redeem 2 % of the maximum number of shares theretofore issued
and outstanding. The Company has complied with this sinking fund
The 5l/i% Series "A" preferred shares are convertible at the
option of the holders into common stock of the Company at a
conversion ratio of 1.42 shares of preferred for each share of common (170,852 common shares of the Company have been reserved
for this purpose), and at the option of the Company, such Series
"A" shares will be redeemable at $26.25 plus accured dividends on
and after January 1, 1961 to the date fixed for redemption.
450,000 shares of common stock of the Company have been
reserved for the exercise of warrants which were originally attached
to the $30,000,000 issue in 1959 of 6% subordinated sinking fund
debentures of the Company. Each $1,000 debenture unit carried
a warrant to purchase 15 shares of common stock. The warrants
provide that this stock may be purchased at $42 per share until
October 15, 1963; $46 per share thereafter to October 15, 1967;
and, $50 per share thereafter to October 15, 1971, the expiration
date of the warrants.
7-COMMITMENTS AND CONTINGENT LIABILITIES
The Company and its Subsidiaries were committed to approximately
$15,000,000 at December 31, 1960 in connection with construction
of hotels and inns and alterations and revisions in existing properties.
A subsidiary entered into an agreement providing for a first
mortgage construction loan in the amount of $5,000,000 of which
$1,666,667 is to be guaranteed by the Company. At December 31,
1960 the subsidiary had not drawn any of the funds available under
this agreement. Under the terms of an agreement with this subsidiary, the Company has agreed to purchase from time to time,
as the subsidiary shall request, but not later than December 31,
1961, 99,000 additional shares of $1.00 par value common stock at
an aggregate price of $499,000 and a 4% twenty-five year subordinated note of the subsidiary, in the principal amount of
$1,500,000 at a price equal to the principal amount. The Company
is guarantor to the extent of $1,000,000 under a $3,000,000
long-term obligation of this subsidiary.
The Company has agreed to purchase all of the authorized $10.00
par capital stock of Hilton Inns, Inc., totaling $10,000,000. At
December 31, 1960 the Company had purchased 610,000 shares of
such stock at a cost of $6,100,000.
The Company was contingently liable to the extent of approximately $4,350,000 as it did not receive releases from mortgagees
under certain mortgages assumed by buyers of properties, who,
however, agreed to hold the Company harmless against any liability
The Company entered into an agreement dated September 12,
1958 with respect to a Hilton Inn, guaranteeing payment to the
lessor, by Hilton Inns, Inc., of sufficient annual rental (not to
exceed $192,000 per annum) to discharge debt service on the
lessor's first mortgage, and guaranteeing payment by Hilton Inns,
Inc. of real estate taxes and insurance premiums on the Inn.
On January 19, 1961, the Company entered into an agreement
to purchase the Hawaiian Village Hotel in Honolulu, Hawaii for
cash of $19,341,951 and 62,500 shares of common stock of the
Company. In connection with this transaction certain land was
leased for a term of 7Vi years with rental at $180,000 per annum
for the first two years; $240,000 per annum for the next two years;
$300,000 per annum for the next year and one-half; and, $360,000
per annum for the last two years, with an option to purchase such
land on or before the termination of the lease term for $6,000,000.
In addition, another tract consisting of two parcels of land was
leased with rental based upon a percentage of gross business
conducted in facilities existing thereon, with an option to purchase
at a price of $22.50 per square foot if both parcels are purchased,
and $25.00 per square foot if either parcel is purchased.
In connection with two hotels under construction in The
Netherlands, Hilton Hotels International, Inc. subscribed to
1,000,000 guilders ($265,275 at current exchange) in the share
capital of each landlord company. "International" subscribed to
purchase stock, at a cost approximating $250,000, in the Italian
corporation constructing a hotel in Rome. In accordance with the
lease being negotiated for a hotel in London, England,
"International" is required to furnish the hotel at a $2,500,000
The transfer of profits from foreign divisions and subsidiaries of
"International" to the United States would be subject to dividend
and/or distribution taxes imposed by the country of origin.
8-LONG TERM LEASES
The Company and its Subsidiaries operate or will operate certain
properties under leases ranging from one year and one month to
thirty-eight years five and one-half months from December 31, 1960,
with options to renew in some instances. The total minimum annual
fixed or basic rentals payable (exclusive of real estate taxes, insurance and other occupancy charges) under such leases for each of
the next five years ending December 31, follows: 1961, $10,334,492;
1962, $9,822,956; 1963, $9,480,733; 1964, $9,484,483; and, 1965,
Rentals and other obligations of a Canadian Subsidiary of Hilton
Hotels International, Inc., are guaranteed by both "International"
and by the Company. Under the terms of the assignment of the
Caribe Hilton lease to the Caribe Hilton Hotel Corporation of
Delaware, "International" and the Company continued liable for
the tenant's obligations under the lease. Under an agreement to
lease a hotel in construction at Rome, Italy, "International" and
the Company jointly guaranteed the tenant's obligations. "International" remained contingently liable for performance under all
other leases entered into by or assigned to its foreign subsidiaries.
The wholly-owned subsidiary, Hilton Hotels International, Inc.,
has negotiated preliminary contracts or agreements for the operation
of hotels under construction, or under consideration, on sites
outside the continental United States, subject to fulfillment of
conditions precedent and execution of final leases. In general,
"International" or its subsidiaries is required to furnish initial
operating inventories and maintain sufficient working capital. The
leases basically provide for a rental based on a percentage of gross
operating profit with certain specific rental obligations.
9-LIMITATIONS AND RESTRICTIONS
Under the most restrictive covenants of "International's" long-
term financing, "International" must maintain its consolidated
working capital at not less than $1,250,000 of which one-half is
available in the United States or "hard currency" areas; and is
restricted as to dividends, borrowings, investments, leasing and
fixed asset purchases.
Indentures and loan agreements of the Company and an affiliate,
as amended, contain certain restrictive provisions providing for the
Company and certain subsidiaries, on a consolidated basis, to
maintain working capital of not less than $7,000,000; a ratio of
current assets to current liabilities of not less than 125%, and
include limitations upon the declaration and payment of cash
dividends and the payment for purchase, redemption or retirement
of shares of any class of capital stock. In accordance with the
agreements, earned surplus in the amount of $56,771,231 was
restricted at December 31, 1960.
10-RESERVE FOR CONTINGENCIES
The Board of Directors of the Company increased this reserve
from $500,000 to $2,500,000 to provide for possible adjustments
for taxes, investments and other contingencies.