report, which is included in the Promus Annual Report on
Form 10-K for the year ended December 31, 1998, (such financial statements are
not included therein), which is incorporated herein by reference, and has been
so incorporated in reliance upon the report of said firm, given upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Hilton common stock to be issued in connection
with the acquisition and certain of the United States federal tax consequences
to Promus stockholders will be passed upon by Gibson, Dunn & Crutcher LLP, Los
Angeles, California.
WHERE YOU CAN FIND MORE INFORMATION
Hilton has filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act that registers the shares of
Hilton common stock to be issued in exchange for shares of Promus common stock
in connection with the acquisition. The registration statement, including the
attached exhibits and schedules, contains additional relevant information about
Hilton and its capital stock. The rules and regulations of the SEC allow us to
omit certain information included in the registration statement from this
document.
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In addition, Hilton and Promus file reports, proxy statements and other
information with the SEC under the Securities Exchange Act. You may read and
copy this information at the following public reference rooms of the SEC:
WASHINGTON, D.C. NEW YORK, NEW YORK LOS ANGELES,
CALIFORNIA
450 Fifth Street, N. 7 World Trade Center 5670 Wilshire
W. Boulevard
Room 1024 Suite 1300 11th floor
Washington, D.C. 20549 New York, NY 10048 Los Angeles, CA 90036
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the public reference rooms by calling the SEC at (800) SEC-0330.
The SEC also maintains an Internet website that contains reports, proxy
statements and other information about issuers, like Hilton and Promus, which
file electronically with the SEC. The address of that site is
HTTP://WWW.SEC.GOV.
The SEC allows Hilton and Promus to "incorporate by reference" information
into this joint proxy statement/prospectus, which means that important
information may be disclosed to you by referring you to another document filed
separately with the SEC. The information of Hilton and Promus incorporated by
reference is deemed to be part of this joint proxy statement/prospectus, except
for information superseded by information in, or incorporated by reference in,
this joint proxy statement/ prospectus. This joint proxy statement/prospectus
incorporates by reference the documents set forth below that have been
previously filed with the SEC. The following documents contain important
information about Hilton and Promus and their financial condition and operating
results and are hereby incorporated by reference:
- The description of Hilton's common stock set forth in its Registration
Statement on Form 8-A filed with the SEC on May 18, 1986;
- Hilton's Annual Report on Form 10-K for the year ended December 31, 1998;
- Hilton's Current Report on Form 8-K dated January 8, 1999;
- Hilton's Current Report on Form 8-K dated February 5, 1999;
- Hilton's Proxy Statement dated April 1, 1999;
- Hilton's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999;
- Hilton's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999;
- Hilton's Current Report on Form 8-K dated September 3, 1999;
- Hilton's Registration Statement on Form 8-A dated September 3, 1999;
- Hilton's Current Report on Form 8-K dated September 8, 1999;
- The description of Promus' common stock set forth in its Registration
Statement on Form 8-A filed with the SEC on December 17, 1997;
- Promus' Annual Report on Form 10-K for the year ended December 31, 1998;
- Promus' Proxy Statement dated April 1, 1999;
- Promus' Current Report on Form 8-K dated May 3, 1999;
- Promus' Quarterly Report on Form 10-Q for the quarter ended March 31,
1999;
- Promus' Current Report on Form 8-K dated May 25, 1999;
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- Promus' Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
- Promus' Current Report on Form 8-K dated September 7, 1999; and
- Doubletree Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996.
Hilton and Promus are also incorporating by reference additional documents
that each of them may file with the SEC pursuant to the Exchange Act between the
date of this joint proxy statement/ prospectus and the dates of each of their
respective special meetings.
Hilton has supplied all information contained or incorporated by reference
in this joint proxy statement/prospectus relating to Hilton, and Promus has
supplied all information contained or incorporated by reference in this joint
proxy statement/prospectus relating to Promus.
You may have been sent some of the documents incorporated by reference, but
you can obtain any of them through the SEC, Hilton as to the documents filed by
Hilton or Promus as to the documents filed by Promus. Documents incorporated by
reference are available from Hilton or Promus without charge, excluding any
exhibits which are not specifically incorporated by reference as exhibits to
this joint proxy statement/prospectus, at the following addresses:
Hilton Hotels Corporation Promus Hotel Corporation
9336 Civic Center Drive 755 Crossover Lane
Beverly Hills, California 90210 Memphis, Tennessee 38117
Attention: Investor Relations Attention: Investor Relations
Telephone: (310) 278-4321 Telephone: (901) 374-5468
If you would like to request documents from either company, please do so by
November 20, 1999 to receive them before the special meetings.
You should rely only on the information in this document or to which we have
referred you. We have not authorized anyone to provide you with information that
is different. If you are in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities offered by this
document or the solicitation of proxies is unlawful, or if you are a person to
whom it is unlawful to direct these types of activities, then the offer
presented in this document does not extend to you. The information contained in
this document speaks only as of the date of this document unless the information
specifically indicates that another date applies.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
dated as of
September 3, 1999*
among
PROMUS HOTEL CORPORATION,
HILTON HOTELS CORPORATION
and
CHICAGO HILTON, INC.
* Text of Appendix A reflects Amendment No. 1 dated as of October 21, 1999 to
the Agreement and Plan of Merger.
APPENDIX
TABLE OF CONTENTS(1)
PAGE
----
ARTICLE 1 DEFINITIONS; INTERPRETATION
SECTION 1.01. DEFINITIONS................................................. 1
SECTION 1.02. CERTAIN ACTIVITIES OF SUBSIDIARIES.......................... 4
ARTICLE 2 THE MERGER
SECTION 2.01. THE MERGER.................................................. 5
SECTION 2.02. CONVERSION OF SHARES........................................ 6
SECTION 2.03. ELECTION OF CASH OR PARENT STOCK............................ 6
SECTION 2.04. PRORATION................................................... 8
SECTION 2.05. SURRENDER AND PAYMENT....................................... 9
SECTION 2.06. DISSENTING SHARES........................................... 10
SECTION 2.07. STOCK OPTIONS............................................... 10
SECTION 2.08. DEFERRED SHARES; GE WARRANTS; GE OPTIONS.................... 10
SECTION 2.09. FRACTIONAL SHARES........................................... 11
SECTION 2.10. WITHHOLDING RIGHTS.......................................... 11
SECTION 2.11. LOST CERTIFICATES........................................... 12
ARTICLE 3 THE SURVIVING CORPORATION
SECTION 3.01. CERTIFICATE OF INCORPORATION................................ 12
SECTION 3.02. BYLAWS...................................................... 12
SECTION 3.03. DIRECTORS AND OFFICERS...................................... 12
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. CORPORATE EXISTENCE AND POWER............................... 12
SECTION 4.02. CORPORATE AUTHORIZATION..................................... 12
SECTION 4.03. GOVERNMENTAL AUTHORIZATION.................................. 13
SECTION 4.04. NON-CONTRAVENTION........................................... 13
SECTION 4.05. CAPITALIZATION.............................................. 13
SECTION 4.06. SUBSIDIARIES................................................ 14
SECTION 4.07. SEC FILINGS................................................. 14
SECTION 4.08. FINANCIAL STATEMENTS........................................ 15
SECTION 4.09. DISCLOSURE DOCUMENTS........................................ 15
SECTION 4.10. ABSENCE OF CERTAIN CHANGES.................................. 15
SECTION 4.11. NO UNDISCLOSED MATERIAL LIABILITIES......................... 16
SECTION 4.12. COMPLIANCE WITH LAWS........................................ 16
SECTION 4.13. LITIGATION.................................................. 17
SECTION 4.14. FINDERS' FEES............................................... 17
SECTION 4.15. TAXES....................................................... 17
SECTION 4.16. EMPLOYEE BENEFIT PLANS...................................... 18
SECTION 4.17. ENVIRONMENTAL MATTERS....................................... 19
SECTION 4.18. ANTITAKEOVER STATUTES; RIGHTS AGREEMENT; DIRECTOR VOTES..... 19
- ------------------------
(1)The Table of Contents is not a part of this Agreement.
A-ii
PAGE
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SECTION 4.19. OPINION OF FINANCIAL ADVISOR................................ 19
SECTION 4.20. INSURANCE................................................... 19
SECTION 4.21. INTELLECTUAL PROPERTY....................................... 19
SECTION 4.22. REAL PROPERTY............................................... 20
SECTION 4.23. YEAR 2000 COMPLIANCE........................................ 20
SECTION 4.24. MANAGEMENT AND FRANCHISE AGREEMENTS......................... 20
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 5.01. CORPORATE EXISTENCE AND POWER............................... 20
SECTION 5.02. CORPORATE AUTHORIZATION..................................... 21
SECTION 5.03. GOVERNMENTAL AUTHORIZATION.................................. 21
SECTION 5.04. NON-CONTRAVENTION........................................... 21
SECTION 5.05. CAPITALIZATION.............................................. 22
SECTION 5.06. SUBSIDIARIES................................................ 22
SECTION 5.07. SEC FILINGS................................................. 23
SECTION 5.08. FINANCIAL STATEMENTS........................................ 23
SECTION 5.09. DISCLOSURE DOCUMENTS........................................ 23
SECTION 5.10. ABSENCE OF CERTAIN CHANGES.................................. 24
SECTION 5.11. NO UNDISCLOSED MATERIAL LIABILITIES......................... 25
SECTION 5.12. COMPLIANCE WITH LAWS AND COURT ORDERS....................... 25
SECTION 5.13. LITIGATION.................................................. 25
SECTION 5.14. FINDERS' FEES............................................... 25
SECTION 5.15. TAXES....................................................... 25
SECTION 5.16. EMPLOYEE BENEFIT PLANS...................................... 26
SECTION 5.17. ENVIRONMENTAL MATTERS....................................... 27
SECTION 5.18. FINANCING................................................... 28
SECTION 5.19. ANTITAKEOVER STATUTES; RIGHTS AGREEMENT; DIRECTOR VOTES..... 28
SECTION 5.20. INSURANCE................................................... 28
SECTION 5.21. INTELLECTUAL PROPERTY....................................... 28
SECTION 5.22. REAL PROPERTY............................................... 29
SECTION 5.23. YEAR 2000 COMPLIANCE........................................ 29
SECTION 5.24. MANAGEMENT AND FRANCHISE AGREEMENTS......................... 29
SECTION 5.25. OPINION OF FINANCIAL ADVISOR................................ 29
ARTICLE 6 COVENANTS OF THE COMPANY
SECTION 6.01. CONDUCT OF THE COMPANY...................................... 29
SECTION 6.02. STOCKHOLDER MEETING; PROXY MATERIAL......................... 31
SECTION 6.03. NO SOLICITATION; OTHER OFFERS............................... 32
SECTION 6.04. AFFILIATES.................................................. 33
ARTICLE 7 COVENANTS OF PARENT
SECTION 7.01. CONDUCT OF PARENT........................................... 33
SECTION 7.02. OBLIGATIONS OF MERGER SUBSIDIARY............................ 34
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PAGE
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SECTION 7.03. VOTING OF SHARES............................................ 34
SECTION 7.04. DIRECTOR AND OFFICER LIABILITY.............................. 34
SECTION 7.05. EMPLOYEE MATTERS............................................ 35
SECTION 7.06. PARENT BOARD OF DIRECTORS................................... 36
SECTION 7.07. PARENT STOCKHOLDER MEETING.................................. 36
SECTION 7.08. REGISTRATION STATEMENT...................................... 37
SECTION 7.09. STOCK EXCHANGE LISTING...................................... 37
SECTION 7.10. TAX-FREE NATURE OF DISTRIBUTION............................. 37
SECTION 7.11. FINANCING AGREEMENTS........................................ 37
ARTICLE 8 COVENANTS OF PARENT AND THE COMPANY
SECTION 8.01. EFFORTS..................................................... 37
SECTION 8.02. CERTAIN FILINGS............................................. 38
SECTION 8.03. PUBLIC ANNOUNCEMENTS........................................ 38
SECTION 8.04. FURTHER ASSURANCES.......................................... 38
SECTION 8.05. ACCESS TO INFORMATION....................................... 38
SECTION 8.06. NOTICES OF CERTAIN EVENTS................................... 39
SECTION 8.07. COOPERATION AS TO TAX MATTERS............................... 39
SECTION 8.08. TRANSFER AND GAINS TAX...................................... 39
SECTION 8.09. AUDITORS' LETTERS........................................... 39
SECTION 8.10. REGISTRATION RIGHTS AGREEMENT............................... 40
ARTICLE 9 CONDITIONS TO THE MERGER
SECTION 9.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY..................... 40
CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
SECTION 9.02. SUBSIDIARY................................................ 40
SECTION 9.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY................ 41
ARTICLE 10 TERMINATION
SECTION 10.01. TERMINATION................................................. 41
SECTION 10.02. EFFECT OF TERMINATION....................................... 42
ARTICLE 11 MISCELLANEOUS
SECTION 11.01. NOTICES..................................................... 43
SECTION 11.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................. 43
SECTION 11.03. AMENDMENTS; NO WAIVERS...................................... 43
SECTION 11.04. EXPENSES.................................................... 44
SECTION 11.05. SUCCESSORS AND ASSIGNS...................................... 45
SECTION 11.06. GOVERNING LAW............................................... 45
SECTION 11.07. JURISDICTION................................................ 45
SECTION 11.08. WAIVER OF JURY TRIAL........................................ 45
SECTION 11.09. COUNTERPARTS; EFFECTIVENESS................................. 45
SECTION 11.10. ENTIRE AGREEMENT............................................ 45
SECTION 11.11. CAPTIONS.................................................... 45
SECTION 11.12. SEVERABILITY................................................ 45
SECTION 11.13. SPECIFIC PERFORMANCE........................................ 45
A-iv
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") dated as of September 3, 1999
among Promus Hotel Corporation, a Delaware corporation (the "COMPANY"), Hilton
Hotels Corporation, a Delaware corporation ("PARENT"), and Chicago
Hilton, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent
("MERGER SUBSIDIARY").
WHEREAS, the respective Boards of Directors of Parent and the Company have
approved, and deem it advisable and in the best interests of their respective
stockholders to consummate, the acquisition of the Company by Parent on the
terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS; INTERPRETATION
SECTION 1.01. DEFINITIONS. (a) The following terms, as used herein, have
the following meanings:
"ACQUISITION PROPOSAL" means any offer or proposal for a merger,
consolidation, share exchange, business combination, or other similar
transaction involving the Company or any of its Subsidiaries or any proposal or
offer to acquire, directly or indirectly, more than 20% of the voting securities
of the Company, or a substantial portion of the assets of the Company and its
Subsidiaries taken as a whole, other than the transactions contemplated by this
Agreement.
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person;
PROVIDED that, for purposes of this Agreement, Candlewood Hotel Company, Inc.
shall not be deemed an Affiliate of the Company.
"ALLIANCE COMPANY" means each of Hilton Reservations Worldwide, LLC, Hilton
Marketing Worldwide, LLC and Hilton HHonors Worldwide, LLC.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY BALANCE SHEET" means the consolidated balance sheet of the Company
as of December 31, 1998 and the footnotes thereto set forth in the Company 10-K.
"COMPANY 10-K" means the Company's annual report on Form 10-K for the fiscal
year ended December 31, 1998.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated as of
August 25, 1999 between the Company and Parent.
"DELAWARE LAW" means the General Corporation Law of the State of Delaware.
"ENVIRONMENTAL LAWS" means any federal, state, local or foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or requirement, relating to human health and safety, the environment
or to pollutants, contaminants, wastes or chemicals or any toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous substances, wastes or
materials.
"ENVIRONMENTAL PERMITS" means, with respect to any Person, all permits,
licenses, franchises, certificates, approvals and other similar authorizations
of governmental authorities relating to or required by Environmental Laws for
the business of such Person or any of its Subsidiaries as currently conducted.
"GE OPTIONS" means options to purchase an aggregate of 20,000 Shares issued
on June 30, 1994 to GE Investment Hotel Partners I, Limited Partnership, and
options to purchase an aggregate of 2,500 Shares issued to Trustees of the
General Electric Pension Trust, and in each case issued by a predecessor of the
Company and subsequently assumed by the Company.
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"GE WARRANTS" means warrants to purchase an aggregate of 262,753 Shares
issued on November 8, 1996 to PT Investments Inc. by a predecessor of the
Company and subsequently assumed by the Company.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"LIEN" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on the condition (financial or otherwise), business, assets or
results of operations of such Person and its Subsidiaries, taken as a whole,
except any such effect resulting from: (i) changes in circumstances or
conditions affecting the hotel, motel or travel industries in general or
affecting any segment or region thereof in which such Person or its Subsidiaries
operates, (ii) changes in general economic or business conditions in the United
States or (iii) this Agreement or the transactions contemplated hereby or the
announcement hereof, including, but not limited to, any stockholder litigation
brought or threatened in respect of this Agreement or the Merger. Accordingly, a
"COMPANY MATERIAL ADVERSE EFFECT" means a Material Adverse Effect on the Company
and its Subsidiaries, taken as a whole, and a "PARENT MATERIAL ADVERSE EFFECT"
means a Material Adverse Effect on Parent and its Subsidiaries, taken as a
whole.
"1933 ACT" means the Securities Act of 1933.
"1934 ACT" means the Securities Exchange Act of 1934.
"PARENT BALANCE SHEET" means the consolidated balance sheet of Parent as of
December 31, 1998 and the footnotes thereto set forth in the Parent 10-K.
"PARENT NOTES" means any material indebtedness of Parent or PPEC for which
Parent is liable.
"PARENT STOCK" means the common stock, $2.50 par value, of Parent.
"PARENT 10-K" means Parent's annual report on Form 10-K for the fiscal year
ended December 31, 1998.
"PERSON" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"RIGHTS" means the Series A Junior Participating Preferred Stock Purchase
Rights issued and issuable pursuant to the Rights Agreement dated as of
December 1, 1997 between the Company and First Union National Bank, as amended
(the "Rights Agreement").
"SEC" means the Securities and Exchange Commission.
"SHARES" means the shares of common stock, $.01 par value, of the Company.
"SUBSIDIARY" means, with respect to any Person, any entity of which (i) such
Person or any other Subsidiary of such Person is a general partner (excluding
partnerships the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the economic interests
in such partnership) or (ii) securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or other
persons performing similar functions are at any time directly or indirectly
owned by such Person; PROVIDED that, for purposes of this Agreement, Candlewood
Hotel Company, Inc. shall not be deemed a Subsidiary of the Company.
Any reference in this Agreement to a statute shall be to such statute, as
amended from time to time, and to the rules and regulations promulgated
thereunder.
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(b) Each of the following terms is defined in the Section set forth opposite
such term:
TERM SECTION
- ---- ---------
Affected Employee........................................... 7.05(c)
Aggregate Shares............................................ 2.04(a)
Alternative Double Merger Structure......................... 2.01(f)
Antitrust Law............................................... 8.01(b)
Bank of America............................................. 5.18
Bank of New York Facility................................... 5.18
Cash Consideration.......................................... 2.02(c)
Cash Election............................................... 2.03(a)
Cash Proration Factor....................................... 2.04(b)
cause....................................................... 7.05(f)
Certificates................................................ 2.05
Commitment Letter........................................... 5.18
Common Shares Trust......................................... 2.09(b)
Company Designees........................................... 7.06
Company Disclosure Schedule................................. Article 4
Company Employee Plans...................................... 4.16(a)
Company Merger Subsidiary................................... 2.01(f)
Company SEC Documents....................................... 4.07
Company Securities.......................................... 4.05
Company Stock Option........................................ 2.07
Company Stockholder Meeting................................. 6.02
Company Subsidiary Securities............................... 4.06
Controlling Shareholder..................................... 5.15(i)
Credited Shares............................................. 2.08(a)
Directors Plan.............................................. 2.08(a)
Directors Program........................................... 2.08(a)
Dissenting Shares........................................... 2.06
Distribution................................................ 5.15(g)
DOJ......................................................... 8.01(b)
Effective Time.............................................. 2.01
Election.................................................... 2.03(a)
Election Date............................................... 2.03(b)
ERISA....................................................... 4.16(a)
ERISA Affiliate............................................. 4.16(a)
Excess Shares............................................... 2.09(a)
Exchange Agent.............................................. 2.05
Exchange Ratio.............................................. 2.02(c)
Existing Registration Rights Agreement...................... 8.10
Existing Senior Credit Facility............................. 5.18
Financing Agreements........................................ 7.11(a)
Form of Election............................................ 2.03(a)
FTC......................................................... 8.01(b)
GAAP........................................................ 4.08
Gains Taxes................................................. 8.08
Guarantee of Delivery....................................... 2.03(b)
Indemnified Person.......................................... 7.04
Joint Proxy Statement....................................... 5.09(a)
Market Price................................................ 2.02(c)
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TERM SECTION
- ---- ---------
Material Company Agreements................................. 4.24
Material Parent Agreements.................................. 5.24
Maximum Cash Shares......................................... 2.04(a)
Merger...................................................... 2.01
Merger Consideration........................................ 2.02(c)
Multiemployer Plan.......................................... 4.16(b)
New Hilton.................................................. 2.01(f)
Non-Electing Share.......................................... 2.04(b)
NYSE........................................................ 2.02(c)
Outside Termination Date.................................... 10.01(b)
Parent Disclosure Schedule.................................. Article 5
Parent Employee Plans....................................... 5.16(a)
Parent Merger Subsidiary.................................... 2.01(f)
Parent Rights............................................... 5.19(b)
Parent Rights Agreement..................................... 5.19(b)
Parent SEC Documents........................................ 5.07
Parent Securities........................................... 5.05(b)
Parent Stockholder Meeting.................................. 7.07
Parent Subsidiary Securities................................ 5.06(b)
PPEC........................................................ 5.15(g)
Registration Statement...................................... 5.09
Required Cash Amount........................................ 5.18
Stock Consideration......................................... 2.02(c)
Stock Election.............................................. 2.03(a)
Stock Proration Factor...................................... 2.04(c)
Stock Transfer Taxes........................................ 8.08
Superior Proposal........................................... 6.02
Surviving Corporation....................................... 2.01
Tax Return.................................................. 4.15
Taxes....................................................... 4.15
Total Consideration......................................... 2.01(e)
Total Stock Value........................................... 2.01(e)
SECTION 1.02. CERTAIN ACTIVITIES OF SUBSIDIARIES. The parties hereto
acknowledge that certain Subsidiaries of the Company and of Parent (including,
for example, partnerships formed for the purpose of owning and/or operating
single hotel properties) have engaged, and may after the date hereof engage, in
the ordinary course of their or the Company's or Parent's businesses, in the
following activities: (a) the declaration, setting aside and payment of
dividends or other distributions and (b) the repurchase, redemption or other
acquisition of, or amendment to the existing terms of, capital stock or other
ownership interests of such Subsidiaries. Notwithstanding anything else in this
Agreement, the parties agree that any such activity referred to in clause (a) or
(b) by any such Subsidiary will not constitute the breach of any representation
and warranty of the Company or Parent, as the case may be, made pursuant to this
Agreement or the violation of any covenant binding on the Company or Parent, as
the case may be, pursuant to this Agreement, so long as such activity is (i) in
the ordinary course of business consistent with past practice, (ii) on arm's
length terms and (iii) permitted or required pursuant to any agreement.
A-4
ARTICLE 2
THE MERGER
SECTION 2.01. THE MERGER. (a) Subject to Section 2.01(e) and
Section 2.01(f), at the Effective Time, the Company shall be merged (the
"MERGER") with and into Merger Subsidiary in accordance with Delaware Law,
whereupon the separate existence of the Company shall cease, and Merger
Subsidiary shall be the surviving corporation (the "SURVIVING CORPORATION").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Company and Merger
Subsidiary will file a certificate of merger with the Delaware Secretary of
State and make all other filings or recordings required by Delaware Law in
connection with the Merger. The Merger shall become effective at such time (the
"EFFECTIVE TIME") as the certificate of merger is duly filed with the Delaware
Secretary of State or at such later time as is specified in the certificate of
merger.
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of the Company
and Merger Subsidiary, all as provided under Delaware Law.
(d) The closing of the Merger shall take place (i) at the offices of Davis
Polk & Wardwell, 450 Lexington Avenue, New York, NY, as soon as practicable, but
in any event within three business days after the day on which the last to be
fulfilled or waived of the conditions set forth in Article 9 (other than those
conditions that by their nature are to be fulfilled at the closing, but subject
to the fulfillment or waiver of such conditions) shall be fulfilled or waived in
accordance with this Agreement or (ii) at such other place and time or on such
other date as the Company and Parent may agree in writing.
(e) If (A) on the day upon which the Effective Time occurs (or if no
trading of Parent Stock on the NYSE takes place prior to the Effective Time on
such day, the last date prior to the date upon which the Effective Time occurs
upon which there was trading of Parent Stock on the NYSE), the fair market
value, based on the volume weighted average per share sales price of the Parent
Stock on that day on the NYSE, of all shares of Parent Stock to be delivered in
connection with the Merger (the "TOTAL STOCK VALUE") is less than 40% of the sum
of (i) the sum of the Maximum Cash Shares and Dissenting Shares, multiplied by
the Cash Consideration, (ii) the amount of cash paid by Parent to acquire Shares
within the two year period prior to the date of the Merger and (iii) the Total
Stock Value (such sum being referred to as the "TOTAL CONSIDERATION") or
(B) the conditions in Sections 9.02(b) and 9.03(b) cannot be satisfied (assuming
that the legally required minimum percentage of stock consideration under the
continuity of interest test applicable pursuant to Treasury Regulations is 40%),
then the Merger contemplated by Section 2.01(a) shall be restructured such that
Merger Subsidiary shall be merged with and into the Company, and the Company
shall be the surviving corporation. In such event: all references to the term
"Merger" shall be deemed references to the merger contemplated by this
Section 2.01(e); all references to the term "Surviving Corporation" shall be
deemed references to the Company; all references to the term "Effective Time"
shall be deemed references to the time at which the certificate of merger is
duly filed with the Delaware Secretary of State or at such later time as is
specified in the certificate of merger with respect to the Merger as
restructured in the manner contemplated by this Section 2.01(e); and the
conditions set forth in Sections 9.02(b) and 9.03(b) and the covenant set forth
in Section 8.07 shall thereafter cease to apply. The parties shall cooperate and
take all steps necessary to implement such alternative structure.
Notwithstanding Section 3.01, in the event the alternative structure
contemplated by this Section 2.01(e) is implemented, the certificate of
incorporation of the Company in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law.
A-5
(f) The parties agree that after the date hereof, if Parent and the Company
are satisfied in their sole discretion that consummation of the Alternative
Double Merger Structure (as defined below) will not result in any material
adverse consequences pursuant to the Parent Notes, the parties shall use their
best efforts to implement the Alternative Double Merger Structure on the terms
and conditions contained in this Merger Agreement (preserving the economic and
financial terms of this Agreement) with such modifications to such terms and
conditions as are required to implement such structure. The "ALTERNATIVE DOUBLE
MERGER STRUCTURE" means a structure whereby the following shall occur: (i)
Parent and the Company will form a corporation under Delaware Law ("NEW HILTON")
owned and controlled equally by Parent and the Company; (ii) promptly following
the incorporation of New Hilton, Parent and the Company will cause New Hilton to
form two wholly-owned subsidiaries under Delaware Law ("PARENT MERGER
SUBSIDIARY" and "COMPANY MERGER SUBSIDIARY"); (iii) Parent and the Company will
cause New Hilton, Parent Merger Subsidiary and Company Merger Subsidiary to
become parties to this Agreement and to execute and deliver all documents
required by Delaware Law to authorize and adopt this Agreement and (iv) at the
Effective Time, (x) Company Merger Subsidiary shall be merged with and into the
Company in accordance with Delaware Law, whereupon the separate existence of
Company Merger Subsidiary shall cease, and the Company shall be the surviving
corporation and (y) Parent Merger Subsidiary shall be merged with and into
Parent in accordance with Delaware Law, whereupon the separate existence of
Parent Merger Subsidiary shall cease, and Parent shall be the surviving
corporation.
SECTION 2.02. CONVERSION OF SHARES. At the Effective Time:
(a) Each Share held by the Company as treasury stock, held by any
Subsidiary of the Company, or owned by Parent or any of its Subsidiaries,
immediately prior to the Effective Time shall be canceled, and no payment shall
be made with respect thereto.
(b) Each share of common stock of Merger Subsidiary outstanding immediately
prior to the Effective Time shall be converted into and become one share of
common stock of the Surviving Corporation with the same rights, powers and
privileges as the shares so converted and shall constitute the only outstanding
shares of capital stock of the Surviving Corporation.
(c) Except as otherwise provided in Section 2.02(a) or Section 2.06 and
subject to Sections 2.03 and 2.04, each Share outstanding immediately prior to
the Effective Time, together with the associated Right, issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive either (i) $38.50 in cash, without interest (the "CASH CONSIDERATION"),
or (ii) the number of shares of validly issued, fully paid and non-assessable
Parent Stock equal to the Exchange Ratio (the "STOCK CONSIDERATION").
The "EXCHANGE RATIO" shall be a number (rounded to the nearest
ten-thousandth) determined by dividing $38.50 by the Market Price per share of
Parent Stock; PROVIDED, HOWEVER, that in no event shall the Exchange Ratio be
(x) greater than 3.2158 or (y) less than 2.9096. The "MARKET PRICE" per share of
Parent Stock shall be the average of the volume weighted average per share sales
price of Parent Stock on the New York Stock Exchange, Inc. (the "NYSE") for
twenty trading days selected by lot out of the thirty trading days ending on and
including the fifth trading day prior to the Effective Time. The consideration
provided for in this Section 2.02(c) is referred to herein as the "MERGER
CONSIDERATION".
SECTION 2.03. ELECTION OF CASH OR PARENT STOCK.
(a) Subject to Section 2.04, each holder of Shares (other than holders of
such shares that are to be canceled pursuant to Section 2.02(a)) shall be
entitled to elect to specify (i) the number of Shares which such holder desires
to have converted into the right to receive the Cash Consideration in the Merger
(a "CASH ELECTION") and (ii) the number of Shares which such holder desires to
have converted into the right to receive the Stock Consideration in the Merger
(a "STOCK ELECTION"); PROVIDED, HOWEVER, that no holder of Dissenting Shares (as
defined in Section 2.06) shall be entitled to make an Election.
A-6
A holder may also indicate that such record holder has no preference as to the
receipt of Cash Consideration, Stock Consideration or a combination thereof with
respect to such holder's Shares (a "NON-ELECTION"). Any Cash Election, Stock
Election or Non-Election shall be referred to herein as an "ELECTION". All such
Elections shall be made on a form furnished by Parent for that purpose (a "FORM
OF ELECTION") and reasonably satisfactory to the Company. Holders of record of
Shares who hold such Shares as nominees, trustees or in other representative
capacities may submit multiple Forms of Election, PROVIDED that such nominee,
trustee or representative certifies that each such Form of Election covers all
Shares held for a particular beneficial owner.
(b) Elections shall be made by holders of Shares by delivering the Form of
Election to the Exchange Agent. To be effective, a Form of Election must be
properly completed, signed and submitted to the Exchange Agent by no later than
5:00 p.m. (New York City time) on the business day preceding the date of the
Company Stockholder Meeting (the "ELECTION DATE"), and accompanied by (i)
(x) the Certificates representing the Shares as to which the election is being
made or (y) an appropriate guarantee of delivery of such Certificates as set
forth in such Form of Election from a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, PROVIDED such Certificates are in fact
delivered to the Exchange Agent within three NYSE trading days after the date of
execution of such guarantee of delivery (a "GUARANTEE OF DELIVERY") and (ii) a
properly completed and signed letter of transmittal. Failure to deliver
Certificates covered by any Guarantee of Delivery within three NYSE trading days
after the date of execution of such Guarantee of Delivery shall be deemed to
invalidate any otherwise properly made Cash Election or Stock Election.
(c) The Exchange Agent will have the discretion to determine whether Forms
of Election have been properly completed, signed and submitted or revoked and to
disregard immaterial defects in Forms of Election. The good faith decision of
the Exchange Agent in such matters shall be conclusive and binding; PROVIDED
that the Exchange Agent may, in its discretion, seek guidance from Parent and
the Company in connection therewith. Neither Parent nor the Company nor the
Exchange Agent will be under any obligation to notify any person of any defect
in a Form of Election submitted to the Exchange Agent. A Form of Election with
respect to Dissenting Shares shall not be valid. The Exchange Agent shall also
make all computations contemplated by Section 2.04 and all such computations
shall be conclusive and binding on the holders of Shares in the absence of
manifest error. Any Form of Election may be changed or revoked prior to the
Election Date. In the event a Form of Election is revoked prior to the Election
Date, Parent shall, or shall cause the Exchange Agent to, cause the Certificates
representing the Shares covered by such Form of Election to be promptly returned
without charge to the Person submitting the Form of Election upon written
request to that effect from such Person.
(d) For the purposes hereof, a holder of Shares who does not submit a Form
of Election which is received by the Exchange Agent prior to the Election Date
(including a holder who submits and then revokes his or her Form of Election and
does not resubmit a Form of Election which is timely received by the Exchange
Agent), or who submits a Form of Election without the corresponding Certificates
or a Guarantee of Delivery, shall be deemed to have made a Non-Election. Holders
of Dissenting Shares shall not be entitled to make an Election and shall not be
deemed to have made a Non-Election; the rights of such holders of Dissenting
Shares shall be determined in accordance with Section 262 of Delaware Law and as
provided in Section 2.06 hereof. If any Form of Election is defective in any
manner such that the Exchange Agent cannot reasonably determine the election
preference of the stockholder submitting such Form of Election, the purported
Cash Election or Stock Election set forth therein shall be deemed to be of no
force and effect and the stockholder making such purported Cash Election or
Stock Election shall, for purposes hereof, be deemed to have made a
Non-Election.
A-7
(e) A Form of Election and a letter of transmittal shall be included with or
mailed contemporaneously with each copy of the Joint Proxy Statement mailed to
the Company's stockholders in connection with the Company Stockholder Meeting.
Each of Parent and the Company shall use reasonable best efforts to mail or
otherwise make available the Form of Election and a letter of transmittal to all
persons who become record holders of Shares during the period between the record
date for the Company Stockholder Meeting and the Election Date.
SECTION 2.04. PRORATION. The determination of whether Shares (other than
Shares that are to be canceled pursuant to Section 2.02(a)), and the associated
Rights, shall be converted in the Merger into the Stock Consideration or the
Cash Consideration shall be made as set forth in this Section 2.04.
(a) As is more fully set forth below, the aggregate number of Shares to be
converted in the Merger into the right to receive the Cash Consideration shall
equal the Maximum Cash Shares. The "MAXIMUM CASH SHARES" means 55% of the
Aggregate Shares, less any Dissenting Shares. The "AGGREGATE SHARES" means all
Shares issued and outstanding immediately prior to the Effective Time other than
those Shares which are to be canceled in accordance with Section 2.02(a).
(b) If Cash Elections are received for a number of Shares which is more than
the Maximum Cash Shares:
(i) each Share subject to a Non-Election (a "NON-ELECTING SHARE") and
each Share for which a Stock Election has been received (in each case,
together with the associated Right) shall be converted in the Merger into
the Stock Consideration; and
(ii) the Shares for which Cash Elections have been received (and the
associated Rights) shall be converted in the Merger into the Cash
Consideration and the Stock Consideration in the following manner: For each
Cash Election, the number of Shares covered by such Cash Election that shall
receive the Cash Consideration shall be the total number of Shares covered
by such Cash Election multiplied by the Cash Proration Factor. The "CASH
PRORATION FACTOR" means a fraction the numerator of which shall be a number
equal to the Maximum Cash Shares and the denominator of which shall be the
aggregate number of Shares covered by all Cash Elections made by all holders
of Shares. All Shares covered by a Cash Election, other than that number
converted into the right to receive the Cash Consideration in accordance
with this Section 2.04(b)(ii), shall be converted into the right to receive
the Stock Consideration.
(c) If Stock Elections are received for a number of Shares which is more
than 45% of the Aggregate Shares,
(i) each Non-Electing Share and each Share for which a Cash Election
has been received (in each case, together with the associated Right) shall
be converted in the Merger into the Cash Consideration; and
(ii) the Shares for which Stock Elections have been received shall be
converted in the Merger into the Stock Consideration and the Cash
Consideration in the following manner: For each Stock Election, the number
of Shares covered by such Stock Election that shall receive the Stock
Consideration shall be the total number of Shares covered by such Stock
Election multiplied by the Stock Proration Factor. The "STOCK PRORATION
FACTOR" means a fraction the numerator of which shall be a number equal to
45% of the Aggregate Shares and the denominator of which shall be the
aggregate number of Shares covered by all Stock Elections made by all
holders of Shares. All Shares covered by a Stock Election, other than that
number converted into the right to receive the Stock Consideration in
accordance with this Section 2.04(c)(ii), shall be converted into the right
to receive the Cash Consideration.
(d) If Cash Elections are received for a number of Shares which is equal to
the Maximum Cash Shares, each Share covered by a Cash Election shall be
converted in the Merger into the Cash
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Consideration, and each Share covered by a Stock Election and each Non-Electing
Share shall be converted in the Merger into the Stock Consideration.
(e) If Non-Electing Shares are not converted under either Section 2.04(b),
Section 2.04(c) or 2.04(d), the Exchange Agent shall determine by lot (or by
such other method as is deemed reasonable by Parent and the Company) which of
such Non-Electing Shares shall be converted in the Merger into the Cash
Consideration; PROVIDED, HOWEVER, that such selection by lot (or by such other
method) will cease when the sum of the shares converted in such manner, plus the
number of Shares covered by all Cash Elections made by the holders of Shares is
equal to the Maximum Cash Shares. Each Non-Electing Share not so converted into
the Cash Consideration shall be converted in the Merger into the Stock
Consideration.
SECTION 2.05. SURRENDER AND PAYMENT. (a) Prior to the record date for the
Company Stockholder Meeting, Parent shall appoint an agent (the "EXCHANGE
AGENT") reasonably acceptable to the Company for the purpose of exchanging
certificates representing Shares (the "CERTIFICATES") for the Merger
Consideration and for purposes of receiving Election Forms and determining, in
accordance with Sections 2.02, 2.03 and 2.04 the form of the Merger
Consideration to be received by each holder of Shares. At the Effective Time,
Parent will deposit with the Exchange Agent the Merger Consideration to be paid
in respect of the Shares. For the purpose of determining the Merger
Consideration to be made available, Parent shall assume that no holders of
Shares will perfect rights to appraisal of their Shares.
(b) Each holder of Shares that have been converted into the right to receive
the Merger Consideration will be entitled to receive, upon surrender to the
Exchange Agent of a Certificate, together with a properly completed letter of
transmittal, the Merger Consideration payable for each Share represented by such
Certificate. Until so surrendered, each such Certificate shall represent after
the Effective Time for all purposes only the right to receive such Merger
Consideration.
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the Person in whose name the surrendered Certificate is registered,
it shall be a condition to such payment that the Certificate so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Exchange Agent any transfer
or other taxes required as a result of such payment to a Person other than the
registered holder of such Certificate or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further registration of
transfers of Shares. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, they shall be canceled and exchanged for the Merger
Consideration provided for, and in accordance with the procedures set forth, in
this Article.
(e) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 2.05(a) (and any interest or other income earned
thereon) that remains unclaimed by the holders of Shares one year after the
Effective Time shall be returned to Parent, upon demand, and any such holder who
has not exchanged Shares for the Merger Consideration in accordance with this
Section prior to that time shall thereafter look only to Parent for payment of
the Merger Consideration in respect of such Shares without any interest thereon.
Notwithstanding the foregoing, Parent shall not be liable to any holder of
Shares for any amount paid to a public official pursuant to applicable abandoned
property, escheat or similar laws. Any amounts remaining unclaimed by holders of
Shares three years after the Effective Time (or such earlier date immediately
prior to such time when the amounts would otherwise escheat to or become
property of any governmental authority) shall become, to the extent permitted by
applicable law, the property of Parent free and clear of any claims or interest
of any Person previously entitled thereto.
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(f) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 2.05(a) to pay for Shares for which appraisal rights
have been perfected shall be returned to Parent, upon demand.
(g) No dividends or other distributions with respect to any Parent Stock
constituting part of the Merger Consideration shall be paid to the holder of any
unsurrendered Certificates until such Certificates are surrendered as provided
in this Section. Subject to the effect of applicable laws, following such
surrender, there shall be paid, without interest, to the record holder of the
Parent Stock issued in exchange therefor (i) at the time of such surrender, all
dividends and other distributions payable in respect of such Parent Stock with a
record date after the Effective Time and a payment date on or prior to the date
of such surrender and not previously paid and (ii) at the appropriate payment
date, the dividends or other distributions payable with respect to such Parent
Stock with a record date after the Effective Time but with a payment date
subsequent to such surrender.
SECTION 2.06. DISSENTING SHARES. Shares outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the Merger
or consented thereto in writing and who has demanded appraisal for such Shares
in accordance with Delaware Law ("DISSENTING SHARES") shall not be converted
into a right to receive the Merger Consideration, unless such holder fails to
perfect, withdraws or otherwise loses its right to appraisal. If, after the
Effective Time, such holder fails to perfect, withdraws or loses its right to
appraisal, such Shares shall be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration and shall be
deemed to have been subject to a Non-Election. The Company shall give Parent
prompt notice of any demands received by the Company for appraisal of Shares.
Except as required by applicable law or with the prior written consent of
Parent, the Company shall not make any payment with respect to, or settle or
offer to settle, any such demands.
SECTION 2.07. STOCK OPTIONS.
(a) Each stock option to purchase Shares outstanding under any employee or
director stock option or compensation plan or arrangement of the Company (a
"COMPANY STOCK OPTION") shall be canceled, and the Company shall pay the holder
of such Company Stock Option at or promptly after the Effective Time an amount
in cash determined by multiplying the excess, if any, of the Cash Consideration
over the applicable exercise price of such Company Stock Option by the number of
Shares such holder could have purchased (assuming full vesting of such option)
had such holder exercised such option in full immediately prior to the Effective
Time.
(b) Parent, the Company and their Boards of Directors shall take all steps
necessary to cause the payments referred to in this Section 2.07 to be exempt
transactions pursuant to Rule 16b-3 promulgated by the Securities and Exchange
Commission.
SECTION 2.08. DEFERRED SHARES; GE WARRANTS; GE OPTIONS. (a) Each
participant in the Promus Hotel Corporation 1996 Non-Management Directors Stock
Incentive Plan (as amended, the "DIRECTORS PLAN") or the Independent Director
Equity Participation Program under The 1997 Equity Participation Plan of Promus
Hotel Corporation (the "DIRECTORS PROGRAM"), as applicable, will be provided
with a Form of Election and given the opportunity to make an Election with
respect to all Shares credited to such participant's account under the Directors
Plan or the Directors Program, whether or not previously vested ("CREDITED
SHARES"), at the same time and in the same manner as holders of Shares are given
the opportunity to make Elections. Upon consummation of the Merger, each such
participant shall have rights with respect to such Credited Shares that are
identical to those of a holder of Shares who had made the same Election as that
made by such participant.
(b) At the Effective Time, Parent shall assume all obligations under the GE
Warrants, and the holder of the GE Warrants thereafter shall have the right to
acquire, on the same pricing and payment terms and conditions as are currently
applicable under the GE Warrants, the same number of shares of
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Parent Stock as the holder of the GE Warrants would have been entitled to
receive pursuant to the Merger had such holder exercised the GE Warrants in full
immediately prior to the Effective Time (rounded up to the nearest whole number)
and made a Stock Election in connection with the Merger that was not subject to
proration, at the price per share (rounded down to the nearest whole cent) equal
to (y) the aggregate exercise price for the Shares purchasable pursuant to the
GE Warrants immediately prior to the Effective Time divided by (z) the number of
full shares of Parent Stock deemed purchasable pursuant to the GE Warrants in
accordance with the foregoing.
(c) At the Effective Time, Parent shall assume all obligations under the GE
Options, and each holder of the GE Options thereafter shall have the right to
acquire, on the same pricing and payment terms and conditions as are currently
applicable under the GE Options, the same number of shares of Parent Stock as
such holder of the GE Options would have been entitled to receive pursuant to
the Merger had such holder exercised the GE Options in full immediately prior to
the Effective Time (rounded up to the nearest whole number) and made a Stock
Election in connection with the Merger that was not subject to proration, at the
price per share (rounded down to the nearest whole cent) equal to (y) the
aggregate exercise price for the Shares purchasable pursuant to the GE Options
immediately prior to the Effective Time divided by (z) the number of full shares
of Parent Stock deemed purchasable pursuant to the GE Options in accordance with
the foregoing.
SECTION 2.09. FRACTIONAL SHARES. (a) No fractional shares of Parent Stock
shall be issued in the Merger, but in lieu thereof each holder of Shares
otherwise entitled to a fractional share of Parent Stock will be entitled to
receive, from the Exchange Agent in accordance with the provisions of this
Section 2.09, a cash payment in lieu of such fractional shares of Parent Stock
representing such holder's proportionate interest, if any, in the proceeds from
the sale by the Exchange Agent in one or more transactions of the number of
shares of Parent Stock delivered to the Exchange Agent by Parent pursuant to
Section 2.05(a) over the aggregate number of whole shares of Parent Stock to be
distributed to the holders of the certificates representing Shares pursuant to
Section 2.05(b) (such excess being herein called the "EXCESS SHARES"). As soon
as practicable after the Effective Time, the Exchange Agent, as agent for the
holders of the certificates representing Shares, shall sell the Excess Shares at
then prevailing prices on the NYSE in the manner provided in the following
paragraph.
(b) The sale of the Excess Shares by the Exchange Agent, as agent for the
holders that would otherwise receive fractional shares, shall be executed on the
NYSE through one or more member firms of the NYSE and shall be executed in round
lots to the extent practicable. The compensation payable to the Exchange Agent
and the expenses incurred by the Exchange Agent, in each case, in connection
with such sale or sales of the Excess Shares, and all related commissions,
transfer taxes and other out-of-pocket transaction costs, will be paid by the
Surviving Corporation out of its own funds and will not be paid directly or
indirectly by Parent. Until the proceeds of such sale or sales have been
distributed to the holders of Shares, the Exchange Agent shall hold such
proceeds in trust for the holders of Shares (the "COMMON SHARES TRUST"). The
Exchange Agent shall determine the portion of the Common Shares Trust to which
each holder of Shares shall be entitled, if any, by multiplying the amount of
the aggregate proceeds comprising the Common Shares Trust by a fraction, the
numerator of which is the amount of the fractional share interest to which such
holder of Shares would otherwise be entitled and the denominator of which is the
aggregate amount of fractional share interests to which all holders of Shares
would otherwise be entitled.
(c) As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Shares in lieu of any fractional shares of Parent
Stock, the Exchange Agent shall make available such amounts to such holders of
Shares without interest.
SECTION 2.10. WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable to any Person pursuant to this Article such amounts as it is required to
deduct and withhold with respect to the making of such
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payment under any provision of federal, state, local or foreign tax law. If the
Surviving Corporation or Parent, as the case may be, so withholds amounts, such
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the Shares in respect of which the Surviving Corporation or
Parent, as the case may be, made such deduction and withholding.
SECTION 2.11. LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue, in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration to be paid in respect of the Shares
represented by such Certificate, as contemplated by this Article.
ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. CERTIFICATE OF INCORPORATION. The certificate of
incorporation of Merger Subsidiary in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law, PROVIDED that, at the Effective Time, such
certificate of incorporation shall be amended to provide that the name of the
Surviving Corporation shall be Promus Hotel Corporation.
SECTION 3.02. BYLAWS. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 3.03. DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation and (ii) the officers of the
Company at the Effective Time shall be the officers of the Surviving
Corporation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections or subsections of the
disclosure schedule delivered to Parent by the Company on or prior to the date
hereof (the "COMPANY DISCLOSURE SCHEDULE") or in the Company SEC Documents, the
Company represents and warrants to Parent that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all corporate powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, permits,
consents and approvals the absence of which would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where failure to be so qualified would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect. The Company has heretofore made available to Parent true and complete
copies of the certificate of incorporation and bylaws of the Company as
currently in effect.
SECTION 4.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby are within the Company's corporate
powers and, except for the affirmative vote of the holders of a majority of the
outstanding Shares in connection with the consummation of the Merger, have been
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duly authorized by all necessary corporate action on the part of the Company.
The affirmative vote of the holders of a majority of the outstanding Shares is
the only vote of the holders of any of the Company's capital stock necessary in
connection with the consummation of the Merger. This Agreement constitutes a
valid and binding agreement of the Company.
SECTION 4.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby require no action by or in respect of,
or filing with, any governmental body, agency, official or authority, domestic
or foreign, other than (i) the filing of a certificate of merger with respect to
the Merger with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which the Company is qualified to do
business, (ii) compliance with any applicable requirements of the HSR Act, (iii)
compliance with any applicable requirements of the 1933 Act, the 1934 Act and
any other applicable securities or takeover laws, whether state or foreign, (iv)
such consents, approvals, orders, authorizations, permits, filings or
registrations of or with any governmental entity related to, or arising out of,
compliance with statutes, rules or regulations regulating the consumption, sale
or serving of alcoholic beverages and (v) any actions or filings the absence of
which would not be reasonably expected to have, individually or in the
aggregate, a Company Material Adverse Effect or materially impair the ability of
the Company to consummate the transactions contemplated by this Agreement or
delay the consummation of the transactions contemplated by this Agreement beyond
the Outside Termination Date.
SECTION 4.04. NON-CONTRAVENTION. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) contravene, conflict
with, or result in any violation or breach of any provision of the certificate
of incorporation or bylaws of the Company, (ii) assuming compliance with the
matters referred to in Section 4.03, contravene, conflict with, or result in a
violation or breach of any provision of any applicable law, regulation,
judgment, injunction, order or decree, (iii) except as to Material Company
Agreements (which are addressed in Section 4.24), require any consent or other
action by any Person under, constitute a default under, or cause or permit the
termination, cancellation, acceleration or other change of any right or
obligation or the loss of any benefit to which the Company or any of its
Subsidiaries is entitled under any provision of any agreement or other
instrument binding upon the Company or any of its Subsidiaries or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of the Company and
its Subsidiaries or (iv) result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries, except for such contraventions,
conflicts and violations referred to in clause (ii) and for such failures to
obtain any such consent or other action, defaults, terminations, cancellations,
accelerations, changes, losses or Liens referred to in clauses (iii) and
(iv) that would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
SECTION 4.05. CAPITALIZATION. (a) The authorized capital stock of the
Company consists of 500,000,000 Shares and 10,000,000 shares of preferred stock,
par value $.01 per share (of which 5,000,000 shares are designated Series A
Junior Participating Preferred Stock). As of August 31, 1999, there were
outstanding: (i) 87,949,101 Shares (including 9,282,300 treasury Shares and
vested rights to 3,835 Shares pursuant to the Directors Plan); (ii) GE Warrants
to purchase an aggregate of 262,753 Shares (all of which were exercisable);
(iii) employee and director stock options to purchase an aggregate of 11,173,389
Shares; (iv) GE Options to purchase an aggregate of 22,500 Shares (all of which
were exercisable); and (v) no shares of preferred stock. All shares of capital
stock of the Company outstanding as of the date hereof have been duly authorized
and validly issued and are fully paid and nonassessable. All Shares issuable
upon exercise of outstanding options or warrants have been duly authorized and,
when issued, will have been validly issued and will be fully paid and
nonassessable.
(b) Except as set forth in this Section 4.05 and except for the Rights, any
Shares reserved for issuance pursuant to future grants of options under stock
option plans, and changes since August 31,
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1999 resulting from the exercise of employee stock options, director stock
options, GE Options or GE Warrants, there are outstanding (i) no shares of
capital stock or voting securities of the Company, (ii) no securities of the
Company convertible into or exchangeable for shares of capital stock or voting
securities of the Company or (iii) no options or other rights to acquire from
the Company or other obligations of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "COMPANY SECURITIES"). There are no
outstanding obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any of the Company Securities.
SECTION 4.06. SUBSIDIARIES. (a) Each material Subsidiary of the Company is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, permits,
consents and approvals the absence of which would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect. Each
such material Subsidiary is duly qualified to do business and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where failure to be so qualified would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect. All "significant subsidiaries", as such term is defined in Section 1-02
of Regulation S-X under the 1934 Act of the Company and their respective
jurisdictions of incorporation are identified in the Company 10-K.
(b) All of the outstanding capital stock of, or other voting securities or
ownership interests in, each material Subsidiary of the Company, is owned by the
Company, directly or indirectly, free and clear of any Lien and free of any
other limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other voting securities or
ownership interests). There are outstanding (i) no securities of the Company or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any material
Subsidiary of the Company or (ii) no options or other rights to acquire from the
Company or any of its Subsidiaries, or other obligation of the Company or any of
its Subsidiaries to issue, any capital stock or other voting securities or
ownership interests in, or any securities convertible into or exchangeable for
any capital stock or other voting securities or ownership interests in, any
material Subsidiary of the Company (the items in clauses (i) and (ii) being
referred to collectively as the "COMPANY SUBSIDIARY SECURITIES"). There are no
outstanding obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any of the Company Subsidiary Securities.
SECTION 4.07. SEC FILINGS. (a) The Company has made available to Parent
(i) the Company's annual reports on Form 10-K for its fiscal years ended
December 31, 1997 and 1998, (ii) its quarterly reports on Form 10-Q for its
fiscal quarters ended March 31, 1999 and June 30, 1999, (iii) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of the Company held since December 31, 1998, and
(iv) all of its other reports, statements, schedules and registration statements
filed with the SEC since December 31, 1998 (the documents referred to in this
Section 4.07(a), collectively, the "COMPANY SEC DOCUMENTS".)
(b) As of its filing date, each Company SEC Document complied as to form in
all material respects with the applicable requirements of the 1933 Act and the
1934 Act, as the case may be.
(c) As of its filing date, each Company SEC Document filed pursuant to the
1934 Act did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(d) Each Company SEC Document that is a registration statement, as amended
or supplemented, if applicable, filed pursuant to the 1933 Act, as of the date
such statement or amendment became
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effective, did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(e) None of the Company's Subsidiaries is required to file any forms,
reports or other documents with the SEC.
SECTION 4.08. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the annual reports on Form 10-K referred to in clause (i) of
Section 4.07(a) and the quarterly reports on Form 10-Q referred to in
clause (ii) of Section 4.07(a) complied as to form in all material respects with
the applicable published rules and regulations of the SEC with respect thereto,
were prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by Form 10-Q under the 1934 Act) and fairly
present the consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements).
SECTION 4.09. DISCLOSURE DOCUMENTS. The information with respect to the
Company or any of its Subsidiaries that the Company furnishes to Parent
specifically for use in the Joint Proxy Statement or any amendment or supplement
thereto will not, at the time the Joint Proxy Statement or any such supplement
or amendment thereto is first mailed to the stockholders of Parent and the
Company or at the time of the Parent Stockholder Meeting and the Company
Stockholder Meeting, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Such
information will comply as to form in all material respects with the applicable
requirements of the 1933 Act. The information with respect to the Company or any
of its Subsidiaries that the Company furnishes to Parent specifically for use in
the Registration Statement or any amendment or supplement thereto will not, at
the time the Registration Statement or any such amendment or supplement becomes
effective under the 1933 Act, contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
SECTION 4.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, the
business of the Company and its Subsidiaries has been conducted in the ordinary
course consistent with past practices and there has not been:
(a) any events, occurrences, developments or state of circumstances or facts
that, individually or in the aggregate, have had or will have a Company Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of the
Company or any of its Subsidiaries;
(d) any incurrence, assumption or guarantee by the Company or any of its
Subsidiaries of any indebtedness for borrowed money other than in the ordinary
course of business and in amounts and on terms consistent with past practices;
(e) any creation or other incurrence by the Company or any of its
Subsidiaries of any Lien on any material asset other than in the ordinary course
of business consistent with past practices;
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(f) any making of any material loan, advance or capital contributions to or
investment in any Person other than to the Company or any of its direct or
indirect wholly-owned Subsidiaries or in the ordinary course of business
consistent with past practices;
(g) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of the Company or any of its
Subsidiaries that has had or could reasonably be expected to have a Company
Material Adverse Effect;
(h) any transaction or commitment made, or any contract or agreement entered
into, by the Company or any of its Subsidiaries relating to its assets or
business (including the acquisition or disposition of any assets) or any
relinquishment by the Company or any of its Subsidiaries of any contract or
other right, in either case, material to the Company and its Subsidiaries, taken
as a whole, other than transactions and commitments in the ordinary course of
business consistent with past practices and those contemplated by this
Agreement;
(i) any change in any method of accounting, method of tax accounting or
accounting principles or practice by the Company or any of its Subsidiaries,
except for any such change which is not significant or which is required by
reason of a concurrent change in GAAP or Regulation S-X under the 1934 Act; or
(j) any (i) grant of any severance or termination pay to (or amendment to
any existing arrangement with) any director, officer or (to the extent material
in the aggregate) employee of the Company or any of its Subsidiaries, except for
any such grants made in connection with any severance agreements described in
Section 7.05(b), (ii) increase in benefits payable under any existing severance
or termination pay policies or employment agreements, except for any such grants
made in connection with any severance agreements described in Section 7.05(b),
(iii) any entering into of any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
director, officer or employee of the Company or any of its Subsidiaries, (iv)
establishment, adoption or amendment (except as required by applicable law) of
any collective bargaining, bonus, profit-sharing, thrift, pension, retirement,
deferred compensation, compensation, stock option, restricted stock or other
benefit plan or arrangement covering any director, officer or employee of the
Company or any of its Subsidiaries, except (A) the adoption of any severance
agreement described in Section 7.05(b), or (B) to the extent necessary or
desirable to effectuate the consolidation and amendment of the Company's benefit
plans as described in Section 7.05(c) of the Company Disclosure Schedule, or (v)
increase in compensation, bonus or other benefits payable to any director,
officer or employee of the Company or any of its subsidiaries, other than, in
the case of any of clauses (i) through (v), in the ordinary course of business
consistent with past practice or as required pursuant to an existing agreement.
SECTION 4.11. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities or obligations of the Company or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities or obligations disclosed or provided for in the Company
Balance Sheet or in the notes thereto or in any of the Company SEC Documents
filed prior to the date hereof;
(b) liabilities or obligations that would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect; and
(c) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby.
SECTION 4.12. COMPLIANCE WITH LAWS. Neither the Company nor any of its
Subsidiaries is in violation of, or has since January 1, 1998 violated, any
applicable law, statute, ordinance, rule,
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regulation, judgment, injunction, order or decree, except for violations that
have not had and would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
SECTION 4.13. LITIGATION. There is no action, suit, investigation or
proceeding pending, or, to the knowledge of the Company, threatened, against the
Company or any of its Subsidiaries or any of their respective properties, or
against any Company Employee Plan (as defined in Section 4.16), before any court
or arbitrator or before or by any governmental body, agency or official,
domestic or foreign, that, if determined or resolved adversely in accordance
with the plaintiff's demands, would reasonably be expected to have a Company
Material Adverse Effect.
SECTION 4.14. FINDERS' FEES. Except for Salomon Smith Barney Inc., a copy
of whose engagement agreement has been provided to Parent, there is no
investment banker, broker, finder or other intermediary that has been retained
by or is authorized to act on behalf of the Company or any of its Subsidiaries
who might be entitled to any fee or commission from the Company or any of its
Affiliates in connection with the transactions contemplated by this Agreement.
SECTION 4.15. TAXES. (a) The Company and each of its Subsidiaries has
timely filed (or has had timely filed on its behalf) or will timely file or
cause to be timely filed all material Tax Returns required by applicable law to
be filed by it prior to or as of the Effective Time, and all such material Tax
Returns are, or will be at the time of filing, true and complete in all material
respects.
(b) The Company and each of its Subsidiaries has paid (or has had paid on
its behalf) all material Taxes, whether individually or in the aggregate, due
with respect to any period ending prior to or as of the Effective Time (other
than Taxes which are being contested in good faith), or, where payment is not
yet due or is being contested in good faith, has established (or has had
established on its behalf and for its sole benefit and recourse) or will
establish or cause to be established in accordance with GAAP on or before the
Effective Time an adequate accrual for the payment of such Taxes.
(c) The Company and its Subsidiaries have complied in all material respects
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes.
(d) No federal, state, local or foreign audits or administrative proceedings
are pending with regard to any material Taxes or Tax Return of the Company or
its Subsidiaries and none of them has received a written notice of any proposed
audit or proceeding.
(e) Neither the Company nor any of its Subsidiaries is or has been a member
of an affiliated group of corporations (within the meaning of Section 1504(a))
filing a consolidated federal income tax return (or a group of corporations
filing a consolidated, combined or unitary income tax return under comparable
provisions of state, local, or foreign tax law) for any taxable period, other
than a group the common parent of which is the Company or any Subsidiary of the
Company.
(f) Neither the Company nor any of its Subsidiaries has any obligation under
any agreement or arrangement with any other person with respect to material
Taxes of such other person (including pursuant to Treasury Regulation
Section 1.1502-6 or comparable provisions of state, local, or foreign tax law)
including any liability for Taxes of any predecessor entity.
(g) Since December 31, 1998, the Company has not made any payments, and is
not obligated to make any payments and is not a party to any agreement that
could obligate it to make any payments, that will not be fully deductible under
Sections 162(m) or 280G of the Code (or any similar provision of foreign, state,
or local law).
(h) The Company is not aware of any fact or circumstance as of the date
hereof which is reasonably likely to cause the Merger to fail to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code, PROVIDED that
Merger Subsidiary is the surviving corporation in the Merger.
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(i) "TAXES" shall mean any and all taxes, charges, fees, levies or other
assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, goods and services, service use, license, value added, capital,
net worth, payroll, profits, withholding, franchise, transfer and recording
taxes, fees and charges, and any other taxes, assessment or similar charges
imposed by the Internal Revenue Service or any taxing authority (whether
domestic or foreign including any state, county, local or foreign government or
any subdivision or taxing agency thereof (including a United States
possession)), whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall include any interest whether paid or
received, fines, penalties or additional amounts attributable to, or imposed
upon, or with respect to, any such taxes, charges, fees, levies or other
assessments and shall include any transferee or secondary liability in respect
of any tax (whether imposed by law, contractual agreement or otherwise). "TAX
RETURN" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including information
returns, any documents with respect to or accompanying payments of estimated
Taxes, or with respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or other
information.
SECTION 4.16. EMPLOYEE BENEFIT PLANS. (a) Section 4.16(a) of the Company
Disclosure Schedule contains a correct and complete list identifying each
"employee benefit plan", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), each written employment, severance or
similar contract, plan, arrangement or policy and each other plan or arrangement
providing for compensation, bonuses, profit-sharing, stock option or other stock
related rights or other forms of incentive or deferred compensation, vacation
benefits, insurance coverage (including any self-insured arrangements), health
or medical benefits, disability benefits, workers' compensation, supplemental
unemployment benefits, severance benefits, change of control benefits and
post-employment or retirement benefits (including compensation, pension, health,
medical or life insurance benefits) which is maintained, administered or
contributed to by the Company or any ERISA Affiliate and covers any employee or
former employee of the Company or any of its Subsidiaries, or with respect to
which the Company or any of its Subsidiaries or ERISA Affiliates has any
liability. Copies of such plans (and, if applicable, related trust agreements,
insurance policies and other funding documents relating thereto, Internal
Revenue Service determination letters, most recent filings on Form 5500,
actuarial valuations, financial statements, and any correspondence with a
government agency relating thereto) and all amendments thereto and written
interpretations thereof have been furnished, or will be made available upon
request, to Parent. Such plans are referred to collectively herein as the
"COMPANY EMPLOYEE PLANS". For purposes of this Agreement, "ERISA AFFILIATE" of
any Person means any other Person which, together with such Person, would be
treated as a single employer under Section 414 of the Code.
(b) Except as may be required by a collective bargaining agreement set forth
in Section 4.16(a) of the Company Disclosure Schedule (or which may be entered
into after the date hereof), neither the Company nor any ERISA Affiliate
maintains, contributes to, has any obligation to contribute to, or participates
in, nor has within the past six years maintained, contributed to, had an
obligation to contribute to, or participated in any plan that constitutes or
constituted a defined benefit or money purchase pension plan, as defined in
Section 412 of the Code or ERISA, a "multiemployer plan," as defined in
Section 3(37) of ERISA (a "MULTIEMPLOYER PLAN"), a "multiple employer plan," as
defined in ERISA, or that is or was subject to Title IV of ERISA.
(c) Each Company Employee Plan which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service, and the Company knows of no fact or circumstance
giving rise to a material likelihood that the plan would not be treated as so
qualified by the Internal Revenue Service. Each Company Employee Plan has been
maintained in material compliance with its terms and with the requirements
prescribed by any and all
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statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such Company Employee Plan. No material audit
or investigation by any governmental authority is pending or, to the knowledge
of the Company, threatened, regarding any Company Employee Plan.
(d) No Company Employee Plan provides for post-employment welfare benefits
of any kind, except as may be required by Section 4980B of the Code.
(e) With respect to the Company Employee Plans which are Multiemployer
Plans, (i) during the last six years neither the Company nor any ERISA Affiliate
thereof has incurred any complete or partial withdrawal, withdrawal liability,
or any other obligation or liability under Title IV of ERISA (including
Section 4212(c)) (other than contributions due in the normal course); and
(ii) no such Plan is in reorganization status, is insolvent, has terminated, or
suffered a mass withdrawal.
SECTION 4.17. ENVIRONMENTAL MATTERS. Except as would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect:
(i) no notice, notification, demand, request for information, citation,
summons or order has been received, no complaint has been filed, no penalty
has been assessed, and no investigation, action, claim, suit, proceeding or
review (or any basis therefor) is pending or, to the knowledge of the
Company, is threatened by any governmental entity or other Person with
respect to any matters relating to the Company or any Subsidiary and
relating to or arising out of any Environmental Law;
(ii) the Company and its Subsidiaries are in compliance with all
applicable Environmental Laws and all Environmental Permits; and
(iii) there are no liabilities or obligations of the Company or any of
its Subsidiaries, whether accrued, contingent, absolute, determined,
determinable or otherwise arising under or relating to any Environmental
Law.
SECTION 4.18. ANTITAKEOVER STATUTES; RIGHTS AGREEMENT; DIRECTOR VOTES. (a)
The Company has taken all action necessary to exempt the Merger, this Agreement
and the transactions contemplated hereby from the provisions of Section 203 of
Delaware Law, any other applicable antitakeover or similar statute or regulation
and the business combination provisions of Article Ninth of the Company's
certificate of incorporation.
(b) The Board of Directors of the Company has resolved to, and the Company
promptly after the execution hereof will, take all action necessary to render
the rights issued pursuant to the terms of the Company's Rights Agreement
inapplicable to the Merger, this Agreement and the transactions contemplated
hereby.
(c) The Company has been advised that all of its directors who own Shares
intend to vote in favor of the Merger, PROVIDED that the Board of Directors does
not withdraw, modify or amend in a manner adverse to Parent its recommendation
to the Company's stockholders.
SECTION 4.19. OPINION OF FINANCIAL ADVISOR. The Company has received the
written opinion of Salomon Smith Barney Inc., financial advisor to the Company,
to the effect that, as of the date of this Agreement, the Merger Consideration
is fair to the Company's stockholders from a financial point of view.
SECTION 4.20. INSURANCE. All material insurance policies maintained by the
Company and its Subsidiaries are set forth in the Company Disclosure Schedule.
SECTION 4.21. INTELLECTUAL PROPERTY. The Company owns, or is licensed or
otherwise possesses legally enforceable rights to use, all trademarks, trade
names, service marks, copyrights, and any applications for such trademarks,
trade names, service marks and copyrights, know-how, computer
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software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of the
Company as currently conducted, subject to such exceptions that, individually
and in the aggregate, would not be reasonably likely to have a Company Material
Adverse Effect. The Company has no knowledge of any assertion or claim
challenging the validity of any of such intellectual property that would be
reasonably likely to have a Company Material Adverse Effect.
SECTION 4.22. REAL PROPERTY. (a) Neither the Company nor any of its
Subsidiaries has received a notice of default or termination under any leases
for real property providing for the occupancy, in each case, of (i) a hotel or
(ii) other facilities in excess of 50,000 square feet except where the existence
of such notices, individually or in the aggregate, is not reasonably likely to
have a Company Material Adverse Effect.
(b) With respect to the real property that the Company and any of its
Subsidiaries own, the Company or one of its Subsidiaries has title sufficient to
conduct the business of the Company and its Subsidiaries as currently conducted,
except for such matters as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
SECTION 4.23. YEAR 2000 COMPLIANCE. The Company and its Subsidiaries have
(i) completed a review and assessment of all areas within the business and
operations of the Company and its Subsidiaries that could be adversely affected
by the "Year 2000 Problem" (that is, the risk that computer software and systems
used by the Company or any of its Subsidiaries may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to, on,
and any date after December 31, 1999) and (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, which plan and timeline have
been made available to Parent.
SECTION 4.24. MANAGEMENT AND FRANCHISE AGREEMENTS. The Company has made
available to Parent, or otherwise identified, all material management, license
and franchise agreements (or forms thereof) to which the Company or any of its
Subsidiaries is a party (collectively, the "MATERIAL COMPANY AGREEMENTS") that
contain material radius or non-competition restrictions which would prohibit
Parent or its Subsidiaries (as determined immediately prior to the Effective
Time) from the ownership, operation or management of any of their respective
currently owned hotel properties or that require any consent or other action by
any Person for, or will be subject to default, termination or cancellation
because of, the transactions contemplated hereby, other than (x) those
agreements the loss of the net income from which, individually or in the
aggregate, would not have a Company Material Adverse Effect or (y) those
agreements the Company has the right or the ability to terminate and the loss of
net income from which, or any payment required to be made or otherwise payable
in connection therewith, individually or in the aggregate, would not have a
Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries
has received as of the date hereof a notice of default or termination under any
Material Company Agreement, except where the existence of such notices,
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the corresponding sections or subsections of the
disclosure schedule delivered to the Company by Parent on or prior to the date
hereof (the "PARENT DISCLOSURE SCHEDULE") or in the Parent SEC Documents, Parent
represents and warrants to the Company that:
SECTION 5.01. CORPORATE EXISTENCE AND POWER. Each of Parent and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted,
except for those licenses,
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authorizations, permits, consents and approvals the absence of which would not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Parent is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to be
so qualified would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect. Parent has heretofore made
available to the Company true and complete copies of the certificate of
incorporation and bylaws of Parent and Merger Subsidiary as currently in effect.
Since the date of its incorporation, Merger Subsidiary has not engaged in any
activities other than in connection with or as contemplated by this Agreement or
in connection with arranging any financing required to consummate the
transactions contemplated hereby.
SECTION 5.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary and,
except for any required approval by the stockholders of Parent of the issuance
of shares of Parent Stock in connection with the Merger, have been duly
authorized by all necessary corporate action. The affirmative vote of the
holders of a majority of the outstanding shares of Parent Stock is the only vote
of the holders of any of Parent's capital stock necessary in connection with
consummation of the Merger. This Agreement constitutes a valid and binding
agreement of each of Parent and Merger Subsidiary.
SECTION 5.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any governmental
body, agency, official or authority, domestic or foreign, other than (i) the
filing of a certificate of merger with respect to the Merger with the Delaware
Secretary of State and appropriate documents with the relevant authorities of
other states in which Parent is qualified to do business, (ii) compliance with
any applicable requirements of the HSR Act, (iii) compliance with any applicable
requirements of the 1933 Act, the 1934 Act and any other applicable securities
or takeover laws, whether state or foreign, (iv) such consents, approvals,
orders, authorizations, permits, filings or registrations of or with any
governmental entity related to, or arising out of, compliance with statutes,
rules or regulations regulating the consumption, sale or serving of alcoholic
beverages and (v) any actions or filings the absence of which would not be
reasonably expected to have, individually or in the aggregate, a Parent Material
Adverse Effect or materially impair the ability of Parent to consummate the
transactions contemplated by this Agreement or delay the consummation of the
transactions contemplated by this Agreement beyond the Outside Termination Date.
SECTION 5.04. NON-CONTRAVENTION. The execution, delivery and performance
by Parent and Merger Subsidiary of this Agreement and the consummation by Parent
and Merger Subsidiary of the transactions contemplated hereby do not and will
not (i) contravene, conflict with, or result in any violation or breach of any
provision of the certificate of incorporation or bylaws of Parent or Merger
Subsidiary, (ii) assuming compliance with the matters referred to in
Section 5.03, contravene, conflict with, or result in a violation or breach of
any provision of any applicable law, regulation, judgment, injunction, order or
decree, (iii) except as to Material Parent Agreements (which are addressed in
Section 5.24), require any consent or other action by any Person under,
constitute a default under, or cause or permit the termination, cancellation,
acceleration or other change of any right or obligation or the loss of any
benefit to which Parent or any of its Subsidiaries or any Alliance Company is
entitled under any provision of any agreement or other instrument binding upon
Parent or any of its Subsidiaries or any Alliance Company or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of Parent or any of
its Subsidiaries or any Alliance Company or (iv) result in the creation or
imposition of any Lien on any asset of Parent or any of its Subsidiaries or any
Alliance Company, except for such contraventions,
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conflicts and violations referred to in clause (ii) and for such failures to
obtain any such consent or other action, defaults, terminations, cancellations,
accelerations, changes, losses or Liens referred to in clauses (iii) or
(iv) that would not be reasonably expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
SECTION 5.05. CAPITALIZATION. (a) The authorized capital stock of Parent
consists of 400,000,000 shares of Parent Stock and 24,832,700 shares of
preferred stock, par value $1.00 per share. As of September 3, 1999, there were
outstanding: (i) 254,976,661 shares of Parent Stock; (ii) employee stock options
to purchase an aggregate of 23,060,444 shares of Parent Stock (of which options
to purchase an aggregate of 9,462,987 shares of Parent Stock were exercisable);
and (iii) no shares of preferred stock. All shares of capital stock of Parent
outstanding as of the date hereof have been duly authorized and validly issued
and are fully paid and nonassessable. All shares of Parent Stock issuable upon
exercise of outstanding employee stock options have been duly authorized and,
when issued, will have been validly issued and will be fully paid and
nonassessable.
(b) Except as set forth in this Section 5.05 and except for the Parent
Rights, any Shares reserved for issuance pursuant to future grants of options
under stock plans, and changes since September 3, 1999 resulting from the
exercise of employee stock options, there are outstanding (i) no shares of
capital stock or voting securities of Parent, (ii) no securities of Parent
convertible into or exchangeable for shares of capital stock or voting
securities of Parent or (iii) no options or other rights to acquire from Parent
or other obligations of Parent to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of Parent (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "PARENT SECURITIES"). There are no outstanding obligations
of Parent or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any of the Parent Securities.
(c) The shares of Parent Stock to be issued as part of the Merger
Consideration have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will have been validly issued and
will be fully paid and nonassessable and the issuance thereof is not subject to
any preemptive or other similar right.
SECTION 5.06. SUBSIDIARIES. (a) Each material Subsidiary of Parent and
each Alliance Company is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, has all powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals the absence of which would not
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. Each such material Subsidiary and Alliance Company is
duly qualified to do business and is in good standing in each jurisdiction where
such qualification is necessary, except for those jurisdictions where failure to
be so qualified would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect. All "significant subsidiaries," as
such term is defined in Section 1-02 of Regulation S-X under the 1934 Act of
Parent and their respective jurisdictions of incorporation are identified in the
Parent 10-K.
(b) All of the outstanding capital stock of, or other voting securities or
ownership interests in, each material Subsidiary of Parent, is owned by Parent,
directly or indirectly, free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other voting securities or
ownership interests). There are outstanding (i) no securities of Parent or any
of its Subsidiaries convertible into or exchangeable for shares of capital stock
or other voting securities or ownership interests in any material Subsidiary of
Parent or (ii) no options or other rights to acquire from Parent or any of its
Subsidiaries, or other obligation of Parent or any of its Subsidiaries to issue,
any capital stock or other voting securities or ownership interests in, or any
securities convertible into or exchangeable for any capital stock or other
voting securities or ownership interests in, any material Subsidiary of Parent
(the items in clauses (i) and (ii) being referred to collectively as the "PARENT
SUBSIDIARY SECURITIES"). There are no outstanding obligations of Parent or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any of the Parent
Subsidiary Securities. Parent owns, directly or indirectly, a 50% interest in
each Alliance Company.
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SECTION 5.07. SEC FILINGS. (a) Parent has made available to the Company
(i) Parent's annual reports on Form 10-K for its fiscal years ended
December 31, 1997 and 1998, (ii) its quarterly reports on Form 10-Q for its
fiscal quarters ended March 31, 1999 and June 30, 1999, (iii) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of Parent held since December 31, 1998, and (iv)
all of its other reports, statements, schedules and registration statements
filed with the SEC since December 31, 1998 (the documents referred to in this
Section 5.07(a), collectively, the "PARENT SEC DOCUMENTS").
(b) As of its filing date, each Parent SEC Document complied as to form in
all material respects with the applicable requirements of the 1933 Act and the
1934 Act, as the case may be.
(c) As of its filing date, each Parent SEC Document filed pursuant to the
1934 Act did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(d) Each Parent SEC Document that is a registration statement, as amended or
supplemented, if applicable, filed pursuant to the 1933 Act, as of the date such
statement or amendment became effective, did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(e) None of Parent's Subsidiaries is required to file any forms, reports or
other documents with the SEC.
SECTION 5.08. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Parent
included in the annual reports on Form 10-K referred to in clause (i) of
Section 5.07(a) and the quarterly reports on Form 10-Q referred to in
clause (ii) of Section 5.07(a) complied as to form in all material respect with
the applicable published rules and regulations of the SEC with respect thereto,
were prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q
under the 1934 Act) and fairly present the consolidated financial position of
Parent and its consolidated Subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods then ended
(subject to normal year-end adjustments in the case of any unaudited interim
financial statements).
SECTION 5.09. DISCLOSURE DOCUMENTS.
(a) The Registration Statement on Form S-4 of Parent (the "REGISTRATION
STATEMENT") to be filed with the SEC with respect to the issuance of Parent
Stock in connection with the Merger and any amendments or supplements thereto,
when filed, will comply as to form in all material respects with the applicable
requirements of the 1933 Act. Neither the Registration Statement nor any
amendment or supplement thereto will at the time it becomes effective under the
1933 Act contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. The representations and warranties contained in this
Section 5.09(a) will not apply to statements or omissions included in the
Registration Statement based upon information furnished to Parent or Merger
Subsidiary by the Company specifically for use therein.
(b) Neither the joint proxy statement relating to the Parent Stockholder
Meeting and the Company Stockholder Meeting nor the related proxy and notice of
meeting, or soliciting material in connection therewith (collectively, the
"JOINT PROXY STATEMENT") nor any amendment or supplement thereto, will, at the
date the Joint Proxy Statement or any such amendment or supplement is first
mailed to stockholders of Parent and the Company or at the time of the Parent
Stockholder Meeting and the Company Stockholder Meeting, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Joint Proxy Statement (except for
information
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relating solely to the Company) shall comply as to form in all material respects
with the applicable requirements of the 1933 Act. The representations and
warranties contained in this Section 5.09(b) will not apply to statements or
omissions included in the Joint Proxy Statement based upon information furnished
to Parent or Merger Subsidiary by the Company specifically for use therein.
SECTION 5.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, the
business of Parent and its Subsidiaries has been conducted in the ordinary
course consistent with past practices and there has not been:
(a) any events, occurrences, developments or state of circumstances or facts
that, individually or in the aggregate, have had or will have a Parent Material
Adverse Effect;
(b) as of the date of this Agreement, any declaration, setting aside or
payment of any dividend or other distribution with respect to any shares of
capital stock of Parent (other than the payment of regular quarterly dividends
not in excess of $0.02 per share of Parent Stock, or any repurchase, redemption
or other acquisition by Parent or any of its Subsidiaries of any outstanding
shares of capital stock or other securities of, or other ownership interests in,
Parent or any of its Subsidiaries;
(c) as of the date of this Agreement, any amendment of any material term of
any outstanding security of Parent or any of its Subsidiaries;
(d) as of the date of this Agreement, any incurrence, assumption or
guarantee by Parent or any of its Subsidiaries of any indebtedness for borrowed
money other than in the ordinary course of business and in amounts and on terms
consistent with past practices;
(e) as of the date of this Agreement, any creation or other incurrence by
Parent or any of its Subsidiaries of any Lien on any material asset other than
in the ordinary course of business consistent with past practices;
(f) as of the date of this Agreement, any making of any material loan,
advance or capital contributions to or investment in any Person other than to
Parent or any of its direct or indirect wholly-owned Subsidiaries or in the
ordinary course of business consistent with past practices;
(g) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of Parent or any of its
Subsidiaries that has had or could reasonably be expected to have a Parent
Material Adverse Effect;
(h) as of the date of this Agreement, any transaction or commitment made, or
any contract or agreement entered into, by Parent or any of its Subsidiaries
relating to its assets or business (including the acquisition or disposition of
any assets) or any relinquishment by Parent or any of its Subsidiaries of any
contract or other right, in either case, material to Parent and its
Subsidiaries, taken as a whole, other than transactions and commitments in the
ordinary course of business consistent with past practices and those
contemplated by this Agreement;
(i) as of the date of this Agreement, any change in any method of
accounting, method of tax accounting or accounting principles or practice by
Parent or any of its Subsidiaries, except for any such change which is not
significant or which is required by reason of a concurrent change in GAAP or
Regulation S-X under the 1934 Act; or
(j) as of the date of this Agreement, any (i) grant of any severance or
termination pay to (or amendment to any existing arrangement with) any director,
officer or (to the extent material in the aggregate) employee of Parent or any
of its Subsidiaries, (ii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements, (iii) any
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of Parent or any of its Subsidiaries, (iv) establishment,
adoption or amendment (except as required by applicable law) of any collective
bargaining, bonus, profit-sharing, thrift, pension, retirement, deferred
compensation, compensation,
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stock option, restricted stock or other benefit plan or arrangement covering any
director, officer or employee of the Parent or any of its Subsidiaries or (v)
increase in compensation, bonus or other benefits payable to any director,
officer or employee of Parent or any of its subsidiaries, other than, in the
case of any of clauses (i) through (v), in the ordinary course of business
consistent with past practice.
SECTION 5.11. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities or obligations of Parent or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities or obligations disclosed or provided for in the Parent
Balance Sheet or in the notes thereto or in any of the Parent SEC Documents
filed prior to the date hereof;
(b) liabilities or obligations that would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect; and
(c) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby.
SECTION 5.12. COMPLIANCE WITH LAWS AND COURT ORDERS. Neither Parent nor
any of its Subsidiaries is in violation of, or has since January 1, 1998
violated, any applicable law, statute, ordinance, rule, regulation, judgment,
injunction, order or decree, except for violations that have not had and would
not reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
SECTION 5.13. LITIGATION. There is no action, suit, investigation or
proceeding pending, or, to the knowledge of Parent, threatened, against Parent
or any of its Subsidiaries or any of their respective properties, or against any
Parent Employee Plan (as defined in Section 5.16), before any court or
arbitrator or before or by any governmental body, agency or official, domestic
or foreign, that, if determined or resolved adversely in accordance with the
plaintiff's demands, would reasonably be expected to have a Parent Material
Adverse Effect.
SECTION 5.14. FINDERS' FEES. Except for Morgan Stanley & Co. Incorporated
and Donaldson, Lufkin & Jenrette Securities Corporation, whose fees will be paid
by Parent, there is no investment banker, broker, finder or other intermediary
that has been retained by or is authorized to act on behalf of Parent or any of
its Subsidiaries who might be entitled to any fee or commission from the Company
or any of its Affiliates in connection with of the transactions contemplated by
this Agreement.
SECTION 5.15. TAXES. (a) Parent and each of its Subsidiaries has timely
filed (or has had timely filed on its behalf) or will timely file or cause to be
timely filed all material Tax Returns required by applicable law to be filed by
it prior to or as of the Effective Time, and all such material Tax Returns are,
or will be at the time of filing, true and complete in all material respects.
(b) Parent and each of its Subsidiaries has paid (or has had paid on its
behalf) all material Taxes, whether individually or in the aggregate, due with
respect to any period ending prior to or as of the Effective Time (other than
Taxes which are being contested in good faith), or, where payment is not yet due
or is being contested in good faith, has established (or has had established on
its behalf and for its sole benefit and recourse) or will establish or cause to
be established in accordance with GAAP on or before the Effective Time an
adequate accrual for the payment of such Taxes.
(c) Parent and its Subsidiaries have complied in all material respects with
all applicable laws, rules and regulations relating to the payment and
withholding of Taxes.
(d) No federal, state, local or foreign audits or administrative proceedings
are pending with regard to any material Taxes or Tax Return of Parent or its
Subsidiaries and none of them has received a written notice of any proposed
audit or proceeding.
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(e) Neither Parent nor any of its Subsidiaries is or has been a member of an
affiliated group of corporations (within the meaning of Section 1504(a)) filing
a consolidated federal income tax return (or a group of corporations filing a
consolidated, combined or unitary income tax return under comparable provisions
of state, local or foreign tax law) for any taxable period, other than a group
the common parent of which is Parent or any Subsidiary of Parent.
(f) Neither Parent nor any of its Subsidiaries has any obligation under any
agreement or arrangement with any other person with respect to material Taxes of
such other person (including pursuant to Treasury Regulation Section 1.1502-6 or
comparable provisions of state, local or foreign tax law) including any
liability for Taxes of any predecessor entity.
(g) Parent (i) is not aware of any fact or circumstance as of the date
hereof which is reasonably likely to cause the Merger to fail to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code, PROVIDED that
Merger Subsidiary is the surviving corporation in the Merger and (ii) is not
aware of any fact or circumstance (including the Merger), or combination
thereof, which has caused or may cause the distribution by Parent of Park Place
Entertainment Corporation ("PPEC") on December 31, 1998 (the "DISTRIBUTION") to
fail to qualify as a tax-free transaction under Section 355(a) and (c) of the
Code.
(h) The representations set forth in the private letter ruling issued by the
IRS to Parent dated December 10, 1998, and the representations made by Parent in
its request (and any supplements thereto) for such private letter ruling, were
true, correct and complete in all respects at the date of the Distribution and
are true, correct and complete in all respects on the date hereof.
(i) At the time of the Distribution, neither Parent, PPEC, nor any
"Controlling Shareholder" (as defined below) of either corporation anticipated,
in light of (i) industry trends, (ii) any information known regarding the
intentions of the managements of corporations engaging in businesses similar to
those of Parent and PPEC, and (iii) the general economic climate at the time of
the distribution, that it was more likely than not that one or more persons
would acquire a 50-percent or greater interest in Parent or PPEC within 2 years
after the Distribution (or later pursuant to an agreement, understanding, or
arrangement existing at the time of the Distribution or within 6 months
thereafter) who would not have acquired such interests if the Distribution had
not occurred. For purposes of this representation, "CONTROLLING SHAREHOLDER"
means any stockholder of (i) Parent who directly or indirectly together with
related persons (as described in Sections 267(b) and 707(b) of the Code) owned
5 percent or more of any class of stock of Parent and who actively participated
in the management of Parent, or (ii) PPEC who immediately after the Distribution
directly or indirectly together with related persons (as described in Sections
267(b) and 707(b) of the Code) owned 5 percent or more of any class of stock of
PPEC and who actively participated in the management of PPEC.
(j) The Parent Disclosure Schedule sets forth Parent's federal income tax
basis, at the time of the Distribution, in the shares of PPEC distributed to its
stockholders.
(k) Parent has received an opinion from Gibson, Dunn & Crutcher LLP to the
effect that the Merger pursuant to this Agreement will not cause the
Distribution to fail to qualify as a tax-free transaction under Section 355(a)
and (c) of the Code. In rendering such opinion Gibson, Dunn & Crutcher LLP shall
be entitled to rely upon certain documentation including representations of
officers and shareholders of Parent.
SECTION 5.16. EMPLOYEE BENEFIT PLANS. (a) Section 5.16 of the Parent
Disclosure Schedule contains a correct and complete list identifying each
"employee benefit plan," as defined in Section 3(3) of ERISA, each written
employment, severance or similar contract, plan, arrangement or policy and each
other plan or arrangement providing for compensation, bonuses, profit-sharing,
stock option or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits,
A-26
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits, change of control benefits and post-employment or retirement
benefits (including compensation, pension, health, medical or life insurance
benefits) which is maintained, administered or contributed to by Parent or any
ERISA Affiliate and covers any employee or former employee of Parent or any of
its Subsidiaries, or with respect to which Parent or any of its Subsidiaries or
ERISA Affiliates has any liability. Copies of such plans (and, if applicable,
related trust agreements, insurance policies and other funding documents
relating thereto, Internal Revenue Service determination letters, most recent
filings on Form 5500, actuarial valuations, financial statements, and any
correspondence with a government agency relating thereto) and all amendments
thereto and written interpretations thereof have been furnished, or will be made
available upon request, to the Company. Such plans are referred to collectively
herein as the "PARENT EMPLOYEE PLANS".
(b) Except as may be required by a collective bargaining agreement set forth
in Section 5.16(a) of the Parent Disclosure Schedule, neither Parent nor any
ERISA Affiliate maintains, contributes to, has any obligation to contribute to,
or participates in, nor has within the past six years maintained, contributed
to, had an obligation to contribute to, or participated in, any plan that
constitutes or constituted a defined benefit or money purchase pension plan, as
defined in Section 412 of the Code or ERISA, a Multiemployer Plan, a "multiple
employer plan," as defined in ERISA, or that is or was subject to Title IV of
ERISA.
(c) Each Parent Employee Plan which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service, and Parent knows of no fact or circumstance giving
rise to a material likelihood that the plan would not be treated as so qualified
by the Internal Revenue Service. Each Parent Employee Plan has been maintained
in material compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations, including but not limited
to ERISA and the Code, which are applicable to such Parent Employee Plan. No
material audit or investigation by any governmental authority is pending or, to
the knowledge of Parent, threatened, regarding any Parent Employee Plan.
(d) No Parent Employee Plan provides for post-employment welfare benefits of
any kind, except as may be required by Section 4980B of the Code.
(e) With respect to the Parent Employee Plans which are Multiemployer Plans,
(i) during the last six years neither Parent nor any ERISA Affiliate thereof has
incurred any complete or partial withdrawal, withdrawal liability, or any other
obligation or liability under Title IV of ERISA (including Section 4212(c))
(other than contributions due in the normal course); and (ii) no such Plan is in
reorganization status, is insolvent, has terminated, or suffered a mass
withdrawal.
SECTION 5.17. ENVIRONMENTAL MATTERS. Except as would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been
filed, no penalty has been assessed, and no investigation, action, claim,
suit, proceeding or review (or any basis therefor) is pending or, to the
knowledge of Parent, is threatened by any governmental entity or other
Person with respect to any matters relating to Parent or any Subsidiary
and relating to or arising out of any Environmental Law;
(ii) the Parent and its Subsidiaries are in compliance with all
applicable Environmental Laws and all Environmental Permits; and
(iii) there are no liabilities or obligations of Parent or any of its
Subsidiaries, whether accrued, contingent, absolute, determined,
determinable or otherwise arising under or relating to any Environmental
Law.
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SECTION 5.18. FINANCING. Parent has received and furnished a copy to the
Company of a commitment letter (including the Summary of Terms and Conditions
annexed thereto, the "COMMITMENT LETTER") with Bank of America, N.A. and Bank of
America Securities LLC (collectively, "BANK OF AMERICA") dated as of
September 3, 1999. The funds which Bank of America has agreed, subject to the
terms and conditions of the Commitment Letter, to provide will be sufficient,
when taken together with funds available pursuant to (A) Parent's Existing
Senior Credit Facility (as defined in the Commitment Letter) (the "EXISTING
SENIOR CREDIT FACILITY"), as amended as contemplated by the Commitment Letter,
and (B) other funds available to Parent, to pay all cash amounts payable to
Company stockholders and optionholders in connection with the transactions
contemplated by this Agreement, to effect all necessary refinancing of existing
indebtedness of the Company and its Subsidiaries or of Parent and its
Subsidiaries that is required as a result of the transactions contemplated by
this Agreement, and to pay all related fees and expenses (such amount, the
"REQUIRED CASH AMOUNT"). Pursuant to the Commitment Letter, Bank of America has
also agreed to purchase assignments of commitments and loans outstanding under
the Existing Senior Credit Facility to the extent, if any, necessary to enable
Bank of America and any other lenders under the Existing Senior Credit Facility
that consent to such amendment, to adopt any amendment, waiver or other
modification necessary under the Existing Senior Credit Facility to permit the
consummation of the transactions contemplated by this Agreement and all
financings and refinancings required to consummate such transactions. Parent
knows of no facts or circumstances as of the date hereof that would result in
any of the conditions set forth in the Commitment Letter not being satisfied.
SECTION 5.19. ANTITAKEOVER STATUTES; RIGHTS AGREEMENT; DIRECTOR VOTES. (a)
Parent has taken all action necessary to exempt the Merger, this Agreement and
the transactions contemplated hereby from the provisions of Section 203 of
Delaware Law, any other applicable antitakeover or similar statute or regulation
and the business combination provisions of Article IX of Parent's certificate of
incorporation.
(b) Under the terms of the Amended and Restated Rights Agreement dated as of
September 10, 1998 between Parent and ChaseMellon Shareholder Services, L.L.C.,
as amended as of September 3, 1999 (the "PARENT RIGHTS AGREEMENT"), neither the
execution of this Agreement nor the transactions contemplated hereby will cause
a "Distribution Date" to occur or otherwise cause the rights ("PARENT RIGHTS")
issued pursuant to the Parent Rights Agreement to become exercisable, and all
such rights shall be non-exercisable at the Effective Time.
(c) Parent has been advised that all of its directors who own shares of
Parent Stock intend to vote in favor of the Merger.
SECTION 5.20. INSURANCE. All material fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies maintained by Parent or any of its Subsidiaries are
with reputable insurance carriers, provide full and adequate coverage for all
normal risks incident to the business of Parent and its Subsidiaries and their
respective properties and assets, and are in character and amount comparable to
that carried by persons engaged in similar businesses and subject to the same or
similar perils or hazards, except for any such failures to maintain insurance
policies that, individually or in the aggregate, are not reasonably likely to
have a Parent Material Adverse Effect.
SECTION 5.21. INTELLECTUAL PROPERTY. Parent owns, or is licensed or
otherwise possesses legally enforceable rights to use, all trademarks, trade
names, service marks, copyrights, and any applications for such trademarks,
trade names, service marks and copyrights, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of Parent as currently conducted,
subject to such exceptions that, individually and in the aggregate, would not be
reasonably likely to have a Parent Material Adverse Effect. Parent has no
knowledge of any assertion or claim challenging the validity of any of such
intellectual property that would be reasonably likely to have a Parent Material
Adverse Effect.
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SECTION 5.22. REAL PROPERTY. (a) Neither Parent nor any of its
Subsidiaries has received a notice of default or termination under any leases
for real property providing for the occupancy, in each case, of (i) a hotel or
(ii) other facilities in excess of 50,000 square feet except where the existence
of such notices, individually or in the aggregate, is not reasonably likely to
have a Parent Material Adverse Effect.
(b) With respect to the real property that Parent and any of its
Subsidiaries own, Parent or its Subsidiary has title sufficient to conduct the
business of Parent and its Subsidiaries as currently conducted, except for such
matters as would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
SECTION 5.23. YEAR 2000 COMPLIANCE. Parent and its Subsidiaries have
(i) completed a review and assessment of all areas within the business and
operations of Parent and its Subsidiaries that could be adversely affected by
the "Year 2000 Problem" (that is, the risk that computer software and systems
used by Parent or any of its Subsidiaries may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to, on, and any
date after December 31, 1999) and (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, which plan and timeline have
been made available to the Company.
SECTION 5.24. MANAGEMENT AND FRANCHISE AGREEMENTS. Parent has made
available to the Company, or otherwise identified, all material management and
franchise agreements (or forms thereof) to which Parent or any of its
Subsidiaries is a party (collectively, the "MATERIAL PARENT AGREEMENTS") that
contain material radius or non-competition restrictions which would prohibit the
Company or its Subsidiaries (as determined immediately prior to the Effective
Time) from the ownership, operation or management of any of their respective
currently owned hotel properties or that require any consent or other action by
any Person for, or will be subject to default, termination or cancellation
because of, the transactions contemplated hereby, other than (x) those
agreements the loss of the net income from which, individually or in the
aggregate, would not have a Parent Material Adverse Effect or (y) those
agreements Parent has the right or the ability to terminate and the loss of net
income from which, or any payment required to be made or otherwise payable in
connection therewith, individually or in the aggregate, would not have a Parent
Material Adverse Effect. Neither Parent nor any of its Subsidiaries has received
as of the date hereof a notice of default or termination under any Material
Parent Agreement, except where the existence of such notices, individually or in
the aggregate, is not reasonably likely to have a Parent Material Adverse
Effect.
SECTION 5.25. OPINION OF FINANCIAL ADVISOR. Parent has received the
written opinions of Morgan Stanley & Co. Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation, financial advisors to Parent, each to the
effect that, as of the date of this Agreement, the Merger Consideration is fair
to Parent from a financial point of view.
ARTICLE 6
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 6.01. CONDUCT OF THE COMPANY. From the date hereof until the
Effective Time, the Company and its Subsidiaries shall conduct their business in
the ordinary course consistent with past practice and shall use their reasonable
best efforts to preserve intact their business organizations and relationships
with third parties. Without limiting the generality of the foregoing, except
with the prior written consent of Parent or as contemplated by this Agreement or
as set forth in the Company Disclosure Schedule, from the date hereof until the
Effective Time the Company shall not, and shall not permit any of its
Subsidiaries to:
(a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to its
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stockholders in their capacity as such (other than dividends and other
distributions by direct or indirect wholly owned Subsidiaries), (ii) other than
in the case of any direct or indirect wholly owned Subsidiary, split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities; PROVIDED that nothing in this Section 6.01(a) shall prohibit the
Company or any of its Subsidiaries from doing any of the foregoing to the extent
such action is otherwise permitted by this Section 6.01.
(b) issue, deliver, sell, pledge, dispose of or otherwise encumber any
Shares, or any other voting securities or equity equivalent or any securities
convertible into, or any rights, warrants or options to acquire any such Shares,
voting securities, equity equivalent or convertible securities, other than
(i) as permitted by Section 6.01(j), (ii) the issuance of Shares (and associated
rights) upon the exercise of the GE Warrants, the GE Options or stock options
pursuant to the Company's stock plans in accordance with their current terms and
the issuance of Credited Shares upon vesting thereof and (iii) the issuance of
Shares and options pursuant to the Directors Plan or the Directors Program;
(c) amend its Certificate of Incorporation or By-Laws or other comparable
organizational documents or amend any material terms of the outstanding
securities of the Company or its Subsidiaries;
(d) acquire or agree to acquire (i) by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or (ii) any assets that are,
individually or in the aggregate, material to the Company and its Subsidiaries
taken as a whole, other than, in the case of clauses (i) and (ii),
(x) transactions that are in the ordinary course of business consistent with
past practice and not material to the Company and its Subsidiaries taken as a
whole and (y) the direct or indirect acquisition of individual hotel properties
or interests therein in accordance with Annex C to the Company Disclosure
Schedule;
(e) except as contemplated by (i) Annex C to the Company Disclosure
Schedule, (ii) Annex A (Funding Commitments) to the Company Disclosure Schedule
or (iii) in the ordinary course of business consistent with past practice, make
any loans, advances or capital contributions to, or other investments in, any
entity which, individually, is in excess of $10 million or, in the aggregate,
are in excess of $20 million;
(f) sell, lease, license, mortgage or otherwise encumber or subject to any
Lien or otherwise dispose of, or agree to sell, lease, license, mortgage or
otherwise encumber or subject to any Lien or otherwise dispose of, any of its
assets, other than (x) transactions that are in the ordinary course of business
consistent with past practice and not material to the Company and its
Subsidiaries taken as a whole, (y) pursuant to agreements existing on the date
hereof or (z) sales of individual hotel properties not to exceed $50 million in
the aggregate;
(g) incur any indebtedness for borrowed money, guarantee any such
indebtedness, issue or sell any debt securities or warrants or other rights to
acquire any debt securities or guarantee any debt securities, other than
(i) indebtedness and guarantees as contemplated by Annex A (Funding Commitments)
or Annex C to the Company Disclosure Schedule, (ii) any other such indebtedness,
guarantee or issuance incurred in the ordinary course of business consistent
with past practice or incurred between the Company and any of its wholly owned
Subsidiaries or between any of such wholly owned Subsidiaries and (iii) the
annual renewal of the Company's existing 364-day revolving credit agreement on
substantially the same terms;
(h) except as required under any collective bargaining agreement (whether
now or hereafter in effect) or under Section 2.07 or as may be mutually agreed
upon between Parent and the Company,
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enter into or adopt any new, or amend any existing, severance plan, agreement or
arrangement or enter into any new or amend any existing Company Employee Plan or
employment or consulting agreement, other than as required by law, except that
the Company or its Subsidiaries may enter into (i) employment agreements if such
agreements (x) are no longer than one year in duration and (y) provide for an
annual base salary of less than $150,000, and (ii) consulting agreements in the
ordinary course of business that are terminable on no more than 90 days' notice
without penalty, and the Company or its Subsidiaries may amend any Company
Employee Plan or other plan, program, policy or arrangement if such amendment
will result in not more than a DE MINIMIS additional cost to the Company or its
Subsidiaries;
(i) except (i) as permitted under Section 6.01(h), (ii) as described in
Section 7.05(c) of the Company Disclosure Schedule or (iii) to the extent
required by written employment agreements existing on the date of this
Agreement, increase the compensation payable or to become payable to its
officers or employees, except for increases in the ordinary course of business
consistent with past practice in salaries or wages of employees of the Company
or any of its Subsidiaries;
(j) grant or award any stock options, restricted stock, performance shares,
stock appreciation rights or other equity-based incentive awards, other than an
award agreed to in good faith by Parent which (i) is made to a management
employee or non-employee director who would be eligible to receive such award
under the terms of the Company Employee Plans as applied consistently with past
practice and (ii) is made on terms substantially the same as the terms of awards
previously awarded under such plan (except that the vesting of such award shall
not be subject to acceleration by virtue of consummation of the Merger);
(k) change (i) its method of accounting or accounting practices in any
material respect except as required by changes in GAAP or (ii) its fiscal year;
(l) except (i) as disclosed in Annex A (Funding Commitments) to the Company
Disclosure Schedule, (ii) as disclosed in Annex C to the Company Disclosure
Schedule, or (iii) for maintenance and casualty capital expenditures in the
ordinary course of business consistent with past practice, make or agree or make
any new capital expenditure or expenditures which, individually, is in excess of
$5,000,000 or, in the aggregate, are in excess of $10,000,000;
(m) settle or compromise any federal, state, local or foreign tax liability
to the extent the amount paid pursuant to such settlement or compromise would
exceed $5,000,000;
(n) except as required by law, prepare or file any Tax Return inconsistent
with past practice or, on any such Tax Return, take any position, make any
election, or adopt any method that is inconsistent with positions taken,
elections made or methods used in preparing or filing similar Tax Returns in
prior periods;
(o) engage in any transaction with any Affiliate (other than any
Subsidiary), director or officer of Parent, except as contemplated by this
Agreement or on an arms' length basis and in the ordinary course of business;
(p) amend the Rights Agreement or redeem or render inapplicable the Rights
to facilitate the acquisition by any Person of more than 15% of the outstanding
Shares, except in connection with the transactions contemplated by this
Agreement or a Superior Proposal recommended by the Board of Directors of the
Company in accordance with Section 6.02(b); or
(q) authorize, recommend, propose or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or arrangement to
do any of the foregoing.
SECTION 6.02. STOCKHOLDER MEETING; PROXY MATERIAL. (a) The Company shall
cause a meeting of its stockholders (the "COMPANY STOCKHOLDER MEETING") to be
duly called and held as soon as reasonably practicable for the purpose of voting
on the approval and adoption of this Agreement and the Merger. In connection
with such meeting, the Company will (i) promptly prepare and file with the SEC,
use its
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reasonable best efforts to have cleared by the SEC and thereafter mail to its
stockholders as promptly as practicable the Joint Proxy Statement and all other
proxy materials for such meeting, (ii) use its reasonable best efforts to obtain
the necessary approvals by its stockholders of this Agreement and the
transactions contemplated hereby and (iii) otherwise comply with all legal
requirements applicable to such meeting.
(b) The Board of Directors of the Company shall recommend approval and
adoption of this Agreement and the Merger by the Company's stockholders;
PROVIDED that (A) the Board of Directors of the Company shall be permitted to
withdraw, or modify in a manner adverse to Parent, its recommendation to its
stockholders, but only if (i) the Company has complied with the terms of
Section 6.03, (ii) the Company has received an unsolicited Acquisition Proposal
which the Board of Directors of the Company determines in good faith would, if
consummated, constitute a Superior Proposal, (iii) the Board of Directors
determines in good faith, on the basis of advice of outside legal counsel, that
it must take such action to comply with its fiduciary duties under applicable
law; (iv) the Company shall have delivered to Parent a prior written notice
advising Parent that it intends to take such action; and (v) the Company
concurrently terminates this Agreement pursuant to Section 10.01(d)(i) and pays
the termination fee contemplated by Section 11.04(b); and (B) to the extent
applicable the Board of Directors of the Company shall be permitted to comply
with Rule 14d-9 and Rule 14e-2 under the 1934 Act with respect to any
Acquisition Proposal. For purposes of this Agreement, "SUPERIOR PROPOSAL" means
a bona fide written Acquisition Proposal which the Board of Directors of the
Company concludes in good faith (after consultation with its financial advisors
and legal counsel), taking into account all legal, financial, regulatory and
other aspects of the proposal including the nature and sufficiency of financing
for such proposal and the Person making the proposal, (i) would, if consummated,
result in a transaction that is more favorable to the Company's stockholders (in
their capacities as stockholders) from a financial point of view, than the
transactions contemplated by this Agreement and (ii) is reasonably likely to be
completed (provided that for purposes of this definition the term Acquisition
Proposal shall have the meaning assigned to such term in Section 1.01 except
that the references to "20%" in the definition of "Acquisition Proposal" shall
be deemed to be a reference to "50%"). Nothing in this Section 6.02(b) shall
permit the Company to terminate this Agreement except as specifically provided
in Article 10.
SECTION 6.03. NO SOLICITATION; OTHER OFFERS. (a) From the date hereof
until the termination hereof, the Company will not, and will cause its
Subsidiaries and will use reasonable best efforts to cause the officers,
directors, employees, investment bankers, attorneys, accountants, consultants or
other agents or advisors of the Company and its Subsidiaries not to, directly or
indirectly, (i) take any action to solicit or initiate the submission of any
Acquisition Proposal or (ii) engage in discussions or negotiations with, or
disclose any nonpublic information relating to the Company or any of its
Subsidiaries to, any Person who, to the knowledge of the Company, is considering
making, or has made, an Acquisition Proposal; PROVIDED that the Company may
negotiate or otherwise engage in discussions with, and furnish nonpublic
information to, any Person in response to an unsolicited Acquisition Proposal if
(w) the Company has complied with the terms of Section 6.03(b), (x) the Board of
Directors of the Company determines in good faith that, based on the terms and
conditions contained in such Acquisition Proposal, such Acquisition Proposal
could reasonably be expected to constitute a Superior Proposal, (y) prior to
providing any information or data to any Person in connection with an
Acquisition Proposal, such Person executes a confidentiality agreement with
terms substantially similar to those contained in the Confidentiality Agreement
(except as to the standstill provisions, PROVIDED that if the Company so enters
into any such confidentiality agreement without standstill provisions
substantially similar to those in the Confidentiality Agreement, then Parent
shall to the extent of such difference be relieved of compliance with the
Confidentiality Agreement's standstill obligations) and (z) the Company shall
have delivered to Parent a prior written notice advising Parent that it intends
to take such action.
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(b) The Company will notify Parent promptly after receipt by the Company of
any Acquisition Proposal or any request for nonpublic information relating to
the Company or any of its Subsidiaries by any Person who, to the knowledge of
the Company, is making, or has made, an Acquisition Proposal. The Company shall
provide such notice orally and in writing and shall identify the Person making,
and the terms and conditions of, any such Acquisition Proposal, indication or
request. The Company shall keep Parent informed of the status and details of any
such Acquisition Proposal, indication or request. The Company shall, and shall
cause its Subsidiaries and use reasonable best efforts to cause the directors,
employees and other agents of the Company and its Subsidiaries to, cease
immediately and cause to be terminated all activities, discussions and
negotiations, if any, with any Persons conducted prior to the date hereof with
respect to any Acquisition Proposal.
SECTION 6.04. AFFILIATES. Prior to the Effective Time, the Company shall
cause to be delivered to Parent a letter identifying, to the best of the
Company's knowledge, all Persons who may be deemed "affiliates" of the Company
under Rule 145 of the 1933 Act. The Company shall use its reasonable best
efforts to cause each Person who is so identified as an affiliate to deliver to
Parent on or prior to the Effective Time a letter substantially in the form of
Exhibit A to this Agreement.
ARTICLE 7
COVENANTS OF PARENT
Parent agrees that:
SECTION 7.01. CONDUCT OF PARENT. From the date hereof until the Effective
Time, Parent and its Subsidiaries shall conduct their business in the ordinary
course consistent with past practice and shall use their reasonable best efforts
to preserve intact their business organizations and relationships with third
parties. Without limiting the generality of the foregoing, except with the prior
written consent of the Company or as contemplated by this Agreement, from the
date hereof until the Effective Time Parent shall not, and shall not permit any
of its Subsidiaries to:
(a) amend Parent's certificate of incorporation or by-laws (PROVIDED that
Parent shall be permitted to make such amendments to its by-laws as are not
inconsistent with the rights and obligations of the parties under this Agreement
and as would not delay consummation of the transactions contemplated by this
Agreement);
(b) amend any material terms of the outstanding securities of Parent or its
Subsidiaries;
(c) split, combine, subdivide or reclassify any shares of Parent Stock or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of Parent Stock, except
for (i) regular quarterly cash dividends not exceeding $0.02 per share, (ii)
regular dividends on any future series of preferred stock pursuant to the terms
of such securities, or (iii) dividends paid by a Subsidiary of Parent to Parent
or any Subsidiary of Parent that is, directly or indirectly, wholly owned by
Parent;
(d) take any action that would or would reasonably be expected to impair the
ability of the Company, Parent or Merger Subsidiary to consummate the
transactions contemplated by this Agreement or otherwise prevent or materially
delay the consummation of the transactions contemplated by this Agreement;
(e) change (i) its methods of accounting or accounting practices in any
material respect except as required by concurrent changes in U.S. GAAP or by law
or (ii) its fiscal year;
(f) enter into or acquire any new line of business that (i) is material to
Parent and its Subsidiaries taken as a whole and (ii) is not strategically
related to the current business or operations of Parent and its Subsidiaries;
(g) incur indebtedness (other than pursuant to the Financing Agreements)
outside of the ordinary course or for acquisitions unless such incurrence is not
reasonably likely (assuming the consummation of the transactions contemplated
hereby) to result in the rating accorded Parent's senior debt by Moody's
Investor's Services and Standard & Poor's Rating Services to be non-investment
grade;
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(h) engage in any (i) merger, consolidation, share exchange, business
combination, reorganization, recapitalization or other similar transaction
unless the stockholders of Parent prior to such transaction own, directly or
indirectly, a majority of the equity interests in the surviving or resulting
corporation and Parent has received an opinion from Gibson, Dunn & Crutcher LLP,
reasonably satisfactory to Company, to the effect that such transaction will not
adversely affect its ability to deliver the opinion described in
Section 9.03(c), (ii) transaction as a result of which any third party acquires,
directly or indirectly, an equity interest for less than the then market value
of Parent stock (other than pursuant to any existing employee compensation
plan), or representing greater than in the aggregate 15% of the voting
securities of Parent or any Subsidiary of Parent unless Parent has received an
opinion from Gibson, Dunn & Crutcher LLP, reasonably satisfactory to the
Company, to the effect that such transaction will not adversely affect its
ability to deliver the opinion described in Section 9.03(c) or (iii) sale,
lease, mortgage or disposition of, or creation of any Lien upon, any of the
properties or assets of Parent and its Subsidiaries, other than transactions in
this ordinary course of business or transactions not exceeding $100 million in
the aggregate;
(i) engage in any transaction with any Affiliate (other than any Subsidiary
or any Alliance Company), director or officer of Parent, except on an arms'
length basis and in the ordinary course of business;
(j) acquire, directly or indirectly, any Shares except pursuant to the
Merger; or
(k) agree or commit to do any of the foregoing.
SECTION 7.02. OBLIGATIONS OF MERGER SUBSIDIARY. Parent will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
SECTION 7.03. VOTING OF SHARES. Parent agrees to vote all Shares
beneficially owned by it in favor of adoption of this Agreement at the Company
Stockholder Meeting.
SECTION 7.04. DIRECTOR AND OFFICER LIABILITY. Parent shall cause the
Surviving Corporation, and the Surviving Corporation hereby agrees, to do the
following:
(a) For six years after the Effective Time, the Surviving Corporation shall
indemnify and hold harmless each present and former officer and director of the
Company and of any Subsidiary of the Company (each, an "INDEMNIFIED PERSON") in
respect of acts or omissions occurring at or prior to the Effective Time to the
fullest extent permitted by Delaware Law or any other applicable laws or
provided under the Company's certificate of incorporation and bylaws in effect
on the date hereof; PROVIDED that such indemnification shall be subject to any
limitation imposed from time to time under applicable law.
(b) The Surviving Corporation shall pay all expenses, including reasonable
fees and expenses of counsel, that an Indemnified Person may incur in enforcing
the indemnity and other obligations provided for in this Section 7.04. The
Indemnified Person shall be entitled to control the defense of any action, suit,
investigation or proceeding with counsel of its own choosing reasonably
acceptable to the Surviving Corporation and the Surviving Corporation shall
cooperate in the defense thereof; PROVIDED that the Surviving Corporation shall
not be liable for the fees of more than one counsel for all Indemnified Persons,
other than local counsel, unless a conflict of interest shall be caused thereby,
and PROVIDED FURTHER that the Surviving Corporation shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld).
(c) For six years after the Effective Time, the Surviving Corporation shall
provide officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the Effective Time covering each such Indemnified
Person currently covered by the Company's officers' and directors' liability
insurance policy on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date hereof; PROVIDED if the
aggregate annual premiums for such insurance at any time during such period
shall exceed 200% of the per annum rate of premium paid by the Company and its
Subsidiaries as of the date hereof for such insurance, then Parent shall, or
shall cause
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its Subsidiaries to, provide only such coverage as shall then be available at an
annual premium equal to 200% of such rate.
(d) If Parent, the Surviving Corporation or any of its successors or assigns
(i) consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any Person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Parent or
the Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 7.04.
(e) The rights of each Indemnified Person under this Section 7.04 shall be
in addition to any rights to indemnification, exculpation from liabilities for
acts or omissions or other rights such Person may have under the certificate of
incorporation or bylaws of the Company or any of its Subsidiaries, or under
Delaware Law or any other applicable laws or under any agreements or other
arrangements with the Company or its Subsidiaries. These rights shall survive
consummation of the Merger and are intended to benefit, and shall be enforceable
by, each Indemnified Person.
(f) The obligations of the Surviving Corporation under this Section 7.04
shall be joint and several obligations of Parent and the Surviving Corporation.
SECTION 7.05. EMPLOYEE MATTERS. (a) EXISTING EMPLOYMENT AND SEVERANCE
AGREEMENTS. From and after the Effective Time Parent shall, or shall cause the
Surviving Corporation to, without further action, assume and honor the
obligations of the Company and its Subsidiaries under the terms of each written
employment and severance agreement in effect immediately prior to the Effective
Time between the Company or any of its Subsidiaries and any employee or former
employee thereof.
(b) SEVERANCE AGREEMENTS. Parent shall, or shall cause the Surviving
Corporation to, honor all obligations under all severance agreements and
arrangements referred to in Sections 7.05(b)(i) and 7.05(b)(ii) of the Company
Disclosure Schedule.
(c) EMPLOYEE BENEFIT LEVELS. For one year after the Effective Time, Parent
shall, or shall cause the Surviving Corporation to provide employees of the
Company or its Subsidiaries immediately prior to the Effective Time ("AFFECTED
EMPLOYEES") with benefits substantially comparable, in the aggregate, to the
benefits available to Affected Employees immediately prior to the Effective Time
(taking into account, whether or not implemented as of the Effective Time, the
changes to the Company's benefit plans described in Section 7.05(c) of the
Company Disclosure Schedule). In addition to the foregoing requirement, on and
after the first anniversary of the Effective Time, Parent shall, or shall cause
the Surviving Corporation to, provide Affected Employees with benefits
substantially comparable, in the aggregate, to the benefits provided similarly
situated employees of Parent or its Affiliates. In addition, Parent shall, or
shall cause the Surviving Corporation to, maintain in effect during the period
from the Effective Time until the first anniversary of the Effective Time for
the benefit of Affected Employees the severance plans, policies and practices of
the Company and its Subsidiaries applicable to Affected Employees as in effect
immediately prior to the Effective Time.
(d) HONORING ACCRUED AND VESTED BENEFITS. Parent shall, or shall cause the
Surviving Corporation to, honor all accrued, vested benefits under all
compensation and benefit plans, policies, practices and arrangements of the
Company or its Subsidiaries in existence immediately prior to the Effective
Time. Without limiting the generality of the foregoing, Parent shall, or shall
cause the Surviving Corporation to, honor all unused vacation, holiday, sickness
and personal days accrued by Affected Employees under the policies and practices
of the Company and its Subsidiaries.
(e) SERVICE CREDIT. In the event of any change in the welfare benefits
provided to an Affected Employee under any plan, Parent shall, or shall cause
the Surviving Corporation to, (i) waive all limitations as to preexisting
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to the Affected Employee under such plan
(except to the extent that such conditions, exclusions or waiting periods would
apply under the Company or Subsidiary's then existing plans absent any change in
such welfare plan coverage) and (ii) provide each Affected
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Employee with credit for any co-payments and deductibles paid prior to any such
change in coverage in satisfying any applicable deductible or out-of-pocket
requirements under such new or changed plan. Parent shall, or shall cause the
Surviving Corporation to, provide each Affected Employee with credit for all
service with the Company and its Affiliates under each employee benefit plan,
policy, program or arrangement in which such Affected Employee is eligible to
participate, except to the extent that it would result in a duplication of
benefits with respect to the same period of services. However, neither Parent
nor the Surviving Corporation shall be required to provide past service credit
for benefit accrual purposes (other than under any vacation, sick pay or
severance plan), unless such past service credit is given to other similarly
situated employees.
(f) ANNUAL BONUSES. On or prior to March 15, 2000, without duplicating any
benefits under any severance, termination or employment agreement, Parent shall,
or shall cause the Surviving Corporation to, pay to each Affected Employee then
employed by Parent, the Surviving Corporation or any of their respective
Affiliates who currently participates in the Company's bonus plans, and each
such Affected Employee whose employment was involuntarily terminated without
"cause" by Parent, the Surviving Corporation or any of their respective
Affiliates after the Effective Time but prior to March 15, 2000, a cash bonus
equal to the amount to which such Affected Employee would have been entitled
under the terms of such plans, PROVIDED that the performance measures used to
determine whether an Affected Employee is eligible for such bonus shall be
adjusted to exclude extraordinary expenses arising from the transactions
contemplated by the Agreement. In the event an Affected Employee whose
employment is terminated in 1999 is entitled to a bonus pursuant to this
Section 7.05(f), such bonus shall be pro rated to reflect the portion of
calendar 1999 elapsed between January 1, 1999 and the date of such employee's
termination. A termination will be deemed to be involuntary and without "cause"
if the Affected Employee is terminated in a manner that entitles such person to
severance benefits under the Tier I or Tier II Severance Agreement or Tier III
or Tier IV severance or similar arrangement or agreement for which he or she is
eligible, or the Affected Employee terminates his or her employment after (i) a
material reduction in the level of such Affected Employee's compensation and
benefits, taken in the aggregate; (ii) an assignment of duties substantially
different from his or her current duties and incompatible with such Affected
Employee's education, training and experience; (iii) a relocation of such
Affected Employee's principal workplace by more than 50 miles; or (iv) the
occurrence of any event, fact or circumstance entitling such Affected Employee
to receive severance benefits under any severance or employment agreement.
Without limiting the generality of the immediately preceding paragraph,
Parent shall not, and shall cause the Surviving Corporation not to, adversely
modify, impair or diminish the ability of any Affected Employee to attain such
Affected Employee's full bonus opportunity for 1999 afforded by any relevant
bonus plan in effect as of the Effective Time.
(g) Nothing in this Agreement shall be construed to restrict the ability of
Parent and its Subsidiaries to make hiring, promotion or termination decisions
after the Effective Time or to prevent changes in compensation or benefits as
may result due to changes in title, position or responsibility.
SECTION 7.06. PARENT BOARD OF DIRECTORS. Prior to the Effective Time, the
Board of Directors of Parent shall take all action necessary to appoint 2
persons, selected by Parent, who are currently directors of the Company (the
"COMPANY DESIGNEES") to the Board of Directors of Parent as of the Effective
Time.
SECTION 7.07. PARENT STOCKHOLDER MEETING. Parent shall cause a meeting of
its stockholders (the "PARENT STOCKHOLDER MEETING") to be duly called and held
as soon as reasonably practicable for the purpose of voting on the approval and
adoption of this Agreement and the Merger, and, at such stockholder meeting, the
Board of Directors of Parent shall recommend approval and adoption by Parent's
stockholders of this Agreement and the Merger and shall not withdraw such
recommendation. In connection with such meeting, Parent will (i) promptly
prepare and file with the SEC, will use its reasonable best efforts to have
cleared by the SEC and will thereafter mail to its stockholders as promptly as
practicable the Joint Proxy Statement and all other proxy materials for such
meeting,
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(ii) use its reasonable best efforts to obtain the necessary approvals by its
stockholders of this Agreement and the transactions contemplated hereby and
(iii) otherwise comply with all legal requirements applicable to such meeting.
SECTION 7.08. REGISTRATION STATEMENT. Parent shall promptly prepare and
file with the SEC under the 1933 Act the Registration Statement, and shall use
its reasonable best efforts to cause the Registration Statement to be declared
effective by the SEC as promptly as practicable. Parent shall promptly take any
action required to be taken under foreign or state securities or Blue Sky laws
in connection with the issuance of Parent Stock in the Merger and upon the
exercise of Parent Stock Options.
SECTION 7.09. STOCK EXCHANGE LISTING. Parent shall use its reasonable best
efforts to cause the shares of Parent Stock to be issued in connection with the
Merger to be listed on the NYSE and the Pacific Stock Exchange, subject to
official notice of issuance.
SECTION 7.10. TAX-FREE NATURE OF DISTRIBUTION. Parent will not take any
action or fail to take any action which in the opinion of Gibson, Dunn &
Crutcher LLP or other nationally recognized tax counsel selected by Parent may
cause the Distribution to fail to be qualified as a tax-free transaction under
Section 355(a) and (c) of the Code.
SECTION 7.11. FINANCING AGREEMENTS. (a) Parent shall use its best efforts
to obtain financing in an amount at least equal to the Required Cash Amount,
including by (i) executing before December 2, 1999 (or such later date as agreed
by Bank of America) definitive agreements for the New Senior Credit Facilities
(as defined in the Commitment Letter) contemplated by the Commitment Letter and
(ii) executing as promptly as practicable any necessary amendments, waivers or
other modifications to the Existing Senior Credit Facility. The Commitment
Letter, the definitive agreements for the New Senior Credit Facilities and the
Existing Senior Credit Facility, as so amended, modified or waived (along with
any other document pursuant to which Parent obtains financing of all or a
portion of the Required Cash Amount) are referred to herein collectively as the
"FINANCING AGREEMENTS". The Company will be afforded a reasonable opportunity to
review and comment on the representations and warranties contained in the
Financing Agreements and no such representation or warranty, insofar as it
relates to facts and circumstances relating to the Company and its Subsidiaries,
shall be included therein that the Company shall have advised Parent is
incorrect or inaccurate. Parent shall use its reasonable best efforts to ensure
that the representations and warranties contained in the Financing Agreements
shall be consistent with the Commitment Letter.
(b) Without limiting the generality of the foregoing, in the event that at
any time funds are not or have not been made available under the Financing
Agreements so as to enable Parent to proceed with the Closing in a timely
manner, Parent shall (i) use its best efforts to obtain alternative funding in
an amount at least equal to the Required Cash Amount on terms and conditions
materially comparable to those provided in such Financing Agreements or
otherwise on terms reasonably acceptable to Parent and (ii) shall continue to
use its reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement.
(c) Parent shall take all actions necessary to enforce any or all of its
rights, and comply with all of its obligations under the Financing Agreements,
except to the extent consented to by the Company in writing.
ARTICLE 8
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
SECTION 8.01. EFFORTS. (a) Subject to the terms and conditions of this
Agreement, Company and Parent will use their reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement. Each of Parent and
Company agrees to
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make an appropriate filing of a Notification and Report Form pursuant to the HSR
Act with respect to the transactions contemplated hereby as promptly as
practicable and in any event within ten business days of the date hereof and to
supply as promptly as practicable any additional information and documentary
material that may be requested pursuant to the HSR Act and to take all other
actions necessary to cause the expiration or termination of the applicable
waiting periods under the HSR Act as soon as practicable.
(b) In connection with the efforts referenced in Section 8.01(a) to obtain
all requisite approvals and authorizations for the transactions contemplated by
this Agreement under the HSR Act or any other Antitrust Law, each of Parent and
Company shall use its reasonable best efforts to (i) cooperate in all respects
with the other in connection with any filing or submission and in connection
with any investigation or other inquiry, including any proceeding initiated by a
private party, (ii) keep the other party informed in all material respects of
any material communication received by such party from, or given by such party
to, the Federal Trade Commission (the "FTC"), the Antitrust Division of the
Department of Justice (the "DOJ") or any other governmental authority and of any
material communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated
hereby and (iii) permit the other party to review any material communication
given by it to, and consult with each other in advance of any meeting or
conference with, the FTC, the DOJ or any such other governmental authority or,
in connection with any proceeding by a private party, with any other Person. For
purposes of this Agreement, "ANTITRUST LAW" means the Sherman Act, as amended,
the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other federal, state and foreign, if any, statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines and other
laws that are designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade or
lessening of competition through merger or acquisition.
SECTION 8.02. CERTAIN FILINGS. The Company and Parent shall cooperate with
one another (i) in connection with the preparation of the Joint Proxy Statement
and the Registration Statement, (ii) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official, or
authority is required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any material contracts, in connection
with the consummation of the transactions contemplated by this Agreement and
(iii) in taking such actions or making any such filings, furnishing information
required in connection therewith or with the Joint Proxy Statement or the
Registration Statement and seeking timely to obtain any such actions, consents,
approvals or waivers.
SECTION 8.03. PUBLIC ANNOUNCEMENTS. Parent and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement or the transactions contemplated hereby and,
except as may be required by applicable law or any listing agreement with any
national securities exchange, will not issue any such press release or make any
such public statement prior to such consultation.
SECTION 8.04. FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 8.05. ACCESS TO INFORMATION. From the date hereof until the
Effective Time and subject to applicable law and the Confidentiality Agreement,
the Company and Parent shall (i) give to the other party, its counsel, financial
advisors, auditors and other authorized representatives reasonable access to the
offices, properties, books and records of such party, (ii) furnish to the other
party, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request and (iii) instruct its employees,
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counsel, financial advisors, auditors and other authorized representatives to
cooperate with the other party in its investigation. Any investigation pursuant
to this Section shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of the other party. Unless
otherwise required by law, each of Company and Parent will hold, and will cause
its respective officers, employees, counsel, financial advisors, auditors and
other authorized representatives to hold, any nonpublic information obtained in
any such investigation in confidence in accordance with the Confidentiality
Agreement. No information or knowledge obtained in any investigation pursuant to
this Section shall affect or be deemed to modify any representation or warranty
made by any party hereunder.
SECTION 8.06. NOTICES OF CERTAIN EVENTS. Each of the Company and Parent
shall promptly notify the other of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced or,
to its knowledge, threatened against, relating to or involving or otherwise
affecting the Company, Parent or any of their Subsidiaries that, if pending on
the date of this Agreement, would have been required to have been disclosed
pursuant to Section 4.12, 4.13, 5.12 or 5.13, as the case may be, or that relate
to the consummation of the transactions contemplated by this Agreement.
SECTION 8.07. COOPERATION AS TO TAX MATTERS. Each of the Company and
Parent will (a) not take any action that is reasonably likely to cause the
Merger to fail to qualify as a "reorganization" within the meaning of
Section 368 of the Code, and (b) use its reasonable best efforts (including the
provision of customary representations) to permit counsel to render the opinions
described in Section 9.02(b) and Section 9.03(b). Neither Parent nor the Company
shall take or cause to be taken any action which would cause to be untrue (or
fail to take or cause not to be taken any action which would cause to be untrue)
any of the representations set forth in certificates delivered to such counsel.
SECTION 8.08. TRANSFER AND GAINS TAX. Parent will pay any federal, state,
local, foreign or provincial tax which is attributable to the transfer of the
beneficial ownership of the Company's or its Subsidiaries' real property, if any
(collectively, the "GAINS TAXES"), any penalties or interest with respect to the
Gains Taxes, payable in connection with the consummation of the Merger, (except
as otherwise provided in Section 2.10) any federal, state, local, foreign or
provincial tax which is attributable to the transfer of Shares or Parent Stock
pursuant to the terms of this Agreement (collectively, "STOCK TRANSFER TAXES")
and any penalties or interest with respect to any such Stock Transfer Taxes.
Parent and the Company agree to cooperate with the other in the filing of any
returns with respect to the Gains Taxes, including supplying in a timely manner
a complete list of all real property interests held by the Company and its
Subsidiaries and any information with respect to such property that is
reasonably necessary to complete such returns. The portion of the consideration
allocable to the real property of the Company and its Subsidiaries shall be
agreed to between Parent and the Company. The stockholders of the Company shall
be deemed to have agreed to be bound by the allocation established pursuant to
this Section 8.08 in the preparation of any return with respect to the Gains
Taxes.
SECTION 8.09. AUDITORS' LETTERS. Parent and the Company each shall use all
reasonable best efforts to cause to be delivered to the other party and such
other party's directors a letter of its independent auditors, dated the date on
which the Registration Statement shall become effective, and addressed to the
other party and such other party's directors, in form and substance customary
for "comfort" letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
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SECTION 8.10. REGISTRATION RIGHTS AGREEMENT. At the Effective Time, Parent
will enter into a Registration Rights Agreement identical to the Registration
Rights Agreement dated as of December 19, 1997 by and among the Company, GE
Investment Hotel Partners I, Limited Partnership, GE Investment Management
Incorporated, Trustees of General Electric Pension Trust, MetPark
Funding, Inc., The Ueberroth Family Trust, The Ueberroth Investment Trust,
Mr. Richard Ferris, Ridge Partners, L.P. and Red Lion (the "EXISTING
REGISTRATION RIGHTS AGREEMENT"), pursuant to which Parent will provide
registration rights to the parties to the Existing Registration Rights Agreement
with respect to all shares of Parent Stock issued in the Merger in respect of
Shares covered by the Existing Registration Rights Agreement.
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of
the Company, Parent and Merger Subsidiary to consummate the Merger are subject
to the satisfaction of the following conditions:
(a) this Agreement shall have been approved and adopted by the stockholders
of the Company in accordance with Delaware Law;
(b) this Agreement shall have been approved by the stockholders of Parent;
(c) any applicable waiting period under the HSR Act relating to the Merger
shall have expired or been terminated;
(d) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger;
(e) the Registration Statement shall have been declared effective under the
1933 Act and no stop order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall be
pending before or threatened by the SEC; and
(f) the shares of Parent Stock to be issued in the Merger shall have been
approved for listing on the NYSE, subject to official notice of issuance.
SECTION 9.02. CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
SUBSIDIARY. The obligations of Parent and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following further conditions:
(a) (i) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of the Company contained
in this Agreement and in any certificate or other writing delivered by the
Company pursuant hereto, disregarding all qualifications and exceptions
contained therein relating to materiality or Material Adverse Effect or any
similar standard or qualification, shall be true in all material respects at and
as of the Effective Time as if made at and as of such time (or, if given as of a
specific date, at and as of such date) with only such exceptions as would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect and (iii) Parent shall have received a certificate
signed by an executive of the Company to the foregoing effect;
(b) Parent shall have received an opinion of Gibson, Dunn & Crutcher LLP in
form and substance reasonably satisfactory to Parent, on the basis of certain
facts, representations and assumptions set forth in such opinion, dated the
Effective Time, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization qualifying under the provision of
Section 368(a) of the Code and that each of Parent, Merger Subsidiary and the
Company will be a party to the reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion, such counsel shall be
entitled to rely upon certain representations of officers of Parent and the
Company; and
(c) funds at least equal to the Required Cash Amount shall be available to
Parent; PROVIDED that this condition shall be deemed satisfied (and Parent and
Merger Subsidiary shall be obligated to
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consummate the Merger) in the event that Parent is in material breach of
Sections 5.18 or 7.11 of this Agreement or any representation, warranty,
covenant or agreement of Parent or any of its Affiliates contained in, or any
material failure by Parent or any of its Affiliates to take any action necessary
under, any of the Financing Agreements (other than any such breaches of
representations or warranties in the Financing Agreements attributable solely to
facts and circumstances relating to the Company and its Subsidiaries).
SECTION 9.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) each of Parent and Merger Subsidiary shall have performed in all
material respects all of its obligations hereunder required to be performed by
it at or prior to the Effective Time, (ii) the representations and warranties of
Parent and Merger Subsidiary contained in this Agreement and in any certificate
or other writing delivered by Parent or Merger Subsidiary pursuant hereto,
disregarding all qualifications and exceptions contained therein relating to
materiality or Material Adverse Effect or any similar standard or qualification,
shall be true in all material respects at and as of the Effective Time as if
made at and as of such time (or, if given as of a specific date, at and as of
such date) with only such exceptions as would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect and
(iii) the Company shall have received a certificate signed by an executive
officer of Parent to the foregoing effect; and
(b) The Company shall have received an opinion of Davis Polk & Wardwell in
form and substance reasonably satisfactory to the Company, on the basis of
certain facts, representations and assumptions set forth in such opinion, dated
the Effective Time, to the effect that the Merger will be treated for federal
income tax purposes as a reorganization qualifying under the provisions of
Section 368(a) of the Code and that each of Parent, Merger Subsidiary and the
Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code. In rendering such opinion, such counsel shall be
entitled to rely upon certain representations of officers of Parent and the
Company.
(c) Parent shall have received an opinion of Gibson, Dunn & Crutcher LLP
dated the Effective Time confirming its opinion referred to in Section 5.15(k)
of this Agreement.
ARTICLE 10
TERMINATION
SECTION 10.01. TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the stockholders of the Company or Parent):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if:
(i) the Merger has not been consummated on or before the Outside
Termination Date. The "OUTSIDE TERMINATION DATE" shall mean March 31, 2000;
PROVIDED however that if by such date the condition set forth in
Section 9.02(c) has not been satisfied solely because the lenders under the
Financing Agreements have declined to provide funds thereunder because of a
material adverse change in or material disruption of conditions in the
financial, banking or capital markets related to the "Year 2000 Problem"
(that is, the risk that computer software and systems may be unable to
recognize and perform date-sensitive functions involving certain dates prior
to, on, and any date after December 31, 1999) and such change or disruption
of conditions is continuing, then "Outside Termination Date" shall mean
April 30, 2000; PROVIDED further that the right to terminate this Agreement
pursuant to this Section 10.01(b)(i) shall not be available to any party
whose breach of any provision of this Agreement results in the failure of
the Merger to be consummated by such time;
(ii) there shall be any law or regulation that makes consummation of the
Merger illegal or otherwise prohibited or any judgment, injunction, order or
decree of any court or governmental
A-41
body having competent jurisdiction enjoining Company or Parent from
consummating the Merger is entered and such judgment, injunction, judgment
or order shall have become final and nonappealable; PROVIDED that the right
to terminate this Agreement pursuant to this Section 10.01(b)(ii) shall not
be available to any party whose breach of any provision of this Agreement
results in the application of any such law or regulation to the Merger or
the imposition of any such judgment, injunction, order or decree;
(iii) this Agreement shall not have been approved and adopted in
accordance with Delaware Law by the Company's stockholders at the Company
Stockholder Meeting (or any adjournment thereof); or
(iv) this Agreement shall not have been approved by Parent's
stockholders at the Parent Stockholder Meeting (or any adjournment thereof);
(c) by Parent, if
(i) any Person or "group" (as defined in Section 13(d)(3) of the 1934
Act), other than Parent or any of its Affiliates, shall have acquired
beneficial ownership of more than 50% of the Shares;
(ii) (A) the Board of Directors of the Company shall have failed to
recommend or withdrawn, or modified in a manner adverse to Parent, its
approval or recommendation of this Agreement or the Merger and shall have
approved or recommended a Superior Proposal, or (B) the Company shall have
entered into, or publicly announced its intention to enter into, a
definitive agreement or an agreement in principle with respect to a Superior
Proposal; or
(d) by the Company, if
(i) the Board of Directors of the Company shall approve a Superior
Proposal or shall withdraw, or modify in a manner adverse to Parent, its
recommendation of this Agreement or the Merger to its stockholders, provided
however that (A) the Company shall have complied with Section 6.02(b) and
Section 6.03, (B) the Company shall have given Parent five business days
written prior notice of its intention to terminate the Agreement, attaching
a description of all material terms and conditions of the Superior Proposal
to such notice, (C) Parent does not make prior to such termination of this
Agreement a definitive, binding offer to make adjustments to this Agreement
which the Board of Directors of the Company determines would enable the
Company to proceed with its recommendation to its stockholders of the
transactions contemplated hereby as amended by such proposed adjustments,
and (D) the Company prior to such termination pursuant to this
clause (d)(i) pays to Parent in immediately available funds the fee required
to be paid pursuant to Section 11.04(b). The Company agrees to notify Parent
promptly if its intention to enter into a written agreement referred to in
its notification shall change at any time after giving such notification; or
(ii) if the Board of Directors of Parent shall have failed to recommend
or withdrawn or modified or changed in a manner adverse to the Company its
approval and recommendation of this Agreement or the Merger.
The party desiring to terminate this Agreement pursuant to this Section 10.01
(other than pursuant to Section 10.01(a)) shall give notice of such termination
to the other party.
SECTION 10.02. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 10.01, this Agreement shall become void and of no effect
with no liability on the part of any party (or any stockholder, director,
officer, employee, agent, consultant or representative of such party) to the
other party hereto; PROVIDED that, if such termination shall result from the
willful (i) failure of either party to fulfill a condition to the performance of
the obligations of the other party, (ii) failure of either party to perform a
covenant hereof or (iii) breach by either party hereto of any representation or
warranty or agreement contained herein, such party shall be fully liable for any
and all liabilities and damages incurred or suffered by the other party as a
result of such failure or breach. The provisions of Sections 11.04, 11.06, 11.07
and 11.08 shall survive any termination hereof pursuant to Section 10.01.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.01. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Parent or Merger Subsidiary, to:
9336 Civic Center Drive
Beverly Hills, California 90210
Fax: (310) 205-7677
Attention: Thomas E. Gallagher, General Counsel
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Fax: (213) 229-7520
Attention: Andrew Bogen
if to the Company, to:
755 Crossover Lane
Memphis, Tennessee 38117
Fax: (910) 374-6533
Attention: Jay Huber, General Counsel
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: (212) 450-4800
Attention: Joseph Rinaldi
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5 p.m. in the place of
receipt and such day is a business day in the place of receipt. Otherwise, any
such notice, request or communication shall be deemed not to have been received
until the next succeeding business day in the place of receipt.
SECTION 11.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement, except for the agreements
set forth in Sections 7.04 and 7.05 (which shall survive the Effective Time) and
Sections 10.02, 11.04, 11.06, 11.07 and 11.08.
SECTION 11.03. AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement
may be amended or waived prior to the Effective Time if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement or, in the case of a waiver, by each party against
whom the waiver is to be effective; PROVIDED that, after the adoption of this
Agreement by the stockholders of the Company and without their further approval,
no such amendment or waiver shall reduce the amount or change the kind of
consideration to be received in exchange for the Shares.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
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SECTION 11.04. EXPENSES. (a) Except as otherwise provided in this Section,
all costs and expenses incurred in connection with this Agreement shall be paid
by the party incurring such cost or expense.
(b) The Company agrees to pay Parent a fee in immediately available funds
equal to $75 million promptly, but in no event later than two business days,
after the termination of this Agreement
(1) by Parent pursuant to Section 10.01(c)(ii),
(2) by Company pursuant to Section 10.01(d)(i),
(3) if (A) Parent shall terminate this Agreement pursuant to
Section 10.01(b)(i), (B) at any time after the date of this Agreement and at or
before the time of the event giving rise to such termination there shall exist
an Acquisition Proposal, (C) following the existence of such Acquisition
Proposal and prior to any such termination, the Company shall have intentionally
breached (and not cured after notice thereof) any of its material covenants or
agreements set forth in this Agreement in any material respect and (D) within
12 months of any such termination of this Agreement, the Company shall enter
into a definitive agreement with any third party with respect to an Acquisition
Proposal or an Acquisition Proposal is consummated;
(4) if (A) Parent shall terminate this Agreement pursuant to
Section 10.01(b)(iii), (B) any Person or "group" other than Parent or any of its
Affiliates acquires beneficial ownership of more than 25% of the Shares and
(C) within 12 months of any such termination of this Agreement, the Company
shall enter into a definitive agreement with such Person or group with respect
to an Acquisition Proposal;
(5) if (A) Parent shall terminate this Agreement pursuant to
Section 10.01(b)(iii), (B) at or before the time of the event giving rise to
such termination there shall exist an Acquisition Proposal and (C) within
12 months of any such termination of this Agreement, the Company shall enter
into a definitive agreement with any third party with respect to an Acquisition
Proposal or an Acquisition Proposal is consummated; or
(6) if Parent shall terminate this Agreement pursuant to
Section 10.01(c)(i).
(c) Parent agrees to pay the Company a fee in immediately available funds
equal to $150 million promptly, but in no event later than two business days,
after the termination of this Agreement pursuant to Section 10.01(b)(i) if:
(i) prior to the Outside Termination Date funds at least equal to the Required
Cash Amount have not been made available to Parent pursuant to the Financing
Agreements, (ii) the conditions set forth in Sections 9.01(a) (except if the
Company has delayed or postponed its stockholder meeting pending notification
from Parent that the condition referred to in Section 9.02(c) has been or is
reasonably likely to be satisfied or has been waived), 9.01(c), 9.01(d), 9.01(e)
(except if effectiveness of the Registration Statement has been delayed or
postponed pending notification from Parent that the condition referred to in
Section 9.02(c) has been or is reasonably likely to be satisfied or has been
waived) and 9.02(a) are satisfied as of the Outside Termination Date (in the
case of Section 9.02(a), as if the reference to the Effective Time therein were
to the Outside Termination Date) and (iii) the unavailability of such funds was
not due to a breach of any representation and warranty in the Financing
Agreements attributable solely to facts and circumstances relating to the
Company and its Subsidiaries (PROVIDED that this clause (iii) shall not apply if
the Company had previously advised Parent, as contemplated in Section 7.11, that
the representation or warranty in question was incorrect or inaccurate).
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SECTION 11.05. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, PROVIDED that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto.
SECTION 11.06. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without regard to
the conflicts of law rules of such state.
SECTION 11.07. JURISDICTION. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby shall be brought in
any federal court located in the State of Delaware or any Delaware state court,
and each of the parties hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection that it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding in any such court or that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient form. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 11.01 shall be deemed
effective service of process on such party.
SECTION 11.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 11.09. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto. Except as
provided in Section 7.04, no provision of this Agreement is intended to confer
any rights, benefits, remedies, obligations or liabilities hereunder upon any
Person other than the parties hereto and their respective successors and
assigns.
SECTION 11.10. ENTIRE AGREEMENT. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties with respect to
the subject matter of this Agreement and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter hereof and thereof.
SECTION 11.11. CAPTIONS. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 11.12. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Upon such a determination, the parties shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
SECTION 11.13. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof in
any federal court
A-45
located in the State of Delaware or any Delaware state court, in addition to any
other remedy to which they are entitled at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
PROMUS HOTEL CORPORATION
By: /s/ NORMAN P. BLAKE, JR.
-----------------------------------------
Name: Norman P. Blake, Jr.
TITLE: CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
HILTON HOTELS CORPORATION
By: /s/ STEPHEN F. BOLLENBACH
-----------------------------------------
Name: Stephen F. Bollenbach
TITLE: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
CHICAGO HILTON, INC.
By: /s/ STEPHEN F. BOLLENBACH
-----------------------------------------
Name: Stephen F. Bollenbach
TITLE: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
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EXHIBIT A
FORM OF RULE 145 LETTER FOR COMPANY AFFILIATES
[Date]
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Promus Hotel Corporation
755 Crossover Lane
Memphis, TN 98031
Ladies and Gentlemen:
The undersigned has been advised that, as of the date of this letter, the
undersigned may be deemed to be an "affiliate" of Promus Hotel Corporation, a
Delaware corporation (the "COMPANY"), as the term "affiliate" is defined for
purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations (the
"RULES AND REGULATIONS") of the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 ACT"). Pursuant to the
terms of the Agreement and Plan of Merger dated as of September 3, 1999 (the
"MERGER AGREEMENT") among the Company, Hilton Hotels Corporation, a Delaware
corporation ("PARENT"), and Chicago Hilton, Inc., a Delaware corporation and
wholly-owned subsidiary of Parent ("MERGER SUBSIDIARY"), the Company will be
merged with and into Merger Subsidiary with Merger Subsidiary to be the
surviving corporation in the merger (the "MERGER").
As a result of the Merger, the undersigned will receive shares of common
stock, par value $2.50 per share, of Parent ("PARENT STOCK") in exchange for
shares owned by the undersigned of common stock, par value $0.01, of the Company
(the "COMPANY COMMON STOCK"), or options, warrants or other rights to acquire
Parent Stock.
The undersigned represents, warrants and covenants to Parent and the Company
that, as of the date the undersigned receives any Parent Stock (including
through exercise of any options, warrants or other rights) as a result of the
Merger:
A. The undersigned shall not make any sale, transfer or other disposition of
the Parent Stock in violation of the 1933 Act or the Rules and Regulations.
B. The undersigned has carefully read this letter and reviewed the principal
terms of the Merger Agreement and discussed the requirements of such documents
and other applicable limitations upon the undersigned's ability to sell,
transfer or otherwise dispose of Parent Stock, to the extent the undersigned
felt necessary, with the undersigned's counsel or counsel for the Company.
C. The undersigned has been advised that the issuance of Parent Stock to the
undersigned pursuant to the Merger will be registered with the SEC under the
1933 Act on a Registration Statement on Form S-4. However, the undersigned has
also been advised that, because, at the time the Merger is submitted for a vote
of the stockholders of the Company, the undersigned may be deemed an affiliate
of the Company, the undersigned may not sell, transfer or otherwise dispose of
Parent Stock issued to the undersigned in the Merger (including through the
exercise of any options, warrants or other rights) unless (i) such sale,
transfer or other disposition has been registered under the 1933 Act, (ii) such
sale, transfer or other disposition is made in conformity with Rule 145
promulgated by the SEC under the 1933 Act, or (iii) in the opinion of counsel
reasonably acceptable to Parent, or
A-47
pursuant to a "no action" letter obtained by the undersigned from the SEC staff,
such sale, transfer or other disposition is otherwise exempt from registration
under the 1933 Act.
D. The undersigned understands that Parent is under no obligation to
register the sale, transfer or other disposition of the Parent Stock by the
undersigned or on the undersigned's behalf under the 1933 Act or to take any
other action necessary in order to enable the undersigned to make such sale,
transfer or other disposition in compliance with an exemption from such
registration.
E. The undersigned also understands that there will be placed on the
certificates for the Parent Stock issued to the undersigned, or on any
substitutions therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN ACCORDANCE WITH THE TERMS OF
A LETTER AGREEMENT BETWEEN THE REGISTERED HOLDER HEREOF AND HILTON HOTELS
CORPORATION, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF HILTON HOTELS CORPORATION."
F. The undersigned also understands that, unless the transfer by the
undersigned of the undersigned's Parent Stock (including any Parent Stock
acquired pursuant to the exercise of any options, warrants or other rights) has
been registered under the 1933 Act or is a sale made in conformity with the
provisions of Rule 145, Parent reserves the right to put the following legend on
the certificates issued to the undersigned's transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES HAVE NOT BEEN
ACQUIRED BY THE HOLDER WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH,
ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if (i) the securities represented thereby have been registered for sale
by the undersigned under the 1933 Act or (ii) Parent has received either an
opinion of counsel, which opinion and counsel shall be reasonably satisfactory
to Parent, or a "no-action" letter obtained by the undersigned from the SEC
staff to the effect that the restrictions imposed by Rule 145 under the 1933 Act
no longer apply to the undersigned.
G. The undersigned further understands and agrees that the representations,
warranties, covenants and agreements of the undersigned set forth herein are for
the benefit of Parent, the Company and the Surviving Corporation (as defined in
the Merger Agreement) and will be relied upon by such firms and their respective
counsel and accountants.
H. The undersigned understands and agrees that this letter agreement shall
apply to all shares of the capital stock of Parent and the Company that are
deemed beneficially owned by the undersigned pursuant to applicable federal
securities laws and which were directly or indirectly acquired by the
undersigned as a result of the consummation of the transactions contemplated by
the Merger Agreement.
A-48
Execution of this letter should not be considered an admission on the part
of the undersigned that the undersigned is an "affiliate" of the Company as
described in the first paragraph of this letter, nor as a waiver of any rights
that the undersigned may have to object to any claim that the undersigned is
such an affiliate on or after the date of this letter.
Very truly yours,
By:____________________________________
Name:
Title:
Accepted this __ day of
_________, ___ by
HILTON HOTELS CORPORATION
By____________________________________
Name:
Title:
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APPENDIX B
September 7, 1999
Board of Directors
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Members of the Board:
We understand that Promus Hotel Corporation (the "Company"), Hilton Hotels
Corporation ("Buyer") and Chicago Hilton, Inc., a wholly owned subsidiary of
Buyer ("Acquisition Sub"), propose to enter into an Agreement and Plan of
Merger, substantially in the form of the draft dated as of September 3, 1999
(the "Merger Agreement"), which provides for, among other things, the merger of
the Company with Acquisition Sub (the "Merger"). You have advised us that in its
final form, the Merger Agreement contemplates an alternative possibility as to
the mechanics of the Merger (not reflected in the September 3 draft referred to
above) depending upon future circumstances, in order to minimize adverse effects
of the Merger under certain existing contracts. You have further advised that
such alternative would not adversely affect Buyer in any material respect.
Pursuant to the Merger, other than shares of Company Common Stock held in
treasury or held by any Subsidiary (as defined in the Merger Agreement) of the
Company or by Buyer or any of its Subsidiaries or as to which appraisal rights
have been perfected, 55% of the outstanding shares of common stock, par value
$.01 per share of the Company (the "Company Common Stock") will be converted
into the right to receive $38.50 per share in cash, and 45% of the outstanding
shares of Company Common Stock will be converted into the right to receive the
number of shares of common stock, par value $2.50 per share of Buyer (the "Buyer
Common Stock) equal to the Exchange Ratio (as defined below). You have advised
us that under the alternative mechanics referred to above, common stock of a new
holding company could be substituted for Company Common Stock. The "Exchange
Ratio" is defined in the Merger Agreement as the number (rounded to the nearest
ten-thousandth) determined by dividing $38.50 by the Market Price per share of
Buyer Common Stock; provided, that in no event shall the Exchange Ratio be
(x) greater than 3.2158 or (y) less than 2.9096. The "Market Price" per share of
Buyer Common Stock is defined in the Merger Agreement as the average of the
volume weighted average per share sales price of Buyer Common Stock on the New
York Stock Exchange, Inc. for twenty trading days selected by lot out of the
thirty trading days ending on and including the fifth trading day prior to the
Effective Time (as defined in the Merger Agreement). The terms and conditions of
the Merger are more fully set forth in the Merger Agreement and are incorporated
herein by reference.
You have asked for our opinion as to whether the consideration to be paid by
Buyer pursuant to the Merger Agreement is fair from a financial point of view to
Buyer.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and Buyer;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company;
(iii) reviewed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company, including information relating to certain
strategic, financial and operational benefits anticipated from the
Merger, with senior executives of the Company;
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(v) discussed the past and current operations and financial condition and
the prospects of the Company, including information relating to certain
strategic financial and operational benefits anticipated from the merger
with senior executives of Buyer;
(vi) reviewed certain internal financial statements and other financial and
operating data concerning Buyer prepared by the management of Buyer;
(vii) reviewed certain financial projections prepared by the management of
Buyer;
(viii) discussed the past and current operations and financial condition and
the prospects of Buyer, including information relating to certain
strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Buyer;
(ix) reviewed with senior executives of Buyer the pro forma impact of the
Merger on Buyer's earnings per share, consolidated capitalization and
financial ratios;
(x) reviewed the reported prices and trading activity for the Company Common
Stock and the Buyer Common Stock;
(xi) compared the financial performance of the Company and the prices and
trading activity of the Company Common Stock with those of certain
other comparable publicly traded companies and their securities;
(xii) compared the financial performance of Buyer and the prices and trading
activity of the Buyer Common Stock with those of certain other
comparable publicly traded companies and their securities;
(xiii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(xiv) participated in discussions and negotiations among representatives of
the Company and Buyer and their financial and legal advisors;
(xv) reviewed the draft Merger Agreement and certain related documents; and
(xvi) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the Merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of the Company and Buyer. We have also relied upon,
without independent verification, the assessment of Buyer of the strategic,
financial and operational benefits expected to result from the Merger. In
addition, we have assumed that the Merger will be consummated in accordance with
the terms set forth in the Merger Agreement. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company, nor have we
been furnished with any such appraisals. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Buyer in
connection with this transaction and will receive a fee for our services,
including possibly fees for providing financing services in connection with this
transaction. In the past, Morgan Stanley & Co. Incorporated ("Morgan Stanley")
and its affiliates have provided financial advisory and financing services to
Doubletree Corporation, which merged with the Company, and have received fees
for its services.
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It is understood that this letter is for the information of the Board of
Directors of Buyer and may not be used for any other purpose without our prior
written consent, except that this letter may be included in its entirety in any
filing made by the Buyer with the Securities and Exchange Commission in
connection with the Merger. In addition, this opinion does not in any manner
address the prices at which the Buyer Common Stock will trade following
consummation of the Merger, and Morgan Stanley expresses no opinion or
recommendation as to how shareholders of the Company and Buyer should vote at
the shareholders meetings to be held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be paid by Buyer pursuant to the Merger
Agreement is fair from a financial point of view to Buyer.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ IAN C.T. PEREIRA
--------------------------------------
Ian C.T. Pereira
MANAGING DIRECTOR
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APPENDIX C
September 7, 1999
Board of Directors
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to Hilton Hotels Corporation (the "Company") and its stockholders of the
consideration to be paid by the Company pursuant to the terms of the Agreement
and Plan of Merger, dated as of September 3, 1999 (the "Agreement"), by and
among the Company, Promus Hotel Corporation ("Promus") and Chicago
Hilton, Inc., a wholly owned subsidiary of the Company ("Merger Subsidiary"),
pursuant to which Promus will be merged with and into Merger Subsidiary (or in
certain circumstances, Merger Subsidiary shall be merged with and into Promus)
(the "Merger"). We understand that the Agreement contemplates an alternative
possibility as to the mechanics of the Merger depending upon future
circumstances, in order to minimize adverse effects of the Merger under certain
existing contracts. You have advised that such alternative would not adversely
affect the Company or Promus in any material respect.
Pursuant to the Agreement, each share of common stock, $.01 par value
("Promus Stock"), of Promus will be converted into the right to receive, at the
election of the holder (subject to the limitations below) (the "Cash Election"
and the "Stock Election," respectively) either (i) $38.50 in cash (the "Cash
Consideration") or (ii) the number of shares of common stock, $2.50 par value
("Company Stock"), of the Company equal to the Exchange Ratio (as defined below)
(the "Stock Consideration" and together with the Cash Consideration, the "Merger
Consideration"). The "Exchange Ratio" shall be a number of shares determined by
dividing $38.50 by the Market Price (as defined below) per share of the Company
Stock; PROVIDED, HOWEVER, that in no event shall the Exchange Ratio be greater
than 3.2158 or less than 2.9096. The "Market Price" per share of the Company
Stock shall be the average of the volume weighted average per share sales price
of the Company Stock on the New York Stock Exchange, Inc. for twenty trading
days selected by lot out of the thirty trading days ending on and including the
fifth day prior to the effective date of the Merger. If Cash Elections exceed
55% of the aggregate shares of Promus Stock, shares for which cash elections
have been received will receive prorated Cash and Stock Consideration, such that
the aggregate Cash Consideration equals 55% of the total Merger Consideration.
If Stock Elections exceed 45% of the aggregate shares of Promus Stock, shares
for which Stock Elections have been received will receive prorated Stock and
Cash Consideration, such that the aggregate Stock Consideration equals 45% of
the total Merger Consideration. You have advised us that under the alternative
mechanics of the Merger referred to above, common stock of a new holding company
with minimal operations and whose sole assets are its interests in the Company
and Promus could be substituted for Company Stock.
In arriving at our opinion, we have reviewed the Agreement dated as of
September 3, 1999. We also have reviewed financial and other information that
was publicly available or furnished to us by the Company and Promus including
information provided during discussions with their respective management.
Included in the information provided during discussions with the respective
managements were certain financial projections of Promus for the period
beginning July 31, 1999 and ending December 31, 2003 prepared by the management
of Company and certain financial projections of the Company for the period
beginning July 31, 1999 and ending December 31, 2003 prepared by the management
of the Company. In addition, we have compared certain financial and securities
data of the Company and Promus with various other companies whose securities are
traded in public markets, reviewed the historical stock prices and trading
volumes of the common stock of Promus and the Company, reviewed prices and
premiums paid in certain other business combinations and conducted
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such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion. We have also assumed that the Merger
will result in no corporate level taxation for the Company or Promus.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and Promus or
their respective representatives, or that was otherwise reviewed by us. In
particular, we have relied upon the estimates of the management of the Company
of the operating synergies achievable as a result of the Merger and upon our
discussion, with your knowledge, of such synergies with the management of
Promus. With respect to the financial projections supplied to us, we have relied
on representations that they have been reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future operating and financial performance
of the Company and Promus. We have not assumed any responsibility for making any
independent evaluation of any assets or liabilities or for making any
independent verification of any of the information reviewed by us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion as to the prices
at which Company Stock will actually trade at any time. Our opinion does not
address the relative merits of the Merger and the other business strategies
being considered by the Company's Board of Directors, nor does it address the
Board's decision to proceed with the Merger. Our opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed transaction or as to what election regarding form of consideration any
such stockholder should make.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services. DLJ co-managed $200 million of Senior Notes due 2009 and
$200 million of Senior Notes due 2017 for the Company in December 1997,
lead-managed a $773 million follow-on offering of the Company's common stock in
April 1998, delivered a fairness opinion to the Company in connection with a
spin-off of its gaming assets to its shareholders and the simultaneous
acquisition of the gaming business of Grand Casinos, Inc. in June 1998 and acted
as dealer manager and lead consent solicitation agent for Park Place
Entertainment Corporation, a wholly owned subsidiary of the Company at the time,
in connection with a tender offer and consent solicitation for $450 million of
Grand Casinos' First Mortgage Notes due 2003 in December 1998. DLJ received
usual and customary compensation in connection with these transactions.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Merger Consideration to be paid by the Company pursuant
to the Agreement is fair to the Company and its stockholders from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ KEN MOELIS
--------------------------------------
Ken Moelis
MANAGING DIRECTOR
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APPENDIX D
September 3, 1999
Board of Directors
Promus Hotel Corporation
755 Crossover Lane
Memphis, TN 38117
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Promus Hotel Corporation (the
"Company") of the consideration to be received by such holders pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of September 3,
1999, by and among the Company, Hilton Hotels Corporation ("Parent") and Chicago
Hilton, Inc. ("Merger Subsidiary"). As more fully described in the Merger
Agreement, (i) the Company and Merger Subsidiary will merge (the "Merger") and
(ii) each outstanding share of the common stock, par value $0.01 per share, of
the Company (the "Company Common Stock") (other than shares held by the Company,
Parent or Merger Subsidiary) will be converted into the right to receive, at the
election of the holder thereof and subject to proration, either (A) $38.50 in
cash (the "Cash Consideration") or (B) that number of shares (rounded to the
nearest ten-thousandth) of the common stock, par value $2.50 per share, of
Parent (the "Parent Common Stock") determined by dividing $38.50 by the Market
Price (as defined below) of the Common Stock (the "Exchange Ratio"); PROVIDED,
HOWEVER, that in no event shall the Exchange Ratio be (x) greater than 3.2158 or
(y) less than 2.9096. Alternatively, pursuant to the Merger Agreement, the
parties may agree to implement the Alternative Double Merger Structure (as
defined in the Merger Agreement), in which case you have advised us that
(i) each outstanding share of Company Common Stock will be converted into the
right to receive, at the election of the holder thereof and subject to
proration, either (A) the Cash Consideration or (B) that number of shares
(rounded to the nearest ten-thousandth) of the common stock (the "New Hilton
Common Stock") of a new holding company ("New Hilton") equal to the Exchange
Ratio, (ii) each outstanding share of Parent Common Stock will be converted into
one share of New Hilton Common Stock and (iii) each of the Company and Parent
will become wholly owned subsidiaries of New Hilton. The "Market Price" per
share of Parent Common Stock shall be the average of the volume weighted average
per share sales price of Parent Common Stock on the New York Stock
Exchange, Inc. for twenty trading days selected by lot out of the thirty trading
days ending on and including the fifth trading day prior to the effective time
of the Merger. In this opinion, the term "Merger Consideration" means (i) if the
Alternative Double Merger Structure is not implemented, the Cash Consideration
and the shares of Parent Common Stock, together with cash in lieu of fractional
shares of Parent Common Stock, payable and issuable to the holders of Company
Common Stock and (ii) if the Alternative Double Merger Structure is implemented,
the Cash Consideration and the shares of New Hilton Common Stock payable and
issuable to holders of Company Common Stock.
In arriving at our opinion, we have reviewed the Merger Agreement, certain
publicly available information concerning the Company and Parent and certain
other financial information concerning the Company and Parent, including
financial forecasts and estimated cost savings and synergies resulting from the
Merger, that were provided to us by the Company and Parent, respectively. We
have discussed the past and current business operations, financial condition and
prospects of the Company and Parent with certain officers and employees of the
Company and Parent, respectively. We have also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the information reviewed by us for the purpose of this opinion,
and we have not assumed any responsibility
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for independent verification of such information. With respect to the financial
forecasts of the Company and Parent, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of the Company and Parent, respectively, as to
the future financial performance of the Company and Parent and we express no
opinion with respect to such forecasts.
Our opinion, as set forth herein, relates to the relative values of the
Company and Parent. We are not expressing any opinion as to what the value of
the Parent Common Stock or New Hilton Common Stock actually will be when issued
pursuant to the Merger or the price at which the Parent Common Stock or New
Hilton Common Stock will trade subsequent to the Merger. We have not made or
obtained or assumed any responsibility for making or obtaining any independent
evaluation or appraisal of any of the assets (including properties and
facilities) or liabilities of the Company or Parent. We have assumed that the
implementation of the Alternative Double Merger Structure will preserve the
economic and financial terms of the Merger Agreement.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion does not address the Company's
underlying business decision to effect the proposed Merger, and we express no
view on the effect on the Company of the Merger and related transactions. Our
advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of the Company in its evaluation of the
proposed Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote on any matters relating to the proposed Merger or whether such
stockholder should elect to receive the Cash Consideration or, as applicable,
Parent Common Stock or New Hilton Common Stock.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the proposed Merger and will receive a fee for our services,
a significant portion of which is contingent upon the consummation of the
Merger. We are currently providing investment banking services to the Company
and have in the past provided investment banking services to the Company and
Parent, in each case unrelated to the proposed Merger, for which services we
will receive or have received compensation. In the ordinary course of our
business, we and our affiliates may actively trade or hold the securities of the
Company and Parent for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, we and our affiliates (including Citigroup Inc. and its affiliates)
may maintain relationships with the Company, Parent and their respective
affiliates.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration is fair, from a financial point of view,
to the holders of Company Common Stock.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
SALOMON SMITH BARNEY INC.
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APPENDIX E
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(G) of this title), Section 252 Section 254 Section 257 Section 258
Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each consitutent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constitutent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constitutent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constitutent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent
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to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent
of the corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constitutent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to the date
the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to
the effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all
E-3
relevant factors, including the rate of interest which the surviving or
resulting corporation would have had to pay to borrow money during the pendency
of the proceeding. Upon application by the surviving or resulting corporation or
by any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted such stockholder's certificates of
stock to the Register in Chancery, if such is required, may participate fully in
all proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
E-4
APPENDIX F
AMENDMENT TO HILTON'S RESTATED CERTIFICATE OF INCORPORATION
Article IV(a) of Hilton's Restated Certificate of Incorporation shall be
amended and restated in its entirety to read as follows:
"(a) CAPITAL STOCK. The total number of shares of all classes of stock
that the Corporation shall have the authority to issue is Five Hundred
Twenty-Four Million Eight Hundred Thirty-Two Thousand Seven Hundred
(524,832,700) shares consisting of Five Hundred Million (500,000,000) shares
of Common Stock, par value $2.50 per share, and Twenty-Four Million Eight
Hundred Thirty-Two Thousand Seven Hundred (24,832,700) shares of Preferred
Stock, par value $1.00 per share."
F-1
APPENDIX G
AMENDMENT TO HILTON'S BY-LAWS
The first sentence of Section 15(a) of Hilton's By-laws shall be amended and
restated in its entirety to read as follows:
"Except as otherwise fixed by or pursuant to the provisions of Article
IV of the Certificate of Incorporation relating to the rights of the holders
of any class or series of stock having a preference over the Common Stock as
to dividends or upon liquidation to elect additional Directors under
specified circumstances, the number of the Directors of the Corporation
shall be not less than ten nor more than twenty, with the exact number of
Directors to be fixed from time to time solely by resolution adopted by a
majority of the total number of Directors which the Corporation would have
if there were no vacancies."
G-1
X FOLD AND DETACH HERE X
PROMUS HOTEL CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
NOVEMBER 30, 1999
The undersigned hereby constitutes and appoints Norman P. Blake, Jr., J. Kendall
Huber and Dan L. Hale, or any of them, the attorneys and proxies of the
undersigned with full power of substitution to appear and to vote all of the
shares of common stock of Promus Hotel Corporation held of record by the
undersigned on October 15, 1999 at the Special Meeting of Stockholders to be
held on November 30, 1999, or any adjournment or postponement thereof, as
designated below:
(1) To approve the Agreement and Plan of Merger, dated as of September 3, 1999,
as amended, among Promus Hotel Corporation, Hilton Hotels Corporation, and
PRH Acquisition Corporation formerly known as Chicago Hilton Inc., and to
approve the acquisition under the Agreement and Plan of Merger.
/ / FOR / / AGAINST / / ABSTAIN
This proxy is solicited on behalf of the board of directors of Promus Hotel
Corporation. If no vote is indicated, this proxy will be voted FOR the proposal.
X FOLD AND DETACH HERE X
You are urged to date, sign and return promptly this proxy in the envelope
provided or to vote by telephone as described below. It is important for you to
be represented at the meeting. The execution of your proxy will not affect your
right to vote in person if you are present at the meeting.
Dated: ____________________, 1999
_________________________________
_________________________________
Signature(s)
IMPORTANT: Please sign exactly as
your name or names appear on this
proxy, and when signing as an
attorney, executor,
administrator, trustee or
guardian, give your full title as
such. If the signatory is a
corporation, sign the full
corporate name by duly authorized
officer, or if a partnership,
sign in partnership name by
authorized person.
FORM OF ELECTION AND LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES
FOR COMMON STOCK OF PROMUS HOTEL CORPORATION
IN CONNECTION WITH ITS MERGER
WITH
PRH ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
HILTON HOTELS CORPORATION
PLEASE CAREFULLY FOLLOW THE INSTRUCTIONS CONTAINED BELOW
------------------------
SUBJECT TO PRORATION, YOU MAY ELECT TO EXCHANGE
YOUR SHARES OF PROMUS COMMON STOCK FOR:
- $38.50 IN CASH; OR
- - NOT LESS THAN 2.9096 SHARES OR MORE THAN 3.2158 SHARES OF HILTON COMMON STOCK,
DEPENDING UPON THE AVERAGE HILTON COMMON STOCK PRICE
BEFORE THE CLOSING OF THE MERGER; OR
- A COMBINATION OF HILTON COMMON STOCK AND CASH.
------------------------
EXCHANGE AGENT:
FIRST UNION NATIONAL BANK
IF BY MAIL: IF BY OVERNIGHT COURIER:
First Union National Bank First Union National Bank
1525 West W. T. Harris Blvd. 3C3 1525 West W. T. Harris Blvd. 3C3
Attn: Corporate Trust Operations/Reorg Attn: Corporate Trust Operations/Reorg
Services Services
Charlotte, NC 28288-1153 Charlotte, NC 28262
This letter of transmittal, the Promus Common Stock certificates and any
other required documents (collectively, the "Exchange Materials") should be sent
by each holder of Promus Common Stock to the Exchange Agent so that the Exchange
Materials are received by the Exchange Agent at or prior to 5:00 p.m. (Eastern
Time) on November 29, 1999 (the "Delivery Deadline"). Delivery of the Exchange
Materials (or any part of them) to an address other than as set forth above will
not constitute valid delivery. Copies of the Merger Agreement, this Letter of
Transmittal and the Proxy Statement/Prospectus previously provided to
stockholders of Promus may be requested from the Exchange Agent at the addresses
shown above. If you have any questions regarding this Letter of Transmittal,
please call the customer service department of First Union National Bank at
1-800-829-8432.
SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
1
Ladies and Gentlemen:
Pursuant to the Merger Agreement, the undersigned hereby transfers the
Promus Common Stock certificates identified in Column 1 of Box A below, with the
request that (a) the number of shares of Promus Common Stock listed in Column 3
of Box A be converted into shares of Hilton Common Stock at the exchange ratio
provided in the Merger Agreement, subject to proration, and (b) the number of
shares of Promus Common Stock listed in Column 4 of Box A be converted into
$38.50, cash per share, subject to proration. As used herein, all references to
the Merger Agreement are to the Agreement and Plan of Merger, dated as of
September 3, 1999, among Promus Hotel Corporation, Hilton Hotels Corporation and
Chicago Hilton, Inc., as amended.
The undersigned represents and warrants that the undersigned has full power
and authority to surrender the Promus Common Stock certificate(s) surrendered
herewith, free and clear of any liens, claims, charges or encumbrances
whatsoever. The undersigned understands and acknowledges that the method of
delivery of the certificate(s) and all other required documents is at the option
and risk of the undersigned and that the risk of loss of such certificate(s)
shall pass only after the Exchange Agent has actually received the
certificate(s). All questions as to the validity, form and eligibility of any
election and surrender of certificate(s) hereunder shall be determined by the
Exchange Agent, and such determination shall be final and binding. Upon request,
the undersigned shall execute and deliver all additional documents deemed by the
Exchange Agent to be necessary to complete the conversion, cancellation and
retirement of the shares of Promus Common Stock delivered herewith. No authority
hereby conferred or agreed to be conferred shall be affected by, and all such
authority shall survive, the death or incapacity of the undersigned. All
obligations of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned.
The undersigned understands that Hilton will pay to each former stockholder
of Promus who otherwise would be entitled to receive a fractional share of
Hilton Common Stock an amount in cash in lieu of any fractional share.
Unless otherwise indicated in Box B entitled "Special Issuance and Payment
Instructions," any check for cash in lieu of a fractional share, any check for
shares of Promus Common Stock converted into cash, and any certificate for
Hilton Common Stock will be issued in the name of the registered holder(s) of
the shares of Promus Common Stock appearing below. Similarly, unless otherwise
indicated in Box C entitled "Special Delivery Instructions," any check for cash
in lieu of a fractional share, any check for shares of Promus Common Stock
converted into cash, and any certificate for Hilton Common Stock will be mailed
to the registered holder(s) of the shares of Promus Common Stock at the
addresses of the registered holder(s) appearing below under Box A, entitled
"Election and Description of Shares Deposited." In the event that Box B,
entitled, "Special Issuance and Payment Instructions" and Box C entitled
"Special Delivery Instructions" both are completed, any check for cash in lieu
of a fractional share, any check for shares of Promus Common Stock converted
into cash, and any certificates for Hilton Common Stock will be issued in the
name(s) of the person(s), and such check and such certificate(s) will be mailed
to the address(es), indicated.
THE UNDERSIGNED UNDERSTANDS THAT HILTON HAS AGREED TO PAY FOR 55% OF THE
OUTSTANDING SHARES OF PROMUS COMMON STOCK IN CASH AND TO PAY FOR THE REMAINING
45% OF THE OUTSTANDING SHARES OF PROMUS COMMON STOCK IN SHARES OF HILTON COMMON
STOCK. IF PROMUS STOCKHOLDERS ELECT AS A GROUP TO RECEIVE MORE CASH OR MORE
SHARES OF HILTON COMMON STOCK THAN THE AMOUNT AVAILABLE, THOSE STOCKHOLDERS WHO
MAKE AN ELECTION IN THE OVERSUBSCRIBED CATEGORY WILL NOT RECEIVE THE
CONSIDERATION ENTIRELY IN THE FORM THAT THEY ELECT. INSTEAD, THEIR ELECTION WILL
BE PRORATED SO THAT, ON AN OVERALL BASIS, HILTON WILL PAY THE CONSIDERATION IN
THE AGREED-UPON PERCENTAGES OF CASH AND SHARES OF HILTON COMMON STOCK.
2
BOX A:
DESCRIBE IN BOX A BELOW, AND MAKE AN ELECTION WITH RESPECT TO, THE SHARES OF
PROMUS COMMON STOCK THAT YOU INTEND TO EXCHANGE WITH THIS ELECTION FORM.
- --------------------------------------------------------------------------------------------------------------------
ELECTION AND DESCRIPTION OF SHARES DEPOSITED
- --------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF HOLDER OF RECORD CERTIFICATES DEPOSITED AND ELECTION
AS SHOWN ON THE RECORDS OF PROMUS (ATTACH SEPARATE SCHEDULE IF NECESSARY)
- --------------------------------------------------------------------------------------------------------------------
COLUMN 1 COLUMN 2 COLUMN 3 COLUMN 4
CERTIFICATE NUMBER OF SHARES NUMBER OF SHARES NUMBER OF
NUMBER REPRESENTED BY TO BE CONVERTED SHARES TO BE
DELIVERED CERTIFICATES IN INTO SHARES OF CONVERTED INTO
HEREWITH COLUMN 1 HILTON COMMON STOCK CASH
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
3
BOX B:
- ------------------------------------------------
SPECIAL ISSUANCE AND
PAYMENT INSTRUCTIONS
To be completed ONLY if the check for Promus Common Stock converted to
cash, cash in lieu of a fractional share, and/or the certificate(s) for
Hilton Common Stock are to be paid or issued in the name of someone other
than the person(s) in whose name(s) the Certificate(s) representing the
shares of Promus Common Stock listed in this Letter of Transmittal are
registered. (Unless otherwise indicated in Box C, the check and/or
certificate(s) will be mailed to the address indicated in this Box B.)
ISSUE CHECK FOR PROMUS COMMON STOCK CONVERTED TO CASH, CASH IN LIEU OF A
FRACTIONAL SHARE AND/OR CERTIFICATE(S) FOR HILTON COMMON STOCK TO:
Name: ______________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9)
- ------------------------------------------------------------
BOX C:
- ------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(CHANGE OF ADDRESS)
To be completed ONLY if the following are to be mailed to an address
other than that indicated in Box A or Box B: (i) the check for Promus Common
Stock converted to cash; (ii) the check for cash in lieu of a fractional
share and/or (iii) the certificate(s) representing any Hilton Common Stock
issued for any shares of Promus Common Stock listed in this Letter of
Transmittal.
MAIL CHECK AND/OR CERTIFICATE(S) FOR HILTON COMMON STOCK TO:
Name: ______________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9)
- -----------------------------------------------------
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE ACCEPTANCE AND DELIVERY OF
ANY LETTERS OF TRANSMITTAL BY OR TO THE EXCHANGE AGENT WILL NOT OF ITSELF CREATE
ANY RIGHT TO RECEIVE CASH OR HILTON COMMON STOCK IN EXCHANGE FOR THE SHARES OF
PROMUS COMMON STOCK LISTED IN THIS LETTER OF TRANSMITTAL, AND THAT SUCH RIGHT
WILL ARISE ONLY TO THE EXTENT PROVIDED IN THE MERGER AGREEMENT.
4
- --------------------------------------------------------------------------------
SIGN HERE
(COMPLETE SUBSTITUTE FORM W-9 BELOW)
____________________________________________________________________________
____________________________________________________________________________
SIGNATURE(S) OF OWNER(S)
__________________________________________________________________________
__________________________________________________________________________
Name(s) ____________________________________________________________________
(PLEASE PRINT)
Capacity (full title) ______________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number: ____________________________________________
Tax Identification or Social Security Number: ______________________________
(SEE SUBSTITUTE FORM W-9)
Dated: _____________, 1999
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or by the person(s) authorized to become registered
holder(s) by certificates and documents transmitted herewith. If signature
is by an agent, attorney, administrator, executor, guardian, trustee,
officer of a corporation or any other person acting in a fiduciary or
representative capacity, please set forth full title and see Instruction 5.)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 4)
FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION
GUARANTEE IN SPACE BELOW.
Authorized Signature(s) ____________________________________________________
Name _______________________________________________________________________
Name of Firm _______________________________________________________________
Address ____________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _____________________________________________
Dated ______________________________________________________________________
____________________________________________________________________________
NOTE: A GUARANTEE OF SIGNATURE IS REQUIRED ONLY IF CHECKS IN PAYMENT OF ANY
CASH AND/OR NEW CERTIFICATES OF HILTON COMMON STOCK ARE TO BE PAYABLE TO THE
ORDER OF AND/OR REGISTERED IN NAMES OTHER THAN ON THE SURRENDERED
CERTIFICATES.
- --------------------------------------------------------------------------------
5
INSTRUCTIONS FOR COMPLETION OF LETTER OF TRANSMITTAL
This Letter of Transmittal should be properly filled in, dated, signed and
delivered, together with the certificate(s) representing the shares of Promus
Common Stock currently held by you, to the Exchange Agent. Please read and
carefully follow the instructions regarding completion of this Letter of
Transmittal set forth below.
INSTRUCTIONS
1. EXECUTION AND DELIVERY
This Letter of Transmittal, or a photocopy of it, should be properly
completed, dated and signed, and should be delivered, together with the
certificate(s) representing your Promus Common Stock, to the Exchange Agent at
the appropriate address set forth on the cover page of this Letter of
Transmittal before the Delivery Deadline.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, AND THE CERTIFICATE(S)
FOR SHARES OF PROMUS COMMON STOCK IS AT THE OPTION AND RISK OF THE STOCKHOLDER.
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. EXCEPT AS OTHERWISE PROVIDED, DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
2. SIGNATURES
The signature (or signatures, in the case of certificate(s) owned by two or
more joint holders) on this Letter of Transmittal must correspond exactly to the
name(s) on the face of the certificate(s) sent to the Exchange Agent, unless the
shares of Promus Common Stock represented by the certificate(s) have been
transferred by the holder(s) of record. If there has been any such transfer, the
signature(s) on the Letter of Transmittal should be signed in exactly the same
form as the name of the last transferee indicated on the accompanying stock
powers attached to or endorsed on the certificate(s) (see Instruction 4 below).
If shares of Promus Common Stock are registered in different names on
several certificates, it will be necessary to complete, sign and submit a
separate Letter of Transmittal for each different registration of certificates.
For example, if some certificates are registered solely in your name, some are
registered solely in your spouse's name and some are registered jointly in the
name of you and your spouse, three separate Letters of Transmittal should be
submitted.
3. CHECKS AND/OR CERTIFICATES IN SAME NAME
If checks in payment of any cash and/or any new certificates for shares of
Hilton Common Stock are to be payable to the order of and/or registered in
exactly the same name on the surrendered certificate(s), you will not be
required to endorse the surrendered certificate(s) or have your signature
guaranteed. For corrections in name or changes in name not involving changes in
ownership, see Instruction 4(c) below.
4. CHECKS AND/OR CERTIFICATES IN DIFFERENT NAMES
If checks in payment of any cash and/or any new certificates for shares of
Hilton Common Stock are to be payable to the order and/or registered in a
different name from the name on the surrendered certificate(s), or delivered to
a different address, please follow these instructions:
(a) REGISTERED HOLDERS. If the registered holder of certificate(s)
signs the Letter of Transmittal, the registered holder should complete
Box B and/or Box C and have signature(s) guaranteed on this Letter of
Transmittal. No endorsements or signature guarantees on certificate(s) or
stock powers are required in this case.
(b) TRANSFEREES. If the Letter of Transmittal is signed by a person
other than the registered holder, the certificate(s) surrendered must be
properly endorsed or accompanied by appropriate stock power(s) properly
executed by the record holder of such certificate(s) to the person who is
to receive the check or certificate representing Hilton Common Stock. The
signature of the record holder on the endorsement(s) or stock power(s)
must correspond with the name that appears on the face of the
certificate(s) in every particular and must be guaranteed by a bank,
broker, dealer, credit union, savings association or other entity that is
a member in good standing of the Security Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Guarantee
Program or the Stock Exchange Medallion Program (each of the foregoing an
"Eligible Institution"). If this Instruction 4(b) applies, please check
with your financial
6
institution or brokerage firm immediately to determine whether it is an
Eligible Institution or will need to help you locate an Eligible
Institution.
(c) CORRECTION OF OR CHANGE IN NAME. For a correction in name which
does not involve a change in ownership, the surrendered certificate(s)
should be appropriately endorsed: for example, "John A. Doe, incorrectly
inscribed as John B. Doe," with the signature guaranteed by an Eligible
Institution. For a change in name by marriage, etc., the surrendered
certificate(s) should be appropriately endorsed: for example, "Mary Doe,
now by marriage Mary Jones," with the signature guaranteed by an Eligible
Institution.
5. SUPPORTING EVIDENCE
If any Letter of Transmittal, certificate, endorsement or stock power is
executed by an agent, attorney, administrator, executor, guardian, trustee or
any person in any other fiduciary or representative capacity, or by an officer
of a corporation on behalf of the corporation, there must be submitted (with the
Letter of Transmittal, surrendered certificate(s) and/or stock powers)
documentary evidence of appointment and authority to act in such capacity
(including court orders when necessary), as well as evidence of the authority of
the person making such execution to assign, sell or transfer the certificate(s).
Such documentary evidence of authority must be in a form satisfactory to the
Exchange Agent.
6. NOTICE OF DEFECTS; RESOLUTION OF DISPUTES
NEITHER HILTON NOR THE EXCHANGE AGENT WILL BE UNDER ANY OBLIGATION TO NOTIFY
YOU THAT THE EXCHANGE AGENT HAS NOT RECEIVED A PROPERLY COMPLETED LETTER OF
TRANSMITTAL OR THAT THE LETTER OF TRANSMITTAL SUBMITTED IS DEFECTIVE IN ANY WAY.
Any and all disputes with respect to Letters of Transmittal (including, but
not limited to, matters relating to time limits and defects or irregularities in
the surrender of any certificate) will be resolved by the Exchange Agent and its
decision will be final and binding on all parties concerned. The Exchange Agent
will have the absolute right, in its sole discretion, to reject any and all
Letters of Transmittal and surrenders of certificates which are deemed by it to
be not in proper form or to waive any immaterial irregularities in any Letter of
Transmittal or in the surrender of any certificate. Surrenders of certificates
will not be deemed to have been made until all defects or irregularities that
have not been waived have been cured.
7. FEDERAL TAX WITHHOLDING/SUBSTITUTE FORM W-9
Federal income tax law requires each stockholder to provide the Exchange
Agent with his/her current Taxpayer Identification Number ("TIN") on a
Substitute Form W-9 set forth below. If such stockholder is an individual, the
TIN is his/her social security number. If the Exchange Agent is not provided
with the correct TIN, the stockholder or other payee may be subject to a $50
penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
reportable payments that are made to such stockholder or other payee who has not
provided a correct TIN may be subject to 31% backup withholding.
Certain persons (including, among others, tax-exempt organizations and
certain foreign persons) are not subject to these backup withholding
requirements. In order for a foreign person to qualify as an exempt recipient,
that person must submit to the Exchange Agent a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that person's exempt status. A
Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any reportable payment made to the payee. Backup withholding is not an
additional tax. Rather, any amount of tax withheld will be credited against the
tax liability of the person subject to the withholding. If withholding results
in an overpayment of taxes, a refund may be obtained from the IRS.
If you have not been issued a TIN, but have applied for a TIN or intend to
apply for a TIN in the near future, write "Applied For" in the space for the TIN
in Part I of the Substitute Form W-9 and also complete the Certificate of
Awaiting Taxpayer Identification Number. If the Exchange Agent is not provided
with a TIN by the time of payment, 31% of all reportable payments made to you
will be withheld.
You are required to give the Exchange Agent the TIN (i.e., social security
number or employer identification number) of the record owner of the Promus
shares. If the shares are registered in more than one name or are not
7
registered in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS
Any checks representing cash consideration and any certificates representing
Hilton Common Stock will be mailed to the address of the holder of record as
indicated in Box A, or to the person identified in Box B (if completed), unless
instructions to the contrary are given in Box C.
9. LOST STOCK CERTIFICATES
If you are unable to locate the certificates representing your shares of
Promus Common Stock, contact the Exchange Agent at the address provided in the
Letter of Transmittal. The Exchange Agent will instruct you on the procedures to
follow.
10. MISCELLANEOUS.
As soon as practicable, the Exchange Agent will begin mailing and delivering
checks and share certificates for Hilton Common Stock in exchange for
certificates that have been received by the Exchange Agent. There will be a
delay, however, if backup withholding pursuant to Instruction 7 applies.
Requests for assistance may be directed to the Information Agent(s) and
additional copies of the Proxy Statement/Prospectus or this Letter of
Transmittal may be obtained from the Information Agent(s) at the address set
forth below.
8
PAYOR'S NAME: FIRST UNION NATIONAL BANK
- -------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part I--PLEASE PROVIDE YOUR TIN TIN: ------------------------
FORM W-9 IN THE BOX AT THE RIGHT AND Social security number
Department of the Treasury CERTIFY BY SIGNING AND DATING
Internal Revenue Service BELOW ------------------------
OR ------------------------
Employer identification number
----------------------------------------------------------------------------
Part II--For Payees exempt from backup withholding, see the enclosed
"Guidelines for Certification of Taxpayer Identification Number on
Payor's Request for Taxpayer Substitute Form W-9" and complete as instructed therein.
Identification Number ("TIN")
and Certification
- -------------------------------------------------------------------------------------------------------------------------
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct TIN (or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding because
(a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report interest or dividends, or
(c) the IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are subject
to backup withholding because of underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you
were no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
Payee's Name and Address
- -------------------------------------------------------------------------------------------------------------------------
Signature
------------------------------------------------------------------------------------------------------------------------ Date
------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY REPORTABLE PAYMENTS MADE TO YOU PURSUANT
TO THE MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN
PART 1 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to me, and
either (1) I have mailed or delivered an application to receive a TIN to the
appropriate IRS Center or Social Security Administration Office or (2) I intend
to mail or deliver an application in the near future. I understand that if I do
not provide a TIN by the time of payment, 31% of all reportable payments made to
me pursuant to the Merger will be withheld.
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SIGNATURE DATE
9