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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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Commission File Number 1-13719
PROMUS HOTEL CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE I.R.S. NO. 62-1716020
(State of Incorporation) (I.R.S. Employer Identification No.)
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755 CROSSOVER LANE
MEMPHIS, TENNESSEE 38117-4900
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 374-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock* New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange
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* Common Stock also has special stock purchase rights listed on each of the same
exchanges
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At March 5, 1999, there were 84,006,509 outstanding shares of common stock.
At such date, the aggregate market value of the shares of common stock held by
non-affiliates of the registrant, based upon the closing price of $35.00 for the
common stock as reported on the New York Stock Exchange Composite Tape, was
$2,940,227,815.
DOCUMENTS INCORPORATED BY REFERENCE
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PART OF FORM 10-K
DOCUMENTS INCORPORATED INTO WHICH INCORPORATED
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1. Certain parts of the 1998 Annual Report to Part I -- Item 1
Shareholders............................................ Part II -- Items 5, 7 and 8
Part IV -- Item 14(a)(1).
2. Certain parts of the Proxy Statement dated March 29, Part III
1999....................................................
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FORM 10-K
CROSS-REFERENCE INDEX
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15
PART II
Item 5. Market for the Company's Common Stock and Related
Shareholder Matters....................................... 16
Item 6. Selected Financial Data..................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 18
Item 8. Financial Statements and Supplementary Data................. 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 18
PART III
Item 10. Directors and Executive Officers............................ 19
Item 11. Executive Compensation...................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 19
Item 13. Certain Relationships and Related Transactions.............. 19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 20
SIGNATURES.............................................................. 21
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PART I
ITEM 1. BUSINESS
On December 19, 1997, Doubletree Corporation ("Doubletree") and Promus
Hotel Corporation ("PHC") effected a business combination (the "Merger") in
accordance with the Agreement and Plan of Merger (the "Merger Agreement") by and
among Doubletree, PHC and Parent Holding Corp., a corporation formed and jointly
owned by Doubletree and PHC to facilitate the Merger. Concurrent with the
Merger, Parent Holding Corp. was renamed Promus Hotel Corporation ("Promus" or
the "Company"). As a result of the Merger , (i) Doubletree and PHC became
wholly-owned subsidiaries of Promus; (ii) each outstanding share of common stock
of Doubletree was converted into one share of common stock of Promus; and (iii)
each outstanding share of PHC common stock was converted into .925 of a share of
common stock of Promus.
The principal assets of Promus are the shares of PHC (now named Promus
Operating Company, Inc.) and Doubletree. Doubletree and PHC directly or
indirectly through their subsidiaries, hold substantially all of the assets of
the Company's businesses. The principal corporate offices of Promus are located
at 755 Crossover Lane, Memphis, Tennessee 38117-4900, telephone (901) 374-5000.
Operating data for the three most recent fiscal years, together with
interest expense, dividend income, interest and other income (including
information as to assets), is set forth herein. For information on operating
results and a discussion of those results, see "Performance Statistics",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and the consolidated financial statements included in the Company's
1998 Annual Report to Shareholders (the "Annual Report"), which information is
incorporated herein by reference.
GENERAL
Through its wholly owned subsidiaries, the Company franchises and manages
hotels with the following brands: Doubletree, Doubletree Guest Suites, Club
Hotel by Doubletree, Embassy Suites, Hampton Inn, Hampton Inn & Suites, and
Homewood Suites. 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 December 31, 1998, Promus franchised 998
hotels and operated 339 hotels, of which 177 hotels were managed, 62 hotels were
wholly owned, 23 were partially owned through joint ventures, and 77 were leased
from third parties. These 1,337 hotels contain approximately 192,000 rooms and
are located in all 50 states, the District of Columbia, Puerto Rico, the U.S.
Virgin Islands and six foreign countries. The Company also operates and
franchises vacation interval ownership systems under the Embassy Vacation Resort
and Hampton Vacation Resort names.
The Company's primary focus is to develop, grow and support its franchise
and management business for all brands. The Company's main sources of revenues
are from the operations of owned and leased hotels, franchise royalty fees, and
management fees.
Doubletree hotels are upscale, full service hotels targeted toward business
travelers, group meetings, and leisure travelers. There were 115 Doubletree
hotels in operation as of December 31, 1998.
Doubletree Guest Suites hotels, of which there were 41 in operation as of
December 31, 1998, are full service, all-suite hotels geared toward business
travelers, group meetings, and leisure travelers who have a need or desire for
greater space than typically is provided at most traditional upscale hotels.
Club Hotel by Doubletree hotels are moderately priced hotels with food and
beverage facilities primarily targeted at individual business travelers. There
were 20 Club Hotel by Doubletree hotels in operation as of December 31, 1998.
Embassy Suites hotels, of which there were 145 in operation as of December
31, 1998, appeal to the business and leisure traveler who has a need or desire
for greater space and more focused services than are available in traditional
upscale hotels.
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Hampton Inn hotels are moderately priced hotels designed to attract the
business and leisure traveler desiring quality accommodations at affordable
prices. There were 826 Hampton Inn hotels in operation as of December 31, 1998.
Hampton Inn & Suites hotels offer both traditional hotel room
accommodations and apartment-style suites within one property. There were 48
Hampton Inn & Suites hotels in operation as of December 31, 1998.
Homewood Suites hotels, of which there were 74 in operation on December 31,
1998, appeal to the upscale extended stay market and target the traveler who
stays five or more consecutive nights, as well as the traditional business and
leisure traveler.
The Company also operates 68 hotels that are non-Promus branded.
Promus vacation resort properties, of which there were eight as of December
31, 1998, feature a high quality interval ownership system available to the
public.
All of the Company's hotel brands are managed by a single senior management
team. Although the Company's growth strategy emphasizes obtaining new franchise
or management contracts, the Company also constructs, owns and operates its own
hotels. Owned hotels are sold from time to time to realize the value of the
underlying assets and to increase the Company's return on investment. Following
such sales, the hotels typically are either operated by the Company under
management contracts or by their purchasers under franchise licenses from the
Company.
Each of the Company's hotel brands currently use an integrated computerized
system that includes centralized reservations and marketing systems, along with
local property management and revenue management systems. The Company is in the
process of implementing System 21(TM), its proprietary, fully integrated
windows-based system, to all its hotel brands. System 21(TM) is a sophisticated
business system which provides seamless, integrated property management, revenue
maximization, marketing, decision support and reservations systems linked to the
Promus network, a communications network which will connect all Promus hotels to
the Company's reservation offices and more than 300,000 travel agents worldwide.
All of the Company's brands' reservation modules will receive reservation
requests entered on terminals located at all of their respective hotels,
interval ownership properties and reservation centers, major domestic and
international airlines via their global distribution systems, and direct from
consumers via computer access to each brand's Internet website and various third
party travel services websites. The systems immediately confirm reservations or
indicate accommodations available at alternate Promus properties. Reservations
are transmitted automatically to the property for which the reservation is made.
The Company's data centers that house all of the satellite and reservation,
marketing and revenue management computers are located in Memphis, Tennessee.
The Company operates three central reservations offices, located in Memphis,
Tennessee, Tampa, Florida, and Vancouver, Washington. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Spending -- Investment in Franchise System" and "Year
2000" on pages 29, 31 and 32 of the Annual Report, which information is
incorporated herein by reference.
A major element of the Company's business strategy and culture is an
unconditional 100% guarantee of service satisfaction. This guarantee, which is
currently utilized by the Embassy Suites, Hampton Inn, Hampton Inn & Suites and
Homewood Suites brands, began being implemented during 1998 in the Doubletree,
Doubletree Guest Suites and Club Hotel by Doubletree brands. This implementation
will continue throughout 1999. If guests are not satisfied with their stay, they
are not expected to pay. All of the Company's hotel brands offer suites/rooms
exclusively for non-smoking guests.
HOTEL OPERATIONS
FRANCHISING
The Company's revenues from franchising operations for Doubletree,
Doubletree Guest Suites, Club Hotel by Doubletree, Embassy Suites, Hampton Inn,
Hampton Inn & Suites, and Homewood Suites hotels consist of initial franchise
application fees and continuing royalties. The franchise agreements provide for
up to
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a four percent royalty based upon gross rooms revenues and also provide for a
separate marketing and reservation contribution.
The Company earns fees under franchise agreements for the vacation resort
brands based on a percentage of net interval sales and gross rental pool
revenues, including additional fees for revenues booked through central
reservations.
In screening applicants for franchises, the Company evaluates the
character, operations ability, experience and financial responsibility of each
applicant or its principals; the Company's prior business dealings, if any, with
the applicant; suitability of the proposed hotel location and other factors. The
franchise agreement establishes requirements for service and quality of
accommodations. The Company provides certain training for the franchisee's
management and makes regular inspections of all hotels.
Franchise agreements for new hotels generally have a 20-year term. The
Company may terminate a franchise agreement if the franchisee fails to cure a
breach of the franchise agreement in a timely manner. In certain instances, a
franchise agreement may be terminated by the franchisee, but such termination
generally requires a payment to the Company.
MANAGEMENT CONTRACTS
The Company's revenues from management contracts consist primarily of
management fees which are based on a percentage of gross revenues, operating
profits, cash flow, or a combination thereof. The contract terms governing
management fees vary depending on the size and location of the hotel and other
factors relative to such hotel property.
Under the Company's management contracts, the Company, as the manager,
operates or supervises all aspects of a hotel's operations. The owner of the
hotel property is generally responsible for all costs, expenses and liabilities
incurred in connection with operating the hotel, including the expenses and
salaries of all hotel employees. The Company either requires each such owner to
enter into a separate license agreement and pay the royalty, marketing and
reservation contributions as provided in the license agreement or includes such
payments in the management contract. In addition, the hotel owner is often
required to set aside a certain percentage of hotel revenues for capital
replacement. The Company's form of management contract typically has a term of
10 years, although many contracts acquired or written in the past have
substantially longer terms, and most give the Company specified renewal rights.
The management contract may be terminated by either party due to an uncured
default by the other party. Management contracts may contain termination
provisions upon a sale of the hotel, but in such cases generally require a
payment to the Company.
The Company also acts as the manager for five of its vacation resort
properties pursuant to management contracts with generally similar terms and
responsibilities as its hotel management contracts. Fees for the management of
vacation resort properties consist of a percentage of rental pool revenue and
homeowner assessments.
See "Franchise and Management Fees" in the Consolidated Statement of
Operations on page 35 of the Annual Report, which information is incorporated
herein by reference, for revenues from licensing and management contract
operations.
OWNED HOTELS
As of December 31, 1998, the Company owned 62 hotels, representing 11,401
rooms, all of which it manages. The Company is responsible for all aspects of
these hotels, including all of the costs associated with their operation. The
Company also receives substantially all of the revenues generated by its owned
hotels.
Promus' primary focus is to grow its franchise and management businesses,
while limiting its ownership of real estate. It is the Company's goal not to be
a long-term owner of real estate. The Company owns a mix of Promus-brand hotels
that can enhance its role as manager and franchisor for its brands, but
periodically sells hotels as opportunities arise to realize a hotel's
appreciated value.
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LEASES
As of December 31, 1998, the Company leased 77 hotels with 13,495 rooms.
Under the Company's leases, the Company leases the hotel from its owner and is
responsible for all aspects of the hotel's operations, including guest services,
staffing at the hotel, sales and marketing, accounting functions, purchasing and
budgeting. As the lessee of a hotel, the Company recognizes all revenues and
substantially all expenses associated with the hotel's operations. Typically,
other than real estate taxes, casualty insurance costs, maintenance of
underground utilities, structural element costs, and other capital improvement
costs, each of which are the landlord's obligation, the Company is required to
pay all of the costs associated with operating the hotel, including rent,
personal property taxes, utilities, employee liability costs, liability
insurance costs and the like. Although, in general, furniture, fixtures and
equipment replacement is the landlord's responsibility, certain leases obligate
the Company to maintain and replace these items. The Company is entitled to
retain all revenues derived from the operation of a leased hotel, subject to the
payment of its obligations under the lease, including rent. Lease terms
typically require the payment of a fixed monthly base rent regardless of the
performance of the hotel leased and a variable rent based on a percentage of
revenues. There can be no assurance that any particular lease will be profitable
for the Company after the payment of its obligations under the lease.
In addition, most of the Company's leases typically provide that the
Company indemnify its landlord against certain liabilities resulting from the
leasing, operation or use of the hotel. Examples of these liabilities may
include (i) injury to persons or property at the hotel, (ii) environmental
liability caused by the Company and (iii) liability resulting from the sale of,
or consumption of, alcoholic beverages at the hotel.
Included in the total of hotels leased by the Company at December 31, 1998,
were 51 hotels containing 7,566 rooms that the Company leased pursuant to
substantially similar lease agreements (the "Percentage Leases") with
subsidiaries of RFS Hotel Investors, Inc., a real estate investment trust
("RHI"). Four of the hotels leased pursuant to Percentage Leases are managed by
third parties. The Percentage Leases generally have an initial term of not less
than 15 years from the date of inception (with expiration dates ranging from
2003 to 2015), are subject to early termination upon the occurrence of certain
contingencies, and require the monthly payment of base rent and the quarterly
payment of percentage rent. During 1998, the base rent component of the
Percentage Leases was approximately 41.0% of total Percentage Leases expense.
Top percentage rents ranged from 50.0% to 76.5% of incremental room revenue. For
the year ended December 31, 1998, room revenue for each of the hotels subject to
the Percentage Leases exceeded the amount required to trigger the top tier of
percentage rent. If an RHI leasing entity enters into an agreement to sell a
hotel, it may terminate a Percentage Lease and either pay the Company the fair
market value of Promus' leasehold interest or offer to lease to the Company a
substitute hotel on terms that would create an equivalent value. The Percentage
Leases provide that RHI may terminate the Percentage Leases upon certain events
of default.
As of December 31, 1998, the Company leased 17 hotels that are included in
the total of 77 leased hotels, represent 3,991 rooms, and are subject to a
long-term lease agreement with RLH Partnership, L.P. ("RLH") entered into in
1995 (the "Partnership Lease"). The initial term of the Partnership Lease
expires in 2010, subject to earlier termination by RLH upon the occurrence of
one or more events of default. The Company has the option to extend the
Partnership Lease on a hotel-by-hotel basis for five additional five-year
periods on the same terms. In September 1998, the Company exercised its option
by executing an extension of the Partnership Lease using two of the five-year
extensions. The term of the Partnership Lease now expires in 2020. Rental
payments under the Partnership Lease consist of base rent payable monthly and
additional rent payable annually, if applicable. The base rent for all of the
hotels is $15.0 million per year. The additional rent for the hotels is equal to
7.5% of the amount, if any, by which the aggregate operating revenues for all of
the hotels for the given year exceeds the aggregate operating revenues for all
such hotels for the twelve-month period ended September 30, 1996. This long-term
arrangement allows the Company to retain all of the benefit from any increase in
operating income from these properties during the term of the Partnership Lease,
subject to the payment of additional rent.
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As of December 31, 1998, the Company leased nine hotels pursuant to leases
other than the Percentage Leases and the Partnership Lease. Such leases contain
varying terms, but are generally "triple net" leases, the terms of which are in
substantial conformity to the general descriptions above.
JOINT VENTURES
The Company participates in various non-controlling joint ventures with
ownership ranging from less than 1% to 50%. In addition, the Company has a
controlling interest in joint ventures which own six hotels with 1,935 rooms.
In addition to its ownership interest in the joint ventures, the Company is
responsible for the day-to-day operations of the hotels owned by the joint
ventures and receives management fees for operating the hotels. Under each joint
venture agreement or separate management contract with respect to a hotel, the
Company's compensation is comprised of either an annual base management fee, an
annual incentive management fee (based on a percentage of cash flow or operating
profit) or both. The Company has made significant advances to certain joint
ventures. Repayment of these advances receives priority distribution from the
cash flow distributable to the joint venture's partners.
RISK FACTORS
COMPETITION
The Company encounters strong competition as a manager, franchisor, and
hotel owner with other companies in the lodging industry. As of December 31,
1998, there were more than 184 hotel brands (hotel chains with more than one
hotel). Although most of these companies are privately owned firms, several
large national chains own and operate their own hotels and also franchise their
brands. There is no single competitor which is dominant in the industry.
Affiliation with a national or regional brand is a major trend in the U.S.
lodging industry. In 1998 70% of U.S. hotel rooms were brand-affiliated,
compared to 62% in 1989. Most of the branded properties are franchises, under
which the operator pays the franchisor a fee for the use of its systems, brand
identification and reservation system.
The Company believes that its brands are attractive to hotel owners seeking
franchise affiliation or a management company, because its hotels typically
generate higher revenue per available room than the average of its direct
competitors in most market areas. The Company attributes this performance
premium to its success in achieving and maintaining strong customer preference.
The Company's brands are also designed to be attractive to leisure guests and
generate weekend demand. Repeat guest business is enhanced by the Company's
unconditional guest satisfaction guarantee, which is a significant component of
the Company's operating strategy.
The lodging industry in general, including the Company's brands, may be
adversely affected by national and regional economic conditions and government
regulations. The demand for accommodations at a particular hotel may be
adversely affected by many factors, including changes in travel patterns, local
and regional economic conditions, and the degree of competition with other
hotels in the area.
RISKS ASSOCIATED WITH OWNING AND LEASING REAL ESTATE
The Company is subject to varying degrees of risk generally related to
owning and leasing 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, inflation and its
effect on operating costs, 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, present and future labor,
health and safety, and environmental laws and regulatory requirements, and
adverse changes in zoning laws and other regulations, most of which risks are
beyond the control of the Company. Moreover, real estate investments are
relatively illiquid, which means that the ability of the Company to vary its
portfolio of hotels in response to changes in economic and other conditions may
be limited.
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FLUCTUATIONS IN OPERATING RESULTS
The lodging industry may be adversely affected by changes in economic
conditions, changes in local market conditions, oversupply of hotel space, a
reduction in demand for hotel space in specific areas, changes in travel
patterns, extreme weather conditions, changes in governmental regulations that
influence or determine wages, prices or construction costs, changes in interest
rates, the availability of financing for operating or capital needs, and changes
in real estate tax rates and other operating expenses. Room supply and demand
historically have been sensitive to shifts in the country's gross domestic
product, which has resulted in cyclical changes in average daily room and
occupancy rates. Due in part to the strong correlation between the lodging
industry's performance and economic conditions, the lodging industry is subject
to cyclical changes in revenues. Furthermore, the lodging industry is seasonal
in nature, with revenues and profitability typically higher in summer periods
than in winter periods.
GOVERNMENTAL REGULATION
A number of states regulate the franchising of hotels and restaurants and
the granting of liquor licenses by requiring registration, disclosure
statements, and compliance with specific standards of conduct. Various federal
and state laws and regulations mandate certain disclosures and other practices
with respect to the sale of franchises and the franchisor/franchisee
relationship. In addition, there is considerable state regulation of the
vacation interval industry. The Company's operations have not been materially
affected by such laws and regulations.
EMPLOYEE RELATIONS
Promus, through its subsidiaries, has approximately 40,000 employees.
Promus' subsidiaries have collective bargaining agreements at five of the
Company's managed locations. The Company considers its relations with employees
to be very good.
EXECUTIVE OFFICERS
The table below sets forth information with respect to the business
experience of the Company's executive officers during at least the past five
years.
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NAME AND AGE BUSINESS EXPERIENCE
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Norman P. Blake, Jr.(57)............... Chairman of the Board, President and Chief Executive
Officer of Promus since December 1998. Vice Chairman of
the Board of The St. Paul Companies, Inc., from April to
December 1998. Chairman of the Board, President and Chief
Executive Officer of USF&G Corporation from 1990 to April
1998.
Dan L. Hale(54)........................ Executive Vice President and Chief Financial Officer of
Promus since December 1998. Executive Vice President and
Chief Financial Officer of USF&G Corporation (1993-1998).
James T. Harvey(40).................... Executive Vice President and Chief Information Officer of
Promus since February 1999. Senior Vice President,
Information Technology of Promus (1998-February 1999).
Vice President and Chief Information Officer of Promus
(1995-1997). Corporate Director, Hotel and Corporate
Information Systems of Promus Companies Inc. (1994-1995).
Director, Information Systems of Promus Companies Inc.
(1993-1994).
J. Kendall Huber(44)................... Executive Vice President, General Counsel and Secretary of
Promus since February 1999. Vice President and Deputy
General Counsel of Legg Mason, Inc. (November 1998-January
1999). Vice President and Deputy General Counsel of USF&G
Corporation (1995-1998). Vice President and Group General
Counsel of USF&G (1990-1995).
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NAME AND AGE BUSINESS EXPERIENCE
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Thomas L. Keltner(52).................. President, Brand Performance and Development Group of
Promus since February 1999. Executive Vice President and
Chief Development Officer of Promus (1997-February 1999).
Senior Vice President, Development of PHC (1995-1997).
Senior Vice President, Development of the Hotel Division
of Promus Companies Inc. (1993-1995).
Stevan D. Porter (44).................. Executive Vice President, Operations since February 1999.
Senior Vice President, Full Service Operations of Promus
(1998-February 1999). Vice President,
Operations -- Embassy Suites (1996-1997). Vice President,
Marketing -- Embassy Suites (1994-1996). Senior Director
Field Marketing-Embassy Suites (1992-1993).
M. Ann Rhoades(54)..................... Executive Vice President, Team Services of Promus since
December 1997. Executive Vice President, Human Resources
of Doubletree Corporation (1996-1997). Senior Vice
President, Human Resources of Doubletree Corporation
(1995-1996). Vice President, People Department of
Southwest Airlines (1989-1995).
Thomas W. Storey(42)................... Executive Vice President, Corporate Strategic Planning and
Venture Operations of Promus since February 1999.
Executive Vice President, Sales, Marketing and
Reservations of Promus (1997-February 1999). Executive
Vice President, Sales and Marketing of Doubletree
Corporation (1994-1997).
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FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Annual Report on Form 10-K, including the
exhibits hereto, may constitute forward-looking statements within the meaning of
the federal securities laws. Forward-looking statements are those that express
management's view of future performance and trends, and usually are preceded
with "expects", "anticipates", "believes", "hopes", "estimates", "plans" or
similar phrasing, and include statements regarding Year 2000 readiness and
potential exposure, the Company's ability to increase rates, margin improvements
and projected expenditures, capital spending and availability of capital
resources. Such statements are based on management's beliefs, assumptions and
expectations, which in turn are based on information currently available to
management. The Company's actual performance and results could differ materially
from those expressed in or contemplated by the forward-looking statements due to
a number of factors, most of which are beyond Promus' ability to predict or
control. Such factors include, but are not limited to, operations of existing
hotel properties, including the effects of competition and customer demand;
changes in the size of Promus' hotel system, including anticipated scope and
opening dates of new developments, planned future capital spending, terminations
of franchise or management agreements, or dispositions of properties;
relationships with third parties, including franchisees, lessors, hotel owners,
lenders and others; litigation or other judicial actions; changes in the
national economy or regional economies which, among other things, affect
business and leisure travel and expenditures and capital availability for hotel
development; and adverse changes in interest rates for Promus and its
franchisees and business partners which, among other things, affect new hotel
development, real estate values, and credit availability. See "-- Risk Factors"
for a further discussion of certain events, conditions and circumstances that
could affect the Company and its business. Promus disclaims any obligation to
update any forward-looking information.
ITEM 2. PROPERTIES
HOTEL AND VACATION RESORT BRANDS
DOUBLETREE HOTELS
Doubletree hotels are upscale, full-service hotels targeted at business
travelers, group meetings, and leisure travelers. Doubletree hotels are located
in 34 states, the District of Columbia, U.S. Virgin Islands and
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Mexico and have an average of 293 rooms. As of December 31, 1998, four
Doubletree hotels were under construction, three of which will be franchisee
operated. These hotels typically include a swimming pool, gift shop, meeting and
banquet facilities, at least one restaurant and cocktail lounge, room service,
parking facilities and other services.
See "-- Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, average daily rate per occupied room
("ADR"), and revenue per available room ("RevPAR") for Doubletree hotels, which
also includes Doubletree Guest Suites and Club Hotel by Doubletree hotels.
DOUBLETREE GUEST SUITES
Doubletree Guest Suites all-suite hotels are targeted at business
travelers, group meetings, and lesiure travelers who have a need or desire for
greater space than typically is provided at most traditional upscale hotels.
Each guest suite has a separate living room and dining/work area, with a color
television, refrigerator and wet bar. Guest Suites hotels have an average of 216
rooms and are located in 20 states and the District of Columbia. As of December
31, 1998, there was one Doubletree Guest Suites hotel under construction.
See "-- Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for all Doubletree
hotels.
CLUB HOTEL BY DOUBLETREE
Club Hotel by Doubletree hotels are moderately priced hotels primarily
targeted at individual business travelers. Club Hotels have an average of 210
rooms and are located in 14 states. Club Hotels typically include a conference
area, a library or reading area, desk with telephone, a business center and food
service facilities.
The Company anticipates growth of the Club Hotel by Doubletree brand
through the acquisition of management contracts of unaffiliated underperforming
hotels and ground-up construction. As of December 31, 1998, 20 Club Hotels were
in operation and three were under construction or conversion.
See "-- Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for all Doubletree
hotels.
EMBASSY SUITES
Embassy Suites hotels are located in 36 states, the District of Columbia,
Canada and Latin America and have an average of 238 suites per hotel. As of
December 31, 1998, 13 Embassy Suites hotels were under construction, 11 of which
will be franchisee operated. Each guest suite has a separate living room and
dining/work area, with a console television, sofa-sleeper, refrigerator and wet
bar, as well as a traditional bedroom (with a king size bed or two double beds).
Most Embassy Suites hotels are built around a landscaped atrium. All hotels
offer a free, cooked-to-order breakfast and, where local law allows,
complimentary evening cocktails.
See "-- Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for Embassy Suites
hotels.
HAMPTON INN
Hampton Inn hotels are currently located in 48 states, as well as Canada,
Thailand, Puerto Rico, Mexico and Costa Rica. An average Hampton Inn hotel has
104 rooms. On December 31, 1998, 103 Hampton Inn hotels were under construction,
all of which will be franchisee operated. The Hampton Inn hotel's standardized
concept provides for a guest room featuring a color television, free in-room
movies, free local telephone calls and complimentary continental breakfast.
Unlike full-service hotels, Hampton Inn hotels do not feature restaurants,
lounges or large public spaces.
See "-- Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for Hampton Inn hotels.
8
<PAGE> 11
HAMPTON INN & SUITES
Hampton Inn & Suites have an average of 116 rooms and suites and are
currently located in 19 states and Canada. As of December 31, 1998, 24 Hampton
Inn & Suites hotels were under construction, 23 of which will be franchisee
operated. These hotels combine standard Hampton Inn guest rooms with a
significant block of two-room suites in a single property. Development of this
product is targeted for commercial and suburban markets, as well as destination
and resort markets. Each property contains a centrally located, expanded lobby
and complimentary services area and includes an exercise room, convenience shop,
meeting/hospitality room and guest laundry. An expanded complimentary
continental breakfast buffet is offered.
See "-- Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for Hampton Inn & Suites
hotels.
HOMEWOOD SUITES
Homewood Suites hotels, which have an average of 106 suites, are currently
located in 28 states. On December 31, 1998, 14 Homewood Suites hotels were under
construction, nine of which will be franchisee operated. Homewood Suites hotels
feature residential-style accommodations, which include a living room area (some
with fireplaces), separate bedroom (with a king size bed or two double beds),
separate bathroom, and a fully-equipped kitchen. The hotel is centered around a
central community building called the Lodge which affords guests a high level of
social interaction. Amenities include a complimentary breakfast and an evening
social hour, a convenience store, grocery shopping, business center, outdoor
pool, exercise center and limited meeting facilities.
See "-- Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for Homewood Suite
hotels.
NON-PROMUS BRAND HOTELS
In addition to the Promus brand hotels, the Company operates 68 hotels (41
of which are leased) which are not Promus branded. These hotels have an average
of 164 rooms.
See "-- Performance Statistics" for information regarding number of rooms,
number of hotels, occupancy percentage, ADR and RevPAR for non-Promus branded
hotels.
PROMUS VACATION RESORT PROPERTIES
The Promus Vacation Resort is a premium interval ownership concept that
provides consumers the opportunity to purchase use of a one, two or three
bedroom condominium-style unit for one or more weeks annually in a prime leisure
location, for an initial investment plus an annual maintenance fee. Each Promus
Vacation Resort property offers a quality, fully furnished product (consisting
of an inside living area, full kitchen, bathroom(s), bedroom(s), and outside
patio/entertainment area) coupled with added value facilities such as a swimming
pool, an exercise room, a hot tub, tennis courts, a volleyball court, and kids
club. Beach, boating, or snow/water skiing facilities may be available depending
on location. For a separate annual fee (the initial year fee is paid as part of
the purchase price), plus a per exchange service fee, each owner has the
opportunity to exchange his interest for the use of similar facilities at
another Embassy Vacation Resort property or a third-party participating resort
property.
Promus has entered into franchise agreements with Sunterra Corporation for
Embassy Vacation Resorts at Orlando, Florida; Lake Tahoe, California; Poipu
Point, Hawaii; and Maui, Hawaii; and with Vistana Development Ltd. for Embassy
Vacation Resorts in Scottsdale, Arizona, and Myrtle Beach, South Carolina, and
for a Hampton Vacation Resort in Kissimmee, Florida.
See "-- Performance Statistics" for information regarding numbers of units,
resorts, available timeshare intervals, and intervals sold for Promus Vacation
Resorts.
9
<PAGE> 12
PERFORMANCE STATISTICS
The table below sets forth information regarding the numbers of hotels and
rooms within the Promus hotel system as of December 31, 1996-1998, and the
respective compound annual growth rates for such hotels and rooms during the
three years ended December 31, 1998.
<TABLE>
<CAPTION>
COMPOUND COMPOUND
NUMBER OF HOTELS ANNUAL NUMBER OF ROOMS ANNUAL
--------------------- GROWTH --------------------------- GROWTH
BRAND 1996 1997 1998 RATE 1996 1997 1998 RATE
----- ----- ----- ----- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Doubletree Hotels(a)
Company owned..................... 1 16 16 300% 239 4,749 4,746 346%
Leased............................ 7 18 18 60% 1,748 4,805 4,812 66%
Joint venture(b).................. -- 3 4 N/A -- 812 1,002 N/A
Management contract............... 65 83 87 16% 18,240 23,466 24,324 15%
Franchised........................ 37 49 51 17% 8,469 10,980 11,927 19%
----- ----- ----- ------- ------- -------
110 169 176 26% 28,696 44,812 46,811 28%
===== ===== ===== ======= ======= =======
Embassy Suites
Company owned..................... 9 6 6 (18)% 2,025 1,299 1,299 (20)%
Joint venture(b).................. 22 19 19 (7)% 5,578 4,946 4,944 (6)%
Management contract............... 47 53 58 11% 11,461 13,020 14,425 12%
Franchised........................ 58 63 62 3% 13,583 14,826 13,905 1%
----- ----- ----- ------- ------- -------
136 141 145 3% 32,647 34,091 34,573 3%
===== ===== ===== ======= ======= =======
Hampton Inn
Company owned..................... 12 11 11 (4)% 1,654 1,506 1,504 (5)%
Leased............................ 17 19 18 3% 2,202 2,359 2,250 1%
Joint venture(b).................. 19 -- -- (100)% 2,376 -- -- (100)%
Management contract............... 5 7 7 18% 678 929 929 17%
Franchised........................ 567 689 790 18% 60,628 72,793 81,398 16%
----- ----- ----- ------- ------- -------
620 726 826 15% 67,538 77,587 86,081 13%
===== ===== ===== ======= ======= =======
Hampton Inn & Suites
Management contract............... 1 2 3 73% 127 287 408 79%
Franchised........................ 15 29 45 73% 1,719 3,167 5,183 74%
----- ----- ----- ------- ------- -------
16 31 48 73% 1,846 3,454 5,591 74%
===== ===== ===== ======= ======= =======
Homewood Suites
Company owned..................... 7 11 19 65% 800 1,202 2,232 67%
Leased............................ 1 -- -- (100)% 98 -- -- (100)%
Management contract............... 4 4 5 12% 471 471 554 8%
Franchised........................ 25 36 50 41% 2,530 3,590 5,081 42%
----- ----- ----- ------- ------- -------
37 51 74 41% 3,899 5,263 7,867 42%
===== ===== ===== ======= ======= =======
Non-Promus Brand Hotels
Company owned..................... 22 9 10 (33)% 5,548 1,320 1,620 N/A
Leased............................ 57 49 41 (15)% 9,855 7,244 6,433 (19)%
Joint venture(b).................. 3 -- -- (100)% 812 -- -- (100)%
Management contract............... 31 23 17 (26)% 8,824 5,031 3,067 (41)%
----- ----- ----- ------- ------- -------
113 81 68 (21)% 25,039 13,595 11,120 (33)%
===== ===== ===== ======= ======= =======
Total System
Company owned..................... 51 53 62 10% 10,266 10,076 11,401 5%
Leased............................ 82 86 77 (3)% 13,903 14,408 13,495 (1)%
Joint venture(b).................. 44 22 23 (28)% 8,766 5,758 5,946 (18)%
Management contract............... 153 172 177 8% 39,801 43,204 43,707 5%
Franchised........................ 702 866 998 19% 86,929 105,356 117,494 16%
----- ----- ----- ------- ------- -------
1,032 1,199 1,337 14% 159,665 178,802 192,043 10%
===== ===== ===== ======= ======= =======
</TABLE>
- - ---------------
(a) Includes Doubletree, Doubletree Guest Suites, and Club Hotel by Doubletree
brands.
(b) For statistical purposes only, the Company classifies unconsolidated joint
ventures in which it holds less than a 20% interest as management contracts
and consolidated joint ventures as Company owned.
10
<PAGE> 13
The table below sets forth information regarding the Promus Vacation Resort
properties as of December 31, 1996 -- 1998, and the compound annual growth rates
for such properties during the three years ended December 31, 1998.
<TABLE>
<CAPTION>
MANAGED FRANCHISED TOTAL COMPOUND
------------------------ ------------------------ ------------------------ ANNUAL
1996 1997 1998 1996 1997 1998 1996 1997 1998 GROWTH
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Promus Vacation Resorts(a)
Resort properties................. 2 3 5 1 3 3 3 6 8 63.3%
Timeshare units................... 164 228 500 207 818 874 371 1,046 1,374 92.4%
Timeshare intervals available..... 8,364 11,628 24,500 10,557 41,718 44,574 18,921 53,346 70,074 92.4%
Timeshare intervals sold(b)....... 3,098 6,227 14,271 1,426 4,077 10,154 4,524 10,304 24,425 132.4%
</TABLE>
- - ---------------
(a) Excludes 40 non-branded resort units managed by Promus in 1997.
(b) Includes pre-sales for resorts under construction but not yet open.
The table below sets forth occupancy, ADR and RevPAR information for the
hotels in the Promus system for each of the three years ended December 31, 1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31(A)
---------------------------------
BRAND 1996 1997 1998
----- ------- ------- -------
<S> <C> <C> <C>
Doubletree Hotels(b)
Occupancy............................................... 72.2% 72.7% 71.5%
ADR..................................................... $ 97.33 $107.12 $115.13
RevPAR.................................................. $ 70.28 $ 77.93 $ 82.35
Red Lion Hotels converted to
Doubletree Hotels(c)
Occupancy............................................... N/A 70.4% 70.1%
ADR..................................................... N/A $ 89.07 $ 91.09
RevPAR.................................................. N/A $ 62.73 $ 63.88
Embassy Suites
Occupancy............................................... 73.6% 74.8% 73.6%
ADR..................................................... $107.22 $114.34 $120.53
RevPAR.................................................. $ 78.95 $ 85.56 $ 88.76
Hampton Inn
Occupancy............................................... 72.3% 72.3% 71.1%
ADR..................................................... $ 61.64 $ 64.33 $ 67.28
RevPAR.................................................. $ 44.58 $ 46.50 $ 47.86
Hampton Inn & Suites
Occupancy............................................... 68.5% 72.1% 75.1%
ADR..................................................... $ 69.07 $ 72.01 $ 75.10
RevPAR.................................................. $ 47.28 $ 51.92 $ 56.41
Homewood Suites
Occupancy............................................... 63.7% 79.2% 77.5%
ADR..................................................... $106.63 $ 91.19 $ 95.89
RevPAR.................................................. $ 67.93 $ 72.19 $ 74.29
Non-Promus Brand Hotels(d)
Occupancy............................................... 73.0% 72.2% 70.8%
ADR..................................................... $ 81.17 $ 85.83 $ 90.36
RevPAR.................................................. $ 59.23 $ 62.00 $ 63.96
</TABLE>
- - ---------------
(a) Revenue statistics are for comparable hotels, and include information only
for those hotels in the system as of December 31, 1998 and managed or
franchised by PHC or managed by Doubletree since January 1, 1996. Doubletree
franchised hotels are not included in the statistical information.
11
<PAGE> 14
(b) Includes results for Doubletree, Doubletree Guest Suites, and Club Hotel by
Doubletree brands.
(c) Revenue statistics for the Red Lion hotels converted to the Doubletree brand
are included only for the period from the initial date of conversion (Phase
I -- 4 hotels on April 1, 1997; Phase II -- 36 hotels on July 1, 1997)
through December 31, 1998.
(d) Includes results for the 15 Red Lion hotels that have not been converted to
the Doubletree brand as well as the results for comparable hotels managed
under other franchisors' brands or as independent hotels.
HOTELS BY GEOGRAPHIC REGION
The following tables present certain hotel information with respect to the
hotels in the Promus system in all of North America and in each of eight
geographic regions as of and for the year ended December 31, 1998: New England
(Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and Connecticut);
Middle Atlantic (New York, New Jersey, Pennsylvania, Delaware, Maryland,
District of Columbia, Virginia and West Virginia); Mountain (Montana, Idaho,
Wyoming, Colorado, Utah and Nevada); Pacific (Washington, Oregon, California,
Alaska and Hawaii); Midwest (Ohio, Indiana, Illinois, Michigan and Wisconsin);
Plains (Minnesota, Iowa, Missouri, North Dakota, South Dakota, Nebraska and
Kansas); Southeast (North Carolina, South Carolina, Georgia, Florida, Kentucky,
Tennessee, Alabama, Mississippi, Arkansas and Louisiana); and Southwest
(Oklahoma, Texas, New Mexico and Arizona). The tables exclude the vacation
interval resorts managed and/or franchised by the Company.
NORTH AMERICA
<TABLE>
<CAPTION>
AS OF YEAR ENDED DECEMBER 31, 1998(a)
DECEMBER 31, 1998 --------------------------------
--------------------- AVERAGE
NUMBER OF NUMBER OF OCCUPANCY DAILY
BRAND HOTELS ROOMS PERCENTAGE RATE REVPAR(b)
----- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Doubletree................................... 115 33,732 70.2% $ 97.17 $68.23
Doubletree Guest Suites...................... 41 8,870 73.9 132.08 97.65
Club Hotel by Doubletree..................... 20 4,209 65.5 76.56 50.16
Embassy Suites............................... 145 34,573 73.8 119.35 88.08
Hampton Inn.................................. 826 86,081 70.8 66.86 47.34
Hampton Inn & Suites......................... 48 5,591 75.0 82.39 61.76
Homewood Suites.............................. 74 7,867 76.1 96.87 73.70
Non-Promus Brand Hotels...................... 68 11,120 70.4 92.88 65.39
----- -------
Total in North America.................. 1,337 192,043
===== =======
</TABLE>
NEW ENGLAND(c)
<TABLE>
<CAPTION>
AS OF YEAR ENDED DECEMBER 31, 1998(a)
DECEMBER 31, 1998 --------------------------------
--------------------- AVERAGE
NUMBER OF NUMBER OF OCCUPANCY DAILY
BRAND HOTELS ROOMS PERCENTAGE RATE REVPAR(b)
----- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Doubletree................................... 4 864 62.4% $156.69 $ 97.72
Doubletree Guest Suites...................... 2 583 78.4 161.27 126.44
Club Hotel by Doubletree..................... 1 268 -- -- --
Embassy Suites............................... 2 348 86.2 111.00 95.67
Hampton Inn.................................. 15 1,910 71.1 72.67 51.65
Hampton Inn & Suites......................... -- -- -- -- --
Homewood Suites.............................. 2 245 80.2 92.97 74.60
Non-Promus Brand Hotels...................... 10 1,347 78.3 208.32 163.21
----- -------
Total for Region........................ 36 5,565
===== =======
</TABLE>
12
<PAGE> 15
MIDDLE ATLANTIC(c)
<TABLE>
<CAPTION>
AS OF YEAR ENDED DECEMBER 31, 1998(a)
DECEMBER 31, 1998 --------------------------------
--------------------- AVERAGE
NUMBER OF NUMBER OF OCCUPANCY DAILY
BRAND HOTELS ROOMS PERCENTAGE RATE REVPAR(b)
----- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Doubletree................................... 12 4,164 70.4% $105.98 $ 74.59
Doubletree Guest Suites...................... 7 1,616 81.7 171.34 140.07
Club Hotel by Doubletree..................... 4 757 -- -- --
Embassy Suites............................... 17 4,051 76.1 132.25 100.69
Hampton Inn.................................. 129 14,338 72.6 72.13 52.36
Hampton Inn & Suites......................... 6 670 75.6 78.59 59.45
Homewood Suites.............................. 10 1,008 73.7 111.45 82.19
Non-Promus Brand Hotels...................... 4 968 75.0 96.85 72.60
--- ------
Total for Region........................ 189 27,572
=== ======
</TABLE>
MOUNTAIN(c)
<TABLE>
<CAPTION>
AS OF YEAR ENDED DECEMBER 31, 1998(a)
DECEMBER 31, 1998 --------------------------------
--------------------- AVERAGE
NUMBER OF NUMBER OF OCCUPANCY DAILY
BRAND HOTELS ROOMS PERCENTAGE RATE REVPAR(b)
----- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Doubletree................................... 9 2,611 75.5% $ 82.30 $62.17
Doubletree Guest Suites...................... -- -- -- -- --
Club Hotel by Doubletree..................... 2 348 66.0 68.18 44.97
Embassy Suites............................... 7 1,510 72.2 114.73 82.87
Hampton Inn.................................. 32 3,326 66.1 68.35 45.16
Hampton Inn & Suites......................... 2 210 -- -- --
Homewood Suites.............................. 2 210 79.8 116.85 93.24
Non-Promus Brand Hotels...................... 3 274 61.3 52.04 31.92
-- -----
Total for Region........................ 57 8,489
== =====
</TABLE>
PACIFIC(c)
<TABLE>
<CAPTION>
AS OF YEAR ENDED DECEMBER 31, 1998(a)
DECEMBER 31, 1998 --------------------------------
--------------------- AVERAGE
NUMBER OF NUMBER OF OCCUPANCY DAILY
BRAND HOTELS ROOMS PERCENTAGE RATE REVPAR(b)
----- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Doubletree................................... 46 13,151 68.4% $ 93.85 $ 64.22
Doubletree Guest Suites...................... 3 670 77.4 129.47 100.26
Club Hotel by Doubletree..................... 1 160 -- -- --
Embassy Suites............................... 32 8,216 74.3 124.96 92.81
Hampton Inn.................................. 26 3,081 71.0 69.31 49.22
Hampton Inn & Suites......................... 2 350 -- -- --
Homewood Suites.............................. 5 634 79.2 129.00 102.22
Non-Promus Brand Hotels...................... 18 3,156 71.1 93.06 66.15
--- ------
Total for Region........................ 133 29,418
=== ======
</TABLE>
13
<PAGE> 16
MIDWEST(c)
<TABLE>
<CAPTION>
AS OF YEAR ENDED DECEMBER 31, 1998(a)
DECEMBER 31, 1998 --------------------------------
--------------------- AVERAGE
NUMBER OF NUMBER OF OCCUPANCY DAILY
BRAND HOTELS ROOMS PERCENTAGE RATE REVPAR(b)
----- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Doubletree................................... 5 1,310 --% $ -- $ --
Doubletree Guest Suites...................... 9 1,942 72.0 123.00 88.61
Club Hotel by Doubletree..................... 2 442 73.1 86.34 63.08
Embassy Suites............................... 12 3,029 72.3 127.67 92.26
Hampton Inn.................................. 128 12,812 70.6 67.74 47.84
Hampton Inn & Suites......................... 10 1,132 72.4 76.41 55.30
Homewood Suites.............................. 10 944 78.1 87.83 68.57
Non-Promus Brand Hotels...................... 9 1,161 73.7 82.15 60.51
--- ------
Total for Region........................ 185 22,772
=== ======
</TABLE>
PLAINS(c)
<TABLE>
<CAPTION>
AS OF YEAR ENDED DECEMBER 31, 1998(a)
DECEMBER 31, 1998 --------------------------------
--------------------- AVERAGE
NUMBER OF NUMBER OF OCCUPANCY DAILY
BRAND HOTELS ROOMS PERCENTAGE RATE REVPAR(b)
----- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Doubletree................................... 7 2,173 70.8% $ 90.19 $63.88
Doubletree Guest Suites...................... 3 637 -- -- --
Club Hotel by Doubletree..................... 1 197 -- -- --
Embassy Suites............................... 10 2,377 69.2 112.86 78.05
Hampton Inn.................................. 54 5,841 68.0 65.48 44.55
Hampton Inn & Suites......................... 1 85 -- -- --
Homewood Suites.............................. 4 463 60.2 83.76 50.46
Non-Promus Brand Hotels...................... 3 493 69.8 89.50 62.49
-- ------
Total for Region........................ 83 12,266
== ======
</TABLE>
SOUTHEAST(c)
<TABLE>
<CAPTION>
AS OF YEAR ENDED DECEMBER 31, 1998(a)
DECEMBER 31, 1998 --------------------------------
--------------------- AVERAGE
NUMBER OF NUMBER OF OCCUPANCY DAILY
BRAND HOTELS ROOMS PERCENTAGE RATE REVPAR(b)
----- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Doubletree................................... 14 3,849 70.9% $101.93 $72.29
Doubletree Guest Suites...................... 12 2,047 68.5 110.13 75.42
Club Hotel by Doubletree..................... 9 2,037 61.1 73.22 44.71
Embassy Suites............................... 33 8,271 74.6 118.76 88.55
Hampton Inn.................................. 353 35,067 71.2 65.66 46.78
Hampton Inn & Suites......................... 20 2,282 73.8 86.97 64.21
Homewood Suites.............................. 23 2,445 77.3 92.09 71.19
Non-Promus Brand Hotels...................... 13 2,105 72.6 77.88 56.57
--- ------
Total for Region........................ 477 58,103
=== ======
</TABLE>
14
<PAGE> 17
SOUTHWEST(c)
<TABLE>
<CAPTION>
AS OF YEAR ENDED DECEMBER 31, 1998(a)
DECEMBER 31, 1998 --------------------------------
--------------------- AVERAGE
NUMBER OF NUMBER OF OCCUPANCY DAILY
BRAND HOTELS ROOMS PERCENTAGE RATE REVPAR(b)
----- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Doubletree................................... 15 4,815 70.3% $103.82 $73.02
Doubletree Guest Suites...................... 5 1,375 72.5 109.60 79.47
Club Hotel by Doubletree..................... -- -- -- -- --
Embassy Suites............................... 27 5,799 71.1 107.79 76.65
Hampton Inn.................................. 80 8,398 67.6 64.11 43.34
Hampton Inn & Suites......................... 6 758 76.5 68.41 52.35
Homewood Suites.............................. 18 1,918 75.7 100.06 75.78
Non-Promus Brand Hotels...................... 8 1,616 64.8 82.12 53.20
--- ------
Total for Region........................ 159 24,679
=== ======
</TABLE>
- - ---------------
(a) Revenue statistics are for comparable hotels, which include only those
hotels in the system for the entire period from January 1, 1997 through
December 31, 1998. Doubletree, Doubletree Guest Suites and Club Hotel by
Doubletree's revenues statistics exclude franchised hotels. Embassy Suites,
Hampton Inn, Hampton Inn & Suites and Homewood Suites' revenue statistics
exclude hotels that had room additions.
(b) RevPAR is the product of the occupancy percentage times the average daily
rate.
(c) The geographical regional data presented above excludes 18 hotels with an
aggregate of 3,179 rooms located outside the United States.
AUDUBON WOODS BUSINESS CAMPUS
The Company's corporate headquarters, located in Memphis, Tennessee,
consist of four office buildings acquired in 1995 containing approximately
360,000 square feet of office space on 31 acres of land. The Company currently
occupies 75% of the office space. The remaining space is leased.
TRADEMARKS
The following trademarks used herein are owned by the Company:
Doubletree(R), Doubletree Guest Suites(R), Club Hotel by Doubletree(R), Embassy
Suites(R), Embassy Vacation Resort(R), Hampton Inn(R), Hampton Inn & Suites(R),
Hampton Vacation Resort(SM), Homewood Suites(R), Promus(R), Red Lion Hotels and
Inns(R), and System 21(TM). The names "Club Hotel by Doubletree," "Doubletree,"
"Doubletree Guest Suites," "Embassy Suites," "Embassy Vacation Resort," "Hampton
Inn," "Hampton Inn & Suites," and "Homewood Suites" are registered as service
marks in the United States and in certain foreign countries. The Company
considers all of these marks, and the associated name recognition, to be
valuable to its business.
ITEM 3. LEGAL PROCEEDINGS
Actions for negligence or other tort claims occur routinely in the ordinary
course of the Company's business, but none of these proceedings involves a claim
for damages (in excess of applicable excess umbrella insurance coverages)
involving more than 10% of current assets of the Company. The Company does not
anticipate that any amounts which it may be required to pay as a result of an
adverse determination of such legal proceedings, individually or in the
aggregate, or any other relief granted by reason thereof, will have a material
adverse effect on the Company's financial condition or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fiscal
quarter ended December 31, 1998.
15
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange and
traded under the ticker symbol "PRH". The stock is also listed on the Chicago
Stock Exchange, Pacific Stock Exchange, and Philadelphia Stock Exchange. There
were approximately 10,400 holders of record of common stock as of March 5, 1999.
The following table sets forth the high and low sale prices per share of
common stock for 1998 and 1997 as reported on the New York Stock Exchange
Composite Tape:
<TABLE>
<CAPTION>
PROMUS
---------------
1998 HIGH LOW
- - ---- ------ ------
<S> <C> <C>
Fourth Quarter.............................................. $36.63 $20.56
Third Quarter............................................... 43.63 26.50
Second Quarter.............................................. 48.31 37.13
First Quarter............................................... 49.63 40.75
</TABLE>
<TABLE>
<CAPTION>
DOUBLETREE PHC PROMUS
--------------- --------------- ---------------
1997 HIGH LOW HIGH LOW HIGH LOW
- - ---- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Fourth Quarter (December 19-31,
1997)................................ -- -- -- -- $43.13 $36.50
Fourth Quarter (through December 18,
1997)................................ $49.38 $37.75 $45.38 $35.75 -- --
Third Quarter.......................... 50.75 41.38 46.88 38.00 -- --
Second Quarter......................... 49.00 30.25 39.25 30.50 -- --
First Quarter.......................... 45.25 35.00 36.38 28.25 -- --
</TABLE>
In April 1998, the Company's Board of Directors authorized the Company to
repurchase up to $200 million of its common stock for cash. The authorization
allows the Company to conduct the repurchase program in the open market or in
negotiated or block transactions at prevailing market prices until December 31,
1999. Through December 31, 1998, the Company had repurchased 3,620,000 shares of
common stock at a total cost of approximately $117.6 million. The average price
per share, including transaction costs, was $32.48.
The Company has not paid, and does not presently intend to pay, cash
dividends on the common stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" in the Annual Report on pages 29-31, which information is
incorporated herein by reference. The payment of dividends in the future will be
at the discretion of the Board of Directors of the Company and will be dependent
on the Company's results of operations, financial condition, cash requirements,
future prospects and other factors deemed relevant by the Board of Directors.
16
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
COMPOUND
PRO FORMA ANNUAL
1994 1995 1996(A) 1996(B) 1997(A) 1998(C) GROWTH RATE
----- ----- ------- --------- ------- ------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results
Revenues............................ $ 327 $ 422 $ 560 $ 891 $1,038 $1,107 35.7%
EBITDA(e)........................... 129 149 214 311 312 419 34.2%
Operating income.................... 110 124 165 230 184 303 29.0%
Net income.......................... 50 64 91 106 95 154 32.8%
Diluted earnings per share.......... $0.73 $0.92 $ 1.23 $1.21 $ 1.09 $ 1.78 (d)
Financial Position
Total assets........................ $ 548 $ 683 $2,363 N/A $2,379 $2,474 45.7%
Notes payable (long-term)........... 189 229 789 N/A 672 769 42.1%
Total equity........................ 235 282 1,050 N/A 1,096 1,159 49.1%
</TABLE>
- - ---------------
(a) 1997 includes $115.0 million of business combination expenses, a $10.9
million breakup fee received in connection with the terminated Renaissance
Hotel Group transaction, $43.3 million of gains on the sale of real estate
and securities, and other net gains of $0.9 million. In 1996, the Company
recognized gains of $4.4 million on the sale of real estate and securities.
Excluding the effect of these transactions, 1997 and 1996 net income would
have been $143.8 million and $103.4 million, respectively. Diluted earnings
per share for 1997 and 1996, excluding the effect of these transactions,
would have been $1.64 and $1.18 per share, respectively.
(b) 1996 pro forma results of operations reflect the acquisition of Red Lion as
if it had occurred on January 1, 1996.
(c) 1998 includes $28.1 million of business combination expenses, $10.1 million
of severance and employment-related expenses associated with the
resignations of the CEO and President of the Company, $10.2 million of gains
on the sale of securities, $1.3 million of gain on the sale of excess land,
and other miscellaneous real estate gains of $0.2 million.
(d) For periods prior to PHC's June 30, 1995 spin-off by its former parent,
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 (Doubletree's initial public offering), shares outstanding
were assumed to be equal to the shares issued on June 30, 1994. Excluding
unusual items (identified in footnotes (a) and (c)) in 1998, 1997 and 1996,
diluted earnings per share would have been $2.08, $1.64 and $1.18,
respectively, resulting in a 32.8% three year compound growth rate.
(e) EBITDA, consisting of income before extraordinary items plus interest
expense, income tax expense, depreciation and amortization and cash
distributions from nonconsolidated affiliates less earnings from
nonconsolidated affiliates, is a supplemental financial measurement used by
management, as well as by industry analysts, to evaluate Promus' operations.
However, EBITDA should not be construed as an alternative to operating
income (as an indicator of operating performance) or to cash flows from
operating activities (as a measure of liquidity) as determined in accordance
with generally accepted accounting principles.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 7 is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report on pages 20-33, which information is
incorporated herein by reference.
17
<PAGE> 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, primarily changes in interest rates.
The Company has entered into derivative transactions to hedge its exposure to
interest rate changes. The Company does not hold or issue derivative financial
instruments for trading purposes and does not enter into derivative transactions
that would be considered speculative positions.
The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps and debt obligations.
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For interest rate
swaps, the table presents notional amounts and weighted average rates by
contractual maturity dates.
<TABLE>
<CAPTION>
MATURITY DATE
------------------------------------------------------------ FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE(1)
------ ----- ----- ----- ----- ---------- ------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Long-term debt
Fixed rate................ $ 1.6 $ 1.9 $ 2.1 $37.9 $ 1.3 $56.6 $101.4 $ 97.8
Average interest
rate................. 7.5% 7.5% 7.5% 5.8% 7.1% 7.1% 6.6%
Variable rate............. $669.3 $ -- $ -- $ -- $ -- $ -- $669.3 $669.3
Average interest
rate(2).............. 6.2% -- -- -- -- -- 6.2%
INTEREST RATE SWAPS
Variable to Fixed......... $337.5 $ -- $ -- $39.1 $ -- $ -- $376.6 $ (3.6)
Average pay rate....... 6.2% -- -- 6.4% -- -- 6.2%
Average receive rate... 5.3% -- -- 5.3% -- -- 5.3%
</TABLE>
- - ---------------
(1) The fair value of the fixed rate debt is based on the borrowing rates
currently available for debt instruments with similar terms and maturities.
The carrying value of variable rate long-term debt approximates fair value
due to their short maturities and interest terms. The fair value of the swap
agreements is based on the price the Company would have to pay to terminate
them.
(2) The average interest rates were based on December 31, 1998, variable rates.
Actual rates in future periods could vary.
The long-term debt consists of an unsecured credit arrangement (the "Promus
Facility"), mortgage indebtedness, and other unsecured notes payable. For a more
detailed discussion of the Promus Facility and the Company's other indebtedness,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Promus Facility and Other
Indebtedness" on page 30 and "Note 8 -- Notes Payable" on pages 44 and 45 of the
Annual Report, which information is incorporated herein by reference.
The interest rate swap agreements contain a credit risk to the Company that
the counterparties may be unable to meet the terms of the agreements. The
Company minimizes this risk by evaluating the creditworthiness of its
counterparties, which are limited to major banks and financial institutions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is included in the Annual
Report on pages 34-54, which pages are incorporated herein by reference, and in
the section labeled "Performance Statistics" on pages 10-12 in Part I hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
18
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
See the information regarding the directors of the Company set forth in the
Company's Proxy Statement dated March 29, 1999, relating to the 1999 Annual
Meeting of Shareholders (the "Proxy Statement") in the section entitled "Item
1 -- Election of Directors" on pages 6-8 thereof, which information is
incorporated herein by reference. See "Executive Officers" on pages 6-7 in Part
I hereof for information concerning the Company's executive officers.
ITEM 11. EXECUTIVE COMPENSATION
See the information set forth in the Proxy Statement in the section
entitled "How are directors compensated?" on page 10 thereof and the information
entitled "Executive Officer Compensation" on pages 12-21 thereof, which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information set forth in the Proxy Statement in the section
entitled "Stock Ownership" on pages 3-5 thereof, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information set forth in the Proxy Statement in the section
entitled "Certain Relationships and Related-Party Transactions" on page 11
thereof, which information is incorporated herein by reference.
19
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The financial statements required by Item 14(a)(1) are included in the
Annual Report on pages 34-54, which information is incorporated herein by
reference.
(a)(2) Financial Statement Schedules
Financial statement schedules for the fiscal years ended December 31, 1997
and 1998, are as follows:
Schedule II -- Consolidated Valuation and Qualifying Accounts
Schedules I, III, IV and V are omitted because they are not applicable.
(a)(3) Exhibits
The exhibits listed in the Exhibit Index below are filed as part of this
Report or are incorporated herein by reference.
(b) Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during the
fiscal quarter ended December 31, 1998.
<TABLE>
<CAPTION>
DATE OF EVENT REPORTED SUBJECT
- - ---------------------- -------
<S> <C>
December 3, 1998....................... Press release announcing the election of Norman P. Blake,
Jr., as Chairman of the Board, President and Chief
Executive Officer
December 15, 1998...................... Press release announcing the resignation of William L.
Perocchi as Executive Vice President and Chief Financial
Officer and the election of Dan L. Hale as Executive Vice
President and Chief Financial Officer
</TABLE>
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PROMUS HOTEL CORPORATION
By: NORMAN P. BLAKE, JR.
------------------------------------
Norman P. Blake, Jr.
Chairman of the Board
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
NORMAN P. BLAKE, JR. Chairman of the Board, March 29, 1999
- - ----------------------------------------------------- President and Chief Executive
Norman P. Blake, Jr. Officer (principal executive
officer)
PRISCILLA FLORENCE Director March 29, 1999
- - -----------------------------------------------------
Priscilla Florence
DALE F. FREY Director March 29, 1999
- - -----------------------------------------------------
Dale F. Frey
ROBERT E. GREGORY Director March 29, 1999
- - -----------------------------------------------------
Robert E. Gregory
CHRISTOPHER W. HART Director March 29, 1999
- - -----------------------------------------------------
Christopher W. Hart
MICHAEL W. MICHELSON Director March 29, 1999
- - -----------------------------------------------------
Michael W. Michelson
JOHN H. MYERS Director March 29, 1999
- - -----------------------------------------------------
John H. Myers
C. WARREN NEEL Director March 29, 1999
- - -----------------------------------------------------
C. Warren Neel
MICHAEL I. ROTH Director March 29, 1999
- - -----------------------------------------------------
Michael I. Roth
JAY STEIN Director March 29, 1999
- - -----------------------------------------------------
Jay Stein
RONALD TERRY Director March 29, 1999
- - -----------------------------------------------------
Ronald Terry
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
PETER V. UEBERROTH Director March 29, 1999
- - -----------------------------------------------------
Peter V. Ueberroth
DAN L. HALE Executive Vice President and March 29, 1999
- - ----------------------------------------------------- Chief Financial Officer
Dan L. Hale (principal financial officer)
RICHARD L. TRUEBLOOD Senior Vice President, March 29, 1999
- - ----------------------------------------------------- Controller and Chief
Richard L. Trueblood Accounting Officer (principal
accounting officer)
</TABLE>
22
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Promus Hotel Corporation:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in the Promus Hotel Corporation 1998 annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 12, 1999. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed under Item 14(a)(2) is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements, and in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Memphis, Tennessee
February 12, 1999.
23
<PAGE> 26
SCHEDULE II
PROMUS HOTEL CORPORATION
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - -------------------------------------------- ---------- ------------------- ---------- ---------
ADDITIONS
-------------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- - ----------- ---------- -------- -------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1998
Allowance for doubtful accounts
Current................................ $ 1,600 $ 1,793 $ 0 $ 102(a) $ 3,291
======= ======== ======= ======= =======
Long-term.............................. $ 837 $ 121 $ 0 $ 0 $ 958
======= ======== ======= ======= =======
Business combination accruals
Merger costs........................... $65,789 $ 0 $ 0 $56,164(b) $ 9,625
Severance costs........................ $ 0 $ 28,065 $ 0 $ 0 $28,065
------- -------- ------- ------- -------
Total............................. $65,789 $ 28,065 $ 0 $56,164 $37,690
======= ======== ======= ======= =======
Fiscal Year Ended December 31, 1997
Allowance for doubtful accounts
Current................................ $ 1,558 $ 409 $ 0 $ 367(a) $ 1,600
======= ======== ======= ======= =======
Long-term.............................. $ 357 $ 480 $ 0 $ 0 $ 837
======= ======== ======= ======= =======
Business combination accruals
Merger costs........................... $ 0 $115,000 $ 0 $49,211(b) $65,789
======= ======== ======= ======= =======
</TABLE>
- - ---------------
(a) Includes uncollectible accounts written off, net of amounts recovered, and
balances transferred to other accounts.
(b) Represents cash paid for accruals. None of the 1998 accrual was paid before
year-end 1998.
24
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <C> <S>
3.1 -- Restated Certificate of Incorporation of Promus Hotel
Corporation [incorporated by reference from Registration
Statement on Form S-4 (File No. 333-40253) filed on November
11, 1997].
3.2 -- Amended and Restated Bylaws of Promus Hotel Corporation
dated as of December 3, 1998.*
4.1 -- Rights Agreement dated as of December 17, 1997, between
Promus Hotel Corporation and First Union National Bank
[incorporated by reference from Form 8-A (File No. 1-13719)
filed on December 17, 1997], as amended by First Amendment
to Rights Agreement dated as of October 23, 1998, between
the parties*.
4.2 -- Registration Rights Agreement dated as of December 19, 1997,
among Promus Hotel Corporation and certain shareholders
[incorporated by reference from Registration Statement on
Form S-4 (File No. 333-40253) filed on November 11, 1997].
10.1 -- Agreement and Plan of Merger dated as of September 1, 1997,
among Doubletree Corporation, Promus Hotel Corporation, and
Parent Holding Corp. [incorporated by reference from Current
Report on Form 8-K for event dated September 1, 1997 (File
No. 1-11463)], as amended by Amendment Agreement dated as of
October 1, 1997, between Doubletree Acquisition Corp. and
Promus Acquisition Corp. [incorporated by reference from
Registration Statement on Form S-4 (File No. 333-40253)
filed on November 11, 1997], and resolutions adopted by
Board of Directors of Promus Hotel Corporation on July
30-31, 1998, and effective as of December 3, 1998*.
10.2 -- Guarantee Agreement dated as of February 5, 1996, among
Promus Hotel Corporation, Promus Hotels, Inc., Canadian
Imperial Bank of Commerce, as agent for the Lenders, FelCor
Suites Limited Partnership, FelCor/CSS Holdings, L.P., and
FelCor Suite Hotels, Inc. [incorporated by reference from
Quarterly Report on Form 10-Q for fiscal quarter ended March
31, 1996 (File No. 1-11463].
10.3 -- Lease dated as of August 1, 1995, between RLH Partnership,
L.P., and Red Lion Hotels, Inc. [incorporated by reference
from Current Report on Form 8-K for event dated November 15,
1996 (File No. 0-24392)], as amended by First Amendment to
Lease dated as of November 8, 1996, between the parties*,
Second Amendment to Lease dated as of September 15, 1998,
between the parties*, and Third Amendment to Lease dated as
of February 26, 1999, between the parties*.
10.4 -- Guaranty of Lease Obligations dated as of September 15,
1998, among Promus Hotels, Inc., Red Lion Hotels, Inc., and
RLH Partnership, L.P.*
10.5 -- Guaranty Agreement dated as of November 13, 1998, between
Doubletree Corporation and GMAC Commercial Mortgage
Corporation, and joined by Promus Hotel Corporation.*
10.6 -- Tranche A Credit Agreement dated as of December 19, 1997,
among Doubletree Corporation and Promus Hotels, Inc., as
borrowers; Promus Hotel Corporation and Promus Operating
Company, Inc., as guarantors; the Lenders; Bankers Trust
Company, The Bank of Nova Scotia, and Canadian Imperial Bank
of Commerce, as co-syndication agents; and NationsBank,
N.A., as agent [incorporated by reference from Annual Report
on Form 10-K for fiscal year ended December 31, 1997 (File
No. 1-13719)].
10.7 -- Tranche B Credit Agreement dated as of December 19, 1997,
among Doubletree Corporation and Promus Hotels, Inc., as
borrowers; Promus Hotel Corporation and Promus Operating
Company, Inc., as guarantors; the Lenders; Bankers Trust
Company, The Bank of Nova Scotia, and Canadian Imperial Bank
of Commerce, as co-syndication agents; and NationsBank,
N.A., as agent [incorporated by reference from Annual Report
on Form 10-K for fiscal year ended December 31, 1997 (File
No. 1-13719)]; as amended by First Amendment to Tranche B
Credit Agreement dated as of December 18, 1998, among the
parties*.
10.8+ -- Employment Agreement dated as of December 3, 1998, between
Promus Hotel Corporation and Norman P. Blake, Jr.*
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <C> <S>
10.9+ -- Employment Agreement dated as of December 19, 1997, between
Promus Hotel Corporation and Raymond E. Schultz
[incorporated by reference from Registration Statement on
Form S-4 (File No. 333-40253) filed on November 11, 1997].
10.10+ -- Employment Agreement dated as of December 19, 1997, between
Promus Hotel Corporation and Richard M. Kelleher
[incorporated by reference from Registration Statement on
Form S-4 (File No. 333-40253) filed on November 11, 1997].
10.11+ -- Employment Agreement dated as of December 19, 1997, between
Promus Hotel Corporation and William L. Perocchi
[incorporated by reference from Registration Statement on
Form S-4 (File No. 333-40253) filed on November 11, 1997].
10.12+ -- Employment Agreement dated as of December 19, 1997, between
Promus Hotel Corporation and Thomas L. Keltner [incorporated
by reference from Registration Statement on Form S-4 (File
No. 333-40253) filed on November 11, 1997].
10.13+ -- Severance Agreement dated as of January 13, 1999, between
Promus Hotel Corporation and Norman P. Blake, Jr.*
10.14+ -- Merger Severance Agreement dated as of September 1, 1997,
between Promus Hotel Corporation and Raymond E. Schultz
[incorporated by reference from Registration Statement on
Form S-4 (File No. 333-40253) filed on November 11, 1997].
10.15+ -- Severance Agreement dated as of December 17, 1997, between
Doubletree Corporation and Richard M. Kelleher [incorporated
by reference from Registration Statement on Form S-4 (File
No. 333-40253) filed on November 11, 1997].
10.16+ -- Severance Agreement dated as of December 17, 1997, between
Doubletree Corporation and William L. Perocchi [incorporated
by reference from Registration Statement on Form S-4 (File
No. 333-40253) filed on November 11, 1997].
10.17+ -- Merger Severance Agreement dated as of September 1, 1997,
between Promus Hotel Corporation and Thomas L. Keltner
[incorporated by reference from Registration Statement on
Form S-4 (File No. 333-40253) filed on November 11, 1997].
10.18+ -- Severance Agreement dated as of September 15, 1997, between
Doubletree Corporation and Thomas W. Storey.*
10.19+ -- Severance Agreement dated as of September 15, 1997, between
Doubletree Corporation and Margaret Ann Rhoades.*
10.20+ -- Merger Severance Agreement dated as of September 1, 1997,
between Promus Hotel Corporation and James T. Harvey.*
10.21+ -- Merger Severance Agreement dated as of September 1, 1997,
between Promus Hotel Corporation and Stevan D. Porter.*
10.22+ -- Short-Term Retention Agreement dated as of March 15, 1999,
between Promus Hotel Corporation and Thomas L. Keltner.*
10.23+ -- Long-Term Retention Agreement dated as of March 15, 1999,
between Promus Hotel Corporation and Thomas L. Keltner.*
10.24+ -- Short-Term Retention Agreement dated as of March 5, 1999,
between Promus Hotel Corporation and Thomas W. Storey.*
10.25+ -- Long-Term Retention Agreement dated as of March 5, 1999,
between Promus Hotel Corporation and Thomas W. Storey.*
10.26+ -- Consulting Agreement dated as of January 1, 1999, between
Promus Hotel Corporation and Peter V. Ueberroth.*
10.27+ -- Promus Hotel Corporation Executive Deferred Compensation
Plan amended and restated on February 26, 1997.*
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <C> <S>
10.28+ -- 1997 Equity Participation Plan of Promus Hotel Corporation
[incorporated by reference from Registration Statement on
Form S-4 (File No. 333-40253) filed on November 11, 1997].
10.29+ -- Doubletree Hotels Corporation Supplemental Executive
Retirement Plan dated as of February 15, 1997, as amended by
letter from Richard J. Ferris to Richard M. Kelleher and
William L. Perocchi dated December 9, 1997.*
10.30+ -- Promus Hotel Corporation Key Executive Officer Annual
Incentive Plan [incorporated by reference from Proxy
Statement dated April 25, 1995 (File No. 1-10410)].
10.31+ -- Form of Indemnification Agreement between Promus Hotel
Corporation and its directors and officers [incorporated by
reference from Registration Statement on Form S-4 (File No.
333-40253) filed on November 11, 1997].
11 -- Computation of Per Share Earnings*
13 -- 1998 Annual Report to Shareholders*
21 -- Subsidiaries of Promus Hotel Corporation*
23 -- Consent of Arthur Andersen LLP*
27 -- Financial Data Schedule -- Year ended December 31, 1998*
</TABLE>
- - ---------------
* The indicated exhibit is filed herewith.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(a)(3) of Form 10-K.
27
<PAGE> 1
EXHIBIT 3.2
<PAGE> 2
AMENDED AND RESTATED
BYLAWS
OF
PROMUS HOTEL CORPORATION
AS OF
DECEMBER 3,1998
ARTICLE I.
OFFICES
Section 1. Registered Office. The registered office of Promus Hotel
Corporation (the "Corporation") shall be at Corporation Service Company, 1013
Centre Road, in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meeting of stockholders shall be
held on the last Wednesday in April in each year or on such other date and at
such time as may be fixed by the Board of Directors and stated in the notice of
the meeting, for the purpose of electing directors and for the transaction of
only such other business as is properly brought before the meeting in accordance
with these Bylaws.
Written notice of an annual meeting stating the place, date and hour of
the meeting, shall be given to each stockholder entitled to vote at such meeting
not less than ten nor more than sixty days before the date of the meeting.
To be properly brought before the annual meeting, business must be
either (i) specified in the notice of annual meeting (or any supplement or
amendment thereto) given by or at the direction of the Board of Directors, (ii)
otherwise brought before the annual meeting by or at the direction of the Board
of Directors, or (iii) otherwise properly brought before the annual meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly
<PAGE> 3
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than sixty (60) days
nor more than ninety (90) days prior to the meeting; provided, however, that in
the event that less than seventy (70) days notice or prior public disclosure of
the date of the annual meeting is given or made to stockholders, notice by a
stockholder, to be timely, must be received no later than the close of business
on the tenth (10th) day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made, whichever
first occurs. A stockholder's notice to the Secretary shall set forth (a) as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, and
(ii) any material interest of the stockholder in such business, and (b) as to
the stockholder giving the notice (i) the name and record address of the
stockholder and (ii) the class, series and number of shares of capital stock of
the Corporation which are beneficially owned by the stockholder. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at the
annual meeting except in accordance with the procedures set forth in this
Article II, Section 2. The officer of the Corporation presiding at an annual
meeting shall, if the facts warrant, determine and declare to the annual meeting
that business was not properly brought before the annual meeting in accordance
with the provisions of this Article 11, Section 2, and if such officer should so
determine, such officer shall so declare to the annual meeting and any such
business not properly brought before the meeting shall not be transacted.
Section 3. Special Meetings. Unless otherwise prescribed by law or by
the Restated Certificate of Incorporation of the Corporation (the "Certificate
of Incorporation"), special meetings of stockholders, for any purpose or
purposes, may only be called by a majority of the entire Board of Directors or
by the Chairman of the Board and Chief Executive Officer or the President and
Chief Operating Officer.
Written notice of a special meeting stating the place, date and hour of
the meeting, shall be given to each stockholder entitled to vote at such meeting
not less than ten nor more than sixty days before the date of the meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the holders of a
majority of the votes entitled to be cast by the stockholders entitled to vote
thereat, present in person or represented by proxy may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented by proxy. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally noticed. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder entitled to vote at the meeting.
2
<PAGE> 4
Section 5. Voting. Unless otherwise required by law, the Certificate of
Incorporation, the rules or regulations of any stock exchange applicable to the
Corporation or these Bylaws, any question (other than the election of directors)
brought before any meeting of stockholders shall be decided by the vote of the
holders of a majority of the stock represented and entitled to vote thereat. At
all meetings of stockholders for the election of directors, a plurality of the
votes cast shall be sufficient to elect. Each stockholder represented at a
meeting of stockholders shall be entitled to cast one vote for each share of the
capital stock entitled to vote thereat held by such stockholder, unless
otherwise provided by the Certificate of Incorporation. Such votes may be cast
in person or by proxy but no proxy shall be voted after three years from its
date, unless such proxy provides for a longer period. The Board of Directors, in
its discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such meeting
shall be cast by written ballot.
Section 6. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 7. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 6 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III.
DIRECTORS
Section 1. Nomination of Directors. Nominations of persons for election
to the Board of Directors of the Corporation at a meeting of stockholders of the
Corporation may be made at such meeting by or at the direction of the Board of
Directors, by any committee or persons appointed by the Board of Directors or by
any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Article III, Section 1. Such nominations by any stockholder shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than sixty (60) days
nor more than ninety (90) days prior to the meeting; provided however, that in
the event that less than seventy (70) days notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder, to be timely,
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<PAGE> 5
must be received no later than that the close of business on the tenth (10th)
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, (a)
the name, age, business address and residence address of the person, (b) the
principal occupation or employment of the person, (c) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person, and (d) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
the Rules and Regulations of the Securities and Exchange Commission under
Section 14 of the Securities Exchange Act of 1934, as amended; and (ii) as to
the stockholder giving the notice (a) the name and record address of the
stockholder and (b) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth herein. The officer of the Corporation presiding
at an annual meeting shall, if the facts warrant, determine and declare to the
meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
Section 2. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman of the Board and Chief Executive Officer or the President and Chief
Operating Officer or a majority of the entire Board of Directors. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail not less than forty-eight (48) hours before the date of the
meeting, by telephone or telegram on twenty-four (24) hours notice, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
Section 3. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, a majority of the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 4. Actions of Board of Directors. Unless otherwise provided by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in
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<PAGE> 6
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.
Section 5. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Article III, Section 5 shall
constitute presence in person at such meeting.
Section 6. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
Section 7. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 8. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or
5
<PAGE> 7
transaction is specifically approved in good faith by vote of the shareholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof or the shareholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV.
OFFICERS
Section 1. General. The officers of the Corporation shall be elected by
the Board of Directors and shall consist of: a Chairman of the Board and Chief
Executive Officer; a President and Chief Operating Officer; a Secretary; and a
Treasurer. The Board of Directors, in its discretion, may also elect one or more
Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant
Secretaries, Assistant Treasurers, a Controller and such other officers as in
the judgment of the Board of Directors may be necessary or desirable. Any number
of offices may be held by the same person, unless otherwise prohibited by law,
the Certificate of Incorporation or these Bylaws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors, need such officers be directors of
the Corporation.
Section 2. Election. The Board of Directors at its first meeting held
after each annual meeting of stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Except as otherwise provided in this Article IV, any officer elected
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors. The salaries of all
officers who are directors of the Corporation shall be fixed by the Board of
Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman of the Board and Chief
Executive Officer, the President and Chief Operating Officer or any Vice
President, and any such officer may, in the name and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
6
<PAGE> 8
Section 4. Chairman of the Board and Chief Executive Officer. The
Chairman of the Board shall be a member of the Board of Directors and an officer
of the Corporation, and, if present, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation and shall supervise, coordinate
and manage the Corporation's business and activities and supervise, coordinate
and manage its operating expenses and capital allocation, shall have general
authority to exercise all the powers necessary for the Chief Executive Officer
of the Corporation and shall perform such other duties and have such other
powers as may be prescribed by the Board of Directors or these Amended and
Restated Bylaws, all in accordance with basic policies as established by and
subject to the oversight of the Board of Directors.
Section 5. President and Chief Operating Officer. The President and
Chief Operating Officer shall supervise, coordinate and manage the Corporation's
business and activities and supervise, coordinate and manage its operating
expenses and capital allocation, shall have general authority to exercise all
the powers necessary for the President and Chief Operating Officer of the
Corporation and shall perform such other duties and have such other powers as
may be prescribed by the Board of Directors or these Amended and Restated
Bylaws, all in accordance with basic policies as established by and subject to
the oversight of the Board of Directors and the Chairman of the Board and Chief
Executive Officer. In the absence or disability of the Chairman of the Board and
Chief Executive Officer, the duties of the Chairman of the Board shall be
performed and the Chairman of the Board's authority may be exercised by the
President and Chief Operating Officer and, in the event the President and Chief
Operating Officer is absent or disabled, such duties shall be performed and such
authority may be exercised by a director designated for such purpose by the
Board of Directors.
Section 6. Vice Presidents. At the request of the President and Chief
Operating Officer or in the absence of both the Chairman of the Board and Chief
Executive Officer and the President and Chief Operating Officer, or in the event
of their inability or refusal to act, the Vice President or the Vice Presidents
if there is more than one (in the order designated by the Board of Directors)
shall perform the duties of the Chairman of the Board and Chief Executive
Officer and/or the President and Chief Operating Officer, and when so acting,
shall have all the powers of and be subject to all the restrictions upon such
offices (other than as Chairman of the Board). Each Vice President shall perform
such other duties and have such other powers as the Board of Directors from time
to time may prescribe. If there be no Vice President, the Board of Directors
shall designate the officer of the Corporation who, in the absence of the
Chairman of the Board and Chief Executive Officer and the President and Chief
Operating Officer or in the event of the inability or refusal of such officers
to act, shall perform the duties of such offices (other than as Chairman of the
Board), and when so acting, shall have all the powers of and be subject to all
the restrictions upon such offices (other than as Chairman of the Board).
Section 7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other
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<PAGE> 9
duties as may be prescribed by the Board of Directors, the Chairman of the Board
and Chief Executive Officer or the President and Chief Operating Officer, under
whose supervision the Secretary shall be. If the Secretary shall be unable or
shall refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then the Board of Directors, the Chairman of the Board and Chief
Executive Officer or the President and Chief Operating Officer may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise provided
in these Bylaws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the Chairman of the Board and Chief Executive Officer, the
President and Chief Operating Officer, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the Chairman of the Board and Chief
Executive Officer, the President and Chief Operating Officer, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the
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<PAGE> 10
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 11. Controller. The Controller shall establish and maintain the
accounting records of the Corporation in accordance with generally accepted
accounting principles applied on a consistent basis, maintain proper internal
control of the assets of the Corporation and shall perform such other duties as
the Board of Directors, the Chairman of the Board and Chief Executive Officer,
the President and Chief Operating Officer or any Vice President of the
Corporation may prescribe.
Section 12. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V.
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board and Chief Executive Officer, the
President and Chief Operating Officer or a Vice President and (ii) by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by him in the
Corporation.
Section 2. Signatures. Any or all of the signatures on the certificate
may be a facsimile, including, but not limited to, signatures of officers of the
Corporation and countersignatures of a transfer agent or registrar. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any
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claim that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
Section 5. Book-Entry Recordkeeping. The Board of Directors may
register the stock of the Corporation in book-entry form without issuing
certificates representing such stock. Any transfers of stock registered in
book-entry form shall be made on the books of the Corporation only by the person
named on the books of the Corporation or by his attorney lawfully constituted in
writing.
I HEREBY CERTIFY that I am the duly elected, qualified and acting
Secretary of Promus Hotel Corporation, a Delaware corporation, and that the
above and foregoing bylaws were adopted as the Amended and Restated Bylaws of
said corporation on the 3rd day of December, 1998, by unanimous approval.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of
December, 1998.
/s/ Ralph B. Lake
---------------------------------
Ralph B. Lake
Secretary
10
<PAGE> 1
EXHIBIT 4.1
<PAGE> 2
FIRST AMENDMENT TO RIGHTS AGREEMENT
FIRST AMENDMENT, dated as of October 23, 1998 ("First Amendment"), to
Rights Agreement dated as of December 17, 1997 (the "Rights Agreement"), between
Promus Hotel Corporation (formerly known as "Parent Holding Corp."), a Delaware
corporation (the "Company"), and First Union National Bank (the "Rights Agent").
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Rights Agreement.
WHEREAS, the Company and the Rights Agent previously entered into the
Rights Agreement; and
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Company
and the Rights Agent may from time to time supplement or amend any provision of
the Rights Agreement in accordance with the terms of such Section 26.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
agreements set forth in this First Amendment, the parties hereby amend the
Rights Agreement as follows:
1. Section 1.7 of the Rights Agreement is hereby deleted in its
entirety.
2. The last sentence of Section 11.4.1 of the Rights Agreement and the
penultimate sentence of Section 11.4.2 of the Rights Agreement are hereby
amended, in each case, by deleting the words ", by a majority of the Continuing
Directors then in office, or if there are no Continuing Directors".
3. The last sentence of Section 14.1 of the Rights Agreement is hereby
amended by deleting the words "by a majority of the Continuing Directors then in
office, or if there are no Continuing Directors".
4. The second sentence of Section 22 of the Rights Agreement is hereby
amended to read in its entirety as follows:
"In addition, in connection with the issuance or sale of
Common Shares following the Distribution Date and prior to the
redemption, exchange, termination or expiration of the Rights, the
Company shall, with respect to Common Shares so issued or sold pursuant
to the exercise of stock options or under any employee plan or
arrangement, granted or awarded, or upon exercise, conversion or
exchange of securities hereinafter issued by the Company, in each case
existing prior to the Distribution Date, issue Right Certificates
representing the appropriate number of Rights in connection with such
issuance or sale; provided, however, that (i) no such Right Certificate
shall be issued if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant risk
of material adverse tax consequences to the Company or the Person to
whom such Right Certificate would be issued and (ii) no such Right
<PAGE> 3
Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance
thereof."
5. The second sentence of Section 26 of the Rights Agreement is hereby
amended to delete clause (ii) in its entirety, renumber clause (iii) of the
second sentence to (ii) and add the word "or" immediately prior to the new
clause (ii). The fifth sentence of Section 26 of the Rights Agreement is hereby
amended to be deleted in its entirety.
6. Section 30 of the Rights Agreement is hereby amended to read in its
entirety as follows:
"Section 30. Determination and Actions be Board of Directors. The
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise the rights and powers specifically
granted to the Board of Directors of the Company or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including, without limitation, a determination
to redeem or not redeem the Rights or amend this Agreement). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) that are done or
made by the Board of Directors of the Company in good faith shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights, as such, and all other parties, and (y) not subject the Board of
Directors to any liability to the holders of the Rights."
7. This First Amendment shall be effective as of the date hereof and,
except as expressly set forth herein, the Rights Agreement shall remain in full
force and effect and be otherwise unaffected hereby.
8. This First Amendment may be executed in any number of counterparts,
each of which, when executed, shall be deemed to be an original and all such
counterparts shall together constitute one and the same document.
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<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the date first written above.
PROMUS HOTEL CORPORATION
By: /s/ Ralph B. Lake
-----------------------------------
Name: Ralph B. Lake
Title: Executive Vice President
FIRST UNION NATIONAL BANK
By: /s/ Lynn Ballard
-----------------------------------
Name: Lynn Ballard
Title: Assistant Vice President
3
<PAGE> 1
EXHIBIT 10.1
<PAGE> 2
PROMUS HOTEL CORPORATION
RESOLUTION ADOPTED BY
BOARD OF DIRECTORS
ON JULY 30-31,1998
(EFFECTIVE AS OF DECEMBER 3,1998)
WHEREAS, the Board of Directors has determined that it is in the best
interests of the Company and its stockholders for . . . the Agreement and Plan
of Merger dated as of September 1, 1997, among Doubletree Corporation, Promus
Hotel Corporation, and Parent Holding Corp. (the "Merger Agreement") to be
amended . . . in a manner consistent with, and simultaneously with (but not in
the absence of) the occurrence of, the Management Changes.
NOW, THEREFORE, IT IS HEREBY --
RESOLVED, that simultaneously with, but not in the absence of, the
occurrence of the Management Changes, the Merger Agreement shall be amended to
delete Section 5.20 thereof in its entirety.
<PAGE> 1
EXHIBIT 10.3
<PAGE> 2
FIRST AMENDMENT TO LEASE
FIRST AMENDMENT TO LEASE, dated as of November 8, 1996, between RLH
PARTNERSHIP, L.P., a Delaware limited partnership ("Landlord"), having an
address at c/o KKR Associates, 2800 Sand Hill Road, Suite 2000, Menlo Park,
California 94025 and RED LION HOTELS, INC., a Delaware corporation ("Tenant"),
having an address at 4001 Main Street, Vancouver, Washington 98663.
W I T N E S S E T H :
WHEREAS, Landlord and Tenant have entered into that certain Lease,
dated as of August 1, 1995, as supplemented by that certain Non-Disturbance and
Attornment Agreement dated concurrently therewith (collectively the "Lease"),
covering certain premises consisting of all the lots, tracts or parcels of land,
together with the improvements thereon, more specifically described on Exhibit A
annexed hereto and made a part hereof (the "Premises");
WHEREAS, Doubletree Corporation (the "Borrower"), Morgan Stanley Senior
Funding, Inc., as Syndication Agent and as Arranger, The Bank of Nova Scotia, as
Administrative Agent (the "Administrative Agent") and certain other lending
institutions (collectively, the "Lenders") intend to enter into a Credit
Agreement (the "Credit Agreement") pursuant to which the Lenders will make
certain loans to the Borrower in the amount of up to $736,000,000 (collectively,
the "Loan") which Loan will be secured in part by one or more mortgages
encumbering Tenant's leasehold interest in the Premises;
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of September 12, 1996, by and among the Borrower, RLH Acquisition Corp. and
Tenant, Tenant will become a wholly-owned subsidiary of the Borrower;
WHEREAS, pursuant to Section 19.3 of the Lease, Tenant desires that
Landlord agree to certain modifications of the Lease; and
WHEREAS, Landlord has agreed to modify the Lease as set forth herein.
NOW, THEREFORE, in consideration of the Premises, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree that the Lease be and the same
hereby is amended as follows:
<PAGE> 3
1. Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to such terms in the Lease.
2. The following defined term shall be deemed added to Article One
after the term "Lease Year" and before the term "Leasehold Purchase Price":
"Leasehold Mortgage" shall mean the Mortgage (and any
amendments, modifications, supplements and/or restatements thereof)
pursuant to which the Tenant's Mortgagee has been granted a security
interest in the Tenant's leasehold interest in this Lease.
3. The following Article shall be deemed added to the Lease:
"ARTICLE XXIII
LEASEHOLD MORTGAGES
23.1 Tenant's Mortgagee. Landlord hereby acknowledges that the
Tenant's Mortgagee is presently The Bank of Nova Scotia, which is the
mortgagee or beneficiary under certain mortgages and deeds of trust
encumbering the Tenant's leasehold interest in the Premises, and as
such, is entitled to the benefits contained in this Article XXIII. All
notices to the Tenant's Mortgagee shall be deemed to have been duly
given when sent in the manner required hereunder addressed to The Bank
of Nova Scotia, 600 Peachtree Street, Suite 2700, Atlanta, Georgia
30308, Attention: Eudia Smith, or to such other address as the Tenant's
Mortgagee (or its successors and/or assigns) may provide to Landlord.
23.2 Cancellations. No voluntary cancellation, surrender or
acceptance of surrender of this Lease by Tenant shall be binding upon
the Tenant's Mortgagee or affect the lien of any mortgage on the
leasehold estate without the prior written consent of the Tenant's
Mortgagee.
23.3 Notices and Demands. Landlord shall give to the Tenant's
Mortgagee a copy of each notice of default by the Tenant at the same
time and in the same manner as the notice given by
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<PAGE> 4
Landlord to the Tenant, addressed to the Tenant's Mortgagee at its
address set forth herein or such other address that the Tenant's
Mortgagee may have subsequently furnished to Landlord. No notice by
Landlord to the Tenant under this Lease shall be deemed to have been
duly given unless and until a copy of the notice has been served on the
Tenant's Mortgagee in the manner provided in this Section 23.3.
23.4 Right to Cure. The Tenant's Mortgagee shall have the
right, but not the obligation, to perform any term, covenant, condition
or agreement and to remedy any default by the Tenant under this Lease,
and Landlord shall accept such performance by the Tenant's Mortgagee
with the same force and effect as if performed by the Tenant. Subject
to the terms of Section 23.5 hereof, and except in the case of the
failure to pay Rent, the Tenant's Mortgagee shall have a period that
shall extend three (3) days beyond the cure period given to the Tenant
under this Lease within which to remedy any default of the Tenant
hereunder or cause such default to be remedied. Landlord hereby
authorizes the Tenant's Mortgagee to enter upon the Premises to effect
the cure of a default by the Tenant. In the event there is a restraint
which precludes the Tenant's Mortgagee from taking actions hereunder or
otherwise such as a judicial order or administrative order (including,
without limitation, an automatic stay), the running of all applicable
grace periods shall be tolled for a period not to exceed 90 days so
long as all Rent is being paid currently. The Tenant's Mortgagee's
failure to cure any default by the Tenant which cannot be cured by the
Tenant's Mortgagee because it is personal to Tenant shall not prohibit
Tenant's Mortgagee from exercising its rights under Section 23.6. For
the purposes of this Lease, defaults deemed to be "personal" to Tenant
shall be (i) the failure to deliver books and records (including
statements of Operating Revenues and Base Revenues) , (ii) the failure
to deliver licenses and permits issued directly to Tenant and (iii) the
bankruptcy or reorganization of Tenant, but shall not include (x)
Tenant's obligations regarding the condition of the Premises, including
Tenant's obligations to maintain or repair the Premises and (y)
Tenant's
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<PAGE> 5
obligations to comply with laws, including Environmental Laws.
23.5 Certain Defaults. In the event a default by the Tenant
occurs in the performance or observance of any non-monetary term,
covenant, condition or agreement on the Tenant's part to be performed
under this Lease which cannot practicably be cured by the Tenant's
Mortgagee without taking possession of the Premises, or if such
non-monetary default is of such a nature that the same is not
susceptible of being cured by the Tenant's Mortgagee because it is
"personal" to Tenant, then Landlord shall not serve a notice of
election to terminate or otherwise exercise remedies under or in
respect of this Lease pursuant to the terms thereof, or otherwise
terminate the leasehold estate or any other estate, right, title or
interest of the Tenant hereunder by reason of such default without
allowing the Tenant's Mortgagee reasonable time (not to exceed ninety
(90) days from the date on which notice is received by Tenant's
Mortgagee) within which:
(i) In the case of a default which cannot practically be
cured by the Tenant's Mortgagee without taking
possession of the Premises, to obtain possession of
the Premises as mortgagee (through the appointment of
a receiver or otherwise), and, upon obtaining
possession, to commence promptly and diligently
prosecute to completion such action as may be
necessary to cure such default; and
(ii) In the case of a default which cannot be cured by the
Tenant's Mortgagee because it is personal to Tenant,
to commence promptly and diligently prosecute to
completion foreclosure proceedings or to acquire the
Tenant's estate hereunder, either in its own name or
through a nominee, by assignment in lieu of
foreclosure.
The Tenant's Mortgagee shall not be required to continue to
proceed to obtain possession, or to
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<PAGE> 6
continue in possession as mortgagee, of the Premises pursuant to
clause (i) above, or to continue to prosecute foreclosure proceedings
pursuant to clause (ii) above, if and when such default shall be
cured. If the Tenant's Mortgagee, or its nominee, or a purchaser at a
foreclosure sale, shall acquire title to the Tenant's leasehold estate
hereunder, and shall cure all defaults of the Tenant hereunder (except
with respect to such defaults that cannot be cured by Tenant's
Mortgagee because they are personal to Tenant) which are reasonably
susceptible of being cured by the Tenant's Mortgagee, or by such
nominee or purchaser, as the case may be, then the defaults of any
prior holder of the Tenant's leasehold estate or any other estate,
right, title or interest hereunder which are not susceptible of being
cured by the Tenant's Mortgagee because they are personal to Tenant
(or by such nominee or purchaser) shall no longer be deemed to be
defaults hereunder.
23.6 Termination of Lease; New Lease to the Tenant's
Mortgagee. In the event this Lease is disaffirmed or rejected in the
event of the Tenant's bankruptcy, then, within ten (10) days after such
termination (which term as used herein shall include a disaffirmance)
Landlord shall give notice to the Tenant's Mortgagee that this Lease
has been terminated, together with a statement of any and all sums
which would at that time be due under this Lease but for such
termination, and of all other defaults, if any, under this Lease then
known to Landlord, and the Tenant's Mortgagee, by notice to Landlord
within ten (10) business days, thereupon may request that Landlord
enter into a new lease of the Premises and Landlord shall enter into a
new lease (the "New Lease") with Morgan Stanley Senior Funding, Inc.
or The Bank of Nova Scotia or such other party as is reasonably
approved by Landlord and Landlord's Mortgagee), within three (3) days
after the giving of such notice by the Tenant's Mortgagee, provided
that the Tenant's Mortgagee shall have cured or commenced such cure of
any defaults of the Tenant existing at the date of termination that are
reasonably susceptible of being cured. The New Lease shall commence and
Rent and all obligations of the Tenant under the New Lease shall
accrue, as
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<PAGE> 7
of the date of termination of this Lease. The term of the New Lease
shall continue for the period which would have constituted the
remainder of the term of this Lease had this Lease not been terminated,
and shall be upon all of the terms, covenants, conditions, conditional
limitations, and agreements contained herein which were in force and
effect immediately prior to the termination of this Lease. The New
Lease, and this covenant, shall be superior to all rights, liens,
estates, titles and interests, other than those to which this Lease
shall have been subject immediately prior to termination and those
matters to which this Lease may, by its terms, become subject. The
provisions of the immediately preceding sentence shall be
self-executing, and Landlord shall have no obligation to do anything
(other than to execute such New Lease as herein provided) to assure to
the Tenant's Mortgagee or to the tenant under the New Lease good title
to the leasehold estate and the other estates, rights, titles and
interests granted thereby. Each subtenant of space in the Premises
whose sublease was in force and effect immediately prior to the
delivery of the New Lease shall attorn to the tenant under the New
Lease, unless such tenant shall, at its option, elect to attempt to
dispossess such subtenant or otherwise terminate the sublease held by
such subtenant. The Tenant's Mortgagee shall, simultaneously with the
delivery of the New Lease, pay to Landlord (1) all Base Rent and other
sums of money due under this Lease on the date of termination of this
Lease and remaining unpaid; plus (2) all Base Rent and other sums of
money due under the New Lease for the period from the date of
commencement of the term thereof to the date of delivery of the New
Lease; plus (3) all costs and expenses, including reasonable attorneys'
fees, court costs, and litigation expenses, incurred by Landlord in
connection with termination of this Lease, the recovery of possession
of the Premises, putting the Premises in good condition and repair, and
the preparation, execution and delivery of such New Lease.
23.7 The Tenant's Mortgagee's Rights Under the Leasehold
Mortgage. In the event a default under the Leasehold Mortgage shall
have occurred,
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<PAGE> 8
the Tenant's Mortgagee may exercise with respect to the Premises any
right, power or remedy under the Leasehold Mortgage which is not in
conflict with any of the provisions of this Lease; including, without
limitation, the right to exercise its foreclosure remedies contained in
the Leasehold Mortgage and to take over the Tenant's interest as tenant
under this Lease.
23.8 Assignment. If The Bank of Nova Scotia forecloses upon or
otherwise acquires all or part of the Tenant's leasehold interest, the
transfer to The Bank of Nova Scotia shall not require Landlord's
consent. Tenant's Mortgagee shall have the same rights to transfer or
assign this Lease as set forth in Section 16.2 of this Lease.
23.9 No Amendments without the Tenant's Mortgagee Consent.
Landlord and the Tenant shall not enter into any amendments,
modifications or supplements to this Lease without the prior consent of
the Tenant's Mortgagee if such amendment, modification or supplement
could reasonably be expected to have a material adverse effect on the
interest of the Tenant's Mortgagee under this Lease, including, without
limitation, any increase in the monetary obligations of the Tenant
under this Lease or any reductions of the term of this Lease.
23.10 Requests for Consents by Tenant. Notwithstanding
anything to the contrary contained in this Lease, Landlord shall
promptly deliver to Tenant's Mortgagee a copy of any request by Tenant
for Landlord's consent to any transfer, assignment, pledge or
hypothecation of the Tenant's interest in this Lease or the execution of
any other mortgages encumbering its leasehold estate)
23.11 Successors and Assigns. The provisions of this Article
23 (other than Section 23.6 and Section 23.8 which shall only run to
the benefit of Morgan Stanley Senior Funding, Inc., and The Bank of
Nova Scotia) shall inure to the benefit of the permitted successors
and/or assigns of the Tenant's Mortgagee."
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<PAGE> 9
4. Tenant and Tenant's Lenders hereby acknowledge that certain
Non-Disturbance and Attornment Agreement by and among Landlord, Tenant and
Landlord's Mortgagee dated of even date with the Lease and entered into for the
benefit of Landlord's Mortgagee (the "Non-Disturbance Agreement") and Tenant
hereby agrees to execute any replacement agreement in a form substantially
similar to the Non-Disturbance Agreement for the benefit or upon the request of
any future or substitute Landlord's Mortgagee. Further, by Administrative
Agent's acknowledgment hereof, Tenant's Lenders hereby agree to permit Tenant to
execute such replacement or substitute non-disturbance and attornment agreement
and, if applicable, to execute or acknowledge the same provided the same shall
be in form and substance substantially similar to the existing Non-Disturbance
Agreement.
5. Except as amended hereby, all of the other terms, covenants and
conditions of the Lease are and shall remain in full force and effect and are
hereby ratified and confirmed.
6. This Amendment shall be binding upon and shall inure to the benefit
of the parties hereto and their respective permitted successors and permitted
assigns. This Amendment shall not be deemed effective until such time as both
Credit Lyonnais, New York Branch and The Bank of Nova Scotia have acknowledged
and consented to the same.
7. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
8. Tenant and Tenant's Mortgagee acknowledge and agree that if (i)
Landlord or Landlord's Mortgagee forecloses or otherwise exercises its remedies
in respect of its security interest in the FF&E Reserve Account, the FF&E, the
Fixed Asset Supplies, the Operating Equipment and/or the Inventories of Tenant
or (ii) Landlord or Landlord's Mortgagee exercises its option to purchase the
FF&E, Furnishings, Fixed Asset Supplies, Operating Equipment and Inventories of
Tenant, Tenant's Mortgagee shall release, and shall be deemed to have released,
its liens, security interests and claims in and to such property and shall
execute any and all documentation as reasonably requested by Landlord or
Landlord's Mortgagee as necessary to effectuate or evidence such release and
termination. Tenant shall cause any future Tenant's Mortgagee or other person(s)
with any
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<PAGE> 10
interest in such property to agree to similar release provisions in
favor of Landlord and Landlord's Mortgagee at or prior to the time of the
creation of such interest and failure to obtain such agreement shall be an
Event of Default under the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the day and year first above written.
RLH PARTNERSHIP, L.P.
By: Red Lion G.P., Inc.,
its general partner
BY: /s/
---------------------------------
RED LION HOTELS, INC.
BY: /s/ Beverly S. Brown
---------------------------------
Acknowledged and Consented Acknowledged and Consented
to by Landlord's Mortgagee: to by Tenant's Mortgagee:
THE BANK OF NOVA SCOTIA,
CREDIT LYONNAIS, NEW YORK BRANCH as Administrative Agent
as Administrative Agent
By: /s/ Mary P. Day By: /s/
------------------------- ---------------------------------
Its: Vice President Its:
------------------------ --------------------------------
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<PAGE> 11
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE (this "Amendment") is made as of the
15th day of September, 1998, by and between RLH PARTNERSHIP, L.P., a Delaware
limited partnership ("Landlord"), having an address at c/o Starwood Financial
Trust, 1114 Avenue of the Americas, 27th Floor, New York, New York 10036, and
RED LION HOTELS, INC. ("Tenant"), a Delaware corporation, with a mailing address
at c/o Promus Hotel Corporation, 755 Crossover Lane, Memphis, Tennessee 38117.
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into that certain Lease,
dated as of August 1, 1995 (as previously amended, modified, or supplemented
prior to the date hereof, the "Original Lease").
WHEREAS, Landlord and Tenant entered into a certain Amendment to the
Original Lease (the "First Amendment") dated as of November 8, 1996. The
Original Lease, as amended by the First Amendment, is hereinafter called the
"Lease".
WHEREAS, pursuant to Section 19.3 of the Lease, Tenant desires that
Landlord agree to certain modifications of the Lease.
WHEREAS, Landlord has agreed to modify the Lease as set forth herein.
NOW, THEREFORE, and for good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged, Landlord and Tenant
hereby agree that the Lease be and the same hereby is amended as follows:
1. Capitalized terms used but not otherwise defined herein have the
meanings ascribed to such terms in the Lease.
2. Definitions. (a) At the end of sentence 2 in the definition of
"Insurance Trustee" in Article II of the Lease, the following language
is hereby inserted:
"or is acting as trustee under a trust agreement executed in
connection with a securitization of a loan to the Landlord"
(b) The definition of "Leasehold Purchase Price" in Article II is
deleted in its entirety and the following definition of "Leasehold
Purchase Price" is substituted in its place:
"'Leasehold Purchase Price' shall be at any particular time
during the Term, the dollar amount equal to the present value
of as of the date of such purchase of the payments of Base
Rent applicable to such Hotel (as determined in accordance
with the Schedule of Rent shown on Exhibit B), that would have
been payable during the
<PAGE> 12
period commencing on the date of such purchase and ending on
the date of expiration of the then current Term of this Lease
(including any Effective Extended Term) for such Hotel,
discounted to the date of purchase at an interest rate equal
to the effective interest rate on United States Treasury
obligations as of the month preceding the date of such
purchase and having a maturity most nearly equal to the number
of months remaining in the current Term of this Lease
(including any Effective Extended Term) as of the date of such
purchase, provided however in connection with determining the
end of the then current Term of this Lease for purposes of
this definition of Leasehold Purchase Price, in the event that
the date of the purchase in question occurs prior to December
31, 2010, the then current Term of this Lease shall, solely
for purposes of this definition and for no other purpose, be
deemed to end on December 31, 2010."
3. TERM. Section 3.1, Article III of the Lease is hereby amended by
deleting the last sentence thereof in its entirety and substituting the
following sentence in its place: "The Initial Term of this Lease shall
commence on the Commencement Date, and, unless sooner terminated as
otherwise provided herein, shall expire on December 31, 2020.
4. EXTENDED TERM. The provision appearing in the first sentence of Section
3.2, Article III of the Lease is hereby amended to replace the words
"five such" with the words "three such".
5. PAYMENT OF RENT. Section 5.2(a), Article V of the Lease is hereby
amended by deleting the first and second sentences thereof in their
entirety and substituting the following sentences in their place:
"Base Rent shall be paid (i) with respect to each calendar month in
each of the first two (2) fiscal quarters (based on Tenant's Fiscal
Year) after the Commencement Date, monthly in arrears, in six equal
payments of One Million Two Hundred Fifty Thousand Dollars ($1,250,000)
on or before the last business day of each such calendar month, and
(ii) with respect to all periods thereafter during the Term, monthly in
arrears, in twelve (12) equal payments of One Million Two Hundred Fifty
Thousand Dollars ($1,250,000), on or before the last business day of
each month during each Year of the Term. Base rent for any partial
calendar month shall be prorated and computed by multiplying the
monthly Base Rent by a fraction, the numerator of which is the number
of days in such partial calendar month and the denominator of which is
thirty (30)."
6. TEMPORARY TAKING. (a) Section 15.3(a)(i), Article XV of the Lease is
hereby amended to insert "(no more frequently than monthly)" between
the words "shall" and "pay" in the first sentence thereof, and to
delete the phrase "quarterly (or more frequent)" in each place it
appears.
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<PAGE> 13
(b) Section 15.3(a)(ii), Article XV of the Lease is hereby amended to
replace "quarterly" with "monthly" in each place it appears and
"quarter" with "month" in the place it appears.
7. NOTICES. (a) Section 22.1(a), Article XXII of the Lease is hereby
amended by deleting the last sentence thereof and replacing it with the
following sentence:
Tenant shall also send a copy of any Notice of Landlord's default, any
Notice of Tenant's irrevocable offer to purchase pursuant to any of
Sections 1.3, 14.3 and 15.5, or any Notice of Termination pursuant to
Section 14.1, to Landlord's Mortgagee(s) simultaneously with the
sending of Notice to Landlord, provided that Landlord or such
Mortgagee(s) shall have supplied to Tenant the name and address of such
Mortgagee(s).
(b) The Landlord's address in Section 22.1(d), Article XXII of the
Lease is hereby changed to:
To Landlord: RLH Partnership, L.P.
c/o Starwood Financial Trust
1114 Avenue of the Americas
27th Floor
New York, New York 10036
Attention: President and Chief Executive Officer
with a copy to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: Nina B. Matis, Esq. and
Kenneth M. Jacobson, Esq.
8. It is agreed that all references to "Non-Disturbance Agreement" (as
defined in Paragraph 4 of the First Amendment to Lease) shall from and
after the date of the Amendment refer to a Non-Disturbance and
Attornment Agreement substantially in the form of Exhibit A attached
hereto.
9. Except as amended hereby, all of the other terms, covenants and
conditions of the Lease are and shall remain in full force and effect
and are hereby ratified and confirmed in all respects.
10. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all
of which together shall constitute one and the same instrument.
[EXECUTION PAGE FOLLOWS]
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<PAGE> 14
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the date first written above.
TENANT: LANDLORD:
RED LION HOTELS, INC., RLH PARTNERSHIP, L.P.,
a Delaware corporation a Delaware limited partnership
By: Red Lion G.P., Inc.
a Delaware corporation, its
general partner
By: /s/ William L. Perocchi By: /s/
------------------------------ ------------------------------
Name: William L. Perocchi Name:
---------------------------- -------------------------------
Title: Executive Vice President Title:
--------------------------- ------------------------------
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<PAGE> 15
EXHIBIT A
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this "Agreement"), made
as of this day of , 1998, by and among RED LION HOTELS, INC., a
Delaware corporation ("Tenant"), RLH PARTNERSHIP, L.P., a Delaware limited
partnership ("Landlord"), and GREENWICH CAPITAL FINANCIAL PRODUCTS INC., a
Delaware corporation ("Lender"), is made with reference to the following:
RECITALS
A. Landlord and Tenant have entered into that certain Lease dated
August 1, 1995 (the "Lease"), described on Annex A attached hereto and
incorporated herein, pursuant to which Landlord has let to Tenant, and Tenant
has leased from Landlord, certain real property more particularly described in
Exhibit A to the Lease and in Exhibits A-1 through A-17 attached hereto and
incorporated herein (collectively, the "Property").
B. Landlord represents that Landlord and Lender have entered, or may
hereafter enter, into that certain Loan Agreement, dated as of , 1998
(as amended, restated, replaced, supplemented or otherwise modified from time to
time, the "Loan Agreement"), pursuant to which Lender has, or will have, agreed
to extend a loan to Landlord in an aggregate amount of up to ___________________
and ___ /100 Dollars ($_____________) (the " Loan"). Landlord's obligations to
Lender under the Loan Agreement and the other documents evidencing the Loan are,
or will be, secured by, among other things, certain Mortgages/Deeds of Trust,
Assignment of Leases and Rents and Security Agreements of even date with the
Loan Agreement (collectively, the "Mortgages" and together with the Loan
Agreement and all other documents executed in connection with the Loan, the
"Loan Documents"), executed by Landlord for the benefit of Lender, encumbering
Landlord's interest in the Property.
C. Landlord represents that as a condition to making the Loan to
Landlord, Lender requires certain further assurances from Landlord and Tenant
with respect to the Lease, as set forth herein. Landlord and Tenant have agreed
to grant the rights and assurances to Lender that are set forth herein, and to
make the Lease subject to those rights and assurances.
D. Capitalized terms not defined herein shall be given the meaning
described in the Lease.
<PAGE> 16
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE (this "Amendment") is made as of the 26th
day of February, 1999, by and between RLH PARTNERSHIP, L.P., a Delaware limited
partnership ("Landlord"), having an address at c/o Starwood Financial Trust,
1114 Avenue of the Americas, 27th Floor, New York, New York 10036, and RED LION
HOTELS, INC. ("Tenant"), a Delaware corporation, with a mailing address at c/o
Promus Hotel Corporation, 755 Crossover Lane, Memphis, Tennessee 38117.
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into that certain Lease,
dated as of August 1, 1995 (the "Original Lease").
WHEREAS, Landlord and Tenant entered into a certain Amendment to the
Original Lease (the "First Amendment") dated as of November 8, 1996 and a
certain Second Amendment to Lease (the "Second Amendment") dated as of September
15, 1998. The Original Lease, as amended by the First Amendment and the Second
Amendment, is hereinafter called the "Lease".
WHEREAS, pursuant to Section 19.3 of the Lease, Tenant desires that
Landlord agree to certain modifications of the Lease.
WHEREAS, Landlord has agreed to modify the Lease as set forth herein.
NOW, THEREFORE, and for good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged, Landlord and Tenant
hereby agree that the Lease be and the same hereby is amended as follows:
1. Capitalized terms used but not otherwise defined herein have the
meanings ascribed to such terms in the Lease.
2. CONFIDENTIALITY.
(a) Section 5.3(c) of the Lease is amended by adding the following
new sentence as the final sentence thereof:
"In addition, such information may be disclosed (x) by
Mortgagees to (i) the holders of direct or indirect ownership
interests in Mortgagee, (ii) holders of any pass-through or
other certificates issued by any trust holding a Mortgage in a
securitization of a Mortgage loan, (iii) any trustees of such
trust, (iv) any depositor of a Mortgage loan into such trust,
(vi) to such other parties or governmental agencies as may be
required by law and (y) to any Rating Agencies."
<PAGE> 17
(b) The second sentence of Section 22.20 of the Lease is deleted
in its entirety and the following sentence is substituted in
its place:
"For purposes of the preceding sentence, the words 'outside
persons or entities' do not include the parties' attorneys,
accountants, consultants, shareholders, lenders, partners,
investors, prospective investors, partners, agents or lenders,
Rating Agencies, actual or prospective investors, accountants,
attorneys, consultants, shareholders, partners, agents or
lenders to Landlord's Mortgagees and any of the parties
described in the last sentence of Section 5.3(c) of the Lease.
Any such information necessary or desirable for a prospectus,
private placement memorandum, offering circular or offering
documentation related thereto issued by Landlord's Mortgagees,
their respective successors and assigns and any affiliates of
such Mortgagees, successors and assigns in connection with a
securitization of a Mortgage may be used and disclosed
therein."
(c) Article II, "Definitions of Terms" is amended by adding the
following new definition:
"'Rating Agencies' shall mean each of Standard & Poor's Rating
Group, a division of McGraw-Hill, Inc., Moody's Investors
Service, Inc., Duff & Phelps Credit Rating Co. and Fitch IBCA,
Inc., or any other nationally recognized statistical rating
agency."
3. APPLICATION OF PROCEEDS. The final sentence of Section 13.2(a) of the
Lease, "Application of Proceeds", is amended by deleting " 13.1" and
replacing it with " 13.1(c)" and the proviso in the first sentence of
this Section 13.1(a) pertaining to circumstances where the proceeds
with respect to a casualty are less than Five Hundred Thousand Dollars
($500,000.00)."
4. FINANCIAL REPORTS. A new Section 22.32, "Tenant's Financial Reports",
is hereby added to the Lease:
"Section 22.32 Financial Reports. Tenant shall furnish, cause
to be furnished, within thirty (30) days after the end of each
calendar quarter, to landlord unaudited monthly and
year-to-date operating statements for the Premises, including
the Hotels (on a Premises-wide basis), showing the results for
the month most recently concluded. Tenant will furnish, or
cause to be furnished, within ninety (90) days after the end
of
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<PAGE> 18
EACH CALENDAR YEAR TO LANDLORD, AN UNAUDITED OPERATING
STATEMENT FOR THE PREMISES, INCLUDING THE HOTELS (ON A
PREMISES-WIDE BASIS), SHOWING THE RESULTS FOR THE FISCAL YEAR
MOST RECENTLY CONCLUDED. THE REPORTS PROVIDED PURSUANT TO THIS
SECTION 22.32 ARE SUBJECT TO THE PROVISIONS OF SECTION
22.20."
5. Except as amended hereby, all of the other terms, covenants and
conditions of the Lease are and shall remain in full force and effect
and are hereby ratified and confirmed in all respects.
6. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all
of which together shall constitute one and the same instrument.
[EXECUTION PAGE FOLLOWS]
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<PAGE> 19
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the date first written above.
TENANT: LANDLORD:
RED LION HOTELS, INC., RLH PARTNERSHIP, L.P.,
a Delaware corporation a Delaware limited partnership
By: Red Lion G.P., Inc.
a Delaware corporation, its
general partner
By: /s/ Peter H. Kesser By: /s/ Spenser B. Haber
-------------------------- -------------------------
Name: Name: Spenser B. Haber
------------------------ -----------------------
Title: Title: Secretary
----------------------- ----------------------
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<PAGE> 1
EXHIBIT 10.4
<PAGE> 2
GUARANTY OF LEASE OBLIGATIONS
This Guaranty of Lease Obligations (this "Guaranty") is made and
entered into as of the 15th day of September, 1998 by and among Promus Hotels,
Inc., a Delaware corporation (" Parent "), Red Lion Hotels, Inc., a Delaware
corporation ("RLI "), and RLH Partnership, L. P., a Delaware limited partnership
("RLH Partnership").
RECITALS
WHEREAS, pursuant to the RLH Partnership, L.P. Contribution Agreement
dated August 1, 1995 between Red Lion, a California Limited Partnership (the
"Partnership") and RLH Partnership, the Partnership transferred to RLH
Partnership certain interests in the hotels described in Exhibit A hereto (the
"Retained Hotels");
WHEREAS, pursuant to the Lease dated August 1, 1995 between RLH
Partnership and RLI, as further amended from time to time (collectively, the
"Master Lease"), RLH Partnership has leased the Retained Hotels to RLI;
WHEREAS, RLH Partnership is willing to pay to RLI, the sum (the
"Extension Payment") of One Million Five Hundred Thousand Dollars
($1,500,000.00) to induce RLI to extend the term of the Master Lease and enter
into a certain Second Amendment to Lease amending the Master Lease ("Second
Amendment");
WHEREAS, RLI is a direct or indirect subsidiary of Parent;
WHEREAS, Parent will derive financial and other benefits from the
Extension Payment and the Second Amendment;
WHEREAS, Parent desires to execute and deliver the Guaranty to induce
RLH Partnership to pay the Extension Payment and execute the Second Amendment;
and
WHEREAS, the parties desire to set forth the Parent's guaranty
obligations with respect to the Master Lease in this Guaranty.
AGREEMENT
NOW, THEREFORE, in acknowledgment of the foregoing recitals and in
consideration of the mutual agreements expressed herein and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:
1. Guaranty of Lease Obligations
Parent agrees to guaranty the punctual payment and performance of any
and all liabilities and obligations of RLI owed to RLH Partnership and its
partners and affiliates, and all of such person's officers, directors,
employees, shareholders and agents, and any of the foregoing's
<PAGE> 3
successors and assigns (collectively, the "Indemnified Parties") under the
Master Lease (the "Obligations"). Parent hereby waives diligence, presentment,
demand of payment, notice of dishonor or nonpayment, protest and notice of
protest of any such Obligation, suit or taking other action by the Indemnified
Parties against, and giving any notice of default or other notice to, or making
any demand on, RLI or its subsidiaries with respect to the Obligations. Parent's
guaranty is a guarantee of payment and not of collection only, is a primary
obligation and is an absolute, unconditional, continuing and irrevocable
guaranty of performance and payment. To the extent enforceable by law, Parent
will not assert, plead or enforce against the Indemnified Parties any defense of
waiver, release, discharge or disallowance in bankruptcy, anti-deficiency
statute, or unenforceability which may be available to Parent. The liability of
Parent under this Guaranty shall not be affected or impaired by any voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all the assets, marshaling of assets and liabilities,
receivership, insolvency, bankruptcy (including any rejection of the Master
Lease in such bankruptcy), assignment for the benefit of creditors,
reorganization arrangement, composition or readjustment of, or other similar
event or proceeding affecting RLI or any of its subsidiaries of any of their
respective assets including, without limitation, any foreclosure by any
mortgagees of the tenant under the Master Lease of the tenant's interest, if
any, in any of the Retained Hotels, as tenant under the Master Lease. If any
payment by Parent to any Indemnified Party on account of the Obligations is
rescinded, invalidated, set aside or must otherwise be returned to Parent, RLI,
the estate or trustee of either, or to any other person, for any reason
whatsoever, Parent shall remain liable hereunder for the Obligations as if such
payment had not been made.
2. Anti-Deficiency Waivers
Parent hereby waives the rights set forth in Section 16 (or analogous
section) in any "Non-Disturbance Agreement" (as defined in Section 4 of that
certain First Amendment to Lease dated as of November 8, 1996 between RLH
Partnership and RLI, as amended by the Second Amendment) to the same extent as
RLI waives such rights including, without limitation, any Non-Disturbance
Agreement entered into with Greenwich Capital Financial Products Inc., a
Delaware corporation ("GCFP").
3. Consents, Waivers, and Renewals
At any time and from time to time, without notice to, or further
consent of, Parent, an Indemnified Party may extend the time of payment of, or
renew, any of the Obligations, and may also make any agreement with RLI or with
any other individual or entity liable on any of the Obligations, or interested
therein, for the extension, renewal, payment, compromise, discharge, or release
thereof, in whole or in part, or for any modification of the terms thereof or of
any agreement between such Indemnified Party and RLI or any such other
individual or entity, without impairing or affecting the obligations of Parent
under this Guaranty. An Indemnified Party may seek payment of any of the
Obligations from Parent whether or not such Indemnified Party shall have
proceeded against the RLI or any other obligor principally or secondarily
obligated for any of the Obligations.
-2-
<PAGE> 4
4. Termination
This Guaranty shall remain in full force and effect until all of the
Obligations shall have been paid, satisfied and performed in full except that
this Guaranty shall continue to be effective or be reinstated, as the case may
be, if any payment or property or part thereof must be returned to RLI, any
other tenant under the Master Lease, or the Parent upon the insolvency,
bankruptcy or reorganization of RLI, any other tenant of the Master Lease or any
other guarantor, or otherwise.
5. Successors and Assigns
This Guaranty shall be binding upon and inure to the benefit of the
Successors and assigns of the parties, including, without limitation, GCFP and
any other lender to Landlord and their respective successors and assigns.
6. Amendment
This Guaranty may be amended only by a written agreement signed by the
parties and, if any obligations remain outstanding under any "Mortgage" (as
defined in the Master Lease) of Landlord's interest in the Master Lease and/or
the Retained Hotels, consented to by the Landlord's "Mortgagee" (as defined in
the Master Lease).
7. Governing Law
This Guaranty shall be governed by and construed by the governing laws
determined in accordance with Section 22.11 of the Master Lease.
8. Specific Performance
RLH Partnership, RLI and Parent agree that monetary damages would not
be adequate compensation for any loss incurred by the Indemnified Parties by
reason of a breach of the provisions of this Guaranty by RLI or Parent.
Therefore, the Indemnified Parties shall be entitled to specific performance of
the provisions of this Guaranty and RLI and Parent each hereby waives the claim
or defense that there exists an adequate remedy at law to redress the
nonperformance or other breach of this Guaranty.
9. Agreement to Perform Necessary Acts
Each party agrees to perform any further acts and to execute and
deliver any documents that may be reasonably necessary to carry out the
provisions of this Guaranty.
10. Invalid Provision
The invalidity or unenforceability of any particular provision of this
Guaranty shall not affect the other provisions, and this Guaranty shall be
construed in all respects as if the invalid or unenforceable provision were
omitted.
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<PAGE> 5
11. No Waiver of Breach
No failure by any Indemnified Party to insist upon the strict
performance of any covenant, agreement, term or provision of this Guaranty, or
to exercise any right or remedy consequent upon a breach thereof, shall
constitute a waiver of any such breach or subsequent breach of such covenant,
agreement, term or provision. No waiver of any breach shall affect or alter this
Guaranty, and this guaranty shall remain in full force and effect.
12. Entire Agreement
This Guaranty evidences the entire agreement of the parties with
respect to the matters covered herein and supersedes all prior oral or written
agreements or other understandings.
13. Counterparts
This Guaranty may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Guaranty as of the
date first written above.
"PARENT":
PROMUS HOTELS, INC.
By: /s/ William L. Perocchi
------------------------------------
Name: William L. Perocchi
----------------------------------
Its: Executive Vice President
-----------------------------------
"RLI":
RED LION HOTELS, INC., a Delaware
corporation
By: /s/ William L. Perocchi
------------------------------------
Name: William L. Perocchi
----------------------------------
Its: Executive Vice President
-----------------------------------
"RLH PARTNERSHIP":
RLH PARTNERSHIP, L.P., a Delaware
limited partnership
By: Red Lion G.P., Inc., a Delaware
corporation, its general partner
By: /s/
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
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<PAGE> 1
EXHIBIT 10.5
<PAGE> 2
Execution Counterpart
GUARANTY AGREEMENT
This Guaranty Agreement (this "Guaranty") is made as of the 13th day of
November, 1998, by DOUBLETREE CORPORATION, a Delaware corporation (hereinafter
referred to as "Doubletree" or as the "Guarantor"), in favor of GMAC COMMERCIAL
MORTGAGE CORPORATION, a California corporation ("GMACCM"), and its successors
and assigns.
RECITALS
A. GMACCM has agreed to provide, or is considering issuing a
conditional Loan Commitment, substantially in the form of Exhibit A attached
hereto and made a part hereof (as amended from time to time, the "Loan
Commitment"), for the financing of certain hotel properties with
developers/borrowers approved by Candlewood Hotel Company, Inc., a Delaware
corporation ("Candlewood"). Candlewood will submit the approved projects to
GMACCM for loan underwriting. Such loans which are accepted by GMACCM and for
which it issues a Loan Commitment shall be hereinafter referred to as the
"Mortgage Loans."
B. Doubletree, directly or indirectly, owns a substantial equity
interest in Candlewood and will receive a substantial benefit from the projects
to be financed by GMACCM.
C. Doubletree has agreed to certain guaranties and credit enhancements
in connection with the Mortgage Loans as more fully set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the matters described in the
foregoing Recitals, in order to induce GMACCM to enter into the Loan Commitment
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. For purposes of this Guaranty, the following terms shall have
the meanings indicated:
(a) "Affiliate of Mortgagor" means, with respect to Mortgagor, another
Person who: (i) directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with the Mortgagor; (ii)
is a partner, director, officer or trustee of the Mortgagor or of any Person
covered by clause (i) above; (iii) is a partner of a partnership or joint
venture which owns, or is a beneficiary or trustee of a trust which owns, or
other owner of any stock or other evidences of beneficial ownership in, the
Mortgagor or any Person who directly or indirectly through one or more
intermediaries controls or is controlled by the Mortgagor; or (iv) is related to
the Mortgagor by blood (including grandparents of the Person specified and of
his or her spouse and all lineal descendants of such grandparents) or marriage
or close business association to the specified person or to any Person covered
by clause (i) above or of the spouse of any of the foregoing persons. For
purposes of this definition, the term "control" with respect to a Mortgagor
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of the Mortgagor, whether through
the ownership of voting stock, by contract or otherwise.
(b) "Allonge" means an instrument to be executed and delivered by the
Mortgagee to assign to Guarantor each Mortgage Note being repurchased pursuant
to the Repurchase Option.
<PAGE> 3
(c) "Approved Project Costs" for a particular Mortgage Loan shall have
the meaning set forth in the Loan Commitment applicable to such Loan, together
with any increases thereto permitted pursuant to the terms and provisions of the
Building Loan Agreement for variances and cost overruns.
(d) "Assignment of Rents and Leases" means, with respect to any
Mortgage Loan, the assignment of rents and leases executed by the Mortgagor with
respect to such Mortgage Loan.
(e) "Bankruptcy Default" shall mean any default under the Mortgage Loan
Documents caused by the Mortgagor filing or being the subject of a bankruptcy,
insolvency or reorganization proceeding under state or federal law.
(f) "Building Loan Agreement" means, with respect to any Mortgage Loan,
the building loan agreement executed by the Mortgagor with respect to the
Construction Loan.
(g) "Business Day" means any day other than a Saturday, a Sunday, a
federal holiday or another day on which commercial banks in the Commonwealth of
Pennsylvania are authorized or required to be closed for the conduct of their
regular banking operations.
(h) "Candlewood" shall refer to Candlewood Hotel Company, Inc., a
Delaware corporation and successor to Candlewood Hotel Company, LLC, a Delaware
limited liability company, together with the successors and permitted assigns of
such Delaware corporation.
(i) "Conforming Loan Criteria" shall refer to a Mortgaged Property
which at the maturity of the Construction Loan or the Extended Construction
Loan, as the case may be, meets, in GMACCM's sole discretion, each of GMACCM's
then current conduit origination and underwriting standards for loans and
borrowers of this type, including but not limited to (i) DSCR equal to or
greater than 1.4 and (ii) the LTV shall not be greater than 75%.
(j) "Construction Loan" shall mean and refer to the construction loan
over its initial loan term (and excluding any extension or renewal terms or time
periods), closed and funded pursuant to the Loan Commitment.
(k) "Debt" means Total Assets less Total Stockholders' Equity, as
reported with the U.S. Securities and Exchange Commission on any financial
statements on an annual or quarterly basis, whether such financial statements
are audited or are unaudited. If at any time Guarantor is not a corporation
whose stock is publicly traded, "Debt" shall mean the substantial equivalent of
the concept set forth in the preceding sentence, as reflected in those financial
statements to be provided by Guarantor pursuant to Section 23 below.
(l) "Delinquency" and "Delinquencies" means any portion of the
Indebtedness which is due and owing to GMACCM prior to the Maturity Date of the
Mortgage Loan (whether by acceleration or otherwise) and which is not paid as
and when due (following applicable notice and grace periods, if any) in
accordance with the provisions of the applicable Mortgage Loan Documents.
(m) "Doubletree" shall refer to Doubletree Corporation, a Delaware
corporation, its successors and permitted assigns.
(n) "DSCR" shall mean Debt Service Coverage Ratio which shall be
computed by dividing annual NOI by the annual debt service payments on the
subject Mortgage Loan, as both the debt component and NOI component of such
ratio may be adjusted in accordance with GMACCM's then-applicable underwriting
standards and requirements for loans and borrowers of this type.
(o) "Environmental Indemnity" means, with respect to any Mortgage Loan,
the environmental indemnity executed in connection with such Mortgage Loan.
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<PAGE> 4
(p) "Extended Construction Loan" shall mean the Construction Loan, to
the extent the term of the same may be extended for one or both extension terms
or time periods, in accordance with the conditions, terms and provisions set
forth in the Loan Commitment.
(q) "Event of Default" shall have the meaning set forth in Section 11
hereof.
(r) "Expenses" shall mean for any specified period, all ordinary,
necessary and reasonable operating and capital expenses actually paid on a cash
basis during such period and which are related to the Mortgagor's ownership and
operation of the Mortgaged Property during such period. Such Expenses shall
include, by way of example rather than of limitation: (1) departmental expenses;
(2) undistributed operating expenses; and (3) fixed charges, as such items (1)
- - - (3) are described in more detail in the current version of the Uniform System
of Accounts. Such Expense categories include, by way of example rather than
limitation (a) management fees, overhead and expenses of no less than five
percent (5%) of gross annual revenues; (b) franchise fees of no less than five
percent (5%) of gross annual revenues; and (c) an equipment and property reserve
of no less than four percent (4%) of gross annual revenues and as may be
adjusted in accordance with Lender's then-applicable underwriting standards and
requirements for loans and borrowers of this type. Such Expenses shall not
include the following: (i) any overhead of Mortgagor incurred in connection with
the management of the Mortgaged Property; (ii) all amounts paid to Mortgagor or
an Affiliate of Mortgagor in excess of amounts that would reasonably be paid in
an arms-length transaction to a Person that is not an Affiliate of Mortgagor;
(iii) non-cash deductions of Mortgagor; (iv) salaries or distributions paid or
made to any employee, partner, officer, director or shareholder of Mortgagor or
an Affiliate of Mortgagor; (v) the cost of capital improvements made to the
Mortgaged Property not approved in advance in writing, by GMACCM; (vi) the cost
of Mortgagor's federal, state or local income taxes, franchise taxes or other
taxes (other than real property taxes for the Mortgaged Property); or (vii)
principal, interest and other debt service payments for the Mortgage Loan
secured by such Mortgaged Property.
(s) "GMACCM" shall refer to GMAC Commercial Mortgage Corporation, a
California corporation, and its successors and assigns.
(t) "Gross Revenues" means for any specified period, all revenue
received on a cash basis during such period from all sources related to the
Mortgaged Property, including without limitation, all rents, issues, profits,
revenues, cash proceeds from accounts and accounts receivable, and other income
and proceeds from the use or occupancy of hotel rooms, conference rooms and
other public facilities at the Mortgaged Property, all parking revenue,
refunds, license, lease and concession fees and rentals, income from vending,
machines, food and beverage sales, wholesale and retail sales of merchandise,
and service charges; provided, however, Gross Revenues for such specified
period shall also include on an accrual basis, prorated over such specified
period, any property or casualty insurance proceeds that are not used for
restoration of the Mortgaged Property, any condemnation awards from a temporary
taking that are not used for restoration of the Mortgaged Property or to replace
such collateral with its substantial equivalent, any proceeds of business
interruption and other loss of income insurance, and any health club membership
fees; provided, further, Gross Revenues shall not include the following: (i)
gratuities to employees, (ii) federal, state or municipal excise, sales, use or
similar taxes collected directly from patrons or guests or included as part of
the sales price of any goods or services, (iii) insurance proceeds (other than
proceeds from business interruption or other loss of income insurance or other
than property insurance not used for restoration), (iv) condemnation proceeds
(other than proceeds from a temporary taking that are not used for restoration),
(v) proceeds from any sale of the Mortgaged Property or from a refinancing of
any debt encumbering the Mortgaged Property, (vi) proceeds from any disposition
of furniture, fixtures and equipment no longer necessary for the operation of
the Mortgaged Property; (vii) or interest accruing on amounts deposited in any
FF&E or other reserve account.
(u) "Guaranteed Obligations" shall have the meaning set forth in
Section 11 hereof.
(v) "Guarantor" shall mean Doubletree and its successors and permitted
assigns.
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<PAGE> 5
(w) "Guaranty" means this Guaranty, including all Schedules and
Exhibits hereto, as the same may be amended, supplemented, corrected or
otherwise modified.
(x) "Guaranty Fee" shall have the meaning set forth in Section 9
hereof.
(y) "Guaranty Interest Rate" shall have the meaning set forth in
Section 9 hereof.
(z) "Indebtedness" means all principal, interest, late fees, exit fees,
indemnification indebtedness and other amounts outstanding, from time to time,
under the Mortgage Loan Documents for a particular Mortgage Loan.
(aa) "Letter of Credit" shall have the meaning set forth in Section 8
hereof.
(bb) "Liquidation Recoveries" shall have the meaning set forth in
Section 6 hereof.
(cc) "Loan Amount" shall refer to the amount of financing that GMACCM
agrees to provide to any Mortgagor for any of the respective Mortgage Loans,
whether a Construction Loan or an Extended Construction Loan, pursuant to the
Loan Commitment. The respective Loan Amounts for the Construction Loan and the
Extended Construction Loan need not necessarily be the same amounts.
(dd) "Loan Commitment" shall have the definition set forth in the
Recitals hereto.
(ee) "Loan Guaranty" means, with respect to any Mortgage Loan, any and
all guaranties executed in connection therewith including, without limitation,
any completion guaranty.
(ff) "Loss" shall have the meaning set forth in Section 6 hereof.
(gg) "LTV" means the ratio of the Loan Amount to the fair market value
of the Mortgaged Property, as such fair market value is established pursuant to
an appraisal dated within thirty (30) days of such determination and acceptable
in all respects to GMACCM, in its sole discretion.
(hh) "Maturity Date" shall refer to the date any, referenced Mortgage
Loan then outstanding is due and payable in full.
(ii) "Maximum Amount" means, with respect to any Mortgage Loan, the
initial Maximum Amount for such Mortgage Loan, as said initial Maximum Amount is
set forth on the Mortgage Loan Schedule, as increased by (a) interest on the
Maximum Amount or the portion thereof then due, accruing, from the date the same
is due by Guarantor hereunder until the date paid in full, at the annual rate of
three percent (3%) over the prime rate published from time to time by The Wall
Street Journal, and (b) all collection costs hereunder, and as decreased by any
amounts attributable to principal for such Mortgage Loan and which is actually
funded by Guarantor hereunder (other than pursuant to clause (ii) of the first
sentence of Section 7 below) and not reimbursed to Guarantor pursuant to the
provisions hereof. The initial Maximum Amount for a particular Mortgage Loan
is derived pursuant to a formula that ensures that the portion of the Mortgage
Loan held by GMACCM which is not guaranteed under this Guaranty, does not exceed
sixty percent (60.0%) of the Approved Project Costs applicable to that Mortgage
Loan and related Mortgaged Property.
(jj) "Monetary Default" shall mean a default under the Mortgage Loan
Documents which directly results from the nonpayment of a monetary sum as and
when due.
(kk) "Mortgage" means, with respect to any Mortgage Loan, the
mortgages, deeds of trust, deeds to secure debt or other real property security
instruments, together with each modification, amendment and supplement thereto,
creating a lien on the Mortgaged Property described therein to secure a Mortgage
Note.
-4-
<PAGE> 6
(ll) "Mortgage/Deed of Trust Assignment" means an instrument to be
delivered by the Mortgagee to transfer the related Mortgage, Assignment of Rents
and Leases, and all other recorded security agreements to Guarantor pursuant to
the Repurchase Option.
(mm) "Mortgage Loan and Mortgage Loans" shall mean either a
Construction Loan or an Extended Construction Loan, which is actually closed and
funded pursuant to a particular Loan Commitment as more fully set forth on the
Mortgage Loan Schedule.
(nn) "Mortgage Loan Documents" means with regard to each Mortgage Loan,
the Mortgage Note, Mortgage, Assignment of Rents and Leases, Environmental
Indemnity, Building Loan Agreement, Loan Guaranty, Security Agreement and each
other document or instrument further securing, evidencing, indemnifying
guaranteeing or governing, the Mortgage Loan or otherwise related to the
Mortgage Loan.
(oo) "Mortgage Loan Files" means the Mortgage Loan Documents and all
correspondence and other materials relating to the Mortgagor, the Mortgaged
Property or the Mortgage Loan, its origination or servicing.
(pp) "Mortgage Loan Schedule" means the schedule of Mortgage Loans
attached hereto as Schedule 1, as the same shall be supplemented after the
closing of each Mortgage Loan and as the same may be amended, corrected or
otherwise modified by instrument executed or initialed by GMACCM and Guarantor,
which schedule includes, without limitation, the initial Maximum Amount for each
such loan and the Guaranty Interest Rate, if any, applicable to each such loan.
To the extent any proposed loan listed on the Mortgage Loan Schedule is not
actually committed to by GMACCM, in its sole discretion, or is not closed and
funded by GMACCM, it shall not be considered a Mortgage Loan hereunder and shall
not be considered a part of such schedule, and Guarantor shall have no liability
or obligations related thereto.
(qq) "Mortgage Note" means the promissory note or notes or other
documents, together with all amendments and modifications thereof, evidencing
the indebtedness of a Mortgagor under a Mortgage Loan.
(rr) "Mortgaged Property" means, with respect to a Mortgage Note, the
land, improvements, fixtures, personal property, contract rights (including
rights under any management agreement or franchise agreement), leases, rents,
hotel revenues, profits, permits and licenses (including, liquor licenses), and
other collateral (including any interest under a ground lease) directly securing
such Mortgage Note.
(ss) "Mortgage" means, with respect to any Mortgage as of any date of
determination, the holder of the related Mortgage Note as of such date.
(tt) "Mortgagor" means the obligor or obligors identified as such under
a Mortgage Note or Mortgage, which may be an affiliate of Candlewood or may be
an unaffiliated franchisee of Candlewood.
(uu) "Multiple Delinquency" means, with respect to any Mortgage Loan,
either (i) the second Delinquency to occur in any continuous twelve (12) month
period or (ii) the fourth Delinquency to occur under such Mortgage Loan over its
term, as may be extended from time to time.
(vv) "Net Worth" means, as of any date, the difference between the
assets shown on the financial statements of such Person (whether certified or
made in connection with a filing with the Securities and Exchange Commission)
less all liabilities of such Person, including, without limitation, all Debt.
(ww) "NOI" shall mean
(a) for purposes of GMACCM determining whether a Mortgage
Loan and the related Mortgaged Property satisfy the
Conforming Loan Criteria, "NOI" shall mean Net
Operating Income as defined and determined by GMACCM
in accordance with its then-
-5-
<PAGE> 7
current underwriting standards and practices for its
conduit program for loans and borrowers of that
type, which may include, without limitation:
1. An allowance of no less than 5% multiplied
by gross annual revenues for management
fees;
2. An allowance of no less than 5% multiplied
by gross annual revenues for franchise fees
payable to Candlewood; and
3. An allowance of no less than 4% multiplied
by gross annual revenues for a property,
plant, furniture, fixture, and equipment
replacement reserve; and
(b) for all other purposes, "NOI" shall mean Gross
Revenues less Expenses, all to the extent confirmed
by the periodic financial and property reporting and
audit requirements set forth in the Mortgage Loan
Documents.
(xx) "Non-Monetary Default" shall mean any default under the Mortgage
Loan Documents beyond any applicable cure period, other than a Monetary Default
and a Bankruptcy Default.
(yy) "Participation Agreement" shall mean that agreement in the form
attached hereto as Exhibit B (with Promus guaranteeing the obligations of
Doubletree thereunder), governing the subordinate participation rights Guarantor
may obtain in a particular Mortgage Loan upon payment of Guaranteed Obligations
related thereto, together with all exhibits and schedules to such agreement.
(zz) "Periodic Recovery" shall have the meaning set forth in Section 3
hereof.
(aaa) "Person" means an individual, corporation, limited liability
company, partnership, joint venture, association, joint stock company, trust,
bank, unincorporated organization or government or any agency or political
subdivision thereof.
(bbb) "Promus" means Promus Hotel Corporation, a Delaware corporation,
its successors and permitted assigns. Promus is the beneficial owner of all of
the issued and outstanding stock of Doubletree, and has agreed to guaranty all
obligations of Doubletree under this Guaranty pursuant to that agreement
attached hereto as Schedule 11 and made a part hereof.
(ccc) "Remedies Notice" shall have the meaning set forth in Section 4
hereof.
(ddd) "Repurchase Option" shall mean the option of Guarantor to
purchase a Mortgage Loan pursuant to Section 5 hereof.
(eee) "Security Agreement" means, with respect to any Mortgage Loan,
the financing statements and security agreements executed in connection
therewith.
2. "Guaranty of Payment. Guarantor hereby unconditionally and irrevocably
guarantees to GMACCM the punctual payment when due, and not merely the
collectability, of (a) all Delinquencies as set forth in Section 3 below and (b)
all Loss as set forth in Section 6 below, in the aggregate up to the Maximum
Amount for all Mortgage Loans. The Maximum Amount for any particular Mortgage
Loan shall be reduced by the amount of any Delinquency satisfied from time to
time by Guarantor in accordance with Section 3 below which is attributable to
principal under a particular Mortgage Loan, and shall be increased by the cash
amount, without interest, of any subsequent recoveries by GMACCM against the
Mortgagor for those Delinquencies which were previously satisfied by Guarantor,
which recoveries shall be promptly paid to Guarantor by GMACCM in the ordinary
course of GMACCM's servicing of Mortgage Loan payments. Sums paid by Guarantor
hereunder (other than interest and
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<PAGE> 8
collection costs under Section 19 below), shall not be applied on account of the
Indebtedness outstanding for a particular Mortgage Loan, but rather, shall
constitute the purchase by Guarantor of a subordinated participation in such
Mortgage Loan in the amount paid by Guarantor, which participation shall be
governed by the terms and provisions of the Participation Agreement. Recoveries
paid by GMACCM to Guarantor shall be applied to reduce Guarantor's participation
interest in such Mortgage Loan. Interest and collection costs paid by Guarantor
under Section 19 below, will belong to GMACCM and will not be applied on account
of the Indebtedness outstanding under any Mortgage Loan or to the purchase by
Guarantor of a participation interest in any Mortgage Loan.
3. Guaranty of Delinquencies. To the extent that for any month during a Mortgage
Loan term that GMACCM does not receive, for any reason, any portion of the
Indebtedness due for such month, following applicable notice and grace periods,
if any, GMACCM may give written notice to Guarantor of such Delinquency.
Guarantor hereby unconditionally and irrevocably guarantees to GMACCM that
Guarantor shall pay to GMACCM no later than seven (7) Business Days after the
date of such notice from GMACCM, the amount of such Delinquency, up to the then
Maximum Amount. To the extent that such guarantee payment is not timely received
by GMACCM, Guarantor shall be in default hereunder and shall be liable for
interest and collection costs as set forth in Section 19 below. To the extent
that GMACCM subsequently receives from Mortgagor after payment of all current
Indebtedness, any portion of the Delinquencies previously satisfied by Guarantor
pursuant to this Guaranty (a "Periodic Recovery"), such cash Periodic Recovery
amounts up to the amount of the prior Delinquency, without interest, actually
received from Mortgagor shall be remitted promptly to Guarantor and shall be
added to and shall increase the Maximum Amount. As described more fully in
Section 27 below but subject to the provisions of Section 6(c) below, Guarantor
shall have no subrogation rights against Mortgagor and shall not demand or
request repayment from Mortgagor or an Affiliate of Mortgagor for any
Delinquency which Guarantor has satisfied and paid under this Guaranty.
Satisfaction by Guarantor of any Delinquency shall not cure or remedy
Mortgagor's failure to properly pay such sums under the Mortgage Loan Documents
and the Mortgage Loan default resulting therefrom.
4. Loan Administration. Guarantor acknowledges and agrees that GMACCM has full
and absolute control over administration of the Mortgage Loans, including
decisions regarding whether to modify the Mortgage Loan terms, extend the
Maturity Date, advance additional funds, release collateral, terminate
management, franchise or other pledged contractual rights, waive or relinquish
rights or remedies, or assign GMACCM's rights and interests, subject to the
terms and conditions of such agreements and Mortgage Loan Documents.
Notwithstanding the foregoing, GMACCM hereby agrees as follows:
(a) GMACCM shall provide Guarantor with copies of all written notices
of default sent to each Mortgagor by GMACCM;
(b) As to those Mortgage Loan defaults which directly result from the
occurrence of a Monetary Default, GMACCM shall only accelerate the maturity of
the Indebtedness and foreclose on the Mortgaged Property, obtain a receiver
therefor or accept a deed in lieu thereof if within a period of sixty (60) days
(inclusive of any applicable notice and/or grace periods set forth in the
Mortgage Loan Documents) from the occurrence of such Monetary Default, the
Monetary Default has not been cured by Mortgagor or satisfied by Guarantor in
accordance with Section 3 above (with the seven Business Day notice period
described in Section 3 being a part of such sixty-day forbearance period);
provided, however, (i) the foregoing restrictions shall in no way affect or
restrict GMACCM's rights to immediately proceed with its available remedies upon
the occurrence of any Mortgage Loan default that is caused by a Bankruptcy
Default or a Non-Monetary Default, and (ii) GMACCM shall have no obligation to
forbear from pursuing its lawful remedies for such sixty-day period if the
Monetary Default is a Multiple Delinquency;
(c) If the Mortgage Loan default is a Non-Monetary Default or if the
Monetary Default has not been cured within such sixty-day period or if the
Monetary Default is a Multiple Delinquency, GMACCM may, at its option, elect to
foreclose on all or a portion of the Mortgaged Property, appoint a receiver
therefor, accept a deed in lieu thereof of otherwise exercise its rights and
remedies as regards the Mortgaged Property and/or the Mortgagor,
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in which event, GMACCM shall give Guarantor written notice (the "Remedies
Notice") of (i) GMACCM's intention to pursue its available remedies and (ii) the
aggregate Indebtedness then outstanding, together with per diem interest and
other charges, under the applicable Mortgage Loan. Guarantor shall then have
thirty (30) days to avoid potential exposure for a Loss by instead, exercising
Guarantor's Repurchase Option; and
(d) GMACCM will not materially modify the Mortgaged Loan terms, extend
the Maturity Date, advance additional funds (except in an emergency) release
collateral, terminate management, franchise or other material pledged
contractual rights or waive or relinquish material rights or remedies, without
first (i) having determined in its business judgment, after considering all
facts and circumstances, that to do so is necessary or desirable to prevent a
default or to protect the value of the security for the Mortgage Loan, and (ii)
notifying Guarantor of GMAC-MC's intent to do so, which notice shall also
constitute a Remedies Notice hereunder.
5. Repurchase Option. At any time during the thirty (30) days following
GMACCM's Remedies Notice, Guarantor may, at its option (the "Repurchase Option")
purchase the defaulted Mortgage Loan by payment to the Mortgagee, within such
time period, of the aggregate Indebtedness then outstanding under such Mortgage
Loan less the amount, if any, of Guarantor's participation interest in such
Mortgage Loan. Upon receipt of such funds, GMACCM shall execute and deliver,
without representation, warranty or recourse, the Allonge, the Mortgage/Deed of
Trust Assignment and other assignments and transfers of the applicable Mortgage
Loan Documents, together with all assignable rights of GMACCM in and to policies
of insurance (property, title or other) and all claims thereunder, all rights of
GMACCM to condemnation awards and all other rights of GMACCM related to such
Mortgage Loan other than indemnification rights for the benefit of GMACCM which
survive the payoff of such loan; provided, however, GMACCM shall represent and
warrant that it has done nothing during its ownership of the Mortgage Loan to
affect the validity and enforceability of such loan as a first mortgage lien on
the Mortgaged Property, and that it has not transferred, encumbered or assigned
the Mortgage Loan; and provided, further, GMACCM shall take such other actions
as may be necessary, after taking into account all facts and circumstances, to
vest in Guarantor unencumbered title to all of the foregoing, all at Guarantor's
sole cost and expense.
6. Guaranty of Loss.
(a) If Guarantor does not timely exercise its Repurchase Option and if
the Mortgage Loan default is continuing, GMACCM may, at its option, proceed to
exercise its available remedies, including foreclosure. In such event, GMACCM
may suffer a "Loss" in an amount equal to the then outstanding Indebtedness
under the Loan minus all Liquidation Recoveries (as hereinafter defined)
actually received by GMACCM with respect to the Loan or Mortgaged Property. As
used herein, the term "Liquidation Recoveries" shall mean (i) if the Mortgaged
Property has been sold at foreclosure to a third party, the net cash proceeds
from such foreclosure sale actually received by GMACCM (it being understood and
agreed that Guarantor shall have the right to purchase the Mortgaged Property at
such foreclosure sale), (ii) if the Mortgaged Property is acquired by GMACCM or
its designee at a foreclosure sale (it being understood and agreed that
Guarantor shall have the right to purchase the Mortgaged Property at such
foreclosure sale), the successful GMACCM foreclosure bid less reasonable
foreclosure costs, (iii) if GMACCM has elected to accept a deed to the Mortgaged
Property in lieu of foreclosure, the value of such Mortgaged Property as
reasonably agreed to by GMACCM based upon an internal or other appraisal of the
Mortgaged Property, or (iv) if GMACCM has elected to pursue other available
remedies, the net cash proceeds to GMACCM from the exercise of such remedies.
GMACCM shall not give less than thirty (30) days prior notice to Guarantor of
any foreclosure sale of the Mortgaged Property (which notice period may be part
of the sixty (60) day and thirty (30) day notice periods set forth in Sections
4(b), 4(c) and 6(b) of this Agreement), which shall include the date, time and
place of the sale. There shall be added to Liquidation Recoveries, the net cash
amount of all sums recovered by GMACCM with respect to such Mortgage Loan (other
than under this Guaranty), including without limitation, the net amount
recovered under any policy of property, title or other insurance applicable to
such Mortgage Loan, under any assigned contract or from any other guarantor of
such Mortgage Loan; provided, however, GMACCM shall not be required to institute
or prosecute any proceedings or claims against any or all of such collateral,
insurance or other sources of payment (including without limitation, proceedings
under the Loan Guaranty to recover any deficiency or alleged breach of
non-recourse covenants or conditions) as a condition of payment hereunder or
enforcement of
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the terms of this Guaranty; provided, however, GMACCM shall use reasonable
efforts, taking into accounts all facts and circumstances, to recover any Loss
satisfied by Guarantor and to remit the same to Guarantor.
(b) If the Mortgage Loan default is a Bankruptcy Default, the Loss
guaranteed by Guarantor hereunder shall be equal to the then Maximum Amount.
Within thirty (30) days of written notice from GMACCM of the occurrence of a
Bankruptcy Default, Guarantor may, at its option, exercise its Repurchase Option
as to such Mortgage Loan or shall pay to GMACCM the then Maximum Amount. To the
extent that the Repurchase Option is not consummated or the Maximum Amount has
not been received within such thirty-day period, Guarantor shall be in default
hereunder, with Guarantor liable for additional interest and for collections
costs, as described below.
(c) After completion of the foreclosure or other enforcement action
(except for remedies taken for a Bankruptcy Default, for which recovery against
Guarantor is governed by clause (b) above) and after GMACCM's determination of
the amount of its Loss, GMACCM shall provide written notice to Guarantor of the
amount of such Loss. Guarantor hereby unconditionally and irrevocably guarantees
to GMACCM that Guarantor shall pay to GMACCM, no later than seven (7) Business
Days after the date of such notice from GMACCM, the amount of such Loss, up to
the then Maximum Amount. To the extent that such guarantee payment is not timely
received by GMACCM, Guarantor shall be in default hereunder and shall be liable
for interest and collection costs. GMACCM shall not be required to seek a
personal judgement against Mortgagor and/or Mortgagor's principal equity owners
under the Loan Documents (for breaches of non-recourse covenants and conditions,
under the Environmental Indemnity or otherwise) prior to seeking payment from
Guarantor of any Loss; provided, however, GMACCM shall use reasonable efforts,
taking, into account all facts and circumstances, to recover the Loss and remit
the same to Guarantor. Upon receipt by GMACCM of all Indebtedness owing to
GMACCM under the Mortgage Loan Documents (except in the case of a Bankruptcy
Default), GMACCM shall assign, without recourse, representation or warranty
(except as provided in Section 5 above), the Mortgage Loan Documents to
Guarantor, together with all other rights of GMACCM described in Section 5
above.
7. Loan Paydown. In addition to the guarantee of Delinquencies and the guarantee
of Loss, as described above, Guarantor hereby unconditionally and irrevocable
guarantees to GMACCM that, in the event that on or before sixty (60) days prior
to (a) the Maturity Date of each Construction Loan or (b) the first Maturity
Date of each Extended Construction Loan, as applicable, the related Mortgaged
Property has not achieved a minimum 1.10 DSCR, then, in such event, Guarantor,
not earlier than sixty (60) days but at least thirty (30) days prior to each
such Maturity Date shall have either (i) paid down, up to the then Maximum
Amount, the Loan Amount for such particular Mortgage Loan in order to achieve a
1.10 DSCR or (ii) entered into an agreement, in the form attached to and made a
part of the Participation Agreement, whereby Guarantor agrees to become fully
liable for the payment of all principal, interest, net cash flow, tax and
insurance escrows, and other sums payable monthly on account of such Mortgage
Loan. Sums payable by Guarantor pursuant to clause (ii) of the preceding
sentence shall be applied to the purchase by Guarantor of a subordinated
participation in the Mortgage Loan, in accordance with the terms and provisions
of the Participation Agreement, but shall not reduce the Maximum Amount.
Guarantor may at any time revoke its agreement under such clause (ii) above and
terminate its obligations thereunder by paying the sum then owing, if any, under
clause (i) above, and such agreement will automatically terminate when the
Mortgage Loan achieves a 1.10 DSCR or when the Maximum Amount for such loan
equals zero (Guarantor acknowledging, however, that payments under clause (ii)
above shall not reduce the Maximum Amount). GMACCM will continue its customary
efforts to collect all interest and other sums coming due from the Mortgagor and
will promptly credit to Guarantor all sums so collected.
8. Acceleration/Letter of Credit.
(a) In addition to all other rights and remedies set forth herein, the
Maximum Amount for all Mortgage Loans then outstanding shall be immediately due
and payable if any of the representations and warranties in Section 22 are
incorrect as of the date hereof or if, at any time during the term of any
Mortgage Loan (i) Guarantor files or has filed against it a bankruptcy,
insolvency or reorganization proceeding under federal or state law (unless, in
the case of an involuntary proceeding, such proceeding is dismissed within sixty
(60) days of the
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<PAGE> 11
filing, thereof), (ii) any representation, warranty or covenant in Section
22(b), (d), (e), (i), (j), (k) or (l) is incorrect or breached, or (iii)
Guarantor breaches any covenant set forth in clauses (b) and (c) below.
(b) If, at any time, one or more of the covenants set forth in Section
23 below is violated, within fifteen (15) Business Days of notice thereof by
GMACCM, Guarantor shall obtain and deliver to GMACCM at Guarantor's sole
expense, an unconditional, irrevocable letter of credit (the "Letter of Credit")
in an amount equal to twenty-five percent (25%) of the aggregate Maximum Amount
for all Mortgage Loans then outstanding. The Letter of Credit shall be from a
financial institution having at least $100 million in assets, shall name GMACCM
as the sole beneficiary and shall be in form and content acceptable to GMACCM,
in its sole discretion. GMACCM shall be entitled to present the Letter of Credit
and to make a draw against the same if Guarantor fails to pay a Delinquency,
Loss, or other sum required to be paid under this Guaranty in accordance with
the terms hereof. GMACCM shall promptly return the Letter of Credit to Guarantor
if and to the extent that the breach of the financial covenants set forth herein
is cured, without in any manner limiting GMACCM's rights to require another
Letter of Credit if one or more of such covenants are violated at a subsequent
date.
(c) If, after obtaining the Letter of Credit and prior to its return to
Guarantor, one of the covenants set forth in Section 23 below is violated for a
second time (when measured at least one hundred twenty (120) days after the date
of the first breach), GMACCM shall have the right to require Guarantor, within
fifteen (15) Business Days of notice thereof by GMACCM, to obtain an additional
letter of credit or an increase to or supplement of the Letter of Credit so that
the face amount of the aggregate Letter of Credit equals fifty percent (50%) of
the aggregate Maximum Amount for all Mortgage Loans then outstanding.
9. Rebate to Guarantor. GMACCM hereby agrees to pay to Guarantor monthly on the
twenty-fifth day of each month (or if such day is not a Business Day, on the
next succeeding Business Day) (the "Rebate Payment Date"), commencing on the
twenty-fifth (25th) day of the first calendar month following the closing of
each Mortgage Loan, an amount (the "Guaranty Fee") equal to the product of (i)
the quotient of (1) the interest rate (the "Guaranty Interest Rate,"), if any,
as is set forth on the Mortgage Loan Schedule opposite the particular Mortgage
Loan to which it applies divided by (2) the non-default contract interest rate
(LIBOR plus the applicable spread) set forth in the applicable Mortgage Note,
multiplied by (ii) the actual interest remitted by Mortgagor under that Mortgage
Loan for that month and (to the extent not previously rebated to Guarantor in
accordance herewith) any prior or partial month; provided, however, such
payments by GMACCM to Guarantor shall only be made as and to the extent that (a)
GMACCM has received all principal, interest, net cash flow, tax and insurance
escrows and other sums owing by Mortgagor under such Mortgage Loan by the fifth
(5th) business day prior to such Rebate Payment date and (b) GMACCM has made no
claim against Guarantor under this Guaranty which has not been satisfied in
full. Any Mortgage Loan payments received by GMACCM later than five (5) business
days prior to the applicable Rebate Payment Date will be paid (absent breach of
clause (b) of the preceding sentence) to Guarantor on the next calendar month's
Rebate Payment Date. Guarantor acknowledges and agrees that the Guaranty
Interest Rate is in addition to the interest rate which GMACCM would otherwise
charge to the Mortgagor, shall be disclosed to the Mortgagor in the Loan
Commitment or other document, and the Guaranty Fee represents reasonable
consideration to Guarantor for its costs and expenses in providing this Guaranty
for the benefit of Mortgagor. Guarantor further acknowledges and agrees that if
a claim has been made under this Guaranty but has not been fully satisfied for
any reason, or if, for any reason, GMACCM has not received from the Mortgagor,
by the prior month's payment date, all sums due and payable under such Mortgage
Loan, the Guaranty Fee for that Mortgage Loan for that month shall be applied to
the Indebtedness and shall not be due and payable to Guarantor unless and until
GMAC-MC has received all such delinquent sums from Guarantor and the Mortgagor.
Notwithstanding the foregoing, in those circumstances where Guarantor has
exercised its option under clause (ii) of Section 7 to become fully liable for
the payment of sums owing under a particular Mortgage Loan, to the extent that a
Guaranty Fee is received from the Mortgagor for that Mortgage Loan, it shall be
retained by GMACCM as consideration for GMACCM's increased costs of servicing
such loan.
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<PAGE> 12
10. Termination of Guaranty.
(a) Except as set forth in clause (b) below, this Guaranty shall be
terminated as to a particular Mortgage Loan and Guarantor shall be released from
all liability with respect to a particular Mortgage Loan at such time as GMACCM
has notified Guarantor in writing that the related Mortgaged Property has
satisfied the Conforming Loan Criteria. GMACCM agrees to provide Guarantor with
such notice promptly after confirming to GMACCM's satisfaction, in its sole
discretion, that the Conforming Loan Criteria have been satisfied.
(b) This Guaranty shall continue in effect as to all Mortgage Loans
which have not satisfied the Conforming Loan Criteria. With respect to each
Mortgage Loan which has satisfied the Conforming Loan Criteria, this Guaranty
shall continue in effect (i) with respect to all obligations and liabilities of
Guarantor under Section 19, and (ii) as provided in Section 12(b).
11. Primary Liability of Guarantor.
(a) This Guaranty is an absolute, irrevocable and unconditional
guaranty of payment. Guarantor shall be liable, with respect to each Mortgage
Loan, for the payment of all indebtedness described herein up to the Maximum
Amount applicable to such loan (up to such ceiling in the aggregate for all
Mortgage Loans, the "Guaranteed Obligations"), as set forth in this Guaranty, as
a primary obligor. This Guaranty shall be effective as a waiver of, and
Guarantor hereby expressly waives, any and all rights to which Guarantor may
otherwise have been entitled under any suretyship laws in effect from time to
time; including any right or privilege, whether existing under statute, at law
or in equity, to require GMACCM to take prior recourse or proceedings against
any collateral, security or Person whatsoever.
(b) Guarantor hereby agrees that in the event of the occurrence of a
default of an obligation of Guarantor hereunder which continues beyond
applicable notice and grace periods, if any, (individually and collectively an
"Event of Default"), then upon the occurrence of such Event of Default, the
Guaranteed Obligations, for purposes of this Guaranty, shall be deemed
immediately due and payable at the election of GMACCM, and Guarantor shall, on
demand and without presentment, protest, notice of protest, further notice of
nonpayment or of dishonor or of default, or notice of acceleration or of intent
to, or any other notice whatsoever, without any notice having been given to
Guarantor or Mortgagor previous to such demand of the acceptance by GMACCM of
this Guaranty, and without any notice having been given to Guarantor or
Mortgagor previous to such demand of the creating or incurring of such
indebtedness, all such notices being hereby waived by Guarantor, pay all damages
and all costs and expenses, up to the then Maximum Amount, that may arise in
consequence of any such Event of Default (including any and all costs and
expenses incurred by GMACCM in connection with the collection and enforcement of
this Guaranty or any portion thereof including all reasonable attorneys' fees
and expenses, investigation costs, and all court costs, whether or not suit is
filed hereon, and it shall not be necessary for GMACCM, in order to enforce such
payment by Guarantor, first to institute suit or pursue or exhaust any rights or
remedies against Mortgagor or others liable on such indebtedness or to institute
suit or pursue or exhaust any rights or remedies against Mortgagor and all other
Guarantor or other sureties of the Guaranteed Obligations or to enforce any
rights against any security that shall ever have been given to secure such
indebtedness, or to join Mortgagor or any others liable for the payment of the
Guaranteed Obligations or any part thereof in any action to enforce this
Guaranty, or to resort to any other means of obtaining payment of the Guaranteed
Obligations; provided, however, except as specifically set forth above, nothing
herein contained shall prevent GMACCM from suing on the Mortgage Note or
foreclosing the Mortgage or from exercising, any other rights thereunder, and if
such foreclosure or other remedy is availed of, only the net proceeds therefrom,
after deduction of all charges and expenses of every kind and nature whatsoever,
shall be applied in reduction of the amount due on the Mortgage Note and
Mortgage, and GMACCM shall not be required to institute or prosecute proceedings
to recover any deficiency or alleged breach of non-recourse covenants or
conditions as a condition of payment hereunder or enforcement hereof; provided,
however, GMACCM shall use reasonable efforts, taking into account all facts and
circumstances, to recover any Loss amount and remit the same to Guarantor. At
any sale of the Mortgaged Property or other collateral given for the
Indebtedness or any part thereof, whether by foreclosure or otherwise, GMACCM
may at its
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discretion purchase all or any part of the Mortgaged Property or collateral so
sold or offered for sale for its own account and may, in payment of the amount
bid therefor, deduct such amount from the balance due it pursuant to the terms
of the Mortgage Note and Mortgage.
(c) Suit may be brought or demand may be made against all parties who
have signed this Guaranty or any other guaranty covering all or any part of the
Guaranteed Obligations, or against any one or more of them, separately or
together, without impairing the rights of GMACCM against any party hereto. Any
time that GMACCM is entitled to exercise its rights or remedies hereunder, it
may in its discretion elect to demand payment.
12. Certain Agreements and Waivers by Guarantor.
(a) Guarantor hereby agrees that neither GMACCM's rights or remedies
nor Guarantor's obligations under the terms of this Guaranty shall be released,
diminished, impaired, reduced or affected by any one or more of the following,
events, actions, facts, or circumstances, and the liability of Guarantor under
this Guaranty shall be absolute and unconditional irrespective of:
(i) any limitation of liability or recourse in any other Loan
Document or arising under any law;
(ii) any claim or defense that this Guaranty was made without
consideration or is not supported by adequate consideration;
(iii) the taking or accepting of any other security or
guaranty for, or right of recourse with respect to, any or all of the
Guaranteed Obligations;
(iv) any homestead exemption or any other exemption under
applicable law;
(v) any release, surrender, abandonment, exchange, alteration,
sale or other disposition, subordination, deterioration, waste, failure
to protect or preserve, impairment, or loss of, or any failure to
create or perfect any lien or security interest with respect to, or any
other dealings with, any collateral or security at any time existing or
purported, believed or expected to exist in connection with any or all
of the Guaranteed Obligations, including any impairment of Guarantor's
recourse against any Person or collateral;
(vi) whether express or by operation of law, any partial
release of the liability of Guarantor hereunder, or if one or more
other guaranties are now or hereafter obtained by GMACCM covering all
or any part of the Guaranteed Obligations, any complete or partial
release of any one or more of such guarantors under any such other
guaranty, or any complete or partial release or settlement of Mortgagor
or any other party liable, directly or indirectly, for the payment of
any or all of the Guaranteed Obligations;
(vii) the death, insolvency, bankruptcy, disability,
dissolution, liquidation, termination, receivership, reorganization,
merger, consolidation, change of form, structure or ownership, sale of
all assets, or lack of corporate, partnership or other power of
Mortgagor or any other party at any time liable for the payment of any
or all of the Guaranteed Obligations;
(viii) either with or without notice to or consent of
Guarantor, except as required under Section 4(d) above: any renewal,
extension, modification or rearrangement of the terms of any or all of
the Guaranteed Obligations and/or any of the Loan Documents, including
material alterations of the terms of payment (including changes in
maturity date(s) and interest rate(s)) or performance (including
changes in the final plans and specifications and other terms or
aspects of construction of the improvements at the Mortgaged Property)
or any other terms thereof, or any waiver, termination, or release of,
or consent to departure from, any of the Loan Documents or any other
guaranty of any or all of the Guaranteed Obligations, or any
adjustment, indulgence, forbearance, or compromise that may be granted
from time to
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time by GMACCM to Mortgagor, Guarantor, and/or any other Person at any
time liable for the payment of any or all of the Guaranteed
Obligations;
(ix) any neglect, lack of diligence, delay, omission, failure,
or refusal of GMACCM to take or prosecute (or in taking or prosecuting)
any action for the collection or enforcement of any of the Guaranteed
Obligations, or to foreclose or take or prosecute any action to
foreclose (or in foreclosing or taking or prosecuting any action to
foreclose) upon any security therefor, or to exercise (or in
exercising) any other right or power with respect to any security
therefor, or to take or prosecute (or in taking or prosecuting) any
action in connection with any Loan Document, or any failure to sell or
otherwise dispose of in a commercially reasonable manner any collateral
securing any or all of the Guaranteed Obligations; provided, however,
GMACCM shall use reasonable efforts, taking into account all facts and
circumstances, to recover any Loss amount and to remit the same to
Guarantor;
(x) any failure of GMACCM to notify Guarantor, to the extent
required under Section 4(d) above, of any creation, renewal, extension,
rearrangement, modification, supplement, subordination, or assignment
of the Guaranteed Obligations or any part thereof, or of any Loan
Document, or of any release of or change in any security, or of any
other action taken or refrained from being taken by GMACCM against
Mortgagor or any security or other recourse, or of any new agreement
between GMACCM and Mortgagor, it being understood that GMACCM shall
not be required to give Guarantor any notice of any kind under any
circumstances with respect to or in connection with the Guaranteed
Obligations, any and all rights to notice Guarantor may have otherwise
had being hereby waived by Guarantor, and Guarantor shall be
responsible for obtaining for itself information regarding the
Mortgagor, including, any changes in the business or financial
condition of the Mortgagor, and Guarantor acknowledges and agrees that
GMACCM shall have no duty to notify Guarantor of any information which
the GMACCM may have concerning the Mortgagor.
(xi) if any requirement for any reason that GMACCM is required
to refund any payment by Mortgagor to any other party liable for the
payment of any or all of the Guaranteed Obligations or pay the amount
thereof to someone else;
(xii) the making of advances by GMACCM to protect its interest
in the Mortgaged Property, preserve the value of the Mortgaged Property
or for the purpose of perform in any term or covenant contained in any
of the Loan Documents;
(xiii) the existence of any claim, counterclaim, set-off,
recoupment, reduction or defense based upon any claim or other right
that Guarantor may at any time have against Mortgagor, GMACCM, or any
other Person, whether or not arising, in connection with this Guaranty,
the Mortgage Note, the Loan Agreement, or any other Loan Document;
(xiv) the unenforceability of all or any part of the
Guaranteed Obligations against Mortgagor, whether because the
Guaranteed Obligations exceed the amount permitted by law or violate
any usury law, or because the act of creating the Guaranteed
Obligations, or any part thereof, is ultra vires, or because the
officers or Persons creating same acted in excess of their authority,
or because of a lack of validity or enforceability of or defect or
deficiency in any of the Loan Documents, or because Mortgagor has any
valid defense, claim or offset with respect thereto, or because
Mortgagor's obligation ceases to exist by operation of law, or because
of any other reason or circumstance, it being agreed that Guarantor
shall remain liable hereon regardless of whether Mortgagor or any other
Person be found not liable on the Guaranteed Obligations, or any part
thereof, for any reason (and regardless of any joinder of Mortgagor or
any other party in any action to obtain payment of any or all of the
Guaranteed Obligations); or
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(xv) any order, ruling or plan of reorganization emanating
from proceedings under Title II of the United States Code with respect
to Mortgagor or any other Person, including any extension, reduction,
composition, or other alteration of the Guaranteed Obligations,
whether or not consented to by GMACCM.
(b) In the event any payment by Mortgagor, Guarantor or any other
Person to GMACCM is held to constitute a preference, fraudulent transfer or
other voidable payment under any bankruptcy, insolvency or similar law, or if
for any other reason GMACCM is required to refund such payment or pay the amount
thereof to any other party, such payment by Mortgagor, Guarantor or any other
Person to GMACCM shall not constitute a release of Guarantor from any liability
hereunder, and this Guaranty shall continue to be effective or shall be
reinstated (notwithstanding any prior release, surrender or discharge by GMACCM
of this Guaranty or of Guarantor), as the case may be, with respect to, and this
Guaranty shall apply to, any and all amounts so refunded by GMACCM or paid by
GMACCM to Guarantor or another Person (which amounts shall constitute part of
the Guaranteed Obligations), and any interest paid by GMACCM and any attorneys'
fees, costs and expenses paid or incurred by GMACCM in connection with any such
event. It is the intent of Guarantor and GMACCM that the obligations and
liabilities of Guarantor hereunder are absolute and unconditional under any and
all circumstances and that until the Guaranteed Obligations are fully and
finally paid and performed, and not subject to refund or disgorgement, the
obligations and liabilities of Guarantor hereunder shall not be discharged or
released, in whole or in part, by any act or occurrence that might, but for the
provisions of this Guaranty, be deemed a legal or equitable discharge or release
of a guarantor. GMACCM shall be entitled to continue to hold this Guaranty in
its possession for so long as may be necessary (including any bankruptcy
"preference" periods following the satisfaction of all Guaranteed Obligations)
to enforce any obligation of Guarantor hereunder and/or to exercise any right or
remedy of GMACCM hereunder.
(c) If acceleration of the time for payment of any amount payable by
Mortgagor under the Mortgage Note, the Loan Agreement, or any other Loan
Document is stayed or delayed by any law or tribunal, all such amounts shall
nonetheless be payable by Guarantor on demand by GMACCM.
13. Subordination. If, for any reason whatsoever, Mortgagor and/or Candlewood is
now or hereafter becomes indebted to Guarantor for any payments made under this
Guaranty:
(a) such indebtedness and all interest thereon and all liens, security
interests and rights now or hereafter existing with respect to property of
Mortgagor and/or Candlewood securing same shall, at all times, be subordinate in
all respects to the Guaranteed Obligations and to all liens, security interests
and rights now or hereafter existing to secure the Guaranteed Obligations;
(b) Guarantor shall not be entitled to enforce or receive payment,
directly or indirectly, of any such indebtedness of Mortgagor and/or Candlewood
to Guarantor until the Guaranteed Obligations have been fully and finally paid
and performed;
(c) Guarantor hereby assigns and grants to GMACCM a security interest
in all such indebtedness and security therefor, if any, of Mortgagor and/or
Candlewood to Guarantor now existing or hereafter arising, including any
dividends and payments pursuant to debtor relief or insolvency proceedings
referred to below. In the event of receivership, bankruptcy, reorganization,
arrangement or other debtor relief or insolvency proceedings involving Mortgagor
and/or Candlewood as debtor, GMACCM shall have the right to prove its claim in
any such proceeding so as to establish its rights hereunder and shall have the
right to receive directly from the receiver, trustee or other custodian (whether
or not a Default shall have occurred or be continuing under any of the Loan
Documents), dividends and payments that are payable upon any obligation of
Mortgagor and/or Candlewood to Guarantor now existing or hereafter arising, and
to have all benefits of any security therefor, until the Guaranteed Obligations
have been fully and finally paid and performed. If, notwithstanding the
foregoing provisions, Guarantor should receive any payment, claim or
distribution that is prohibited as provided above in this Section, Guarantor
shall pay the same to GMACCM immediately, Guarantor hereby agreeing that it
shall receive the payment, claim or distribution in trust for GMACCM and shall
have absolutely no dominion over the same except to pay it immediately to
GMACCM; and
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<PAGE> 16
(d) Guarantor shall promptly upon request of GMACCM from time to time
execute such documents and perform such acts as GMACCM may require to evidence
and perfect its interest and to permit or facilitate exercise of its rights
under this Section, including execution and delivery of financing statements,
proofs of claim, further assignments and security agreements, and delivery to
GMACCM of any promissory notes or other instruments evidencing indebtedness of
Mortgagor and/or Candlewood to Guarantor. All promissory notes, accounts
receivable ledgers or other evidences, now or hereafter held by Guarantor, of
obligations of Mortgagor and/or Candlewood to Guarantor shall contain a specific
written notice thereon that the indebtedness evidenced thereby is subordinated
under and is subject to the terms of this Guaranty.
14. Other Liability of Guarantor or Mortgagor. GMACCM agrees that, without the
prior written consent of Guarantor, GMAC shall not extend to a particular
Mortgagor any debt ("Additional Debt") other than the Indebtedness outstanding
under the Mortgage Loan to such Mortgagor; provided, however, to the extent that
Guarantor has received a Loan Commitment or other written notification regarding
any such Additional Debt and has not objected in writing, to GMACCM prior to the
closing of such Additional Debt, Guarantor shall be deemed to have consented to
the issuance of such Additional Debt by GMACCM. If Guarantor is or becomes
liable, by endorsement or otherwise, for any indebtedness owing by Mortgagor to
GMACCM other than under this Guaranty, such liability shall not be in any manner
impaired or affected hereby, and the rights of GMACCM hereunder shall be
cumulative of any and all other rights that GMACCM may have against Guarantor.
This Guaranty is independent of (and shall not be limited by) any other guaranty
now existing or hereafter given.
15. GMACCM Assigns. This Guaranty is for the benefit of GMACCM and GMACCM's
successors, assigns and participants, and in the event of an assignment of the
Guaranteed Obligations, or any part thereof, the rights and benefits hereunder,
to the extent applicable to the Guaranteed Obligations so assigned, may be
transferred with such Guaranteed Obligations.
16. Binding Effect. This Guaranty is binding not only on Guarantor, but also on
Guarantor's successors and assigns; provided, however, (a) Guarantor may not,
without the prior written consent of GMACCM, assign any of its rights, powers,
duties or obligations hereunder and (b) Guarantor shall provide prior written
notice to GMACCM if any of the obligations of Guarantor hereunder are to become
binding on a successor to Guarantor.
17. Governing Law; Forum. This Guaranty is an agreement executed under seal, and
its validity, enforcement, and interpretation, shall for all purposes be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania and applicable United States federal law, and is intended to be
performed in accordance with, and only to the extent permitted by, such laws. If
any Guarantor is a corporation, the designation "(SEAL)" on this Guaranty shall
be effective as the affixing of such Guarantor's corporate seal physically to
this Guaranty. All obligations of Guarantor hereunder are payable and
performable at the place or places where the Guaranteed Obligations are payable
and performable. Guarantor hereby irrevocably submits generally and
unconditionally for Guarantor and in respect of Guarantor's property to the
jurisdiction of any state court, or any United States federal court, sitting, in
the state specified in the first sentence of this Section and to the
jurisdiction of any state or United States federal court sitting in the state in
which any of the Mortgaged Property is located, over any suit, action or
proceeding arising out of or relating to this Guaranty or the Guaranteed
Obligations. Guarantor hereby irrevocably waives, to the fullest extent
permitted by law, any objection that Guarantor may now or hereafter have to the
laying of venue in any such court and any claim that any such court is an
inconvenient forum. Guarantor hereby agrees and consents that, in addition to
any methods of service of process provided for under applicable law, all service
of process in any such suit, action or proceeding in any state court, or any
United States federal court, sitting in the state specified in the first
sentence of this Section may be made by certified or registered mail, return
receipt requested, directed to Guarantor at the address set forth at the end of
this Guaranty, or at a subsequent address of which GMACCM received actual notice
from Guarantor in accordance with said Section, and service so made shall be
complete when received or when delivery is refused by Guarantor. Nothing herein
shall affect the right of GMACCM to serve process in any manner permitted by law
or limit the right of GMACCM to bring proceedings against Guarantor in any other
court or jurisdiction.
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<PAGE> 17
18. Invalidity of Certain Provisions. If any provision of this Guaranty or the
application thereof to any Person or circumstance shall, for any reason and to
any extent, be declared to be invalid or unenforceable, neither the remaining
provisions of this Guaranty nor the application of such provision to any other
Person or circumstance shall be affected thereby, and the remaining provisions
of this Guaranty, or the applicability of such provision to other Persons or
circumstances, as applicable, shall remain in effect and be enforceable to the
maximum extent permitted by applicable law.
19. Attorneys' Fees and Costs of Collection. Guarantor acknowledges that the
Maximum Amount of the Guaranteed Obligations shall be increased by all fees,
costs, interest and other sums described in this Section. Guarantor shall pay on
demand all attorneys' fees and all other costs and expenses incurred by GMACCM
in the enforcement of or preservation of GMACCM's rights under this Guaranty
including all reasonable attorneys' fees and expenses, investigation costs, and
all court costs, whether or not suit is filed herein, or whether at maturity or
by acceleration, or whether before or after maturity, or whether in connection
with bankruptcy, insolvency or appeal, or whether in connection with the
collection and enforcement of this Guaranty against any other Guarantor, if
there be more than one. Guarantor agrees to pay interest on (i) any Guaranteed
Obligations not paid when due in accordance with the provisions of this
Guaranty, and (ii) any expenses or other sums due to GMACCM under this Section
that are not paid when due, in each case at an annual rate equal to three
percent (3%) over the prime rate published from time to time by The Wall Street
Journal. Guarantor's obligations and liabilities under this Section shall
survive any payment or discharge in full of the Guaranteed Obligations.
Notwithstanding the foregoing, it is understood and agreed, in the event that
Guarantor is the prevailing party in any suit between GMACCM and Guarantor, (a)
GMACCM shall not be entitled to collect its attorneys' fees, expenses,
investigation costs or court costs from Guarantor and (b) GMACCM shall reimburse
Guarantor for its reasonable attorneys' fees, expenses, investigation costs and
court costs related to such suit.
20. Payments. All sums payable under this Guaranty shall be paid in lawful money
of the United States of America that at the time of payment is legal tender for
the payment of public and private debts.
21. Controlling Agreement. It is not the intention of GMACCM or Guarantor to
obligate Guarantor to pay interest in excess of that lawfully permitted to be
paid by Guarantor under applicable law. Should it be determined that any portion
of the Guaranteed Obligations or any other amount payable by Guarantor under
this Guaranty constitutes interest in excess of the maximum amount of interest
that Guarantor, in Guarantor's capacity as guarantor, may lawfully be required
to pay under applicable law, the obligation of Guarantor to pay such interest
shall automatically be limited to the payment thereof in the maximum amount so
permitted under applicable law. The provisions of this Section shall override
and control all other provisions of this Guaranty and of any other agreement
between Guarantor and GMACCM.
22. Representations, Warranties, and General Covenants of Guarantor. Guarantor
hereby represents, warrants, and covenants that (a) Guarantor owns a substantial
equity interest in Candlewood and Guarantor will derive a material and
substantial benefit, directly or indirectly, from the agreement of GMACCM to
issue the Loan Commitment; (b) this Guaranty is duly authorized and valid, and
is binding upon and enforceable against Guarantor; (c) Guarantor is not, and the
execution, delivery and performance by Guarantor of this Guaranty will not cause
Guarantor to be, in violation of or in default with respect to any law or in
default (or at risk of acceleration of indebtedness) under any agreement or
restriction by which Guarantor is bound or affected; (d) Guarantor is duly
organized, validly existing, and in good standing under the laws of the state of
its organization and has full power and authority to enter into and perform this
Guaranty; (e) Guarantor will indemnify GMACCM from any loss, cost or expense as
a result of any representation or warranty of Guarantor being false, incorrect,
incomplete or misleading in any material respect; (f) there is no litigation
pending or, to the knowledge of Guarantor, threatened before or by any tribunal
against or affecting Guarantor which would materially and adversely affect its
ability to perform hereunder; (g) all financial statements and information
heretofore furnished to GMACCM by Guarantor do, and all financial statements and
information hereafter furnished to GMACCM by Guarantor will, fairly present the
condition (financial or otherwise) of Guarantor as of their dates and the
results of Guarantor's operations for the periods therein specified; (h) after
giving effect to this Guaranty, Guarantor is solvent, is not engaged or about to
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<PAGE> 18
engage in business or a transaction for which the property of Guarantor is an
unreasonably small capital, and does not intend to incur or believe that it will
incur debts that will be beyond its ability to pay as such debts mature; (i)
Guarantor acknowledges that, except to the extent set forth in the Participation
Agreement, GMACCM has no duty at any time to investigate or inform Guarantor of
the financial or business condition or affairs of Mortgagor or any change
therein; (j) Guarantor acknowledges and agrees that Guarantor may be required to
pay and perform the Guaranteed Obligations in full without assistance or support
from the Mortgagor or any other Person; (k) Guarantor has read and fully
understands the provisions contained in the Loan Commitment (including without
limitation, the Approved Project Costs described therein) and in the Mortgage
Note, the Building Loan Agreement, the Mortgage, the Environmental Indemnity,
and the other Mortgage Loan Documents; and (l) unless Guarantor has notified
GMACCM in writing prior to the execution of any Loan Commitment for a particular
Mortgage Loan, Jack P. DeBoer has not been fired from and remains a senior
officer of Candlewood, with significant day to day decision-making authority.
Guarantor's representations, warranties and covenants are a material inducement
to GMACCM to enter into the Loan Commitment and shall survive the execution
hereof and any bankruptcy, foreclosure, transfer of security or other event
affecting Mortgagor, Guarantor, any other party, or any security for all or any
part of the Guaranteed Obligations.
23. Financial Covenants Regarding Promus. Guarantor hereby covenants and agrees
that so long as any of the Guaranteed Obligations remain unpaid:
(a) Minimum Net Worth. At all times during the term of this Guaranty,
Promus shall maintain a Net Worth of at least $1 billion;
(b) Debt to Net Work. At all times during the term of this Guaranty,
Promus shall maintain a ratio of its debt to Net Worth not exceeding 2.5:1;
(c) Cash Flow From Operations. At all times during the term of this
Guaranty, Promus shall not permit its Net Cash Provide By Operating Activities,
as reflected in its financial statements, whether audited or unaudited, reported
from time to time with the U.S. Securities & Exchange Commission, to be negative
for any fiscal year or for any two (2) successive calendar quarters; and
(d) Material Adverse Change. At all times during the term of this
Guaranty, there shall be no change in the financial condition of Promus which
could materially and adversely affect its ability to satisfy any or all of the
Guaranteed Obligations hereunder; provided, however, this covenant shall not
have been breached or violated unless and until (i) within thirty (30) days
after written notice by GMACCM to Guarantor of a potential material adverse
change, Guarantor has not provided to GMACCM a reasonable written explanation
regarding why such event should not be considered a material adverse change,
(ii) GMACCM has determined and has notified Guarantor, within thirty (30) days
of receipt of Guarantor's explanation, that such explanation is not satisfactory
to allay GMACCM's concerns regarding the material adverse change, and (iii)
within sixty (60) days of such second notice from GMACCM, Doubletree or Promus
has not cured such adverse event or provided alternative comfort satisfactory to
GMACCM regarding the same.
Breach of one or more of the foregoing covenants will not constitute an
Event of Default of Guarantor hereunder, provided Guarantor timely performs its
obligations under Section 8(b) and, when applicable, Section 8(c) above.
From and after such time, if any, as Promus is no longer a corporation
whose stock is publicly traded, Guarantor covenants and agrees to promptly
provide to GMACCM annual financial statements for Promus, audited by an
independent public accounting firm reasonably acceptable to GMACCM, together
with such additional financial information and reports as GMACCM may
periodically request.
24. Notices. All notices, requests, consents, demands and other communications
required or which any party desires to give hereunder or under any other Loan
Document shall be in writing and, unless otherwise specifically
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<PAGE> 19
provided in such other Loan Document, shall be deemed sufficiently given or
furnished if delivered by personal delivery, by courier, or by registered or
certified United States mail, postage prepaid, addressed to the party to whom
directed at the addresses specified near the signature blocks of this Guaranty
(unless changed by similar notice in writing given by the particular party whose
address is to be changed) or by telegram, telex, or facsimile. Any such notice
or communication shall be deemed to have been given either at the time of
personal delivery or, in the case of courier or mail, as of the date of first
attempted delivery at the address and in the manner provided herein, or, in the
case of telegram, telex or facsimile, upon receipt; provided that, service of a
notice required by any applicable statute shall be considered complete when the
requirements of that statute are met. Notwithstanding the foregoing, no notice
of change of address shall be effective except upon actual receipt. This section
shall not be construed in any way to affect or impair any waiver of notice or
demand provided in this Guaranty or in any Loan Document or to require giving of
notice or demand to or upon any person in any situation or for any reason.
25. Cumulative Rights. The exercise by GMACCM of any right or remedy hereunder
or under any other Loan Document, or at law or in equity, shall not preclude the
concurrent or subsequent exercise of any other right or remedy. GMACCM shall
have all rights, remedies and recourses afforded to GMACCM by reason of this
Guaranty or any other Loan Document or by law or equity or otherwise, and the
same (a) shall be cumulative and concurrent, (b) may be pursued separately,
successively or concurrently against Guarantor or others obligated for the
Guaranteed Obligations, or any part thereof, or against any one or more of them,
or against any security or otherwise, at the sole discretion of GMACCM, (c) may
be exercised as often as occasion therefor shall arise, it being agreed by
Guarantor that the exercise of, discontinuance of the exercise of or failure to
exercise any of such rights, remedies, or recourses shall in no event be
construed as a waiver or release thereof or of any other right, remedy, or
recourse, and (d) are intended to be, and shall be, nonexclusive. No waiver of
any default on the part of Guarantor or of any breach of any of the provisions
of this Guaranty or of any other document shall be considered a waiver of any
other or subsequent default or breach, and no delay or omission in exercising or
enforcing the rights and powers granted herein or in any other document shall be
construed as a waiver of such rights and powers, and no exercise or enforcement
of any rights or powers hereunder or under any other document shall be held to
exhaust such rights and powers, and every such right and power may be exercised
from time to time. The granting of any consent, approval or waiver by GMACCM
shall be limited to the specific instance and purpose therefor and shall not
constitute consent or approval in any other instance or for any other purpose.
No notice to or demand on Guarantor in any case shall of itself entitle
Guarantor to any other or further notice or demand in similar or other
circumstances. No provision of this Guaranty or any right, remedy or recourse of
GMACCM with respect hereto, or any default or breach, can be waived, nor can
this Guaranty or Guarantor be released or discharged in any way or to any
extent, except specifically in each case by a writing intended for that purpose
(and which refers specifically to this Guaranty) executed, and delivered to
Guarantor, by GMACCM.
26. Right of Set-Off. Upon the occurrence and during the continuance of any
default in the payment when due of any of the Guaranteed Obligations, GMACCM is
hereby authorized at any time and from time to time, to the fullest extent
permitted by applicable law, without notice to any Person (any such notice being
expressly waived by Guarantor to the fullest extent permitted by applicable
law), to set off and apply any and all deposits, funds, or assets at any time
held and other indebtedness at any time owing by GMACCM to or for the credit or
the account of Guarantor against any and all of the obligations of Guarantor now
or hereafter existing under this Guaranty, whether or not GMACCM shall have made
any demand under this Guaranty or exercised any other right or remedy hereunder.
GMACCM will promptly notify Guarantor after any such set-off and application
made by GMACCM, provided that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of GMACCM under this
Section are in addition to the other rights and remedies (including other rights
of set-off) that GMACCM may have and every right of setoff and lien shall
continue in full force and effect until such right of setoff or lien is
specifically waived or released by an instrument in writing executed by GMACCM.
The foregoing rights shall not apply to any commercial paper or publicly traded
debt or securities of GMACCM held by Guarantor.
27. Subrogation. Notwithstanding anything to the contrary contained herein but
subject to the provisions of Section 6(c) hereof, (a) Guarantor shall not have
any right of subrogation in or under any of the Loan Documents or
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any right, title or interest in and to any security or right of recourse for the
Indebtedness, until the Indebtedness has been fully and finally paid, and as set
forth in the Participation Agreement, Guarantor's participation in a Mortgage
Loan will be fully subordinate to GMACCM's interests therein, and (b) if
Guarantor is or becomes an "insider" (as defined in Section 101 of the United
States Bankruptcy Code) with respect to Mortgagor, then Guarantor hereby
irrevocably and absolutely waives any and all rights of contribution,
indemnification, reimbursement or any similar rights against Mortgagor with
respect to this Guaranty (including any right of subrogation, except to the
extent of collateral held by GMACCM), whether such rights arise under an express
or implied contract or by operation of law. It is the intention of the parties
that Guarantor shall not be deemed to be a "creditor" (as defined in Section 101
of the United States Bankruptcy Code) of Mortgagor by reason of the existence of
this Guaranty in the event that Mortgagor or Guarantor becomes a debtor in any
proceeding under the United States Bankruptcy Code. This waiver is given to
induce GMACCM to make the Loan as evidenced by the Mortgage Note to the
Mortgagor.
28. Further Assurances. Guarantor at Guarantor's expense will promptly execute
and deliver to GMACCM upon GMACCM's reasonable request all such other and
further documents, agreements, and instruments in compliance with or
accomplishment of the agreements of Guarantor under this Guaranty.
Notwithstanding the generality of the foregoing Guarantor agrees to promptly
execute and deliver a written confirmation of this Guaranty at the request of
GMACCM from time to time, including at such times as GMACCM has extended,
renewed, supplemented, modified or assigned the Loan.
29. No Fiduciary Relationship. The relationship between Guarantor and GMACCM is
solely that of guarantor and beneficiary. GMACCM has no fiduciary or other
special relationship with or duty to Guarantor and none is created hereby or may
be inferred from any course of dealing or act or omission of GMACCM.
30. Interpretation. If this Guaranty is signed by more than one Person as
"Guarantor", then the term "Guarantor" as used in this Guaranty shall refer to
all such Persons jointly and severally, and all promises, agreements, covenants,
waivers, consents, representations, warranties and other provisions in this
Guaranty are made by and shall be binding upon each and every such undersigned
Person, jointly and severally and GMACCM may pursue any Guarantor hereunder
without being required (i) to pursue any other Guarantor hereunder or (ii)
pursue rights and remedies under tile Mortgage and/or applicable law with
respect to the Mortgaged Property or any other Mortgage Loan Documents. The term
"GMACCM" shall be deemed to include any subsequent holder(s) of the Mortgage
Note. Whenever the context of any provisions hereof shall require it, words in
the singular shall include the plural, words in the plural shall include the
singular, and pronouns of any gender shall include the other genders. Captions
and headings in the Loan Documents are for convenience only and shall not affect
the construction of the Mortgage Loan Documents. All references in this Guaranty
to Schedules, Articles, Sections, Subsections, paragraphs and subparagraphs
refer to the respective subdivisions of this Guaranty, unless such reference
specifically identifies another document. The terms "herein", "hereof",
"hereto", "hereunder" and similar terms refer to this Guaranty and not to any
particular Section or subsection of this Guaranty. The terms "include" and
"including" shall be interpreted as if followed by the words "without
limitation". All references in this Guaranty to sums denominated in dollars or
with the symbol "$" refer to the lawful currency of the United States of
America, unless such reference specifically identifies another currency. For
purposes of this Guaranty, "Person" or "Persons" shall include firms,
associations, partnerships (including limited partnerships), joint ventures,
trusts, corporations, limited liability companies, and other legal entities,
including governmental bodies, agencies, or instrumentalities, as well as
natural persons.
31. Time of Essence. Time shall be of the essence in this Guaranty with respect
to all of Guarantor's obligations hereunder.
32. Execution. This Guaranty may be executed in multiple counterparts, each of
which, for all purposes, shall be deemed an original, and all of which together
shall constitute one and the same agreement.
33. Entire Agreement. This Guaranty embodies the entire agreement between GMACCM
and Guarantor with respect to the guaranty by Guarantor of the Guaranteed
Obligations. This Guaranty supersedes all prior agreements
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and understandings, if any, with respect to guaranty by Guarantor of the
Guaranteed Obligations. No condition or conditions precedent to the
effectiveness of this Guaranty exist. This Guaranty shall be effective upon
execution by Guarantor and delivery to GMACCM. This Guaranty may not be
modified, amended or superseded except in a writing signed by GMACCM and
Guarantor referencing this Guaranty by its date and specifically identifying the
portions hereof that are to be modified, amended or superseded.
34. WAIVER OF JURY TRIAL. GMACCM AND GUARANTOR HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO WHICH GUARANTOR AND GMACCM MAY BE PARTIES ARISING OUT
OF, IN CONNECTION WITH, OR IN ANY WAY PERTAINING TO, THIS GUARANTY. THIS WAIVER
IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GUARANTOR AND GMACCM, AND
GUARANTOR AND GMACCM HEREBY REPRESENT, EACH ON ITS RESPECTIVE BEHALF, THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.
GUARANTOR AND GMACCM FURTHER REPRESENT AND WARRANT, EACH ON ITS RESPECTIVE
BEHALF, THAT EACH HAS BEEN REPRESENTED IN THE SIGNING OF THIS GUARANTY AND IN
THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE
OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF EACH
PARTY'S RESPECTIVE FREE WILL, AND THAT EACH HAS HAD THE OPPORTUNITY TO DISCUSS
THIS WAIVER WITH COUNSEL.
35. Consent to Jurisdiction. GMAC and Guarantor each irrevocably submit
generally and unconditionally for itself and in respect of its property to the
nonexclusive jurisdiction of any state or federal court sitting in the
Commonwealth of Pennsylvania over any suit, action or proceeding arising out of,
or relating to, this Guaranty, and irrevocably agrees that all claims in respect
of such action or proceeding may be heard and determined in such state or
federal court. GMAC and Guarantor irrevocably waive, to the fullest extent
permitted by law, any objection that each may now or hereafter have to the
laying of venue of an such suit, action or proceeding brought in any such court,
and any claims that any such suit, action or proceeding is brought in an
inconvenient forum. Final judgment in any such suit, action or proceeding
brought in any such court shall be conclusive and binding upon GMAC and
Guarantor and may be enforced in any court in which GMAC and Guarantor are
subject to jurisdiction, by a suit upon such judgment provided that service of
process is effected upon Guarantor as permitted by applicable law.
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THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
IN WITNESS WHEREOF, Guarantor and GMACCM duly executed this Guaranty
under seal as of the date first written above.
<TABLE>
<CAPTION>
<S> <C>
Address of Guarantor DOUBLETREE CORPORATION, a Delaware corporation
Doubletree Corporation
c/o Promus Hotel Corporation By: /s/ Carol G. Champion
755 Crossover Lane -----------------------------------
Memphis, Tennessee 38117 Name: Carol G. Champion
Attention: Treasurer -----------------------------
Fax No.: (901) 374-5490 Title: Vice President
-----------------------------
GMAC Commercial Mortgage Corporation GMAC COMMERCIAL MORTGAGE CORPORATION, a
8614 Westwood Center Drive California corporation
Suite 630
Vienna, Virginia 22182-2233
Attn: Morgan G. Earnest, II
Fax No. (703) 749-4399 By: /s/ James C. Poff
-----------------------------------
Name: James C. Poff
-----------------------------
Title: Vice President
-----------------------------
</TABLE>
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STATE OF TENNESSEE
COUNTY OF SHELTY, TO WIT:
I HEREBY CERTIFY, that on this 1st day of October, 1998, before me, the
undersigned Notary Public of said State, personally appeared Carol G. Champion,
who acknowledged herself to be the Vice President of DOUBLETREE CORPORATION, a
Delaware corporation, known to me (or satisfactorily proven) to be the person
whose name is subscribed to the within instrument, and acknowledged that she
executed the same for the purposes therein contained as the duly authorized Vice
President of said corporation by signing the name of the corporation by herself
as Carol G. Champion.
WITNESS my hand and Notarial Seal.
/s/ Sharon D. Harris
------------------------------------
Notary Public
MY COMMISSION EXPIRES MAY 11, 1999
My Commission Expires:
COMMONWEALTH OF VIRGINIA
COUNTY OF FAIRFAX, TO WIT:
I HEREBY CERTIFY, that on this 13th day of November, 1998, before me,
the undersigned Notary Public of said Commonwealth, personally appeared James C.
Poff, who acknowledged himself to be a senior vice president of GMAC COMMERCIAL
MORTGAGE CORPORATION, a California corporation, known to me (or satisfactorily
proven) to be the person whose name is subscribed to the within instrument, and
acknowledged that he executed the same for the purposes therein contained as the
duly authorized senior vice president of said corporation by signing the name of
the corporation by himself as senior vice president.
WITNESS my hand and Notarial Seal.
/s/ Susan F. Renick
------------------------------------
Notary Public
My Commission Expires: 10/31/2000
-22-
<PAGE> 24
Schedule I
to Guaranty Agreement dated November 13, 1998 Between the Undersigned
Mortgage Loan Schedule
(This instrument supersedes any Schedule I dated
prior to the signature dates set forth below)
<TABLE>
<CAPTION>
Initial
Construction Approved Maximum Guaranty
Name of Borrower Loan Amount Project Costs Amount Interest Rate*
<S> <C> <C> <C> <C>
1. Candlewood Ft. Worth, TX-Tanacross, LLC $4,650,000 $ 5,820,000 $1,376,250 0.50%
2. Candlewood Houston, TX-Loop Central, LLC $6,300,000 $ 7,875,000 $1,870,313 0.50%
3. Candlewood Detroit, MI-Auburn Hills, LLC $6,100,000 $ 7,625,000 $1,810,938 0.50%
4. I.H. Stemmons Limited Partnership, L.P. $6,000,000 $ 8,000,000 $1,500,000 0.50%
5. I.H. San Antonio Limited Partnership L.P. $4,800,000 $ 7,000,000 $ 862,500 0.50%
6. Tramz N.Y., LLC $4,875,000 $ 6,500,000 $1,218,750 0.50%
7. Candlewood Baltimore, MD - Airport, LLC** $6,960,000 $ 8,700,000 $1,740,000 0.50%
8. Candlewood Oklahoma City, OK, LLC** $6,160,000 $ 7,700,000 $1,540,000 0.50%
9. Candlewood Philadelphia-Mt. Laurel, NJ, LLC** $6,320,000 $ 7,900,000 $1,580,000 0.50%
10. Candlewood Cleveland, OH-North Olmstead, LLC** $7,520,000 $ 9,400,000 $1,880,000 0.50%
11. Candlewood St. Louis, MO, LLC** $6,080,000 $ 7,600,000 $1,520,000 0.50%
12. Candlewood Austin, TX-South, LLC** $6,480,000 $ 8,100,000 $1,620,000 0.50%
13. Candlewood Orange County, CA-Airport, LLC** $8,640,000 $10,800,000 $2,160,000 0.50%
14. Candlewood Miami, FL-Miami Lakes, LLC** $6,960,000 $ 8,700,000 $1,740,000 0.50%
15. Candlewood Montgomery, AL, LLC** $5,68O,000 $ 7,100,000 $1,420,000 0.50%
16. Candlewood Portland, OR-Tigard, LLC** $8,000,000 $10,000,000 $2,000,000 0.50%
17. Candlewood Santa Clara, CA, LLC** $9,040,000 $11,300,000 $2,260,000 0.50%
18. To-be-formed Candlewood Entity for Hotel in $5,920,000 $ 7,400,000 $1,480,000 0.50%
Chester, VA**
</TABLE>
* For those Construction Loans where the Mortgagor is contributing no more than
twenty percent (20%) of Approved Project Costs, the Guaranty Interest Rate shall
be equal to fifty basis points (0.50%). For those Construction Loans where
the Mortgagor is contributing in excess of forty percent (40.0%) of Approved
Project Costs, the Guaranty Interest Rate shall be zero. For all other
Construction Loans, the Guaranty Interest Rate shall be equal to twenty-five
basis points (0.25%).
** Proposed Mortgage Loan. To the extent GMACCM, in its sole discretion, does
not commit to this loan, or if after committing, there is a decrease in the
projected Approved Project Costs and/or an increase in the projected
Construction Loan Amount (either or both of which shall increase the Initial
Maximum Amount shown above), until and unless this Schedule I is re-executed by
the undersigned, such proposed Mortgage Loan shall not be a part of this
schedule, and Guarantor shall have no liability or obligations related thereto.
DOUBLETREE CORPORATION., a Delaware corporation
Date: October 1, 1998 By: /s/ Carol G. Champion
--------------- -------------------------------------------
Name: Carol G. Champion
-----------------------------------------
Title: Vice President
----------------------------------------
GMAC COMMERCIAL MORTGAGE CORPORATION, a
California corporation
Date: November 13, 1998 By: /s/ James C. Poff
----------------- -------------------------------------------
Name: James C. Poff
-----------------------------------------
Title: Vice President
----------------------------------------
-23-
<PAGE> 25
Schedule II
Parent Guaranty and Acknowledgment of Liability
PROMUS HOTEL CORPORATION, a Delaware corporation ("Promos") and sole
owner of all beneficial interests in the stock of Doubletree Corporation, for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees to and for the benefit of GMAC COMMERCIAL MORTGAGE
CORPORATION ("GMACCM") and to induce GMACCM to enter into that Guaranty
Agreement (the "Guaranty") to which this agreement is attached and made a part
hereof, as follows:
Promus unconditionally and irrevocably guarantees to GMACCM the payment
and performance of, and agrees to pay and perform as primary obligor, all
liabilities, obligations and duties imposed upon Doubletree and Guarantor, under
and as defined in the Guaranty, as if Promus had executed the Guaranty as
Guarantor thereunder. This is a continuing guaranty and shall apply to any and
all Guaranty amendments, extensions and modifications whatsoever, including all
amendments and supplements to Schedule I of the Guaranty which occur from time
to time. Promus expressly consents to any extension of time, leniency,
modification, waiver or other change which may be made in any term, condition or
provision of the Guaranty, and no such change, modification, extension, waiver
or forbearance shall release Promus from any liability or obligation hereunder.
This is not merely a conditional guaranty of collection. The obligations of
Promus hereunder are absolute and unconditional and if Doubletree shall be in
default under the Guaranty, GMACCM shall have the right to demand performance
from and proceed against Promus or otherwise exercise any available remedy
without the necessity of first proceeding against or demanding performance by
Doubletree, it being expressly agreed by Promus that its liability under the
Guaranty shall be primary. Promus acknowledges that it has reviewed and
understands its potential liability under the Guaranty and it agrees that all
agreements, waivers, covenants and obligations attributable thereunder to
Doubletree are, by reference, also hereby made by and attributable to Promus as
if Promus had executed the Guaranty as a Guarantor. The liability of Promus
hereunder shall not be affected and Promus expressly waives any defenses that
may arise by reason of the release or discharge of Doubletree in any bankruptcy
or similar proceeding. Promus assumes the responsibility to remain informed of
all circumstances bearing upon the risk of Doubletree's default and agrees that
GMACCM shall have no duty to advise Promus of information known to it regarding
any such circumstance. This addendum shall inure to the benefit of GMACCM, its
successors and assigns. Promus represents and warrants that the undersigned
signatory has full authority to bind the corporation.
Acknowledged and Agreed to as of the 1st day of October, 1998:
PROMUS HOTEL CORPORATION, a Delaware corporation
By: Carol G. Champion
--------------------------------
Name: Carol G. Champion
------------------------------
Title: V.P. & Treasurer
-----------------------------
STATE OF TENNESSEE
COUNTY OF SHELTY, TO WIT:
I HEREBY CERTIFY, that on this 1st day of October, 1998, before me, the
undersigned Notary Public of said State, personally appeared Carol G. Champion,
who acknowledged herself to be the Vice President & Treasurer of PROMUS HOTEL
CORPORATION, a Delaware corporation, known to me (or satisfactorily proven) to
be the person whose name is subscribed to the within instrument and acknowledged
that he executed the same for the purposes therein contained as the duly
authorized Vice President & Treasurer of said corporation by signing the name of
the corporation by herself as Carol G. Champion.
WITNESS my hand and Notarial Seal.
/s/ Sharon D. Harris
----------------------------------
Notary Public
My Commission Expires: MY COMMISSION EXPIRES MAY 11, 1999
-24-
<PAGE> 26
Exhibit A
Form of Loan Commitment
-25-
<PAGE> 27
APPLICATION TO AND COMMITMENT BY
GMAC COMMERCIAL MORTGAGE CORPORATION
FOR A FIRST MORTGAGE CONSTRUCTION AND PERMANENT LOAN
Gentlemen:
Candlewood Hotel Company, Inc. ("Candlewood" or the "Company") hereby
makes application (the "Application") to GMAC Commercial Mortgage Corporation
("Lender") to receive from Lender a commitment (the "Commitment") to provide a
first mortgage construction/mini-perm loan (including any approved extensions,
the "Construction Loan") and a permanent ("Permanent Loan") first mortgage loan
according to the terms and conditions hereinafter set forth. All capitalized
terms not otherwise defined in the body of this Commitment shall have the
meanings ascribed thereto in Section IV below or on Exhibit A attached hereto.
This Application will be applicable only to Company-developed Projects until
canceled or replaced, as to Projects not previously approved, by either
Candlewood or Lender. Each Project will be subject to the terms and conditions
contained herein and this Application will be supplemented with an addendum for
each approved project signed and dated by the respective parties (the "Specific
Project Commitment").
Subject to the terms and conditions set forth in Section II below, the
Commitment, if and when issued, will commit Lender to provide a Construction
Loan for each Project described in an approved Specific Project Commitment, to
provide extensions to the term of the Construction Loan under certain
circumstances and, subject to the terms and conditions set forth in Section III
below, to refinance the Construction Loan with a Permanent Loan.
Lender may accept this Application at any time during this exclusive
period by having an officer of the Hospitality Industry Division and an officer
of the Construction Division of Lender's Loan Committee execute and deliver to
Candlewood a Specific Project Commitment, at which time and assuming any
pre-conditions herein or in such other written acceptance have been satisfied,
such written instrument(s) will constitute the Commitment. Thereupon, the
Commitment shall become and be a commitment from Lender under which Lender
agrees to lend and Candlewood, on behalf of the respective Borrower, agrees to
borrow from Lender the first mortgage loans on the terms and conditions
hereinafter set forth. Until such time, if any, as Lender issues a Commitment,
this Application shall create no obligation or liability for and shall not be
binding on Lender.
Candlewood agrees that each Project will require a deposit with Lender
for the following amounts:
<PAGE> 28
A. EXPENSE DEPOSIT. An expense deposit (the "Expense Deposit") in an amount set
forth on Exhibit A hereto to be held by Lender in a non-interest bearing
account, which shall be applied to out-of-pocket expenses incurred by Lender on
behalf of Borrower, including but not limited to appraisals, market studies,
legal fees, and environmental and engineering reports, as more specifically set
forth in Section II.I below, as well as travel expenses and other direct office
expenses of Lender. In the event that this Application is not approved by
Lender, that Borrower withdraws its application or defaults under the
Commitment, or in the event the Construction Loan is closed, the Expense
Deposit, less expenses incurred by Lender in connection with the Construction
Loan, shall be returned to Borrower or credited to Borrower at the closing of
the Construction Loan. Similarly, Borrower shall reimburse Lender for any such
expenses incurred by Lender in excess of the Expense Deposit.
B. NONREFUNDABLE COMMITMENT FEE. A nonrefundable Commitment Fee (the "Commitment
Fee") equal to two percent (2%) of the Construction Loan Amount of which one
percent (1%) will constitute a fee for the Construction Loan and one percent
(1%) will constitute a fee for providing the Commitment, of which a good faith
deposit (the "Good Faith Deposit") in an amount set forth on Exhibit A hereto is
immediately due and payable upon submission to Lender of this Application by
Borrower. Such Commitment Fee shall be earned upon the acceptance by Lender of
this Application and the issuance of the Commitment and such Commitment Fee
(less the Good Faith Deposit) shall be due and payable in part upon submission
of this Application and in part upon Closing of the Construction Loan, as set
forth on Exhibit A hereto. Such Commitment Fee is compensation to Lender for
issuing the Commitment and the reservation of funds committed to be loaned
pursuant thereto. If, after acceptance of this Application and issuance of the
Commitment, Lender is unable to fund the Construction Loan due to Borrower's
failure to meet one of the Closing conditions described herein, including,
without limitation, delivery of acceptable Technical Reports (as hereinafter
defined), Lender shall return to Borrower any portion of the Commitment Fee,
without interest, previously received by Lender from Borrower.
C. UNDERWRITING EXPENSE. Five thousand dollars ($5,000) to cover its
underwriting expense for the Construction Loan. This underwriting expense
deposit is in all events nonrefundable.
I. BORROWER AND GUARANTOR INFORMATION
Borrower shall be a single purpose "bankruptcy remote" entity,
organized under the laws of the State indicated on Exhibit A as a
limited liability company or other legal entity subject to approval by
Lender.
A. GUARANTY. Borrower and the Project Guarantors (the "Guarantor
Group"), as identified on Exhibit A, shall execute a joint and
several guaranty agreement in favor of Lender (the "Guaranty
Agreement") in form and content satisfactory to Lender,
guaranteeing the completion of the Project and repayment of
the
2
<PAGE> 29
Construction Loan and any extensions thereto. To the extent
that Lender, in the course of its due diligence, discovers
that the Guarantor Group does not possess adequate financial
assets or that a principal equity owner of Borrower should be
added to the Guarantor Group, Lender may request that the
Guarantor Group be expanded, subject to acceptance by the
Borrower.
B. CREDIT REPORTS. Borrower acknowledges, and has advised the
Guaranty Group, that Lender will submit the names of the
Guarantor Group to a credit rating agency for the purpose of
obtaining credit reports on such person and entities.
II. CONSTRUCTION LOAN
A. LOAN AMOUNT, TERM, AMORTIZATION, INTEREST RATE, PREPAYMENT,
RESERVES, RECOURSE
1. Construction Loan Amount. The Construction Loan shall
be that original principal amount indicated on
Exhibit A. In no event shall the Construction Loan
Amount exceed the lesser of (a) eighty percent (80%)
of the Approved Project Costs (as hereinafter
defined) or (b) seventy-five percent (75%) of the "as
stabilized" market value of the Project, as reflected
in the Appraisal (as hereinafter defined); provided,
however, for any Construction Loans for which a
Doubletree Guaranty is not required, the Construction
Loan Amount shall not exceed the lesser of (a)
seventy percent (70%) of the Approved Project Costs
(b) sixty-five percent (65%) of the "as stabilized"
market value of the Project, as reflected in the
Appraisal.
2. Term. The term of the Construction Loan shall be four
(4) years (the "Initial Period"), with two one (1)
year extensions (each one year extension period, an
"Extension Period") granted to Borrower (an
"Extension Privilege") on the terms and conditions
set forth herein.
3. Construction Loan Extension Privilege. Borrower may,
in the absence of the occurrence of a default under
the Construction Loan Documents or the occurrence and
continuance of an event which, with the passage of
time or the giving of notice, or both, would
constitute a default, elect to extend the maturity of
the Construction Loan beyond the stated maturity date
("Maturity Date") of the Initial Period or the first
Extension Period, as applicable, for an additional
twelve (12) months (each such extension, an "Extended
Maturity Date") upon (i) delivery to Lender at least
ninety (90) days prior to the Maturity Date (or the
first Extended Maturity Date, as applicable) of
written notice of the exercise of the Extension
Privilege, (ii) the payment on or before the Maturity
Date of an extension fee (the "Extension Fee") equal
to five tenths of one percent (0.5%) of the
Construction Loan Amount on or before the Maturity
Date or the First Extended Maturity Date, as
applicable, (iii) confirmation, to Lender's
3
<PAGE> 30
satisfaction that the Project has achieved a minimum
1.30 DSCR over the preceding continuous twelve-month
operating period, (iv) continued satisfaction of the
appraisal requirements set forth herein, (v) delivery
and approval of an updated title report, (vi)
delivery and approval of estoppels from the Project
manager and franchisor and (vi) delivery and approval
of such other updated reports or information as
Lender shall reasonably request.
4. Amortization/Payments.
a. Subject to Lender's acceleration rights upon
a default and Borrower's right to prepay the
Construction Loan, for the first eighteen
(18) months of the Initial Period of the
Construction Loan, interest only shall be
paid on a monthly basis. On and after that
initial eighteen-month period, the
Construction Loan shall also require monthly
principal payments principal in an amount
sufficient to fully amortize the principal
balance of the Construction Loan over a
period of twenty-five (25) years, adjusted
monthly to the current interest rate, on a
self-amortizing basis. Unless refinanced
pursuant to a Permanent Loan or unless
Borrower exercises its Extension Privilege,
a balloon payment shall be due on the
Construction Loan Maturity Date or Extended
Maturity Date, as applicable, in an amount
sufficient to pay all outstanding principal,
interest and other sums due in respect of
the Construction Loan.
b. Subject to Lender's acceleration rights upon
a default and Borrower's right to prepay the
Construction Loan, during any Extension
Period, in addition to interest payments at
the rate set forth below, the Construction
Loan shall also require monthly principal
payments principal in an amount sufficient
to fully amortize the principal balance of
the Construction Loan over a period of
twenty-five (25) years, adjusted monthly to
the current interest rate, on a
self-amortizing basis. In addition, during
any Extension Period, one hundred percent
(100%) of Net Cash Flow (hereinafter
defined) shall be payable on a quarterly
basis. A balloon payment shall be due at the
Extended Maturity Date in an amount
sufficient to repay all outstanding
principal, interest and other sums due in
respect of the Construction Loan.
5. Interest Rate. The interest rate for the Construction
Loan during both the Initial Period and any Extension
Period shall be equal to (a) that number of basis
points set forth in Exhibit A hereto plus (b) the
30-day LIBOR rate (as defined by Lender), adjusted
monthly and floating over the term of the loan plus
(c) any Guaranty Fee. The Interest Rate shall be
computed on the basis of a 360-day year, payable
monthly in arrears and adjusted monthly.
4
<PAGE> 31
6. Prepayments/Deferred Financing Fee. Upon the earliest
to occur of repayment, maturity or acceleration of
the Construction Loan, Borrower shall pay Lender a
fee (the "Deferred Financing") equal to one percent
(1%) of the Construction Loan Amount; provided,
however, if Borrower procures a Permanent Loan
through Lender (i.e., Borrower satisfies the
conditions set forth herein for a Permanent Loan and
does, in fact, close such loan), then the Deferred
Financing Fee shall be waived.
7. Replacement Reserve Escrow. Commencing upon the
completion of the construction of the Project, a
minimum Replacement Reserve of four percent (4%) of
Total Gross Revenues (hereinafter defined) from the
Project shall be required to be deposited, on a
monthly basis, into an escrow account in Lender's
name. Borrower may request withdrawals of funds on a
monthly basis to replace furniture, fixtures and
equipment and other capital items.
8. Recourse. The Construction Loan shall be a recourse
loan and shall be guaranteed (on a joint and several
basis) by the Guarantor Group.
B. MANAGEMENT AGREEMENT/FRANCHISE AGREEMENT.
1. Management Agreement. Borrower must have a cancelable
property management agreement (the "Management
Agreement") acceptable to Lender, which, inter alia,
is fully subordinate to the Construction Loan and is
in form and substance acceptable to Lender. At the
closing of the Construction Loan, the manager shall
acknowledge the Management Agreement as being in full
force and effect and will execute a consent to an
assignment of such agreement to Lender. The
assignment of the Management Agreement shall be in
form and substance acceptable to Lender.
2. Franchise Agreement. For Projects which are not
Company-developed Projects, Borrower must have a
franchise agreement (the "Franchise Agreement")
between Candlewood and Borrower. The Franchise
Agreement shall be acceptable to Lender in all
respects. At the closing of the Construction Loan,
Candlewood, as the franchisor, shall acknowledge the
Franchise Agreement as being in full force and
effect and will execute a consent to an assignment of
the Franchise Agreement to Lender. The assignment of
the Franchise Agreement shall be in form and
substance acceptable to Lender.
C. LOAN DOCUMENTS. The following documents, executed by
Borrower, unless otherwise indicated, and payable to or
otherwise in favor of Lender, unless otherwise indicated,
shall evidence, govern and secure the Construction Loan
5
<PAGE> 32
(collectively, the "Construction Loan Documents" and
individually a "Construction Loan Document"), each in form
and content acceptable to Lender:
1. Construction Note. A promissory note (the
"Construction Note") in the full amount of the
Construction Loan.
2. Mortgage. A credit instrument and security agreement,
whether a mortgage, deed of trust, trust deed or deed
to secure debt (the "Mortgage") conveying a first
priority lien in the Project. Among other things, the
Mortgage will:
i) specifically provide for the waiver of the
right of redemption to the extent permitted
by the laws of the State in which the
Project is situated;
ii) provide that (a) any sale or transfer of the
Project or any portion thereof, (b)
encumbering the Project or any portion
thereof with any junior or subordinate
financing, or (c) the sale, pledge or
transfer of any interest in Borrower or in
certain identified constituents thereof
shall, at the sole election of Lender,
constitute a default under the Construction
Loan and shall cause the indebtedness to
become and be immediately due and payable;
iii) contain warranties and representations that
the Project is free of any hazardous or
toxic materials or waste and that Borrower
will indemnify and hold Lender harmless
from all loss, cost, damage, claim and
expense incurred by Lender with respect
thereto;
iv) contain general warranties and
representations regarding: title to the
Project; organization and good standing of
Borrower; corporation, partnership or
limited liability company authority, as the
case may be; enforceability of loan
documents; accuracy of financial
information; issuance of permits, licenses
and approvals as to construction, use,
occupancy and operation of the Project; no
encroachments by or upon the Project;
accuracy of survey; zoning land use and
compliance with all laws; full force and
effect of the Mortgage; full force and
effect of Management Agreement and Franchise
Agreement; no conflicts or violations with
other agreements; no governmental approvals
required; no pending litigation; single
purpose entity; no material adverse change;
ERISA; and such other representations and
warranties as Lender shall reasonably
require;
v) contain the following affirmative covenants:
compliance with all laws; payment of taxes
and insurance premiums; property, casualty,
6
<PAGE> 33
liability and other insurance, maintenance
and repair of the Project; inspection of and
access to the Project; estoppel
certificates, including estoppels from the
franchisor and manager; customary further
assurances; and such other covenants as
Lender shall reasonably require;
vi) contain Lender's usual and customary
negative covenants, including, without
limitation, prohibitions on: liens and
encumbrances; additional indebtedness;
transfers of interests in Borrower, the
Principals, the Guarantors or in the
Project; changes in the use of the Project;
change in location of principal place of
business; change in state of incorporation;
changes in the Franchise Agreement; changes
in the Management Agreement; and such other
prohibitions as Lender shall reasonably
impose;
vii) require monthly deposits, into one or more
non-interest bearing escrow accounts
maintained in Lender's name, equal to 1/12th
of the annual real estate taxes and
assessments levied against the Project and
1/12th of the annual insurance premiums for
insurance policies issued with respect to
the Project;
viii) require Borrower and the rest of the
Guarantor Group to deposit with Lender the
financial information set forth on Exhibit B
hereto during the term of the Loan;
ix) permit Lender to conduct an independent
audit of the Project and the related
financial statements at its own expense at
any time. In the event that an error in
excess of 2% of either total revenues or
total expenses is discovered, the cost of
the audit will be borne by Borrower;
x) contain Lender's usual and customary default
provisions, including, without limitation,
the defaults set forth on Exhibit C hereto
(an "Event of Default"):
xi) if not set forth in the Construction Note,
require in the event that any payment of
principal, interest, taxes and/or insurance
due under the Loan is not made on the stated
maturity date or within five (5) days after
any installment due date, a late charge of
five percent (5%) of such payment shall
automatically become due to Lender. This
charge shall be in addition to all other
rights and remedies available to Lender upon
occurrence of an Event of Default under the
loan documents. Upon Borrower's default in
the making of any payment under the
Construction Loan, such unpaid amount
(including the entire Construction Loan
balance after an
7
<PAGE> 34
acceleration) shall bear interest at an
annual rate equal to the lesser of (i) five
percent (5%) over the variable non-default
interest rate set forth in the Construction
Note or (ii) the maximum amount allowed by
law until paid; and
xii) be cross-collateralized with loans
previously made to affiliates of Candlewood
or Borrower (the "Cross-Collateralized
Indebtedness").
3. Assignment. Assignment of Leases and Profits
representing a present absolute assignment to Lender
of all hotel profits and proceeds and all present and
future leases, and other occupancy agreements, rents,
security deposits, permits, revenues and income of
all or any part of the Project (the "Leases"), all
guarantees thereof and all rent and other sums
payable thereunder, with a license to collect such
rents, revocable upon an Event of Default under any
of the Construction Loan Documents, being granted to
Borrower.
4. Security Agreement. Security Agreement and Financing
Statements pursuant to the Uniform Commercial Code of
the State in which the Project is situated
constituting a valid first priority security
interest, free of chattel mortgages, security
agreements, conditional sales contracts and other
liens or title retention arrangements covering all
personal property now or hereafter used in connection
with the Project (other than personal property leased
pursuant to leases for which Lender has given its
prior written approval), including, without
limitation, all intangibles and personal property,
all accounts receivable, trademarks, tradenames,
franchise rights, the tax escrow, the insurance
escrow, insurance policies and proceeds, condemnation
awards, all permits and licenses (including without
limitation, all food and beverage licenses), all
other deposits, rights, and action with respect
to the Project, and furnishings, fixtures, equipment
and articles of personal property now or hereafter
affixed to or used in the management, maintenance and
operation of the Project. Borrower shall also execute
and deliver such UCC Financing Statements as Lender's
counsel may request.
5. Assignment of Construction Agreements, Plans and
Property Agreements. Assignment of Construction
Agreements, Plans and Property Agreements affecting
the Project, including, but not limited to,
architectural contracts for the design and periodic
inspection of the Project and contracts for the
construction of the Project, which agreement shall be
acknowledged and agreed to by all third parties
deemed necessary by Lender, including the architect
and the general contractor.
6. Collateral Assignment. A collateral assignment of all
licenses (including all food and beverage licenses),
permits, contracts, and warranties issued
8
<PAGE> 35
with respect to the Project, including, but not
limited to, the Management Agreement and Franchise
Agreement, which assignment shall be acknowledged and
agreed to by all third parties deemed necessary by
Lender, including the manager and franchisor.
7. Building Loan Agreement. Building Loan Agreement,
which shall, among other things, govern all
disbursements of Construction Loan proceeds,
including whether such disbursements shall be made
through a construction escrow agreement established
with the Title Company (hereinafter defined), and
shall set forth all Lender requirements for the
Project budget, retainage requirements, the opening
of the Construction Loan, the initial disbursement of
the proceeds thereof, and all subsequent
disbursements thereof.
8. Indemnification Agreement. Indemnification Agreement
executed by the Guarantor Group and indemnifying
Lender, on a joint and several basis, with respect to
hazardous materials or waste with respect to the
Project.
9. Guaranty Agreement. Guaranty Agreement, as described
in Section I.A above, executed by the Guarantor Group
in favor of Lender.
10. Replacement Reserve Agreement. A security agreement
in favor of Lender governing the terms of the
escrowed Replacement Reserve.
10. Opinion. An attorney's opinion, in such form and
content as Lender shall reasonably require.
11. Miscellaneous. Such other certifications and
documents as Lender shall reasonably require.
D. CONDITION OF TITLE TO PROJECT. The Mortgage shall establish a
first and valid lien upon the Project, the validity and
priority of which shall be insured by a mortgagee title
insurance policy in a form acceptable to Lender ("Title
Policy"), issued by a title insurance company ("Title
Company") acceptable to Lender:
1. Subject only to such exceptions and exclusions to
title as may be acceptable to Lender and its counsel;
2. Providing for the issuance of "interim
certifications" or "down date endorsements" setting
forth that the amount of Construction Loan proceeds
disbursed from time to time is not subordinate to the
lien or any person, firm, corporation or other
entity, furnishing or supplying services, labor or
material to or for the benefit of the Project; and
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3. Containing, or providing for the issuance of such
other endorsements, co-insurance and/or reinsurance
agreements as Lender may reasonably require (Borrower
expressly acknowledging that for a particular Project
or Borrower, Lender may deem it necessary in the
exercise of its reasonable judgment, to obtain
certain endorsements that require the payment of an
additional title premium, including a zoning
endorsement, "comprehensive" endorsement and/or
"non-imputation" endorsement).
E. SURVEY OF THE PROJECT. Borrower shall furnish Lender a plat of
survey prepared by a surveyor licensed in the State in which
the Project is situated ("Plat of Survey"), certified as
having been prepared for Lender and Borrower, satisfying all
ALTA survey requirements and incorporating and indicating:
1. The boundary lines and legal description of the
Project;
2. The location of all recorded or unrecorded easements
for utilities, ingress and egress, or for whatever
other purpose, affecting the use or enjoyment of the
Project, identifying all recorded easements by
recordation number if recorded;
3. Identifying by recordation number, all matters of
record affecting the Project capable of being located
and identified on the Plat of Survey, such as
building set back lines, building height restrictions
and the like;
4. The location of adjacent streets, alleys and public
ways, identifying each of such streets, alleys and
public ways as being either public or private;
5. Ingress and egress to and from public roads and
highways; and
6. The lack of encroachment of any improvement within
the Project over and upon easement areas or adjacent
land and encroachments, if any, of improvements
situated on adjacent land over and upon the Project.
7. Upon completion of the foundations of the Project,
Borrower shall furnish a so-called "foundation"
survey.
8. Upon completion of the Project, Borrower shall
furnish a so-called "as built" survey.
All data, legends and information set forth on the
Plat of Survey shall be satisfactory in form and
content to Lender and shall establish, to Lender's
satisfaction that the value of and title to the
Project is not materially diminished or adversely
affected thereby.
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F. CONSTRUCTION OF THE PROJECT - OPENING OF CONSTRUCTION LOAN.
The Construction Loan shall be opened, and the initial
disbursement of Construction Loan proceeds made on or before
Projected Closing Date as set forth on Exhibit A. The
construction of the Project shall commence no sooner than ten
(10) days after the actual Closing Date and shall be completed
on or before twelve (12) months after the actual Closing Date
or, if such construction is delayed by a Force Majeure
(hereinafter defined) cause, on or before fifteen (15) months
from the actual Closing Date (unless further extended by
Lender, in its sole discretion, following receipt from
Borrower of a detailed explanation as to why additional Force
Majeure delay should be justified), all in strict compliance
with the plans and specifications approved by Lender under the
Building Loan Agreement.
G. FURNITURE, FIXTURES AND EQUIPMENT.
1. Schedule. Upon completion of the construction of all
improvements in accordance with the Building Loan
Agreement, Borrower shall furnish to Lender a
detailed schedule, satisfactory in form and substance
to Lender, of all personal property, furniture,
fixtures and equipment ("FF&E") which will be used
in the ownership and operation of the Project.
2. UCC Security Interest. Lender shall require a first
lien on all personal property, fixtures and equipment
now or hereafter used in the operation of the Project
(other than personal property leased pursuant to
leases for which Lender has given its prior written
approval), with necessary security agreements and
Uniform Commercial Code Financing Statements to be
executed and filed with the appropriate county and/or
state offices, all as provided in Section II.C.5
hereof. Borrower agrees to furnish continuation
statements at required intervals. Lender is to
receive satisfactory evidence that Lender's lien on
said personal property, fixtures and equipment is a
first and prior lien.
H. TECHNICAL REPORTS. Following the issuance of the Commitment by
Lender, the following items (collectively, the "Technical
Reports") shall be obtained by Lender from firms and on
specifications acceptable to Under in its sole discretion:
1. An appraisal of the Project satisfactory in substance
and form to Lender (the "Appraisal") prepared at
Borrower's expense by a qualified appraiser
designated by and satisfactory to Lender, estimating
the Project's market value upon completion and upon
projected stabilization.
2. A binding commitment for the Title Policy.
3. The Plat of survey.
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4. An environment assessment (the "Environmental
Assessment") of the Project and such other
environmental examinations and assessments deemed
necessary by Lender in its sole discretion.
5. A market study relating to the feasibility of the
Project.
6. A plan and cost review prepared by Lender's
consulting engineer.
7. Such other due diligence reports or reviews of the
Project deemed necessary of Lender in its sole
discretion. The obligation of Lender to close and
fund the Construction Loan shall be subject to the
receipt and approval by Lender of each of the
Technical Reports, in form and substance satisfactory
to Lender in its sole discretion.
I. ATTORNEY'S FEES, CONSULTANT'S FEES, DEFERRED FEE AND OTHER
COSTS AND EXPENSES:
1. Borrower shall reimburse Lender for the following
expenses incurred by Lender on behalf of Borrower in
connection with the Construction Loan:
i. All Lender's reasonable attorney's fees and
costs, whether in-house or outside counsel;
ii. All fees and costs of architects, engineers
and environmental consultants engaged by
Lender with respect to the Project; and
iii. All fees and costs of the Technical Reports.
2. It is acknowledged and agreed that the Expense
Deposit referred to on page 1 of this Application is
intended to defray the cost of the items described
above; provided, however, to the extent such Expense
Deposit is insufficient to pay in full such sums,
Borrower shall satisfy all such sums at the closing
of the Construction Loan.
J. CLOSING CONDITIONS. In addition to those more detailed closing
conditions set forth in the Building Loan Agreement, Lender's
obligation to fund and close the Construction Loan shall be
conditioned upon, and subject to satisfaction of each of the
following conditions:
1. Compliance. As a condition of opening the
Construction Loan and throughout the term thereof,
the Project and its use for the purpose contemplated
herein must be in compliance with all applicable
federal, state and local laws, rules, regulations and
ordinances. Prior to opening the Construction Loan,
Borrower shall furnish Lender the original building
permit or a true copy thereof and other
certifications, permits and licenses
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of appropriate governmental authorities evidencing
compliance with all zoning, building, environmental
and other applicable laws, rules, regulations and
ordinances.
2. Hazardous Materials. There must not be present on, in
or under the Project any asbestos, PCB's hazardous
wastes or other hazardous or toxic materials and
Lender must be furnished a written report from an
environmental engineer acceptable to Lender
certifying that no such materials are presently
located on, in or under the Project. In the event of
the discovery of any such materials, Lender shall
not be obligated to make the Construction Loan.
3. Plans and Specifications. Four (4) complete sets of
the plans and specifications for the Project, and
related landscaping, must be submitted to Lender for
review and approval. Lender shall retain, at
Borrower's expense, an architect/engineer of Lender's
choice to perform various services on behalf of
Lender, including reviewing the plans and
specifications, reviewing the construction budget and
making monthly inspections of the Project during the
term of the Construction Loan. The report of the
architect/engineer must be satisfactory to Lender in
all respects.
4. Utilities. Borrower shall have delivered to Lender
letters or certificates from the appropriate
governmental authorities (which letters or
certificates shall state the expiration date, if any,
thereof) evidencing the availability, capacity and
suitability of electric, gas, telephone, water,
sanitary sewer and storm water drainage services
needed to service properly the Project for its
intended use, and stating that no condition exists
which affects Borrower's rights to service by said
utilities.
5. Appraisal. Prior to closing the Construction Loan,
Lender shall be furnished the Appraisal, which
Appraisal shall be subject to the review and approval
of Lender's in-house MAI appraiser and which
Appraisal shall indicate an "as completed" value and
an "as stabilized" value, each acceptable to Lender
in its sole discretion. Borrower acknowledges and
agrees that the "as stabilized" value of the Project
is a true and accurate reflection of the Project's
fair market value. Borrower further acknowledges that
Lender is relying primarily on this valuation of the
Project (rather than the "as completed" valuation) in
determining whether this underwriting requirement for
the Construction Loan has been satisfied.
6. Flood Hazard Insurance. Lender shall be furnished
evidence satisfactory to it that the Project is not
situated in a special flood hazard area as designated
by the Federal Insurance Administration. In the event
the Project has been designated as being in a flood
hazard area, Lender shall
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have the option of either declining to make the
Construction Loan or requiring Borrower to obtain
adequate flood insurance.
7. Insurance. Lender shall be furnished evidence
satisfactory to it that the Project is insured for
fire and extended coverage in amounts acceptable to
Lender on a Builder's All Hazard Risk Completed Value
form (nonreporting), is subject to employer's
liability and workman's compensation insurance, and
is subject to general public liability coverage and
other appropriate insurance, each in amounts
acceptable to Lender. Such coverage shall be placed
with insurance companies acceptable to Lender with a
standard mortgagee endorsement in Lender's favor. At
Lender's option the originals of all such policies
shall be deposited with Lender.
8. Other Insurance. At Lender's sole option, Lender may
require Borrower to obtain earthquake and/or
sink-hole insurance if applicable to the Project.
9. Payment and Performance Bonds. Lender may, at its
election, require payment and performance bonds for
the general contractor and for certain key
subcontractors and materials suppliers, with such
bond(s) being in such amount, from such surety and in
form and content as are reasonably acceptable to
Lender. All such bonds shall contain a dual obligee
rider naming Lender as a co-obligee. Lender may waive
this bonding requirement for some or all non-material
subcontracts (e.g., those that are not for
foundation, plumbing, electrical, etc.) and/or for
the general contractor.
10. Approval of Contractor, Construction Budget and
Schedule. Lender shall have reviewed and approved the
proposed general contractor and the general
contractor's agreements with Borrower, key
subcontractors and material suppliers, the proposed
construction budget and the proposed construction
schedule.
11. Selection of Legal Counsel. Lender shall require
representation of Lender by attorneys of its choice
in the preparation and review of the Construction
Loan, Commitment, Permanent Loan documents and all
other legal matters related hereto. All reasonable
fees and costs for such attorneys shall be paid by
Borrower.
12. Payment of All Closing Costs by Borrower. Borrower
agrees to pay all taxes and assessments due on the
date of closing and within 30 days thereafter, all
recording fees, registration taxes, title insurance
premiums, appraisal fees, engineering fees, and all
other costs in connection with the negotiation of and
closing of the Construction Loan, Commitment and
Permanent Loan.
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13. Equity Requirement. The initial equity requirement
from Borrower is as shown on Exhibit A. The
Construction Loan at all times during the term shall
be in balance. Borrower agrees to deposit with Lender
at any time as Lender shall determine the
Construction Loan is not in balance, equity in an
amount necessary to meet, in Lender's determination,
all construction, financing and leasing costs
required to complete the Project or otherwise
required to support the Project until it has achieved
a positive net cash flow and is fully supporting
itself. Borrower's equity contributions shall be
expended prior to disbursements under the
Construction Loan.
14. Construction Loan Documents. All of the Construction
Loan Documents and title documents executed and
delivered in connection with the closing of the
Construction Loan, all title policies and surveys,
all Borrower organizational documents, all legal
opinions, all insurance policies and coverage and
insurance companies, all required evidence of
compliance with all applicable laws and regulations,
and all other evidence, information and material
required by Lender or its counsel, shall be in form,
scope and substance reasonably satisfactory to
Lender's counsel, who must approve title to the
Project, the legality, validity and enforceability of
all documents pertaining to the Construction Loan,
all proceedings in connection therewith and all other
matters relating to the Construction Loan and the
closing thereof.
15. Damage, Condemnation or Similar Proceedings. Since
the date of the last inspection of the Project by
Lender, no portion of the Project shall have been
damaged and not repaired to Lender's satisfaction, or
shall have been taken in condemnation or other
similar proceedings (and no such proceedings shall be
pending). Since the date of the last inspection of
the Project by Lender, no change in the structure or
physical condition of the Project shall have
occurred.
16. Insolvency, Material Adverse Change. None of
Borrower, or any general partner of Borrower, or any
Principal, or any Guarantor shall be the subject of
any bankruptcy, reorganization, insolvency or other
similar proceeding. A material adverse change in the
financial condition of any of the Guarantor Group
shall not have occurred since the date the financial
data and documentation relating to such persons was
most recently furnished to Lender.
17. Default. No default shall have occurred and be
continuing in the performance of any obligation of
Borrower, its Principals or the Guarantors which
would be deemed an Event of Default under the
Construction Loan Documents if they were in effect.
There shall exist no other fact, event or disclosure
in connection with the Construction Loan that
reasonably can be
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expected to cause the Construction Loan to become
delinquent or materially adversely affect the
Construction Loan or the Project.
18. Action, Suit or Proceeding. No uncorrected notice of
violations of any municipal ordinances shall have
been filed against the Project by any municipal
department. No action, suit or proceeding judicial,
administrative or otherwise shall be pending against
or affecting Borrower, the Principals, the Guarantors
or the Project which could have a material adverse
effect on any thereof.
19. Reports, Submissions. All reports and submissions to
Lender by Borrower or Borrower's third party vendors
or consultants in connection with the Project,
including, without limitation, the Technical Reports
shall be certified and addressed to Lender's
satisfaction and shall have been approved by Lender.
20. Management Agreement, Franchise Agreement. The
Management Agreement and the Franchise Agreement (if
applicable) shall be in full force and effect, shall
be subordinate to the Construction Loan, shall be
assigned to Lender and shall be otherwise acceptable
to Lender.
21. Doubletree Guaranty. If set forth on Exhibit A, the
Doubletree Guaranty shall be in full force and effect
and Schedule 1 to the Doubletree Guaranty shall be
fully executed and supplemented to specifically
include the Project identified on Exhibit A within
such Guaranty. For Projects requiring the Doubletree
Guaranty, Borrower acknowledges that Doubletree is
receiving the Guaranty Fee as fair consideration for
Doubletree agreeing to enter into the Doubletree
Guaranty. The parties hereto acknowledge that the
Doubletree Guaranty shall not be required for
Company-developed Projects for which the Construction
Loan Amount does not exceed the lesser of (a) seventy
percent (70%) of the Approved Project Costs (b)
sixty-five percent (65%) of the "as stabilized"
market value of the Project, as reflected in the
Appraisal.
22. Timely Performance. Each of the requirements
contained in this Application to be performed by
Borrower and each term and condition herein is
material to Lender's obligation to make the
Construction Loan and such obligation is specifically
conditioned upon the full and complete performance or
satisfaction of each and every requirement, term and
condition hereof. Time is of the essence of this
Application; and in the event that Borrower fails to
perform any of the requirements contained in this
Application or any term or condition is not satisfied
on or before the Closing Date, such failure shall
terminate Lender's obligation to make Construction
Loan. In the event Lender's obligations under any
Commitment issued pursuant hereto shall terminate due
to Borrower's
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failure to comply with or breach of any provision of
the Commitment, Lender shall retain the Commitment
Fee, the deposit made to cover its underwriting
expenses and, to the extent set forth above, the
Expense Deposit.
23. Interpretation. All of Borrower's representations and
agreements and all other terms and conditions
contained in this Application are material conditions
to the making and opening of the Construction Loan
and Commitment, making the initial disbursement and
all subsequent disbursements of the Construction Loan
proceeds and are established for the protection of
Lender. Lender may, at its sole option, waive any
such condition and Lender shall have no liability to
anyone for failing to enforce any such condition.
III. PERMANENT LOAN. In the event the Construction Loan on or before six (6)
months prior to the Maturity Date or the Extended Maturity Date, as
applicable, satisfies the Permanent Loan Criteria, subject to the terms
and conditions set forth in this Article III, Lender shall refinance
the Construction Loan.
A. LOAN AMOUNT, TERM, AMORTIZATION, INTEREST RATE, PREPAYMENT,
NONRECOURSE
1. Permanent Loan Amount. The Permanent Loan shall be in
an amount equal to no more than the full amount of
the Construction Loan, subject to Lender's then
current hotel underwriting standards and practices.
Lender at its sole discretion may waive this
limitation. As reflected in the definition of
"Permanent Loan Criteria" below, the Permanent Loan
Amount must be consistent with a minimum 1.40 DSCR.
2. Term. The term of the Permanent Loan shall be up to
twenty-five (25) years in accordance with Lender's
then-applicable underwriting standards and practices
for loans and borrowers of this type.
3. Amortization/Payments. Subject to Lender's
acceleration rights upon a default and Borrower's
right to prepay the Loan, the Permanent Loan shall be
amortized over a period of up to twenty-five (25)
years (or applicable loan term, if shorter) in level
monthly payments of principal and interest.
4. Interest Rate. The interest rate for a Permanent Loan
shall be the long-term fixed rate hotel loan spreads
over the relevant Treasury index then being offered
by Lender for its conduit program for loans of this
type.
5. Prepayments. For a Permanent Loan, Borrower may
prepay the loan in part or in full, but only with the
prior written consent of Lender and also subject to
"yield maintenance" to compensate Lender for the
loss, cost and
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expense incurred by Lender as a result of such
prepayment. As used herein, the term "yield
maintenance," shall be based upon a twenty-year
amortization schedule payable until the earlier to
occur of (i) six months prior to the scheduled
Permanent Loan maturity or (ii) 15 years.
6. Replacement Reserve Escrow. A minimum Replacement
Reserve of four percent (4%) of total gross revenues
(as defined pursuant to and as subject to Lender's
then-current underwriting criteria) from the Project
shall be required to be deposited, on a monthly
basis, into an escrow account in Lender's name.
Borrower may request withdrawals of funds on a
monthly basis to replace furniture, fixtures and
equipment and other capital items. Borrower shall
receive or be credited with interest on the funds
held in the Replacement Reserve.
7. Nonrecourse. The Permanent Loan shall be non-recourse
to Borrower and the Guarantor Group, except as set
forth in Sections III.I and III.J below.
B. MODIFICATION DOCUMENTS. Lender reserves the right to require
that the Permanent Loan be documented by new loan
documentation, opinions, certifications and the like, all
acceptable to Lender in its sole discretion. To the extent
that Lender chooses, in its sole discretion, to use the
Construction Loan Documents, as modified and/or extended to
evidence, govern and secure the Permanent Loan, the following
documents, executed by Borrower, shall evidence the refinance
of the Construction Loan into the Permanent Loan
(collectively, the "Modification Documents" and individually a
"Modification Document"):
1. A modification, restatement and renewal of the
Construction Note, Indemnification Agreement,
Mortgage and other Construction Loan Documents (other
than the Guaranty Agreement), as previously modified
and/or extended, containing such terms, modifications
and waivers as shall be required by Lender.
2. Borrower shall provide a "Comfort Letter" from the
franchisor under the Franchise Agreement and the
property manager under the Management Agreement in a
form satisfactory to Lender.
3. Borrower shall provide a certificate to Lender as to
(i) the correctness of representations and warranties
made in the Construction Loan Documents, this
Application and in the Commitment, (ii) the
authorization by Borrower of the execution and
delivery of the Modification Documents, (iii)
Borrower's financial condition as of the Closing
Date, (iv) that no defaults have occurred under the
Construction Loan Documents, and that Borrower has no
defenses, claims or offset rights thereunder, and (v)
such other matters as Lender may require in its
reasonable discretion.
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4. Such other certifications, opinions and documents as
Lender shall require in its reasonable discretion.
C. CONDITION OF TITLE TO THE PROJECT. Lender shall receive an
updated Title Policy (the "Updated Title Policy") issued by
the Title Company acceptable to Lender:
1. Showing ownership of the Project in the name of
Borrower, verifying that the Mortgage, as amended by
the Modification Documents, establishes a first and
valid lien upon the Project, and subject only to such
exceptions and exclusions to title as may be
acceptable to Lender and its counsel;
2. Showing that construction of the improvements on the
Project has been completed free and clear of all
mechanic's and materialmen's liens;
3. Containing or providing for the issuance of an "as
built" zoning endorsement and such other
endorsements, co-insurance and/or reinsurance
agreements as Lender may require.
D. SURVEY OF THE PROJECT. Borrower shall furnish Lender a
satisfactory "as-built" survey (the "As-Built Survey") showing
the completed improvements and contained all of the
information set forth in Section II.E hereof.
E. FURNITURE, FIXTURES AND EQUIPMENT.
1. Updated Schedule. Borrower shall provide an updated
detailed schedule satisfactory in form and substance
to Lender of all FF&E which is being used in the
operation of the Project.
2. UCC Security Interest. Lender shall require a first
lien on all personal property, fixtures and equipment
now or hereafter used in the operation of the
Project, with necessary security agreements and
Uniform Commercial Code Financing Statements to be
executed and filed with the appropriate county and/or
state offices. Borrower agrees to furnish
continuation statements at required intervals. Lender
is to receive satisfactory evidence that Lender's
lien on said personal property, fixtures and
equipment is a first and prior lien.
F. TECHNICAL REPORTS. The following items (collectively, the
"Updated Technical Reports") shall be obtained by Lender from
firms and on specifications to Lender in its sole discretion.
1. An updated appraisal of the Project (the "Updated
Appraisal").
2. The Updated Title Policy.
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3. The As-Built Survey.
4. An updated environment assessment (the "Updated
Environmental Assessment") of the Project and such
other environmental examinations and assessments
deemed necessary by Lender in its sole discretion.
5. An engineer's report of the Project (the "Engineer's
Report").
6. An updated market study relating to the feasibility
of the Project.
7. A updated plan and cost review prepared by Lender's
consulting engineer.
8. Such other due diligence reports or reviews of the
Project deemed necessary by Lender in its sole
discretion.
The obligation of Lender to close and fund the Permanent Loan shall be
subject to the receipt and approval by Lender of each of the Updated
Technical Reports, in form and substance satisfactory to Lender in its
sole discretion.
G. ATTORNEYS FEES, CONSULTANTS FEES, DEFERRED FEE AND OTHER COSTS
AND EXPENSES.
1. In addition to the Commitment Fee set forth above,
Borrower agrees to pay Lender, at the closing of the
Permanent Loan, a fee equal to one percent (1%) of
the Permanent Loan amount as compensation for making
the Permanent Loan. Such fee shall be earned upon
Lender's funding of the Permanent Loan.
2. Borrower shall also reimburse Lender for the
following expenses incurred by Lender on behalf of
Borrower in connection with the Permanent Loan:
i. All Lender's reasonable attorney's fees,
whether in-house or outside counsel;
ii. All fees of architects, engineers and
environmental consultants engaged by Lender
with respect to the Project; and
iii. All costs of the Updated Technical Reports.
H. CLOSING CONDITIONS. Lender's obligation to fund and refinance
the Construction Loan with the Permanent Loan shall be
conditioned upon and subject to satisfaction of each of the
following conditions:
1. Compliance. As a condition of refinancing the
Construction Loan with the Permanent Loan and
throughout the term thereof, the Project and its use
for
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the purpose contemplated herein must be in compliance
with all applicable federal, state and local laws,
rules, regulations and ordinances. Borrower shall
furnish Lender with copies of all applicable permits
and licenses required for the use and operation of
the Project, including, without limitation any
certificates of occupancy or similar evidence of
completion and other certifications of appropriate
governmental authorities evidencing compliance with
all zoning, building, environmental and other
applicable laws, rules, regulations and ordinances.
If the Project is a legal nonconforming use property,
Lender must be satisfied, in its sole discretion,
that either (i) in the event of a casualty, the
improvements may be rebuilt without any loss or
decrease in the number of rooms or any modification
in the use of the Project, or (ii) that Borrower has
obtained ordinance insurance covering this risk in a
manner acceptable to Lender.
2. Completion and Operation. The Project shall have been
completed in accordance with the original approval
plans and specifications and shall have been open for
business for a period of at least twelve (12)
continuous, stabilized months.
3. 1.40 DSCR. The Project shall have achieved a minimum
1.40 DSCR over a continuous, stabilized twelve-month
operating period.
4. Hazardous Materials. There must not be present on, in
or under the Project any asbestos, PCB's hazardous
wastes or other hazardous or toxic materials and
Lender must be furnished and have approved the
Updated Environmental Assessment.
5. Flood Hazard Insurance. Lender shall be furnished
evidence satisfactory to it that the Project is not
situated in a special flood hazard area as designated
by the Federal Insurance Administration.
6. Insurance. Lender shall be furnished evidence
satisfactory to it that the Project is insured for
fire and extended coverage and is insured for public
liability coverage, in each case in amounts and on
forms acceptable to Lender. Such coverage shall be
placed with insurance companies acceptable to Lender
with a standard mortgagee endorsement in Lender's
favor. At Lender's option the originals of all such
policies shall be deposited with Lender.
7. Other Insurance. At Lender's sole option, Lender may
require Borrower to obtain earthquake and/or
sink-hole insurance if applicable to the Project.
8. Selection of Legal Counsel. Lender shall require
representation of Lender by attorneys of Lender's
choice in the preparation and review of the
Modification Documents or other Permanent Loan
documents and all other
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legal matters related to the Permanent Loan. All
reasonable fees and costs for such attorneys shall be
paid by Borrower.
9. Payment of All Closing Costs by Borrower. Borrower
agrees to pay all taxes and assessments due on the
date of closing and within 30 days thereafter, all
recording fees, registration taxes, title insurance
premiums, appraisal fees, engineering fees, and all
other costs in connection with the negotiation of and
closing of the Permanent Loan.
10. Modification Documents. All of the Permanent Loan
documents and title documents executed and delivered
in connection with the closing of the Permanent Loan,
all title policies and surveys, all Borrower
organizational documents, all legal opinions
(including legal opinions then typically required by
ratings agencies), all insurance policies and
coverage and insurance companies, all required
evidence of compliance with all applicable laws and
regulations, and all other evidence, information and
material required by Lender or its counsel, shall be
in form, scope and substance satisfactory to Lender's
counsel who must approve title to the Project, the
legality, validity and enforceability of all
documents pertaining to the Permanent Loan, all
proceedings in connection therewith and all other
matters relating to the Permanent Loan and the
closing thereof.
11. Damage, Condemnation or Similar Proceedings. Since
the date of the last inspection of the Project by
Lender, no portion of the Project shall have been
damaged and not repaired to Lender's satisfaction, or
shall have been taken in condemnation or other
similar proceedings (and no such proceedings shall be
pending). Since the date of the last inspection of
the Project by Lender, no change in the structure or
physical condition of the Project shall have
occurred.
12. Insolvency, Material Adverse Change. None of
Borrower, or any general partner of Borrower, any
Principal or any Guarantor shall be the subject of
any bankruptcy, reorganization, insolvency or other
similar proceeding. A material adverse change in the
financial condition of Borrower, its Principals, the
Guarantors or a general partner of Borrower shall not
have occurred since the date the financial data and
documentation relating to such persons was most
recently furnished to Lender.
13. Default. No default shall have occurred and be
continuing in the performance of any obligation of
Borrower, its Principals or the Guarantors which
would be deemed an Event of Default under the
Construction Loan Documents. There shall exist no
other fact, event or disclosure in connection with
the Permanent Loan that reasonably can be expected to
cause the Permanent Loan to become delinquent or
materially adversely affect the Permanent Loan or the
Project.
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<PAGE> 49
14. Action, Suit or Proceeding. No uncorrected notice of
violations of any municipal ordinances shall have
been filed against the Project by any municipal
department. No action, suit or proceeding judicial,
administrative or otherwise shall be pending against
or affecting Borrower, the Principals, the Guarantors
or the Project.
15. Reports, Submissions. All reports and submissions to
Lender by Borrower or Borrower's third party vendors
or consultants in connection with the Project,
including, without limitation, the Updated Technical
Reports, shall be certified and addressed to Lender's
satisfaction and shall have been approved by Lender.
16. Management Agreement, Franchise Agreement. The
Management Agreement and the Franchise Agreement
shall be in full force and effect, shall be
subordinate to the Permanent Loan, shall be assigned
to Lender and shall be otherwise acceptable to Lender
and shall be otherwise acceptable to Lender.
17. Permanent Loan Criteria. Each of the Permanent Loan
Criteria shall have been met to the satisfaction of
Lender.
18. Leases. Copies of all leases encumbering the Project,
which leases shall be in form and substance
acceptable to Lender and shall be subordinate to the
Permanent Loan.
19. Cross Default. No default shall exist under any other
loan by Lender to any affiliate of Borrower.
20. Rating Agency Requirements. The Permanent Loan shall
satisfy all requirements of Standard & Poor's or
other prominent rating agency in connection with
Lender's then current conduit program for loans of
this type.
I. NON-RECOURSE. The Permanent Loan will be non-recourse to
Borrower and its Principals (as determined by Lender at the
time of the closing of the Permanent Loan) and Guarantors,
except that the Guarantor Group, on a joint and several basis,
shall hold Lender harmless from any loss, cost, expenses
(including reasonable attorneys' fees), damages or liability
arising from fraud or misrepresentation, gross negligence,
willful misconduct, physical waste, removal or disposal of any
portion of the Project, enforcement costs, misappropriation of
funds, insured deductible amounts, and environmental matters.
In the event (i) of a voluntary bankruptcy filing by Borrower,
or any involuntary filing against Borrower or its general
partner or general partners, not dismissed within 90 days
(except if such involuntary action is brought by Lender), (ii)
of failure to permit on-site inspections or deliver financial
information as required under the loan
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<PAGE> 50
documents, (iii) any financial information concerning Borrower
or any Principal or Guarantor is fraudulent in any respect,
contains any fraudulent information or misrepresents in any
material respect the financial condition of such person or
entity, (iv) Borrower shall fail to obtain Lender's prior
written consent to any subordinate financing, (v) Borrower
shall fail to obtain Lender's prior written consent to any
transfer of the Project or of any direct or indirect ownership
interest in Borrower where Lender consent is required under
the Loan Documents or (vi) Borrower fails to remain as a
single asset or single purpose entity, then the Guarantor
Group shall be fully liable, or a joint and several basis, for
the Permanent Loan Amount plus interest and related costs.
J. ENVIRONMENTAL INDEMNITY. The Guarantor Group shall execute,
on a joint and several basis, an environmental Indemnity
Agreement in form and substance satisfactory to Lender which
is not subject to limitations on recourse.
IV. DEFINITIONS. As used herein, the following definitions shall apply.
A. "Approved Project Costs" shall mean all direct and indirect
construction costs, land costs and "soft costs" for the
Project as are set forth on Exhibit D attached hereto, all to
the extent approved by Lender and Borrower.
B. "Candlewood" shall refer to Candlewood Hotel Company, Inc., a
Delaware corporation, its successors and assigns.
C. "Doubletree" shall mean Doubletree Corporation, a Delaware
corporation, and its successors and permitted assigns.
Doubletree is the owner of a substantial equity interest in
Candlewood and as such, derives significant value from the
Franchise Agreement and this Commitment.
D. "Doubletree Guaranty" shall mean that Guaranty Agreement dated
as of December 31, 1996, executed by Doubletree, as guarantor,
for the benefit of Lender, together with all exhibits and
schedules thereto, including without limitation, Schedule 1
thereto, which must be executed and dated by Lender and
Doubletree to refer to the Project described herein.
E. "Expenses" shall mean for any specified period, all ordinary,
necessary and reasonable operating and capital expenses
actually paid on a cash basis during such period and which are
related to the Borrower ownership and operation of the Project
during such period. Such Expenses shall include, by way of
example rather than of limitation: (1) principal, interest and
other debt service payments for the Lender loan secured by
such Project; (2) property taxes and assessments; (3) utility
charges; (4) costs of providing elevator, janitorial, trash
removal and maintenance services; (5) costs of maintaining and
repairing the Project; (6) management fees, overhead and
expenses (of no less than four percent (4%) of gross annual
revenues); (7) franchise fees of no less than five percent
(5%) of gross annual
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<PAGE> 51
revenues; (8) an equipment and property replacement reserve of
no less than four percent (4%) of gross annual revenues; and
(9) any capital improvement costs paid by Borrower and not
approved in advance in writing by Lender. Such Expenses shall
not include the following: (i) any overhead of Borrower
incurred in connection with the management of the Project;
(ii) all amounts paid to Borrower or an affiliate of Borrower
in excess of amounts that would reasonably be paid in an
arms-length transaction to a person or entity that is not an
affiliate of Borrower; (iii) non-cash deductions of Borrower;
(iv) salaries or distributions paid or made to any employee,
partner, officer, director or shareholder of Borrower or an
affiliate of Borrower; (v) the cost of capital improvements
made to the Project which are approved in advance in writing
by Lender; or (vi) the cost of Borrower's federal, state or
local income taxes, franchise taxes or other taxes (other than
real property taxes for the Project).
F. "DSCR" shall mean Debt Service Coverage Ratio, which shall be
computed by dividing annual NOI by the annual debt service
payments on the particular loan then under application from
Borrower.
G. "Force Majeure" shall mean strikes, lock-outs, riots or other
labor troubles, unavailability of materials, a national
emergency, any rule, order or regulation or governmental
authorities, tornadoes, floods, hurricanes or other natural
disasters.
H. "Lender" shall refer to GMAC Commercial Mortgage Corporation,
a California corporation, and its successors and assigns.
I. "Guaranty Fee" shall mean that fee, if any, payable by Lender
to Doubletree in accordance with the terms and provisions of
the Doubletree Guaranty. The Guaranty Fee hereunder is equal
to that amount set forth on Exhibit A.
J. "Loan Amount" shall refer to the amount of financing that
Lender agrees to provide to Borrower for any of the respective
loans, whether the Construction Loan or the Permanent Loan.
The Construction Loan Amount is set forth on Exhibit A. The
respective Loan Amounts for the respective loans need not
necessarily be the same amounts.
K. "Net Cash Flow" shall mean the net cash flow from the Project
for a specified period of time, as confirmed by the periodic
financial and operating reports provided by Borrower under the
applicable loan documents and which conforms with Lender's
then-applicable underwriting criteria. It is currently
anticipated that Net Cash Flow will be substantially similar
to that NOI definition set forth in Section IV.L below, except
that the permitted Expenses shall include a working capital
reserve, held by Lender, equal to not more than two (2) months
of debt service.
L. "NOI" shall mean
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<PAGE> 52
(a) for purposes of Lender determining whether a Project
satisfies the Permanent Loan Criteria, "NOI" shall
mean annual Net Operating Income as defined and
determined by Lender in accordance with its
then-current underwriting standards and practices for
its conduit program for loans of this type, which may
include, without limitation:
1. An allowance of no less than 4% multiplied
by gross annual revenues for management
fees;
2. An allowance of no less than 10% multiplied
by gross annual revenues for the combination
of marketing and franchise fees payable to
Candlewood; and
3. An allowance of no less than 5% multiplied
by gross annual revenues for a property,
plant, furniture, fixture, and equipment
replacement reserve; and
(b) for all other purposes, "NOI" shall mean Total Gross
Revenue less Expenses, all to the extent confirmed by
the periodic financial and property reporting and
audit requirements set forth in the applicable loan
documents.
M. "Permanent Loan Criteria" shall refer to a Project which at
the specified date, not later than the maturity of the
Construction Loan (including any Extension Periods) meets, in
GMAC's sole discretion, Lender's then current conduit
origination and underwriting standards, including but not
limited to (i) DSCR equal to or greater than 1.4 and (ii) the
ratio of the applicable Loan Amount to the market value of the
Project as determined by an acceptable appraisal dated within
30 days of such determination, shall not be greater than 75%.
N. "Project" shall refer to a Candlewood hotel identified on
Exhibit A.
0. "Total Gross Revenue" shall mean any specified period, all
revenue received on a cash basis during such period from all
sources related to the Project, including without limitation,
all rents, issues, profits, revenues, accounts, accounts
receivable and other income and proceeds from the use or
occupancy of hotel rooms, conference rooms and other public
facilities at the Project, all parking revenue, proceeds from
any business interruption insurance, condemnation awards from
a temporary taking, refunds, license, lease and concession
fees and rentals, income from vending machines, health club
membership fees, food and beverage sales, wholesale and retail
sales of merchandise and equipment, service charges, and
proceeds of business interruption and other loss of income
insurance; provided, however, Gross Revenues shall not include
the following: (i) gratuities to employees, (ii) federal,
state or municipal excise, sales, use or similar taxes
collected directly from patrons or guests or included as part
of the sales price of any goods or services, (iii) insurance
proceeds (other than proceeds from business
26
<PAGE> 53
interruption or other loss of income insurance), (iv)
condemnation proceeds (other than for a temporary
taking), (v) proceeds from any sale of the Project or
from a refinancing of any debt encumbering the
Project, (vi) proceeds from any disposition of
furniture, fixtures and equipment no longer necessary
for the operation of the Project; (vii) or interest
accruing on amounts deposited in any FF&E or other
reserve account.
V. MISCELLANEOUS.
A. Publicity. In the event the Construction Loan closed,
Lender shall have the right to issue press releases,
advertisements and other promotional materials
describing in general terms Lender's participation in
such transaction.
B. Sole Discretion of Lender. Wherever pursuant to this
Commitment (a) Lender exercises any right given to it
to approve or disapprove, (b) any arrangement or term
is to be satisfactory to Lender, or (c) any other
decision or determination is to be made by Lender,
the decision of Lender to approve or disapprove, the
determination that arrangements or terms are
satisfactory or not satisfactory and all other
decisions and determinations made by Lender, shall be
in the sole and absolute discretion of Lender and
shall be final and conclusive, except as may be
otherwise expressly and specifically provided herein.
C. Candlewood's Representations. Candlewood, on behalf
of itself and on behalf of its Borrowers,
acknowledges that Lender is relying upon both the
truthfulness and completeness of all information,
documents and statements made or delivered in
connection with the Construction Loan or contained in
this Application and any supplements or amendments
hereto. Candlewood represents that all such
documents, information and statements are true and
complete to the best of Candlewood's knowledge and
belief and are made for the purpose of securing
financing from Lender. Candlewood further agrees to
notify Lender of any material changes in connection
with such information, documents and statements.
D. Termination. If Lender issues a Commitment, Lender
shall have the option, in its sole discretion, to
terminate the Commitment for the Construction Loan,
or, if the Construction Loan has already been funded,
for any Extension Period and for the Permanent Loan,
by written notice to Borrower if there has been or
there exists: (1) any material misrepresentation,
misstatement or omission; (2) any material error in
any factual data submitted; (3) any material adverse
change in the state of facts indicated herein or in
any document delivered in connection with the
Construction Loan, this Loan Application or the
Commitment; (4) substantial or unrepaired damage to
the land or improvements forming portions of the
Project; (5) conditions that make the buildings on
the Project untenable; (6) an insolvency, bankruptcy,
appointment or receiver of or for, or a similar event
affecting, or the incapacitation of, Borrower or any
Principal or any Guarantor; and (7) any default under
the Construction Loan, the Management Agreement
and/or the Franchise
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<PAGE> 54
Agreement which is not remedied before the expiration
of any applicable cure period.
E. Insurance. Any and all insurance coverage required
hereunder (i) shall be provided by an insurance
company that (a) has a claims paying ability or
general policyholder's rating of AA- or better from
Standard & Poor's or Duff & Phelps, Aa3 or better
from Moody's or A- or better from A.M. Best, (b) a
financial size rating of X or better from A.M. Best
or a policyholders' surplus of $500 million or more
and (c) is in any event satisfactory to Lender in its
sole discretion, (ii) shall name Lender and any other
parties designated by Lender as loss payees or
additional insureds and (iii) shall provide for such
deductibles and be in such form and on such other
terms as may be required by Lender in its sole
discretion.
F. Counterparts. This Application may be executed in any
number of counterparts and by different parties in
separate counterparts, each of which when executed
and delivered shall be deemed an original and all of
which counterparts taken together shall constitute
but one and the same instrument. Execution and
delivery of this Application may take place by
exchange of facsimile signature pages (provided
receipt of transmission confirmation is obtained).
G. Broker. Lender shall be under no obligation for
payment of any brokerage commission or fee of any
kind with respect to this Application and, by its
acceptance of this Application, Candlewood, on its
behalf and on behalf of its Borrowers, agrees to pay
the fees and commissions of any broker retained by
or on its behalf, and Candlewood, on its behalf and
on behalf of its Borrowers, agrees to indemnify, save
harmless and defend Lender from and against any and
all claims for brokers' or finders' fees and
commissions in connection with the negotiation,
execution and consummation of the Construction Loan
and this Application, including Lender's counsel's
fees and expenses relating to such claims.
H. Governing Law. This Application shall be governed by
the laws of the United States of America and the
internal laws of the Commonwealth of Pennsylvania.
I. Waiver. The provisions of this Application cannot be
waived or modified unless such waiver or modification
is in writing and signed by the party against whom
such waiver or modification is sought to be enforced.
This Application is for the benefit only of the
parties hereto and no third party shall have any
interest herein or in the proceeds of the Loan. This
Application sets forth the entire agreement among
Candlewood, its Borrower and Lender and all other
prior or contemporaneous agreements shall be deemed
to have merged herewith and to be superseded by this
Application except to the extent that they have been
expressly incorporated herein.
J. Assignability. This Application, the proceeds of the
Construction Loan, Permanent Loan, or any one or more
of the foregoing, shall not be assignable by
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<PAGE> 55
Candlewood, its Borrowers or any other person or
entity without Lender's prior written consent.
Candlewood and the Principals recognize that Lender
may (i) fund the Loan through an affiliate, (ii) sell
or transfer interests in the Loan and the Loan
Documents related thereto to one or more participants
or special purpose entities, (iii) pledge Lender's
interests in the Loan and the Loan Documents as
security for one or more loans obtained by Lender or
(iv) sell or transfer Lender's interests in the Loan
and the Loan Documents in connection with a
securitization transaction, in each case, at no cost
to Borrower, and that all documentation, financial
statements, appraisals, reports and other data, or
copies thereof, related to this Application, the
Commitment, Borrower, the Principals, the Guarantors,
the Project or the Loan may be exhibited to and
retained by any party that is reviewing the Loan for
the purposes of purchasing, valuing or rating. To the
extent that Lender assigns all of its rights and
interests in the Construction Loan prior to the
completion of all disbursements to be made
thereunder, Lender shall remain liable for such
outstanding disbursements to the extent not properly
made by the new holder of the Construction Loan.
K. Confidentiality. This Application is being furnished
to Candlewood on a confidential basis and Candlewood
shall not reproduce, use, distribute or disclose this
Application or the terms and provisions hereof to
third parties (or permit the reproduction, use,
distribution or disclosure of this Application or the
terms and provisions hereof to third parties), in
whole or in part, except (i) with Lender's prior
written consent or (ii) to Candlewood's attorneys,
accountants and consultants; provided, however, that
Candlewood shall cause all such attorneys,
accountants and consultants to keep this Application
and all information contained herein confidential.
All copies and drafts hereof shall remain the sole
property of Lender and, if not so accepted, all
copies and drafts hereof are to be immediately
returned to Lender.
L. Notices. Any and all notices required or agreed to be
given pursuant to this Application or the Commitment
shall be sufficient if in writing and mailed by
United States Certified or Registered Mail, postage
prepaid, addressed to Lender and Borrower as follows:
If to Candlewood or its Borrowers at:
9342 East Central
Wichita, KS 67206
Attention: Warren D. Fix,
Executive Vice President
If to Lender, at:
100 South Wacker, Suite 400
Chicago, IL 60606
Attention: Vacys Garbonkus,
Senior Vice President
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<PAGE> 56
and
8614 Westwood Center Drive, Suite 630
Vienna, Virginia 22182-2233
Attention: David B. Post,
Senior Vice President
All notices shall be deemed to have been received
three (3) days following the postmark dates thereof.
M. Jury Waiver. Candlewood, on its behalf and on behalf
of its Borrowers, now waives and agrees to waive in
the Construction Loan Documents, the Modification
Documents and any other loan documents governing the
loans addressed in this Application, the right to
trial by jury in connection with any dispute arising
under this Application, any Commitment, or in
connection with the Construction Loan or the
Permanent Loan.
N. Number and Gender. Whenever the context may require,
any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall
include the plural and vice versa.
O. Inapplicable Provisions. If any term, covenant or
condition of this Application is held to be invalid,
illegal or unenforceable in any respect, this
Application shall be construed without such
provision.
P. Time of Essence. Time is of the essence of this
Application and of each and every term, covenant and
condition herein.
Q. Inconsistency/Ambiguities. To the extent there is or
is deemed to be any inconsistency or ambiguity
between the terms and provisions of this Application
and the terms and provisions of the Note, Mortgage,
Building Loan Agreement or other Loan Documents
following the execution and delivery of such Loan
Documents, the terms and provisions of such Loan
Documents shall govern and control over any contrary,
inconsistent or ambiguous term contained in this
Application.
APPLICANT ACKNOWLEDGES THAT (I) THE RECEIPT BY LENDER OF THIS LOAN APPLICATION,
THE PROCESSING OF THIS LOAN APPLICATION BY LENDER, THE ORDERING OF ANY APPRAISAL
OR ANY ENGINEERING, ENVIRONMENTAL, ARCHITECTURAL OR OTHER REVIEW, ASSESSMENT OR
REPORT, OR THE TAKING OF ANY OTHER ACTION, BY LENDER IN CONNECTION WITH THIS
LOAN APPLICATION SHALL NOT IN ANY WAY CONSTITUTE AN OBLIGATION BY LENDER TO
ISSUE THE COMMITMENT OR TO MAKE THE LOAN, OR TO ISSUE
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<PAGE> 57
THE COMMITMENT BY ANY DATE CERTAIN OR ON THE TERMS SET FORTH HEREIN, AND THAT
LENDER MAY FOR ANY REASON OR NO REASON DECLINE OR REFUSE TO MAKE THE LOAN, (II)
LENDER MAY AT ANY TIME, FOR ANY REASON OR NO REASON, TERMINATE THE PROCESSING OF
THIS LOAN APPLICATION, (III) IF LENDER, IN ITS SOLE DISCRETION, ELECTS TO MAKE
THE LOAN, THEN LENDER SHALL ISSUE THE COMMITMENT, WHICH WILL SET FORTH THE ONLY
TERMS AND CONDITIONS UPON WHICH LENDER SHALL BE OBLIGATED TO MAKE THE LOAN, AND
THAT LENDER WILL HAVE NO OBLIGATION TO MAKE THE LOAN OTHER THAN IN ACCORDANCE
WITH THE TERMS AND CONDITIONS SET FORTH IN THE COMMITMENT AND (IV) THE
PROVISIONS OF THE COMMITMENT MAY DIFFER FROM THE PROVISIONS OF THIS LOAN
APPLICATION AND IF ANY PROVISION OF THIS LOAN APPLICATION CONFLICTS WITH ANY
PROVISION OF THE COMMITMENT, THE PROVISION OF THE COMMITMENT SHALL CONTROL.
Candlewood Hotel Company, Inc. GMAC Commercial Mortgage Corporation
Warren D. Fix /s/ Vacys Garbonkus
- - ------------------------------ ------------------------------
By: /s/ Warren D. Fix By: Vacys Garbonkus
--------------------------- ------------------------------
Its: Its: Senior Vice President
-------------------------- ------------------------------
Date: 11/20/97 Date: 11/24/97
------------------ -------------------
Warren D. Fix
Executive Vice President
GMAC Commercial Mortgage Corporation
/s/ David B. Post
----------------------------------
By: David B. Post
------------------------------
Its: Senior Vice President
-----------------------------
Date: 11/25/97
-----------------------------
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EXHIBIT A
SPECIFIC PROJECT COMMITMENT
Candlewood Hotel Company, Inc., on its behalf and on behalf of the
Borrower named below, hereby submits this Specific Project Commitment to GMAC
Commercial Mortgage Corporation ("GMAC-CM") in connection with that certain
Application by Candlewood Hotel Company, Inc. and Commitment by GMAC Commercial
Mortgage Corporation for First Mortgage Construction And Permanent Loans entered
into by the parties on November _, 1997. The parties hereby confirm that all
terms and conditions contained therein are applicable to this Project unless
indicated otherwise herein.
For purposes of this Project, Candlewood Hotel Company, Inc. hereby
submits the following information:
Borrower: Candlewood ________ LLC, a limited liability company
organized under the laws of _____________________
Address: 9342 E. Central
Wichita, KS 67208
Tel: 316-631-1300
Fax: 316-631-1333
Managing Member: Candlewood Hotel Company, Inc.
Principals of Borrower: Candlewood Hotel Company, Inc.
Project Guarantors: Candlewood Hotel Company, Inc.
Project: A Candlewood hotel consisting of _______ building
containing approximately _______ square feet, ________
studios and ______ suites along with amenities including
fitness center, administrative offices, and ____ parking
spaces to be constructed on a parcel approximately
_______ acres in size located at _________ in ________,
_______________.
Total Project Cost: $
---------
Requested Construction Loan Amount: $
---------
Interest Rate: 30-day LIBOR +___________ bp (not including Guaranty Fee, if any)
Is Doubletree Guaranty Required __________ Yes; __________ No
If Doubletree Guarantee is required, then:
Doubletree Guarantee Fee: 0.5% to be added to Interest Rate
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<PAGE> 59
Borrower's Attorneys: Foulston & Siefkin
700 Fourth Financial Center
Wichita, KS 67202
Tel: 316-267-6371
Fax: 316-267-6345
Commitment Fee (2% of Construction Loan Amount): $
-------------
Required Deposits with Application:
Expense Deposit: $25,000
Good Faith Deposit (to be applied against
Commitment Fee): $20,000
Underwriting Fee Payable with Application $ 5,000
Total Amount Remitted with Application $50,000
-------
Projected Closing Date:
---------------
Attachments:
- - -----------
Exhibit D: Approved Project Costs
Copy of organization documents of Borrower
Borrower GMAC Commercial Mortgage Corporation
- - --------------------------------- ------------------------------------
By: Candlewood Hotel Company, Inc. By: Vacys Garbonkus
Its: Managing Member Its: Senior Vice President
Date: Date:
---------------------------- ------------------------------
Candlewood Hotel Company, Inc. GMAC Commercial Mortgage
Corporation:
- - --------------------------------- ------------------------------------
By: By: David B. Post
Its: Its: Senior Vice President
-----------------------------
Date: Date:
---------------------------- -------------------------------
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<PAGE> 60
EXHIBIT B
Candlewood and its Borrowers will furnish, or cause to be furnished to Lender,
within 30 days of the end of each calendar month, the following items, each
certified by a senior financial officer of Candlewood or its respective Borrower
as true, correct and complete as of the end of and for such period (subject to
normal year-end adjustments), and as having been prepared in accordance with the
Uniform System of Accounts, consistently applied: (a) a written occupancy
statement dated as of the last day of the most recently ended calendar quarter
identifying each of the Leases by the term, space occupied, rental required
to be paid, security deposit paid, any rental concessions, and identifying any
defaults or payment delinquencies thereunder; (b) monthly and year to date
operating statements detailing the total revenues received and total expenses
incurred in connection with the ownership and operation of the Project,
including a comparison of the budgeted income and expenses and the actual income
and expenses for such month and the year to date (which operating information
shall include the Improvements); and (c) a written statement dated as of the
last day of the most recently ended month showing the percentage of hotel or
motel rooms rented and occupied during such month and the average daily room
rate charged during such month. Upon request by Lender, Candlewood and its
Borrowers will provide a detailed explanation of any variances of ten (10%)
percent or more between budgeted and actual amounts for such periods. Borrower
shall furnish, within 90 days following the end of each calendar year, a
statement of the financial affairs and condition of the Project, including a
statement of profit and loss and a balance sheet for the Project (and Borrower,
Candlewood and each member of the Guarantor Group) for the immediately preceding
fiscal year, prepared by an independent certified public accountant acceptable
to lender. Candlewood and its Borrowers shall deliver to Lender on or before
December 31 of each calendar year an itemized operating budget and capital
expenditure budget for the Project and a management plan for the Project for the
next succeeding calendar year in such detail as Lender may reasonably request.
Candlewood shall promptly after receipt deliver to lender copies of all quality
inspection reports or similar reports or inspection results that are delivered
to it by the franchisor. At any time and from time to time Borrower shall
deliver to Lender or its agents such other financial data as Lender or its
agents shall reasonably request with respect to Candlewood and the ownership,
maintenance, use and operation of the Project. All information required to be
furnished to lender pursuant to this Section shall be on the form provided by
Lender (which form shall accompany Lender's request). Lender shall have the
right to conduct an independent audit of any of the above financial information
at its own expense at any time. In the event that an error in excess of two
percent (2%) of the amount being audited is discovered, the cost of the audit
shall be borne by Borrower.
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<PAGE> 61
EXHIBIT C
The term "Event of Default" shall include the occurrence or happening,
at any time and from time to time, of any one or more of the following:
(a) if any portion of the Loan is not paid prior to the fifth
(5th) day after the date such payment is due or if the entire Loan is not paid
on or before the Maturity Date;
(b) subject to Borrower's right to contest as provided herein, if
any of the Taxes or Other Charges are not paid when due and payable;
(c) if the Policies are not kept in full force and effect, or if
the Policies are not delivered to Lender upon request;
(d) if Borrower transfers or encumbers any portion of the Project
in a manner inconsistent with the terms of this Agreement;
(e) if any representation or warranty of Borrower, or of any
Principal, or of any Guarantor made herein, in any Loan Document, any guaranty,
or in any certificate, report, financial statement or other instrument or
document furnished to Lender shall have been false or misleading in any material
respect when made;
(f) if Borrower or any Principal or any Guarantor shall make an
assignment for the benefit of creditors, or if Borrower shall generally not be
paying its debts as they become due;
(g) if a receiver, liquidator or trustee of Candlewood or its
Borrowers or of any Principal or any Guarantor shall be appointed, or if
Candlewood or its Borrowers or any Principal or any Guarantor shall be
adjudicated a bankrupt or insolvent, any petition for bankruptcy, reorganization
or arrangement pursuant to federal bankruptcy law, or any similar federal or
state law, shall be filed by or against, consented to, or acquiesced in by,
Candlewood or its Borrowers or any Principal or any Guarantor, or if any
proceeding for the dissolution or liquidation of Borrower or of any Principal or
of any Guarantor shall be instituted; provided, however. that such appointment,
adjudication, petition or proceeding, if involuntary and not consented to by
Candlewood or its Borrowers or such Principal or such Guarantor, shall
constitute an Event of Default only if not being discharged, stayed or dismissed
within 90 days;
(h) if Borrower shall be in default under any other mortgage or
security agreement covering any part of the Project, whether it be superior or
junior in lien to the Mortgage;
35
<PAGE> 62
(i) subject to Borrower's right to contest as provided herein, if
the Project becomes subject to any mechanic's, materialman's or other lien
except a lien for local real estate taxes and assessments not then due and
payable;
(j) if Borrower fails to cure promptly any violations of laws or
ordinances affecting the Project;
(k) except as permitted in this Agreement, the actual or
threatened alteration, improvement, demolition or removal of any of the
Improvements without the prior written consent of Lender;
(1) if there shall occur any damage to the Project in any manner
which is not covered by insurance solely as a result of Borrower's failure to
maintain insurance required in accordance with this Agreement;
(m) if without Lender's prior written consent: (i) the manager
under the Management Agreement (or any succeeding management agreement) resigns
or is removed or; (ii) there is any material change in or termination of the
Management Agreement (or any succeeding management agreement);
(n) if without Lender's prior written consent, there is any
material change in the Franchise Agreement (or any succeeding franchise
agreement);
(0) if for more than 30 days after receipt of notice from Lender,
Borrower shall continue to be in default under any term, covenant, or condition
of this Agreement, the Assignment, the Environmental Agreement or any of the
other Loan Documents other than as specified in any of subsections (a) through
(n) of this Section; provided, however, that if the cure of any such default
cannot reasonably be effected within such 30 day period and Borrower shall have
promptly and diligently commenced to cure such default within such 30 day
period, then the period to cure shall be deemed extended for up to an additional
30 days (for a total of 60 days from Lender's default notice) so long as
Borrower diligently and continuously proceeds to cure such default to Lender's
satisfaction;
(p) if a default has occurred and continues beyond any applicable
cure period under the Management Agreement if such default permits a party to
terminate or cancel the Management Agreement;
(q) if a default has occurred and continues beyond any applicable
cure period under the Franchise Agreement if such default permits a party to
terminate or cancel the Franchise Agreement;
36
<PAGE> 63
(r) if Borrower ceases to operate a hotel on the Project or
terminates such business for any reason whatsoever (other than temporary
cessation in connection with any renovations to the Project or restoration of
the Project after casualty or condemnation);
(s) if Borrower terminates or cancels the Franchise Agreement or
operates the Project under the name of any hotel chain or system other than
Candlewood, without Lender's prior written consent; or
(t) if a default or event of default occurs under another loan now
or hereafter outstanding from Lender to Borrower, Candlewood or an affiliate of
either Borrower or Candlewood, including, without limitation, the
Cross-Collateralized Indebtedness.
37
<PAGE> 64
EXHIBIT D
Approved Project Costs
Borrower
-----------------------------
Project: Candlewood Hotel
Location:
-----------------------------
38
<PAGE> 65
END EXHIBIT A
<PAGE> 66
EXHIBIT B
Form of Participation Agreement
- 26 -
<PAGE> 67
EXHIBIT B
SUBORDINATE PARTICIPATION AGREEMENT
This Agreement, made this __________ day of __________, 1996 by and
between GMAC COMMERCIAL MORTGAGE CORPORATION, a California Corporation
("Lender"), and DOUBLETREE CORPORATION, a Delaware Corporation ("Participant").
The background of this Agreement is as follows:
A. Lender has agreed to provide certain commitments for loans (each, a
"Loan" and collectively the "Loans") with respect to hotel properties to be
developed by franchisees of Candlewood Hotel Company, Incorporated, a Delaware
corporation and an affiliate of Participant (each such franchisee who is the
borrower of a Loan a "Borrower" and collectively the "Borrowers"). Participant
has entered into a certain guarantee agreement (the "Guaranty") in favor of
Lender pursuant to which, inter alia, Participant has guaranteed the payment of
certain sums with respect to the Loans.
B. The parties wish to enter into this Agreement in order to confirm
their agreement regarding the interest of Participant in certain Loans as to
which Participant advances funds and to provide for the relative rights and
responsibilities of the parties regarding such participation.
NOW THEREFORE in consideration of the premises and the further sum of one
dollar ($1) by each party to the other duly paid, receipt whereof is hereby
acknowledged and intended to be legally bound, the parties agree as follows:
1. Participation. Sums paid by Participant to the Lender pursuant to the
Guaranty (other than interest and collection costs under Paragraph 19 thereof)
shall not be applied on account of the indebtedness of any Borrower to Lender,
but shall constitute automatically, without the need of any further document,
the purchase of a subordinated participation interest in the Loan in accordance
with this Agreement. Each Periodic Recovery disbursed to Participant under
Paragraph 3 of the Guaranty, each sum collected from Borrower and then credited
to Participant under Paragraph 7 of the Guaranty and all sums paid by Lender to
Participant on account of such participation interest hereunder will reduce the
participation interest of Participant in the Loan. The interest of Participant
in each Loan will be equal to the portion of the principal and interest owing
on such Loan which has been advanced by Participant to Lender under the
Guaranty and has not been paid or credited by Lender to Participant.
2. Subordination. The participating interest of Participant in a Loan
shall be absolutely subject and subordinate to the interest of Lender in such
Loan and all collateral securing such loan. Without limiting the generality of
the foregoing, except for the sums to be paid or credited to Participant
pursuant to Paragraphs 3 or 7 of the Guaranty, no money collected or recovered
by Lender with respect to a Loan will be paid or credited to Participant unless
and until all sums owing to Lender under such Loan have been fully and
irrevocably paid to Lender.
<PAGE> 68
Participant will not, by reason of its subordinated participation interest in a
Loan, be (i) a creditor of any Borrower, (ii) entitled to assert any claim
against any Borrower, whether in bankruptcy proceedings or otherwise or
entitled to dispute or object to any claim made by Lender against a Borrower,
in bankruptcy proceedings or otherwise or (iii) otherwise entitled to share in
any foreclosure proceeds or any other sum collected or recovered with respect
to a Loan (other than sums to be paid or credited to Participant pursuant to
Paragraphs 3 or 7 of the Guaranty) until Lender has been fully and irrevocably
paid all sums owing to it with respect to such Loan. Participant acknowledges
that Lender has not guaranteed and does not guarantee repayment of all or any
portion of Participant's participation interest in the Loan.
3. Loan Administration. Lender alone shall administer each Loan,
shall hold all Loan Documents, shall make all collections, shall determine
whether and when to enforce remedies and which remedies to pursue (subject,
however, to the forbearance provisions of the Guaranty). Participant, in its
capacity as a subordinated participant in a Loan, shall not be entitled to
determine when or whether remedies should be pursued, and Lender shall have no
liability hereunder to Participant for any matter relating to Lender's
servicing of any Loan or for Lender's decision to pursue, or not to pursue any
remedy with respect to any Loan. Lender will furnish periodic reports to
Participant in the ordinary course of Lender's business and will respond to
Participant's reasonable requests for information regarding the Loans and the
participation interest of Participant therein.
4. Disclaimers. Lender makes no representation, and shall have no
responsibility, with respect to (a) the legality, genuineness, validity,
binding effect or enforceability of any document evidencing or securing a Loan
(individually a "Loan Document" and collectively the "Loan Documents"); (b) the
truthfulness, accuracy or completeness of any of the representations or
warranties in the Loan Documents; (c) the filing, recording or taking of any
other action with respect to any Loan Document or the validity, enforceability,
perfection or priority of any lien or security interest; (d) the collectibility
of any advance or the value of sufficiency of any collateral therefor; (e) the
financial or other condition of any Borrower or any other person or entity; or
(f) any other matter having any relation to any Loan Document, Participant's
participation interest, any Borrower or any other person or entity except as
otherwise specifically set forth herein. Participant acknowledges that
Participant is able to make and has made Participant's own independent
investigation and determination of the foregoing matters without reliance on
Lender, and Participant accepts responsibility therefor.
5. Actions Independent. Lender (a) shall not be deemed to be a
trustee or agent for Participant, and Lender shall have no fiduciary or similar
duties, in connection with this Agreement, the Guaranty, the other Loan
Documents, or Participant's participation interest; (b) may use Lender's sole
discretion with respect to exercising or refraining from taking any action that
may be vested in Lender or which Lender may be entitled to take or assert under
or in respect of any of the Loan Documents, including rights and actions
relating to any consent to departure therefrom, release of collateral in
connection therewith, waiver or amendment or any term thereof, or any
enforcement action of any kind under any circumstances (Participant agrees,
however, to promptly execute and deliver a written consent to any such actions
taken by Lender
-2-
<PAGE> 69
as Lender may reasonably request); (c) shall endeavor to give the same degree
of care to the administration of the Loans as Lender generally gives to the
administration of similar loans in which Lender has not granted participation
to others, and (d) may act as financial adviser to any Borrower or as placement
agent for any debt or equity securities of any Borrower. Without limiting the
generality of the foregoing, Lender (i) may, without liability, rely upon the
advice of legal counsel, accountants and other experts (including those
retained or employed by any Borrower) and upon any written communication or
telephone conversation that Seller believes to be genuine and correct or to
have been signed, sent or made by the proper person or entity; (ii) shall not
be required to make any inquiry concerning the performance by any Borrower, any
guarantor or any other person or entity of any of its obligations and
liabilities under or in respect of the Loan Documents; (iii) shall not have any
duty to inspect the property (including the books and records) of any Borrower
or any collateral; and (iv) shall have no obligation to make any claim against,
or assert any lien upon, any property held by Lender or assert any offset
thereagainst.
6. Exercise of Remedies Etc. Participant will not have, and will not
assert or seek to exercise, any right of legal redress against any Borrower, any
guarantor or any other person or entity in respect of any of the Loan Documents,
any part of Participant's participation interest or any collateral security
therefor and any breach by Participant of the foregoing covenant will (i) render
Participant liable to Lender for all loss and expense to Lender (including
without limitation those for legal services) occasioned thereby, and (ii) if not
withdrawn by Participant within fifteen (15) days following notice from Lender,
constitute an Event of Default under the Guaranty. Participant agrees that
Lender may, in Lender's sole discretion, take legal action to enforce or protect
Participant's and/or Lender's interests in respect of the Loan Documents and any
collateral security therefor. If Lender incurs any costs or expenses (including,
without limitation, those for legal services) or if any liabilities,
obligations, losses, damages, penalties, actions, judgments or suits of any kind
or nature whatsoever (including, without limitation, by or in connection with
any taxes of any kind), become imposed upon Lender in any manner, in connection
with (i) any of the Loan Documents or any collateral security, (ii) any actual
or proposed amendment, consent, release or waiver in connection therewith or
restructuring or refinancing therefor or (iii) any effort to perfect, enforce or
protect Participant's or Lender's rights or interests with respect thereto, then
(except if and to the extent such may be payable by Participant under the
Guaranty) all such costs shall be added to Lender's share of the Loan in
question and shall be senior to Participant's interest in such Loan. Without
limiting the applicability of Section 19 of the Guaranty regarding claims
arising thereunder or in connection therewith, each party will reimburse the
other on demand for any enforcement costs and other liabilities, cost or
expenses (including without limitation those for legal services) a party may
incur as a result of or in relation to any breach of this Agreement by the
other.
7. No Amendment Etc. This Agreement may not be supplemented or altered,
either orally, by course of dealing or otherwise, except in a writing duly
executed by Lender and Participant. In the absence of manifest error, all
determinations made my Lender in good faith hereunder relating to Participant's
participation interest or the Loan Documents shall be conclusive and binding on
Participant. This Agreement and Lender's and Participant's
-3-
<PAGE> 70
respective rights and obligations hereunder shall be interpreted in accordance
with and governed by the laws of the Commonwealth of Pennsylvania, without
giving effect to the conflicts of law principles thereof. If any provision
hereof would be invalid, illegal or unenforceable under applicable law, then
such provision shall be deemed valid, legal and enforceable while most nearly
preserving its original intent; no provision hereof shall be affected by
another provision's being held invalid, illegal or unenforceable.
8. Authority. Each party hereto hereby represents to the other that it
has the power and authority to enter this Agreement and to perform its
obligations hereunder, that its execution, delivery and performance of this
Agreement does not violate any contractual provision to which it is subject,
and that this Agreement constitutes its legal, valid and binding obligation.
9. Headings. The paragraph headings hereof are inserted for convenience
only and shall not in any way affect the meaning or construction of any
provision of this Agreement.
10. Entire Agreement. This Agreement and the Guaranty together constitute
the entire agreement between Participant and Lender with respect to the subject
matter hereof, and no prior understandings or communications, oral or
otherwise, or course of dealing, may be deemed to alter, modify or vary the
terms and provisions hereof and of the Guaranty.
11. Counterparts. This Agreement may be executed in one or more
counterparts and by the parties hereto on separate counterparts, each of which
shall be deemed an original, and all of which taken together shall constitute
one and the same instrument.
12. Third Parties. None of the provisions of this Agreement shall inure
to the benefit of the Borrower, any guarantor (other than Participant) or any
person or entity other than Participant and Lender and their respective
successors and permitted assigns.
13. Notices. Each notice or other communication hereunder shall be in
writing, and shall be given in the manner and at the addresses specified in the
Guaranty (as such addresses may be changed from time to time as provided in the
Guaranty).
IN WITNESS WHEREOF, the parties hereto have executed this Participation
-4-
<PAGE> 71
Agreement by their respective duly authorized officers as of the date first
above written.
GMAC COMMERCIAL MORTGAGE CORPORATION
By:
----------------------------------
--------------------------------
Name:
--------------------------------
Title:
DOUBLETREE CORPORATION
By:
----------------------------------
--------------------------------
Name:
--------------------------------
Title:
<PAGE> 72
AGREEMENT PURSUANT TO
CLAUSE (ii) OF SECTION 7 OF GUARANTY
THIS AGREEMENT, made this _____________ day of ____, 199_, by and
between GMAC COMMERCIAL MORTGAGE CORPORATION, a California Corporation
("Lender"), and DOUBLETREE CORPORATION, a Delaware Corporation ("Guarantor").
The background of this Agreement is as follows:
A. Lender has provided a loan (the "Loan") to __________________
("Borrower") in the original principal amount of $__________. Guarantor has
entered into a certain guarantee agreement dated __________, 1996 (the
"Guaranty") in favor of Lender pursuant to which, inter alia, Guarantor
guaranteed the payment of certain sums with respect to the Loan.
B. Guarantor has elected to enter into this Agreement pursuant to
clause (ii) of Section 7 of the Guaranty.
C. Terms used in this Agreement with initial capitals and not defined
herein shall have the meaning given in the Guaranty.
NOW THEREFORE in consideration of the premises and the further sum of
one dollar ($1) by each party to the other duly paid, receipt whereof is hereby
acknowledged and intended to be legally bound, the parties agree as follows:
1. Guarantor hereby becomes liable for the payment of all principal,
interest, net cash flow, tax and insurance escrows and other sums payable
monthly during the term of this Agreement on account of the Loan (but not the
principal at maturity or upon acceleration), all of which are to be billed to
Guarantor monthly and paid by Guarantor when due under the Loan Documents.
2. In accordance with Section 7 of the Guaranty, Lender will continue
its customary efforts to collect all interest and other sums coming due from
Borrower and will promptly credit to Guarantor all sums so collected. Sums paid
by Guarantor hereunder will not reduce the Maximum Amount under the Guaranty,
and sums credited by GMAC to Guarantor hereunder will not increase the Maximum
Amount.
3. This Agreement is entered into with respect to the obligations of
Guarantor under Section 7 of the Guaranty with respect to the Loan, and this
Agreement does not diminish or affect any other obligation of Guarantor under
the Guaranty with respect to the Loan or with respect to any other loan which is
subject to the Guaranty.
4. This Agreement will terminate in accordance with Section 7 of the
Guaranty (a) upon payment by Guarantor to Lender of the sum payable by Guarantor
<PAGE> 73
pursuant to clause (i) of Section 7 of the Guaranty with respect to the Loan
accompanied by Guarantor's notice of termination of this Agreement, or (b)
automatically when the Loan achieves a DSCR of 1.10, as calculated by Lender in
accordance with the Guaranty, or when the Maximum Amount with respect to the
Loan equals zero.
5. This Agreement does not amend or modify the Guaranty, but is intended
solely to implement the provisions of clause (ii) of Section 7 of the Guaranty
with respect to the Loan.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their respective duly authorized officers as of the date first above written.
GMAC COMMERCIAL MORTGAGE CORPORATION
By:
----------------------------------
Name:
Title:
DOUBLETREE CORPORATION
By:
----------------------------------
Name:
Title:
-2-
<PAGE> 74
EXHIBIT A
SPECIFIC PROJECT COMMITMENT
Candlewood Hotel Company, Inc., on its behalf and on behalf of the Borrower
named below, hereby submits this Specific Project Commitment to GMAC Commercial
Mortgage Corporation ("GMAC-CM") in connection with that certain Application by
Candlewood Hotel Company, Inc. and Commitment by GMAC Commercial Mortgage
Corporation for First Mortgage Construction And Permanent Loans entered into by
the parties on November 25, 1997. The parties hereby confirm that all terms and
conditions contained therein are applicable to this Project unless indicated
otherwise herein.
For purposes of this Project, Candlewood Hotel Company, Inc. hereby submits
the following information:
Borrower: Candlewood Chicago, IL-Hoffman Estates, LLC, a limited
liability company organized under the laws of Delaware.
Address: 9342 E. Central
Wichita, KS 67208
Tel: 316-631-1300
Fax: 316-631-1333
Managing Member: Candlewood Hotel Company, Inc.
Principals of Borrower: Candlewood Hotel Company, Inc.
Project: A Candlewood hotel consisting of one (1) building
containing approximately 59,730 square feet, 98
studios and 24 king suites along with amenities
including fitness center, administrative offices, and
132 parking spaces to be constructed on a parcel
approximately 2.58 acres in size located at Higgins Rd
and Greenspoint Parkway, Chicago, IL.
Total Project Cost: $9,500,000
Requested Construction Loan Amount: $6,400,000
Equity investment by Borrower: $3,100,000
Cash $1,825,870
If Land, Original Cost $1,274,130
Interest Rate (Initial Period): LIBOR -- 3.75% (5% minimal LIBOR Index)
Borrower's Attorney
Kenneth D. Crews
Latham & Watkins
Sears Tower, Suite #5800
Chicago, IL 60606
(312) 876-7700
(312) 993-9767
REQUIRED DEPOSITS WITH APPLICATION:
Expense Deposit: $ 30,000
Underwriting Fee Payable with Application $ 5,000
Commitment Fee: $128,000
Amount Payable with Application: $163,000
Total Amount Remitted with Application $ 50,000
Amount Payable at Closing: $113,000
<PAGE> 75
Projected Closing Date: October 30, 1998
Other matters: The loan term is four years without extensions.
ATTACHMENTS:
Exhibit D: Approved Project Costs
Copy of organization documents of Borrower
CANDLEWOOD CHICAGO, IL-HOFFMAN GMAC COMMERCIAL MORTGAGE
ESTATES, LLC CORPORATION
/s/ Pamela Cloud /s/ Vacys Garbonkus
- - ------------------------------------ -----------------------------------
By: Candlewood Hotel Company, Inc. By: Vacys Garbonkus
Its: Managing Member Its: Senior Vice President
Date: October 27, 1998 Date: October 29, 1998
CANDLEWOOD HOTEL COMPANY, INC. GMAC COMMERCIAL MORTGAGE
CORPORATION
/s/ Pamela Cloud /s/ James C. Poff
- - ------------------------------------ -----------------------------------
By: Pam Cloud By: James C. Poff
Its: Assistant Secretary Its: Vice President
Date: October 27, 1998 Date: October 28, 1998
<PAGE> 1
EXHIBIT 10.7
<PAGE> 2
FIRST AMENDMENT TO
TRANCHE B CREDIT AGREEMENT
THIS FIRST AMENDMENT TO TRANCHE B CREDIT AGREEMENT (this "First
Amendment") is entered into as of December 18, 1998 by and among DOUBLETREE
CORPORATION, a Delaware corporation ("Doubletree"), PROMUS HOTELS, INC., a
Delaware corporation ("PHI"--hereinafter Doubletree and PHI are sometimes
individually referred to as a "Borrower" or collectively referred to as the
"Borrowers"), PROMUS HOTEL CORPORATION, a Delaware corporation (the "Parent
Company"), PROMUS OPERATING COMPANY, INC., a Delaware corporation ("Old
PHC"--hereinafter the Parent Company and Old PHC are sometimes individually
referred to as a "Guarantor" or collectively referred to as "Guarantors"; the
Guarantors, together with the Borrowers, hereinafter are sometimes individually
referred to as a "Credit Party" or collectively referred to as "Credit
Parties"), the several lenders identified on the signature pages hereto (the
"Lenders"), BANKERS TRUST COMPANY, THE BANK OF NOVA SCOTIA and CANADIAN IMPERIAL
BANK OF COMMERCE, as co-syndication agents (each in such capacity, a "Co-Agent")
and NATIONSBANK, N.A., as agent for the Lenders (in such capacity, the "Agent").
Capitalized terms used herein and not otherwise defined herein have the
respective meanings given to them in the Credit Agreement.
RECITALS
WHEREAS, the Borrowers, the Guarantors, the Lenders, the Co-Agents and
the Agent are parties to that certain Tranche B Credit Agreement dated as of
December 19, 1997 (as amended, modified, supplemented, extended or restated from
time to time, the "Credit Agreement");
WHEREAS, the Borrowers have requested that the Agent, the Co-Agents
and the Lenders agree to amend the terms of the Credit Agreement to provide that
the Termination Date be extended, certain existing fees be increased and certain
new fees be added; and
WHEREAS, the Agent, the Co-Agents and the Lenders have agreed to such
amendment of the Credit Agreement on the terms and subject to the conditions
contained in this First Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE> 3
AGREEMENT
I. AMENDMENTS
1.1 Section 1.1 of the Credit Agreement shall be amended by the
addition of the following definition, inserted in appropriate alphabetical
order:
"Additive Usage Fee" has the meaning given to such term in
Section 3.4(e).
1.2 The table in the definition of Applicable Percentage set forth in
Section 1.1 of the Credit Agreement is hereby deleted in its entirety and
replaced with the following table:
<TABLE>
<CAPTION>
Applicable Applicable Percentage
Percentage for for Committed Applicable
Committed Revolving Revolving Loans Percentage for
Pricing Leverage Unsecured Senior Loans Consisting of Consisting of Base Commitment
Level Ratio Debt Rating Eurodollar Loans Rate Loans Fee
----- ----- ----------- ---------------- ---------- ---
<S> <C> <C> <C> <C> <C>
I Less than 1.25 to 1.0 Greater than A- or A3 .19% 0.0% .085%
II Equal to or greater Greater than or equal .25% 0.0% .10%
than 1.25 to 1.0 but to BBB+ or Baa1 but
less than 1.75 to 1.0 less than or equal to
A- or A3
III Equal to or greater Greater than or equal .27% 0.0% .13%
than 1.75 to 1.0 but to BBB or Baa2 but
less than 2.25 to 1.0 less than BBB+ or
Baal
IV Equal to or greater Greater than or equal .325% 0.0% .15%
than 2.25 to 1.0 but to BBB- or Baa3 but
less than 2.75 to 1.0 less than BBB or Baa2
V Equal to or greater Less than BBB- or .45% 0.0% .20%
than 2.75 to 1.0 Baa3
</TABLE>
1.3 Section 3.4 of the Credit Agreement is hereby amended by the
addition of the following subsection:
(e) Additive Usage Fees. If the Average Outstanding Loans (as
defined below) for any Utilization Period (as defined below) is greater
than or equal to twenty-five percent (25%) of the average of the daily
Aggregate Commitments (as defined below) for such Utilization Period,
then the Borrowers shall pay to the Agent for the ratable benefit of
the Lenders an additive usage fee (the "Additive Usage Fee") calculated
as provided below, for such Utilization Period. The Additive Usage Fee
shall be payable in arrears on the 15th day following the last day of
such Utilization Period. The Additive Usage Fee for any Utilization
Period shall be equal to the following amounts for each day in such
Utilization Period:
2
<PAGE> 4
(i) if the Average Outstanding Loans for such
Utilization Period is greater than or equal to twenty-five
percent (25%), but less than fifty percent (50%) of the
average of the daily Aggregate Commitments for such
Utilization Period, ten basis points (.10%) per annum
multiplied by the actual principal balance of the Committed
Revolving Loans outstanding under this Agreement at the end of
such day;
(ii) if the Average Outstanding Loans for such
Utilization Period is greater than or equal to fifty percent
(50%), but less than seventy-five percent (75%) of the average
of the daily Aggregate Commitments for such Utilization Period,
twenty basis points (.20%) per annum multiplied by the actual
principal balance of the Committed Revolving Loans outstanding
under this Agreement at the end of such day; or
(iii) if the Average Outstanding Loans for such
Utilization Period is greater than or equal to seventy-five
percent (75%) of the average of the daily Aggregate Commitments
for such Utilization Period, thirty basis points (.30%) per
annum multiplied by the actual principal balance of the
Committed Revolving Loans outstanding under this Agreement at
the end of such day.
The Additive Usage Fee for any Utilization Period shall be
allocated among the Lenders in accordance with the amount of their
respective Committed Revolving Loans outstanding under this Agreement
during such Utilization Period. For purposes hereof, (A) "Average
Outstanding Loans" for any Utilization Period means the sum of the
aggregate principal amount of Committed Revolving Loans outstanding
under this Agreement as of the end of each day during such Utilization
Period, divided by the number of days in such Utilization Period; (B)
"Aggregate Commitment" for any Utilization Period means the aggregate
amount of the Revolving Commitment; and (C) "Utilization Period" means
each calendar quarter, except that the initial Utilization Period shall
commence on December 18, 1998 and end on December 31, 1998 and the
final Utilization Period shall end on the Termination Date.
II. CONDITIONS PRECEDENT
2.1 The effectiveness of this First Amendment is subject to the
satisfaction of each of the following conditions:
(a) The Agent shall have received (i) copies of this First
Amendment duly executed by the Credit Parties and all of the Lenders or
(ii) copies of this First Amendment executed by the Credit Parties and
all of the Lenders which are not Disapproving Lenders, provided the
Borrowers have either replaced or terminated the Commitments and repaid
all outstanding Loans of each Disapproving Lender in accordance with
the terms of Section 2.1(a) of the Credit Agreement;
3
<PAGE> 5
(b) The Agent shall have received copies of resolutions of the
Board of Directors of each Credit Party approving and adopting this
First Amendment, approving the transactions contemplated herein and
authorizing the execution and delivery hereof, certified by a secretary
or assistant secretary of such Credit Party to be true and correct and
in full force and effect as of the date hereof;
(c) The Agent shall have received for the benefit of the
Lenders executing this First Amendment an extension fee of 7.5 basis
points (.075%) multiplied by the aggregate amount of the Commitments
as of the date hereof; and
(d) The Agent shall have received legal opinions relating to
this First Amendment in form and substance satisfactory to the Agent.
III. MISCELLANEOUS
3.1 The term "Credit Agreement" as used in each of the Credit Documents
shall hereafter mean the Credit Agreement as amended by this First Amendment.
Except as herein specifically agreed, the Credit Agreement is hereby ratified
and confirmed and shall remain in full force and effect according to its terms.
3.2 Each of the Credit Parties represents and warrants as follows:
(a) It has the corporate power and authority to execute and
deliver this First Amendment and to perform its obligations hereunder,
and it has taken all necessary action to authorize the execution,
delivery and performance of this First Amendment.
(b) It has duly executed and delivered this First Amendment
and this First Amendment constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(c) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by it of this First Amendment.
(d) The representations and warranties contained in Section 6
of the Credit Agreement are true and correct on and as of the date
hereof and after giving effect to the amendments contained herein.
(e) No Default or Event of Default exists under the Credit
Agreement on and as of the date hereof and after giving effect to the
amendments contained herein.
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<PAGE> 6
3.3 By executing this First Amendment, each Lender hereby agrees to the
extension of the Termination Date for an additional 364 days as provided in
Section 2.1(a) of the Credit Agreement. The new Termination Date shall be
December 17, 1999. Further, by executing this First Amendment, each Lender
hereby consents to the termination of the Commitment and repayment of the Loans
of any Disapproving Lender.
3.4 This First Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument.
3.5 THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NORTH CAROLINA.
[remainder of page intentionally blank]
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<PAGE> 7
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this First Amendment to be duly executed and delivered by their proper and
duly authorized officer as of the day and year first above written.
BORROWERS:
PROMUS HOTELS, INC.,
a Delaware corporation
By: /s/ Carol G. Champion
----------------------------------------
Carol G. Champion
Title: Vice President
------------------------------------
DOUBLETREE CORPORATION,
a Delaware corporation
By: /s/ Carol G. Champion
----------------------------------------
Carol G. Champion
Title: Vice President
------------------------------------
GUARANTORS: PROMUS HOTEL CORPORATION
(f/k/a Parent Holding Corp.),
a Delaware corporation
By: /s/ Carol G. Champion
----------------------------------------
Carol G. Champion
Title: Vice President
------------------------------------
PROMUS OPERATING COMPANY, INC.
(f/k/a Promus Acquisition Corp. f/k/a
Promus Hotel Corporation),
a Delaware corporation
By: /s/ Carol G. Champion
----------------------------------------
Carol G. Champion
Title: Vice President
------------------------------------
<PAGE> 8
LENDERS:
NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as Agent
By: /s/
----------------------------------------
Title: SVP
-------------------------------------
<PAGE> 9
THE BANK OF NOVA SCOTIA,
individually in its capacity as a
Lender and in its capacity as a Co-Agent
By: /s/
----------------------------------------
Title:
-------------------------------------
<PAGE> 10
CANADIAN IMPERIAL BANK OF COMMERCE,
individually in its capacity as a
Lender and in its capacity as a Co-Agent
By: /s/ Paul J. Chakmak
----------------------------------------
Paul J. Chakmak
Title: Managing Director
------------------------------------
CIBC Oppenheimer Corp., AS AGENT
<PAGE> 11
THE BANK OF NEW YORK
By: /s/ Ann Marie Hughes
----------------------------------------
Ann Marie Hughes
Title: Vice President
------------------------------------
<PAGE> 12
THE CHASE MANHATTAN BANK
By: /s/ Charles E. Hoagland
----------------------------------------
Charles E. Hoagland
Title: Vice President
------------------------------------
<PAGE> 13
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Andrea Griffis
----------------------------------------
Andrea Griffis
Title: Vice President
------------------------------------
<PAGE> 14
FIRST UNION NATIONAL BANK
By: /s/
----------------------------------------
Title: Vice President
-------------------------------------
<PAGE> 15
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ Huvishka Ali
----------------------------------------
Title: Vice President
-------------------------------------
<PAGE> 16
WACHOVIA BANK, N.A.
By: /s/
----------------------------------------
Title: Vice President
-------------------------------------
<PAGE> 17
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH
By: /s/
---------------------------------------
Title: Vice President
By: /s/ Anthony J. Alessandro
----------------------------------------
Anthony J. Alessandro
Title: Associate
------------------------------------
<PAGE> 18
SUNTRUST BANK, NASHVILLE, N.A.
By: /s/ Bryan W. Ford
----------------------------------------
Bryan W. Ford
Title: Vice President
------------------------------------
<PAGE> 19
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLANDS BRANCH
By: /s/ Kurt A. Morris
----------------------------------------
Kurt A. Morris
Title: Vice President
------------------------------------
By: /s/
----------------------------------------
Title: Assistant Treasurer
-------------------------------------
<PAGE> 20
FIRST AMERICAN NATIONAL BANK
By: /s/ Elizabeth H. Vaughn
----------------------------------------
Elizabeth H. Vaughn
Title: Senior Vice President
-------------------------------------
<PAGE> 21
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
By: /s/
----------------------------------------
Title: Vice President
-------------------------------------
<PAGE> 22
KBC BANK N.V. (f/k/a Kredietbank N.V.,
Grand Cayman Branch)
By: /s/ Robert Snauffer
----------------------------------------
Robert Snauffer
Title: First Vice President
------------------------------------
By: /s/ Raymond F. Murray
----------------------------------------
Raymond F. Murray
Title: Vice President
------------------------------------
<PAGE> 23
WELLS FARGO BANK, N.A.
By: /s/ Frieda Youlios
----------------------------------------
Frieda Youlios
Title: Vice President
------------------------------------
By: /s/ Edith R. Lim
----------------------------------------
Edith R. Lim
Title: Vice President
------------------------------------
<PAGE> 24
THE FIFTH THIRD BANK
By: /s/
----------------------------------------
Title: National Lending Officer
-------------------------------------
<PAGE> 1
EXHIBIT 10.8
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made as of the 3rd day of December,
1998, between Promus Hotel Corporation, a Delaware corporation with its
executive offices at 755 Crossover Lane, Memphis, Tennessee (the "Company") and
Norman P. Blake, Jr. (the "Executive"). The Company and the Executive agree as
follows:
1. Effective Date and Term.
The Company desires to secure the services of the Executive and the
Executive is willing to execute this Agreement with respect to his employment.
The employment of the Executive shall become effective upon the appointment of
the Executive to the Board of Directors of the Company (the "Effective Date").
If the Board fails to appoint the Executive to the Board by December 11, 1998,
this entire Agreement shall be null and void ab initio. The Agreement will
expire three years after the Effective Date. This Agreement supersedes any
prior employment agreement, letter of intent, or other written or oral
communications between Executive and the Company.
2. Agreement of Employment.
The Company agrees to, and hereby does, employ the Executive, and the
Executive agrees to, and hereby does accept, employment by the Company, in a
full-time capacity, pursuant to the provisions of this Agreement and of the
By-Laws of the Company and subject to the control of the Board of Directors of
the Company (the "Board"). The Executive shall, effective as of the Effective
Date, hold the position of Chairman, President, and Chief Executive Officer of
the Company.
3. Executive's Obligations.
During the period of his service under this Agreement, the Executive
shall devote substantially all of his time and energies during business hours
to the supervision and conduct, faithfully and to the best of his ability, of
the business and affairs of the Company and to the furtherance of its
interests, and to such other duties as directed by the Board.
In connection with his employment, Executive agrees to spend at least
one million dollars ($1,000,000) in purchasing the Company's common stock
within 180 days after the Effective Date. The purchase will be in accordance
with applicable securities laws and the Company's policy against insider
trading. The Company will extend the 180 day time frame if necessary to comply
with such laws or policy.
4. Compensation.
(a) The Company shall pay to Executive a salary at the rate of
$700,000 per year, in equal bi-weekly installments; provided, however, that the
Human Resources Committee of the Board (the "Human Resources Committee") shall
in good faith review the salary of the
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<PAGE> 3
Executive, on an annual basis, with a view to consideration of appropriate
merit increases in such salary. In addition, during the term of this Agreement,
the Executive shall be entitled to participate in incentive compensation
programs and to receive the employee benefits and perquisites that the Company
provides to other senior officers. Such benefits include, but are not limited
to (i) the annual bonus plan for which senior executives of the Company are
generally eligible (which is further described in sub-section (b) below), (ii)
awards under any stock option, restricted stock, or equity based incentive
compensation plan or arrangement maintained by the Company for which senior
executives of the Company are generally eligible (as further described in
sub-section (f) below), and (iii) all employee benefit plans, programs and
arrangements of the Company for which senior executives of the Company are
generally eligible.
(b) During the term of this Agreement, the Executive's target bonus
under the annual bonus plan shall be at least 60% of salary and the maximum
bonus will be 100% of salary. The Company guarantees payment of at least a
target bonus for the 1999 bonus plan year (which will be paid in the first
quarter of 2000).
(c) Executive will receive a signing bonus in the net amount after
deductions for federal, state and local income and payroll taxes as determined
by the chairman of the Human Resources Committee to compensate Executive for
individual and incidental expenses, including, but not limited to, a Memphis
country club or other club initiation fee, certain relocation expenses,
reimbursement for cost of canceled vacation, reasonable attorneys fees incurred
by Executive in the review and negotiation of this Agreement, and use of
company aircraft to travel to and from his current residence at his discretion
until permanently relocated in Memphis;
(d) Executive will receive relocation benefits under the Company's
relocation policy for executive officers which shall include temporary housing
allowance through June 1, 1999, which payments will be grossed up to cover
applicable taxes as described in the relocation policy;
(e) On the Effective Date of the Agreement, the Company will grant to
Executive as a signing bonus a total of 600,000 options to purchase the
Company's common stock. 500,000 of these options will be granted out of and
pursuant to the Company's Equity Participation Plan (the "Plan") and will have
an exercise price equal to the "Fair Market Value" on the date of the grant, as
defined in the Plan. 100,000 options will be outside of the Plan (but
administered according to the Plan's Administrative Regulations and registered
on Form S-8) and will have an exercise price of $50 per share. All such options
will have a ten year term and will vest in 3 equal annual installments
beginning one year after the Effective Date of the contract and vesting in full
on December 2, 2001. If Executive is terminated for Cause or quits without Good
Reason (as described in Section 11) or quits at the end of the contract term
without the approval of the Board as further described below, unvested options
are forfeited and options that are vested on the date of termination may be
exercised up to six months after termination or they will be forfeited. If
Executive is terminated without Cause, quits for Good Reason, dies or becomes
disabled as provided in Article 9 of the Agreement, or quits with the approval
of the Board at the end of the contract term, which approval shall not be
withheld provided Executive has identified a successor reasonably suitable to
the Board, all unvested options vest upon termination, and all options may be
exercised any time during the remaining term of the option. In all other
respects
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<PAGE> 4
the terms and conditions of the options will be administered according to the
Plan and the Plan's Administrative Regulations.
(f) The Company will award a minimum of 200,000 options to Executive
as part of the Company's Annual Grants. These options will have a ten year term
and will vest in 4 equal annual installments beginning one year after the grant
date provided, however, the first grant shall vest in 4 equal annual
installments beginning on December 2, 1999. If Executive is terminated for
Cause or quits without Good Reason (as described in Section 11), unvested
options are forfeited and options that are vested on the date of termination
may be exercised up to six months after termination or they will be forfeited.
If Executive is terminated without Cause, quits for Good Reason, dies or
becomes disabled as provided in Article 9 of the Agreement, or quits with the
approval of the Board at the end of the contract term, which approval shall not
be withheld provided Executive has identified a successor reasonably suitable
to the Board, all unvested options vest upon termination and all options may be
exercised up to 3 years after termination. In all other respects the terms and
conditions of the options will be according to the Plan and the Plan's
Administrative Regulations.
(g) The Company will pay the following expenses on behalf of the
Executive (it being understood that Executive will be subject to income tax on
such payments where required by law or regulation): (i) the cost of Executive's
wife accompanying him on all business trips; and (ii) dues and assessments for
membership in a country or other club located in the greater Memphis
metropolitan area.
(h) Executive shall also be entitled to the benefits under a Severance
Agreement substantially in the form of the attached Exhibit A (the "Severance
Agreement"), which will continue in force subject to its terms and conditions
including the termination and amendment provisions thereof, and which will
affect the Company's obligations under this Agreement as described in Section
10 hereof.
(i) For security purposes, the Executive may use the Company's
aircraft for personal business for himself and his family. The Company will
also provide Executive, with appropriate security arrangements at his
residence.
5. Benefits After Termination from Employment.
After the date of Executive's termination from employment at any time
for any reason, he and his spouse will be entitled to participate at the
Company's expense for his and his spouse's lifetimes in the Company's group
health plans applicable to corporate executives, including family coverage as
applicable (medical, dental and vision coverage) or shall be provided with
coverage substantially equivalent to the benefits provided under such plans.
His group health insurance benefits after any termination of employment may be
changed by the Company but will not be less than those offered to corporate
officers of the Company, or if no such benefits are offered, then benefits
substantially equivalent to those offered by the Company on the Effective Date,
and he will be entitled to any later enhancements in such benefits. The
Corporation shall pay to the Executive at least annually an amount which shall
be sufficient on an after-tax basis to
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<PAGE> 5
compensate the Executive and his spouse for all additional taxes incurred by
reason of income realized as a result of the continued coverage under this
Section 5 on a grossed-up basis at the highest marginal tax rate for
individuals.
6. Termination Without Cause or Resignation with Good Reason.
6.01 The Executive shall be treated as having incurred a "Covered
Termination" hereunder if his employment is terminated prior to the end of the
term (i) by the Company other than for Cause (as defined in Section 11.01
hereof) or (ii) by the Executive for Good Reason (as defined in Section 11.02
hereof). The Executive shall not be treated as having incurred a Covered
Termination if his employment is terminated as a result of death or disability,
as provided in Sections 8 and 9 hereof, respectively, or if this agreement
expires without being renewed.
6.02 (a) The amount of the severance payment to be paid to the
Executive upon a Covered Termination shall be the amount determined by
multiplying 3.00 times the sum of:
(1) the Executive's Annual Base Salary as in effect
immediately prior to the Date of Termination; plus,
(2) the Executive's Bonus Amount applicable for the
fiscal year in which the Date of Termination occurs;
plus,
(3) a benefit allowance of 25% of the Executive's
Annual Base Salary as in effect immediately prior to
the Date of Termination.
(b) In addition to the severance payment provided under
Paragraph 6.02(a) hereof, the Executive shall be entitled to the following
benefits and other rights in the event of his Covered Termination:
(1) Accrued Rights. The Executive shall be entitled
to the following payments and benefits in respect of
accrued compensation rights upon a Covered
Termination, in addition to other rights provided
under this Agreement:
(i) payment of any accrued but unpaid
Annual Base Salary and annual bonus (for
any completed fiscal year) through the Date
of Termination;
(ii) payment of a pro-rata portion of the
Bonus Amount for the fiscal year of the
Company in which the Covered Termination
occurs, based on the number of days of such
year prior to the Date of Termination; and
(iii) all benefits and rights accrued under
the employee benefit plans, fringe benefits
programs and payroll practices of the
Company in accordance with their terms
(including, without limitation, employee
pension, employee welfare, incentive bonus,
stock incentive plans, and any accrued
vacation or sick pay time).
(iv) the benefits described in Section 5
hereof.
(2) Outplacement Services. Upon the occurrence of a
Covered Termination, the Executive shall be
provided, at the Company's sole
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<PAGE> 6
expense, with professional outplacement services
consistent with the Executive's duties or profession
and of a type and level customary for persons in his
position, as selected by the Company, subject to
reasonable limitations established by the Company as
to duration and dollar amounts.
6.03 For purposes of this Agreement:
(a) "Annual Base Salary" shall mean the Executive's gross annual
salary before any deductions, exclusions or any deferrals or contributions
under any Company plan or program, but excluding bonuses, incentive
compensation, employee benefits or any other non-salary form of compensation
(determined without regard to any reduction in Annual Base Salary that results
in "Good Reason" termination).
(b) "Bonus Amount" shall mean the greater of (i) the dollar amount of
the annual bonus that would be payable to the Executive under the Company's
annual bonus plan applicable to the Executive, assuming the Executive is
employed by the Company throughout the term of the then current fiscal year and
assuming also payment at the Executive's target level for the then-current full
fiscal year (determined without regard to any reduction in target bonus
percentage that results in "Good Reason" termination), or (ii) the dollar
amount of the bonus paid or payable to the Executive under the Company's annual
bonus plan for the most recently completed fiscal year under such plan. For the
purposes hereof, the "Bonus Amount" shall not include any special bonuses paid
outside of the Company's generally applicable annual bonus plan.
7. Termination For Cause or Resignation Without Good Reason.
7.01 The Board will have the right to terminate Executive at any
time from his then current position for Cause (as defined in paragraph 11.01
herein).
7.02 If Executive is terminated for Cause or if he resigns his
position without Good Reason, then (i) all of his rights and benefits under
this Agreement shall thereupon terminate and his employment shall be deemed
terminated on the date of such termination or resignation except to the extent
provided in clause (iii) of this Section 7.02, (ii) he shall be entitled to all
accrued rights, payments and benefits vested or payable in respect of periods
ending on or before such date under the Company's plans and programs, and (iii)
he will be entitled to the other benefits as and to the extent described in
Sections 5 and 17 hereof.
8. Death.
In the event of Executive's death during his employment under this
Agreement, his salary and all rights and benefits under this Agreement will
terminate, (except for his accrued rights, payments, and benefits vested or
payable in respect of periods ending on or before his death). His estate and
beneficiary(ies) will receive the benefits they are entitled to under the terms
of the Company's benefit plans and programs by reason of a participant's death
during active employment and the applicable rights and benefits under the
Company's stock plans and the benefits described in Sections 4(e), 4(f), 5 and
17 hereof.
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<PAGE> 7
9. Disability.
In the event of Executive's disability during his employment under
this Agreement, he will be entitled to apply at his option for the Company's
long term disability benefits. If he is accepted for such benefits, then the
terms and provisions of the Company's benefit plans and programs that are
applicable in the event of such disability of an employee shall apply in lieu
of the salary and benefits under this Agreement, except that he and his spouse
will be entitled to benefits described in Sections 4(e), 4(f), and 5 hereof. If
Executive is disabled so that he cannot perform his duties (as determined by
the Human Resources Committee), and if he does not apply for long term
disability benefits or is not accepted for such benefits, then the Board may
terminate his duties under this Agreement and, in such event, he will receive
two years' salary continuation together with all other benefits and the
benefits under Sections 4(e), 4(f), 5 hereof. However, during such period of
salary continuation for disability, Executive will not be eligible to
participate in the annual bonus plan nor will he be eligible to receive further
stock option or restricted stock grants or any other long-term incentive awards
except to the extent approved by the Human Resources Committee.
10. Severance Agreement.
Notwithstanding anything elsewhere in this Agreement to the contrary,
in the event that the Executive incurs a "Covered Termination" as defined in
his Severance Agreement within the time period specified therein, he will be
entitled to all the rights, payments and benefits provided under his Severance
Agreement in lieu of the rights and benefits that would otherwise apply under
this Agreement by virtue of such termination; provided, however that he will
also be entitled to the other benefits described in Sections 4(e), 4(f), 5
hereof.
11. Definitions of Cause and Good Reason.
11.01 Cause. Termination by the Company of the Executive's
employment for "Cause" shall mean termination as a result of:
(a) the Executive engaging in willful gross neglect of his duties with
the Company, or the Executive's fraud or dishonesty in connection with his
performance of duties to the Company, in either case which has a materially
detrimental effect on the business or operations of the Company; or
(b) the Executive's conviction by a court of competent jurisdiction of
any crime (or upon entering a plea of guilty or nolo contendere to a charge of
any crime) constituting a felony.
The Date of Termination for a termination for Cause shall be the date
specified by the Company; provided that Executive shall have received written
notice of such failure or misconduct and shall have continued to engage in such
failure or misconduct after 30 days following receipt of such notice from the
Board, which notice specifically identifies the manner in which the Board
believes that Executive has engaged in such failure or misconduct. For
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<PAGE> 8
purposes of this Paragraph, no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be done, by the Executive
not in good faith and without reasonable belief that the Executive's action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
under Section 11.01(a) hereof unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purposes (after reasonable notice to the
Executive and an opportunity for him, together with his counsel, to be heard
before the Board), finding that in the good faith opinion of the Board the
Executive was guilty of failure to substantially perform his duties or of
misconduct in accordance with the first sentence of this paragraph, and of
continuing such failure to substantially perform his duties or misconduct as
aforesaid after notice from the Board, and specifying the particulars thereof
in detail.
11.02 Good Reason. "Good Reason" shall mean, without Executive's
express written consent, the occurrence of any of the following circumstances,
unless, in the case of subparagraphs (a), (b), (f), (g) or (h) such
circumstances are fully corrected prior to the date of termination specified in
the written notice given by Executive notifying the Company of his resignation
for Good Reason. Such notice must be given at least 30 days in advance of the
Date of Termination, and shall set forth in reasonable detail the facts and
circumstances claimed to provide the basis for the termination. Such notice may
be given at any time within two years following the occurrence of the events
that provide the basis for the termination, but not later than the date that is
30 days prior to the expiration of the then-current term of this Agreement.
(a) Any adverse change by the Company in the Executive's position or
title described in Section 2 hereof, whether or not any such change has been
approved by a majority of the members of the Board.
(b) The assignment to Executive of any duties inconsistent with his
status as President and Chief Executive Officer and Chairman of the Board of
the Company or a substantial adverse alteration in the nature or status of his
responsibilities;
(c) A reduction by the Company in his annual base salary of $700,000
or as the same may be increased from time to time pursuant to Section 4 hereof;
(d) The relocation of the Company's principal executive offices where
Executive is working to a location more than 50 miles from the location of such
offices on the date of this Agreement, or the Company's requiring Executive to
be based anywhere other than the location of the Company's principal offices
where Executive is working on the date of this Agreement except for required
travel on the Company's business to an extent substantially consistent with
Executive's present business travel obligations;
(e) The failure by the Company, without Executive's consent, to pay
to him any portion of his current compensation, except pursuant to a
compensation deferral elected by the Executive, or to pay to Executive any
portion of an installment of deferred compensation under
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<PAGE> 9
any deferred compensation program of the Company within thirty days of the date
such compensation is due;
(f) Except as permitted by this Agreement, the failure by the Company
to continue in effect any compensation plan (or substitute or alternative plan)
in which Executive is entitled to participate under Section 4 hereof which is
material to Executive's total compensation, including, but not limited to, the
Company's annual bonus plan and equity incentive plan, or the failure by the
Company to continue Executive's participation therein on a basis that is
materially as favorable both in terms of the amount of benefits provided and
the level of Executive's participation relative to other participants at
Executive's grade level;
(g) The failure by the Company to continue to provide Executive with
benefits substantially similar to those enjoyed by him under the Company's
pension and deferred compensation plans, if any, except as required by law, and
the life insurance, medical, health and accident, and disability plans in which
Executive is entitled to participate under Section 4 hereof, or the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive Executive of any material fringe benefit
enjoyed by Executive pursuant to Section 4 hereof, or the failure by the
Company to provide Executive with the number of paid vacation days to which
Executive is entitled; or
(h) The failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 19 hereof.
(i) The failure of the Company to amend or to maintain, as the case
may be, its Bylaws within 90 days of the Effective Date to provide as follows,
or any failure of the Company or the Board to comply with such Bylaw
provisions:
(1) The Company's Board of Directors will create two new
committees of the Board consisting of up to three non-management
directors, as follows: (i) the Nominating and Governing Committee,
which will handle nominations for the Company's Board of Directors and
issues of corporate governance, including recommendations or changes
to the company Policy on Composition and Function of the Board; and
(ii) the Finance Committee, which will handle large capital
transactions, as further described in the Company's Board Policy;
(2) In connection with the election of the Company's members
of the Board of Directors at the next three annual shareholders
meetings (beginning in 1999), if a vacancy occurs due to resignation,
retirement, or performance, the Executive will recommend nominees to
stand for election, and the Nominating and Governing Committee will
not unreasonably refuse to accept Executive's recommendation(s). The
Executive's sole remedy in the event the committee does not accept his
recommendation will be to have Good Reason to terminate under his
employment agreement.
(3) The Executive will have the right to recommend the
members of the two new Committees and other Committees of the Board,
and if the Board unreasonably refuses to
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<PAGE> 10
accept his recommendations, the Executive's sole remedy will be to
have Good Reason to terminate his employment agreement.
(4) The Executive will have the right to name replacements
for up to three members of the Board of Directors who will be
resigning immediately after the Effective Date.
(j) The failure of the Company to adopt within 30 days after the
Effective Date amendments to the By-laws of the Company described in the draft
resolutions attached hereto as Exhibit B.
(k) The failure of the Board to establish, maintain, and enforce
Board policies reasonably acceptable to Executive.
Executive's right to terminate his employment pursuant to this
Agreement for Good Reason shall not be affected by Executive's incapacity due
to physical or mental illness. Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.
12. Excise Tax Reimbursement.
12.01 In the event it shall be determined that any payment or distribution by
the Company or any other person or entity to or for the Executive's benefit,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, or whether prior to or following the Covered
Termination in connection with, or arising out of, the Executive's employment
with the Company or a Reorganization Event (as such term is defined in the
Severance Agreement) of the Company (a "Payment") will be subject to the tax
(the "Excise Tax") imposed by section 4999 of the Code, the Company shall pay to
the Executive at the time specified in Section 13 below, an additional amount
(the "Gross-Up Payment") such that the net amount retained by the Executive,
after deduction of any Excise Tax on the Payments and any federal (and state and
local) income tax, employment tax and Excise Tax upon the payment provided for
by this paragraph, shall be equal to the amount of the Payments. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amount of such Excise Tax the following will apply:
(a) any payments or benefits received or to be received by the
Executive in connection with a Reorganization Event of the Company or his
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Reorganization Event of the Company or any person
affiliated with the Company or such person) shall be treated as "parachute
payments" within the meaning of section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of section 280G(b)(1) shall be treated
as subject to the Excise Tax, unless in the opinion of tax counsel selected by
the Company's independent auditors and acceptable to the Executive such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part) represent
reasonable
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compensation for services actually rendered within the meaning of section
280G(b)(4) of the Code in excess of the base amount within the meaning of
section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
and
(b) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in accordance
with proposed, temporary or final regulations under Sections 280G(d)(3) and (4)
of the Code or, in the absence of such regulations, in accordance with the
principles of Section 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed
to pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the Date of Termination, net
of the applicable reduction in federal income taxes which could be obtained
from deduction of such state and local taxes. In the event that the amount of
Excise Tax attributable to Payments is subsequently determined to be less than
the amount taken into account hereunder at the time of termination of the
Executive's employment, he shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined the portion of the
Gross-Up Payment attributable to such reduction (including the portion of the
Gross-Up Payment attributable to the Excise Tax, employment tax and federal
(and state and local) income tax imposed on the Gross-Up Payment being repaid
by the Executive if such repayment results in a reduction in Excise Tax and/or
a federal (and state and local) income tax deduction) plus interest on the
amount of such repayment at the rate provided in section 1274(b)(2) (B) of the
Code. In the event that the Excise Tax attributable to Payments is determined
to exceed the amount taken into account hereunder at the time of the
termination of the Executive's employment (including by reason of any payment
the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional gross-up payment in
respect of such excess (plus any interest and/or penalties payable by the
Executive with respect to such excess) at the time that the amount of such
excess is finally determined.
13. Method of Payment.
The payments provided for in Sections 6 and 12 hereof shall be made in
a cash lump-sum payment, net of any required tax withholding, upon the later of
(i) the fifth (5th) business day following the Date of Termination or (ii) the
expiration of the seven (7) day revocation period applicable under the release
of claims referred to in Section 14 hereof. Any payment required under Sections
6 and 12 or any other provision of this Agreement that is not made in a timely
manner shall bear interest at a rate equal to one-hundred twenty (120) percent
of the monthly compounded applicable federal rate, as in effect under Section
1274(d) of the Code for the month in which the payment is required to be made.
14. Release of Claims.
As conditions of Executive's entitlement to the severance payments and
benefits provided by Sections 6 and 12 this Agreement, the Executive shall be
required to execute after the covered
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<PAGE> 12
termination and honor the terms of a waiver and release of claims against the
Company substantially in the form attached hereto as Exhibit C (as may be
modified consistent with the purposes of such waiver and release to reflect
changes in law following the date hereof).
15. Executive Covenants.
15.01 General. The Executive and the Company understand and agree
that the purpose of the provisions of this Section 15 is to protect legitimate
business interests of the Company, as more fully described below, and is not
intended to impair or infringe upon the Executive's right to work, earn a
living, or acquire and possess property from the fruits of his labor. The
Executive hereby acknowledges that the post-employment restrictions set forth
in this Section 15 are reasonable and that they do not, and will not, unduly
impair his ability to earn a living after the termination of his employment
with the Company. Therefore, subject to the limitations of reasonableness
imposed by law upon restrictions set forth herein, the Executive shall be
subject to the restrictions set forth in this Section 15.
15.02 Definitions. The following capitalized terms used in this
Section 15 shall have the meanings assigned to them below, which definitions
shall apply to both the singular and the plural forms of such terms:
"Confidential Information" means any confidential or proprietary information
possessed by the Company without limitation, any confidential "know-how",
customer lists, details of client or consultant contracts, current and
anticipated customer requirements, pricing policies, price lists, market
studies, business plans, operational methods, marketing plans or strategies,
product development techniques or plans, computer software programs (including
object code and source code), data and documentation, data base technologies,
systems, structures and architectures, inventions and ideas, past, current and
planned research and development, compilations, devices, methods, techniques,
processes, financial information and data, business acquisition plans, new
personnel acquisition plans and any other information that would constitute a
trade secret under the common law or statutory law of the State of Delaware.
"Determination Date" means the date of termination of the Executive's
employment with the Company for any reason whatsoever or any earlier date
(during the Restricted Period) of an alleged breach of the Restrictive
Covenants by the Executive.
"Person" means any individual or any corporation, partnership, joint venture,
association or other entity or enterprise.
"Principal or Representative" means a principal, owner, partner, shareholder,
joint venturer, member, trustee, director, officer, manager, employee, agent,
representative or consultant.
"Protected Employees" means employees of the Company or its affiliated
companies who were employed by the Company or its affiliated companies at any
time within six (6) months prior to the Determination Date.
"Restricted Period" means the period of the Executive's employment by the
Company plus a period extending two (2) years from the date of termination of
employment.
"Restrictive Covenants" means the restrictive covenants contained in Section
15.03 hereof.
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15.03 Restrictive Covenants.
(a) Restriction on Disclosure and Use of Confidential Information. The
Executive understands and agrees that the Confidential Information constitutes
a valuable asset of the Company and its affiliated entities, and may not be
converted to the Executive's own use. Accordingly, the Executive hereby agrees
that the Executive shall not, directly or indirectly, at any time during the
Restricted Period reveal, divulge or disclose to any Person not expressly
authorized by the Company any Confidential Information, and the Executive shall
not, directly or indirectly, at any time during the Restricted Period use or
make use of any Confidential Information in connection with any business
activity other than that of the Company. The parties acknowledge and agree that
this Agreement is not intended to, and does not, alter either the Company's
rights or the Executive's obligations under any state or federal statutory or
common law regarding trade secrets and unfair trade practices.
(b) Nonsolicitation of Protected Employees. The Executive understands
and agrees that the relationship between the Company and each of its Protected
Employees constitutes a valuable asset of the Company and may not be converted
to the Executive's own use. Accordingly, the Executive hereby agrees that
during the Restricted Period the Executive shall not directly or indirectly on
the Executive's own behalf or as a Principal or Representative of any Person
solicit any Protected Employee to terminate his or her employment with the
Company.
(c) Noninterference with Company Opportunities. The Executive
understands and agrees that all hotel development opportunities with which he
is involved during his employment with the Company constitute valuable assets
of the Company and its affiliated entities, and may not be converted to the
Executive's own use. Accordingly, the Executive hereby agrees that during the
Restricted Period the Executive shall not directly or indirectly on the
Executive's own behalf or as a Principal or Representative of any Person,
interfere with, solicit, pursue, or in any way make use of any such hotel
development opportunities.
15.04 Exceptions from Disclosure Restrictions. Anything herein to
the contrary notwithstanding, the Executive shall not be restricted from
disclosing or using Confidential Information that: (a) is or becomes generally
available to the public other than as a result of an unauthorized disclosure by
the Executive or his agent; (b) becomes available to the Executive in a manner
that is not in contravention of applicable law from a source (other than the
Company or its affiliated entities or one of its or their officers, employees,
agents or representative) that is not known by the Executive bound by a
confidential relationship with the Company or its affiliated entities or by a
confidentiality or other similar agreement; (c) was known to the Executive on a
non-confidential basis and not in contravention of applicable law or a
confidentiality or other similar agreement before its disclosure to the
Executive by the Company or its affiliated entities or one of its or their
officers, employees, agents or representatives; or (d) is required to be
disclosed by law, court order or other legal process; provided, however, that
in the event disclosure is required by law, court order or legal process, the
Executive shall provide the Company with prompt notice of such requirement so
that the Company may seek an appropriate protective order prior to any such
required disclosure by the Executive.
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<PAGE> 14
15.05 Enforcement of the Restrictive Covenants.
(a) Rights and Remedies upon Breach. In the event the Executive
breaches, or threatens to commit a breach of, any of the provisions of the
Restrictive Covenants, the Company shall have the right and remedy to enjoin,
preliminarily and permanently, the Executive from violating or threatening to
violate the Restrictive Covenants and to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not provide an
adequate remedy to the Company. The rights referred to in the preceding
sentence shall be independent of any others and severally enforceable, and
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company at law or in equity.
(b) Severability of Covenants. The Executive acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in time and space and
in all other respects. If any court determines that any Restrictive Covenants,
or any part thereof, is invalid or unenforceable, the remainder of the
Restrictive Covenants shall not thereby be affected and shall be given full
effect, without regard to the invalid portions.
16. Cooperation in Future Matters.
The Executive hereby agrees that, for a period of three (3) years following his
Date of Termination, he shall cooperate with the Company's reasonable requests
relating to matters that pertain to the Executive's employment by the Company,
including, without limitation, providing information or limited consultation as
to such matters, participating in legal proceedings, investigations or audits
on behalf of the Company, or otherwise making himself reasonably available to
the Company for other related purposes. Any such cooperation shall be performed
at times scheduled taking into consideration the Executive's other commitments,
and the Executive shall be compensated at a reasonable hourly or per diem rate
to be agreed by the parties to the extent such cooperation is required on more
than an occasional and limited basis. The Executive shall also be reimbursed
for all reasonable out of pocket expenses. The Executive shall not be required
to perform such cooperation to the extent it conflicts with any requirements of
exclusivity of service for another employer or otherwise, nor in any manner
that in the good faith belief of the Executive would conflict with his rights
under or ability to enforce this Agreement.
17. Indemnification.
(a) Following the date of termination, the Company agrees that it
will, indemnify and hold harmless the Executive, against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the date of termination, whether asserted
or claimed prior to, at or after the date of termination, to the fullest extent
that the Company would have been permitted under Delaware law and its
certificate of incorporation or bylaws in effect on the date hereof to
indemnify the
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<PAGE> 15
Executive (and the Company shall also advance expenses as incurred to the
fullest extent permitted under applicable law, provided the Executive provides
an undertaking to repay advances if it is ultimately determined that the
Executive is not entitled to indemnification).
(b) For a period of six years after the date of termination, the
Company shall maintain (to the extent available in the market) in effect a
director's and officer's liability insurance policy with coverage in amount and
scope at least as favorable as the Company's existing coverage on the date of
termination; provided that in no event shall the Company be required to expend
in the aggregate in excess of 200% of the annual premium paid by the Company
for such coverage as of the date of termination; and if such premium would at
any time exceed 200% of the such amount, then the Company shall maintain
insurance policies which provide the maximum and best coverage available at an
annual premium equal to 200% of such amount.
(c) The provisions of this Section 17 are intended to be an addition
to the rights otherwise available to the Executive by law, charter, statute,
bylaw or separate agreement between the Company and the Executive. The Company
shall continue to honor any indemnification agreement between the Company and
any predecessor of the Company and the Executive entered into prior to the date
of termination in accordance with the terms thereof.
18. Binding Arbitration and Legal Fees.
18.01 Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction. Each
party shall bear its own costs and expenses.
19. Assumption of Agreement on Merger, Consolidation or Sale of Assets.
The Company agrees that, until the termination of this Agreement as
above provided, it will not enter into any merger or consolidation with another
company in which the Company is not the surviving company, or sell or dispose
of all or substantially all of its assets, unless the company which is to
survive such merger or consolidation or the prospective purchaser of such
assets first makes a written agreement with the Executive either (1) assuming
the Company's financial obligations to the Executive under this Agreement, or
(2) making such other provision for the Executive as is satisfactory to the
Executive and approved by him in writing in lieu of assuming the Company's
financial obligations to him under this Agreement.
20. Assurances on Liquidation.
The Company agrees that, until the termination of this Agreement as
above provided, it will not voluntarily liquidate or dissolve without first
making a full settlement, or, at the discretion of the Executive, a written
agreement with the Executive satisfactory to and approved by him in writing, in
fulfillment of or in lieu of its obligations to him under this Agreement.
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21. Amendments.
This Agreement may not be amended or modified orally, and no provision
hereof may be waived, except in a writing signed by the parties hereto.
22. Assignment.
22.01 Except as otherwise provided in paragraph 21.02, this
Agreement cannot be assigned by either party hereto except with the written
consent of the other. Any assignment of this Agreement by either party hereto
shall not relieve such party of its or his obligations hereunder.
22.02 The Company may elect to perform any or all of its
obligations under this Agreement through a wholly-owned subsidiary or other
subsidiary, and if the Company so elects, Executive will be an employee of such
wholly-owned subsidiary, or such other subsidiary. Notwithstanding any such
election, the Company's obligations to Executive under this Agreement will
continue in full force and effect as obligations of the Company, and the
Company shall retain primary liability for their performance.
23. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
personal representatives and successors in interest of the Company.
24. Choice of Law.
This Agreement shall be governed by the law of the State of Tennessee
as to all matters, including, but not limited to, matters of validity,
construction, effect and performance.
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25. Severability of Provisions.
In case any one or more of the provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby, and this Agreement shall be
interpreted as if such invalid, illegal or unenforceable provision were not
contained herein.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name and on its behalf
and its corporate seal to be hereunto affixed and attested by its corporate
officers thereunto duly authorized.
EXECUTIVE
/s/ Norman P. Blake, Jr.
- - ------------------------------------
Norman P. Blake, Jr.
PROMUS HOTEL CORPORATION
By: /s/
---------------------------------
ATTEST: /s/
-----------------------------
Secretary
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<PAGE> 18
EXHIBIT C
RELEASE OF CLAIMS AND COVENANT NOT TO SUE
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE (this "Agreement") is
executed and delivered by ________________________ (the "Executive") to
_______________________ (the "Company").
In consideration of the agreement by the Company to make the payments in
Section 6 and 12 enter into the Employment Agreement between the Executive and
the Company dated December __, 1998 (the "Employment Agreement"), the Executive
hereby agrees as follows:
Section 1. Release and Covenant. Executive, of his own free will, voluntarily
releases and forever discharges the Company, its subsidiaries, affiliates,
their officers, employees, agents, stockholders, successors and assigns (both
individually and in their official capacities with the Company) from, and
covenants not to sue or proceed against any of the foregoing on the basis of,
any and all past or present causes of action, suits, agreements or other claims
which Executive, his dependents, relatives, heirs, executors, administrators,
successors and assigns has or have against the Company upon or by reason of any
matter arising out of his employment by the Company and the cessation of said
employment, and including, but not limited to, any alleged violation of the
Civil Rights Acts of 1964 and 1991, the Equal Pay Act of 1963, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Older Workers Benefit Protection Act of 1990, the Family and Medical Leave Act
of 1993, the Americans with Disabilities Act of 1990, and any other federal or
state law, regulation or ordinance, or public policy, contract or tort law,
having any bearing whatsoever on the terms and conditions or cessation of his
employment with the Company. This release shall not, however, constitute a
waiver of any of the Executive's rights upon termination of employment under
(i) the Employment Agreement, (ii) any indemnification agreement or other
rights to indemnification or insurance referred to in Section 16 of the
Employment Agreement, (iii) any severance agreement between the Executive and
the Company or any affiliate or (iv) the terms of any employee benefit plan of
the Company or any affiliate in which the Executive is participating.
Section 2. Due Care. Executive acknowledges that he has received a copy of this
Agreement prior to its execution and has been advised hereby of his opportunity
to review and consider this Agreement for twenty-one (21) days prior to its
execution. Executive further acknowledges that he has been advised hereby to
consult with an attorney prior to executing this Agreement. Executive enters
into this Agreement having freely and knowingly elected, after due
consideration, to execute this Agreement and to fulfill the promises set forth
herein. This Agreement shall be revocable by Executive during the 7-day period
following its execution, and shall not become effective or enforceable until
the expiration of such 7-day period. In the event of such a revocation,
Executive shall not be entitled to the consideration for this Agreement set
forth above.
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Section 3. Reliance by Executive. Executive acknowledges that, in his decision
to enter into this Agreement, he has not relied on any representations,
promises or arrangement of any kind, including oral statements by
representatives of the Company, except as set forth in this Agreement.
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE is executed by Executive and
delivered to the Company on __________________________.
EXECUTIVE
- - ------------------------------------
Name:
[Not to be signed upon execution of Employment Agreement]
2
<PAGE> 1
EXHIBIT 10.13
<PAGE> 2
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") is made as of this 13th day
of January, 1999, between PROMUS HOTEL CORPORATION (the "Company") and Norman P.
Blake, Jr. (the "Executive").
RECITALS
WHEREAS, the Company considers it essential to the best interest of its
stockholders to foster the continuous employment of key management personnel,
and believes that the possibility of a reorganization event of the Company and
the uncertainty and questions which it may raise among management may result in
the departure or distraction of management personnel to the detriment of the
Company and its stockholders; and
WHEREAS, the Board of Directors has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a reorganization event of the
Company;
NOW, THEREFORE, in consideration of the mutual premises set forth below
and for other good and valuable consideration, in order to induce the Executive
to remain in the employ of the Company, the Company agrees that the Executive
shall receive the severance benefits set forth in this agreement (this
"Agreement") in the event his employment with the Company terminates subsequent
to a "Reorganization Event" of the Company under the circumstances described
below.
AGREEMENT
1. DEFINITIONS
The following terms used in this Agreement shall have the meanings
given below:
(a) "Annual Base Salary" shall mean the Executive's gross
annual salary before any deductions, exclusions or any deferrals or
contributions under any Company plan or program, but excluding bonuses,
incentive compensation, employee benefits or any other nonsalary form of
compensation (determined without regard to any reduction in Annual Base Salary
that occurs after the consummation of a Reorganization Event).
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Bonus Amount" shall mean the greater of (i) the dollar
amount of the annual bonus that would be payable to the Executive under the
Company's annual bonus plan applicable to the Executive, assuming payment at the
target level for the Executive's then current salary grade level for the
then-current full fiscal year (determined without regard to any reduction in
target bonus percentage that results in "Good Reason" termination), or (ii) the
dollar amount of
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<PAGE> 3
the bonus paid or payable to the Executive under the Company's annual bonus plan
for the most recently completed fiscal year under such plan. Notwithstanding the
foregoing, if the Executive is a participant in the Company's Development Bonus
Plan (or any successor plan), the "Bonus Amount" shall mean the greater of (i)
the dollar amount of the annual bonus that would be payable at the Executive's
then current grade level under the Company's Annual Management Bonus Plan (as
opposed to the Development Bonus Plan), or (ii) the dollar amount of the bonus
actually paid to the Executive during the most recently completed fiscal year
under the Company's Development Bonus Plan, subject to a maximum amount equal to
the target bonus under the Company's, Annual Management Bonus Plan at the
Executive's salary grade level for such plan year.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Company" shall mean Promus Hotel Corporation, or any
successor corporation that assumes this Agreement under Section 14 hereof or
otherwise becomes bound by this Agreement.
(f) "Covered Termination" shall have the meaning given in
Section 3 hereof.
(g) "Date of Termination" shall mean the effective date of the
Executive's Covered Termination pursuant to Section 3 hereof.
(h) "Disability " shall mean the absence of the Executive from
the full-time performance of his duties with the Company for six consecutive
months as a result of incapacity due to physical or mental illness, provided the
Company has given 30-day advance written notice to the Executive and he has not
returned to the full-time performance of his duties.
(i) "Reorganization Event" shall mean the occurrence of any of
the following after the date hereof:
(i) any "person" (as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than an employee benefit plan of the Company, or a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 25% or more of the Company's then
outstanding voting securities carrying the right to vote in elections of persons
to the Board, regardless of comparative voting power of such voting securities,
and regardless of whether or not the Board shall have approved such
Reorganization Event; or
(ii) during any period of two (2) consecutive years
(not including any period prior to the execution of this Agreement), individuals
who at the beginning of such period constitute the Board (the "Incumbent Board")
and any other new director (other than a director designated by a person who
shall have entered into an agreement with the Company to effect a transaction
described in clauses (i) or (iii) of this subsection) whose election by the
Board or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the
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<PAGE> 4
period or whose election or nomination for election was previously so approved
(each such new director being considered a member of the "Incumbent Board"),
cease for any reason to constitute a majority thereof; or
(iii) the holders of securities of the Company
entitled to vote thereon approve of the following:
(A) a merger or consolidation of the Company with
any other corporation regardless of which entity is the surviving company, other
than a merger or consolidation which would result in the voting securities of
the Company carrying the right to vote in elections of persons to the board
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66 2/3% of the Company's then-outstanding voting
securities carrying the right to vote in elections of persons to the board or
such securities of such surviving entity outstanding immediately after such
merger or consolidation, or
(B) a plan of complete liquidation of the Company or
an agreement for the sale or disposition by the Company of all or substantially
all of the Company's assets.
Notwithstanding the definition of "Reorganization Event" of the Company
as set forth in this Agreement, the Board shall have fall and final authority,
which shall be exercised in its discretion, to determine conclusively whether a
Reorganization Event of the Company has occurred, and the date of the occurrence
of such Reorganization Event and any incidental matters relating thereto, with
respect to a transaction or series of transactions which have resulted or will
result in a substantial portion of the assets or business of the Company (as
determined immediately prior to the transaction or series of transactions by the
Board in its sole discretion which determination shall be final and conclusive)
being held by a corporation at least 66 2/3% of whose voting securities are
held, immediately following such transaction or series of transactions, by
holders of the voting securities of the Company (determined immediately prior to
such transaction or series of transactions). The Board may exercise such
discretionary authority without regard to whether one or more of the
transactions in such series of transactions would otherwise constitute a
Reorganization Event of the Company under the definition set forth in this
Agreement. It is hereby understood and agreed that the consummation of the
business combination ("the Merger") contemplated by the Agreement and Plan of
Merger dated as of September 1, 1997 among Doubletree Corporation, the Company
and Parent Holding Corp. shall not constitute a Reorganization Event for
purposes of this Agreement.
2. TERM OF AGREEMENT
This Agreement shall commence on the date first written above and shall
continue in effect though December 31, 1998; provided, however, that commencing
on January 1, 1999 and each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Company shall have given notice that it
does not wish to extend this Agreement. Notwithstanding the foregoing, no notice
of non-renewal given by the Board shall be effective with respect to a
particular Reorganization Event if given after the occurrence of the following
events: (i) the Company
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<PAGE> 5
enters into an agreement or letter of intent, the consummation of which would
result in such Reorganization Event, (ii) any "person" makes a public
announcement of its intention to take or consider taking actions that would
result in such Reorganization Event, or (iii) any "person" (as defined above)
initiates a tender offer which, if consummated, would result in such
Reorganization Event (it being understood that this sentence shall not apply
with respect to any unrelated Reorganization Event). If a Reorganization Event
of the Company shall have occurred during the original or extended term of this
Agreement, the term of this Agreement shall continue in force and effect until
the satisfaction of all of the Company's obligations to the Executive as
provided hereunder.
3. COVERED TERMINATION
(a) General. The Executive shall be treated as having incurred
a "Covered Termination" hereunder if the Company terminates his employment other
than for cause, or if the Executive gives notice of voluntary termination,
within the "Coverage Period" defined below. The Executive shall not be treated
as having incurred a Covered Termination if his employment is terminated as a
result of death or Disability. For purposes hereof, the Coverage Period shall be
a period of two (2) years following the consummation of a Reorganization Event.
(b) Termination for Cause. Termination by the Company of the
Executive's employment for "Cause" shall mean termination as a result of:
(i) the Executive engaging in willful gross neglect of
his duties with the Company, or the Executive's fraud or dishonesty in
connection with his performance of duties to the Company, in either case which
has a materially detrimental effect on the business or operations of the
Company; or
(ii) the Executive's conviction by a court of competent
jurisdiction of any crime (or upon entering a plea of guilty or nolo contendere
to a charge of any crime) constituting a felony.
The Date of Termination for a termination for Cause shall be the date
specified by the Company.
(c) Termination by Executive. The Executive may give notice of
his intent to terminate his employment for any reason during the Coverage Period
and it shall be treated as a Covered Termination hereunder. The Executive shall
provide the Company with 30-days advance written notice, and the Date of
Termination shall be the expiration of such 30-day period.
4. SEVERANCE PAYMENT
The amount of the severance payment to be paid to the Executive upon
Covered Termination shall be the amount determined by multiplying 3.00 times the
sum of:
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(a) the Executive's Annual Base Salary as in effect
immediately prior to the Date of Termination; plus,
(b) the Executive's Bonus Amount applicable for the
fiscal year in which the Date of Termination occurs; plus,
(c) a benefit allowance of 25% of the Executive's Annual
Base Salary as in effect immediately prior to the Date of Termination.
5. OTHER SEVERANCE BENEFITS
In addition to the severance payment provided under Section 4 hereof,
the Executive shall be entitled to the following benefits and other rights in
the event of his Covered Termination:
(a) Accrued Rights. The Executive shall be entitled to
the following payments and benefits in respect of accrued compensation rights
upon a Covered Termination, in addition to other rights provided under this
Agreement:
(i) payment of any accrued but unpaid Annual Base
Salary through the Date of Termination and payment of any annual bonus (for any
completed fiscal year) that is awarded subsequent to the Date of Termination by
the Company in its sole discretion under the terms of the annual bonus plan then
in effect.
(ii) payment of a pro-rata portion of the Bonus
Amount for the fiscal year of the Company in which the Covered Termination
occurs, based on the number of days of such year prior to the Date of
Termination;
(iii) all benefits and rights accrued under the
employee benefit plans, fringe benefits programs and payroll practices of the
Company in accordance with their terms (including, without limitations, employee
pension, employee welfare, incentive bonus, stock incentive plans, and any
accrued vacation or sick pay time); and
(iv) a payment equal to the forfeited portion of the
Executive's account balance under the Company's tax qualified deferred
compensation plan as a result of failure to satisfy vesting requirements due to
a Covered Termination.
(b) Outplacement Services. Upon the occurrence of a
Covered Termination, the Executive shall be provided, at the Company's sole
expense, with professional outplacement services consistent with the Executive's
duties or profession and of a type and level customary for persons in his
position, as selected by the Company, subject to reasonable limitations
established by the Company on a uniform basis for similarly situated executives
as to duration and dollar amounts.
(c) Employment Agreement. In the event that the
Executive's Covered Termination also constitutes a termination without "cause"
or for "good reason" under the employment agreement between Executive and Promus
Hotel Corporation dated December 3,
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<PAGE> 7
1998 (the "Employment Agreement"), the Executive shall receive the payments and
benefits under this agreement in lieu of the payments and benefits under
Employment Agreement; provided, however, Executive shall also be entitled to the
post-termination option provisions and medical benefits described in Sections
4(e),(f), and 5, respectively, of the Employment Agreement.
6. EXCISE TAX REIMBURSEMENT
In the event it shall be determined that any payment or distribution by
the Company or any other person or entity to or for the Executive's benefit,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, or whether prior to or following the Covered
Termination in connection with, or arising out of, the Executive's employment
with the Company or a Reorganization Event of the Company (a "Payment") will be
subject to the tax (the "Excise Tax") imposed by section 4999 of the Code, the
Company shall pay to the Executive at the time specified in Section 7 hereof, an
additional amount (the "Gross Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Payments and any federal
(and state and local) income tax, employment tax, and Excise Tax upon the
payment provided for by this paragraph, shall be equal to the amount of the
Payments. For purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax the following will
apply:
(a) any payments or benefits received or to be received
by the Executive in connection with a Reorganization Event of the Company or his
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Reorganization Event of the Company or any person affiliated
with the Company or such person) shall be treated as "parachute payments" within
the meaning of section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to the Executive such other
payments or benefits (in whole or in part) do not constitute parachute payments,
or such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of section
280G(b)(4) of the Code in excess of the base amount within the meaning of
section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
and
(b) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors in
accordance with proposed, temporary or final regulations under Sections
280G(d)(3) and (4) of the Code or, in the absence of such regulations, in
accordance with the principles of Section 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the Date of Termination, net
of the applicable reduction in federal income taxes which could be obtained from
deduction of such state and local taxes. In the event that the amount of Excise
Tax
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<PAGE> 8
attributable to Payments is subsequently determined to be less than the amount
taken into account hereunder at the time of termination of the Executive's
employment, he shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (including the portion of the Gross-Up
Payment attributable to the Excise Tax, employment tax and federal (and state
and local) income tax imposed on the Gross-Up Payment being repaid by the
Executive if such repayment results in a reduction in Excise Tax and/or a
federal (and state and local) income tax deduction) plus interest on the amount
of such repayment at the rate provided in section 1274(b)(2) (B) of the Code. In
the event that the Excise Tax attributable to Payments is determined to exceed
the amount taken into account hereunder at the time of the termination of the
Executive's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such excess
(plus any interest and/or penalties payable by the Executive with respect to
such excess) at the time that the amount of such excess is finally determined.
7. METHOD OF PAYMENT
The payments provided for in Sections 4, 5 and 6 hereof shall be made
in a cash lump sum payment, net of any required tax withholding, upon the later
of (i) the fifth (5th) business day following the Date of Termination or (ii)
the expiration of the seven (7) day revocation period applicable under the
release of claims referred to in Section 10 hereof; provided, however, that if
the amounts of such payments cannot be finally determined on or before such day,
the Company shall pay on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments. Any payment required under
Sections 4, 5 or 6 or any other provision of this Agreement that is not made in
a timely manner shall bear interest at a rate equal to one-hundred twenty (120)
percent of the monthly compounded applicable federal rate, as in effect under
Section 1274(d) of the Code for the month in which the payment is required to be
made. In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company payable on the fifth day after demand by the Company with interest
at the rate provided under Section 1274(d) of the Code until paid.
8. RELOCATION EXPENSES
The Executive shall be entitled to a reimbursement payment from the
Company equal to his reasonable moving expenses (determined in accordance with
Company's relocation policy) incurred in connection with the Executive's written
acceptance of a position with the Company requiring his relocation to a
metropolitan area, other than the metropolitan area where his office is located
at the time of the Reorganization Event of the Company. The Company shall pay
the Executive an additional payment in an amount such that the net amount
retained by the Executive after deduction for any federal, state, and local
income tax, employment tax and any excise tax on the reimbursement payment shall
equal the amount of the reimbursement payment.
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<PAGE> 9
9. NO MITIGATION OR OFFSET
The Executive shall not be required to mitigate the amount of any
severance payment or benefit provided under this Agreement by seeking other
employment or otherwise. The amount of any payment or benefit to which the
Executive becomes entitled hereunder shall not be reduced by any compensation
earned by the Executive as the result of employment by another employer, by
retirement benefits, nor by offset against any amount claimed to be owed to the
Company by reason of a claimed breach by the Executive of his obligations under
Sections 11 or 12 hereof or otherwise.
10. RELEASE OF CLAIMS
As conditions of Executive's entitlement to the severance payments and
benefits provided by this Agreement, the Executive shall be required to execute
and honor the terms of a waiver and release of claims against the Company
substantially in the form attached hereto as Exhibit A (as may be modified
consistent with the purposes of such waiver and release to reflect changes in
law following the date hereof).
11. RESTRICTION ON CONDUCT OF EXECUTIVE
(a) General. The Executive and the Company understand and
agree that the purpose of the provisions of this Section 11 is to protect
legitimate business interests of the Company, as more fully described below, and
is not intended to impair or infringe upon the Executive's right to work, earn a
living, or acquire and possess property from the fruits of his labor. The
Executive hereby acknowledges that the post-employment restrictions set forth in
this Section 11 are reasonable and that they do not, and will not, unduly impair
his ability to earn a living after the termination of his employment with the
Company. Therefore, subject to the limitations of reasonableness imposed by law
upon restrictions set forth herein, the Executive shall be subject to the
restrictions set forth in this Section 11.
(b) Definitions. The following capitalized terms used in
this Section 11 shall have the meanings assigned to them below, which
definitions shall apply to both the singular and the plural forms of such terms:
"Confidential Information" means any confidential or proprietary
information possessed by the Company without limitation, any confidential
"know-how", customer lists, details of client or consultant contracts, current
and anticipated customer requirements, pricing policies, price lists, market
studies, business plans, operational methods, marketing plans or strategies,
product development techniques or plans, computer software programs (including
object code and source code), data and documentation, data base technologies,
systems, structures and architectures, inventions and ideas, past, current and
planned research and development, compilations, devices, methods, techniques,
processes, financial information and data, business acquisition plans, new
personnel acquisition plans and any other information that would constitute a
trade secret under the common law or statutory law of the State of Delaware.
8
<PAGE> 10
"Determination Date" means the date of termination of the Executive's
employment with the Company for any reason whatsoever or any earlier date
(during the Restricted Period) of an alleged breach of the Restrictive Covenants
by the Executive.
"Person" means any individual or any corporation, partnership, joint
venture, association or other entity or enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, member, trustee, director, officer, manager,
employee, agent, representative or consultant.
"Protected Employees" means employees of the Company or its
affiliated companies who were employed by the Company or its affiliated
companies at any time within six (6) months prior to the Determination Date.
"Restricted Period" means the period of the Executive's employment
with the Company plus a period extending two (2) years from the date of
termination of employment.
"Restrictive Covenants" means the restrictive covenants contained in
Section 11 (c) hereof.
(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information. The Executive understands and agrees that the Confidential
Information constitutes a valuable asset of the Company and its affiliated
entities, and may not be converted to the Executive's own use. Accordingly, the
Executive hereby agrees that the Executive shall not, directly or indirectly, at
any time during the Restricted Period reveal, divulge or disclose to any Person
not expressly authorized by the Company any Confidential Information, and the
Executive shall not, directly or indirectly, at any time during the Restricted
Period use or make use of any Confidential Information in connection with any
business activity other than that of the Company. The parties acknowledge and
agree that this Agreement is not intended to, and does not, alter either the
Company's rights or the Executive's obligations under any state or federal
statutory or common law regarding trade secrets and unfair trade practices.
(ii) Nonsolicitation of Protected Employees. The
Executive understands and agrees that the relationship between the Company and
each of its Protected Employees constitutes a valuable asset of the Company and
may not be converted to the Executive's own use. Accordingly, the Executive
hereby agrees that during the Restricted Period the Executive shall not directly
or indirectly on the Executive's own behalf or as a Principal or Representative
of any Person solicit any Protected Employee to terminate his or her employment
with the Company.
(iii) Noninterference with Company Opportunities.
The Executive understands and agrees that all hotel development opportunities
with which he is involved during his employment with the Company constitute
valuable assets of the Company and its affiliated
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<PAGE> 11
entities, and may not be converted to Executive's own use. Accordingly, the
Executive hereby agrees that during the Restricted Period the Executive shall
not directly or indirectly on the Executive's own behalf or as a Principal or
Representative of any Person, interfere with, solicit, pursue, or in any way
make use of any such hotel development opportunities.
(d) Exceptions from Disclosure Restrictions. Anything herein
to the contrary notwithstanding, the Executive shall not be restricted from
disclosing or using Confidential Information that: (i) is or becomes generally
available to the public other than as a result of an unauthorized disclosure by
the Executive or his agent; (ii) becomes available to the Executive in a manner
that is not in contravention of applicable law from a source (other than the
Company or its affiliated entities or one of its or their officers, employees,
agents or representative) that is not bound by a confidential relationship with
the Company or its affiliated entities or by a confidentiality or other similar
agreement; (iii) was known to the Executive on a non-confidential basis and not
in contravention of applicable law or a confidentiality or other similar
agreement before its disclosure to the Executive by the Company or its
affiliated entities or one of its or their officers, employees, agents or
representatives; or (iv) is required to be disclosed by law, court order or
other legal process; provided, however, that in the event disclosure is required
by law, the Executive shall provide the Company with prompt notice of such
requirement so that the Company may seek an appropriate protective order prior
to any such required disclosure by the Executive.
(e) Enforcement of the Restrictive Covenants.
(i) Rights and Remedies upon Breach. In the event the
Executive breaches, or threatens to commit a breach of, any of the provisions of
the Restrictive Covenants, the Company shall have the right and remedy to
enjoin, preliminarily and permanently, the Executive from violating or
threatening to violate the Restrictive Covenants and to have the Restrictive
Covenants specifically enforced by any court of competent jurisdiction, it being
agreed that any breach or threatened breach of the Restrictive Covenants would
cause irreparable injury to the Company and that money damages would not provide
an adequate remedy to the Company. The rights referred to in the preceding
sentence shall be independent of any others and severally enforceable, and shall
be in addition to, and not in lieu of, any other rights and remedies available
to the Company at law or in equity.
(ii) Severability of Covenants. The Executive
acknowledges and agrees that the Restrictive Covenants are reasonable and valid
in time and space and in all other respects. If any court determines that any
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.
12. COOPERATION IN FUTURE MATTERS
The Executive hereby agrees that, for a period of three (3) years
following his Date of Termination, he shall cooperate with the Company's
reasonable requests relating to matters that pertain to the Executive's
employment by the Company, including, without limitation, providing
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<PAGE> 12
information or limited consultation as to such matters, participating in legal
proceedings, investigations or audits on behalf of the Company, or otherwise
making himself reasonably available to the Company for other related purposes.
Any such cooperation shall be performed at times scheduled taking into
consideration the Executive's other commitments, and the Executive shall be
compensated at a reasonable hourly or per them rate to be agreed by the parties
to the extent such cooperation is required on more than an occasional and
limited basis. The Executive shall not be required to perform such cooperation
to the extent it conflicts with any requirements of exclusivity of service for
another employer or otherwise, nor in any manner that in the good faith belief
of the Executive would conflict with his rights under or ability to enforce this
Agreement.
13. INDEMNIFICATION
(a) Following the Date of Termination, the Company agrees that
it will, indemnify and hold harmless the Executive, against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Date of Termination, whether asserted
or claimed prior to, at or after the Date of Termination, to the fullest extent
that the Company would have been permitted under Delaware law and its
certificate of incorporation or bylaws in effect on the date hereof to indemnify
the Executive (and the Company shall also advance expenses as incurred to the
fullest extent permitted under applicable law, provided the Executive provides
an undertaking to repay advances if it is ultimately determined that the
Executive is not entitled to indemnification).
(b) For a period of six years after the Date of Termination,
the Company shall maintain (to the extent available in the market) in effect a
director's and officer's liability insurance policy covering with coverage in
amount and scope at least as favorable as the Company's existing coverage on the
Date of Termination; provided that in no event shall the Company be required to
expend in the aggregate in excess of 200% of the annual premium paid by the
Company for such coverage as of the Date of Termination; and if such premium
would at any time exceed 200% of the such amount, then the Company shall
maintain insurance policies which provide the maximum and best coverage
available at an annual premium equal to 200% of such amount.
(c) The provisions of this Section 13 are intended to be an
addition to the rights otherwise available to the Executive by law, charter,
statute, bylaw or separate agreement between the Company and the Executive. The
Company shall continue to honor any indemnification agreement between the
Company and the Executive entered into prior to the Date of Termination in
accordance with the terms thereof.
14. SUCCESSORS, BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same
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<PAGE> 13
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive to compensation
from the Company in the same amount as a Covered Termination following a
Reorganization Event of the Company, except that for purposes of implementing
the foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall mean
the Company as herein before defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees. If the
Executive should die while any amount remains payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee or other designee
or, if there is no such designee, to the Executive's estate.
15. NOTICE
Any notice required or permitted to be given by this Agreement shall be
effective only if in writing, delivered personally against receipt therefor or
mailed by certified or registered mail, return receipt requested, to the parties
at the addresses hereinafter set forth, or at such other places that either
party may designate by notice to the other.
Notice to the Company shall be addressed to:
Promus Hotel Corporation
755 Crossover Lane
Memphis, Tennessee 38117
Attention: General Counsel
Notice to the Executive shall be addressed to him at the business
address of the Company where the Executive is employed, with a copy to him at
his home address reflected on the Company's personnel records.
All such notices shall be deemed effectively given five (5) days after
the same has been deposited in a post box under the exclusive control of the
United States Postal Service.
16. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent
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<PAGE> 14
time. No agreement or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
17. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Memphis, Tennessee
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
19. PAYMENT OF LEGAL FEES
The Company shall pay all reasonable legal fees and expenses incurred
by the Executive in connection with any arbitration (or other proceeding whether
or not instituted by the Company or the Executive), relating to the
interpretation or enforcement of any provision of this Agreement (including any
action seeking to obtain or enforce any right or benefit provided by this
Agreement) or in connection with any tax audit or proceeding relating to the
application of Section 4999 of the Code to any payment or benefit provided by
the Company.
20. NO RESTRICTIONS ON EMPLOYMENT RIGHTS
Nothing in this Agreement shall confer on the Executive any right to
continue in the employ of the Company or shall interfere with or restrict in any
way the rights of the Company, which are hereby expressly reserved, to discharge
the Executive at any time for any reason whatsoever, with or without Cause,
subject to the requirements of this Agreement. Nothing in this Agreement shall
restrict the right of the Executive to terminate his employment with the Company
at any time for any reason whatsoever.
21. HOSTILE TRANSACTION PROVISION
Notwithstanding anything elsewhere in this Agreement to the
contrary:
(a) In the event of consummation of a Hostile Transaction, the
provisions of Section 11 hereof and Section 12 hereof shall not be applicable
to the Executive.
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<PAGE> 15
(b) For purposes, hereof, a "Hostile Transaction" shall be any
Reorganization Event which has, at any time prior to the consummation thereof,
been designated such by a resolution of the incumbent Board.
IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
PROMUS HOTEL CORPORATION
/s/ Ralph B. Lake
------------------------------------------------
Name: Ralph B. Lake
Title: Executive Vice President
EXECUTIVE
/S/ Norman P. Blake, Jr.
-----------------------------------------------
Name: Norman P. Blake, Jr.
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<PAGE> 16
EXHIBIT A
RELEASE OF CLAIMS AND COVENANT NOT TO SUE
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE (this "Agreement") is
executed and delivered by _____________ (the "Executive") to Promus Hotel
Corporation (the
"Company").
In consideration of the agreement by the Company to enter into the
Severance Agreement between the Executive and the Company dated ___________
(the "Severance Agreement"), the Executive hereby agrees as follows:
Section 1. Release and Covenant. Executive, of his own free will,
voluntarily releases and forever discharges the Company, its subsidiaries,
affiliates, their officers, employees, agents, stockholders, successors and
assigns (both individually and in their official capacities with the Company)
from, and covenants not to sue or proceed against any of the foregoing on the
basis of, any and all past or present causes of action, suits, agreements or
other claims which Executive, his dependents, relatives, heirs, executors,
administrators, successors and assigns has or have against the Company upon or
by reason of any matter arising out of his employment by the Company and the
cessation of said employment, and including, but not limited to, any alleged
violation of the Civil Rights Acts of 1964 and 1991, the Equal Pay Act of 1963,
the Age Discrimination in Employment Act of 1967, the Rehabilitation Act of
1973, the Older Workers Benefit Protection Act of 1990, the Family and Medical
Leave Act of 1993, the Americans with Disabilities Act of 1990, and any other
federal or state law, regulation or ordinance, or public policy, contract or
tort law, having any bearing whatsoever on the terms and conditions or cessation
of his employment with the Company. This release shall not, however, constitute
a waiver of any of the Executive's rights upon termination of employment under
(i) the Severance Agreement, (ii) any indemnification agreement referred to in
Section 13 of the Severance Agreement, (iii) any employment agreement between
the Executive and the Company or any affiliate, or (iv) the terms of any
employee benefit plan of the Company or any affiliate in which the Executive is
participating.
Section 2. Due Care. Executive acknowledges that he has received a
copy of this Agreement prior to its execution and has been advised hereby of his
opportunity to review and consider this Agreement for twenty-one (21) days prior
to its execution. Executive further acknowledges that he has been advised hereby
to consult with an attorney prior to executing this Agreement. Executive enters
into this Agreement having freely and knowingly elected, after due
consideration, to execute this Agreement and to fulfill the promises set forth
herein. This Agreement shall be revocable by Executive during the 7-day period
following its execution, and shall not become effective or enforceable until the
expiration of such 7-day period. In the event of such a revocation, Executive
shall not be entitled to the consideration for this Agreement set forth above.
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<PAGE> 17
Section 3. Reliance by Executive. Executive acknowledges that, in his
decision to enter into this Agreement, he has not relied on any representations,
promises or arrangement of any kind, including oral statements by
representatives of the Company, except as set forth in this Agreement.
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE is executed by Executive
and delivered to the Company on _______________.
EXECUTIVE:
----------------------------------
Name:
-----------------------------
[not to be signed as part of severance agreement]
16
<PAGE> 1
EXHIBIT 10.18
<PAGE> 2
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") is made as of this 15th day
of September, 1997, between DOUBLETREE CORPORATION (the "Company") and Thomas W.
Storey (the "Executive").
RECITALS
WHEREAS, the Company considers it essential to the best interest of its
stockholders to foster the continuous employment of key management personnel,
and believes that the possibility of a reorganization event of the Company and
the uncertainty and questions which it may raise among management may result in
the departure or distraction of management personnel to the detriment of the
Company and its stockholders; and
WHEREAS, the Board of Directors has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a reorganization event of the
Company;
NOW, THEREFORE, in consideration of the mutual premises set forth below
and for other good and valuable consideration, in order to induce the Executive
to remain in the employ of the Company, the Company agrees that the Executive
shall receive the severance benefits set forth in this agreement ("this
Agreement") in the event his employment with the Company terminates subsequent
to a "Reorganization Event" of the Company under the circumstances described
below.
AGREEMENT
1. DEFINITIONS
The following terms used in this Agreement shall have the meanings
given below:
(a) "Annual Base Salary" shall mean the Executive's gross annual salary
before any deductions, exclusions or any deferrals or contributions under any
Company plan or program, but excluding bonuses, incentive compensation, employee
benefits or any other
<PAGE> 3
non-salary form of compensation (determined without regard to any reduction in
Annual Base Salary that results in "Good Reason" termination).
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Bonus Amount" shall mean the greater of (i) the dollar amount of
the annual bonus that would be payable to the Executive under the Company's
annual bonus plan applicable to the Executive, assuming payment at the
Executive's target level for the then-current full fiscal year (determined
without regard to any reduction in target bonus percentage that results in "Good
Reason" termination), or (ii) the dollar amount of the bonus paid or payable to
the Executive under the Company's annual bonus plan for the most recently
completed fiscal year under such plan. Notwithstanding the foregoing, if the
Executive is a participant in the Company's New Business Bonus Plan (or any
successor plan), the "Bonus Amount" shall mean the dollar amount of the bonus
actually paid to the Executive during the most recently completed fiscal year
under such plan, subject to a maximum limitation equal to the dollar amount of
the annual bonus that would have been payable to the Executive under the
Company's generally applicable annual bonus plan for such year, assuming for
this purpose that he was a participant in such plan and that he would receive a
bonus at the maximum level (as a percentage of salary) that applies under such
plan for such year to other executives with the same title as the Executive. For
the purposes hereof, the "Bonus Amount" shall not include any special bonuses
paid outside of the Company's generally applicable annual bonus plan or the
Company's New Business Bonus Plan (or any successor plan).
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Company " shall mean Doubletree Corporation, or any successor
corporation that assumes this Agreement under Section 14 hereof or otherwise
becomes bound by this Agreement.
(f) "Covered Termination" shall have the meaning given in Section 3
hereof.
(g) "Date of Termination" shall mean the effective date of the
Executive's Covered Termination pursuant to Section 3 hereof.
(h) "Disability" shall mean the absence of the Executive from the
full-time performance of his duties with the Company for six consecutive months
as a result of incapacity due to physical or mental illness, provided the
Company has given 30-day advance written notice to the Executive and he has not
returned to the full-time performance of his duties.
(i) "Reorganization Event" shall mean the occurrence of any of the
following after the date hereof:
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(i) any "person" (as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than
an employee benefit plan of the Company, or a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, becomes a "beneficial
owner" (as defined in rule 13d-3 under the Exchange Act), directly or
indirectly, of 25% or more of the Company's then outstanding voting securities
carrying the right to vote in elections of persons to the Board, regardless of
comparative voting power of such voting securities, and regardless of whether or
not the Board shall have approved such Reorganization Event; provide, however,
that an acquisition after the date hereof by the General Electric Pension Trust
or its affiliates, by Richard Ferris, or by Peter Ueberroth of 25% or more of
the Company's then-outstanding securities shall not be deemed a "Reorganization
Event" of the Company; or
(ii) during any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board (the "Incumbent Board") and any
other new director (other than a director designated by a person who shall have
entered into an agreement with the Company to effect a transaction described in
clauses (i) or (iii) of this subsection) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved (each such new director being considered a
member of the "Incumbent Board"), cease for any reason to constitute a majority
thereof; or
(iii) the holders of securities of the Company entitled to vote thereon
approve of the following:
(A) a merger or consolidation of the Company with any other
corporation regardless of which entity is the surviving company, other
than a merger or consolidation which would result in the voting
securities of the Company carrying the right to vote in elections of
persons to the Board outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 66 2/3% of the
Company's then-outstanding voting securities carrying the right to vote
in elections of persons to the Board or such securities of such
surviving entity outstanding immediately after such merger or
consolidation, or
(B) a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
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Notwithstanding the definition of "Reorganization Event" of the Company
as set forth in this Agreement, the Board shall have full and final authority,
which shall be exercised in its discretion, to determine conclusively whether a
Reorganization Event of the Company has occurred, and the date of the occurrence
of such Reorganization Event and any incidental matters relating thereto, with
respect to a transaction or series of transactions which have resulted or will
result in a substantial portion of the assets or business of the Company (as
determined immediately prior to the transaction or series of transactions by the
Board in its sole discretion which determination shall be final and conclusive)
being held by a corporation at least 66 2/3% of whose voting securities are
held, immediately following such transaction or series of transactions, by
holders of the voting securities of the Company (determined immediately prior to
such transaction or series of transactions). The Board may exercise such
discretionary authority without regard to whether one or more of the
transactions in such series of transactions would otherwise constitute a
Reorganization Event of the Company under the definition set forth in this
Agreement. It is hereby understood and agreed that the consummation of the
business combination contemplated by the Agreement and Plan of Merger dated as
of September 1, 1997 among Doubletree Corporation, Promus Hotel Corporation and
Parent Holding Corp. shall constitute a Reorganization Event for purposes of
this Agreement.
2. TERM OF AGREEMENT
This Agreement shall commence on the date first written above and shall
continue in effect through December 31, 1998; provided, however, that commencing
on January 1, 1999 and each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Company shall have given notice that it
does not wish to extend this Agreement. Notwithstanding the foregoing, no notice
of non-renewal given by the Board shall be effective with respect to a
particular Reorganization Event if given after the occurrence of the following
events: (i) the Company enters into an agreement or letter of intent, the
consummation of which would result in such Reorganization Event, (ii) any
"person" makes a public announcement of its intention to take or consider taking
actions that would result in such Reorganization Event, or (iii) any "person"
(as defined above) initiates a tender offer which, if consummated, would result
in such Reorganization Event (it being understood that this sentence shall not
apply with respect to any unrelated Reorganization Event). If a Reorganization
Event of the Company shall have occurred during the original or extended term of
this Agreement, the term of this Agreement shall continue in force and effect
until the satisfaction of all of the Company's obligations to the Executive as
provided hereunder.
3. COVERED TERMINATION
(a) General. The Executive shall be treated as having incurred a
"Covered Termination" hereunder if his employment is terminated, within a period
of two (2) years following the consummation of a Reorganization Event of the
Company, by the Company other than for Cause or by the Executive for Good
Reason. The Executive
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shall not be treated as having incurred a Covered Termination if his employment
is terminated as a result of death or Disability. NOTE that, as described below,
the Executive must give 30-days advance written notice of termination for Good
Reason, thus effectively requiring that such notice be given no later than 30
days prior to the expiration of the two (2) year period described above (in
order for the Date of Termination to occur prior to the expiration of such
period).
(b) Termination for Cause. Termination by the Company of the
Executive's employment for "Cause" shall mean termination as a result of:
(i) the Executive engaging in willful gross neglect of his
duties with the Company, or the Executive's fraud or dishonesty in
connection with his performance of duties to the Company, in either
case which has a materially detrimental effect on the business or
operations of the Company; or
(ii) the Executive's conviction by a court of competent
jurisdiction of any crime (or upon entering a plea of guilty or nolo
contendere to a charge of any crime) constituting a felony.
The Date of Termination for a termination for Cause shall be the date
specified by the Company.
(c) Termination for Good Reason. For purposes hereof, the Executive may
terminate his employment for "Good Reason" as a result of:
(i) a material adverse change in the Executive's position or
title as in effect at the time of the Reorganization Event of the
Company;
(ii) a substantial reduction in the Executive's overall level
of authority and responsibility with the Company as in effect at the
time of the Reorganization Event of the Company;
(iii) any reduction in the Executive's Annual Base Salary as
in effect at the time of the Reorganization Event of the Company;
(iv) any reduction in the Executive's target or maximum bonus
percentage under the Company's annual bonus plan from the percentage in
effect at the time of the Reorganization Event of the Company;
(v) a relocation by more than 50 miles of the Executive's
principal place of business at the time of the Reorganization Event of
the Company, or the Company's requiring the Executive to locate
anywhere that is more than 50 miles from the Executive's principal
place of business at the time of the Reorganization Event; or
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(vi) a notice of termination given by the Executive for any
reason (including, without limitation, retirement) during the thirty
(30) day period immediately following the first (1st) anniversary of
the consummation of the Reorganization Event of the Company.
Notwithstanding the foregoing, the Executive shall not be entitled to
terminate his employment for Good Reason under items (i), (ii), (iii) or (iv)
above solely on the basis of his assignment to a new position with the Company
or its successor (which may otherwise constitute a Good Reason under one or more
of such items) if the Executive has accepted such assignment in writing. Any
such acceptance shall not waive the Executive's rights as to any other or any
future Good Reason events.
The Executive shall provide the Company with 30-day advance written
notice of a termination for Good Reason setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for the termination. Such
notice may be given at any time following the occurrence of the events that
provide the basis for the termination, but not later than the date that is 30
days prior to the second anniversary date of the consummation of the
Reorganization Event of the Company; provide, however, that (a) where a
termination for Good Reason is on account of relocation, as provided in item (v)
above, such notice shall be provided within one (1) year of the effective date
of such relocation (but not later than the date that is 30 days prior to the
second anniversary date of the consummation of the Reorganization Event of the
Company), and (b) where a termination for Good Reason is claimed under item (vi)
above, such notice shall be provided within the thirty (30) day notice period
referred to therein. If within the thirty (30) day period, the Company takes
actions reasonably satisfactory to the Executive to remedy the basis for the
Good Reason termination, such notice of termination shall be considered null and
void; provided, however, that the Company shall not have the right to remedy a
Good Reason termination occurring on the basis of a relocation as described in
item (v) above or on the basis of the termination notice described in item (vi)
above. The Date of Termination for a termination for Good Reason shall be the
expiration of the 30-day notice period provided for above.
4. SEVERANCE PAYMENT
The amount of the severance payment to be paid to the Executive upon
Covered Termination shall be the amount determined by multiplying 3.00 times the
sum of:
(a) the Executive's Annual Base Salary as in effect immediately prior
to the Date of Termination; plus,
(b) the Executive's Bonus Amount applicable for the fiscal year in
which the Date of Termination occurs; plus,
(c) a benefit allowance of 25% of the Executive's Annual Base Salary as
in effect immediately prior to the Date of Termination.
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5. OTHER SEVERANCE BENEFITS
In addition to the severance payment provided under Section 4 hereof,
the Executive shall be entitled to the following benefits and other rights in
the event of his Covered Termination:
(a) Accrued Rights. The Executive shall be entitled to the following
payments and benefits in respect of accrued compensation rights upon a Covered
Termination, in addition to other rights provided under this Agreement:
(i) payment of any accrued but unpaid Annual Base Salary
through the Date of Termination;
(ii) if the Executive is a participant in the Company's annual
bonus plan, payment of (1) any earned but unpaid bonus under such plan
for any completed fiscal year prior to the Date of Termination, as
determined by the Company in its sole discretion and (2) a pro-rata
portion of the Bonus Amount for the fiscal year of the Company in which
the Covered Termination occurs, based on the number of days of such
year prior to the Date of Termination;
(iii) if the Executive is a participant in the Company's New
Business Bonus Plan (or any successor plan) payment of any earned but
unpaid bonus under such plan for periods prior to the Date of
Termination, as determined by the Company in its sole discretion;
(iv) all benefits and rights accrued under the employee
benefit plans, fringe benefits programs and payroll practices of the
Company in accordance with their terms (including, without limitations,
employee pension, employee welfare, incentive bonus, stock incentive
plans, and any accrued vacation or accrued sick pay time); and
(v) a payment equal to the forfeited portion of the account
balance of the Executive under the Company's tax qualified and
non-qualified pension and deferred compensation plans as a result of
failure to satisfy vesting requirements due to the Covered Termination.
(b) Outplacement Services. Upon the occurrence of a Covered
Termination, the Executive shall be provided, at the Company's sole expense,
with professional outplacement services consistent with the Executive's duties
or profession and of a type and level customary for persons in his position, as
selected by the Company, subject to reasonable limitations established by the
Company on a uniform basis for similarly situated executives as to duration and
dollar amounts.
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6. EXCISE TAX REIMBURSEMENT
In the event it shall be determined that any payment or distribution by
the Company or any other person or entity to or for the Executive's benefit,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, or whether prior to or following the Covered
Termination in connection with, or arising out of, the Executive's employment
with the Company or a Reorganization Event of the Company (a "Payment") will be
subject to the tax (the "Excise Tax") imposed by section 4999 of the Code, the
Company shall pay to the Executive at the time specified in Section 7 hereof, an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Payments and any federal
(and state and local) income tax, employment tax, and Excise Tax upon the
payment provided for by this paragraph, shall be equal to the amount of the
Payments. For purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax the following will
apply:
(a) any payments or benefits received or to be received by the
Executive in connection with a Reorganization Event of the Company or his
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Reorganization Event of the Company or any person affiliated
with the Company or such person) shall be treated as "parachute payments" within
the meaning of section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to the Executive such other
payments or benefits (in whole or in part) do not constitute parachute payments,
or such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of section
280G(b)(4) of the Code in excess of the base amount within the meaning of
section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
and
(b) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in accordance
with proposed, temporary or final regulations under Sections 280G(d)(3) and (4)
of the Code or, in the absence of such regulations, in accordance with the
principles of Section 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. In the event that the amount of Excise Tax
attributable to Payments is subsequently determined to be less than the amount
taken into account hereunder at the time of termination of the Executive's
employment, he shall repay to the Company at the
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time that the amount of such reduction in Excise Tax is finally determined the
portion of the Gross-Up Payment attributable to such reduction (plus the portion
of the Gross-Up Payment attributable to the Excise Tax, employment tax and
federal (and state and local) income tax imposed on the Gross-Up Payment being
repaid by the Executive if such repayment results in a reduction in Excise Tax
and/or a federal (and state and local) income tax deduction) plus interest on
the amount of such repayment at the rate provided in section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax attributable to Payments is
determined to exceed the amount taken into account hereunder at the time of the
termination of the Executive's employment (including by reason of any payment
the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional gross-up payment in
respect of such excess (plus any interest payable with respect to such excess)
at the time that the amount of such excess is finally determined.
7. METHOD OF PAYMENT
The payments provided for in Sections 4, 5 and 6 hereof shall be made
in a cash lump-sum payment, net of any required tax withholding, upon the later
of (i) the fifth (5th) business day following the Date of Termination or (ii)
the expiration of the seven (7) day revocation period applicable under the
release of claims referred to in Section 10 hereof. Any payment required under
Sections 4, 5 or 6 or any other provision of this Agreement that is not made in
a timely manner shall bear interest at a rate equal to one-hundred twenty (120)
percent of the monthly compounded applicable federal rate, as in effect under
Section 1274(d) of the Code for the month in which the payment is required to be
made.
8. RELOCATION EXPENSES
The Executive shall be entitled to a reimbursement payment from the
Company equal to his reasonable moving expenses (determined in accordance with
Company's relocation policy) incurred in connection with the Executive's written
acceptance of a position with the Company requiring his relocation to a
metropolitan area, other than the metropolitan area where his office is located
at the time of the Reorganization Event of the Company. The Company shall pay
the Executive an additional payment in an amount such that the net amount
retained by the Executive after deduction for any federal, state, and local
income tax, employment tax and any excise tax on the reimbursement payment shall
equal the amount of the reimbursement payment. If the employment of the
Executive is terminated for Good Reason on the basis of his relocation under
Section 3 hereof, the payment to which the Executive is entitled to under
Section 4 hereof will be reduced by 25% of the relocation payment, including tax
reimbursement, that the Executive received from the Company under this Section
8.
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9. NO MITIGATION OR OFFSET
The Executive shall not be required to mitigate the amount of any
severance payment or benefit provided under this Agreement by seeking other
employment or otherwise. The amount of any payment or benefit to which the
Executive becomes entitled hereunder shall not be reduced by any compensation
earned by the Executive as the result of employment by another employer, by
retirement benefits, nor by offset against any amount claimed to be owed to the
Company by reason of a claimed breach by the Executive of his obligations under
Sections 11 or 12 hereof or otherwise (except that offset shall apply as
specifically provided in Section 8 hereof concerning relocation expenses and
Section 21 hereof concerning other severance payments).
10. RELEASE OF CLAIMS
As conditions of Executive's entitlement to the severance payments and
benefits provided by this Agreement, the Executive shall be required to execute
and honor the terms of a waiver and release of claims against the Company
substantially in the form attached hereto as Exhibit A (as may be modified
consistent with the purposes of such waiver and release to reflect changes in
law following the date hereof).
11. RESTRICTION ON CONDUCT OF EXECUTIVE
(a) General. The Executive and the Company understand and agree that
the purpose of the provisions of this Section 11 is to protect legitimate
business interests of the Company, as more fully described below, and is not
intended to impair or infringe upon the Executive's right to work, earn a
living, or acquire and possess property from the fruits of his labor. The
Executive hereby acknowledges that the post-employment restrictions set forth in
this Section 11 are reasonable and that they do not, and will not, unduly impair
his ability to earn a living after the termination of his employment with the
Company. Therefore, subject to the limitations of reasonableness imposed by law
upon restrictions set forth herein, the Executive shall be subject to the
restrictions set forth in this Section 11.
(b) Definitions. The following capitalized terms used in this Section
11 shall have the meanings assigned to them below, which definitions shall apply
to both the singular and the plural forms of such terms:
"Confidential Information" means any confidential or proprietary
information possessed by the Company without limitation, any confidential
"know-how", customer lists, details of client or consultant contracts, current
and anticipated customer requirements, pricing policies, price lists, market
studies, business plans, operational methods, marketing plans or strategies,
product development techniques or plans, computer software programs (including
object code and source code), data and documentation, data base technologies,
systems, structures and architectures, inventions and ideas, past, current and
planned research and development, compilations, devices,
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methods, techniques, processes, financial information and data, business
acquisition plans, new personnel acquisition plans and any other information
that would constitute a trade secret under the common law or statutory law of
the State of Delaware.
"Determination Date" means the date of termination of the Executive's
employment with the Company for any reason whatsoever or any earlier date
(during the Restricted Period) of an alleged breach of the Restrictive Covenants
by the Executive.
"Person" means any individual or any corporation, partnership, joint
venture, association or other entity or enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, member, trustee, director, officer, manager,
employee, agent, representative or consultant.
"Protected Employees" means employees of the Company or its affiliated
companies who were employed by the Company or its affiliated companies at any
time within six (6) months prior to the Determination Date.
"Restricted Period" means the period of the Executive's employment with
the Company plus a period extending two (2) years from the date of termination
of employment.
"Restrictive Covenants" means the restrictive covenants contained in
Section 11 (c) hereof.
(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information. The Executive understands and agrees that the Confidential
Information constitutes a valuable asset of the Company and its
affiliated entities, and may not be converted to the Executive's own
use. Accordingly, the Executive hereby agrees that the Executive shall
not, directly or indirectly, at any time during the Restricted Period
reveal, divulge or disclose to any Person not expressly authorized by
the Company any Confidential Information, and the Executive shall not,
directly or indirectly, at any time during the Restricted Period use or
make use of any Confidential Information in connection with any
business activity other than that of the Company. The parties
acknowledge and agree that this Agreement is not intended to, and does
not, alter either the Company's rights or the Executive's obligations
under any state or federal statutory or common law regarding trade
secrets and unfair trade practices.
(ii) Nonsolicitation of Protected Employees. The Executive
understands and agrees that the relationship between the Company and
each of its Protected Employees constitutes a valuable asset of the
Company and may not be converted
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to the Executive's own use. Accordingly, the Executive hereby agrees
that during the Restricted Period the Executive shall not directly or
indirectly on the Executive's own behalf or as a Principal or
Representative of any Person solicit any Protected Employee to
terminate his or her employment with the Company.
(iii) Noninterference with Company Opportunities. The
Executive understands and agrees that all hotel development
opportunities with which he is involved during his employment with the
Company constitute valuable assets of the Company and its affiliated
entities, and may not be converted to Executive's own use.
Accordingly, the Executive hereby agrees that during the Restricted
Period the Executive shall not directly or indirectly on the
Executive's own behalf or as a Principal or Representative of any
Person, interfere with, solicit, pursue, or in any way make use of any
such hotel development opportunities.
(d) Exceptions from Disclosure Restrictions. Anything herein to the
contrary notwithstanding, the Executive shall not be restricted from disclosing
or using Confidential Information that: (i) is or becomes generally available to
the public other than as a result of an unauthorized disclosure by the Executive
or his agent; (ii) becomes available to the Executive in a manner that is not in
contravention of applicable law from a source (other than the Company or its
affiliated entities or one of its or their officers, employees, agents or
representative) that is not bound by a confidential relationship with the
Company or its affiliated entities or by a confidentiality or other similar
agreement; (iii) was known to the Executive on a non-confidential basis and not
in contravention of applicable law or a confidentiality or other similar
agreement before its disclosure to the Executive by the Company or its
affiliated entities or one of its or their officers, employees, agents or
representatives; or (iv) is required to be disclosed by law, court order or
other legal process; provided, however, that in the event disclosure is required
by law, court order or legal process, the Executive shall provide the Company
with prompt notice of such requirement so that the Company may seek an
appropriate protective order prior to any such required disclosure by the
Executive.
(e) Enforcement of the Restrictive Covenants.
(i) Rights and Remedies upon Breach. In the event the
Executive breaches, or threatens to commit a breach of, any of the
provisions of the Restrictive Covenants, the Company shall have the
right and remedy to enjoin, preliminarily and permanently, the
Executive from violating or threatening to violate the Restrictive
Covenants and to have the Restrictive Covenants specifically enforced
by any court of competent jurisdiction, it being agreed that any breach
or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not
provide an adequate remedy to the Company. The rights referred to in
the preceding sentence shall be independent of any others and severally
enforceable, and shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company at law or in equity.
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(ii) Severability of Covenants. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in time
and space and in all other respects. If any court determines that any
Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to
the invalid portions.
12. COOPERATION IN FUTURE MATTERS
The Executive hereby agrees that, for a period of three (3) years
following his Date of Termination, he shall cooperate with the Company's
reasonable requests relating to matters that pertain to the Executive's
employment by the Company, including, without limitation, providing information
or limited consultation as to such matters, participating in legal proceedings,
investigations or audits on behalf of the Company, or otherwise making himself
reasonably available to the Company for other related purposes. Any such
cooperation shall be performed at times scheduled taking into consideration the
Executive's other commitments, and the Executive shall be compensated at a
reasonable hourly or per them rate to be agreed by the parties to the extent
such cooperation is required on more than an occasional and limited basis. The
Executive shall not be required to perform such cooperation to the extent it
conflicts with any requirements of exclusivity of service for another employer
or otherwise, nor in any manner that in the good faith belief of the Executive
would conflict with his rights under or ability to enforce this Agreement.
13. INDEMNIFICATION
(a) Following the Date of Termination, the Company agrees that it will,
indemnify and hold harmless the Executive, against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Date of Termination, whether asserted
or claimed prior to, at or after the Date of Termination, to the fullest extent
that the Company would have been permitted under Delaware law and its
certificate of incorporation or bylaws in effect on the date hereof to indemnify
the Executive (and the Company shall also advance expenses as incurred to the
fullest extent permitted under applicable law, provided the Executive provides
an undertaking to repay advances if it is ultimately determined that the
Executive is not entitled to indemnification).
(b) For a period of six years after the Date of Termination, the
Company shall maintain (to the extent available in the market) in effect a
director's and officer's liability insurance policy covering with coverage in
amount and scope at least as favorable as the Company's existing coverage on the
Date of Termination; provided that in no event shall
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the Company be required to expend in the aggregate in excess of 200% of the
annual premium paid by the Company for such coverage as of the Date of
Termination; and if such premium would at any time exceed 200% of the such
amount, then the Company shall maintain insurance policies which provide the
maximum and best coverage available at an annual premium equal to 200% of such
amount.
(c) The provisions of this Section 13 are intended to be an addition to
the rights otherwise available to the Executive by law, charter, statute, bylaw
or separate agreement between the Company and the Executive. The Company shall
continue to honor any indemnification agreement between the Company and the
Executive entered into prior to the Date of Termination in accordance with the
terms thereof.
14. SUCCESSORS, BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if he
terminated his employment for Good Reason following a Reorganization Event of
the Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devises and legatees. If the Executive should
die while any amount remains payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee or other designee or, if there is
no such designee, to the Executive's estate.
15. NOTICE
Any notice required or permitted to be given by this Agreement shall be
effective only if in writing, delivered personally against receipt therefor or
mailed by certified or registered mail, return receipt requested, to the parties
at the addresses hereinafter set forth, or at such other places that either
party may designate by notice to the other.
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Notice to the Company shall be addressed to:
Doubletree Corporation
410 North 44th Street, Suite 700
Phoenix, AZ 85008
Attn: Corporate Secretary
Notice to the Executive shall be addressed to him at the business
address of the Company where the Executive is employed, with a copy to him at
his home address as follows:
Thomas W. Storey
7700 E. Gainey Ranch, #146
Scottsdale, AZ 85258
All such notices shall be deemed effectively given five (5) days after
the same has been deposited in a post box under the exclusive control of the
United States Postal Service.
16. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
17. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
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<PAGE> 17
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
19. PAYMENT OF LEGAL FEES
The Company shall pay all reasonable legal fees and expenses incurred
by the Executive in connection with any arbitration (or other proceeding whether
or not instituted by the Company or the Executive), relating to the
interpretation or enforcement of any provision of this Agreement (including any
action seeking to obtain or enforce any right or benefit provided by this
Agreement) or in connection with any tax audit or proceeding relating to the
application of Section 4999 of the Code to any payment or benefit provided by
the Company.
20. NO RESTRICTIONS ON EMPLOYMENT RIGHTS
Nothing in this Agreement shall confer on the Executive any right to
continue in the employ of the Company or shall interfere with or restrict in any
way the rights of the Company, which are hereby expressly reserved, to discharge
the Executive at any time for any reason whatsoever, with or without Cause,
subject to the requirements of this Agreement. Nothing in this Agreement shall
restrict the right of the Executive to terminate his employment with the Company
at any time for any reason whatsoever, with or without Good Reason.
21. OTHER SEVERANCE AGREEMENTS
Any severance payments provided to the Executive under Section 4 hereof
shall be offset by the dollar amount of any other cash severance payments to
which the Executive is entitled under any other severance or termination pay
plan, policy or agreement with the Company or its affiliates (including, without
limitation, the severance or termination pay plans, policies and agreements of
Red Lion Hotels, Inc.).
22. HOSTILE TRANSACTION PROVISION
(a) Notwithstanding anything elsewhere in this Agreement to the
contrary, in the event of consummation of a "Hostile Transaction" (as defined
below), the definition of "Good Reason" set forth in Section 3(c) hereof shall
be substituted with the following definition, which shall apply for all purposes
of this Agreement:
"Termination for Good Reason. For purposes hereof, the Executive may
terminate his employment for "Good Reason" as a result of:
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<PAGE> 18
(i) any adverse change in the Executive's position or title as in
effect at the time of the Reorganization Event of the Company, or the assignment
to the Executive of any duties inconsistent with such position or title;
(ii) any reduction in the Executive's overall level of authority and
responsibility with the Company as in effect at the time of the Reorganization
Event of the Company;
(iii) any reduction in the Executive's Annual Base Salary as in effect
at the time of the Reorganization Event of the Company;
(iv) any reduction in the Executive's target or maximum bonus
percentage under the Company's annual bonus plan from the percentage in effect
at the time of the Reorganization Event of the Company;
(v) a relocation by more than 50 miles of the Executive's principal
place of business at the time of the Reorganization Event of the Company, or the
Company's requiring the Executive to locate anywhere that is more than 50 miles
from the Executive's principal place of business at the time of the
Reorganization Event;
(vi) the failure by the Company to continue in effect any compensation
plan in which the Executive is participating immediately prior to the
Reorganization Event of the Company which is material to his total compensation,
including but not limited to, the bonus plans, deferred compensation plans,
equity incentive plans, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or the
failure by the Company to continue the Executive's participation therein (or in
such substitute or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of his
participation relative to other participants, as existed immediately prior to
the Reorganization Event of the Company;
(vii) the failure by the Company to continue to provide the Executive
with benefits substantially similar to those enjoyed by the Executive under any
of the Company's pension, savings and retirement plan, life insurance, medical,
health and accident, or disability plans in which he was participating at the
time of the Reorganization Event of the Company, the taking of any action by the
Company which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit enjoyed by him
at the time of the Reorganization Event of the Company, or the failure by the
Company to provide the Executive with the number of paid vacation days to which
he is entitled on the basis of years of service with the Company in accordance
with the Company's normal vacation policy in effect at the time of the
Reorganization Event of the Company;
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(viii) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 14 hereof; or
(ix) a termination by the Executive for any reason (including,
without limitation, retirement) during the thirty (30) day period
immediately following the first (1st) anniversary of the consummation
of the Reorganization Event of the Company.
The Executive's right to terminate his employment pursuant to this
Agreement for Good Reason shall not be affected by his incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder."
(b) In the event of consummation of a Hostile Transaction, the
provisions of Section 11 hereof (concerning restricted conduct) and Section 12
hereof (concerning required cooperation) shall not be applicable to the
Executive.
(c) For purposes hereof, a "Hostile Transaction" shall be any
Reorganization Event which has, at any time prior to the consummation thereof,
been designated by a resolution of the Board as potentially having an impact on
the Executive and other of the Company's executives, such that it would be
appropriate for the Executive (and such other executives) to be provided with
the additional protection afforded by the foregoing definition of "Good Reason."
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IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
DOUBLETREE CORPORATION
/s/ David L. Stivers
--------------------------------------------
Name: David L. Stivers
Title: Senior Vice President
General Counsel and Secretary
EXECUTIVE
/s/ Thomas W. Storey
--------------------------------------------
Name: Thomas W. Storey
19
<PAGE> 1
EXHIBIT 10.19
<PAGE> 2
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") is made as of this 15th day
of September, 1997, between DOUBLETREE CORPORATION (the "Company") and Margaret
Ann Rhoades (the "Executive").
RECITALS
WHEREAS, the Company considers it essential to the best interest of its
stockholders to foster the continuous employment of key management personnel,
and believes that the possibility of a reorganization event of the Company and
the uncertainty and questions which it may raise among management may result in
the departure or distraction of management personnel to the detriment of the
Company and its stockholders; and
WHEREAS, the Board of Directors has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a reorganization event of the
Company;
NOW, THEREFORE, in consideration of the mutual premises set forth below
and for other good and valuable consideration, in order to induce the Executive
to remain in the employ of the Company, the Company agrees that the Executive
shall receive the severance benefits set forth in this agreement ("this
Agreement") in the event his employment with the Company terminates subsequent
to a "Reorganization Event" of the Company under the circumstances described
below.
AGREEMENT
1. DEFINITIONS
The following terms used in this Agreement shall have the meanings
given below:
(a) "Annual Base Salary" shall mean the Executive's gross annual salary
before any deductions, exclusions or any deferrals or contributions under any
Company plan or program, but excluding bonuses, incentive compensation, employee
benefits or any other
<PAGE> 3
non-salary form of compensation (determined without regard to any reduction in
Annual Base Salary that results in "Good Reason" termination).
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Bonus Amount" shall mean the greater of (i) the dollar amount of
the annual bonus that would be payable to the Executive under the Company's
annual bonus plan applicable to the Executive, assuming payment at the
Executive's target level for the then-current full fiscal year (determined
without regard to any reduction in target bonus percentage that results in "Good
Reason" termination), or (ii) the dollar amount of the bonus paid or payable to
the Executive under the Company's annual bonus plan for the most recently
completed fiscal year under such plan. Notwithstanding the foregoing, if the
Executive is a participant in the Company's New Business Bonus Plan (or any
successor plan), the "Bonus Amount" shall mean the dollar amount of the bonus
actually paid to the Executive during the most recently completed fiscal year
under such plan, subject to a maximum limitation equal to the dollar amount of
the annual bonus that would have been payable to the Executive under the
Company's generally applicable annual bonus plan for such year, assuming for
this purpose that he was a participant in such plan and that he would receive a
bonus at the maximum level (as a percentage of salary) that applies under such
plan for such year to other executives with the same title as the Executive. For
the purposes hereof, the "Bonus Amount" shall not include any special bonuses
paid outside of the Company's generally applicable annual bonus plan or the
Company's New Business Bonus Plan (or any successor plan).
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Company" shall mean Doubletree Corporation, or any successor
corporation that assumes this Agreement under Section 14 hereof or otherwise
becomes bound by this Agreement.
(f) "Covered Termination" shall have the meaning given in Section 3
hereof.
(g) "Date of Termination" shall mean the effective date of the
Executive's Covered Termination pursuant to Section 3 hereof.
(h) "Disability" shall mean the absence of the Executive from the
full-time performance of his duties with the Company for six consecutive months
as a result of incapacity due to physical or mental illness, provided the
Company has given 30-day advance written notice to the Executive and he has not
returned to the full-time performance of his duties.
(i) "Reorganization Event" shall mean the occurrence of any of the
following after the date hereof:
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<PAGE> 4
(i) any "person" (as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than
an employee benefit plan of the Company, or a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, becomes a "beneficial
owner" (as defined in rule 13d-3 under the Exchange Act), directly or
indirectly, of 25% or more of the Company's then outstanding voting securities
carrying the right to vote in elections of persons to the Board, regardless of
comparative voting power of such voting securities, and regardless of whether or
not the Board shall have approved such Reorganization Event; provided, however,
that an acquisition after the date hereof by the General Electric Pension Trust
or its affiliates, by Richard Ferris, or by Peter Ueberroth of 25% or more of
the Company's then-outstanding securities shall not be deemed a "Reorganization
Event" of the Company; or
(ii) during any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board (the "Incumbent Board") and any
other new director (other than a director designated by a person who shall have
entered into an agreement with the Company to effect a transaction described in
clauses (i) or (iii) of this subsection) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved (each such new director being considered a
member of the "Incumbent Board"), cease for any reason to constitute a majority
thereof; or
(iii) the holders of securities of the Company entitled to vote thereon
approve of the following:
(A) a merger or consolidation of the Company with any other
corporation regardless of which entity is the surviving company, other
than a merger or consolidation which would result in the voting
securities of the Company carrying the right to vote in elections of
persons to the Board outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 66 2/3% of the
Company's then-outstanding voting securities carrying the right to vote
in elections of persons to the Board or such securities of such
surviving entity outstanding immediately after such merger or
consolidation, or
(B) a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
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<PAGE> 5
Notwithstanding the definition of "Reorganization Event" of the Company
as set forth in this Agreement, the Board shall have full and final authority,
which shall be exercised in its discretion, to determine conclusively whether a
Reorganization Event of the Company has occurred, and the date of the occurrence
of such Reorganization Event and any incidental matters relating thereto, with
respect to a transaction or series of transactions which have resulted or will
result in a substantial portion of the assets or business of the Company (as
determined immediately prior to the transaction or series of transactions by the
Board in its sole discretion which determination shall be final and conclusive)
being held by a corporation at least 66 2/3% of whose voting securities are
held, immediately following such transaction or series of transactions, by
holders of the voting securities of the Company (determined immediately prior to
such transaction or series of transactions). The Board may exercise such
discretionary authority without regard to whether one or more of the
transactions in such series of transactions would otherwise constitute a
Reorganization Event of the Company under the definition set forth in this
Agreement. It is hereby understood and agreed that the consummation of the
business combination contemplated by the Agreement and Plan of Merger dated as
of September 1, 1997 among Doubletree Corporation, Promus Hotel Corporation and
Parent Holding Corp. shall constitute a Reorganization Event for purposes of
this Agreement.
2. TERM OF AGREEMENT
This Agreement shall commence on the date first written above and shall
continue in effect though December 31, 1998; provided, however, that commencing
on January 1, 1999 and each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Company shall have given notice that it
does not wish to extend this Agreement. Notwithstanding the foregoing, no notice
of non-renewal given by the Board shall be effective with respect to a
particular Reorganization Event if given after the occurrence of the following
events: (i) the Company enters into an agreement or letter of intent, the
consummation of which would result in such Reorganization Event, (ii) any
"person" makes a public announcement of its intention to take or consider taking
actions that would result in such Reorganization Event, or (iii) any "person"
(as defined above) initiates a tender offer which, if consummated, would result
in such Reorganization Event (it being understood that this sentence shall not
apply with respect to any unrelated Reorganization Event). If a Reorganization
Event of the Company shall have occurred during the original or extended term of
this Agreement, the term of this Agreement shall continue in force and effect
until the satisfaction of all of the Company's obligations to the Executive as
provided hereunder.
3. COVERED TERMINATION
(a) General. The Executive shall be treated as having incurred a
"Covered Termination" hereunder if his employment is terminated, within a period
of two (2) years following the consummation of a Reorganization Event of the
Company, by the Company other than for Cause or by the Executive for Good
Reason. The Executive
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<PAGE> 6
shall not be treated as having incurred a Covered Termination if his employment
is terminated as a result of death or Disability. NOTE that, as described below,
the Executive must give 30-days advance written notice of termination for Good
Reason, thus effectively requiring that such notice be given no later than 30
days prior to the expiration of the two (2) year period described above (in
order for the Date of Termination to occur prior to the expiration of such
period).
(b) Termination for Cause. Termination by the Company of the
Executive's employment for "Cause" shall mean termination as a result of:
(i) the Executive engaging in willful gross neglect of his
duties with the Company, or the Executive's fraud or dishonesty in
connection with his performance of duties to the Company, in either
case which has a materially detrimental effect on the business or
operations of the Company; or
(ii) the Executive's conviction by a court of competent
jurisdiction of any crime (or upon entering a plea of guilty or nolo
contendere to a charge of any crime) constituting a felony.
The Date of Termination for a termination for Cause shall be the date
specified by the Company.
(c) Termination for Good Reason. For purposes hereof, the Executive may
terminate his employment for "Good Reason" as a result of:
(i) a material adverse change in the Executive's position or
title as in effect at the time of the Reorganization Event of the
Company;
(ii) a substantial reduction in the Executive's overall level
of authority and responsibility with the Company as in effect at the
time of the Reorganization Event of the Company;
(iii) any reduction in the Executive's Annual Base Salary as
in effect at the time of the Reorganization Event of the Company;
(iv) any reduction in the Executive's target or maximum bonus
percentage under the Company's annual bonus plan from the percentage in
effect at the time of the Reorganization Event of the Company;
(v) a relocation by more than 50 miles of the Executive's
principal place of business at the time of the Reorganization Event of
the Company, or the Company's requiring the Executive to locate
anywhere that is more than 50 miles from the Executive's principal
place of business at the time of the Reorganization Event; or
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<PAGE> 7
(vi) a notice of termination given by the Executive for any
reason (including, without limitation, retirement) during the thirty
(30) day period immediately following the first (1st) anniversary of
the consummation of the Reorganization Event of the Company.
Notwithstanding the foregoing, the Executive shall not be entitled to
terminate his employment for Good Reason under items (i), (ii), (iii) or (iv)
above solely on the basis of his assignment to a new position with the Company
or its successor (which may otherwise constitute a Good Reason under one or more
of such items) if the Executive has accepted such assignment in writing. Any
such acceptance shall not waive the Executive's rights as to any other or any
future Good Reason events.
The Executive shall provide the Company with 30-day advance written
notice of a termination for Good Reason setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for the termination. Such
notice may be given at any time following the occurrence of the events that
provide the basis for the termination, but not later than the date that is 30
days prior to the second anniversary date of the consummation of the
Reorganization Event of the Company; provided, however, that (a) where a
termination for Good Reason is on account of relocation, as provided in item (v)
above, such notice shall be provided within one (1) year of the effective date
of such relocation (but not later than the date that is 30 days prior to the
second anniversary date of the consummation of the Reorganization Event of the
Company), and (b) where a termination for Good Reason is claimed under item (vi)
above, such notice shall be provided within the thirty (30) day notice period
referred to therein. If within the thirty (30) day period, the Company takes
actions reasonably satisfactory to the Executive to remedy the basis for the
Good Reason termination, such notice of termination shall be considered null and
void; provided, however, that the Company shall not have the right to remedy a
Good Reason termination occurring on the basis of a relocation as described in
item (v) above or on the basis of the termination notice described in item (vi)
above. The Date of Termination for a termination for Good Reason shall be the
expiration of the 30-day notice period provided for above.
4. SEVERANCE PAYMENT
The amount of the severance payment to be paid to the Executive upon
Covered Termination shall be the amount determined by multiplying 3.00 times the
sum of:
(a) the Executive's Annual Base Salary as in effect immediately prior
to the Date of Termination; plus,
(b) the Executive's Bonus Amount applicable for the fiscal year in
which the Date of Termination occurs; plus,
(c) a benefit allowance of 25% of the Executive's Annual Base Salary as
in effect immediately prior to the Date of Termination.
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<PAGE> 8
5. OTHER SEVERANCE BENEFITS
In addition to the severance payment provided under Section 4 hereof,
the Executive shall be entitled to the following benefits and other rights in
the event of his Covered Termination:
(a) Accrued Rights. The Executive shall be entitled to the following
payments and benefits in respect of accrued compensation rights upon a Covered
Termination, in addition to other rights provided under this Agreement:
(i) payment of any accrued but unpaid Annual Base Salary
through the Date of Termination;
(ii) if the Executive is a participant in the Company's annual
bonus plan, payment of (1) any earned but unpaid bonus under such plan
for any completed fiscal year prior to the Date of Termination, as
determined by the Company in its sole discretion and (2) a pro-rata
portion of the Bonus Amount for the fiscal year of the Company in which
the Covered Termination occurs, based on the number of days of such
year prior to the Date of Termination;
(iii) if the Executive is a participant in the Company's New
Business Bonus Plan (or any successor plan) payment of any earned but
unpaid bonus under such plan for periods prior to the Date of
Termination, as determined by the Company in its sole discretion;
(iv) all benefits and rights accrued under the employee
benefit plans, fringe benefits programs and payroll practices of the
Company in accordance with their terms (including, without limitations,
employee pension, employee welfare, incentive bonus, stock incentive
plans, and any accrued vacation or accrued sick pay time); and
(v) a payment equal to the forfeited portion of the account
balance of the Executive under the Company's tax qualified and
non-qualified pension and deferred compensation plans as a result of
failure to satisfy vesting requirements due to the Covered Termination.
(b) Outplacement Services. Upon the occurrence of a Covered
Termination, the Executive shall be provided, at the Company's sole expense,
with professional outplacement services consistent with the Executive's duties
or profession and of a type and level customary for persons in his position, as
selected by the Company, subject to reasonable limitations established by the
Company on a uniform basis for similarly situated executives as to duration and
dollar amounts.
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<PAGE> 9
6. EXCISE TAX REIMBURSEMENT
In the event it shall be determined that any payment or distribution by
the Company or any other person or entity to or for the Executive's benefit,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, or whether prior to or following the Covered
Termination in connection with, or arising out of, the Executive's employment
with the Company or a Reorganization Event of the Company (a "Payment") will be
subject to the tax (the "Excise Tax") imposed by section 4999 of the Code, the
Company shall pay to the Executive at the time specified in Section 7 hereof, an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Payments and any federal
(and state and local) income tax, employment tax, and Excise Tax upon the
payment provided for by this paragraph, shall be equal to the amount of the
Payments. For purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax the following will
apply:
(a) any payments or benefits received or to be received by the
Executive in connection with a Reorganization Event of the Company or his
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Reorganization Event of the Company or any person affiliated
with the Company or such person) shall be treated as "parachute payments" within
the meaning of section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to the Executive such other
payments or benefits (in whole or in part) do not constitute parachute payments,
or such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of section
280G(b)(4) of the Code in excess of the base amount within the meaning of
section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
and
(b) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in accordance
with proposed, temporary or final regulations under Sections 280G(d)(3) and (4)
of the Code or, in the absence of such regulations, in accordance with the
principles of Section 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. In the event that the amount of Excise Tax
attributable to Payments is subsequently determined to be less than the amount
taken into account hereunder at the time of termination of the Executive's
employment, he shall repay to the Company at the
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<PAGE> 10
time that the amount of such reduction in Excise Tax is finally determined the
portion of the Gross-Up Payment attributable to such reduction (plus the portion
of the Gross-Up Payment attributable to the Excise Tax, employment tax and
federal (and state and local) income tax imposed on the Gross-Up Payment being
repaid by the Executive if such repayment results in a reduction in Excise Tax
and/or a federal (and state and local) income tax deduction) plus interest on
the amount of such repayment at the rate provided in section 1274(b)(2) (B) of
the Code. In the event that the Excise Tax attributable to Payments is
determined to exceed the amount taken into account hereunder at the time of the
termination of the Executive's employment (including by reason of any payment
the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional gross-up payment in
respect of such excess (plus any interest payable with respect to such excess)
at the time that the amount of such excess is finally determined.
7. METHOD OF PAYMENT
The payments provided for in Sections 4, 5 and 6 hereof shall be made
in a cash lump-sum payment, net of any required tax withholding, upon the later
of (i) the fifth (5th) business day following the Date of Termination or (ii)
the expiration of the seven (7) day revocation period applicable under the
release of claims referred to in Section 10 hereof. Any payment required under
Sections 4, 5 or 6 or any other provision of this Agreement that is not made in
a timely manner shall bear interest at a rate equal to one hundred twenty (120)
percent of the monthly compounded applicable federal rate, as in effect under
Section 1274(d) of the Code for the month in which the payment is required to be
made.
8. RELOCATION EXPENSES
The Executive shall be entitled to a reimbursement payment from the
Company equal to his reasonable moving expenses (determined in accordance with
Company's relocation policy) incurred in connection with the Executive's written
acceptance of a position with the Company requiring his relocation to a
metropolitan area, other than the metropolitan area where his office is located
at the time of the Reorganization Event of the Company. The Company shall pay
the Executive an additional payment in an amount such that the net amount
retained by the Executive after deduction for any federal, state, and local
income tax, employment tax and any excise tax on the reimbursement payment shall
equal the amount of the reimbursement payment. If the employment of the
Executive is terminated for Good Reason on the basis of his relocation under
Section 3 hereof, the payment to which the Executive is entitled to under
Section 4 hereof will be reduced by 25% of the relocation payment, including tax
reimbursement, that the Executive received from the Company under this
Section 8.
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9. NO MITIGATION OR OFFSET
The Executive shall not be required to mitigate the amount of any
severance payment or benefit provided under this Agreement by seeking other
employment or otherwise. The amount of any payment or benefit to which the
Executive becomes entitled hereunder shall not be reduced by any compensation
earned by the Executive as the result of employment by another employer, by
retirement benefits, nor by offset against any amount claimed to be owed to the
Company by reason of a claimed breach by the Executive of his obligations under
Sections 11 or 12 hereof or otherwise (except that offset shall apply as
specifically provided in Section 8 hereof concerning relocation expenses and
Section 21 hereof concerning other severance payments).
10. RELEASE OF CLAIMS
As conditions of Executive's entitlement to the severance payments and
benefits provided by this Agreement, the Executive shall be required to execute
and honor the terms of a waiver and release of claims against the Company
substantially in the form attached hereto as Exhibit A (as may be modified
consistent with the purposes of such waiver and release to reflect changes in
law following the date hereof).
11. RESTRICTION ON CONDUCT OF EXECUTIVE
(a) General. The Executive and the Company understand and agree that
the purpose of the provisions of this Section 11 is to protect legitimate
business interests of the Company, as more fully described below, and is not
intended to impair or infringe upon the Executive's right to work, earn a
living, or acquire and possess property from the fruits of his labor. The
Executive hereby acknowledges that the post-employment restrictions set forth in
this Section 11 are reasonable and that they do not, and will not, unduly impair
his ability to earn a living after the termination of his employment with the
Company. Therefore, subject to the limitations of reasonableness imposed by law
upon restrictions set forth herein, the Executive shall be subject to the
restrictions set forth in this Section 11.
(b) Definitions. The following capitalized terms used in this Section
11 shall have the meanings assigned to them below, which definitions shall apply
to both the singular and the plural forms of such terms:
"Confidential Information" means any confidential or proprietary
information possessed by the Company without limitation, any confidential
"know-how", customer lists, details of client or consultant contracts, current
and anticipated customer requirements, pricing policies, price lists, market
studies, business plans, operational methods, marketing plans or strategies,
product development techniques or plans, computer software programs (including
object code and source code), data and documentation, data base technologies,
systems, structures and architectures, inventions and ideas, past, current and
planned research and development, compilations, devices,
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methods, techniques, processes, financial information and data, business
acquisition plans, new personnel acquisition plans and any other information
that would constitute a trade secret under the common law or statutory law of
the State of Delaware.
"Determination Date" means the date of termination of the Executive's
employment with the Company for any reason whatsoever or any earlier date
(during the Restricted Period) of an alleged breach of the Restrictive Covenants
by the Executive.
"Person" means any individual or any corporation, partnership, joint
venture, association or other entity or enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, member, trustee, director, officer, manager,
employee, agent, representative or consultant.
"Protected Employees" means employees of the Company or its affiliated
companies who were employed by the Company or its affiliated companies at any
time within six (6) months prior to the Determination Date.
"Restricted Period" means the period of the Executive's employment with
the Company plus a period extending two (2) years from the date of termination
of employment.
"Restrictive Covenants" means the restrictive covenants contained in
Section 11(c) hereof.
(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information. The Executive understands and agrees that the Confidential
Information constitutes a valuable asset of the Company and its
affiliated entities, and may not be converted to the Executive's own
use. Accordingly, the Executive hereby agrees that the Executive shall
not, directly or indirectly, at any time during the Restricted Period
reveal, divulge or disclose to any Person not expressly authorized by
the Company any Confidential Information, and the Executive shall not,
directly or indirectly, at any time during the Restricted Period use or
make use of any Confidential Information in connection with any
business activity other than that of the Company. The parties
acknowledge and agree that this Agreement is not intended to, and does
not, alter either the Company's rights or the Executive's obligations
under any state or federal statutory or common law regarding trade
secrets and unfair trade practices.
(ii) Nonsolicitation of Protected Employees. The Executive
understands and agrees that the relationship between the Company and
each of its Protected Employees constitutes a valuable asset of the
Company and may not be converted
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to the Executive's own use. Accordingly, the Executive hereby agrees
that during the Restricted Period the Executive shall not directly or
indirectly on the Executive's own behalf or as a Principal or
Representative of any Person solicit any Protected Employee to
terminate his or her employment with the Company.
(iii) Noninterference with Company Opportunities. The
Executive understands and agrees that all hotel development
opportunities with which he is involved during his employment with the
Company constitute valuable assets of the Company and its affiliated
entities, and may not be converted to Executive's own use. Accordingly,
the Executive hereby agrees that during the Restricted Period the
Executive shall not directly or indirectly on the Executive's own
behalf or as a Principal or Representative of any Person, interfere
with, solicit, pursue, or in any way make use of any such hotel
development opportunities.
(d) Exceptions from Disclosure Restrictions. Anything herein to the
contrary notwithstanding, the Executive shall not be restricted from disclosing
or using Confidential Information that: (i) is or becomes generally available to
the public other than as a result of an unauthorized disclosure by the Executive
or his agent; (ii) becomes available to the Executive in a manner that is not in
contravention of applicable law from a source (other than the Company or its
affiliated entities or one of its or their officers, employees, agents or
representative) that is not bound by a confidential relationship with the
Company or its affiliated entities or by a confidentiality or other similar
agreement; (iii) was known to the Executive on a non-confidential basis and not
in contravention of applicable law or a confidentiality or other similar
agreement before its disclosure to the Executive by the Company or its
affiliated entities or one of its or their officers, employees, agents or
representatives; or (iv) is required to be disclosed by law, court order or
other legal process; provided, however, that in the event disclosure is
required by law, court order or legal process, the Executive shall provide the
Company with prompt notice of such requirement so that the Company may seek an
appropriate protective order prior to any such required disclosure by the
Executive.
(e) Enforcement of the Restrictive Covenants.
(i) Rights and Remedies upon Breach. In the event the
Executive breaches, or threatens to commit a breach of, any of the
provisions of the Restrictive Covenants, the Company shall have the
right and remedy to enjoin, preliminarily and permanently, the
Executive from violating or threatening to violate the Restrictive
Covenants and to have the Restrictive Covenants specifically enforced
by any court of competent jurisdiction, it being agreed that any breach
or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not
provide an adequate remedy to the Company. The rights referred to in
the preceding sentence shall be independent of any others and severally
enforceable, and shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company at law or in equity.
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<PAGE> 14
(ii) Severability of Covenants. The Executive acknowledges
and agrees that the Restrictive Covenants are reasonable and valid in
time and space and in all other respects. If any court determines that
any Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to
the invalid portions.
12. COOPERATION IN FUTURE MATTERS
The Executive hereby agrees that, for a period of three (3) years
following his Date of Termination, he shall cooperate with the Company's
reasonable requests relating to matters that pertain to the Executive's
employment by the Company, including, without limitation, providing information
or limited consultation as to such matters, participating in legal proceedings,
investigations or audits on behalf of the Company, or otherwise making himself
reasonably available to the Company for other related purposes. Any such
cooperation shall be performed at times scheduled taking into consideration the
Executive's other commitments, and the Executive shall be compensated at a
reasonable hourly or per diem rate to be agreed by the parties to the extent
such cooperation is required on more than an occasional and limited basis. The
Executive shall not be required to perform such cooperation to the extent it
conflicts with any requirements of exclusivity of service for another employer
or otherwise, nor in any manner that in the good faith belief of the Executive
would conflict with his rights under or ability to enforce this Agreement.
13. INDEMNIFICATION
(a) Following the Date of Termination, the Company agrees that it will,
indemnify and hold harmless the Executive, against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Date of Termination, whether asserted
or claimed prior to, at or after the Date of Termination, to the fullest extent
that the Company would have been permitted under Delaware law and its
certificate of incorporation or bylaws in effect on the date hereof to indemnify
the Executive (and the Company shall also advance expenses as incurred to the
fullest extent permitted under applicable law, provided the Executive provides
an undertaking to repay advances if it is ultimately determined that the
Executive is not entitled to indemnification).
(b) For a period of six years after the Date of Termination, the
Company shall maintain (to the extent available in the market) in effect a
director's and officer's liability insurance policy covering with coverage in
amount and scope at least as favorable as the Company's existing coverage on the
Date of Termination; provided that in no event shall
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<PAGE> 15
the Company be required to expend in the aggregate in excess of 200% of the
annual premium paid by the Company for such coverage as of the Date of
Termination; and if such premium would at any time exceed 200% of the such
amount, then the Company shall maintain insurance policies which provide the
maximum and best coverage available at an annual premium equal to 200% of such
amount.
(c) The provisions of this Section 13 are intended to be an addition to
the rights otherwise available to the Executive by law, charter, statute, bylaw
or separate agreement between the Company and the Executive. The Company shall
continue to honor any indemnification agreement between the Company and the
Executive entered into prior to the Date of Termination in accordance with the
terms thereof.
14. SUCCESSORS, BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if he
terminated his employment for Good Reason following a Reorganization Event of
the Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devises and legatees. If the Executive should
die while any amount remains payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee or other designee or, if there is
no such designee, to the Executive's estate.
15. NOTICE
Any notice required or permitted to be given by this Agreement shall be
effective only if in writing, delivered personally against receipt therefor or
mailed by certified or registered mail, return receipt requested, to the parties
at the addresses hereinafter set forth, or at such other places that either
party may designate by notice to the other.
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Notice to the Company shall be addressed to:
Doubletree Corporation
410 North 44th Street, Suite 700
Phoenix, AZ 85008
Attn: Corporate Secretary
Notice to the Executive shall be addressed to him at the business
address of the Company where the Executive is employed, with a copy to him at
his home address as follows:
Margaret Ann Rhoades
7715 N. Calle Caballeros Place
Paradise Valley, AZ 85253
All such notices shall be deemed effectively given five (5) days after
the same has been deposited in a post box under the exclusive control of the
United States Postal Service.
16. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
17. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
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<PAGE> 17
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
19. PAYMENT OF LEGAL FEES
The Company shall pay all reasonable legal fees and expenses incurred
by the Executive in connection with any arbitration (or other proceeding whether
or not instituted by the Company or the Executive), relating to the
interpretation or enforcement of any provision of this Agreement (including any
action seeking to obtain or enforce any right or benefit provided by this
Agreement) or in connection with any tax audit or proceeding relating to the
application of Section 4999 of the Code to any payment or benefit provided by
the Company.
20. NO RESTRICTIONS ON EMPLOYMENT RIGHTS
Nothing in this Agreement shall confer on the Executive any right to
continue in the employ of the Company or shall interfere with or restrict in any
way the rights of the Company, which are hereby expressly reserved, to discharge
the Executive at any time for any reason whatsoever, with or without Cause,
subject to the requirements of this Agreement. Nothing in this Agreement shall
restrict the right of the Executive to terminate his employment with the Company
at any time for any reason whatsoever, with or without Good Reason.
21. OTHER SEVERANCE AGREEMENTS
Any severance payments provided to the Executive under Section 4 hereof
shall be offset by the dollar amount of any other cash severance payments to
which the Executive is entitled under any other severance or termination pay
plan, policy or agreement with the Company or its affiliates (including, without
limitation, the severance or termination pay plans, policies and agreements of
Red Lion Hotels, Inc.).
22. HOSTILE TRANSACTION PROVISION
(a) Notwithstanding anything elsewhere in this Agreement to the
contrary, in the event of consummation of a "Hostile Transaction" (as defined
below), the definition of "Good Reason" set forth in Section 3(c) hereof shall
be substituted with the following definition, which shall apply for all purposes
of this Agreement:
"Termination for Good Reason. For purposes hereof, the Executive may
terminate his employment for "Good Reason" as a result of:
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<PAGE> 18
(i) any adverse change in the Executive's position or title as in
effect at the time of the Reorganization Event of the Company, or the assignment
to the Executive of any duties inconsistent with such position or title;
(ii) any reduction in the Executive's overall level of authority and
responsibility with the Company as in effect at the time of the Reorganization
Event of the Company;
(iii) any reduction in the Executive's Annual Base Salary as in effect
at the time of the Reorganization Event of the Company;
(iv) any reduction in the Executive's target or maximum bonus
percentage under the Company's annual bonus plan from the percentage in effect
at the time of the Reorganization Event of the Company;
(v) a relocation by more than 50 miles of the Executive's principal
place of business at the time of the Reorganization Event of the Company, or the
Company's requiring the Executive to locate anywhere that is more than 50 miles
from the Executive's principal place of business at the time of the
Reorganization Event;
(vi) the failure by the Company to continue in effect any compensation
plan in which the Executive is participating immediately prior to the
Reorganization Event of the Company which is material to his total compensation,
including but not limited to, the bonus plans, deferred compensation plans,
equity incentive plans, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or the
failure by the Company to continue the Executive's participation therein (or in
such substitute or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of his
participation relative to other participants, as existed immediately prior to
the Reorganization Event of the Company;
(vii) the failure by the Company to continue to provide the Executive
with benefits substantially similar to those enjoyed by the Executive under any
of the Company's pension, savings and retirement plan, life insurance, medical,
health and accident, or disability plans in which he was participating at the
time of the Reorganization Event of the Company, the taking of any action by the
Company which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit enjoyed by him
at the time of the Reorganization Event of the Company, or the failure by the
Company to provide the Executive with the number of paid vacation days to which
he is entitled on the basis of years of service with the Company in accordance
with the Company's normal vacation policy in effect at the time of the
Reorganization Event of the Company;
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(viii) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 14 hereof; or
(ix) a termination by the Executive for any reason
(including, without limitation, retirement) during the thirty (30) day
period immediately following the first (1st) anniversary of the
consummation of the Reorganization Event of the Company.
The Executive's right to terminate his employment pursuant to this
Agreement for Good Reason shall not be affected by his incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder."
(b) In the event of consummation of a Hostile Transaction, the
provisions of Section 11 hereof (concerning restricted conduct) and Section 12
hereof (concerning required cooperation) shall not be applicable to the
Executive.
(c) For purposes hereof, a "Hostile Transaction" shall be any
Reorganization Event which has, at any time prior to the consummation thereof,
been designated by a resolution of the Board as potentially having an impact on
the Executive and other of the Company's executives, such that it would be
appropriate for the Executive (and such other executives) to be provided with
the additional protection afforded by the foregoing definition of "Good Reason."
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IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
DOUBLETREE CORPORATION
/s/ David L. Stivers
----------------------------------------
Name: David L. Stivers
Title: Senior Vice President
General Counsel and Secretary
EXECUTIVE
/s/ Margaret Ann Rhoades
----------------------------------------
Name: Margaret Ann Rhoades
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<PAGE> 1
EXHIBIT 10.20
<PAGE> 2
MERGER SEVERANCE AGREEMENT
THIS MERGER SEVERANCE AGREEMENT (this "Agreement") is made as of this
1st day of September, 1997, between PROMUS HOTEL CORPORATION (the "Company") and
James T. Harvey (the "Executive").
RECITALS
WHEREAS, the Company considers it essential to the best interest of its
stockholders to foster the continuous employment of key management personnel,
and believes that the possibility of a reorganization event of the Company and
the uncertainty and questions which it may raise among management may result in
the departure or distraction of management personnel to the detriment of the
Company and its stockholders; and
WHEREAS, the Board of Directors has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a reorganization event of the
Company;
NOW, THEREFORE, in consideration of the mutual premises set forth below
and for other good and valuable consideration, in order to induce the Executive
to remain in the employ of the Company, the Company agrees that the Executive
shall receive the severance benefits set forth in this agreement (this
"Agreement") in the event his employment with the Company terminates subsequent
to a "Reorganization Event" of the Company under the circumstances described
below.
AGREEMENT
1. DEFINITIONS
The following terms used in this Agreement shall have the meanings
given below:
(a) "Annual Base Salary" shall mean the Executive's gross annual salary
before any deductions, exclusions or any deferrals or contributions under any
Company plan or program, but excluding bonuses, incentive compensation, employee
benefits or any other non-salary form of compensation (determined without regard
to any reduction in Annual Base Salary that results in "Good Reason"
termination).
(b) "Board" shall mean the Board of Directors of the Company.
(C) "Bonus Amount" shall mean the greater of (i) the dollar amount of
the annual bonus that would be payable to the Executive under the Company's
annual bonus plan applicable to the Executive, assuming payment at the target
level for the Executive's then current salary grade level for the then-current
full fiscal year (determined without regard to any reduction in target bonus
percentage that results in "Good Reason" termination), or (ii) the dollar amount
of
<PAGE> 3
the bonus paid or payable to the Executive under the Company's annual
bonus plan for the most recently completed fiscal year under such plan.
Notwithstanding the foregoing, if the Executive is a participant in the
Company's Development Bonus Plan (or any successor plan), the "Bonus Amount"
shall mean the greater of (i) the dollar amount of the annual bonus that would
be payable at the Executive's then current grade level under the Company's
Annual Management Bonus Plan (as opposed to the Development Bonus Plan), or (ii)
the dollar amount of the bonus actually paid to the Executive during the most
recently completed fiscal year under the Company's Development Bonus Plan,
subject to a maximum amount equal to the target bonus under the Company's Annual
Management Bonus Plan at the Executive's salary grade level for such plan year.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Company" shall mean Promus Hotel Corporation, or any successor
corporation that assumes this Agreement under Section 14 hereof or otherwise
becomes bound by this Agreement.
(f) "Covered Termination" shall have the meaning given in Section 3
hereof.
(g) "Date of Termination" shall mean the effective date of the
Executive's Covered Termination pursuant to Section 3 hereof.
(h) "Disability" shall mean the absence of the Executive from the
full-time performance of his duties with the Company for six consecutive months
as a result of incapacity due to physical or mental illness, provided the
Company has given 30-day advance written notice to the Executive and he has not
returned to the full-time performance of his duties.
(i) "Reorganization Event" shall mean the occurrence of any of the
following after the date hereof.
(i) any "person" (as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other
than an employee benefit plan of the Company, or a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 25% or more of the Company's then outstanding voting
securities carrying the right to vote in elections of persons to the Board,
regardless of comparative voting power of such voting securities, and regardless
of whether or not the Board shall have approved such Reorganization Event; or
(ii) during any period of two (2) consecutive years (not including
any period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board (the "Incumbent Board") and any
other new director (other than a director designated by a person who shall have
entered into an agreement with the Company to effect a transaction described in
clauses (i) or (iii) of this subsection) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the
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period or whose election or nomination for election was previously so approved
(each such new director being considered a member of the "Incumbent Board"),
cease for any reason to constitute a majority thereof; or
(iii) the holders of securities of the Company entitled to vote
thereon approve of the following:
(A) a merger or consolidation of the Company with any other
corporation regardless of which entity is the surviving company, other
than a merger or consolidation which would result in the voting securities of
the Company carrying the right to vote in elections of persons to the board
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66 2/3% of the Company's then-outstanding voting
securities carrying the right to vote in elections of persons to the board or
such securities of such surviving entity outstanding immediately after such
merger or consolidation, or
(B) a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets.
Notwithstanding the definition of "Reorganization Event" of the Company
as set forth in this Agreement, the Board shall have full and final authority,
which shall be exercised in its discretion, to determine conclusively whether a
Reorganization Event of the Company has occurred, and the date of the occurrence
of such Reorganization Event and any incidental matters relating thereto, with
respect to a transaction or series of transactions which have resulted or will
result in a substantial portion of the assets or business of the Company (as
determined immediately prior to the transaction or series of transactions by the
Board in its sole discretion which determination shall be final and conclusive)
being held by a corporation at least 66 2/3% of whose voting securities are
held, immediately following such transaction or series of transactions, by
holders of the voting securities of the Company (determined immediately prior to
such transaction or series of transactions). The Board may exercise such
discretionary authority without regard to whether one or more of the
transactions in such series of transactions would otherwise constitute a
Reorganization Event of the Company under the definition set forth in this
Agreement. It is hereby understood and agreed that the consummation of the
business combination contemplated by the Agreement and Plan of Merger dated as
of September 1, 1997 among Doubletree Corporation, the Company and Parent
Holding Corp. shall constitute a Reorganization Event for purposes of this
Agreement.
2. TERM OF AGREEMENT
This Agreement shall commence on the date first written above and shall
continue in effect though December 31, 1998; provided, however, that commencing
on January 1, 1999 and each January I thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Company shall have given notice that it
does not wish to extend this Agreement; and provided further, that the incumbent
Board may terminate this agreement at any time prior to the consummation of the
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<PAGE> 5
business combination contemplated by the above referenced Agreement and Plan
of Merger (the "Merger") if the Board finds that the consummation of the
Merger is no longer viable or in the best interest of the Company.
Notwithstanding the foregoing, no notice of non-renewal given by the Board
shall be effective with respect to a particular Reorganization Event if given
after the occurrence of the following events: (i) the Company enters into an
agreement or letter of intent, the consummation of which would result in such
Reorganization Event, (ii) any "person" makes a public announcement of its
intention to take or consider taking actions that would result in such
Reorganization Event, or (iii) any "person" (as defined above) initiates a
tender offer which, if consummated, would result in such Reorganization Event
(it being understood that this sentence shall not apply with respect to any
unrelated Reorganization Event). If a Reorganization Event of the Company
shall have occurred during the original or extended term of this Agreement,
the term of this Agreement shall continue in force and effect until the
satisfaction of all of the Company's obligations to the Executive as provided
hereunder.
3. COVERED TERMINATION
(a) General. The Executive shall be treated as having incurred a
"Covered Termination" hereunder if his employment is terminated by the Company
other than for cause or if the Executive gives notice of termination for Good
Reason (as described below) within a period of two (2) years following the
consummation of a Reorganization Event of the Company. The Executive shall not
be treated as having incurred a Covered Termination if his employment is
terminated as a result of death or Disability.
(b) Termination for Cause. Termination by the Company of the
Executive's employment for "Cause" shall mean termination as a result of-
(i) the Executive engaging in willful gross neglect of his duties
with the Company, or the Executive's fraud or dishonesty in connection with his
performance of duties to the Company, in either case which has a materially
detrimental effect on the business or operations of the Company; or
(ii) the Executive's conviction by a court of competent
jurisdiction of any crime (or upon entering a plea of guilty or nolo contendere
to a charge of any crime) constituting a felony.
The Date of Termination for a termination for Cause shall be the date
specified by the Company.
(c) Termination for Good Reason. For purposes hereof, the Executive may
terminate his employment for "Good Reason" as a result of-
(i) a material adverse change in the Executive's position or title
as in effect at the time of the Reorganization Event of the Company;
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<PAGE> 6
(ii) a substantial reduction in the Executive's overall level of
authority and responsibility with the Company as in effect at the time of the
Reorganization Event of the Company;
(iii) any reduction in the Executive's Annual Base Salary as in
effect at the time of the Reorganization Event of the Company;
(iv) any reduction in the Executive's target or maximum bonus
percentage under the Company's annual bonus plan from the percentage in effect
at the time of the Reorganization Event of the Company;
(v) a relocation by more than 50 miles from the Executive's
principal place of business at the time of the Reorganization Event of the
Company, or the Company's requiring the Executive to locate anywhere that is
more than 50 miles from the Executive's principal place of business at the time
of the Reorganization Event; or
(vi) a notice of termination given by the Executive for any
reason (including, without limitation, retirement) during the thirty (30)
day period immediately following the first (1st) anniversary of the consummation
of the Reorganization Event of the Company.
Notwithstanding the foregoing, the Executive shall not be entitled to
terminate his employment for Good Reason under items (i), (ii), (iii) or (iv)
above solely on the basis of his assignment to a new position with the Company
or its successor (which may otherwise constitute a Good Reason under one or more
of such items) if the Executive has accepted such assignment in writing. Any
such acceptance shall not waive the Executive's rights as to any other or any
future Good Reason events.
The Executive shall provide the Company with 30-day advance written
notice of a termination for Good Reason setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for the termination. Such
notice may be given at any time following the occurrence of the events that
provide the basis for the termination during the two (2) year period following
the Reorganization Event of the Company; provided, however, that (a) where a
termination for Good Reason is on account of relocation, as provided in item (v)
above, such notice shall be provided within one (1) year of the effective date
of such relocation (but not later than the expiration of the 2-year period
above) and (b) where a termination for Good Reason is claimed under item (vi)
above, such notice shall be provided within the thirty (30) day period referred
to therein. If within the thirty (30) day period, the Company takes actions
reasonably satisfactory to the Executive to remedy the basis for the Good Reason
termination, such notice of termination shall be considered null and void;
provided, however that the Company shall not have the right to remedy a Good
Reason termination occurring on the basis of a relocation as described in item
(v) above or on the basis of the termination notice described in item (vi)
above. The Date of Termination for a termination for Good Reason shall be the
expiration of the 30-day notice period provided for above.
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4. SEVERANCE PAYMENT
The amount of the severance payment to be paid to the Executive upon
Covered Termination shall be the amount determined by multiplying 3.00 times the
sum of:
(a) the Executive's Annual Base Salary as in effect immediately prior
to the Date of Termination; plus,
(b) the Executive's Bonus Amount applicable for the fiscal year in
which the Date of Termination occurs; plus,
(c) a benefit allowance of 25% of the Executive's Annual Base Salary as
in effect immediately prior to the Date of Termination.
5. OTHER SEVERANCE BENEFITS
In addition to the severance payment provided under Section 4 hereof,
the Executive shall be entitled to the following benefits and other rights in
the event of the his Covered Termination:
(a) Accrued Rights. The Executive shall be entitled to the following
payments and benefits in respect of accrued compensation rights upon a Covered
Termination, in addition to other rights provided under this Agreement:
(i) payment of any accrued but unpaid Annual Base Salary through
the Date of Termination and payment of any annual bonus (for any completed
fiscal year) that is awarded subsequent to the Date of Termination by the
Company in its sole discretion under the terms of the annual bonus plan then in
effect.
(ii) payment of a pro-rata portion of the Bonus Amount for the
fiscal year of the Company in which the Covered Termination occurs, based on the
number of days of such year prior to the Date of Termination;
(iii) all benefits and rights accrued under the employee benefit
plans, fringe benefits programs and payroll practices of the Company in
accordance with their terms (including, without limitations, employee pension,
employee welfare, incentive bonus, stock incentive plans, and any accrued
vacation or sick pay time); and
(iv) a payment equal to the forfeited portion of the Executive's
account balance under the Company's tax qualified deferred compensation plan as
a result of failure to satisfy vesting requirements due to a Covered
Termination.
(b) Outplacement Services. Upon the occurrence of a Covered
Termination, the Executive shall be provided, at the Company's sole expense,
with professional outplacement services consistent with the Executive's duties
or profession and of a type and level customary for persons in his position, as
selected by the Company, subject to reasonable limitations
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established by the Company on a uniform basis for similarly situated executives
as to duration and dollar amounts.
6. EXCISE TAX REIMBURSEMENT
In the event it shall be determined that any payment or distribution by
the Company or any other person or entity to or for the Executive's benefit,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, or whether prior to or following the Covered
Termination in connection with, or arising out of, the Executive's employment
with the Company or a Reorganization Event of the Company (a "Payment") will be
subject to the tax (the "Excise Tax") imposed by section 4999 of the Code, the
Company shall pay to the Executive at the time specified in Section 7 hereof, an
additional amount (the "Gross Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the Payments and any federal
(and state and local) income tax, employment tax, and Excise Tax upon the
payment provided for by this paragraph, shall be equal to the amount of the
Payments. For purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax the following will
apply:
(a) any payments or benefits received or to be received by the
Executive in connection with a Reorganization Event of the Company or his
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Reorganization Event of the Company or any person affiliated
with the Company or such person) shall be treated as "parachute payments" within
the meaning of section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to the Executive such other
payments or benefits (in whole or in part) do not constitute parachute payments,
or such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of section
280G(b)(4) of the Code in excess of the base amount within the meaning of
section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
and
(b) the value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Company's independent auditors in
accordance with proposed, temporary or final regulations under Sections
280G(d)(3) and (4) of the Code or, in the absence of such regulations, in
accordance with the principles of Section 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the Date of Termination, net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes. In the event that the amount of Excise
Tax attributable to Payments is subsequently determined to be less than the
amount taken into account hereunder at the time of termination of the
Executive's employment, he shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined the
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portion of the Gross-Up Payment attributable to such reduction (plus
the portion of the Gross-Up Payment attributable to the Excise Tax, employment
tax and federal (and state and local) income tax imposed on the Gross-Up Payment
being repaid by the Executive if such repayment results in a reduction in Excise
Tax and/or a federal (and state and local) income tax deduction) plus interest
on the amount of such repayment at the rate provided in section 1274(b)(2)(B)
of the Code. In the event that the Excise Tax attributable to Payments is
determined to exceed the amount taken into account hereunder at the time of the
termination of the Executive's employment (including by reason of any payment
the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional gross-up payment in
respect of such excess (plus any interest payable with respect to such excess)
at the time that the amount of such excess is finally determined.
7. METHOD OF PAYMENT
The payments provided for in Sections 4, 5 and 6 hereof shall be made
in a cash lump-sum payment, net of any required tax withholding, upon the later
of (i) the fifth (5th) business day following the Date of Termination or (ii)
the expiration of the seven (7) day revocation period applicable under the
release of claims referred to in Section 10 hereof, provided, however, that if
the amounts of such payments cannot be finally determined on or before such day,
the Company shall pay on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments. Any payment required under
Sections 4, 5 or 6 or any other provision of this Agreement that is not made in
a timely manner shall bear interest at a rate equal to one-hundred twenty (120)
percent of the monthly compounded applicable federal rate, as in effect under
Section 1274(d) of the Code for the month in which the payment is required to be
made. In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company payable on the fifth day after demand by the Company with interest
at the rate provided under Section 1274(d) of the Code until paid.
8. RELOCATION EXPENSES
The Executive shall be entitled to a reimbursement payment from the
Company equal to his reasonable moving expenses (determined in accordance with
Company's relocation policy) incurred in connection with the Executive's written
acceptance of a position with the Company requiring his relocation to a
metropolitan area, other than the metropolitan area where his office is located
at the time of the Reorganization Event of the Company. The Company shall pay
the Executive an additional payment in an amount such that the net amount
retained by the Executive after deduction for any federal, state, and local
income tax, employment tax and any excise tax on the reimbursement payment shall
equal the amount of the reimbursement payment. If the employment of the
Executive is terminated for Good Reason on the basis of his relocation under
Section 3 hereof, the payment to which the Executive is entitled to under
Section 4 hereof will be reduced by 25% of the relocation payment, including tax
reimbursement, that the Executive received from the Company under this
Section 8.
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9. NO MITIGATION OR OFFSET
The Executive shall not be required to mitigate the amount of any
severance payment or benefit provided under this Agreement by seeking other
employment or otherwise. The amount of any payment or benefit to which the
Executive becomes entitled hereunder shall not be reduced by any compensation
earned by the Executive as the result of employment by another employer, by
retirement benefits, nor by offset against any amount claimed to be owed to the
Company by reason of a claimed breach by the Executive of his obligations under
Sections I or 12 hereof or otherwise (except that offset shall apply as
specifically provided in Section 8 hereof concerning relocation expenses and
Section 21 hereof concerning other severance payments).
10. RELEASE OF CLAIMS
As conditions of Executive's entitlement to the severance payments and
benefits provided by this Agreement, the Executive shall be required to execute
and honor the terms of a waiver and release of claims against the Company
substantially in the form attached hereto as Exhibit A (as may be modified
consistent with the purposes of such waiver and release to reflect changes in
law following the date hereof).
11. RESTRICTION ON CONDUCT OF EXECUTIVE
(a) General. The Executive and the Company understand and agree that
the purpose of the provisions of this Section 11 is to protect legitimate
business interests of the Company, as more fully described below, and is not
intended to impair or infringe upon the Executive's right to work, earn a
living, or acquire and possess property from the fruits of his labor. The
Executive hereby acknowledges that the post-employment restrictions set forth in
this Section 11 are reasonable and that they do not, and will not, unduly impair
his ability to earn a living after the termination of his employment with the
Company. Therefore, subject to the limitations of reasonableness imposed by law
upon restrictions set forth herein, the Executive shall be subject to the
restrictions set forth in this Section 11.
(b) Definitions. The following capitalized terms used in this Section
11 shall have the meanings assigned to them below, which definitions shall apply
to both the singular and the plural forms of such terms:
"Confidential Information" means any confidential or proprietary
information possessed by the Company without limitation, any confidential
"know-how", customer lists, details of client or consultant contracts, current
and anticipated customer requirements, pricing policies, price lists, market
studies, business plans, operational methods, marketing plans or strategies,
product development techniques or plans, computer software programs (including
object code and source code), data and documentation, data base technologies,
systems, structures and architectures, inventions and ideas, past, current and
planned research and development, compilations, devices, methods, techniques,
processes, financial information and data, business acquisition plans, new
personnel acquisition plans and any other information that would constitute a
trade secret under the common law or statutory law of the State of Delaware.
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"Determination Date" means the date of termination of the Executive's
employment with the Company for any reason whatsoever or any earlier date
(during the Restricted Period) of an alleged breach of the Restrictive Covenants
by the Executive.
"Person" means any individual or any corporation, partnership, joint
venture, association or other entity or enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, member, trustee, director, officer, manager,
employee, agent, representative or consultant.
"Protected Employees" means employees of the Company or its affiliated
companies who were employed by the Company or its affiliated companies at any
time within six (6) months prior to the Determination Date.
"Restricted Period" means the period of the Executive's employment with
the Company plus a period extending two (2) years from the date of termination
of employment.
"Restrictive Covenants" means the restrictive covenants contained in
Section II (c) hereof
(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information. The Executive understands and agrees that the Confidential
Information constitutes a valuable asset of the Company and its affiliated
entities, and may not be converted to the Executive's own use. Accordingly, the
Executive hereby agrees that the Executive shall not, directly or indirectly,
at any time during the Restricted Period reveal, divulge or disclose to any
Person not expressly authorized by the Company any Confidential Information,
and the Executive shall not, directly or indirectly, at any time during the
Restricted Period use or make use of any Confidential Information in connection
with any business activity other than that of the Company. The parties
acknowledge and agree that this Agreement is not intended to, and does not,
alter either the Company's rights or the Executive's obligations under any
state or federal' statutory or common law regarding trade secrets and unfair
trade practices.
(ii) Nonsolicitation of Protected Employees. The Executive
understands and agrees that the relationship between the Company and each of
its Protected Employees constitutes a valuable asset of the Company and may not
be converted to the Executive's own use. Accordingly, the Executive hereby
agrees that during the Restricted Period the Executive shall not directly or
indirectly on the Executive's own behalf or as a Principal or Representative of
any Person solicit any Protected Employee to terminate his or her employment
with the Company. I
(iii) Noninterference with Company Opportunities. The
Executive understands and agrees that all hotel development opportunities with
which the is involved during his employment with the Company constitute valuable
assets of the Company and its affiliated
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entities, and may not be converted to Executive's own use. Accordingly,
the Executive hereby agrees that during the Restricted Period the Executive
shall not directly or indirectly on the Executive's own behalf or as a Principal
or Representative of any Person, interfere with, solicit, pursue, or in any way
make use of any such hotel development opportunities.
(d) Exceptions from Disclosure Restrictions. Anything herein to the
contrary notwithstanding, the Executive shall not be restricted from disclosing
or using Confidential Information that: (i) is or becomes generally available to
the public other than as a result of an unauthorized disclosure by the Executive
or his agent; (ii) becomes available to the Executive in a manner that is not in
contravention of applicable law from a source (other than the Company or its
affiliated entities or one of its or their officers, employees, agents or
representative) that is not bound by a confidential relationship with the
Company or its affiliated entities or by a confidentiality or other similar
agreement; (iii) was known to the Executive on a non-confidential basis and not
in contravention of applicable law or a confidentiality or other similar
agreement before its disclosure to the Executive by the Company or its
affiliated entities or one of its or their officers, employees, agents or
representatives; or (iv) is required to be disclosed by law, court order or
other legal process; provided, however, that in the event disclosure is required
by law, the Executive shall provide the Company with prompt notice of such
requirement so that the Company may seek an appropriate protective order prior
to any such required disclosure by the Executive.
(e) Enforcement of the Restrictive Covenants.
(i) Rights and Remedies upon Breach. In the event the Executive
breaches, or threatens to commit a breach of, any of the provisions of the
Restrictive Covenants, the Company shall have the right and remedy to enjoin,
preliminarily and permanently, the Executive from violating or threatening to
violate the Restrictive Covenants and to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not provide an
adequate remedy to the Company. The rights referred to in the preceding sentence
shall be independent of any others and severally enforceable, and shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company at law or in equity.
(ii) Severability of Covenants. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in time and
space and in all other respects. If any court determines that any Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the remainder of
the Restrictive Covenants shall not thereby be affected and shall be given
full effect, without regard to the invalid portions.
12. COOPERATION IN FUTURE MATTERS
The Executive hereby agrees that, for a period of three (3) years
following his Date of Termination, he shall cooperate with the Company's
reasonable requests relating to matters that pertain to the Executive's
employment by the Company, including, without limitation, providing
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information or limited consultation as to such matters, participating
in legal proceedings, investigations or audits on behalf of the Company, or
otherwise making himself reasonably available to the Company for other related
purposes. Any such cooperation shall be performed at times scheduled taking into
consideration the Executive's other commitments, and the Executive shall be
compensated at a reasonable hourly or per diem rate to be agreed by the parties
to the extent such cooperation is required on more than an occasional and
limited basis. The Executive shall not be required to perform such cooperation
to the extent it conflicts with any requirements of exclusivity of service for
another employer or otherwise, nor in any manner that in the good faith belief
of the Executive would conflict with his rights under or ability to enforce this
Agreement.
13. INDEMNIFICATION
(a) Following the Date of Termination, the Company agrees that it will,
indemnify and hold harmless the Executive, against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Date of Termination, whether asserted
or claimed prior to, at or after the Date of Termination, to the fullest extent
that the Company would have been permitted under Delaware law and its
certificate of incorporation or bylaws in effect on the date hereof to indemnify
the Executive (and the Company shall also advance expenses as incurred to the
fullest extent permitted under applicable law, provided the Executive provides
an undertaking to repay advances if it is ultimately determined that the
Executive is not entitled to indemnification).
(b) For a period of six years after the Date of Termination, the
Company shall maintain (to the extent available in the market) in effect a
director's and officer's liability insurance policy covering with coverage in
amount and scope at least as favorable as the Company's existing coverage on the
Date of Termination; provided that in no event shall the Company be required to
expend in the aggregate in excess of 200% of the annual premium paid by the
Company for such coverage as of the Date of Termination; and if such premium
would at any time exceed 200% of the such amount, then the Company shall
maintain insurance policies which provide the maximum and best coverage
available at an annual premium equal to 200% of such amount.
(c) The provisions of this Section 13 are intended to be an addition to
the rights otherwise available to the Executive by law, charter, statute, bylaw
or separate agreement between the Company and the Executive. The Company shall
continue to honor any indemnification agreement between the Company and the
Executive entered into prior to the Date of Termination in accordance with the
terms thereof.
14. SUCCESSORS, BINDING AGREEMENT
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or
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assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive
to compensation from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if he terminated his employment for
Good Reason following a Reorganization Event of the Company, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devises and legatees. If the Executive should
die while any amount remains payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee or other designee or, if there is
no such designee, to the Executive's estate.
15. NOTICE
Any notice required or permitted to be given by this Agreement shall be
effective only if in writing, delivered personally against receipt therefor or
mailed by certified or registered mail, return receipt requested, to the parties
at the addresses hereinafter set forth, or at such other places that either
party may designate by notice to the other.
Notice to the Company shall be addressed to:
Promus Hotel Corporation
755 Crossover Lane
Memphis, Tennessee 38117
Attention: General Counsel
Notice to the Executive shall be addressed to him at the business
address of the Company where the Executive is employed, with a copy to him at
his home address as follows:
All such notices shall be deemed effectively given five (5) days after
the same has been deposited in a post box under the exclusive control of the
United States Postal Service.
16. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a
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waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. No agreement or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Delaware. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
17. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Memphis, Tennessee
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
19. PAYMENT OF LEGAL FEES
The Company shall pay all reasonable legal fees and expenses incurred
by the Executive in connection with any arbitration (or other proceeding whether
or not instituted by the Company or the Executive), relating to the
interpretation or enforcement of any provision of this Agreement (including any
action seeking to obtain or enforce any right or benefit provided by this
Agreement) or in connection with any tax audit or proceeding relating to the
application of Section 4999 of the Code to any payment or benefit provided by
the Company.
20. NO RESTRICTIONS ON EMPLOYMENT RIGHTS
Nothing in this Agreement shall confer on the Executive any right to
continue in the employ of the Company or shall interfere with or restrict in any
way the rights of the Company, which are hereby expressly reserved, to discharge
the Executive at any time for any reason whatsoever, with or without Cause,
subject to the requirements of this Agreement. Nothing in this Agreement shall
restrict the right of the Executive to terminate his employment with the Company
at any time for any reason whatsoever, with or without Good Reason.
21. OTHER SEVERANCE AGREEMENTS
This Agreement is not intended to, and shall not, in any way supersede,
amend or affect the Executive's Severance Agreement, dated as of June 30, 1995
with the Company (the "Existing Severance Agreement"), as the Existing Severance
Agreement is being amended concurrently herewith. However, in no event shall the
Executive receive payments or other benefits under both the Existing Severance
Agreement and this Agreement. In the event that the Executive becomes entitled
to receive severance payment or other benefits under both the
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Existing Severance Agreement and under this Agreement, the Executive may elect
which agreement shall apply for all purposes, including payments and benefits
(but, e.g., may not elect one particular benefit under one agreement and another
benefit under the other agreement) by filing a written election with the Company
at any time before the Executive receives his first severance payment under
either of such agreements.
22. HOSTILE TRANSACTION PROVISION
(a) Notwithstanding anything elsewhere in this Agreement to the
contrary, in the event of consummation of a "Hostile Transaction" (as defined
below), the definition of "Good Reason" set forth in Section 3(c) hereof shall
be substituted with the following definition, which shall apply for all purposes
of this Agreement:
Termination for Good Reason. For purposes hereof, the Executive may
terminate his employment for "Good Reason" as a result of:
(i) any adverse change in the Executive's position or title as
in effect at the time of the Reorganization Event of the Company, or the
assignment to the Executive of duties inconsistent with such position or
title;
(ii) any reduction in the Executive's overall level of
authority and responsibility with the Company as in effect at the time
of the Reorganization Event of the Company;
(iii) any reduction in the Executive's Annual Base Salary as
in effect at the time of the Reorganization Event of the Company;
(iv) any reduction in the Executive's target or maximum bonus
percentage under the Company's annual bonus plan from the percentage in
effect at the time of the Reorganization Event of the Company;
(v) a relocation by more than 50 miles of the Executive's
principal place of business at the time of the Reorganization Event of
the Company, or the Company's requiring the Executive to locate anywhere
that is more than 50 miles from the Executive's principal place of
business at the time of the Reorganization Event;
(vi) the failure by the Company to continue in effect any
compensation plan in which the Executive is participating immediately
prior to the Reorganization Event of the Company which is material to
his total compensation, including but not limited to, the bonus plans,
deferred compensation plans, equity incentive plans, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan, or the failure by the Company to
continue the Executive's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of his
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participation relative to other participants, as existed immediately
prior to the Reorganization Event of the Company;
(vii) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, savings and retirement
plan, life insurance, medical, health and accident, or disability
plans in which he was participating at the time of the Reorganization
Event of the Company, the taking of any action by the Company which
would directly or indirectly materially reduce any of such benefits or
deprive the Executive of any material fringe benefit enjoyed by him at
the time of the Reorganization Event of the Company, or the failure by
the Company to provide the Executive with the number of paid vacation
days to which he is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Reorganization Event of the Company;
(viii) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 14 hereof; or
(ix) a termination by the Executive for any reason
(including, without limitation, retirement) during the thirty (30) day
period immediately following the first (1st) anniversary of the
consummation of the Reorganization Event of the Company.
The Executive's right to terminate his employment pursuant to this
Agreement for Good Reason shall not be affected by his incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.
(b) In the event of consummation of a Hostile Transaction, the
provisions of Section 11 hereof and Section 12 hereof shall not be applicable to
the Executive.
(c) For purposes, hereof, a "Hostile Transaction" shall be any
Reorganization Event which has, at any time prior to the consummation thereof,
been designated by a resolution of the Board as potentially having an impact on
the Executive and other of the Company's executives, such that it would be
appropriate for the Executive (and such other executives) to be provided with
the additional protection afforded by the foregoing definition of "Good Reason."
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IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
PROMUS HOTEL CORPORATION
/s/ Ralph B. Lake
---------------------------
Name: Ralph B. Lake
Title: Senior Vice President
EXECUTIVE
/s/ James T. Harvey
---------------------------
Name: James T. Harvey
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EXHIBIT A
RELEASE OF CLAIMS AND COVENANT NOT TO SUE
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE (this "Agreement") is
executed and delivered by James T. Harvey (the "Executive") to Promus Hotel
Corporation (the "Company").
In consideration of the agreement by the Company to enter into the
Severance Agreement between the Executive and the Company dated September 1,
1997 (the "Severance Agreement"), the Executive hereby agrees as follows:
Section 1. Release and Covenant. Executive, of his own free will,
voluntarily releases and forever discharges the Company, its subsidiaries,
affiliates, their officers, employees, agents, stockholders, successors and
assigns (both individually and in their official capacities with the Company)
from, and covenants not to sue or proceed against any of the foregoing on the
basis of, any and all past or present causes of action, suits, agreements or
other claims which Executive, his dependents, relatives, heirs, executors,
administrators, successors and assigns has or have against the Company upon or
by reason of any matter arising out of his employment by the Company and the
cessation of said employment, and including, but not limited to, any alleged
violation of the Civil Rights Acts of 1964 and 1991, the Equal Pay Act of 1963,
the Age Discrimination in Employment Act of 1967, the Rehabilitation Act of
1973, the Older Workers Benefit Protection Act of 1990, the Family and Medical
Leave Act of 1993, the Americans with Disabilities Act of 1990, and any other
federal or state law, regulation or ordinance, or public policy, contract or
tort law, having any bearing whatsoever on the terms and conditions or cessation
of his employment with the Company. This release shall not, however, constitute
a waiver of any of the Executive's rights upon termination of employment under
(i) the Severance Agreement, (ii) any indemnification agreement referred to in
Section 13 of the Severance Agreement, or (iii) the terms of any employee
benefit plan of the Company in which the Executive is participating.
Section 2. Due Care. Executive acknowledges that he has received a copy
of this Agreement prior to its execution and has been advised hereby of his
opportunity to review and consider this Agreement for twenty-one (21) days
prior to its execution. Executive further acknowledges that he has been advised
hereby to consult with an attorney prior to executing this Agreement. Executive
enters into this Agreement having freely and knowingly elected, after due
consideration, to execute this Agreement and to fulfill the promises set forth
herein. This Agreement shall be revocable by Executive during the 7-day period
following its execution, and shall not become effective or enforceable until the
expiration of such 7-day period. In the event of such a revocation, Executive
shall not be entitled to the consideration for this Agreement set forth above.
Section 3. Reliance by Executive. Executive acknowledges that, in his
decision to enter into this Agreement, he has not relied on any representations,
promises
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or arrangement of any kind, including oral statements by representatives of the
Company, except as set forth in this Agreement.
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE is executed by
Executive and delivered to the Company on.
EXECUTIVE:
---------------------------
Name: James T. Harvey
[NOT TO BE SIGNED AS PART OF SEVERANCE AGREEMENT]
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EXHIBIT 10.21
<PAGE> 2
MERGER SEVERANCE AGREEMENT
THIS MERGER SEVERANCE AGREEMENT (this "Agreement") is made as of this
1st day of September, 1997, between PROMUS HOTEL CORPORATION (the "Company") and
Steven D. Porter (the "Employee").
RECITALS
WHEREAS, the Company considers it essential to the best interest of its
stockholders to foster the continuous employment of key management personnel,
and believes that the possibility of a reorganization event of the Company and
the uncertainty and questions which it may raise among management may result in
the departure or distraction of management personnel to the detriment of the
Company and its stockholders; and
WHEREAS, the Board of Directors has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Employee, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a reorganization event of the
Company;
NOW, THEREFORE, in consideration of the mutual premises set forth below
and for other good and valuable consideration, in order to induce the Employee
to remain in the employ of the Company, the Company agrees that the Employee
shall receive the severance benefits set forth in this agreement (this
"Agreement") in the event his employment with the Company terminates subsequent
to a "Reorganization Event" of the Company under the circumstances described
below.
AGREEMENT
1. DEFINITIONS
The following terms used in this Agreement shall have the meanings
given below:
(a) "Annual Base Salary" shall mean the Employee's gross
annual salary before any deductions, exclusions or any deferrals or
contributions under any Company plan or program, but excluding bonuses,
incentive compensation, employee benefits or any other non-salary form of
compensation (determined without regard to any reduction in Annual Base Salary
that results in "Good Reason" termination).
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Bonus Amount" shall mean the greater of (i) the dollar
amount of the annual bonus that would be payable to the Employee under the
Company's annual bonus plan applicable to the Employee, assuming payment at the
target level for the Employee's then current salary grade level for the
then-current full fiscal year (determined without regard to any reduction in
target bonus percentage that results in "Good Reason" termination), or (ii) the
dollar amount of
<PAGE> 3
the bonus paid or payable to the Employee under the Company's annual bonus plan
for the most recently completed fiscal year under such plan. Notwithstanding the
foregoing, if the Employee is a participant in the Company's Development Bonus
Plan (or any successor plan), the "Bonus Amount" shall mean the greater of (i)
the dollar amount of the annual bonus that would be payable at the Employee's
then current grade level under the Company's Annual Management Bonus Plan (as
opposed to the Development Bonus Plan), or (ii) the dollar amount of the bonus
actually paid to the Employee during the most recently completed fiscal year
under the Company's Development Bonus Plan, subject to a maximum amount equal to
the target bonus under the Company's Annual Management Bonus Plan at the
Employee's salary grade level for such plan year.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Company" shall mean Promus Hotel Corporation, or any
successor corporation that assumes this Agreement under Section 14 hereof or
otherwise becomes bound by this Agreement.
(f) "Covered Termination" shall have the meaning given in
Section 3 hereof.
(g) "Date of Termination" shall mean the effective date of
the Employee's Covered Termination pursuant to Section 3 hereof.
(h) "Disability" shall mean the absence of the Employee from
the full-time performance of his duties with the Company for six consecutive
months as a result of incapacity due to physical or mental illness, provided
the Company has given 30-day advance written notice to the Employee and he has
not returned to the full-time performance of his duties.
(i) "Reorganization Event" shall mean the occurrence of any
of the following after the date hereof:
(i) any "person" (as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than an employee benefit plan of the Company, or a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 25% or more of the Company's then
outstanding voting securities carrying the right to vote in elections of persons
to the Board, regardless of comparative voting power of such voting securities,
and regardless of whether or not the Board shall have approved such
Reorganization Event; or
(ii) during any period of two (2) consecutive years
(not including any period prior to the execution of this Agreement), individuals
who at the beginning of such period constitute the Board (the "Incumbent Board")
and any other new director (other than a director designated by a person who
shall have entered into an agreement with the Company to effect a transaction
described in clauses (i) or (iii) of this subsection) whose election by the
Board or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved (each such new
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director being considered a member of the "Incumbent Board"), cease for any
reason to constitute a majority thereof, or
(iii) the holders of securities of the Company
entitled to vote thereon approve of the following:
(A) a merger or consolidation of the Company with
any other corporation regardless of which entity is the surviving company, other
than a merger or consolidation which would result in the voting securities of
the Company carrying the right to vote in elections of persons to the board
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66 2/3% of the Company's then-outstanding voting
securities carrying the right to vote in elections of persons to the board or
such securities of such surviving entity outstanding immediately after such
merger or consolidation, or
(B) a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
Notwithstanding the definition of "Reorganization Event" of the Company
as set forth in this Agreement, the Board shall have full and final authority,
which shall be exercised in its discretion, to determine conclusively whether a
Reorganization Event of the Company has occurred, and the date of the occurrence
of such Reorganization Event and any incidental matters relating thereto, with
respect to a transaction or series of transactions which have resulted or will
result in a substantial portion of the assets or business of the Company (as
determined immediately prior to the transaction or series of transactions by the
Board in its sole discretion which determination shall be final and conclusive)
being held by a corporation at least 66 2/3% of whose voting securities are
held, immediately following such transaction or series of transactions, by
holders of the voting securities of the Company (determined immediately prior to
such transaction or series of transactions). The Board may exercise such
discretionary authority without regard to whether one or more of the
transactions in such series of transactions would otherwise constitute a
Reorganization Event of the Company under the definition set forth in this
Agreement. It is hereby understood and agreed that the consummation of the
business combination contemplated by the Agreement and Plan of Merger dated as
of September 1, 1997 among Doubletree Corporation, the Company and Parent
Holding Corp. shall constitute a Reorganization Event for purposes of this
Agreement.
2. TERM OF AGREEMENT
This Agreement shall commence on the date first written above and shall
continue in effect though December 31, 1998; provided, however, that commencing
on January 1, 1999 and each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Company shall have given notice that it
does not wish to extend this Agreement; and provided further, that the incumbent
Board may terminate this agreement at any time prior to the consummation of the
business combination contemplated by the above referenced Agreement and Plan of
Merger (the "Merger") if the Board finds that the consummation of the Merger is
no longer viable or in the
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best interest of the Company. Notwithstanding the foregoing, no notice of
non-renewal given by the Board shall be effective with respect to a particular
Reorganization Event if given after the occurrence of the following events: (i)
the Company enters into an agreement or letter of intent, the consummation of
which would result in such Reorganization Event, (ii) any "person" makes a
public announcement of its intention to take or consider taking actions that
would result in such Reorganization Event, or (iii) any "person" (as defined
above) initiates a tender offer which, if consummated, would result in such
Reorganization Event (it being understood that this sentence shall not apply
with respect to any unrelated Reorganization Event). If a Reorganization Event
of the Company shall have occurred during the original or extended term of this
Agreement, the term of this Agreement shall continue in force and effect until
the satisfaction of all of the Company's obligations to the Employee as provided
hereunder.
3. COVERED TERMINATION
(a) General. The Employee shall be treated as having incurred
a "Covered Termination" hereunder if his employment is terminated by the Company
other than for cause or if the Employee gives notice of termination for Good
Reason (as described below) within a period of two (2) years following the
consummation of a Reorganization Event of the Company. The Employee shall not be
treated as having incurred a Covered Termination if his employment is terminated
as a result of death or Disability.
(b) Termination for Cause. Termination by the Company of the
Employee's employment for "Cause" shall mean termination as a result of:
(i) the Employee engaging in willful gross
neglect of his duties with the Company, or the Employee's fraud or dishonesty in
connection with his performance of duties to the Company, in either case which
has a materially detrimental effect on the business or operations of the
Company; or
(ii) the Employee's conviction by a court of
competent jurisdiction of any crime (or upon entering a plea of guilty or nolo
contendere to a charge of any crime) constituting a felony.
The Date of Termination for a termination for Cause shall be the date
specified by the Company.
(c) Termination for Good Reason. For purposes hereof, the
Employee may terminate his employment for "Good Reason" as a result of:
(i) a material adverse change in the Employee's
position or title as in effect at the time of the Reorganization Event of the
Company;
(ii) a substantial reduction in the Employee's
overall level of authority and responsibility with the Company as in effect at
the time of the Reorganization Event of the Company;
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<PAGE> 6
(iii) any reduction in the Employee's Annual Base
Salary as in effect at the time of the Reorganization Event of the Company;
(iv) any reduction in the Employee's target or
maximum bonus percentage under the Company's annual bonus plan from the
percentage in effect at the time of the Reorganization Event of the Company; or
(v) a relocation by more than 50 miles from the
Employee's principal place of business at the time of the Reorganization Event
of the Company, or the Company's requiring the Employee to locate anywhere that
is more than 50 miles from the Employee's principal place of business at the
time of the Reorganization Event.
Notwithstanding the foregoing, the Employee shall not be entitled to
terminate his employment for Good Reason under items (i), (ii), (iii) or (iv)
above solely on the basis of his assignment to a new position with the Company
or its successor (which may otherwise constitute a Good Reason under one or more
of such items) if the Employee has accepted such assignment in writing. Any such
acceptance shall not waive the Employee's rights as to any other or any future
Good Reason events.
The Employee shall provide the Company with 30-day advance written
notice of a termination for Good Reason setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for the termination. Such
notice may be given at any time following the occurrence of the events that
provide the basis for the termination during the two (2) year period following
the Reorganization Event of the Company; provided, however, that where a
termination for Good Reason is on account of relocation, as provided in item (v)
above, such notice shall be provided within one (1) year of the effective date
of such relocation (but not later than the expiration of the 2-year period
above). If within the thirty (30) day period, the Company takes actions
reasonably satisfactory to the Employee to remedy the basis for the Good Reason
termination, such notice of termination shall be considered null and void;
provided, however that the Company shall not have the right to remedy a Good
Reason termination occurring on the basis of a relocation as described in item
(v) above. The Date of Termination for a termination for Good Reason shall be
the expiration of the 30-day notice period provided for above.
4. SEVERANCE PAYMENT
The amount of the severance payment to be paid to the Employee upon
Covered Termination shall be the amount determined by multiplying 2.00 times the
sum of:
(a) the Employee's Annual Base Salary as in effect immediately
prior to the Date of Termination; plus,
(b) the Employee's Bonus Amount applicable for the fiscal year
in which the Date of Termination occurs; plus,
(c) a benefit allowance of 25% of the Employee's Annual Base
Salary as in effect immediately prior to the Date of Termination.
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<PAGE> 7
5. OTHER SEVERANCE BENEFITS
In addition to the severance payment provided under Section 4 hereof,
the Employee shall be entitled to the following benefits and other rights in the
event of the his Covered Termination:
(a) Accrued Rights. The Employee shall be entitled to the
following payments and benefits in respect of accrued compensation rights upon a
Covered Termination, in addition to other rights provided under this Agreement:
(i) payment of any accrued but unpaid Annual Base
Salary through the Date of Termination and payment of any annual bonus (for any
completed fiscal year) that is awarded subsequent to the Date of Termination by
the Company in its sole discretion under the terms of the annual bonus plan then
in effect;
(ii) payment of a pro-rata portion of the Bonus
Amount for the fiscal year of the Company in which the Covered Termination
occurs, based on the number of days of such year prior to the Date of
Termination;
(iii) all benefits and rights accrued under the
employee benefit plans, fringe benefits programs and payroll practices of the
Company in accordance with their terms (including, without limitations, employee
pension, employee welfare, incentive bonus, stock incentive plans, and any
accrued vacation or sick pay time); and
(iv) a payment equal to the forfeited portion of the
Employee's account balance under the Company's tax qualified deferred
compensation plan as a result of failure to satisfy vesting requirements due to
a Covered Termination.
(b) Outplacement Services. Upon the occurrence of a Covered
Termination, the Employee shall be provided, at the Company's sole expense, with
professional outplacement services consistent with the Employee's duties or
profession and of a type and level customary for persons in his position, as
selected by the Company, subject to reasonable limitations established by the
Company on a uniform basis for similarly situated Employees as to duration and
dollar amounts.
6. EXCISE TAX REIMBURSEMENT
In the event it shall be determined that any payment or distribution by
the Company or any other person or entity to or for the Employee's benefit,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, or whether prior to or following the Covered
Termination in connection with, or arising out of, the Employee's employment
with the Company or a Reorganization Event of the Company (a "Payment") will be
subject to the tax (the "Excise Tax") imposed by section 4999 of the Code, the
Company shall pay to the Employee at the time specified in Section 7 hereof, an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Employee, after deduction of any Excise Tax on the Payments and any federal
(and state and local) income tax, employment tax, and Excise Tax upon the
payment provided for by this paragraph, shall be equal to the amount of the
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<PAGE> 8
Payments. For purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax the following will
apply:
(a) any payments or benefits received or to be received by
the Employee in connection with a Reorganization Event of the Company or his
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Reorganization Event of the Company or any person affiliated
with the Company or such person) shall be treated as "parachute payments" within
the meaning of section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b)(1) shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to the Employee such other
payments or benefits (in whole or in part) do not constitute parachute payments,
or such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of section
280G(b)(4) of the Code in excess of the base amount within the meaning of
section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
and
(b) the value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Company's independent auditors in
accordance with proposed, temporary or final regulations under Sections
280G(d)(3) and (4) of the Code or, in the absence of such regulations, in
accordance with the principles of Section 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the Employee shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Employee's residence on the Date of Termination, net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes. In the event that the amount of Excise
Tax attributable to Payments is subsequently determined to be less than the
amount taken into account hereunder at the time of termination of the Employee's
employment, he shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax, employment tax and federal (and state and local)
income tax imposed on the Gross-Up Payment being repaid by the Employee if such
repayment results in a reduction in Excise Tax and/or a federal (and state and
local) income tax deduction) plus interest on the amount of such repayment at
the rate provided in section 1274(b)(2) (B) of the Code. In the event that the
Excise Tax attributable to Payments is determined to exceed the amount taken
into account hereunder at the time of the termination of the Employee's
employment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional gross-up payment in respect of such excess (plus any interest
payable with respect to such excess) at the time that the amount of such excess
is finally determined.
7. METHOD OF PAYMENT
The payments provided for in Sections 4, 5 and 6 hereof shall be made
in a cash lump-sum payment, net of any required tax withholding, upon the later
of (i) the fifth (5th) business
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day following the Date of Termination or (ii) the expiration of the seven (7)
day revocation period applicable under the release of claims referred to in
Section 10 hereof provided, however, that if the amounts of such payments cannot
be finally determined on or before such day, the Company shall pay on such day
an estimate, as determined in good faith by the Company, of the minimum amount
of such payments. Any payment required under Sections 4, 5 or 6 or any other
provision of this Agreement that is not made in a timely manner shall bear
interest at a rate equal to one-hundred twenty (120) percent of the monthly
compounded applicable federal rate, as in effect under Section 1274(d) of the
Code for the month in which the payment is required to be made. In the event
that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Company
payable on the fifth day after demand by the Company with interest at the rate
provided under Section 1274(d) of the Code until paid.
8. RELOCATION EXPENSES
The Employee shall be entitled to a reimbursement payment from the
Company equal to his reasonable moving expenses (determined in accordance with
Company's relocation policy) incurred in connection with the Employee's written
acceptance of a position with the Company requiring his relocation to a
metropolitan area, other than the metropolitan area where his office is located
at the time of the Reorganization Event of the Company. The Company shall pay
the Employee an additional payment in an amount such that the net amount
retained by the Employee after deduction for any federal, state, and local
income tax, employment tax and any excise tax on the reimbursement payment shall
equal the amount of the reimbursement payment. If the employment of the Employee
is terminated for Good Reason on the basis of his relocation under Section 3
hereof, the payment to which the Employee is entitled to under Section 4 hereof
will be reduced by 25% of the relocation payment, including tax reimbursement
that the Employee received from the Company under this Section 8.
9. NO MITIGATION OR OFFSET
The Employee shall not be required to mitigate the amount of any
severance payment or benefit provided under this Agreement by seeking other
employment or otherwise. The amount of any payment or benefit to which the
Employee becomes entitled hereunder shall not be reduced by any compensation
earned by the Employee as the result of employment by another employer, by
retirement benefits, nor by offset against any amount claimed to be owed to the
Company by reason of a claimed breach by the Employee of his obligations under
Sections 11 or 12 hereof or otherwise (except that offset shall apply as
specifically provided in Section 8 hereof concerning relocation expenses and
Section 21 hereof concerning other severance payments).
10. RELEASE OF CLAIMS
As conditions of Employee's entitlement to the severance payments and
benefits provided by this Agreement, the Employee shall be required to execute
and honor the terms of a waiver and release of claims against the Company
substantially in the form attached hereto as Exhibit A (as may be modified
consistent with the purposes of such waiver and release to reflect changes in
law following the date hereof).
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11. RESTRICTION ON CONDUCT OF EMPLOYEE
(a) General. The Employee and the Company understand and
agree that the purpose of the provisions of this Section 11 is to protect
legitimate business interests of the Company, as more fully described below, and
is not intended to impair or infringe upon the Employee's right to work, earn a
living, or acquire and possess property from the fruits of his labor. The
Employee hereby acknowledges that the post-employment restrictions set forth in
this Section 11 are reasonable and that they do not, and will not, unduly impair
his ability to earn a living after the termination of his employment with the
Company. Therefore, subject to the limitations of reasonableness imposed by law
upon restrictions set forth herein, the Employee shall be subject to the
restrictions set forth in this Section 11.
(b) Definitions. The following capitalized terms used in
this Section 11 shall have the meanings assigned to them below, which
definitions shall apply to both the singular and the plural forms of such terms:
"Confidential Information" means any confidential or proprietary
information possessed by the Company without limitation, any confidential
"know-how", customer lists, details of client or consultant contracts, current
and anticipated customer requirements, pricing policies, price lists, market
studies, business plans, operational methods, marketing plans or strategies,
product development techniques or plans, computer software programs (including
object code and source code), data and documentation, data base technologies,
systems, structures and architectures, inventions and ideas, past, current and
planned research and development, compilations, devices, methods, techniques,
processes, financial information and data, business acquisition plans, new
personnel acquisition plans and any other information that would constitute a
trade secret under the common law or statutory law of the State of Delaware.
"Determination Date" means the date of termination of the Employee's
employment with the Company for any reason whatsoever or any earlier date
(during the Restricted Period) of an alleged breach of the Restrictive Covenants
by the Employee.
"Person" means any individual or any corporation, partnership, joint
venture, association or other entity or enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, member, trustee, director, officer, manager,
employee, agent, representative or consultant.
"Protected Employees" means employees of the Company or its affiliated
companies who were employed by the Company or its affiliated companies at any
time within six (6) months prior to the Determination Date.
"Restricted Period" means the period of the Employee's employment with
the Company plus a period extending two (2) years from the date of termination
of employment.
"Restrictive Covenants" means the restrictive covenants contained in
Section 11 (c) hereof.
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(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information. The Employee understands and agrees that the Confidential
Information constitutes a valuable asset of the Company and its affiliated
entities, and may not be converted to the Employee's own use. Accordingly, the
Employee hereby agrees that the Employee shall not, directly or indirectly, at
any time during the Restricted Period reveal, divulge or disclose to any Person
not expressly authorized by the Company any Confidential Information, and the
Employee shall not, directly or indirectly, at any time during the Restricted
Period use or make use of any Confidential Information in connection with any
business activity other than that of the Company. The parties acknowledge and
agree that this Agreement is not intended to, and does not, alter either the
Company's rights or the Employee's obligations under any state or federal
statutory or common law regarding trade secrets and unfair trade practices.
(ii) Nonsolicitation of Protected Employees. The
Employee understands and agrees that the relationship between the Company and
each of its Protected Employees constitutes a valuable asset of the Company and
may not be converted to the Employee's own use. Accordingly, the Employee hereby
agrees that during the Restricted Period the Employee shall not directly or
indirectly on the Employee's own behalf or as a Principal or Representative of
any Person solicit any Protected Employee to terminate his or her employment
with the Company.
(iii) Noninterference with Company Opportunities. The
Employee understands and agrees that all hotel development opportunities with
which he is involved during his employment with the Company constitute valuable
assets of the Company and its affiliated entities, and may not be converted to
Employee's own use. Accordingly, the Employee hereby agrees that during the
Restricted Period the Employee shall not directly or indirectly on the
Employee's own behalf or as a Principal or Representative of any Person,
interfere with, solicit, pursue, or in any way make use of any such hotel
development opportunities.
(d) Exceptions from Disclosure Restrictions. Anything herein
to the contrary notwithstanding, the Employee shall not be restricted from
disclosing or using Confidential Information that: (i) is or becomes generally
available to the public other than as a result of an unauthorized disclosure by
the Employee or his agent; (ii) becomes available to the Employee in a manner
that is not in contravention of applicable law from a source (other than the
Company or its affiliated entities or one of its or their officers, employees,
agents or representative) that is not bound by a confidential relationship with
the Company or its affiliated entities or by a confidentiality or other similar
agreement; (iii) was known to the Employee on a non-confidential basis and not
in contravention of applicable law or a confidentiality or other similar
agreement before its disclosure to the Employee by the Company or its affiliated
entities or one of its or their officers, employees, agents or representatives;
or (iv) is required to be disclosed by law, court order or other legal process;
provided, however, that in the event disclosure is required by law, the Employee
shall provide the Company with prompt notice of such requirement so that the
Company may seek an appropriate protective order prior to any such required
disclosure by the Employee.
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(e) Enforcement of the Restrictive Covenants.
(i) Right and Remedies upon Breach. In the event the
Employee breaches, or threatens to commit a breach of, any of the provisions of
the Restrictive Covenants, the Company shall have the right and remedy to
enjoin, preliminarily and permanently, the Employee from violating or
threatening to violate the Restrictive Covenants and to have the Restrictive
Covenants specifically enforced by any court of competent jurisdiction, it being
agreed that any breach or threatened breach of the Restrictive Covenants would
cause irreparable injury to the Company and that money damages would not provide
an adequate remedy to the Company. The rights referred to in the preceding
sentence shall be independent of any others and severally enforceable, and shall
be in addition to, and not in lieu of, any other rights and remedies available
to the Company at law or in equity.
(ii) Severability of Covenants. The Employee
acknowledges and agrees that the Restrictive Covenants are reasonable and valid
in time and space and in all other respects. If any court determines that any
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.
12. COOPERATION IN FUTURE MATTERS
The Employee hereby agrees that, for a period of three (3) years
following his Date of Termination, he shall cooperate with the Company's
reasonable requests relating to matters that pertain to the Employee's
employment by the Company, including, without limitation, providing information
or limited consultation as to such matters, participating in legal proceedings,
investigations or audits on behalf of the Company, or otherwise making himself
reasonably available to the Company for other related purposes. Any such
cooperation shall be performed at times scheduled taking into consideration the
Employee's other commitments, and the Employee shall be compensated at a
reasonable hourly or per them rate to be agreed by the parties to the extent
such cooperation is required on more than an occasional and limited basis. The
Employee shall not be required to perform such cooperation to the extent it
conflicts with any requirements of exclusivity of service for another employer
or otherwise, nor in any manner that in the good faith belief of the Employee
would conflict with his rights under or ability to enforce this Agreement.
13. INDEMNIFICATION
(a) Following the Date of Termination, the Company agrees that
it will, indemnify and hold harmless the Employee, against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Date of Termination, whether asserted
or claimed prior to, at or after the Date of Termination, to the fullest extent
that the Company would have been permitted under Delaware law and its
certificate of incorporation or bylaws in effect on the date hereof to indemnify
the Employee (and the Company shall also advance expenses as incurred to the
fullest extent
11
<PAGE> 13
permitted under applicable law, provided the Employee provides an undertaking to
repay advances if it is ultimately determined that the Employee is not entitled
to indemnification).
(b) For a period of six years after the Date of Termination,
the Company shall maintain (to the extent available in the market) in effect a
director's and officer's liability insurance policy covering with coverage in
amount and scope at least as favorable as the Company's existing coverage on the
Date of Termination; provided that in no event shall the Company be required to
expend in the aggregate in excess of 200% of the annual premium paid by the
Company for such coverage as of the Date of Termination; and if such premium
would at any time exceed 200% of the such amount, then the Company shall
maintain insurance policies which provide the maximum and best coverage
available at an annual premium equal to 200% of such amount.
(c) The provisions of this Section 13 are intended to be an
addition to the rights otherwise available to the Employee by law, charter,
statute, bylaw or separate agreement between the Company and the Employee. The
Company shall continue to honor any indemnification agreement between the
Company and the Employee entered into prior to the Date of Termination in
accordance with the terms thereof.
14. SUCCESSORS, BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Employee to compensation from the Company in the
same amount and on the same terms as the Employee would be entitled to hereunder
if he terminated his employment for Good Reason following a Reorganization Event
of the Company, except that for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees. If the
Employee should die while any amount remains payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Employee's devisee, legatee or other designee or,
if there is no such designee, to the Employee's estate.
15. NOTICE
Any notice required or permitted to be given by this Agreement shall be
effective only if in writing, delivered personally against receipt therefor or
mailed by certified or registered mail,
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<PAGE> 14
return receipt requested, to the parties at the addresses hereinafter set forth,
or at such other places that either party may designate by notice to the other.
Notice to the Company shall be addressed to:
Promus Hotel Corporation
755 Crossover Lane
Memphis, Tennessee 38117
Attention: General Counsel
Notice to the Employee shall be addressed to him at the business
address of the Company where the Employee is employed, with a copy to him at his
home address as follows:
All such notices shall be deemed effectively given five (5) days after
the same has been deposited in a post box under the exclusive control of the
United States Postal Service.
16. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Employee and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
17. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
18. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Memphis, Tennessee
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
19. PAYMENT OF LEGAL FEES
The Company shall pay all reasonable legal fees and expenses incurred
by the Employee in connection with any arbitration (or other proceeding whether
or not instituted by the Company
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<PAGE> 15
or the Employee), relating to the interpretation or enforcement of any provision
of this Agreement (including any action seeking to obtain or enforce any right
or benefit provided by this Agreement) or in connection with any tax audit or
proceeding relating to the application of Section 4999 of the Code to any
payment or benefit provided by the Company.
20. NO RESTRICTIONS ON EMPLOYMENT RIGHTS
Nothing in this Agreement shall confer on the Employee any right to
continue in the employ of the Company or shall interfere with or restrict in any
way the rights of the Company, which are hereby expressly reserved, to discharge
the Employee at any time for any reason whatsoever, with or without Cause,
subject to the requirements of this Agreement. Nothing in this Agreement shall
restrict the right of the Employee to terminate his employment with the Company
at any time for any reason whatsoever, with or without Good Reason.
21. HOSTILE TRANSACTION PROVISION
(a) Notwithstanding anything elsewhere in this Agreement to the
contrary, in the event of consummation of a "Hostile Transaction" (as defined
below), the definition of "Good Reason" set forth in Section 3(c) hereof shall
be substituted with the following definition, which shall apply for all purposes
of this Agreement:
"Termination for Good Reason. For purposes hereof, the Employee may
terminate his employment for "Good Reason" as a result of:
(i) any adverse change in the Employee's position or title as
in effect at the time of the Reorganization Event of the Company, or
the assignment to the Employee of duties inconsistent with such
position or title;
(ii) any reduction in the Employee's overall level of
authority and responsibility with the Company as in effect at the time
of the Reorganization Event of the Company;
(iii) any reduction in the Employee's Annual Base Salary as in
effect at the time of the Reorganization Event of the Company;
(iv) any reduction in the Employee's target or maximum bonus
percentage under the Company's annual bonus plan from the percentage in
effect at the time of the Reorganization Event of the Company;
(v) a relocation by more than 50 miles of the Employee's
principal place of business at the time of the Reorganization Event of
the Company, or the Company's requiring the Employee to locate anywhere
that is more than 50 miles from the Employee's principal place of
business at the time of the Reorganization Event;
(vi) the failure by the Company to continue in effect any
compensation plan in which the Employee is participating immediately
prior to the Reorganization Event of the
14
<PAGE> 16
Company which is material to his total compensation, including but not
limited to, the bonus plans, deferred compensation plans, equity
incentive plans, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue the Employee's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of his participation relative to other
participants, as existed immediately prior to the Reorganization Event
of the Company;
(vii) the failure by the Company to continue to provide the
Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Company's pension, savings and retirement
plan, life insurance, medical, health and accident, or disability
plans in which he was participating at the time of the Reorganization
Event of the Company, the taking of any action by the Company which
would directly or indirectly materially reduce any of such benefits or
deprive the Employee of any material fringe benefit enjoyed by him at
the time of the Reorganization Event of the Company, or the failure by
the Company to provide the Employee with the number of paid vacation
days to which he is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Reorganization Event of the Company; or
(viii) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 14 hereof.
The Employee's right to terminate his employment pursuant to this
Agreement for Good Reason shall not be affected by his incapacity due to
physical or mental illness. The Employee's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder."
(b) In the event of consummation of a Hostile Transaction, the
provisions of Section 11 hereof (concerning restricted conduct) and Section 12
hereof (concerning required cooperation) shall not be applicable to the
Employee.
(c) For purposes hereof, a "Hostile Transaction" shall be any
Reorganization Event which has, at any time prior to the consummation thereof,
been designated by a resolution of the Board as potentially having an impact on
the Employee and other of the Company's Employees, such that it would be
appropriate for the Employee (and such other Employees) to be provided with the
additional protection afforded by the foregoing definition of "Good Reason."
15
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
PROMUS HOTEL CORPORATION
/s/ Ralph B. Lake
-----------------------------------
Name: Ralph B. Lake
Title: Senior Vice President
EMPLOYEE
-----------------------------------
Name: Steven D. Porter
16
<PAGE> 18
EXHIBIT A
RELEASE OF CLAIMS AND COVENANT NOT TO SUE
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE (this "Agreement") is
executed and delivered by Steven D. Porter (the "Employee") to Promus Hotel
Corporation (the "Company").
In consideration of the agreement by the Company to enter into the
Severance Agreement between the Employee and the Company dated September 1,
1997 (the "Severance Agreement"), the Employee hereby agrees as follows:
Section 1. Release and Covenant. Employee, of his own free will,
voluntarily releases and forever discharges the Company, its subsidiaries,
affiliates, their officers, employees, agents, stockholders, successors and
assigns (both individually and in their official capacities with the Company)
from, and covenants not to sue or proceed against any of the foregoing on the
basis of, any and all past or present causes of action, suits, agreements or
other claims which Employee, his dependents, relatives, heirs, executors,
administrators, successors and assigns has or have against the Company upon or
by reason of any matter arising out of his employment by the Company and the
cessation of said employment, and including, but not limited to, any alleged
violation of the Civil Rights Acts of 1964 and 1991, the Equal Pay Act of 1963,
the Age Discrimination in Employment Act of 1967, the Rehabilitation Act of
1973, the Older Workers Benefit Protection Act of 1990, the Family and Medical
Leave Act of 1993, the Americans with Disabilities Act of 1990, and any other
federal or state law, regulation or ordinance, or public policy, contract or
tort law, having any bearing whatsoever on the terms and conditions or cessation
of his employment with the Company. This release shall not, however, constitute
a waiver of any of the Employee's rights upon termination of employment under
(i) the Severance Agreement, (ii) any indemnification agreement referred to in
Section 13 of the Severance Agreement, or (iii) the terms of any employee
benefit plan of the Company in which the Employee is participating.
Section 2. Due Care. Employee acknowledges that he has received a copy
of this Agreement prior to its execution and has been advised hereby of his
opportunity to review and consider this Agreement for twenty-one (21) days
prior to its execution. Employee further acknowledges that he has been advised
hereby to consult with an attorney prior to executing this Agreement. Employee
enters into this Agreement having freely and knowingly elected, after due
consideration, to execute this Agreement and to fulfill the promises set forth
herein. This Agreement shall be revocable by Employee during the 7-day period
following its execution, and shall not become effective or enforceable until the
expiration of such 7-day period. In the event of such a revocation, Employee
shall not be entitled to the consideration for this Agreement set forth above.
Section 3. Reliance by Employee. Employee acknowledges that, in his
decision to enter into this Agreement, he has not relied on any representations,
promises
17
<PAGE> 19
or arrangement of any kind, including oral statements by representatives of the
Company, except as set forth in this Agreement.
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE is executed by Employee
and delivered to the Company on____________.
EMPLOYEE:
-------------------------------------
Name: Steven D. Porter
[NOT TO BE SIGNED AS PART OF SEVERANCE AGREEMENT]
18
<PAGE> 1
EXHIBIT 10.22
SHORT-TERM RETENTION AGREEMENT
THIS SHORT-TERM RETENTION AGREEMENT (this "Agreement") is made as of
this 15th day of March, 1999, between PROMUS HOTEL CORPORATION (the "Company")
and Thomas L. Keltner (the "Executive").
RECITALS
WHEREAS, on September 1, 1997, Promus Operating Company, Inc.(then
known as Promus Hotel Corporation) entered into a Merger Severance Agreement
(the "Merger Severance Agreement") with the Executive intended to provide
certain payments and benefits to the Executive in the event of a Reorganization
Event (as defined in the Merger Severance Agreement) followed by the Executive's
Covered Termination (as defined in the Merger Severance Agreement); and
WHEREAS, the Company assumed the rights and obligations of Promus
Operating Company, Inc. under the Merger Severance Agreement, effective as of
December 18, 1997; and
WHEREAS, the Company desires to provide incentives under this Agreement
for the retention of the Executive and, in exchange therefor, the Executive is
willing to amend the Merger Severance Agreement to exclude the Doubletree/Promus
Merger (as defined herein) from the definition of Reorganization Event for
purposes of the Merger Severance Agreement;
NOW, THEREFORE, in consideration of the mutual promises set forth
below, and for other good and valuable consideration, the sufficiency of which
is acknowledged, the Company and the Executive hereby agree as follows:
AGREEMENT
1. DEFINITIONS
Capitalized terms used herein shall have the following meanings:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "CAPE Plan" shall mean the Promus Hotel Corporation
Capital Accumulation Plan for Executives, as amended from time to time, or any
successor deferred compensation plan for executives of the Company that is
substantially similar to such plan.
(c) "Cause" for termination of the Executive's employment
shall mean:
<PAGE> 2
(A) the Executive's engaging in willful gross neglect
of his duties with the Company, or the Executive's fraud or dishonesty in
connection with his performance of duties to the Company, in either case which
has a materially detrimental effect on the business or operations of the
Company; or
(B) the Executive's conviction by a court of competent
jurisdiction of any crime (or upon entering a plea of guilty or nolo contendere
to a charge of any crime) constituting a felony.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Company" shall mean Promus Hotel Corporation, or any
successor corporation that assumes this Agreement under Section 6 hereof or
otherwise becomes bound by this Agreement.
(f) "Doubletree/Promus Merger" shall mean that series of
transactions pursuant to which (i) Promus Operating Company, Inc. (then known as
Promus Hotel Corporation) and Doubletree Corporation merged with and became
wholly owned subsidiaries of a new corporation named "Parent Holding Corp.",
(ii) Promus Operating Company, Inc. (then known as Promus Hotel Corporation) was
renamed "Promus Operating Company, Inc.", and (iii) Parent Holding Corp. was
renamed "Promus Hotel Corporation" (the "Company"), all of which ultimately
became effective as of December 19,1997.
(g) "Effective Date" shall mean the date this Agreement is
executed by the Company and the Executive, as first noted at the top of this
Agreement.
(h) "Good Reason" for the Executive's voluntary termination of
employment shall mean the occurrence of any of the following events without the
Executive's prior written consent:
(A) any reduction in the Executive's annual base salary as
in effect on the Effective Date of this Agreement; or
(B) any reduction in the Executive's target or maximum
bonus percentage under the Company's annual bonus plan from the percentage in
effect at the Effective Date of this Agreement; or
(C) a relocation by more than 50 miles from the
Executive's principal place of business as of the Effective Date of this
Agreement, or the Company's requiring the Executive to locate anywhere that is
more than 50 miles from the Executive's principal place of business as of the
Effective Date of this Agreement.
The Executive shall provide the Company with 30-day advance written
notice of a termination for Good Reason setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for the termination. Such
notice may be given at any time following the occurrence of the events that
provide the basis for the
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<PAGE> 3
termination; provided, however, that (a) where a termination for Good Reason is
on account of relocation, as provided in item (C) above, such notice shall be
provided within one (1) year of the effective date of such relocation. If within
the thirty (30) day notice period, the Company takes actions reasonably
satisfactory to the Executive to remedy the basis for the Good Reason
termination, such notice of termination shall be considered null and void;
provided, however that the Company shall not have the right to remedy a Good
Reason termination occurring on the basis of a relocation as described in item
(C) above. The date of termination for a termination for Good Reason shall be
the expiration of the 30-day notice period provided for above.
2. AMENDMENT TO MERGER SEVERANCE AGREEMENT
(a) Amendment. The Merger Severance Agreement is hereby
amended by deleting the last sentence in the definition of the term
"Reorganization Event" in Section 1 thereof and substituting therefor the
following sentence:
"It is hereby understood and agreed that the consummation of
the business combination contemplated by the Agreement and Plan of Merger dated
as of September 1, 1997, as amended, among Doubletree Corporation, the Company
and Parent Holding Corp. shall not constitute a Reorganization Event for
purposes of this Agreement."
As hereby amended, the Merger Severance Agreement shall remain
in full force and effect with respect to any Reorganization Event (i.e.,
excluding the Doubletree/Promus Merger).
(b) Purpose of Amendment. The parties acknowledge that the
intent and purpose of the above amendment to the Merger Severance Agreement is
to eliminate the Executive's right to receive any payment or benefit under the
Merger Severance Agreement that in any way results from or arises out of the
occurrence of the Doubletree/Promus Merger, and that the benefits payable to the
Executive under this Agreement are intended to wholly supercede any compensation
potentially payable to the Executive under the Merger Severance Agreement as a
result of the Doubletree/Promus Merger. The Executive accepts the benefits
provided for herein without regard to whether they are equal to, less than, or
exceed any potential benefits payable to the Executive under the Merger
Severance Agreement.
3. CREDIT TO CAPE PLAN
(a) Credit to CAPE Plan. In consideration for the amendment to
the Merger Severance Agreement as set forth above, and provided that the
Executive is then employed by the Company or its affiliates, the Company agrees
to credit to the account of the Executive under the CAPE Plan, effective as of
June 30, 1999, the aggregate amount of $525,000 dollars (U.S.$ $525,000) plus
interest on such amount as if credited on January 1, 1999 (the "CAPE Credit
Amount"). Upon credit to the Executive's CAPE account, the CAPE Credit Amount
shall thereafter be governed exclusively by the terms and conditions of the CAPE
Plan.
(b) Early Crediting. In the event that the Executive's
employment
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<PAGE> 4
with the Company is terminated by the Company without Cause or by the Executive
for Good Reason prior to June 30, 1999, then the amount described in Section
3(a) above shall be credited to the Executive's account under the CAPE Plan as
of the date immediately prior to such termination of employment.
(c) Forfeiture of Right to Credits. If the Executive's
employment terminates prior to June 30, 1999, for any reason other than as
described in 3(b) above, then the Executive shall lose all rights to that
portion of the Retention Payment (if any) under this Agreement that has not yet
been credited to Executive's CAPE Plan Account as of the date of such
termination. The Executive shall not receive partial or pro-rata credit for the
year in which the termination occurred.
4. EXCISE TAX REIMBURSEMENT
(a) Gross-Up Payment. In the event it shall be determined
that any payment, benefit or distribution by the Company or any other person or
entity to or for the Executive's benefit, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, or
whether prior to or following the Effective Date, in connection with, or arising
out of, the Executive's employment with the Company, the Doubletree/Promus
Merger, or a Reorganization Event of the Company (a "Payment") will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company
shall pay to the Executive at the time specified in Section 4(c) below, an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the payments and any federal
(and state and local) income tax, employment tax, and Excise Tax upon the
payment provided for by this paragraph, shall be equal to the amount of the
Payments.
(b) Calculation of Gross-Up Payment. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amount of such Excise Tax the following will apply:
(i) any payments or benefits received or to be received
by the Executive in connection with this Agreement, the Doubletree/Promus Merger
or a Reorganization Event shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the Company's
independent auditors and acceptable to the Executive such other payments or
benefits (in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
and
(ii) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors in
accordance with proposed, temporary or final regulations under Sections
280G(d)(3) and (4) of the Code or, in the absence of such regulations, in
accordance with the principles of Section
-4-
<PAGE> 5
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive's
residence on the date the Payments were made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes. In the event that the amount of Excise Tax attributable to Payments
is subsequently determined to be less than the amount taken into account
hereunder at the time of termination of the Executive's employment, he shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined the portion of the Gross-Up Payment attributable to such
reduction (plus the portion of the Gross-Up Payment attributable to the Excise
Tax, employment tax and federal (and state and local) income tax imposed on the
Gross-Up Payment being repaid by the Executive if such repayment results in a
reduction in Excise Tax and/or a federal (and state and local) income tax
deduction) plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2) (B) of the Code. In the event that the Excise Tax
attributable to Payments is determined to exceed the amount taken into account
hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional gross-up payment in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such excess is
finally determined.
(c) Method of Payment. The Gross-Up Payment shall be made in a
cash lump-sum payment, net of any required tax withholding, upon the fifth (5th)
business day following the date of termination of the Executive's employment;
provided, however, that if the amounts of the Gross-Up Payment cannot be finally
determined on or before such day, the Company shall pay on such day an estimate,
as determined in good faith by the Company, of the minimum amount of such
payment. Any portion of the Gross-Up Payment that is not made in a timely manner
shall bear interest at a rate equal to one-hundred twenty (120) percent of the
monthly compounded applicable federal rate, as in effect under Section 1274(d)
of the Code for the month in which the payment is required to be made. In the
event that the amount of the estimated Gross-Up Payment exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company payable on the fifth day after demand by the Company with interest
at the rate provided under Section 1274(d) of the Code until paid.
5. NO MITIGATION OR OFFSET
The amount of any payment or benefit to which the Executive becomes
entitled herein shall not be reduced by any compensation earned by the Executive
as the result of retirement benefits, nor by offset against any amount claimed
to be owed to the Company by reason of a claimed breach by the Executive of his
obligations to the Company.
6. SUCCESSORS, BINDING AGREEMENT
(a) The Company will require any successor (whether direct or
-5-
<PAGE> 6
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees.
7. NOTICE
Any notice required or permitted to be given by this Agreement shall be
effective only if in writing, delivered personally against receipt therefor or
mailed by certified or registered mail, return receipt requested, to the parties
at the addresses hereinafter set forth, or at such other places that either
party may designate by notice to the other.
Notice to the Company shall be addressed to:
Promus Hotel Corporation
755 Crossover Lane
Memphis, Tennessee 38117
Attention: General Counsel
Notice to the Executive shall be addressed to him at the business
address of the Company where the Executive is employed, with a copy to him at
his home address as follows:
3480 Windgardner Cove
Memphis, TN 38125
All such notices shall be deemed effectively given five (5) days after
the same has been deposited in a post box under the exclusive control of the
United States Postal Service.
8. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force
-6-
<PAGE> 7
and effect.
9. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
10. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Memphis, Tennessee
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
11. PAYMENT OF LEGAL FEES
Each party shall pay its own legal fees and expenses incurred in
connection with any arbitration (or other proceeding whether or not instituted
by the Company or the Executive), relating to the interpretation or enforcement
of any provision of this Agreement (including any action seeking to obtain or
enforce any right or benefit provided by this Agreement) or in connection with
any tax audit or proceeding relating to the application of Section 4999 of the
Code to any payment or benefit provided by the Company.
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<PAGE> 8
12. NO RESTRICTIONS ON EMPLOYMENT RIGHTS
This contract is in relation to certain benefits and compensation only
and is not to be construed as an employment contract for a definite term.
Nothing in this Agreement shall confer on the Executive any right to continue in
the employ of the Company or shall interfere with or restrict the rights of the
Company, which are expressly reserved, to discharge the Executive at any time
for any reason whatsoever. Nothing in this Agreement shall restrict the right of
the Executive to terminate his employment with the Company at any time for any
reason whatsoever.
IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
PROMUS HOTEL CORPORATION
/s/ Kelly Jenkins
--------------------------------------
Name:
Title:
Date: 3/15/99
THE EXECUTIVE
/s/ Thomas L. Keltner
--------------------------------------
Name:
Date: 3/15/99
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<PAGE> 1
EXHIBIT 10.23
LONG-TERM RETENTION AGREEMENT
THIS LONG-TERM RETENTION AGREEMENT (this "Agreement") is made as of
this 15th day of March , 1999, between PROMUS HOTEL CORPORATION (the "Company")
and Thomas L. Keltner (the "Executive").
RECITALS
WHEREAS, the Company desires to provide incentives under this Agreement
for the retention of the Executive through January 1, 2001 and beyond;
NOW, THEREFORE, in consideration of the mutual promises set forth
below, and for other good and valuable consideration, the sufficiency of which
is acknowledged, the Company and the Executive hereby agree as follows:
AGREEMENT
1. DEFINITIONS
Capitalized terms used herein shall have the following meanings:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "CAPE Plan" shall mean the Promus Hotel Corporation
Capital Accumulation Plan for Executives, as amended from time to time, or any
successor deferred compensation plan for executives of the Company that is
substantially similar to such plan.
(c) "Cause" for termination of the Executive's employment
shall mean:
(A) the Executive's engaging in willful gross neglect of
his duties with the Company, or the Executive's fraud or dishonesty in
connection with his performance of duties to the Company, in either case which
has a materially detrimental effect on the business or operations of the
Company; or
(B) the Executive's conviction by a court of competent
jurisdiction of any crime (or upon entering a plea of guilty or nolo contendere
to a charge of any crime) constituting a felony.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Company" shall mean Promus Hotel Corporation, or any
successor corporation that assumes this Agreement under Section 5 hereof or
otherwise becomes bound by this Agreement.
(f) "Effective Date" shall mean the date this Agreement is
executed by
<PAGE> 2
the Company and the Executive, as first noted at the top of this Agreement.
(g) "Good Reason" for the Executive's voluntary termination of
employment shall mean the occurrence of any of the following events without the
Executive's prior written consent:
(A) any reduction in the Executive's annual base salary as
in effect on the Effective Date of this Agreement; or
(B) any reduction in the Executive's target or maximum
bonus percentage under the Company's annual bonus plan from the percentage in
effect at the Effective Date of this Agreement; or
(C) a relocation by more than 50 miles from the
Executive's principal place of business as of the Effective Date of this
Agreement, or the Company's requiring the Executive to locate anywhere that is
more than 50 miles from the Executive's principal place of business as of the
Effective Date of this Agreement.
The Executive shall provide the Company with 30-day advance written
notice of a termination for Good Reason setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for the termination. Such
notice may be given at any time following the occurrence of the events that
provide the basis for the termination; provided, however, that (a) where a
termination for Good Reason is on account of relocation, as provided in item (C)
above, such notice shall be provided within one (1) year of the effective date
of such relocation. If within the thirty (30) day notice period, the Company
takes actions reasonably satisfactory to the Executive to remedy the basis for
the Good Reason termination, such notice of termination shall be considered null
and void; provided, however that the Company shall not have the right to remedy
a Good Reason termination occurring on the basis of a relocation as described in
item (C) above. The date of termination for a termination for Good Reason shall
be the expiration of the 30-day notice period provided for above.
(h) "Retention Period" means the period beginning on the
Effective Date and ending on January 1, 2001.
2. RETENTION BENEFIT; CREDIT TO CAPE PLAN
(a) Credit to CAPE Plan. In consideration for the Executive's
services to be rendered during the Retention Period and as an inducement for
Executive to remain in the employ of the Company and devote his best efforts to
the success of the Company during the Retention Period, the Company agrees,
subject to the provisions of this Section 2, to credit to the account of the
Executive under the CAPE Plan the aggregate amount of 1,050,000 dollars (U.S.
$1,050,000) (the "Retention Payment"). Amounts credited to the Executive's CAPE
Plan account shall thereafter be governed exclusively by the terms and
conditions of the CAPE Plan.
(b) Normal Timing of Credits; No Interest. Except as provided
in Sections 2(c) and 2(d) below, the Retention Payment shall be credited to the
Executive's
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<PAGE> 3
account under the CAPE Plan in two equal installments. The first such
installment shall be credited as of January 1, 2000, and the second installment
shall be credited as of January 1, 2001. No interest will be earned on the
installments prior to being credited to the Executive's CAPE Plan account.
(c) Early Crediting. In the event that the Executive's
employment with the Company is terminated by the Company without Cause or by the
Executive for Good Reason or in the event of the Executive's Death or total and
permanent Disability, then any portion of the Retention Payment that has not
already been credited to the Executive's account under the CAPE Plan shall be so
credited as of the date immediately prior to such termination of employment.
(d) Forfeiture of Right to Future Credits. If the Executive's
employment terminates for any reason other than as described in Section 2(c)
above, then the Executive shall lose all rights to that portion of the Retention
Payment (if any) that has not yet been credited to Executive's CAPE Plan Account
as of the date of such termination. The Executive shall not receive partial or
pro-rata credit for the year in which the termination occurred. All amounts
previously credited to the Executive's CAPE Plan account shall be governed by
the terms and conditions of the CAPE Plan.
3. EXCISE TAX REIMBURSEMENT
(a) Gross-Up Payment. In the event it shall be determined that
any payment, benefit or distribution by the Company or any other person or
entity to or for the Executive's benefit, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, or
whether prior to or following the Effective Date, in connection with, or arising
out of, the Executive's employment with the Company (a "Payment") will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the
Company shall pay to the Executive at the time specified in Section 3(c) below,
an additional amount (the "Gross-Up Payment") such that the net amount retained
by the Executive, after deduction of any Excise Tax on the payments and any
federal (and state and local) income tax, employment tax, and Excise Tax upon
the payment provided for by this paragraph, shall be equal to the amount of the
Payments.
(b) Calculation of Gross-Up Payment. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amount of such Excise Tax the following will apply:
(i) any payments or benefits received or to be received by
the Executive in connection with this Agreement or a Reorganization Event shall
be treated as "parachute payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel selected by the Company's independent auditors and acceptable to
the Executive such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
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<PAGE> 4
base amount within the meaning of Section 28OG(b)(3) of the Code, or are
otherwise not subject to the Excise Tax; and
(ii) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors in
accordance with proposed, temporary or final regulations under Sections
280G(d)(3) and (4) of the Code or, in the absence of such regulations, in
accordance with the principles of Section 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the date the Payments were
made, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes. In the event that the
amount of Excise Tax attributable to Payments is subsequently determined to be
less than the amount taken into account hereunder at the time of termination of
the Executive's employment, he shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined the portion of the
Gross-Up Payment attributable to such reduction (plus the portion of the
Gross-Up Payment attributable to the Excise Tax, employment tax and federal (and
state and local) income tax imposed on the Gross-Up Payment being repaid by the
Executive if such repayment results in a reduction in Excise Tax and/or a
federal (and state and local) income tax deduction) plus interest on the amount
of such repayment at the rate provided in Section 1274(b)(2) (B) of the Code. In
the event that the Excise Tax attributable to Payments is determined to exceed
the amount taken into account hereunder at the time of the termination of the
Executive's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such excess
(plus any interest payable with respect to such excess) at the time that the
amount of such excess is finally determined.
(c) Method of Payment. The Gross-Up Payment applicable with
each payment made under this agreement shall be made in a cash lump-sum payment,
net of any required tax withholding, upon the fifth (5th) business day following
the date of termination of the Executive's employment or by the last day of the
calendar year in which the payment is made whichever occurs first; provided,
however, that if the amounts of the Gross-Up Payment cannot be finally
determined on or before such day, the Company shall pay on such day an estimate,
as determined in good faith by the Company, of the minimum amount of such
payment. Any portion of the Gross-Up Payment that is not made in a timely manner
shall bear interest at a rate equal to one-hundred twenty (120) percent of the
monthly compounded applicable federal rate, as in effect under Section 1274(d)
of the Code for the month in which the payment is required to be made. In the
event that the amount of the estimated Gross-Up Payment exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company payable on the fifth day after demand by the Company with interest
at the rate provided under Section 1274(d) of the Code until paid.
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<PAGE> 5
4. NO MITIGATION OR OFFSET
The amount of any payment or benefit to which the Executive becomes
entitled herein shall not be reduced by any compensation earned by the Executive
as the result of retirement benefits, nor by offset against any amount claimed
to be owed to the Company by reason of a claimed breach by the Executive of his
obligations to the Company.
5. SUCCESSORS, BINDING AGREEMENT
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees.
6. NOTICE
Any notice required or permitted to be given by this Agreement shall be
effective only if in writing, delivered personally against receipt therefor or
mailed by certified or registered mail, return receipt requested, to the parties
at the addresses hereinafter set forth, or at such other places that either
party may designate by notice to the other.
Notice to the Company shall be addressed to:
Promus Hotel Corporation
755 Crossover Lane
Memphis, Tennessee 38117
Attention: General Counsel
Notice to the Executive shall be addressed to him at the business
address of the Company where the Executive is employed, with a copy to him at
his home address as follows:
3480 Windgardner Cove
Memphis, TN 38125
All such notices shall be deemed effectively given five (5) days after
the same has been deposited in a post box under the exclusive control of the
United States Postal Service.
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<PAGE> 6
7. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
8. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
9. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Memphis, Tennessee
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
10. PAYMENT OF LEGAL FEES
Each party shall pay its own legal fees and expenses incurred in
connection with any arbitration (or other proceeding whether or not instituted
by the Company or the Executive), relating to the interpretation or enforcement
of any provision of this Agreement (including any action seeking to obtain or
enforce any right or benefit provided by this Agreement) or in connection with
any tax audit or proceeding relating to the application of Section 4999 of the
Code to any payment or benefit provided by the Company.
11. NO RESTRICTIONS ON EMPLOYMENT RIGHTS
This contract is in relation to certain benefits and compensation only
and is not to be construed as an employment contract for a definite term.
Nothing in this Agreement shall confer on the Executive any right to continue in
the employ of the Company or shall interfere with or restrict the rights of the
Company, which are expressly reserved, to discharge the Executive at any time
for any reason whatsoever, with or without Cause. Nothing in this Agreement
shall restrict the right of the Executive to terminate his employment with the
Company at any time for any reason whatsoever, with or without Good Reason.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
PROMUS HOTEL CORPORATION
/s/ Kelly Jenkins
-------------------------------------
Name:
Title:
Date: 3/15/99
THE EXECUTIVE
/s/ Thomas L. Keltner
-------------------------------------
Name:
Date: 3/15/99
-7-
<PAGE> 1
EXHIBIT 10.24
SHORT-TERM RETENTION AGREEMENT
THIS SHORT-TERM RETENTION AGREEMENT (this "Agreement") is made as of
this 5th day of March , 1999, between PROMUS HOTEL CORPORATION (the "Company")
and Thomas W. Storey (the "Executive").
RECITALS
WHEREAS, on September 15, 1997, Doubletree Corporation entered into a
Severance Agreement (the "Severance Agreement") with the Executive intended to
provide certain payments and benefits to the Executive in the event of a
Reorganization Event (as defined in the Severance Agreement) followed by the
Executive's Covered Termination (as defined in the Severance Agreement); and
WHEREAS, the Company assumed the rights and obligations of Doubletree
Corporation under the Severance Agreement, effective as of December 18, 1997;
and
WHEREAS, the Company desires to provide incentives under this Agreement
for the retention of the Executive and, in exchange therefor, the Executive is
willing to amend the Severance Agreement to exclude the Doubletree/Promus Merger
(as defined herein) from the definition of Reorganization Event for purposes of
the Severance Agreement;
NOW, THEREFORE, in consideration of the mutual promises set forth
below, and for other good and valuable consideration, the sufficiency of which
is acknowledged, the Company and the Executive hereby agree as follows:
AGREEMENT
1. DEFINITIONS
Capitalized terms used herein shall have the following meanings:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "CAPE Plan" shall mean the Promus Hotel Corporation
Capital Accumulation Plan for Executives, as amended from time to time, or any
successor deferred compensation plan for executives of the Company that is
substantially similar to such plan.
(c) "Cause" for termination of the Executive's employment
shall mean:
(A) the Executive's engaging in willful gross neglect of
his duties with the Company, or the Executive's fraud or dishonesty in
connection with his
<PAGE> 2
performance of duties to the Company, in either case which has a materially
detrimental effect on the business or operations of the Company; or
(B) the Executive's conviction by a court of competent
jurisdiction of any crime (or upon entering a plea of guilty or nolo contendere
to a charge of any crime) constituting a felony.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Company" shall mean Promus Hotel Corporation, or any
successor corporation that assumes this Agreement under Section 6 hereof or
otherwise becomes bound by this Agreement.
(f) "Doubletree/Promus Merger" shall mean that series of
transactions pursuant to which (i) Promus Operating Company, Inc. (then known as
Promus Hotel Corporation) and Doubletree Corporation merged with and became
wholly owned subsidiaries of a new corporation named "Parent Holding Corp.",
(ii) Promus Operating Company, Inc. (then known as Promus Hotel Corporation) was
renamed "Promus Operating Company, Inc.", and (iii) Parent Holding Corp. was
renamed "Promus Hotel Corporation" (the "Company"), all of which ultimately
became effective as of December 19,1997.
(g) "Effective Date" shall mean the date this Agreement is
executed by the Company and the Executive, as first noted at the top of this
Agreement.
(h) "Good Reason" for the Executive's voluntary termination of
employment shall mean the occurrence of any of the following events without the
Executive's prior written consent:
(A) any reduction in the Executive's annual base salary as
in effect on the Effective Date of this Agreement; or
(B) any reduction in the Executive's target or maximum
bonus percentage under the Company's annual bonus plan from the percentage in
effect at the Effective Date of this Agreement; or
(C) a relocation by more than 50 miles from the
Executive's principal place of business as of the Effective Date of this
Agreement, or the Company's requiring the Executive to locate anywhere that is
more than 50 miles from the Executive's principal place of business as of the
Effective Date of this Agreement.
The Executive shall provide the Company with 30-day advance written
notice of a termination for Good Reason setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for the termination. Such
notice may be given at any time following the occurrence of the events that
provide the basis for the termination; provided, however, that (a) where a
termination for Good Reason is on account of relocation, as provided in item
(C) above, such notice shall be provided within
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<PAGE> 3
one (1) year of the effective date of such relocation. If within the thirty (30)
day notice period, the Company takes actions reasonably satisfactory to the
Executive to remedy the basis for the Good Reason termination, such notice of
termination shall be considered null and void; provided, however that the
Company shall not have the right to remedy a Good Reason termination occurring
on the basis of a relocation as described in item (C) above. The date of
termination for a termination for Good Reason shall be the expiration of the
30-day notice period provided for above.
2. AMENDMENT TO SEVERANCE AGREEMENT
(a) Amendment. The Severance Agreement is hereby amended by
deleting the last sentence in the definition of the term "Reorganization Event"
in Section 1 thereof and substituting therefor the following sentence:
"It is hereby understood and agreed that the consummation of
the business combination contemplated by the Agreement and Plan of Merger dated
as of September 1, 1997, as amended, among Doubletree Corporation, the Company
and Parent Holding Corp. shall not constitute a Reorganization Event for
purposes of this Agreement."
As hereby amended, the Severance Agreement shall remain in
full force and effect with respect to any Reorganization Event (i.e., excluding
the Doubletree/Promus Merger).
(b) Purpose of Amendment. The parties acknowledge that the
intent and purpose of the above amendment to the Severance Agreement is to
eliminate the Executive's right to receive any payment or benefit under the
Severance Agreement that in any way results from or arises out of the occurrence
of the Doubletree/Promus Merger, and that the benefits payable to the Executive
under this Agreement are intended to wholly supercede any compensation
potentially payable to the Executive under the Severance Agreement as a result
of the Doubletree/Promus Merger. The Executive accepts the benefits provided for
herein without regard to whether they are equal to, less than, or exceed any
potential benefits payable to the Executive under the Severance Agreement.
3. CREDIT TO CAPE PLAN
(a) Credit to CAPE Plan. In consideration for the amendment to
the Severance Agreement as set forth above, and provided that the Executive is
then employed by the Company or its affiliates, the Company agrees to credit to
the account of the Executive under the CAPE Plan, effective as of June 30, 1999,
the aggregate amount of $525,000 dollars (U.S.$ $525,000) plus interest on such
amount as if credited on January 1, 1999 (the "CAPE Credit Amount"). Upon credit
to the Executive's CAPE account, the CAPE Credit Amount shall thereafter be
governed exclusively by the terms and conditions of the CAPE Plan.
(b) Early Crediting. In the event that the Executive's
employment with the Company is terminated by the Company without Cause or by the
Executive for Good Reason prior to June 30, 1999, then the amount described in
Section 3(a) above
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<PAGE> 4
shall be credited to the Executive's account under the CAPE Plan as of the date
immediately prior to such termination of employment.
(c) Forfeiture of Right to Credits. If the Executive's
employment terminates prior to June 30, 1999, for any reason other than as
described in 3(b) above, then the Executive shall lose all rights to that
portion of the Retention Payment (if any) under this Agreement that has not yet
been credited to Executive's CAPE Plan Account as of the date of such
termination. The Executive shall not receive partial or pro-rata credit for the
year in which the termination occurred.
4. EXCISE TAX REIMBURSEMENT
(a) Gross-Up Payment. In the event it shall be determined
that any payment, benefit or distribution by the Company or any other person or
entity to or for the Executive's benefit, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, or
whether prior to or following the Effective Date, in connection with, or arising
out of, the Executive's employment with the Company, the Doubletree/Promus
Merger, or a Reorganization Event of the Company (a "Payment") will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company
shall pay to the Executive at the time specified in Section 4(c) below, an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive, after deduction of any Excise Tax on the payments and any federal
(and state and local) income tax, employment tax, and Excise Tax upon the
payment provided for by this paragraph, shall be equal to the amount of the
Payments.
(b) Calculation of Gross-Up Payment. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amount of such Excise Tax the following will apply:
(i) any payments or benefits received or to be received
by the Executive in connection with this Agreement, the Doubletree/Promus Merger
or a Reorganization Event shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the Company's
independent auditors and acceptable to the Executive such other payments or
benefits (in whole or in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
and
(ii) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors in
accordance with proposed, temporary or final regulations under Sections
28OG(d)(3) and (4) of the Code or, in the absence of such regulations, in
accordance with the principles of Section 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income taxes at the highest
-4-
<PAGE> 5
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's residence
on the date the Payments were made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. In the event that the amount of Excise Tax attributable to Payments is
subsequently determined to be less than the amount taken into account hereunder
at the time of termination of the Executive's employment, he shall repay to the
Company at the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the Excise Tax,
employment tax and federal (and state and local) income tax imposed on the
Gross-Up Payment being repaid by the Executive if such repayment results in a
reduction in Excise Tax and/or a federal (and state and local) income tax
deduction) plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2) (B) of the Code. In the event that the Excise Tax
attributable to Payments is determined to exceed the amount taken into account
hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional gross-up payment in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such excess is
finally determined.
(c) Method of Payment. The Gross-Up Payment shall be made in a
cash lump-sum payment, net of any required tax withholding, upon the fifth (5th)
business day following the date of termination of the Executive's employment;
provided, however, that if the amounts of the Gross-Up Payment cannot be finally
determined on or before such day, the Company shall pay on such day an estimate,
as determined in good faith by the Company, of the minimum amount of such
payment. Any portion of the Gross-Up Payment that is not made in a timely manner
shall bear interest at a rate equal to one-hundred twenty (120) percent of the
monthly compounded applicable federal rate, as in effect under Section 1274(d)
of the Code for the month in which the payment is required to be made. In the
event that the amount of the estimated Gross-Up Payment exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company payable on the fifth day after demand by the Company with interest
at the rate provided under Section 1274(d) of the Code until paid.
5. NO MITIGATION OR OFFSET
The amount of any payment or benefit to which the Executive becomes
entitled herein shall not be reduced by any compensation earned by the Executive
as the result of retirement benefits, nor by offset against any amount claimed
to be owed to the Company by reason of a claimed breach by the Executive of his
obligations to the Company.
6. SUCCESSORS, BINDING AGREEMENT
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this
-5-
<PAGE> 6
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees.
7. NOTICE
Any notice required or permitted to be given by this Agreement shall be
effective only if in writing, delivered personally against receipt therefor or
mailed by certified or registered mail, return receipt requested, to the parties
at the addresses hereinafter set forth, or at such other places that either
party may designate by notice to the other.
Notice to the Company shall be addressed to:
Promus Hotel Corporation
755 Crossover Lane
Memphis, Tennessee 38117
Attention: General Counsel
Notice to the Executive shall be addressed to him at the business
address of the Company where the Executive is employed, with a copy to him at
his home address as follows:
3936 N. Galloway Drive
Memphis, TN 38111
All such notices shall be deemed effectively given five (5) days after
the same has been deposited in a post box under the exclusive control of the
United States Postal Service.
8. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive and such officer of the Company as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
-6-
<PAGE> 7
9. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
10. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Memphis, Tennessee
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
11. PAYMENT OF LEGAL FEES
Each party shall pay its own legal fees and expenses incurred in
connection with any arbitration (or other proceeding whether or not instituted
by the Company or the Executive), relating to the interpretation or enforcement
of any provision of this Agreement (including any action seeking to obtain or
enforce any right or benefit provided by this Agreement) or in connection with
any tax audit or proceeding relating to the application of Section 4999 of the
Code to any payment or benefit provided by the Company.
-7-
<PAGE> 8
12. NO RESTRICTIONS ON EMPLOYMENT RIGHTS
This contract is in relation to certain benefits and compensation only
and is not to be construed as an employment contract for a definite term.
Nothing in this Agreement shall confer on the Executive any right to continue in
the employ of the Company or shall interfere with or restrict the rights of the
Company, which are expressly reserved, to discharge the Executive at any time
for any reason whatsoever. Nothing in this Agreement shall restrict the right of
the Executive to terminate his employment with the Company at any time for any
reason whatsoever.
IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
PROMUS HOTEL CORPORATION
/s/ Kelly Jenkins
---------------------------------------
Name:
Title:
Date: 3/5/99
THE EXECUTIVE
/s/ Thomas W. Storey
---------------------------------------
Name:
Date: 3/4/99
-8-
<PAGE> 1
EXHIBIT 10.25
LONG-TERM RETENTION AGREEMENT
THIS LONG-TERM RETENTION AGREEMENT (this "Agreement") is made as of
this 5th day of March , 1999, between PROMUS HOTEL CORPORATION (the "Company")
and Thomas W. Storey (the "Executive").
RECITALS
WHEREAS, the Company desires to provide incentives under this Agreement
for the retention of the Executive through January 1, 2001 and beyond;
NOW, THEREFORE, in consideration of the mutual promises set forth
below, and for other good and valuable consideration, the sufficiency of which
is acknowledged, the Company and the Executive hereby agree as follows:
AGREEMENT
1. DEFINITIONS
Capitalized terms used herein shall have the following meanings:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "CAPE Plan" shall mean the Promus Hotel Corporation
Capital Accumulation Plan for Executives, as amended from time to time, or any
successor deferred compensation plan for executives of the Company that is
substantially similar to such plan.
(c) "Cause" for termination of the Executive's employment
shall mean:
(A) the Executive's engaging in willful gross neglect of
his duties with the Company, or the Executive's fraud or dishonesty in
connection with his performance of duties to the Company, in either case which
has a materially detrimental effect on the business or operations of the
Company; or
(B) the Executive's conviction by a court of competent
jurisdiction of any crime (or upon entering a plea of guilty or nolo contendere
to a charge of any crime) constituting a felony.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Company" shall mean Promus Hotel Corporation, or any
successor corporation that assumes this Agreement under Section 5 hereof or
otherwise becomes bound by this Agreement.
(f) "Effective Date" shall mean the date this Agreement is
executed by
<PAGE> 2
the Company and the Executive, as first noted at the top of this Agreement.
(g) "Good Reason" for the Executive's voluntary termination of
employment shall mean the occurrence of any of the following events without the
Executive's prior written consent:
(A) any reduction in the Executive's annual base salary as
in effect on the Effective Date of this Agreement; or
(B) any reduction in the Executive's target or maximum
bonus percentage under the Company's annual bonus plan from the percentage in
effect at the Effective Date of this Agreement; or
(C) a relocation by more than 50 miles from the
Executive's principal place of business as of the Effective Date of this
Agreement, or the Company's requiring the Executive to locate anywhere that is
more than 50 miles from the Executive's principal place of business as of the
Effective Date of this Agreement.
The Executive shall provide the Company with 30-day advance written
notice of a termination for Good Reason setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for the termination. Such
notice may be given at any time following the occurrence of the events that
provide the basis for the termination; provided, however, that (a) where a
termination for Good Reason is on account of relocation, as provided in item (C)
above, such notice shall be provided within one (1) year of the effective date
of such relocation. If within the thirty (30) day notice period, the Company
takes actions reasonably satisfactory to the Executive to remedy the basis for
the Good Reason termination, such notice of termination shall be considered null
and void; provided, however that the Company shall not have the right to remedy
a Good Reason termination occurring on the basis of a relocation as described in
item (C) above. The date of termination for a termination for Good Reason shall
be the expiration of the 30-day notice period provided for above.
(h) "Retention Period" means the period beginning on the
Effective Date and ending on January 1, 2001.
2. RETENTION BENEFIT; CREDIT TO CAPE PLAN
(a) Credit to CAPE Plan. In consideration for the Executive's
services to be rendered during the Retention Period and as an inducement for
Executive to remain in the employ of the Company and devote his best efforts to
the success of the Company during the Retention Period, the Company agrees,
subject to the provisions of this Section 2, to credit to the account of the
Executive under the CAPE Plan the aggregate amount of 1,050,000 dollars (U.S.
$1,050,000) (the "Retention Payment"). Amounts credited to the Executive's CAPE
Plan account shall thereafter be governed exclusively by the terms and
conditions of the CAPE Plan.
(b) Normal Timing of Credits; No Interest. Except as provided
in Sections 2(c) and 2(d) below, the Retention Payment shall be credited to the
Executive's
-2-
<PAGE> 3
account under the CAPE Plan in two equal installments. The first such
installment shall be credited as of January 1, 2000, and the second installment
shall be credited as of January 1, 2001. No interest will be earned on the
installments prior to being credited to the Executive's CAPE Plan account.
(c) Early Crediting. In the event that the Executive's
employment with the Company is terminated by the Company without Cause or by the
Executive for Good Reason or in the event of the Executive's Death or total and
permanent Disability, then any portion of the Retention Payment that has not
already been credited to the Executive's account under the CAPE Plan shall be so
credited as of the date immediately prior to such termination of employment.
(d) Forfeiture of Right to Future Credits. If the Executive's
employment terminates for any reason other than as described in Section 2(c)
above, then the Executive shall lose all rights to that portion of the Retention
Payment (if any) that has not yet been credited to Executive's CAPE Plan Account
as of the date of such termination. The Executive shall not receive partial or
pro-rata credit for the year in which the termination occurred. All amounts
previously credited to the Executive's CAPE Plan account shall be governed by
the terms and conditions of the CAPE Plan.
3. EXCISE TAX REIMBURSEMENT
(a) Gross-Up Payment. In the event it shall be determined that
any payment, benefit or distribution by the Company or any other person or
entity to or for the Executive's benefit, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, or
whether prior to or following the Effective Date, in connection with, or arising
out of, the Executive's employment with the Company (a "Payment") will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the
Company shall pay to the Executive at the time specified in Section 3(c) below,
an additional amount (the "Gross-Up Payment") such that the net amount retained
by the Executive, after deduction of any Excise Tax on the payments and any
federal (and state and local) income tax, employment tax, and Excise Tax upon
the payment provided for by this paragraph, shall be equal to the amount of the
Payments.
(b) Calculation of Gross-Up Payment. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amount of such Excise Tax the following will apply:
(i) any payments or benefits received or to be received by
the Executive in connection with this Agreement or a Reorganization Event shall
be treated as "parachute payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel selected by the Company's independent auditors and acceptable to
the Executive such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
-3-
<PAGE> 4
base amount within the meaning of Section 28OG(b)(3) of the Code, or are
otherwise not subject to the Excise Tax; and
(ii) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors in
accordance with proposed, temporary or final regulations under Sections
280G(d)(3) and (4) of the Code or, in the absence of such regulations, in
accordance with the principles of Section 28OG(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the date the Payments were
made, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes. In the event that the
amount of Excise Tax attributable to Payments is subsequently determined to be
less than the amount taken into account hereunder at the time of termination of
the Executive's employment, he shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined the portion of the
Gross-Up Payment attributable to such reduction (plus the portion of the
Gross-Up Payment attributable to the Excise Tax, employment tax and federal (and
state and local) income tax imposed on the Gross-Up Payment being repaid by the
Executive if such repayment results in a reduction in Excise Tax and/or a
federal (and state and local) income tax deduction) plus interest on the amount
of such repayment at the rate provided in Section 1274(b)(2) (B) of the Code. In
the event that the Excise Tax attributable to Payments is determined to exceed
the amount taken into account hereunder at the time of the termination of the
Executive's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such excess
(plus any interest payable with respect to such excess) at the time that the
amount of such excess is finally determined.
(c) Method of Payment. The Gross-Up Payment applicable with
each payment made under this agreement shall be made in a cash lump-sum payment,
net of any required tax withholding, upon the fifth (5th) business day following
the date of termination of the Executive's employment or by the last day of the
calendar year in which the payment is made whichever occurs first; provided,
however, that if the amounts of the Gross-Up Payment cannot be finally
determined on or before such day, the Company shall pay on such day an estimate,
as determined in good faith by the Company, of the minimum amount of such
payment. Any portion of the Gross-Up Payment that is not made in a timely manner
shall bear interest at a rate equal to one-hundred twenty (120) percent of the
monthly compounded applicable federal rate, as in effect under Section 1274(d)
of the Code for the month in which the payment is required to be made. In the
event that the amount of the estimated Gross-Up Payment exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company payable on the fifth day after demand by the Company with interest
at the rate provided under Section 1274(d) of the Code until paid.
-4-
<PAGE> 5
4. NO MITIGATION OR OFFSET
The amount of any payment or benefit to which the Executive becomes
entitled herein shall not be reduced by any compensation earned by the Executive
as the result of retirement benefits, nor by offset against any amount claimed
to be owed to the Company by reason of a claimed breach by the Executive of his
obligations to the Company.
5. SUCCESSORS, BINDING AGREEMENT
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees.
6. NOTICE
Any notice required or permitted to be given by this Agreement shall be
effective only if in writing, delivered personally against receipt therefor or
mailed by certified or registered mail, return receipt requested, to the parties
at the addresses hereinafter set forth, or at such other places that either
party may designate by notice to the other.
Notice to the Company shall be addressed to:
Promus Hotel Corporation
755 Crossover Lane
Memphis, Tennessee 38117
Attention: General Counsel
Notice to the Executive shall be addressed to him at the business
address of the Company where the Executive is employed, with a copy to him at
his home address as follows:
3936 N. Galloway Drive
Memphis, TN 38111
All such notices shall be deemed effectively given five (5) days after
the same has been deposited in a post box under the exclusive control of the
United States Postal Service.
7. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the
-5-
<PAGE> 6
Executive and such officer of the Company as may be specifically designated by
the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
8. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
9. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Memphis, Tennessee
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
10. PAYMENT OF LEGAL FEES
Each party shall pay its own legal fees and expenses incurred in
connection with any arbitration (or other proceeding whether or not instituted
by the Company or the Executive), relating to the interpretation or enforcement
of any provision of this Agreement (including any action seeking to obtain or
enforce any right or benefit provided by this Agreement) or in connection with
any tax audit or proceeding relating to the application of Section 4999 of the
Code to any payment or benefit provided by the Company.
11. NO RESTRICTIONS ON EMPLOYMENT RIGHTS
This contract is in relation to certain benefits and compensation only
and is not to be construed as an employment contract for a definite term.
Nothing in this Agreement shall confer on the Executive any right to continue in
the employ of the Company or shall interfere with or restrict the rights of the
Company, which are expressly reserved, to discharge the Executive at any time
for any reason whatsoever, with or without Cause. Nothing in this Agreement
shall restrict the right of the Executive to terminate his employment with the
Company at any time for any reason whatsoever, with or without Good Reason.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
PROMUS HOTEL CORPORATION
/s/ Kelly Jenkins
--------------------------------------
Name:
Title:
Date: 3/5/99
THE EXECUTIVE
/s/ TWS Thomas W. Storey
--------------------------------------
Name: Thomas W. Storey
Date: 3/4/99
-7-
<PAGE> 1
EXHIBIT 10.26
<PAGE> 2
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made and entered into
as of January 1, 1999, by and between Promus Hotel Corporation, a Delaware
corporation ("Promus"), and Peter Ueberroth ("Ueberroth").
Introduction. Promus and Ueberroth desire to enter into a consulting
arrangement whereby Promus will retain Ueberroth to provide consulting services
relating to the business of Promus and its subsidiaries (the "Promus Business")
for a certain period of time. Accordingly, for certain good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, Promus
and Ueberroth hereby agree as follows:
1. Appointment and Acceptance. During the Term (as defined herein),
and on the terms and subject to the conditions set forth herein, Promus hereby
appoints, engages and retains Ueberroth as a consultant for the Promus Business,
and Ueberroth hereby accepts such appointment.
2. Consulting Services. Ueberroth shall perform such consulting
services for Promus relating to the Promus Business as solely directed by Norman
Blake, Chief Executive Officer of Promus. The consulting services shall include,
without limitation, (a) advice and consultation regarding potential acquisitions
to include identification of acquisition targets, and (b) provide liaison
services to interested parties with respect to acquisitions. Ueberroth shall at
all times comply fully with all applicable laws, ordinances, rules and
regulations in performing consulting services hereunder.
3. Term. Subject to termination in accordance with Section 5 hereof,
the term of this Agreement (the "Term") shall begin on January 1, 1999, and
shall end on December 31, 1999.
4. Compensation.
(a). Consulting Fee. As compensation for the consulting
services performed by Ueberroth under this Agreement, Promus
shall (a) pay to Ueberroth a consulting fee in the amount of
$75,000 per quarter minus any amounts Ueberroth receives as
fees or other compensation for his services as a member of the
Board of Directors of Promus in any form. Promus shall not
reimburse Ueberroth for costs and expenses incurred in
performing the consulting services hereunder. There shall be
no other compensation of any kind or nature payable by Promus
to Ueberroth in consideration of the consulting services
performed hereunder.
(b) Income Tax Reporting. Promus shall file annually an
Internal Revenue Service form 1099 for compensation rendered
to Ueberroth for services performed hereunder. Ueberroth shall
be responsible for filing all other required state or federal
income and self-employment tax returns with respect to the
compensation paid to Ueberroth under this Agreement. Promus
shall not make income tax deductions or withholdings from
payments made to Ueberroth, and Ueberroth shall be responsible
for the payment of all income taxes.
(c) Employment Benefits. As an independent contractor,
Ueberroth is not eligible for any employment benefits offered
by Promus, including participation in
1
<PAGE> 3
any insurance, disability, vacation, pension, retirement or
other plans offered by Promus.
5. Termination. This Agreement and the rights and obligations of Promus
and Ueberroth hereunder may be terminated prior to the expiration of the Term by
either party upon thirty (30) days written notice to the other party.
6. Miscellaneous Provisions.
A. Independent Contractor. The parties hereto are independent
contractors, and nothing contained herein shall be construed as appointing
Ueberroth an employee of Promus. Except as otherwise provided in Section 2
hereof, Promus shall have no control over or supervisory power as to the manner
or method of performance by Ueberroth of the consulting services hereunder.
B. Notices and Other Communications. All notices, demands,
requests and other communications given hereunder shall be made in writing and
shall be delivered in person or by certified mail (postage prepaid and return
receipt requested), courier or overnight delivery service (delivery charge
prepaid), or telecopy. Any notice, demand, request or other communication shall
be effective only if and when it is received by the addressee. For the purposes
hereof, the addresses and telephone and telecopier numbers of Promus and
Ueberroth are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Promus: Promus Hotel Corporation Ueberroth: Peter Ueberroth
755 Crossover Lane The Contrarian Group
Memphis, Tennessee 38117 1071 Camelback Street
Attention: Chief Executive Officer Newport Beach, CA 92660
Telephone: (901) 374-6536 Telephone: (949) 720-9646
Telecopier: (901) 374-6533
</TABLE>
Any party hereto may change its address or telephone or telecopier number for
the purposes hereof by notifying the other party thereof in the manner provided
herein.
C. Entire Agreement. This Agreement constitutes the full
understanding of the parties, a complete allocation of (risks between them, and
a complete and exclusive statement of the terms and conditions of their
agreement relating to the subject matter hereof and supersedes any and all prior
negotiations, understandings and agreements, whether written or oral, between
the parties. Except as otherwise specifically provided in this Agreement, no
term, condition, usage of trade, course of dealing or performance, understanding
or agreement purporting to modify, vary, explain or supplement the provisions of
this Agreement shall be effective or binding on the parties, unless the same
hereafter is effected in accordance with Section 6.D hereof.
D. Amendments. This Agreement may be altered, modified, amended
or changed (other than any waiver of any provision hereof, which shall be
effective only if made in accordance with Section 6.E hereof) in any manner, but
only by a written agreement executed and delivered by all parties.
E. Waivers. No waiver by any party of any breach of the
covenants set forth herein or any right or remedy provided hereunder and no
course of dealing shall be deemed a
2
<PAGE> 4
waiver of the same or any other breach, right or remedy, unless such waiver is
in writing and is signed by the party sought to be bound. The failure of a
party to exercise any right or remedy shall not be deemed a waiver of such
right or remedy in the future.
F. Enforceability. This Agreement shall be enforceable by and
against Promus and Ueberroth and their respective successors, permitted
assignees, heirs and legal representatives.
G. Assignment. This Agreement contemplates the provision of
skills of a personal nature, and accordingly Ueberroth may not assign, convey,
or transfer any obligations of this Agreement. Promus may not assign, convey,
transfer or otherwise dispose of its interest in, or its rights and
obligations under, this Agreement without the prior written consent of
Ueberroth, which consent shall not be unreasonably withheld or delayed. Any
assignment, conveyance, transfer or other disposition made or attempted in
violation of this Section 6.G shall be void and of no force or effect.
H. Remedies. In the event of a breach by a party hereto of any
covenant contained in this Agreement, the other party shall be entitled to
equitable relief (including, without limitation, specific performance of such
covenant), in addition to any and all other remedies to which such party may
be entitled hereunder or by law. Any party's full or partial exercise of any
remedy shall not preclude any subsequent exercise by such party of the same or
any other remedy.
I. Governing Law. This Agreement shall be governed by,
construed under, and enforced in accordance with the laws of the state of
Tennessee without reference to the conflict-of-laws provisions thereof.
This Agreement is executed and delivered by Promus and Ueberroth as of
the date first set forth above.
PROMUS HOTEL CORPORATION
/s/ Peter Ueberroth By: /s/ Norman P. Blake
- - ------------------------------- --------------------------------
Peter Ueberroth Name: Norman P. Blake
------------------------------
Title: Chief & CEO
-----------------------------
3
<PAGE> 1
EXHIBIT 10.27
<PAGE> 2
EXHIBIT 10.27
PROMUS HOTEL CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE> 3
EXHIBIT 10.27
TABLE OF CONTENTS
PAGE
----
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 - PURPOSE 1
ARTICLE 2 - DEFINITIONS 1
2.1 Account 1
2.2 Beneficiary 2
2.3 Board 2
2.4 Change of Control 2
2.5 EDCP Committee 4
2.6 Compensation 4
2.7 Deferral Commitment 4
2.8 Deferral Period 4
2.9 Determination Date 4
2.10 Employer 4
2.11 Employment 4
2.12 Hardship 5
2.13 Interest 5
2.14 Participant 6
2.15 Participation Agreement 6
2.16 Plan Benefit 6
2.17 Retirement 6
2.18 Total and Permanent Disability 6
ARTICLE 3 - PARTICIPATION AND DEFERRAL COMMITMENTS 7
3.1 Eligibility and Participation 7
3.2 Form of Deferral; Maximum and Minimum Deferral 8
3.3 Modification of Deferred Commitment 9
ARTICLE 4 - DEFERRED COMPENSATION ACCOUNTS 9
4.1 Elective Deferred Compensation 9
4.2 Types of Account 9
4.3 Matching Contributions 9
4.4 Vesting of Accounts 10
4.5 Determination of Accounts 10
4.6 Statement of Accounts 10
</TABLE>
i
<PAGE> 4
ARTICLE 5 - PLAN BENEFITS 11
5.1 Pre-Termination withdrawals 11
5.2 Retirement Benefit 11
5.3 Termination Benefit 12
5.4 Death Benefit 12
5.5 Disability Benefits 13
5.6 Hardship Distributions 13
5.7 Form of Benefit Payment 13
5.7A Amendment of Benefit Payment Election 14
5.8 Withholding; Payroll Taxes 15
5.9 Commencement of Payments 15
5.10 Full Payment of Benefits 16
5.11 Payment to Guardian 16
5.12 Spin-Off Transactions 16
ARTICLE 6 - BENEFICIARY DESIGNATION 17
6.1 Beneficiary Designation 17
6.2 Amendments 17
6.3 No Beneficiary Designation 17
6.4 Effect of Payment 18
ARTICLE 7 - ADMINISTRATION 18
7.1 Committee; Duties 18
7.2 Agents 18
7.3 Binding Effect of Decisions 18
7.4 Indemnity of Committee 18
ARTICLE 8 - CLAIMS PROCEDURE 19
8.1 Claim 19
8.2 Denial of Claim 19
ARTICLE 9 - AMENDMENT AND TERMINATION OF PLAN 20
9.1 Amendment 20
9.2 Employer's Right to Terminate Future Deferrals 20
ARTICLE 10 - MISCELLANEOUS 21
10.1 Unfunded Plan 21
10.2 Unsecured General Creditor 21
ii
<PAGE> 5
10.3 Nonassignability 21
10.4 Not a Contract of Employment 21
10.5 Protective Provisions 22
10.6 Terms 22
10.7 Captions 22
10.8 Governing Law 22
10.9 Validity 22
10.10 Notice 22
10.11 Successors 23
iii
<PAGE> 6
AMENDED AND RESTATED
ON FEBRUARY 26, 1997
PROMUS HOTEL CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
1. PURPOSE
The purpose of this Executive Deferred Compensation Plan (hereinafter
referred to as the "Plan") is to provide supplemental funds for retirement or
death for certain Directors and key management employees (and their
beneficiaries) of Promus Hotel Corporation (hereinafter referred to as "Promus")
and certain of its subsidiaries which elect to participate in the Plan. It is
intended that the Plan will aid in retaining and attracting Directors and
employees of exceptional ability by providing such individuals with these
benefits. This plan shall be effective as of the later of June 30, 1995 or the
date of the distribution of a dividend of common stock in Promus to the
shareholders of The Promus Companies Incorporated.
2. DEFINITIONS
For the purposes of this Plan, the following words and phrases shall
have the meanings indicated, unless the context clearly indicates otherwise:
2.1. (a) Account "Account" means the Retirement Account and the Termination
Account maintained by the Employer with respect to each Participant's
deferred compensation pursuant to Article IV, including accounts
transferred from The Promus Companies Incorporated Executive Deferred
Compensation Plan (The "Promus Predecessor Plan"). The existence of
these accounts shall not require any segregation of assets.
(b) Pre-1996 Retirement Account "Pre-1996 Retirement Account" means the
Retirement Account for deferrals of compensation during plan years
through 1995.
(c) Post-1995 Retirement Account "Post-1995 Retirement Account" means
the Retirement Account for deferrals of compensation for plan years
after 1995.
<PAGE> 7
(d) Pre-1996 Termination Account "Pre-1996 Termination Account"
means the Termination Account for deferrals of compensation
during plan years through 1996.
(e) Post-1995 Termination Account "Post-1995 Termination Account"
means the Termination Account for deferrals of compensation
during plan years after 1995.
2.2 Beneficiary. "Beneficiary" means the person, persons or entity
designated by the Participant, or as provided in
Article VI, to receive any Plan benefits payable after the
Participant's death.
2.3 Board. "Board" means the Board of Directors of Promus or the Human
Resources Committee (or its successor committee) of such Board of
Directors or any other Committee designated by the Board of Directors
of Promus.
2.4 Change of Control. A "Change of Control" shall be deemed to have
occurred, subject to subparagraph (iv) hereof, if any of the events in
subparagraphs (i), (ii) or (iii) occur:
(i) Any "person" (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other than an employee
benefit plan of Promus, or a trustee or other
fiduciary holding securities under an employee
benefit plan of Promus, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 25% or more of
Promus's then outstanding voting securities carrying
the right to vote in elections of persons to the
Board of Directors, regardless of comparative voting
power of such voting securities, and regardless of
whether or not the Board of Directors shall have
approved such Change in Control; or
(ii) During any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of
Directors and any new director (other than a director
designated by a person who shall have entered into an
agreement with Promus to effect a transaction described in
subparagraphs (i) or (iii) of this paragraph) whose election
by the Board of Directors or nomination for election by
Promus's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either
were directors at the beginning of the period or whose
election or
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<PAGE> 8
nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; or
(iii) The holders of securities of Promus entitled to vote thereon
approve the following:
(A) A merger or consolidation of Promus with any other
corporation regardless of which entity is the
surviving company, other than a merger or
consolidation which would result in the voting
securities of Promus carrying the right to vote in
elections of persons to the Board of Directors
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by
being converted into voting securities of the
surviving entity) at least 80% of Promus's then
outstanding voting securities carrying the right to
vote in elections of persons to the Board of
Directors, or such securities of such surviving
entity outstanding immediately after such merger or
consolidation, or
(B) A plan of complete liquidation of Promus or an
agreement for the sale or disposition by Promus of
all or substantially all of Promus's assets.
(iv) Notwithstanding the definition of a "Change in
Control" of Promus as set forth in this paragraph
2.4, the Human Resources Committee of the Board of
Directors (the "Committee") shall have full and final
authority, which shall be exercised in its
discretion, to determine conclusively whether a
Change in Control of Promus has occurred, and the
date of the occurrence of such Change in Control and
any incidental matters relating thereto, with respect
to a transaction or series of transactions which have
resulted or will result in a substantial portion of
the assets or business of Promus (as determined
immediately prior to the transaction or series of
transactions by the Committee in its sole discretion
which determination shall be final and conclusive)
being held by a corporation at least 80% of whose
voting securities are held, immediately following
such transaction or series of transactions, by
holders of the voting securities of Promus
(determined immediately prior to such transaction or
series of transactions). The Committee may exercise
such discretionary authority without regard to
whether one or
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<PAGE> 9
more of the transactions in such series of transactions would
otherwise constitute a Change in Control of Promus under the
definition set forth in this paragraph 2.4.
2.5 EDCP Committee. "EDCP Committee" means the Executive Deferred
Compensation Committee appointed to administer the Plan pursuant to
Article VII.
2.6 Compensation. "Compensation" means the base salary and bonus or
director's fees paid to the Participant by the Employer during the
calendar year, before reduction for amounts deferred pursuant to this
Plan or any other plan. Compensation does not include expense
reimbursements, or any form of non-cash compensation and benefits.
2.7 Deferral Commitment. (a) "Deferral Commitment" means a Salary Deferral
Commitment, a Bonus Deferral Commitment, or a Fee Deferral Commitment
made by the Participant pursuant to Article III and for which a
Participation Agreement has been filed. A Deferral Commitment shall
include any deferral commitment made by a Participant for 1995 and
years prior thereto under the Promus Predecessor Plan.
(b) Pre-1996 deferrals means the deferral of
compensation during plan years through 1995.
(c) Post-1995 deferrals means the deferral of
compensation during the plan years after 1995.
2.8 Deferral Period. "Deferral Period" means the single calendar year for
which the Participant has made a Deferral Commitment. The initial
Deferral Period shall commence as soon as administratively feasible
after the effective date of this Plan.
2.9 Determination Date. "Determination Date" means the last day of each
calendar month.
2.10 Employer. "Employer" means Promus, and directly or indirectly
affiliated or subsidiary corporations, any other affiliate designated
by the Board, or any successors to the businesses thereof.
2.11 Employment. "Employment," in the case of an employee, means the period
of time that a Participant is on the Employees payroll. A leave of
absence approved by the EDCP Committee shall not be deemed a
termination of Employment. A Participant who enters salary continuation
status shall not be deemed to have terminated Employment. In the case
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<PAGE> 10
of a director, Employment means the active service on the Board by the
Participant.
2.12 Hardship. "Hardship" means the immediate and heavy financial
need of the Participant as determined by the EDCP Committee.
Financial needs shall be limited to the following situations:
(a) Financial obligations incurred by the Participant because
of sickness, accident, death, disability, or other medical need
in the Participant's immediate family which the Participant is
not able to pay out of liquid assets or current cash flow.
(b) Financial requirements to purchase necessary shelter and
related necessities for the Participant and the Participant's
immediate family which the Participant is unable to purchase out
of liquid assets or current cash flow or otherwise reasonably
finance.
(c) Financial requirements for education for the Participant or
a member of the Participant's immediate family which the
Participant is unable to pay out of liquid assets or current cash
flow.
For purposes of this definition, the term "immediate family" means
wife, husband, child, father, mother, or a related dependent residing with the
Participant.
2.13 Interest.
(a) Termination Account Interest. (1) The interest rate applicable
to a pre-1996 Termination Account on each monthly Determination
Date shall be the greater of one-twelfth (1/12) of 8.5% or one-twelfth
(1/12) of the rate announced by Citibank, N.A. as its prime rate
("Citibank Prime Rate") at the beginning of each calendar quarter.(2)
The interest rate applicable to a post-1995 Termination Account on each
monthly Determination Date shall be the greater of one-twelfth (1/12)
of the rate approved by the Board prior to January 1 of each plan year
or one-twelfth (1/12) of the Citibank Prime Rate at the beginning of
each calendar quarter during the plan year. The rate to be approved by
the Board shall be submitted by Company management to the Board for
review and approval prior to January 1 of each plan year. If the
Citibank Prime Rate is no longer available, the EDCP Committee shall
select a substantially similar index.
(b) Retirement Account Interest. (1) For plan years through
1995, the effective annual yield applicable to a pre-1996
Retirement Account shall be as the Board determined prior to
January 1 of each year and be
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<PAGE> 11
effective for the calendar year following the date it was determined.
For all calendar years after 1995, such rate shall be and is hereby
fixed at 15.5% for all pre-1996 Retirement Accounts provided that the
annual yield under this paragraph 2.13(b) for each plan year for a
pre-1996 Retirement Account shall not be less than one hundred fifty
percent (150%) of the annual average of the Moody's Average Corporate
Bond Yield for such year as published by Moody's Investors Service,
Inc. ("Moody's") (or any successor hereto) or, if such index is no long
published, a substantially similar index selected by the EDCP
Committee. (2) The effective annual yield applicable to a post-1995
Retirement Account shall be determined prior to January 1 of each year
and be effective for the calendar year following the date it is
determined; such rate shall be submitted by company management for
review and approval by the Board prior to January 1 each year, provided
that the annual yield under this paragraph 2.13(b)(2) for each calendar
year for a post-1995 Retirement Account shall not in any event be less
than 150% of the annual average of Moody's for such year.
2.14 Participant. "Participant" means any individual who is participating
or has participated in this Plan as provided in Article III or has
participated in the Promus Predecessor Plan and whose account in the
Promus Predecessor Plan (in whole or in part) has been transferred to
this Plan.
2.15 Participation Agreement. "Participation Agreement" means the agreement
filed by the Participant prior to the beginning of the Deferral Period.
A new Participation Agreement shall be filed by the Participant for
each Deferral Period.
2.16 Plan Benefit. "Plan Benefit" means the benefit payable to the
Participant as calculated in Article V.
2.17 Retirement. "Retirement" means termination of Employment with the
Employer on or after the earlier of the date the Participant attains
age fifty five (55) with ten (10) years of vested service or on or
after the date the Participant attains age sixty (60). For purposes of
this definition, years of vested service will be credited in accordance
with the provisions of The Promus Hotel Corporation Savings and
Retirement Plan. The Board reserves the right to provide different
retirement requirements for different participants.
2.18 Total and Permanent Disability. "Total and Permanent Disability" means
that due to sickness or accidental bodily injury the Participant:
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<PAGE> 12
(a) is completely unable to perform any and every duty
pertaining to his occupation with the Employer, and
the period of disability is expected to last at least
24 months-
For purposes of this Plan, the EDCP Committee shall determine whether
or not a condition renders the Participant to be Totally and
Permanently Disabled based on evidence satisfactory to the EDCP
Committee. Such determination by the EDCP Committee shall be final and
binding.
3. PARTICIPATION AND DEFERRAL COMMITMENTS
3.1 Eligibility and Participation
(a) Eligibility. Eligibility to participate in the Plan is limited to
those employees of the Employer who are:
(i) in Job Grades 26 and above (or equivalent grades)
or in other Job Grades which may be declared eligible
by the Board's Human Resources Committee, and
(ii) designated as a Participant by the Chief
Executive Officer of Promus.
Non-employee Directors of the Board whose accounts have been
transferred to the Plan from the Promus Predecessor Plan are also Participants
except that no non-employee Directors may make further deferrals into the Plan
after June 30, 1995.
(b) Participation. An eligible employee may elect to
participate in the Plan with respect to any Deferral Period by
filing a Participation Agreement with the EDCP Committee by a
date set by the Company but not later than December 31 of the
calendar year immediately preceding the Deferral Period. In
the event that an individual first becomes eligible to
Participate during a calendar year, a Participation Agreement
must be filed no later than thirty (30) days following
notification of the individual by the EDCP Committee or the
Company of his eligibility to Participate, and such
Participation Agreement shall be effective only with regard to
Compensation earned and payable following the filing of the
Participation Agreement with the company. Employees whose
accounts are transferred to this Plan from the Promus
Predecessor Plan are also
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<PAGE> 13
Participants and their deferred elections for 1995 will carry
over for the remainder of 1995 under this Plan.
(c) Unless an exception is specifically made by the EDCP
Committee, in its sole discretion, and except for the purpose
described in paragraph 5.4(b) below, a Participant shall not
be permitted to defer under this Plan amounts payable to the
Participant after (i) the Participant's death; or (ii) if a
Participant is placed on salary continuation during a Deferral
Period, the earlier of the date the Participant ceases to
receive a continuation of salary or the commencement of a new
Deferral Period; or (iii) the Employer has terminated future
deferrals pursuant to paragraph 9.2 of this Plan.
(d) Deferrals into the Plan will not be allowed after 1999.
3.2 Form of Deferral; Maximum and Minimum Deferral. The
Participant may elect in the Participation Agreement any of
the following Deferral Commitments:
(a) Salary and Bonus Commitment. During the Deferral
Period following the calendar year in which the
Participation Agreement is filed, the Participant may
elect to defer, except as provided in (b) below, (1) up to
twenty-five percent (25%) of base salary payable during
the Deferral Period, and (2) up to fifty percent (50%) of
bonus payable during the Deferral Periods.
(b) Savings and Retirement Plan Exception. In addition
to the deferral permitted under (a) above, any Participant
that participates at the maximum before-tax percentage
allowed by the Employer's Savings and Retirement Plan
maintained by the Employer shall be deemed to have elected
to defer under this Plan that portion of eligible Savings
and Retirement Plan earnings which the Participant elected
to defer under the Savings and Retirement Plan, up to six
percent (6%) (or such other maximum before-tax percentage
allowed by the Savings and Retirement Plan), which could
not be deferred on a before-tax basis under the Savings
and Retirement Plan due to any law or regulation as
determined by the EDCP Committee, but excluding any amount
which was actually deferred into the Savings and
Retirement Plan but distributed back to the employee in a
following Plan year.
(c) Limitation on Deferrals. Notwithstanding anything
herein, a director on the Board of Directors of Promus
shall not be permitted to defer any further director's
fees into this Plan.
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<PAGE> 14
3.3 Modification of Deferred Commitment. A Deferral Commitment shall be
irrevocable except that the EDCP Committee may reduce the amount to be
deferred or waive the remainder of the Deferral Commitment upon a
finding, based upon uniform standards established by the EDCP
Committee, that the Participant has suffered a Hardship or that a bona
fide mistake occurred in filling out a form or responding to
instructions.
4. DEFERRED COMPENSATION ACCOUNTS
4.1 Elective Deferred Compensation. The amount of Compensation that the
Participant elects to defer shall be withheld and credited to the
Participant's Account as the Compensation becomes payable. Any
withholding of taxes or other amounts with respect to deferred
Compensation which is required by state, federal or local law may be
withheld from the Participant's non-deferred Compensation.
4.2 Types of Account. For record-keeping purposes only, the following
accounts shall be maintained for each Participant where applicable:
Pre-1996 Retirement Account
Pre-1996 Termination Account
Post-1995 Retirement Account
Post-1995 Termination Account
The amount of Compensation elected to be deferred shall be credited to
both the Retirement Account and the Termination Account.
4.3 Matching Contributions.
(a) Eligibility. Matching contributions shall be credited to
Participants in this Plan who are eligible to participate in
the Employer's Savings and Retirement Plan and elect to make a
Basic Contribution equal to the maximum rate at which a
Participant may elect before-tax contributions under the
Employer's Savings and Retirement Plan and such before-tax
contribution is limited due to any law or regulation.
(b) Amount. The Employer shall credit to each employee
Participant's Account a matching contribution for each
calendar year equal to one hundred percent (100%) of the
Participant's Compensation elected to be deferred under this
Plan for the year, such Compensation being limited for
purposes of this calculation to
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<PAGE> 15
a maximum of six percent (6%) of the Participant's eligible
Savings and Retirement Plan earnings (which shall not include
bonus amounts or board fees). The matching contribution amount
shall be offset by the actual matching contribution allocated
to the Participant for the year under the Employer's Savings
and Retirement Plan.
(c) Time of Credit. The Employer matching contribution shall
be credited to a Participant's Account as of the last day of
the calendar year or the date the Participant's employment
ends, if earlier.
4.4 Vesting of Accounts. Each Participant shall be vested in the amounts
credited to such Participant's Account and earnings thereon as follows:
(a) Amounts Deferred. A Participant shall be one hundred
percent (100%) vested at all times in the amount of
Compensation elected to be deferred under this Plan and the
earnings thereon (either at the Termination Date or Retirement
Date).
(b) Employer Matching Contributions. A Participant who
terminates Employment for reasons other than Retirement, Total
and Permanent Disability or Death shall be vested in the
Employer matching contributions made for any particular year
in accordance with the vesting provisions in the Employer's
Savings and Retirement Plan and as it may be amended from time
to time.
(c) Retirement, Disability or Death. A Participant shall be
one hundred percent (100%) vested in all amounts at
Retirement, or upon Total and Permanent Disability or Death.
4.5 Determination of Accounts. Each Participant's Retirement Account
Pre-1996 and Post-1995 and Termination Account Pre-1996 and Post-1995
as of each Determination Date shall consist of the balance of the
Participant's Account as of the immediately preceding Determination
Date, plus the Participant's elective deferred Compensation credited,
matching contributions and Interest earned, minus the amount of any
distributions made since the immediately preceding Determination Date.
Interest earned shall be calculated as of each Determination Date based
upon the average daily balance of the account since the preceding
Determination Date. Interest earned on the Retirement Account shall be
calculated so as to achieve the annual yield provided by paragraph
2.13(b).
4.6 Statement of Accounts. The EDCP Committee shall submit to each
Participant, within one hundred twenty (120) days after the close of
each
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<PAGE> 16
calendar year and at such other time as determined by the EDCP
Committee, a statement setting forth the balance to the credit
of each Account maintained for the Participant.
5. PLAN BENEFITS
5.1 Pre-Termination Withdrawals
(a) Amount. At the time the Participation Agreement is filed,
the Participant may elect to receive fifty percent (50%) of
the Deferral Commitment during each of the 8th, 9th, 10th,
and 11th years after the year during which the Participation
Agreement is filed. The total Pre-Termination Withdrawal
shall be limited to the Termination Account balance at the
time of the withdrawal.
(b) Remaining Account Balance. The amount of the withdrawal
shall reduce the respective Pre-1996 or Post-1995 Retirement
Account and respective Pre-1996 or Post-1995 Termination
Account balances. Any remaining Account balances shall
continue to be credited with Interest in accordance with
paragraph 4.5. Any amounts remaining in the respective
Pre-1996 or Post-1995 Retirement Account or Termination
Account after all Pre-Termination Withdrawals shall be paid in
accordance with this Article V.
5.2 Retirement Benefit. The Employer shall pay a Plan Benefit equal to the
amount of the Participant's respective Pre-1996 or Post-1995 Retirement
Account to each Participant who terminates Employment:
(a) by reason of Retirement,
(b) by reason of Total and Permanent Disability,
(c) within a twenty-four (24) month period after a
Change of Control,
(d) while participating as a director and terminates
from Employment on the Employer's Board due to:
(i) not being re-elected as a director,
(ii) Total and Permanent Disability, or
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(iii) termination within a twenty-four (24) month period after a
Change of Control.
A non-employee director whose account in the Promus Predecessor Plan
(in whole or in part) was transferred to the Plan from the Promus Predecessor
Plan will be entitled to the Retirement Account benefit upon resigning, retiring
or otherwise terminating Board service.
5.3 Termination Benefit. The Employer shall pay a Plan Benefit equal to
the amount of the Participant's Termination Account to each Participant
who terminates Employment for all reasons other than those for which a
Retirement Benefit or Death Benefit shall be paid. A participant or
Beneficiary shall receive either the Termination Account or the
Retirement Account as provided in the Plan, but not both.
5.4 Death Benefit. Upon the death of the Participant, the Employer shall
pay to the Participant's Beneficiary an amount determined as follows:
(a) If the Participant dies prior to termination of Employment with
the Employer, the amount payable under this paragraph shall be in
lieu of any other benefit payment under this Plan and shall equal:
(i) the Participant's Retirement Account Balance, plus;
(ii) if the Participant died during active Employment (or if
such participant's death occurs after active employment has
ceased by reason of a sickness or injury which thereafter
results in the participant's death), three (3) times the sum
of all amounts deferred by the Participant under this Plan
(not including interest or earnings thereon) until the date of
death.
(b) For purposes of calculating the Death Benefit under paragraph
5.4(a):
(i) "amounts deferred" shall include salary, bonus, and any other
Compensation that the Participant may be permitted to defer
hereunder which the Participant shall have elected in writing to
defer under this Plan from inception of the Plan (including the
Predecessor Promus Plan) to the date of death including any
deferred bonus or other deferred Compensation hereunder which
would be payable to the Participant or to the Participant's
estate or
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<PAGE> 18
beneficiary after the Participant's death, except that
"amounts deferred" shall not include any salary elected to be
deferred under this Plan but not yet payable at the time of
the Participant's death.
(ii) the Participant's Retirement Account Balance shall not
include any Compensation which is not payable on the day
before the Participant's death even if such amounts become
payable on or after the Participant's death and even if the
Participant had elected in writing to defer such amounts under
this Plan.
(c) If the Participant dies after termination of Employment with
the Employer, the amount payable shall be equal to the remaining
unpaid balance of the Participant's appropriate Account.
5.5 Disability Benefits. If the Participant terminates Employment by reason
of Total and Permanent Disability, the amount payable shall equal the
Retirement Account balance.
5.6 Hardship Distributions. Upon a finding that the Participant has
suffered a Hardship, the EDCP Committee may, in its sole discretion,
allow distributions from the Participant's Account prior to the time
otherwise specified for payment of benefits under the Plan. The amount
of such distribution shall be limited to the amount reasonably
necessary to meet the Participant's requirements during the Hardship.
The amount of such distribution shall reduce the Termination Account
balance and Retirement Account balance.
5.7 Form of Benefit Payment. The Plan Death Benefit payable under paragraph
5.4(a)(ii) of this Plan shall be paid within 90 days of death in a lump
sum with no interest accruing from the date of death until the date of
payment. The Plan Retirement Benefit, Death Benefit payable under
paragraph 5.4(a)(i) or 5.4(c), Disability Benefits, and Termination
Benefit shall be paid in one of the following forms as elected by the
Participant in the Participation Agreement:
(a) Installments. Equal monthly installments of the Account and
Interest amortized over a period of time elected by the Participant
and approved by the Company not to exceed 15 years unless a longer
period up to 20 years for an individual Participant is or has been
authorized by the Board including prior authorization by The Promus
Companies Incorporated. Interest shall be credited to the remaining
portion of the Account Balance in accordance with
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<PAGE> 19
paragraph 4.5. If the Participant is receiving the Retirement
Account, Interest shall be equal to an amount in accordance
with paragraph 2.12(b). If the Participant is receiving the
Termination Account, Interest shall be equal to an amount in
accordance with paragraph 2.13(a); and/or
(b) A lump sum payment.
(c) Any other form selected by the Participant, which has
written approval of the EDCP Committee.
(d) If the Participant fails to elect the form of benefit
payment, the benefits shall be paid in accordance with 5.7(a)
over a period of fifteen (15) years. However, the EDCP
Committee may, in its sole discretion, provide for an
alternate form of benefit payment to the Participant, if
payment is made pursuant to paragraph 5.2(c) or 5.2(d)(3).
(e) If a Plan Death Benefit is payable in installments under
paragraph 5.4(a)(i), the EDCP Committee may, in its sole
discretion, determine that payment of the Death Benefit shall
be accelerated and paid in a lump sum to the Beneficiary.
5.7.A Amendment of Benefit Payment Election. Notwithstanding anything
contained herein to the contrary, Participants who have not yet begun
to receive their Retirement Benefit, Termination Benefit or Disability
Benefit shall have a one-time opportunity to amend their Participation
Agreement(s) to change their form of payment and time of payment with
respect to pre-1996 deferrals ("Qualified Deferrals"), subject to the
following rules:
(a) Such amendment may change the form of benefit payment (to
the extent permitted under 5.7) and/or the time of
commencement of benefit payments (to the extent permitted
under Section 5.9).
(b) Such amendment may not accelerate the date on which any
payment is due, but may extend the date on which a Qualified
Deferral would otherwise be paid, at such times and in such
amounts or increments as the Committee in its discretion
offers to Participants.
(c) Such amendment may amend one or more of the payment
elections made in a Participant's Participation Agreement, but
such
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<PAGE> 20
amendment may be made only once and such amendment shall be
the only opportunity to amend any payment election for all
Qualified Deferrals. Example: The Participant will receive an
amendment form pursuant to this paragraph allowing the
Participant to change the payment election originally made in
each year's Participation Agreement. If the Participant does
not change the payment election made in a prior agreement,
there will be no further opportunity to change that payment
election.
(d) Such amendment must be made prior to the calendar year in
which the payments are due under the relevant Participation
Agreement and prior to the calendar year in which payments are
to commence under the relevant amended Participation
Agreement.
(e) No payment that is subject to an amended Participation
Agreement may be made sooner than the first anniversary after
the execution of the amended Participation Agreement.
(f) Such amendment shall be made in the manner designated by
the Committee, and, once filed with the Committee, shall be
irrevocable.
(g) Such amendment shall be made no earlier than December 1,
1997 and no later than a date designated by the Company in its
discretion, which shall be announced to all Participants in
advance.
5.8 Withholding; Payroll Taxes. The Employer shall withhold from
payments made hereunder any taxes required to be withheld from
the Participant's wages for the federal or any state or local
government.
5.9 Commencement of Payments. Payment shall commence at the
discretion of the EDCP Committee, but not later than sixty
(60) days after the end of the month in which the Participant
Retires, dies, becomes Totally and Permanently Disabled or
otherwise terminates Employment with the Employer and is
entitled to payment pursuant to his or her Participation
Agreement (unless a later commencement date not later than age
60 is or has been authorized by the Board for an individual
Participant including prior authorization by The Promus
Companies Incorporated). For purposes of this paragraph 5.9,
termination of Employment shall include when a Participant is
no longer entitled to any payments of salary or salary
continuation.
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5.10 Full Payment of Benefits. Notwithstanding any other provision
of this Plan, all benefits shall be paid no later than the
date of the Participant attains age eighty five (85).
5.11 Payment to Guardian. If a Plan benefit is payable to minor or
a person declared incompetent or to a person incapable of
handling the disposition of property, the EDCP Committee may
direct payment of such Plan benefit to the guardian, legal
representative or person having the care and custody of such
minor or incompetent person. The EDCP Committee may require
proof of incompetency, minority, incapacity or guardianship as
it may deem appropriate prior to distribution of the Plan
benefit. Such distribution shall completely discharge the EDCP
Committee and the Employer from all liability with respect to
such benefit.
5.12 Spin-Off Transactions. Notwithstanding anything in the Plan to
the contrary, in the event of any business of Promus or its
subsidiaries is spun-off and a Participant becomes an employee
or director of the company owning the spun-off business (the
"Spin-Off Company") which adopts a deferred compensation plan
that is substantially the same as the Plan, then the Human
Resources Committee of the Board of Directors of Promus in its
discretion may determine as follows prior to the spin-off:
(a) any director-Participant who resigns as a
director the Company and who, within 90 days,
commences service as a director of the Spin-Off
Company will not be treated as having terminated
service or employment as a director for purposes of
paying Plan benefits, and his or her entire Account
balance and all obligations associated therewith will
be transferred to the corresponding Plan of the
Spin-Off Company;
(b) a transfer of employment of a Participant to the
Spin-Off Company in connection with the spin-off will
not be considered a termination of employment for
purposes of paying Plan benefits or of forfeiting
matching contributions and interest thereon;
(c) a transferred Participant's Account balance as of
the effective date of the spin-off and all
obligations related thereto will be transferred to
the corresponding plan of the Spin-Off Company;
(d) any Participant who will immediately after the
effective date of the spin-off continue to be
employed by Promus (or a subsidiary thereof and will
also be employed by the Spin-Off Company (or a
subsidiary thereof will have the right to designate
in writing (to be signed prior to the effective date
of the spin-off) a percentage (from
16
<PAGE> 22
zero to 100%) of his or her Account Balance as of
such effective date that will be transferred to the
Spin-Off Company (such percentage being applied to
the balances attributable to each year of deferral)
which transfer will include the transfer of all
obligations associated therewith. (To the extent such
designation is not made, the Participant's Account
will remain in the Plan pursuant to its terms.); and
(e) Any employee or director transferring to the
Spin-Off Company will receive credit for and will be
vested in the Retirement Account Interest Rate under
the Plan and under the Spin-Off Company's
corresponding plan if such Rate is earned or
otherwise vested or credited under the Plan on or
prior to the effective date of the spin-off;
(f) Except to the extent related to that portion of a
Participant's Account balance that is retained in the
Plan pursuant to the above Section 5.12(e), no
benefits will be payable under the Plan to a
Participant whose Account balance (or portion
thereof) is transferred to the Spin-Off Company.
6. BENEFICIARY DESIGNATION
6.1 Beneficiary Designation. Each Participant shall have the
right, at any time, to designate any person or persons as his
Beneficiary or Beneficiaries (both principal as contingent) to
whom payment under this Plan shall be paid in the event of his
death prior to complete distribution to the Participant of the
benefits due him under the Plan. Each beneficiary designation
shall be in a written form prescribed by the EDCP Committee
and will be effective only when filed with the EDCP Committee
during the Participant's lifetime. If the Participant's
Compensation is community property, any Beneficiary
Designation shall be valid or effective only as permitted
under applicable law.
6.2 Amendments. Any Beneficiary designation may be changed by
the Participant without the consent of any designated
Beneficiary by the filing of a new Beneficiary Designation
with the EDCP Committee. The filing of a new Beneficiary
Designation form will cancel all Beneficiary Designations
previously filed.
6.3 No Beneficiary Designation. If any Participant fails to
designate a Beneficiary in the manner provided above, or if
the Beneficiary designated by a deceased Participant dies
before the Participant or before complete
17
<PAGE> 23
distribution of the Participant's benefits, the EDCP
Committee, in its discretion, may direct the Employer to
distribute such Participant's benefits (or the balance thereof
to either:
(a) The surviving spouse;
(b) The Participant's children, except that if any of
the children predecease the Participant but leave
issue surviving, then such issue shall take by right
of representation the share the parent would have
taken if living;
(c) The Participant's estate.
6.4 Effect of Payment. The payment to the Beneficiary shall
completely discharge the Employees obligations under this
Plan.
7. ADMINISTRATION
7.1 Committee: Duties. This Plan shall be administered by the
Employers Executive Deferred Compensation Committee ("EDCP
Committee"), which shall consist of not less than three (3)
individuals selected by the Chief Executive Officer of Promus.
Members of the EDCP Committee may be the Participants under
this Plan.
7.2 Agents. The EDCP Committee shall appoint an individual to
be the EDCP committee's agent with respect to the day-to-day
administration of the Plan. In addition, the EDCP Committee
may, from time to time, employ other agents and delegate to
them such administrative duties as it sees fit, and may from
time to time consult with counsel who may be counsel to the
Employer.
7.3 Binding Effect of Decisions. The decision or action of the
EDCP Committee in respect of any question arising out of or in
connection with the administration, interpretation and
application of the Plan and the rules and regulations
promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
7.4 Indemnity of EDCP Committee. The Employer shall indemnify
and hold harmless the members of the EDCP Committee or any
agents or employees of the Employer against any and all
claims, loss, damage, expense, or liability arising from any
action or failure to act with respect to this Plan, except in
the case of willful misconduct by the EDCP
18
<PAGE> 24
Committee, EDCP Committee member, or such agent or employee of
the Employer.
8. CLAIMS PROCEDURE
8.1 Claim. Any Participant, former Participant, Beneficiary, or
legal representative thereof, may file a claim for benefits
under the Plan by submitting to the EDCP Committee a written
statement describing the nature of the claim and requesting a
determination of its validity under the terms of the Plan. The
EDCP Committee shall issue a ruling and written notice with
respect to the claim within 30 days after such claim is
received. If the claim is wholly or partially denied, written
notice shall be furnished to the claimant, which notice shall
set forth in a manner calculated to be understood by the
claimant;
(a) the specific reason or reasons for denial;
(b) specific reference to pertinent Plan provisions
on which the denial is based;
(c) a description of any additional materials or
information necessary for the claimant to perfect the
claim and an explanation of why such material or
information is necessary; and
(d) an explanation of the claims review procedures.
8.2 Denial of Claim. Any Participant, former Participant, or
Beneficiary (or their authorized representatives) whose claim
for benefits has been denied, may appeal such denial be
resubmitting to the EDCP Committee a written statement
requesting a further review of the decision within sixty (60)
days of the date the claimant receives notice of such denial.
The statement shall set forth the reasons supporting the
claim, the reasons such claim should not have been denied, and
any other issues or comments which the claimant deems
appropriate with respect to the claim. The EDCP Committee
shall, if requested, make copies of the Plan documents
available for examination by the claimant. The EDCP Committee
shall issue a ruling and written notice within sixty (60) days
after the date the claim is resubmitted. Such written notice
shall include specific reasons for the decision, written in a
manner calculated to be understood by the claimant, with
specific references to the pertinent Plan provisions on which
the decision is based. The EDCP Committee's decision of the
appeal may be reviewed by the Board, which shall have the
right to overrule the EDCP Committee.
19
<PAGE> 25
9. AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment
(a) The Board may at any time amend the Plan in whole or in
part, and may impose different requirements for different
Participants, provided, however, that (i) no amendment shall
be effective to decrease or restrict the amount accrued to
that date on any Account maintained pursuant to any existing
Deferral Commitment under the Plan; and (ii) on amounts that
have been deferred up to the date of amendment, no amendment
shall be effective to reduce the minimum interest credited or
to be credited to Termination Accounts until their payment
date or reduce the minimum interest credited or to be credited
to Retirement Accounts until their payment date as provided in
paragraph 2.13, without the consent of all Participants (or a
Beneficiary in case a Participant is then deceased) who may be
affected by such change; and (iii) no amendment shall be
effective to alter the form of payment as elected by a
Participant in any Participation Agreement.
(b) The EDCP Committee may make administrative amendments to
the Plan including but not limited to amendments to clarify
the Plan language and to simplify and implement various
administrative procedures, including matters relating to the
calculation of death benefits and payments to Beneficiaries,
which the EDCP Committee determines are consistent with the
purpose and intent of the Plan.
9.2 Employer's Right to Terminate Future Deferrals. The Board may
at any time terminate further deferrals into the Plan, by any
person and may reject additional Participants in the Plan, if,
in its sole judgment, such termination would be in the best
interest of the Employer. Benefits from deferrals up to the
point of termination of further deferrals shall be paid in the
form elected by the Participant in his or her Participation
Agreement and otherwise in accordance with this Plan,
including crediting of interest, until all payments are
complete.
20
<PAGE> 26
10. MISCELLANEOUS
10.1 Unfunded Plan. This Plan is an unfunded plan maintained
primarily to provide Deferred Compensation benefits for a
select group of management employees or highly compensated
employees. This Plan is not intended to create an investment
contract, but to provide tax planning opportunities and
retirement benefits to eligible individuals who have elected
to participate in the Plan. Eligible individuals are select
members of management who, by virtue of their position with
the Employer, are uniquely informed as to the Employees
operations and have the ability to materially affect the
Employers profitability and operations.
10.2 Unsecured General Creditor The Participants and their
Beneficiaries, heirs, successors, and assigns shall have no
legal or equitable rights, interest, or claims in any property
or assets of the Employer, nor shall they be Beneficiaries of,
or have any rights, claims, or interests in any life insurance
policies, annuity contracts or the proceeds therefrom owned or
which may be acquired by the Employer ("Policies"). Such
Policies or other assets of the Employer shall not be held as
collateral security for the fulfilling of the obligations of
the Employer under this Plan. The Policies shall be the
general, unpledged, unrestricted assets of the Employer, and
the Employer may transfer, assign, sell, or use such policies
without restriction. The Employer's obligation under the Plan
shall be merely that of an unfunded and unsecured promise of
the Employer to pay money in the future. No Employer shall
have any obligation under this Plan with respect to
individuals other than that of the Employer's employees or
directors or Beneficiaries thereof.
10.3 Nonassignability. Neither the Participant nor any other person
shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage, or otherwise encumber, transfer,
hypothecate, or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, which
are, and all rights to which are, expressly declared to be
unassignable and non-transferable. No part of the amounts
payable shall, prior to actual payment, be subject to seizure
or sequestration for the payment of any debts, judgments,
alimony, or separate maintenance owed by the Participant or
any other person, nor be transferable by operation of law in
the event of the Participant's or any other person's
bankruptcy or insolvency.
10.4 Not a Contract of Employment The terms and conditions of this
Plan shall not be deemed to constitute a contract of
employment between the Employer and the Participant, and the
Participant (or his Beneficiary) shall
21
<PAGE> 27
have no rights against the Employer except as may otherwise be
specifically provided herein. Moreover, nothing in this Plan
shall be deemed to give the Participant the right to be
retained in the service of the Employer or to interfere with
the right of the Employer to discipline or discharge the
Participant at any time.
10.5 Protective Provisions. The Participant will cooperate with the
Employer by furnishing any and all information requested by
the Employer, in order to facilitate the payment of benefits
hereunder, and by taking such physical examinations as the
Employer may deem necessary and taking such other action as
may be requested by the Employer. Notwithstanding the other
provisions of this Plan, no death benefits in excess of the
Retirement Account balance shall be paid if during the first
two (2) years of participation (including participation under
the Promus Predecessor Plan) death occurs as a result of
suicide. The EDCP Committee shall have sole discretion to
determine whether death occurs as a result of suicide.
10.6 Terms. Whenever any words are used herein in the masculine,
they shall be construed as though they were used in the
feminine in all cases where they would so apply; and wherever
any words are used herein in the singular or in the plural,
they shall be construed as though they were used in the plural
or the singular, as the case may be, in all cases where they
would so apply.
10.7 Captions. The captions of the articles, sections, and
paragraphs of this Plan are for convenience only and shall not
control or affect the meaning or construction of any of its
provisions.
10.8 Governing Law. The provisions of this Plan shall be construed
and interpreted according to the laws of the State of
Tennessee.
10.9 Validity. In case any provision of this Plan shall be held
illegal or invalid for any reason, said illegality or
invalidity shall not affect the remaining parts hereof, but
this Plan shall be construed and enforced as if such illegal
and invalid provision had never been inserted herein.
10.10 Notice. Any notice or filing required or permitted to be
given to the EDCP Committee under the Plan shall be sufficient
if in writing and hand delivered, or sent by registered or
certified mail, to any member of the EDCP Committee, the Chief
Executive Officer of the Employer, or the Employer's Statutory
Agent. Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown
on the postmark on the receipt for registration or
certification.
22
<PAGE> 28
10.11 Successors. The provisions of this Plan shall bind and inure
to the benefit of the Employer and its successors and assigns.
The term successors as used herein shall include any corporate
or other business entity which shall, whether by merger,
consolidation, purchase or otherwise acquire all or
substantially all of the business and assets of the Employer,
and successors of any such corporation or other business
entity.
IN WITNESS WHEREOF, and pursuant to resolution of the Board of
Directors of the respective undersigned corporations, such corporations have
caused this instrument to be executed by its duly authorized officers.
PROMUS HOTEL CORPORATION
By:
-------------------------------
-------------------------------
Title
Attest:
-------------------------------
-------------------------------
Title
23
<PAGE> 1
EXHIBIT 10.29
<PAGE> 2
DOUBLETREE HOTELS CORPORATION
Supplemental Executive Retirement Plan
1. Introduction
The Board of Directors of Doubletree Hotels Corporation (the "Company")
established the Doubletree Hotels Corporation Supplemental Executive
Retirement Plan (the "Plan") in order to improve the competitive nature
and overall equity of total retirement income for selected key
employees and to provide a means to assist the Company in attracting
and retraining certain mid-career senior management employees. The Plan
is effective February 15, 1997. The Plan is not a qualified plan under
the Internal Revenue Code of 1986, as amended (the "Code"), and the
benefits are paid to participants directly by the Company or by an
entity established by the Company for the sole purpose of providing
benefits under this Plan.
2. Definitions
(a) Average Compensation means the average of the Compensation
paid to the Participant during the three calendar years,
whether or not consecutive, that yields the highest number
(b) Beneficiary means the person(s) or entity designated to
receive the Plan Benefit in the event both the Participant and
Surviving Spouse die before all the required Plan Benefit is
paid
(c) Board means the Board of Directors of the Company
(d) Change in Control is defined as the merger or consolidation of
the Company with or into another corporation, the exchange of
all or substantially all of the assets of the Company for the
securities of another corporation, the acquisition by another
corporation or person of all or substantially all of the
Company's assets, the acquisition by another corporation or
person of more than 50% of the Company's then-outstanding
voting stock, or the liquidation of dissolution of the Company
(each a "Change of Control", provided, however, that an
acquisition by the General Electric Pension Trust or its
affiliates, by Canadian Pacific or its affiliates, by Richard
Ferris, or by Peter Ueberroth of more than 50% of the
Company's then-outstanding voting stock shall not be deemed a
Change of Control).
(e) Committee means the Compensation Committee of the Board or
other Committee of the Board, and any delegate of the
Committee, appointed by the Board to administer this Plan
<PAGE> 3
Doubletree Hotels Corporation
Supplemental Executive Retirement Plan
Page 2
(f) Compensation means the sum of the base salary and bonus earned
by the Participant and paid by the Company for a calendar
year. For purposes of this Section 2(f), an Executive's
"bonus" for any calendar year shall be the Participant's
annual incentive award earned for the calendar year,
regardless of whether such award is determined or payable
after the end of the calendar year. A Participant's
Compensation shall be determined without regard to any
compensation reductions or deferrals under Code section 125 or
401(k) and without regard to any salary or bonus deferrals
under any nonqualified deferred compensation plans of the
Company
(g) Early Retirement Date means the date prior to the Normal
Retirement date which is the first day of the month coincident
with or next following a Participant's retirement from the
Company after attaining age 55 but prior to attaining age 60
(h) Normal Retirement Date means the first day of the month
coincident with or next following a Participant's retirement
from the Company after attaining age 60
(i) Participant means an executive designated according to
Section 3.
(j) Participant Vesting Percentage is the product of the number of
years of service of the Participant multiplied by 10%, with a
maximum of 100%
(k) Plan Benefit means an annual benefit payable under the terms
of the Plan as defined in Section 5
(l) Surviving Spouse means the person to whom the Participant is
legally married on the date of death of the Participant and
who survives the Participant
(m) Total and Permanent Disability means a disability which
entitles the Participant to benefits under any long-term
disability plan maintained by the Company or, in the absence
of such a plan, entitles the Participant to Social Security
disability benefits
(n) Years of Service means the Participant's total years of
service with the Company, as determined by the Committee, for
purposes of determining a benefit under this Plan.
3. Participation
An Executive shall become a Participant in the Plan if and when
nominated for participation by the Company's Chief Executive Officer
and approved by the Committee; provided, however, that participation in
the Plan by such Chief Executive Officer will occur following
nomination and approval by the Committee alone.
<PAGE> 4
Doubletree Hotels Corporation
Supplemental Executive Retirement Plan
Page 3
Upon the recommendation of the Company's Chief Executive Officer, the
Committee may terminate a Participant's active participation in the
Plan if there has been, at any time, a reduction in the Participant's
title, responsibilities (including reporting responsibilities) or
authority, whether or not such reduction places the Participant below
any level at which he previously was during the term of the
Participant's employment with the Company.
In the case of a termination of active participation described above,
the affected Participant's Average Compensation will be calculated and
frozen as of the date of such termination and the participant will be
entitled to receive a Plan benefit only if the Participant otherwise
qualifies hereunder. Except for purposes of receiving a vested Plan
Benefit, participation hereunder shall terminate on the date a
Participant terminates employment with the Company.
4. Vesting
A Participant will vest in the Plan Benefit at the rate of 10% per year
of service with the Company, unless otherwise determined by the
Committee. However, in the case of Richard Kelleher and William
Perocchi, the two participants will have a Participant Vesting
Percentage of 100% as of the effective date of the Plan. Upon a Change
of Control, all Participants will have a Participant Vesting Percentage
of 100%.
5. Plan Benefit
(a) Normal Retirement. Upon retirement at the Normal Retirement
Date or later, the Participant will receive a Plan Benefit
equal to [(i) x (ii)] where
(i) = 60% of Average Compensation
(ii) = Participant Vesting Percentage
(b) Early Retirement. Upon retirement at an Early Retirement Date,
the Participant will receive a Plan Benefit equal to [(i) x
(ii)] where
(i) = Applicable Percent of Average Compensation from the
chart below
(ii) = Participant Vesting Percentage
The Applicable Percent varies based upon the Participant's age
at Early Retirement as follows
Age at Applicable
Early Retirement Percent
59 58%
58 56%
57 54%
56 52%
55 50%
<PAGE> 5
Doubletree Hotels Corporation
Supplemental Executive Retirement Plan
Page 4
For purposes of this Plan Benefit, the "Age at Early
Retirement" will be the Participant's age closest to the
retirement date of the Participant, rounded to the nearest
whole year. However, in no case will any Plan Benefit become
available until the Participant achieves their 55th birthday.
(c) Benefit Upon Termination. Should a Participant terminate
employment with the Company after vesting in any Plan Benefit,
the Plan Benefit will be calculated based upon the Participant
Vesting Percentage using the formula in Section 5 (a) or 5
(b), as appropriate, determined based upon the age at which
the Participant requests their vested Plan Benefit to begin.
(d) Benefit Upon Death or Disability. In the event of a
Participant's death prior to receiving any Plan Benefit, any
vested benefit will be available to the Participant's Spouse.
This Plan Benefit will be calculated based on the
Participant's Vesting Percentage as of the date of death. The
Plan Benefit will be payable at the request of the Surviving
Spouse, starting no earlier than the time the Participant
would have reached age 55. The Plan Benefit will be calculated
based upon the formula in Section 5(a) or 5(b) as appropriate,
determined by the age the Participant would have reached as of
the time the Plan Benefit begins.
In the event of a Participant's permanent disability prior to
receiving any Plan Benefit, any vested Plan Benefit will be
available, calculated based on the Participant's Vesting
Percentage as of the date of permanent disability. The Plan
Benefit will be payable at the request of the Participant
beginning no earlier than age 55, with the Plan Benefit
calculated based upon Section 5(a) or 5(b), as appropriate,
determined by the age of the Participant at the time the Plan
Benefit is requested to begin.
(e) Change of Control: Upon a change of Control of the Company,
the Plan Benefit will be calculated as defined in Section 5(a)
for all Participants regardless of their age at retirement.
Any Plan Benefit following a Change of Control will be payable
starting at the time the Change of Control occurs, or upon the
Participant's retirement, whichever is later. In addition,
should the Plan Benefit payable upon a Change of Control
constitute a Parachute Payment that is subject to the "golden
parachute" rules of Code section 280G and the excise tax of
Code section 4999, the Company will pay all golden parachute
taxes plus an additional amount ("gross up") necessary to
cover the taxes on the golden parachute tax payments made on
behalf of the Participant by the Company
6. Form of Payment
The following forms of payment of the Plan Benefit are
available:
<PAGE> 6
Doubletree Hotels Corporation
Supplemental Executive Retirement Plan
Page 5
(a) Joint and Survivor Benefit: The normal form of the Plan
Benefit will be payable as a Joint and Survivor benefit,
defined as an annuity for the life of the Participant with a
survivor annuity for the life of the Surviving Spouse which is
equal to 50% of the amount of the annuity which is payable
during the joint lives of the Participant and Surviving Spouse
and which is the actuarial equivalent of an annuity for the
life of the Participant. However, the Plan Benefit will be
payable for a minimum of ten years ("Ten Year Certain")
starting with the date the Participant elects to receive the
Plan Benefit. Should both the Participant and the Surviving
Spouse die prior to the payment of the Plan Benefit for ten
years, the Plan Benefit payable for the remainder of the Ten
Year Certain period would be made to the designated
Beneficiary. All Plan Benefits will be paid in 12 equal
monthly installments.
(b) Lump Sum Benefit: At the time an executive is designated a
Participant in the Plan, the Participant may elect to receive
a lump sum ("Lump Sum") payment of the Plan Benefit. This Lump
Sum payment will be calculated and paid at the date the Plan
Benefit begins. The present value for the Lump Sum will be
calculated using (i) a discount rate equal to the annual
interest rate payable on Five Year Treasury Bills as quoted in
the Wall Street Journal as of the date the Plan Benefit
begins, and (ii) the GAM Mortality Table.
(c) Change of Control: Upon a Change of Control, any Participant
who did not elect a Lump Sum, as defined in Section 6(b), may
then elect to receive a Lump Sum benefit upon retirement.
7. Funding
The Plan Benefit shall be paid from the general assets of the Company.
The Company in its sole discretion may earmark assets or use other
means to meet the benefit obligations provided under the Plan. Title to
and beneficial ownership of any assets which the Company may earmark to
meet the benefit obligations shall at all times remain in the Company;
and neither a Participant, Surviving Spouse, or Beneficiary shall have
any proprietary or property interest whatsoever in any specific assets
of the Company.
Nothing contained in the Plan and no action taken pursuant to the
provisions of the Plan shall create or be construed to create a trust
of any kind, or a fiduciary relationship between the Company and a
Participant or any other person. However, notwithstanding the forgoing,
the Company may use one or more irrevocable grantor trusts as
mechanisms for funding benefits hereunder. Any assets which may be
earmarked to meet an the Company's benefit obligation provided under
the Plan shall continue for all purposes to be part of the general
funds of the Company and no person other than the Company shall, by
virtue of the provisions of the Plan, have any interest in such assets.
The right of a Participant, Surviving Spouse or Beneficiary to a Plan
Benefit shall be no greater than that of an unsecured general creditor
of the Company.
<PAGE> 7
Doubletree Hotels Corporation
Supplemental Executive Retirement Plan
Page 6
8. Miscellaneous Provisions
(a) The Plan does not constitute a contract of employment, and
participation in the Plan shall not give any Participant the
right to be retained in the service of the Company or any
right or claim to a Benefit under the Plan, unless such right
or claim has specifically accrued under the terms of this
document
(b) The right of a Participant to the payment of a Plan Benefit
under the Plan shall not be assigned, transferred, pledged or
encumbered
(c) The captions of the articles of the Plan document are inserted
for convenience of reference only and shall not be considered
in the construction thereof
(d) Wherever any word is used herein in the singular form, it
shall be construed as though it were used in the plural form,
as the context requires, and vice versa
(e) A masculine, feminine or neuter pronoun, whenever used herein,
shall be construed to include all genders, as the context
requires
(f) In the event any provision in the Plan document shall be held
illegal or invalid for any reason, such illegal or invalid
provision shall not affect the remaining provisions hereof,
and the Plan document shall be construed and enforced as if
such illegal or invalid provision was not contained herein
(g) Except to the extent preempted by federal law, this Plan
document shall be construed, administered and enforced in
accordance with the domestic internal law of the State of
Arizona
(h) Notwithstanding anything herein to the contrary, any Plan
Benefit payable to, or on account of, a Participant shall be
forfeited if (i) the Participant admits or is judicially
proven to have committed fraud or dishonesty toward the
Company (or any business affiliated with the Company, or any
individual or company doing business with any of them); or
(ii) the Participant is convicted of, or pleads nolo
contendere to, a felony not otherwise described in
Clause (i) above. In the case of a violation of Clause (i),
upon demand of the Company, a Participant shall immediately be
obligated to reimburse the Company for all amounts received
under this Plan. In the case of a violation of Clause (ii),
upon demand of the Company, a Participant shall immediately be
obligated to reimburse the Company for all amounts received
under the Plan following the first occurrence of an event
giving rise to such a visitation.
* * *
<PAGE> 8
Doubletree Hotels Corporation
Supplemental Executive Retirement Plan
Page 7
In witness thereof, the Company has caused this Plan document to be executed on
it's behalf, and on behalf of all Participants, by the Committee as of February
15, 1997.
DOUBLETREE HOTELS CORPORATION
By: /s/ Richard Ferris
----------------------------------
Richard Ferris
Co-Chairman of the Board
Attest: /s/ William L. Perocchi
---------------------------------
(Name)
Exec VP & CFO
---------------------------------
(Title)
Doubletree Hotels Corporation
<PAGE> 9
Doubletree Hotels Corporation
Supplemental Executive Retirement Plan
Page 7
In witness thereof, the Company has caused this Plan document to be executed on
it's behalf, and on behalf of all Participants, by the Committee as of February
15, 1997.
DOUBLETREE HOTELS CORPORATION
By: /s/ Richard Ferris
----------------------------------
Richard Ferris
Co-Chairman of the Board
Attest: /s/ Richard M. Kelleher
---------------------------------
(Name)
President and C.E.O.
--------------------------------
(Title)
Doubletree Hotels Corporation
<PAGE> 10
DOUBLETREE HOTELS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Lump Sum Benefit Election Form
I have read the provisions of the Doubletree Hotels Corporation Supplemental
Executive Retirement Plan (the "Plan"), including Section 6 regarding Form of
Payment.
I hereby elect to have the Plan Benefit provided as a Lump Sum Benefit,
calculated as described in Section 6(b) of the Plan.
This election is considered final and cannot be changed unless superseded by an
election form signed and executed on a date following the date shown below.
By: /s/ William L. Perocchi Date: 6/5/97
---------------------------- -------------------------
Name (Signature)
William L. Perocchi
----------------------------
Name (Print)
Attest: /s/ Richard Ferris Date: 6-10-97
------------------------ --------------------------
Name (Signature)
Richard Ferris
------------------------
Name (Print)
Co-Chairman
------------------------
Title (Doubletree Hotels
Corporation)
<PAGE> 11
DOUBLETREE HOTELS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Lump Sum Benefit Election Form
I have read the provisions of the Doubletree Hotels Corporation Supplemental
Executive Retirement Plan (the "Plan"), including Section 6 regarding Form of
Payment.
I hereby elect to have the Plan Benefit provided as a Lump Sum Benefit,
calculated as described in Section 6(b) of the Plan.
This election is considered final and cannot be changed unless superseded by an
election form signed and executed on a date following the date shown below.
By: /s/ Richard M. Kelleher Date: 6-6-97
---------------------------- -------------------------
Name (Signature)
Richard M. Kelleher
----------------------------
Name (Print)
Attest: /s/ Richard Ferris Date: 6-10-97
------------------------ --------------------------
Name (Signature)
Richard Ferris
------------------------
Name (Print)
Co-Chairman
------------------------
Title (Doubletree Hotels
Corporation)
<PAGE> 12
[DOULETREE CORPORATION LETTERHEAD]
December 9, 1997
Richard M. Kelleher
President & Chief Executive Officer
and
William L. Perocchi
Executive V.P. & Chief Financial Officer
Doubletree Corporation
410 North 44th Street, Suite 700
Phoenix, Arizona 85008
Dear Gentlemen:
This letter will clarify the application of the Doubletree Hotels
Corporation Supplemental Executive Retirement Plan (the "SERP") upon the
occurrence of a "Change of Control" thereunder. This letter does not represent
an amendment or change to the SERP, nor does it supersede any otherwise
applicable provision of the SERP. All capitalized terms set forth below that are
not defined herein are used as defined in the SERP.
1. Plan Participants. The only Participants of the SERP, as of the date
of this letter, are Richard M. Kelleher and William L. Perocchi. Both such
Participants have elected a lump-sum form of payment pursuant to Section 6(b) of
the SERP. All SERP benefits of Mr. Kelleher and Mr. Perocchi are fully vested
pursuant to the terms of the SERP.
2. Plan Benefit. The effect of a Change of Control on a Participant's
Plan Benefit is to increase his Applicable Percent to 60% of Average
Compensation at the time of retirement, regardless of his age at retirement.
This would apply to Participants retiring prior to attaining the Early
Retirement Date under the SERP (age 55), as well as to Participants retiring on
or after such date.
3. Benefit Commencement. Upon a Change of Control, Plan Benefits are
payable to a Participant at the later of (i) the time of the Change of Control
or (ii) the Participant's retirement. Thus, a Participant who remains employed
following a Change of Control will commence his benefit upon his retirement (or
later date that he may elect through his Normal Retirement Date), based on 60%
of Average Compensation at the time of his retirement.
4. Benefit Amount. The amount of the Plan Benefit payable as a
lump-sum is calculated using the interest rate and mortality assumptions set
forth in Section 6(b) of the SERP. In the case of a Plan Benefit that commences
prior to a Participant's attainment of the Early Retirement Date (age 55), the
amount of such benefit would be discounted to present value at the time of
payment (using the interest rate applicable under Section 6(b) assuming that the
full 60% Plan Benefit would otherwise have been payable at age 55 (and based on
the mortality
<PAGE> 13
assumption under Section 6(b) applicable to a Participant retiring at such age).
The amount of any SERP benefit that commences on or after attainment of the
Early Retirement Date would not be discounted.
5. Proposed Merger. The consummation of the proposed merger
contemplated by the Agreement and Plan of Merger dated September 1, 1997 among
Doubletree Corporation, Promus Hotel Corporation and Parent Holding Corp., will
constitute a Change of Control for purposes of the SERP.
Sincerely,
/s/ Richard J. Ferris
Richard J. Ferris
Co-Chairman of the Board
<PAGE> 1
EXHIBIT 11
PROMUS HOTEL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net income.................................................. $90,658 $95,436 $154,088
======= ======= ========
Basic Earnings per Share:
Weighted average outstanding shares....................... 72,581 86,573 86,178
======= ======= ========
Net income per basic share................................ $ 1.25 $ 1.10 $ 1.79
======= ======= ========
Diluted Earnings per Share:
Weighted average outstanding shares....................... 72,581 86,573 86,178
Effect of dilutive securities:
Restricted stock.......................................... 14 15 --
Stock options and warrants................................ 984 1,316 586
------- ------- --------
Weighted average shares assuming conversion............... 73,579 87,904 86,764
======= ======= ========
Net income per diluted share................................ $ 1.23 $ 1.09 $ 1.78
======= ======= ========
</TABLE>
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE COMPANY
On December 19, 1997, Doubletree Corporation (Doubletree) and Promus Hotel
Corporation (PHC) merged in accordance with the Agreement and Plan of Merger
(the Merger Agreement or the Merger) by and among Doubletree, PHC and Parent
Holding Corp., a corporation formed and jointly owned by Doubletree and PHC to
facilitate the Merger. Concurrent with the Merger, PHC was renamed Promus
Operating Company, Inc. (POC), and Parent Holding Corp. was renamed Promus Hotel
Corporation. Promus Hotel Corporation and subsidiaries are collectively referred
to herein as Promus or the Company.
As a result of the Merger Agreement, (i) Doubletree and PHC became
wholly-owned subsidiaries of Promus; (ii) each outstanding share of common stock
of Doubletree was converted into one share of common stock of Promus; and (iii)
each outstanding share of PHC common stock was converted into 0.925 of a share
of common stock of Promus. The Merger qualified as a tax free exchange and was
accounted for as a pooling-of-interests; accordingly, the accompanying
consolidated financial statements and financial information contained herein
have been restated to combine the historical results of both Doubletree and PHC
for 1997 and 1996.
As of December 31, 1998, the Promus hotel system contained 1,337 hotels,
representing approximately 192,000 hotel rooms, in all 50 states, the District
of Columbia, Puerto Rico, the U.S. Virgin Islands and six foreign countries.
Promus brands include Doubletree Hotels, Doubletree Guest Suites, Club Hotels by
Doubletree, Embassy Suites, Hampton Inn, Hampton Inn & Suites, and Homewood
Suites. The Promus system also includes certain properties that are not
Promus-branded.
Of these 1,337 hotels, 998 are owned and operated by franchisees, and 339
are operated by the Company. Depending on the hotel brand, Promus charges
franchisees royalty fees of up to four percent of suite or room revenues in
exchange for the use of one of its brand names and franchise-related services.
Company operated properties include 62 wholly-owned hotels, 77 leased hotels, 23
hotels partially-owned through joint ventures and 177 hotels managed for third
parties. As a manager of hotels, Promus is typically responsible for supervising
or operating the hotel in exchange for fees based on a percentage of the hotel's
gross revenues, operating profits, cash flow, or a combination thereof. The
Company's results of operations for owned and leased hotels reflect the revenues
and expenses of these hotel operations.
Promus also licenses eight vacation interval ownership properties under the
Embassy Vacation Resort and Hampton Vacation Resort brand names, for which the
Company earns franchise fees on net interval sales and on revenues related to
the rental of interval units.
Promus' primary focus is to grow its franchise and management businesses,
while limiting its ownership of real estate. The Company owns a mix of
Promus-brand hotels that can enhance its role as manager and franchisor for
its brands, but periodically sells hotels as opportunities arise.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report may constitute forward-looking
statements within the meaning of the federal securities laws.
Forward-looking statements are those that express management's view of
future performance and trends, and usually are preceded with "expects",
"anticipates", "believes", "hopes", "estimates", "plans" or similar phrasing,
and include statements regarding Year 2000 readiness and potential exposure, the
Company's ability to increase rates, margin improvements and projected
expenditures, capital spending and availability of capital resources. Such
statements are based on management's beliefs, assumptions and expectations,
which in turn are based on information currently available to management. The
Company's actual performance and results could materially differ from those
expressed in or contemplated by the forward-looking statements due to a number
of factors, many of which are beyond Promus' ability to predict or control. Such
factors include, but are not limited to, operations of existing hotel
properties, including the effects of competition and customer demand; changes in
the size of Promus' hotel system, including anticipated scope and opening dates
of new developments, planned future capital spending, terminations of franchise
or management agreements or dispositions of properties; relationships with third
parties, including franchisees, lessors, hotel owners, lenders and others;
litigation or other judicial actions; changes in the national economy or
regional economies, which among other things, affects business and leisure
travel and expenditures and capital availability for hotel development; and
adverse changes in interest rates for both Promus and its franchisees and
business partners which, among other things, affects new hotel development; real
estate values; and credit availability. Promus disclaims any obligation to
update forward-looking information.
<PAGE> 2
RESULTS OF OPERATIONS
The principal factors affecting Promus' operating results are: continued
growth in the number of system hotels; occupancy and room rates achieved by
hotels; the relative mix of owned, leased, managed and franchised hotels; and
Promus' ability to manage costs. The number of rooms at franchised and managed
properties and revenue per available room (RevPAR) significantly affect Promus'
results because franchise royalty and management fees are generally based upon a
percentage of room revenues. Increases in franchise royalty and management fee
revenues have a favorable impact on Promus' operating margin due to minimal
incremental costs associated with this type of revenue.
Summarized operating results for the three years ended December 31, 1998
are as follows (in millions, except percentages and per share data):
<TABLE>
<CAPTION>
Percentage
Years ended December 31, Increase (Decrease)
------------------------------------------ ----------------------------------
1996 1997 1998 97 vs 96 98 vs 97
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 560.2 $ 1,038.0 $ 1,107.3 85.3% 6.7%
Operating income 165.4 183.9 303.4 11.2 65.0
Net income 90.7 95.4 154.1 5.2 61.5
Basic earnings per share 1.25 1.10 1.79 (12.0) 62.7
Diluted earnings per share 1.23 1.09 1.78 (11.4) 63.3
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
Comparisons of the actual financial results presented above are difficult
as a result of recent acquisition activity and unusual items, including business
combination expenses experienced in 1998, 1997 and 1996. The Company's November
8, 1996 acquisition of Red Lion Hotels, Inc. (Red Lion) was accounted for under
the purchase method of accounting and, accordingly, Red Lion's operating results
prior to the acquisition are not included in the Company's reported results. The
following table sets forth the actual results of operations for the years ended
December 31, 1997 and 1998, as compared to the pro forma results of operations
for the year ended December 31, 1996, assuming that the November 8, 1996
acquisition of Red Lion and related transactions had occurred as of January 1,
1996. The Company believes that this information provides a more meaningful
basis for comparison than the historical results of the Company and includes all
necessary adjustments for a fair presentation of such pro forma information. The
pro forma results of operations are not necessarily indicative of the results of
operations as they might have been had the Red Lion transaction been consummated
at the beginning of 1996.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
(in thousands, except per Pro Forma
share data) 1996(a)(b) 1997(b) 1998(c)
- - -------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Franchise and management
fees $ 151,488 $ 185,546 $ 218,113
Owned hotel revenues 362,905 368,012 401,016
Leased hotel revenues 326,594 410,526 415,339
Purchasing and service
fees 14,947 19,304 27,348
Other fees and income 34,618 54,623 45,473
- - -------------------------------------------------------------------------
Total revenues 890,552 1,038,011 1,107,289
Operating Costs and
Expenses:
General and
administrative
expenses 72,274 79,249 80,429
Owned hotel expenses 227,633 224,052 248,990
Leased hotel expenses 287,584 362,681 367,176
Depreciation and
amortization 72,616 73,127 79,254
Business combination
expenses -- 115,000 28,065
- - -------------------------------------------------------------------------
Total operating costs
and expenses 660,107 854,109 803,914
- - -------------------------------------------------------------------------
Operating income 230,445 183,902 303,375
Interest and dividend
income 22,727 22,982 21,281
Interest expense (75,178) (72,027) (61,917)
Gain on sale of real
estate and securities 4,439 43,330 10,390
- - -------------------------------------------------------------------------
Income before income taxes
and minority interest 182,433 178,187 273,129
Minority interest share
of net income (1,892) (3,087) (3,460)
- - -------------------------------------------------------------------------
Income before income taxes 180,541 175,100 269,669
Income tax expense (74,557) (79,664) (115,581)
- - -------------------------------------------------------------------------
Net income $ 105,984 $ 95,436 $ 154,088
- - -------------------------------------------------------------------------
Basic earnings per share $ 1.22 $ 1.10 $ 1.79
- - -------------------------------------------------------------------------
Diluted earnings per share $ 1.21 $ 1.09 $ 1.78
- - -------------------------------------------------------------------------
Basic weighted average
shares outstanding 86,649 86,573 86,178
- - -------------------------------------------------------------------------
Diluted weighted average
shares outstanding 87,647 87,904 86,764
- - -------------------------------------------------------------------------
</TABLE>
(a) 1996 results are presented on a pro forma basis to give effect to the
November 8, 1996 acquisition of Red Lion and related transactions, as if
they had occurred on January 1, 1996.
(b) 1997 results of operations include certain unusual items, including a
provision for business combination expenses of $115.0 million, a $10.9
million break-up fee received in connection with the terminated Renaissance
Hotel Group transaction, $43.3 million of gains on the sale of real estate
and securities, and other net gains of $0.9 million. In 1996, unusual items
include gains of $4.4 million on the sale of real estate and securities.
Excluding the effects of these transactions, net income would have been
$103.4 million and $143.8 million and diluted earnings per share would have
been $1.18 and $1.64, for 1996 and 1997, respectively.
(c) 1998 results of operations include certain unusual items, including a $28.1
million charge for severance and employment related expenses associated
with the Promus/Doubletree merger, a $10.1 million charge for accrued
severance and employment related expenses associated with the resignations
of the Company's CEO and President, gains of $10.4 million on the sale of
real estate and securities, and a gain of $1.3 million on the sale of
excess joint venture land. Excluding the effects of these transactions, net
income would have been $180.3 million and diluted earnings per share would
have been $2.08.
<PAGE> 3
Though its revenues come from various sources, nearly all components of
Promus' revenues are favorably impacted by system-wide increases in RevPAR. On a
comparable hotel basis, RevPAR increases were as follows:
REVENUE PER AVAILABLE ROOM
COMPARABLE HOTELS(a)
<TABLE>
<CAPTION>
Years ended December 31, Increase
---------------------------------------------- -------------------------------
1996 1997 1998 97 vs 96 98 vs 97
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Doubletree Hotels $ 70.28 $ 77.93 $ 82.35 10.9% 5.7%
Red Lion Hotels converted to
Doubletree Hotels (b) N/A 62.73 63.88 N/A 1.8
Embassy Suites 78.95 85.56 88.76 8.4 3.7
Hampton Inn 44.58 46.50 47.86 4.3 2.9
Hampton Inn & Suites 47.28 51.92 56.41 9.8 8.6
Homewood Suites 67.93 72.19 74.29 6.3 2.9
Other hotels (c) 59.23 62.00 63.96 4.7 3.2
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Revenue statistics are for comparable hotels, and include information only
for those hotels in the system as of December 31, 1998 and managed or
franchised by PHC or managed by Doubletree since January 1, 1996.
Doubletree franchised hotels are not included in the statistical
information.
(b) Revenue statistics for the Red Lion Hotels converted to the Doubletree brand
are included only from the initial date of conversion (Phase I - 4 hotels on
April 4, 1997; Phase II - 36 hotels on July 1, 1997) through December 31,
1998.
(c) Includes results for 15 Red Lion hotels as well as the results for hotels
managed/leased under other franchisors' brands or as independent hotels.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
1998 revenues increased 6.67%, or $69.3 million, over 1997 revenues, to
$1,107.3 million.
Revenues from franchise and management fees increased $32.6 million, or
17.6%, due to growth in the number of franchised and managed properties as well
as improved performance at existing franchised and managed properties. The
number of franchised properties increased by 132 properties, or 15.2%, to 998
hotels at December 31, 1998. The Company added five new management contracts,
net of terminations, during 1998. New management and franchise contracts
represented 59.7% of the increase in franchise and management fees for the year.
Incentive management fees increased 23.1% in 1998 to $28.5 million.
Owned hotel revenues for the year increased 8.9%, or $33.0 million from the
prior year. Owned hotel expenses increased by 11.1%, or $24.9 million from 1997.
Leased hotel revenues increased $4.8 million, or 1.2% compared to 1997. Leased
hotel expenses increased $4.5 million, or 1.2% over 1997's total. Owned hotel
margins decreased from 39.1% for 1997 to 37.9% for 1998. Leased hotel margins
decreased slightly from 11.7% in 1997 to 11.6% for 1998. During the first half
of 1997, the Company implemented a cost reduction program at its owned and
leased Red Lion conversion hotels, the impact of which was fully realized during
the last six months of 1997. Since then inflationary cost increases coupled with
moderating revenue growth have contributed to the decline in operating margins.
Additionally, the owned and leased hotels have been affected by the opening of
new hotels during 1998, which typically generate lower margins prior to reaching
maturity.
Purchasing and service fees increased 41.7%, or $8.0 million, over 1997
levels. The increase is due to continued growth in existing preferred vendor
programs, the impact of new initiatives, and the introduction of the programs to
all managed and franchised hotels in the system.
Other fees and income decreased $9.2 million, or 16.8%. During 1998, the
Company realized one unusual item, a $1.3 million gain on the sale of excess
joint venture land compared to several unusual items of $17.3 million in 1997.
The unusual items in 1997 included the receipt of a break-up fee of $10.9
million (net of expenses) resulting from the terminated Renaissance transaction,
a gain of $3.0 million from the sale of the Company's management rights for a
planned hotel in Atlantic City and $3.4 million in gains from the sale of joint
venture hotels. Excluding the effect of the unusual items, other fees and income
increased $6.9 million primarily due to an increase in earnings from
unconsolidated joint ventures.
General and administrative expenses, excluding a $10.1 million charge for
accrued severance and employment related expenses associated with the
resignations of the Company's CEO and President in 1998 and a $5.5 million
charge related to the establishment of certain long-term executive compensation
plans in 1997, decreased $3.5 million.
Depreciation and amortization increased in 1998 as compared to 1997, due to
the acquisition of Harrison Conference Associates (Harrison) on January 2, 1998
and the increase in owned hotels since 1997.
In the fourth quarter of 1998, the Company recorded a $28.1 million charge
for severance and employment-related expenses associated with the Merger. The
Company recorded a $115.0 million provision for Merger-related business
combination expenses in the fourth quarter of 1997. These expenses included
$40.3 million of transaction costs and $74.7 million of severance and exit costs
related to the consolidation of administrative functions and asset write-offs.
Interest and dividend income decreased $1.7 million in 1998. The decrease
was split almost evenly between income earned on loans to hotel owners due to a
decrease in the outstanding balance and lower dividend income due to sales
during 1997 and 1998 of portions of the Company's common stock investments.
Interest expense decreased 14.0%, or $10.1 million in 1998 as compared to 1997,
primarily due to overall lower borrowing costs and a decrease in the amount of
average borrowings. The Company's current interest rate is more favorable than
Doubletree's and PHC's separate borrowing rates prior to the Merger.
The 1998 operating results include $10.4 million in pre-tax gains on the
sale of real estate and common stock investments. In 1998, the Company realized
$10.2 million in gains on the sale of common stock. Included in the 1997
operating results were $43.3 million in pre-tax gains on the sale of real estate
and common stock investments. During 1997, Promus sold five hotels and
recognized a net $30.3 million gain. Promus continues to manage four of the five
hotels under long-term management contracts. In 1996, in connection with
strategic alliances with three publicly traded real estate investment trusts
(REITs), Promus had purchased common stock and limited partnership interests in
these REITs. During 1997, Promus sold portions of its common stock holdings in
two of these REITs for $57.4 million, recognizing a gain of $13.0 million.
Operating results for 1998 reflect an overall tax rate of 42.9%, compared with
an overall rate of 45.5% for the 1997 period. The decrease in the overall rate
is primarily due to the lower level of nondeductible business combination
expenses in 1998 which decreased the impact on the effective tax rate on these
items from 6.6% in 1997 to 3.1% in 1998.
Net income and earnings per diluted share for the year ended December 31,
1998 were $154.1 million and $1.78, respectively, compared to $95.4 million and
$1.09 for 1997. Excluding the effect of the unusual items described above, net
income and earnings per diluted share for 1998 were $180.3 million and $2.08,
respectively, compared to $143.8 million and $1.64, respectively, in 1997.
<PAGE> 4
YEAR ENDED DECEMBER 31, 1997 (ACTUAL) COMPARED WITH YEAR ENDED DECEMBER 31,
1996 (PRO FORMA)
1997 revenues increased 16.6%, or $147.5 million, over 1996 pro forma
revenues, to $1,038.0 million.
Revenues from franchise and management fees increased $34.1 million, or
22.5%, due to growth in the number of franchised and managed properties as well
as improved performance at existing franchised and managed properties. The
number of franchised properties increased by 164 properties, or 23.4%, to 866
hotels at December 31, 1997. The Company added 19 new management contracts, net
of terminations, during 1997. New contracts represented 59.0% of the increase in
franchise and management fees for the year. Incentive management fees increased
32.0% in 1997 to approximately $23.0 million.
Owned hotel revenues for the year increased 1.4% from the prior year.
Revenues from newly opened or acquired hotels, and higher revenues from
comparable hotels, were offset by the effects of hotel sales during the year.
Despite the inclusion of $2.0 million in preopening expenses for new hotels,
owned hotel expenses actually decreased by 1.6% in 1997 as compared to 1996, as
a result of both hotel sales during the year and cost containment measures at
same store hotels. These measures helped to increase operating margins from
37.3% in 1996 to 39.1% in 1997.
Leased hotel revenues for 1997 increased $83.9 million, or 25.7% from the
prior year, due to the net addition of four leased properties during 1997,
property performance improvements, and the impact of a full year of operations
for 1996 additions. Leased hotel expenses increased 26.1% from the prior year,
also primarily due to the increase in the numbers of leased properties. The
operating margin on leased hotels decreased slightly from 11.9% in 1996 to 11.7%
in 1997.
Purchasing and service fees increased 29.1%, or $4.4 million, over 1996
levels, due to an increase in the number of preferred vendor programs, whereby
the Company earns an administrative fee as opposed to purchasing and reselling
goods, combined with improvements related to the integration of the Doubletree
and Red Lion purchasing programs.
Other fees and income increased $20.0 million, or 57.8%. During 1997, the
Company realized unusual items totaling $17.3 million compared to $1.5 million
in 1996. 1997 unusual items include the receipt of a break-up fee of $10.9
million (net of expenses) resulting from the terminated Renaissance transaction,
a gain of $3.0 million from the sale of the Company's management rights for a
planned hotel in Atlantic City and $3.4 million in gains from the sale of joint
venture hotels. 1996 included $1.5 million in gains from joint venture asset
sales. The remainder of the increase is primarily due to increases in earnings
from unconsolidated joint ventures.
General and administrative expenses increased 9.7%, or $7.0 million, in
1997. This increase is the result of overall corporate growth to support the
Company's expanding hotel system, combined with the inclusion in first quarter
1997 of a $5.5 million charge related to the establishment of certain long-term
executive compensation programs. Depreciation and amortization was virtually
flat in 1997 as compared to 1996, as depreciation expense on new hotels was
offset by the impact of hotel sales.
The Company recorded a $115.0 million provision for Merger-related business
combination expenses in the fourth quarter of 1997. These expenses include $40.3
million of transaction costs and $74.7 million of severance costs, exit costs
related to the consolidation of administrative functions and asset write-offs.
Interest and dividend income increased slightly in 1997, with higher
interest income earned on loans to hotel owners partially offset by lower
dividend income due to sales during the year of portions of the Company's common
stock investments. Interest expense decreased 4.2% in 1997 as compared to 1996,
as the Company maintained a lower average outstanding debt balance during 1997
due to increased operating cash flow.
1997 operating results include $43.3 million in pre-tax gains on the sale
of real estate and common stock investments. During 1997, Promus sold five
hotels and recognized a net $30.3 million gain. Promus continues to manage four
of the five hotels under long-term management contracts. In 1996, in connection
with strategic alliances with three publicly traded REITs, Promus purchased
common stock and limited partnership interests in these REITs. During 1997,
Promus sold portions of its common stock holdings in two of these REITs for
$57.4 million, recognizing a gain of $13.0 million.
1997 operating results reflect an overall tax rate of 45.5%, compared with
an overall rate of 41.3% for the 1996 period. The increase in the overall rate
is primarily due to the nondeductibility of certain business combination costs,
which increased the effective tax rate by 6.6%.
The increase of $1.2 million in the minority interest share of net income
reflects the profits allocable to third party owners of consolidated joint
venture hotels.
Net income and earnings per diluted share for the year ended December 31,
1997 were $95.4 million and $1.09, respectively, compared to $106.0 million and
$1.21 for 1996. Excluding the effect of the unusual items described above, net
income and earnings per diluted share for 1997 would have been $143.8 million
and $1.64, respectively, compared to $103.4 million and $1.18, respectively, in
1996.
<PAGE> 5
YEAR ENDED DECEMBER 31, 1997 (ACTUAL) COMPARED WITH YEAR ENDED DECEMBER 31,
1996 (ACTUAL)
1997 revenues increased $477.8 million or 85.3% due in large measure to the
full year effect of the November 8, 1996 acquisition of Red Lion. Red Lion's
1996 results were only included for the period subsequent to the acquisition.
Also contributing to the revenue growth were increases in the number of hotels
in the system, improved hotel performance and growth in the Company's preferred
vendor programs. Other fees and income increased $23.1 million primarily due to
the $10.9 million (net of expenses) Renaissance break-up fee, the $3.0 million
gain on the sale of the Company's management rights for a hotel under
development and $3.4 million in gains from the sale of joint venture
investments.
Operating costs increased $459.3 million or 116.3% primarily due to the
full year impact of the Red Lion acquisition, expenses related to the merger of
Doubletree and PHC, and costs resulting from growth in the Company's hotel
system.
Interest and dividend income increased $5.8 million or 33.8% due to
increases in interest earned on loans to hotel owners and dividends on REIT
stock.
Interest expense increased $35.4 million or 96.5% primarily due to higher
borrowings resulting from the Red Lion acquisition.
Gains on the sale of real estate and securities increased $38.9 million.
The Company realized $30.3 million of gains from the sale of five hotels and
$13.0 million from the sale of a portion of its investments in the common stock
of two REITs.
The increase in minority interest share of net income reflects the increase
in the number of consolidated joint ventures resulting from the Red Lion
acquisition.
Net income and diluted earnings per share, excluding the effect of unusual
items, were $143.8 million and $1.64, respectively. Net income for 1997 was
$95.4 million or $1.09 per diluted share. Net income for 1996 was $90.7 million
or $1.23 per diluted share.
OVERALL
Excluding unusual items, Promus' operating income has increased each year
over prior year levels. Though these increases are in part due to the revenue
growth discussed above, growth has also come from the changing mix of Promus'
business. Due to the size and strength of Promus' infrastructure and systems,
openings of additional franchised or managed properties require fewer
incremental costs, and the growth which has occurred in the Promus system over
the past several years has served to improve overall operating margins. Promus'
overall operating margin increased from 25.9% in pro forma 1996 to 28.1% in 1997
(excluding unusual items); the 1998 operating margin (excluding unusual items)
increased to 30.8%. Due to the continuing growth of Promus' franchise and
management businesses, growth in fee revenues has outpaced growth in operating
expenses, resulting in higher operating margins. This trend of margin
improvement has continued over the past several years, as Promus' franchising
and management businesses have grown, although the Company faces continuing
competitive and wage pressures, which can adversely affect margins.
<PAGE> 6
HOTEL DEVELOPMENT
Overview
Promus continues to be an industry leader in hotel development. During
1998, the Company added 13,241 net rooms to its hotel system, increasing its
system room size by 7% during the year. This compares to the addition of 19,137
net rooms during 1997. Net room additions, by brand, are as follows:
<TABLE>
<CAPTION>
Net Rooms Added
-----------------------------------
1997 1998
- - ------------------------------------------------------------
<S> <C> <C>
Doubletree Hotels 16,116 1,999
Hampton Inn 10,049 8,494
Hampton Inn & Suites 1,608 2,137
Embassy Suites 1,444 482
Homewood Suites 1,364 2,604
Other (11,444) (2,475)
- - ------------------------------------------------------------
19,137 13,241
- - ------------------------------------------------------------
</TABLE>
Hampton Inn continued to lead the Company's unit growth, with a net of 100
properties adding 8,494 rooms or 64% of the total system growth in 1998. 1997's
dramatic increase in Doubletree rooms and corresponding decrease in Other hotel
rooms, is due to the conversion during 1997 of 40 Red Lion hotels, containing
almost 12,000 rooms, to the Doubletree brand. Promus expects to continue growing
the Hampton Inn brand as demand from franchisees and guests appears strong.
However, the Company has seen a modest decline in approved Hampton Inn franchise
applications, in part because of the supply growth over the past several years
in Hampton Inn's mid-price market segment.
Promus' hotel development pipeline as of December 31, 1998 contained 346
properties that were either in the design or construction phase, as follows:
<TABLE>
<CAPTION>
Under
Construction/ In
Conversion Design Total
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Hampton Inn 103 95 198
Hampton Inn & Suites 24 27 51
Homewood Suites 14 17 31
Embassy Suites 13 25 38
Club Hotels by Doubletree 3 7 10
Doubletree Hotels and
Guest Suites 5 10 15
Other 1 2 3
- - ---------------------------------------------------------------------------
163 183 346
- - ---------------------------------------------------------------------------
</TABLE>
When completed, the 163 properties under construction or conversion will
add over 20,000 rooms to the Promus hotel system. The remaining 183 hotels in
the design phase, if completed, would add almost 23,000 additional rooms.
Eighteen of the properties within the pipeline are being developed by the
Company; the remainder are being developed by franchisees.
Although most development is expected to come through franchising, growth
plans could include ground-up construction of new hotels, either for sale to
strategic partners or for operation as company owned properties. In addition,
Promus is assessing the market position of individual properties/markets, and
could reposition itself by rebranding existing properties or acquiring or
selling selected properties. The success of Promus' development activities is
affected by, among other things, national and regional economic conditions,
capital markets, credit availability, relationships with franchisees and owners
as well as competition from other hotel franchisors and managers.
<PAGE> 7
Strategic Alliances and Joint Ventures
Promus has entered into a strategic alliance with FelCor Suite Hotels, Inc.
and FelCor Suites Limited Partnership (collectively, FelCor), under which FelCor
has committed to invest up to $100.0 million in Embassy Suites developments,
most of which is expected to be applied to five Embassy Suites which are
currently in design or under construction. Upon completion of construction,
Promus will sell a 90% interest in each property to FelCor at cost. Completed
hotels will operate under Promus management contracts and franchise agreements
with 15 and 20-year terms, respectively. Promus began funding the projects in
1998, and the first hotel under this alliance is expected to open in 1999.
In 1995, Promus invested $75.0 million in FelCor limited partnership
interests and common stock and guaranteed repayment of up to $25.0 million of a
third party loan advanced to FelCor. The limited partnership interests are
convertible to common stock, which may be sold on the open market. During 1997,
Promus sold approximately $38.9 million of its FelCor investment for $50.1
million, resulting in pre-tax gains of $11.2 million. Based on the market value
of its remaining FelCor common stock as of December 31, 1998, Promus has
recorded an unrealized loss on marketable equity securities of $3.7 million
(pre-tax). This amount will fluctuate based on the market value of FelCor stock,
but no earnings impact will be realized until the stock is actually sold.
As of December 31, 1998, FelCor owned or had an interest in 76 Promus brand
hotels, which represents 6% and 9% of all Promus hotels and hotel rooms,
respectively. Promus owns a 50% interest in 12 of the 76 hotels. These 76 hotels
contributed approximately 16% of the Company's franchise and management fee
revenue in 1998.
At December 31, 1998, the Company owned approximately 29% of the
outstanding common stock (13% assuming conversion of outstanding preferred
stock) of Candlewood Hotel Company, Inc. (Candlewood). The Company's investment
consists of 2,587,500 shares of Candlewood's common stock, the fair value of
which was $13.6 million at December 31, 1998. The Company also has a note
receivable from Candlewood with a balance at December 31, 1998 of $14.6 million.
Acquisitions and Investments
On January 2, 1998, Promus completed its acquisition of Harrison Conference
Associates, Inc. (Harrison) for $61.2 million in cash. Harrison is a leading
conference center operator with over 1,200 rooms under management, including two
owned and six managed properties.
During 1997, Promus purchased two Homewood Suites hotels, in Salt Lake
City, Utah and Plano, Texas, and an Embassy Suites hotel in Portland, Oregon,
for $60.7 million. All three properties are being operated as company owned
hotels.
Development Financing
In order to assist prospective owners in obtaining financing for Promus
hotel projects, Promus has initiated programs to provide alternative capital
sources to owners.
Promus Acceptance Corp. (ProMAC), a third party lending entity, provides
first mortgage construction financing to Promus franchisees for select Homewood
Suites, Hampton Inn & Suites, Hampton Inn and Embassy Suites hotels by issuing
up to an aggregate of $152.5 million in commercial paper that is backed by a
liquidity facility from participating financial institutions. ProMAC loan terms
generally provide for favorably-priced floating and fixed rate loans ranging
from $3.0 million to $12.0 million with six-year terms and 20-year amortization
schedules. Promus has provided a guarantee up to $36.0 million and expects to
increase the guarantee to $45.8 million in 1999 on loans outstanding under the
program and has also provided a $1.0 million working capital guarantee to
ProMAC. Promus loaned $2.0 million to ProMAC in the form of a start-up loan.
This loan, which bears interest at prime, matures in April 2005. As of December
31, 1998, ProMAC had committed and funded $97.6 million (20 loans) and $50.5
million (14 loans), respectively, in hotel financing.
Under its mezzanine financing program, Promus provides secondary financing
to franchisees. A minimum of 20% equity is required by the borrower, and the
investment must meet certain defined underwriting criteria. The terms of the
first mortgage and the mezzanine financing must be acceptable to Promus and the
first mortgage lender, with whom Promus will enter into an inter-creditor
agreement. During 1998, Promus provided $7.7 million in mezzanine loans, and
$4.8 million in such loans were repaid during the year. Loans outstanding at
December 31, 1998, totaled $17.9 million and bore interest at rates ranging from
8.0% to 10.0%.
The Company provides credit support for a loan facility utilized by
Candlewood to provide construction and permanent financing to Candlewood and its
franchisees on terms that, in most cases, are more attractive than those which
could otherwise be obtained. The Company's maximum exposure on any individual
loan ranges from $0.9 million to $1.9 million per hotel, with the aggregate
amount of exposure for all such credit support capped at $30.0 million. As of
December 31, 1998, the Company had guaranteed $12.0 million in such financing.
<PAGE> 8
VACATION RESORT DEVELOPMENT
Promus Vacation Resorts (PVR) allows the Company to expand upon its
reputation and expertise in the lodging industry, by extending that knowledge to
the vacation interval ownership business. Development of PVR properties consists
of the construction or acquisition of resort-quality accommodations in
destination locations throughout the United States. These accommodations consist
of full-featured one, two and three bedroom units, which are sold in one week
intervals as an alternative to renting. Each unit contains 51 saleable weekly
intervals, with one week reserved for annual maintenance. By purchasing an
interval, owners are entitled to a one week stay during each year. Owners have
several options with an interval purchase, including splitting their week,
spending their week at other timeshare resorts (by trading with other interval
owners), or renting the unit to others during their interval in any year. Units
containing unsold intervals are also rented on a daily basis.
The Company has two licensed PVR products: Embassy Vacation Resorts and
Hampton Vacation Resorts. Promus receives a one-time franchise licensing fee
upon the sale of an interval; the Company then receives ongoing franchise
royalty fees from interval owners, as well as royalty fees for hotel revenues
earned from any interval rentals. For properties which Promus manages, the
Company will also earn a management fee from the operation of the facility. To
facilitate growth and development of PVR properties, Promus has entered into
alliances with Sunterra Corporation (Sunterra) and Vistana Development Ltd.
(Vistana).
Promus has licensed four Embassy Vacation Resorts to Sunterra. These
properties are the Embassy Vacation Resort in Orlando, Florida, Embassy Vacation
Resort in Lake Tahoe, California and Embassy Vacation Resorts in Kauai and Maui,
Hawaii. Plans for additional Embassy Vacation Resort properties to be developed
or acquired by Sunterra and licensed by the Company are being discussed.
In 1996, Promus entered into a five-year joint venture development
agreement with Vistana to acquire, develop, manage and market vacation ownership
resorts in North America under Promus brand names. Vistana will serve as
managing partner and project developer and will market the timeshare units.
Promus will serve as franchisor and manager of these joint venture properties
and will own a 50% interest in certain projects developed pursuant to this
agreement. In addition to the proposed joint venture developments, Vistana has
licensed three other PVR properties. These properties are the Embassy Vacation
Resort in Scottsdale, Arizona, Embassy Vacation Resort in Myrtle Beach, South
Carolina and Hampton Vacation Resort in Kissimmee, Florida.
Promus Vacation Resort statistics were as follows as of December 31,:
<TABLE>
<CAPTION>
1996 1997 1998
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Total vacation resorts open 3 6 8
Total available timeshare units 371 1,046 1,374
Total available timeshare intervals 18,921 53,346 70,074
Total timeshare intervals sold* 4,524 10,304 24,425
- - ---------------------------------------------------------------------------
</TABLE>
* Includes presold intervals for resorts under construction
OTHER
In addition to ground-up development of hotels, strategic alliances with
others, and incentives provided to hotel owners as a means of obtaining
franchise and management contracts, the Company pursues other means of system
growth, including strategic hotel acquisitions. The hotel industry is in a
period of consolidation, which is expected to continue for several more years.
Promus may, from time to time, pursue such opportunities as they become
available.
<PAGE> 9
CAPITAL SPENDING
Investment in Franchise System
Promus' net investment in its franchise system infrastructure at December
31, 1998 increased $6.6 million from December 31, 1997. The Company expects its
investment in the franchise system to decrease in 1999, as reimbursements from
hotel assessments outpace additional spending on system enhancements.
Other
In order to maintain Promus' quality standards, ongoing refurbishment of
existing company owned and leased hotel properties will continue in 1999 at an
estimated annual cost of approximately $60.0 million. During 1998, the Company
spent approximately $32.0 million on hotel refurbishment and conversions.
In April 1997, PHC's Board of Directors authorized the Company to
repurchase up to $150.0 million of its common stock. PHC repurchased 1,573,800
shares of its common stock at a cost of $60.0 million. As a result of the Merger
of PHC into Promus, the Company terminated this share repurchase program.
In August 1998, Promus' Board of Directors authorized the Company to
repurchase up to $200 million of its common stock for cash. The authorization
allows the Company to conduct the repurchase program in the open market, or in
negotiated or block transactions at prevailing market prices until December 31,
1999. Through December 31, 1998, the Company had repurchased 3,620,000 shares of
its common stock at a total cost of approximately $117.6 million. The average
price per share, including transaction costs, was $32.48.
Promus' capital expenditures, excluding the Harrison purchase, totaled
$205.0 million for the twelve months ended December 31, 1998. The Company
currently expects to spend between $230.0 million and $250.0 million during 1999
to fund hotel and resort development, refurbish existing facilities, support its
hotel management and business systems, loan funds to hotel owners, invest in
joint ventures and pursue other corporate related projects. If the Company
identifies other significant acquisition and/or investment opportunities, 1999
capital spending could increase from these planned levels.
Cash necessary to finance projects currently identified, as well as
additional projects to be pursued by Promus, will be made available from
operating cash flows, the revolving credit facility, joint venture partners,
specific project financing, sales of existing hotel assets and/or investments
and, if necessary, Promus debt and/or equity offerings.
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flow for 1998 decreased $6.5 million from 1997 levels. This
decrease is primarily due to the payment of $56.2 million of business
combination expenses and lower gains on the sales of real estate and securities
in 1998. The 1998 decrease was partially offset by the increase in operating
income excluding unusual items. The increase in 1997 operating cash flow of
$57.6 million over 1996 was due in part to higher income levels and the full
year effect of the Red Lion acquisition, combined with the noncash impact of
unusual items including business combination expenses.
Cash flows used in investing activities increased $105.2 million in 1998
from 1997 levels due to the $61.2 million purchase of Harrison, the acquisition
of two newly built Homewood Suites Hotels for $17.9 million, and the decrease in
the proceeds from the sale of real estate, securities and investments from
$190.7 million to $15.1 million. The 1998 increase was partially offset by an
increase in cash from partnership distributions and an increase in collections
of loans to owners of managed and franchised hotels. Cash flows used in
investing activities decreased substantially in 1997 from 1996 levels, due to
the 1996 purchase of Red Lion. Capital spending in 1997 was also partially
offset by proceeds from the sales of real estate, securities and investments.
Cash flows used in financing activities during 1998 include approximately
$117.6 million used by Promus to repurchase common stock which was offset by
$32.2 million in proceeds from the exercise of stock options and $52.7 million
in net borrowings of long-term debt. In 1997, cash flows used in financing
activities consisted of approximately $60.0 million used to repurchase common
stock and approximately $77.4 million to retire debt. For 1996, the Company had
net cash provided by financing activities primarily due to $866.3 million in
cash received from debt and equity offerings that was used to purchase Red Lion.
On December 31, 1998, the Company had a working capital deficit of $29.3
million, compared to a $120.7 million deficit that existed at December 31, 1997.
This decrease is primarily the result of payments of $56.2 million made on
accrued business combination expenses and the refinancing of $45 million of a
consolidated joint venture's mortgage debt which was included in the current
portion of notes payable at December 31, 1997. Cash needed to fund business
combination expenses has been and will continue to be made available from
operations or borrowings under the Promus Facility.
The Company's cash management program uses all excess cash to pay down
amounts outstanding under the Promus Facility. Promus does not believe that the
current ratio is an appropriate measure of its short-term liquidity without
considering the aggregate availability of its capital resources. Promus believes
that these resources, consisting of operating cash flow, available borrowings
under the Promus Facility, and Promus' ability to obtain additional financing
through various financial markets, are sufficient to meet its liquidity needs.
<PAGE> 10
PROMUS FACILITY AND OTHER INDEBTEDNESS
Promus has an unsecured revolving credit arrangement (the Promus Facility),
which consists of two separate agreements, the significant terms of which are as
follows:
<TABLE>
<CAPTION>
Total Facility Maturity Date Interest Rate Facility Fees
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Five-Year Revolver $750,000,000 December 19, 2002 Base Rate, as defined, 0.100% of the total facility
or LIBOR +25.0 basis
points
- - -------------------------------------------------------------------------------------------------------------------------
Extendible Revolver $209,600,000 December 17, 1999 Base Rate, as defined, 0.100% of the total facility plus
or LIBOR +25.0 basis usage fee
points
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Promus borrowed $592.0 million under the Promus Facility on December 19,
1997, which was used to repay the existing indebtedness of Doubletree and PHC.
Previously capitalized financing costs were written off and costs incurred to
obtain the Promus Facility were capitalized and are being amortized over the
term of the Promus Facility.
The Five-Year Revolver includes a sublimit for letters of credit of $100.0
million. At December 31, 1997 and 1998, approximately $16.0 million and $47.8
million, respectively, in letters of credit were outstanding under this
agreement. The Extendible Revolver is a 364-day facility with annual renewals
and may be converted into a four-year term loan with equal quarterly amortizing
payments. Promus Facility availability at December 31, 1998, was $277.6 million.
The remaining borrowing capacity is available for working capital, hotel
development and other general corporate purposes.
Facility fees and interest on Base Rate loans are paid quarterly. The
agreements contain a tiered scale for facility fees and the applicable LIBOR
spread that, subsequent to June 1998, is based on the more favorable of Promus'
current credit rating or the leverage ratio, as defined. Based on the terms of
the Promus Facility, Promus' current fee structure (reflected in the table)
follows a tiered scale. At December 31, 1997 and 1998, the weighted average
interest rate on outstanding Promus Facility borrowings, including the
applicable LIBOR spread, was 6.6% and 6.2%, respectively.
Both the Extendible Revolver and the Five-Year Revolver contain provisions
that allow Promus to request increases in total capacity of $50.0 million and
$200.0 million, respectively. Though all the banks which currently participate
in the Promus Facility are not obligated to provide this additional capacity,
Promus can approach banks outside the current facility. The Promus Facility also
contains provisions that restrict certain investments, limit the Company's
ability to dispose of property, and require that certain performance ratios be
maintained. As of December 31, 1997 and 1998, Promus was in compliance with all
such covenants.
In addition to the Promus Facility, the Company has other notes payable,
which are primarily mortgage financing on consolidated joint venture hotel
properties.
Promus also has a $20.0 million five-year convertible rate unsecured term
loan which matures October 28, 2002. This loan bears interest through October
28, 1999 at the three month LIBOR rate minus 15 basis points (5.1% at December
31, 1998); thereafter the rate changes to a fixed rate of 6.7%. The bank may
elect to convert this fixed rate to the three month LIBOR rate plus 32.5 basis
points, under a conversion option that is exercisable annually beginning on
October 28, 1999.
As of December 31, 1998, Promus was a party to several interest rate swap
agreements, bearing a total notional amount of $376.7 million, which serve to
convert a portion of the Company's variable rate debt to a fixed rate of
interest. The weighted average fixed rate pursuant to the agreements, which
expire between January 1999 and January 2002, was approximately 6.2% at December
31, 1998, resulting in a weighted average effective rate (including the
applicable spreads) of approximately 6.5%.
<PAGE> 11
YEAR 2000
The "Year 2000 Problem" is the result of many computer programs that were
designed to save valuable computer storage space by representing years with a
two-digit number such as "99" for 1999. When the change in the millennium occurs
and year 2000 is represented as "00", such computer programs as well as certain
chip-embedded technology systems may interpret the year as 1900. If not
corrected, computer applications could fail or deliver unreliable and erroneous
results.
As a franchisor, manager and owner of hotels, Promus relies heavily on
computer systems. These computer systems are present at Promus' corporate
offices and at its franchised, managed and owned hotels.
Promus' Computer Technologies
Promus groups the computer technologies used in support of its business
into the following three categories:
() Enterprise-wide, mission-critical business systems that support Promus'
franchised, managed and owned hotels as well as other corporate
requirements, including reservation, marketing, property management, and
revenue management systems; financial, human resources and operational
reporting systems; and corporate support technologies that provide external
and internal management reporting.
Most of these systems were built and installed after 1990 when the
Year 2000 Problem was well understood within the technology industry. These
systems were largely Year 2000 compliant when built.
() Property-based systems that perform functions relating to the operational
support of all of Promus' franchised, managed and owned hotels, including
PBX, call accounting, point-of-sale, and local sales systems. These systems
are selected by the hotel owners and managers and are not consistently
implemented at all hotels.
() Facility systems that contain embedded computer chips and perform functions
relating to the operation of all of Promus' franchised, managed and owned
hotels, including elevators, automated room key systems, HVAC, and fire and
safety systems. These systems also are selected by the hotel owners and
managers and are not consistently implemented at all hotels.
Promus' Response to the Year 2000 Problem
Beginning in early 1997, Promus developed and began implementing a plan
designed to identify its exposure to the Year 2000 problem and to minimize
potential disruptions and losses. The initial steps in this plan are as follows:
() Enterprise-Wide, Mission-Critical Business Systems
The remediation steps for the enterprise-wide, mission-critical business
systems have been executed and tested. No significant issues have surfaced
in the integration testing to date. This phase is substantially complete
and is expected to be finished in May 1999.
() Vendor Identification and Contact
The external businesses that provide technology systems and other products
and services to Promus and its hotels have been sent letters requesting
verification of their Year 2000 readiness. Responses are tracked and a
vendor database accessible through Promus' Intranet for hotel owners and
managers is being developed. This effort will continue throughout 1999.
() Property-Based Systems and Facility Systems
Promus has engaged an independent consultant to perform on-site inventories
and assessments of the property-based systems and facility systems at all
hotels that are managed or owned by Promus. This phase is scheduled to be
completed in July 1999, although it is anticipated that assessment and
remediation activities will continue throughout the remainder of the year.
For franchised hotels, Promus has provided their owners and general
managers with a Year 2000 Compliance Guide and additional communications to
assist them in performing their own assessments. Year 2000 readiness will
be part of Promus' 1999 quality assurance audits of all hotels.
() Contingency Planning
Promus is engaged in a reassessment of its contingency plans to respond to
business disruptions that may occur as a result of Year 2000 problems. The
principal areas of focus for contingency planning are hotel operations,
corporate finance, human resources, information technology, and corporate
facilities. Completion is scheduled for July 1999, subject to updating and
refinement throughout the remainder of the year.
<PAGE> 12
Year 2000 Remediation Costs
As of December 31, 1998, Promus has spent approximately $1.1 million on the
remediation of the Year 2000 problem in the computer systems at its corporate
offices and hotels, most of which were internal labor costs. Promus expects to
incur approximately $1.0 million in additional Year 2000 problem remediation
costs in 1999.
The costs associated with remediation of the Year 2000 problem of property-
based systems and facility systems at the hotels that are managed by Promus and
at the franchised hotels are borne by their respective owners.
Risks Arising from the Year 2000 Problem
The Company believes that the Year 2000 problem will not have a material
adverse effect on the Company, its business or its financial condition.
Promus believes that its enterprise-wide, mission-critical business
systems, as well as the property-based systems and facility systems at its owned
hotels, will be ready for Year 2000 in all material respects and will pose
minimal risks of business disruption. Promus cannot predict with certainty the
Year 2000 readiness of the property-based systems and facility systems at its
managed and franchised hotels, because the decision-making authority with
respect to Year 2000 assessment and remediation, and the incurrence of costs
related thereto, rests principally with the owners of those hotels.
Promus and all of its franchised, managed and owned hotels depend on
numerous independent, external providers of products and services. These
external businesses include suppliers of electricity, natural gas, telephone
service and other public utilities; financial institutions and credit card
companies; food, beverage and linen suppliers; and airlines, air traffic control
systems, car rental companies, and gasoline station operators. Promus does not
control these external businesses and cannot ensure that they and their products
and services will be ready for Year 2000. The most reasonably likely worst case
Year 2000 scenario for Promus and its hotels would be the failure by one or more
critical external businesses (e.g., airlines, utilities or credit card
companies) to be ready for Year 2000, which in turn could disrupt service or
cause potential hotel guests to postpone or cancel their travel plans or make
claims under the "100% Satisfaction Guarantee" program available at most
Promus-branded hotels, causing a disruption of Promus' business. Promus is
seeking to verify the Year 2000 readiness of these external businesses; however,
if these external businesses--particularly critical ones--were to experience a
Year 2000 problem, the resulting business disruption could have a material
adverse effect on Promus' results of operations and financial condition.
SEASONALITY
The operating results of hotels are affected by seasonality. Though the
Company's hotels are geographically dispersed, revenues and profits are
typically higher in summer periods than winter periods.
INFLATION
Although operations of the Company can be impacted by inflation, Promus has
not typically experienced a significant negative effect on its hotels and food
and beverage operations as a result of inflation. To date, the Company has
generally been able to increase rates and prices and thereby pass on the effects
of inflationary cost increases. Although competitive conditions may limit the
industry's future ability to raise room rates at the rate of inflation and
although inflation can also impact the travel patterns of guests, management
believes that each of its hotel brands has rate growth potential in excess of
the inflation rate. Promus will continue to emphasize cost containment and
productivity improvement programs. Inflation tends to increase the underlying
value of Promus' real estate and management and franchise contracts.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives either as assets or liabilities in the statement of financial
position and measure those instruments at fair value.
SFAS No. 133 allows an entity to designate a derivative instrument, if
certain conditions are met, as one of the following three types: 1) a Fair Value
Hedge, which is a hedge of the exposure to changes in the fair value of a
recognized asset or liability, or of an unrecognized firm commitment, 2) a Cash
Flow Hedge, which is a hedge of the exposure to variability in the cash flow of
a recognized asset or liability, or of a forecasted transaction, or 3) a Foreign
Currency Hedge, which is a hedge of the foreign currency exposure of an
unrecognized firm commitment, an available-for-sale security, a forecasted
transaction, or a net investment in a foreign operation. The accounting for
changes in the fair value of a derivative (that is, gains and losses) depends on
the intended use of the derivative and the resulting designation. The Company's
derivatives at December 31, 1998 are Cash Flow Hedges.
This Statement is effective for all fiscal quarters of fiscal years
beginning after September 15, 1999. The adoption of SFAS No. 133 is not
anticipated to have a material impact on the financial position or results of
operations of the Company.
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
As of December 31,
<TABLE>
<CAPTION>
(In thousands, except share amounts) 1997 1998
- - --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 24,066 $ 6,466
Accounts receivable, net 78,941 101,742
Other 43,222 44,485
- - --------------------------------------------------------------------------
Total current assets 146,229 152,693
- - --------------------------------------------------------------------------
Property and equipment, net 960,231 1,109,868
Investments 250,688 220,268
Management and franchise contracts,
net 440,568 427,421
Goodwill, net 374,500 392,419
Notes receivable 89,452 68,991
Investment in franchise system 50,421 57,023
Deferred costs and other assets 66,957 45,318
- - --------------------------------------------------------------------------
$ 2,379,046 $ 2,474,001
- - --------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 220,924 $ 180,189
Current portion of notes payable 46,020 1,797
- - --------------------------------------------------------------------------
Total current liabilities 266,944 181,986
- - --------------------------------------------------------------------------
Deferred income taxes 264,859 276,498
Notes payable 671,978 768,891
Other long-term obligations 79,530 87,931
- - --------------------------------------------------------------------------
1,283,311 1,315,306
- - --------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value.
Authorized 500,000,000 shares;
86,118,141 and 87,457,099 shares
issued and outstanding 861 875
Additional paid-in capital 856,008 898,900
Accumulated other comprehensive
income 13,601 (2,909)
Unearned employee compensation (70) --
Retained earnings 225,335 379,423
Treasury stock, at cost (3,620,000
shares) -- (117,594)
- - ------------------------------------------------------------------------------
1,095,735 1,158,695
- - ------------------------------------------------------------------------------
$ 2,379,046 $ 2,474,001
- - ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 14
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
<TABLE>
<CAPTION>
(In thousands, except per share
amounts) 1996 1997 1998
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Franchise and management
fees $ 140,768 $ 185,546 $ 218,113
Owned hotel revenues 172,893 368,012 401,016
Leased hotel revenues 205,163 410,526 415,339
Purchasing and service fees 9,867 19,304 27,348
Other fees and income 31,522 54,623 45,473
- - ---------------------------------------------------------------------------
Total revenues 560,213 1,038,011 1,107,289
- - ---------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
General and administrative
expenses 62,638 79,249 80,429
Owned hotel expenses 105,146 224,052 248,990
Leased hotel expenses 190,797 362,681 367,176
Depreciation and
amortization 36,276 73,127 79,254
Business combination
expenses -- 115,000 28,065
- - ---------------------------------------------------------------------------
Total operating costs and
expenses 394,857 854,109 803,914
- - ---------------------------------------------------------------------------
Operating income 165,356 183,902 303,375
- - ---------------------------------------------------------------------------
Interest and dividend
income 17,175 22,982 21,281
Interest expense (36,647) (72,027) (61,917)
Gain on sale of real estate
and securities 4,439 43,330 10,390
- - ---------------------------------------------------------------------------
Income before income
taxes and minority
interest 150,323 178,187 273,129
Minority interest share of
net income (539) (3,087) (3,460)
- - ---------------------------------------------------------------------------
Income before income
taxes 149,784 175,100 269,669
Income tax expense (59,126) (79,664) (115,581)
- - ---------------------------------------------------------------------------
Net income $ 90,658 $ 95,436 $ 154,088
- - ---------------------------------------------------------------------------
Net income per share
Basic $ 1.25 $ 1.10 $ 1.79
- - ---------------------------------------------------------------------------
Diluted $ 1.23 $ 1.09 $ 1.78
- - ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 15
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Accumulated
Other
Unearned Compre-
Additional Employee hensive
(In thousands, except share Common Paid-In Compen- Income Retained Treasury
amounts) Stock Capital sation (Loss) Earnings Stock Total
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--December 31, 1995 $ 696 $ 241,181 $ (1,209) $ 1,844 $ 39,241 $ -- $ 281,753
Net income -- -- -- -- 90,658 -- 90,658
Other comprehensive income,
net of taxes:
Unrealized gain on equity
securities, net of
reclassification
adjustment (Note 2) -- -- -- 15,293 -- -- 15,293
- - ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income for 1996 -- -- -- 15,293 90,658 -- 105,951
Proceeds from sale of 952,300
shares of common stock to
the public, net of offering
costs of $1,045 10 27,362 -- -- -- -- 27,372
Proceeds from sale of
9,067,534 shares of common
stock, net of offering
costs of $1,500 91 340,681 -- -- -- -- 340,772
Issuance of 7,381,588 shares
to the shareholders of Red
Lion 74 291,499 -- -- -- -- 291,573
Net shares issued under
incentive compensation
plans, including income tax
benefit of $584 -- 1,728 470 -- -- -- 2,198
- - ---------------------------------------------------------------------------------------------------------------------------------
Balance--December 31, 1996 871 902,451 (739) 17,137 129,899 -- 1,049,619
Net income -- -- -- -- 95,436 -- 95,436
Other comprehensive income,
net of taxes:
Unrealized gain (loss) on
equity securities, net of
reclassification
adjustment (Note 2) -- -- -- (3,536) -- -- (3,536)
- - ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income for 1997 -- -- -- (3,536) 95,436 -- 91,900
Net shares issued under
incentive compensation
plans, including income tax
benefit of $4,136 5 13,534 669 -- -- -- 14,208
Treasury repurchases (15) (59,977) -- -- -- -- (59,992)
- - ---------------------------------------------------------------------------------------------------------------------------------
Balance--December 31, 1997 861 856,008 (70) 13,601 225,335 -- 1,095,735
Net income -- -- -- -- 154,088 -- 154,088
Other comprehensive income,
net of taxes:
Unrealized gain (loss) on
equity securities, net of
reclassification
adjustment (Note 2) -- -- -- (16,510) -- -- (16,510)
- - ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income for 1998 -- -- -- (16,510) 154,088 -- 137,578
Net shares issued under
incentive compensation
plans, including income tax
benefit of $10,624 14 42,892 70 -- -- -- 42,976
Purchases of treasury shares -- -- -- -- -- (117,594) (117,594)
- - ---------------------------------------------------------------------------------------------------------------------------------
Balance--December 31, 1998 $ 875 $ 898,900 $ -- $ (2,909) $ 379,423 $(117,594) $ 1,158,695
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
<TABLE>
<CAPTION>
(In thousands) 1996 1997 1998
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 90,658 $ 95,436 $ 154,088
Adjustments to reconcile net
income to net cash provided by
operations:
Provision for business
combination expenses, net of
payments -- 93,591 (28,099)
Depreciation and amortization 36,276 73,127 79,254
Other noncash (income)
expenses (3,578) 11,742 3,233
Equity in earnings of
nonconsolidated affiliates (7,677) (10,722) (16,415)
Gain on sale of real estate,
securities and investments (3,279) (46,775) (11,955)
Changes in assets and
liabilities:
Increase in accounts
receivable, net (9,363) (9,882) (20,993)
(Increase) decrease in other
current assets (5,766) (3,243) (1,642)
Increase in deferred costs and
other assets (3,275) (16,313) (5,632)
Increase (decrease) in
accounts payable and accrued
expenses 10,506 1,452 (3,085)
Increase (decrease) in other
long-term obligations and
deferred income taxes 11,812 (14,520) 18,623
- - ------------------------------------------------------------------------------
Net cash provided by
operating activities 116,314 173,893 167,377
- - ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisitions (819,025) (20,607) (61,150)
Purchases of property and
equipment (60,277) (155,988) (153,292)
Proceeds from sale of real
estate, securities and
investments 45,933 190,686 15,053
Investments in and advances to
partnerships and affiliates (112,203) (47,285) (27,261)
Distributions from partnerships
and affiliates 11,104 16,004 36,859
Net investment in management and
franchise contracts (1,284) (372) 659
Escrow deposits used for (held
for) development -- (22,053) 20,537
Loans to owners of managed and
franchised hotels (26,941) (18,818) (24,370)
Collections of loans to owners
of managed and franchised
hotels 2,750 15,553 48,339
Net investment in franchise
system (10,817) (3,257) (7,004)
Other 4,210 (943) (643)
- - ------------------------------------------------------------------------------
Net cash used in investing
activities (966,550) (47,080) (152,273)
- - ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds from issuance of
common stock 368,144 -- --
Proceeds from exercise of common
stock options 1,219 6,817 32,229
Purchases of treasury stock -- (59,992) (117,594)
Net activity under revolving
credit facilities 14,500 383,950 25,925
Proceeds from notes payable 498,200 40,000 29,422
Principal payments on notes
payable (37,596) (501,351) (2,686)
Other (263) (1,459) --
- - ------------------------------------------------------------------------------
Net cash provided by (used
in) financing activities 844,204 (132,035) (32,704)
- - ------------------------------------------------------------------------------
Net decrease in cash and cash
equivalents (6,032) (5,222) (17,600)
Cash and cash equivalents,
beginning of period 35,320 29,288 24,066
- - ------------------------------------------------------------------------------
Cash and cash equivalents, end of
period $ 29,288 $ 24,066 $ 6,466
- - ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE 1--SUMMARY OF ORGANIZATION AND BUSINESS OPERATIONS
Company History
On December 19, 1997, Doubletree Corporation (Doubletree) and Promus Hotel
Corporation (PHC) merged in accordance with the Agreement and Plan of Merger
(the Merger Agreement or the Merger) by and among Doubletree, PHC and Parent
Holding Corp., a corporation formed and jointly owned by Doubletree and PHC to
facilitate the Merger. This transaction was accounted for as a
pooling-of-interests. Accordingly, the accompanying consolidated financial
statements have been restated to combine the historical results of both
Doubletree and PHC for 1997 and 1996. Concurrent with consummation of the
Merger, PHC was renamed Promus Operating Company, Inc. (POC) and Parent Holding
Corp. was renamed Promus Hotel Corporation. Promus Hotel Corporation and
subsidiaries are collectively referred to herein as Promus or the Company.
On November 8, 1996, the Company acquired Red Lion Hotels, Inc. (Red Lion)
in a business combination accounted for as a purchase. Accordingly, the
financial results of Red Lion and its subsidiaries are included since November
8, 1996.
On February 27, 1996, the Company acquired RFS, Inc. (RFS Management) in a
transaction accounted for as a pooling-of-interests. Accordingly, the
accompanying consolidated financial statements have been restated to include the
historical results of RFS Management for all periods presented.
Description of Business
Through its wholly-owned subsidiaries, Promus franchises and manages hotels
with the following brands: Doubletree Hotels, Doubletree Guest Suites, Club
Hotels by Doubletree, Embassy Suites, Hampton Inn, Hampton Inn & Suites and
Homewood Suites. Promus may also own all or a portion of these hotels or lease
these hotels from others. In addition, Promus leases and manages hotels that are
not Promus-branded. At December 31, 1998, Promus franchises 998 hotels and
operates 339 hotels, of which 62 hotels are wholly-owned, 23 are partially-owned
through joint ventures, 77 are leased from third parties and 177 are managed for
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. The
Company also operates and licenses vacation interval ownership systems under the
Embassy Vacation Resort and Hampton Vacation Resort names.
Promus' primary focus is to develop, grow and support its franchise and
management business. Promus' primary sources of revenues are from the operations
of owned and leased hotels, franchise royalty fees and management fees. Promus
charges franchisees a royalty fee of up to four percent of room revenues.
Management fees are based on a percentage of the managed hotels' gross revenues,
operating profits, cash flow, or a combination thereof. Generally, the Company
is also reimbursed for certain costs associated with providing central
reservations, sales, marketing, accounting, data processing, internal audit and
employee training services to hotels.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, and expenses and the disclosure of contingent
assets and liabilities. While management endeavors to make accurate estimates,
actual results could differ from these estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, cash equivalents are highly
liquid investments with an original maturity of three months or less.
Property and Equipment
Property and equipment are stated at cost. Improvements that extend the
life of the asset are capitalized. Maintenance and repairs are expensed as
incurred. Interest expense is capitalized on constructed assets at Promus'
overall weighted average borrowing rate. The Company capitalized interest of
$1.6 million, $2.3 million and $3.2 million in 1996, 1997 and 1998,
respectively. Depreciation expense is calculated using the straight-line method
over the shorter of the estimated useful life of the assets or over the related
lease term, as follows:
<TABLE>
<S> <C>
- - ---------------------------------------------------------------------
Land improvements 12 to 15 years
Buildings and improvements 10 to 40 years
Furniture, fixtures and equipment 2 to 15 years
- - ---------------------------------------------------------------------
</TABLE>
<PAGE> 18
Investments
Investments in partnerships and ventures are accounted for using the equity
method of accounting when the Company has a general partnership interest or its
limited partnership interest exceeds 5%, but the Company does not control the
venture. Profits and losses are allocated in accordance with the partnership or
joint venture agreements. The Company's share of the income or losses before
interest expense and extraordinary items is included in other fees and income in
the accompanying consolidated statements of operations. Promus' proportionate
share of interest expense of such joint ventures is included in interest expense
in the accompanying consolidated statements of operations. The Company's
proportionate share of interest expense totaled $12.2 million, $13.3 million and
$14.5 million for the years ended December 31, 1996, 1997 and 1998,
respectively. All other investments are accounted for using the cost method.
Management and Franchise Contracts
Management and franchise contracts acquired in acquisitions that were
accounted for as purchases are recorded at the estimated present value of net
cash flows expected to be received over the lives of the contracts. This value
is amortized using the straight-line method over the estimated weighted average
contract life or 40 years, whichever is less. Costs incurred to acquire
individual management and franchise contracts are amortized using the
straight-line method over the life of the respective contract. Management and
franchise contracts are carried net of accumulated amortization of $36.3 million
and $50.8 million at December 31, 1997 and 1998, respectively.
Goodwill
Goodwill arose in connection with purchase acquisitions and is amortized
using the straight-line method over 40 years. Goodwill is carried net of
accumulated amortization of $12.1 million and $22.5 million at December 31, 1997
and 1998, respectively.
Notes Receivable
Notes receivable consist primarily of loans to owners of managed and
franchised hotels. Management considers a note to be impaired when it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the note. When a loan is considered to be impaired, the
amount of the impairment is measured based on the present value of expected
future cash flows discounted at the note's effective interest rate. Impairment
losses are charged to expense. Generally, cash receipts will first be applied to
reduce accrued interest and then to reduce principal.
Investment in Franchise System
Promus' investment in its franchise system includes the costs for computer
systems to operate the centralized marketing and reservation centers and a
property management system that interacts with several operational software
packages which are available to each Promus franchised hotel. Promus is
reimbursed for these costs by its system funds over their estimated useful
lives. In addition to computer system costs, these funds reimburse Promus for
related personnel and fringe benefits, advertising, promotional fees and other
reservation costs. The owner of each hotel, including Promus' company owned
hotels, contributes a percentage of room revenues to its brand's fund.
Deferred Costs and Other Assets
Deferred costs and other assets include escrow deposits, debt issuance
costs, franchise application fees paid and cash surrender value of insurance
policies. Escrow deposits represent proceeds received from 1997 hotel sales
which were used in 1998 to purchase replacement property. Costs related to the
issuance of debt are capitalized and amortized to interest expense over the
lives of the related debt.
Revenue Recognition
Franchise and management fees, hotel revenues and purchasing and service
fees are recognized when earned. Owned hotel revenues and leased hotel revenues
represent revenue derived primarily from the rental of rooms and suites and food
and beverage sales for hotels owned or leased by the Company.
Earnings per Share
As of December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." In adopting
this pronouncement, the Company restated prior period earnings per share data
for all periods presented in the accompanying consolidated financial statements.
For Promus, basic earnings per share is determined by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share is computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding during the year.
Common equivalent shares include employee stock options, restricted stock and
warrants deemed exercisable for the purpose of computing diluted earnings per
share. The Company has no other potentially dilutive securities.
Income Taxes
Under the asset and liability method of accounting for income taxes,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets, including net operating loss carryforwards,
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period when the new rate is enacted.
Long-Lived Assets
The recoverability of hotel real estate, investments, management contracts
and goodwill are periodically evaluated to determine whether such costs will be
recovered from future operations. Evaluations are based on projected cash flows
on an undiscounted basis. If the undiscounted cash flows are insufficient to
recover the recorded assets, then the projected cash flows are discounted and an
impairment loss is recognized for the difference.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of notes receivable,
marketable equity securities, notes payable and interest rate swap agreements.
The carrying amounts of financial instruments other than notes receivable and
interest rate swap agreements approximate fair value due to the short maturity
of those instruments, interest terms or, in the case of marketable equity
securities, they are carried at their estimated fair value. The Company has
determined that the fair value of its notes receivable approximates carrying
value based on interest rate and payment terms the Company would currently offer
on notes with similar security to borrowers of similar creditworthiness.
<PAGE> 19
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130 "Reporting Comprehensive Income," which established standards for reporting
and display of comprehensive income in the financial statements. The Company has
elected to present comprehensive income as a component of the Consolidated
Statements of Stockholders' Equity. SFAS No. 130 requires the disclosure of the
reclassification adjustments necessary to avoid double counting in comprehensive
income items that are displayed as part of net income. The following table
provides the disclosure of the reclassification adjustment (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Disclosure of reclassification amount:
Net change in the unrealized
gain (loss) in equity securities
arising during the period:
Before-tax amount $ 24,972 $ 7,253 $ (16,777)
Tax (expense) or benefit (9,679) (2,826) 6,415
Less: reclassification
adjustment for gains included in
net income:
Before-tax amount -- 13,054 10,246
Tax expense -- (5,091) (4,098)
- - ------------------------------------------------------------------------------
Net unrealized gain (loss) on
equity securities $ 15,293 $ (3,536) $ (16,510)
- - ------------------------------------------------------------------------------
</TABLE>
Recent Pronouncements
In June of 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives either as assets or
liabilities in the statement of financial position and measure those instruments
at fair value.
SFAS No. 133 allows an entity to designate a derivative instrument, if
certain conditions are met, as one of the following three types: 1) a Fair Value
Hedge, which is a hedge of the exposure to changes in the fair value of a
recognized asset or liability, or of an unrecognized firm commitment; 2) a Cash
Flow Hedge, which is a hedge of the exposure to variability in the cash flow of
a recognized asset or liability, or of a forecasted transaction; or 3) a Foreign
Currency Hedge, which is a hedge of the foreign currency exposure of an
unrecognized firm commitment, an available-for-sale security, a forecasted
transaction, or a net investment in a foreign operation. The accounting for
changes in the fair value of a derivative (that is, gains and losses) depends on
the intended use of the derivative and the resulting designation. The Company's
derivatives at December 31, 1998 are Cash Flow Hedges.
This statement is effective for all fiscal quarters of fiscal years
beginning after September 15, 1999. The adoption of SFAS No. 133 is not
anticipated to have a material impact on the financial position or results of
operations of the Company.
<PAGE> 20
NOTE 3--BUSINESS COMBINATIONS
Doubletree/Promus Merger
The Company was formed on December 19, 1997, as a result of the Merger of
Doubletree and PHC. As a result of the Merger Agreement, (i) Doubletree and PHC
became wholly-owned subsidiaries of Promus; (ii) each outstanding share of
common stock of Doubletree was converted into one share of common stock of
Promus; and (iii) each outstanding share of PHC common stock was converted into
0.925 of a share of common stock of Promus. The Merger qualified as a tax free
exchange and was accounted for as a pooling-of-interests. Historical financial
results of Doubletree and PHC have been combined for 1997 and 1996.
The results of operations for the separate companies and the pro forma
combined results presented in the accompanying consolidated financial statements
are as follows (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
Nine Months
Year ended ended
December 31, September 30,
1996 1997
- - ------------------------------------------------------------------
<S> <C> <C>
Revenues:
Doubletree $ 292,710 $ 570,446
PHC 267,503 223,820
- - ------------------------------------------------------------------
Combined $ 560,213 $ 794,266
- - ------------------------------------------------------------------
Net Income:
Doubletree $ 25,934 $ 55,518
PHC 64,724 87,017
- - ------------------------------------------------------------------
Combined $ 90,658 $ 142,535
- - ------------------------------------------------------------------
</TABLE>
In connection with the Merger, the Company recorded a $115.0 million
provision for business combination expenses, including both transaction costs
and restructuring costs in 1997. Transaction costs of approximately $40.3
million consist primarily of fees for investment bankers, attorneys,
accountants, financial printing and other related charges. Restructuring costs
of approximately $74.7 million include severance costs, exit costs related to
the consolidation of administrative functions, and the write-off of certain
assets whose benefits will not be realized after the Merger. Transaction costs
of $26.5 million and $12.0 million and restructuring costs of $22.7 million and
$44.2 million were paid or charged-off in 1997 and 1998, respectively. In the
fourth quarter of 1998, an additional $28.1 million was accrued for severance
and employment-related expenses associated with the Merger. None of this $28.1
million was paid before year-end 1998. At December 31, 1998, the $37.7 million
remaining estimated obligation was included in current liabilities.
Acquisition of Red Lion Hotels, Inc.
On November 8, 1996, the Company acquired all of the outstanding common
stock of Red Lion in a transaction valued at approximately $1.2 billion. The
Company paid $695.0 million in cash, repaid $124.0 million of existing Red Lion
indebtedness, issued 7.4 million shares of common stock to the shareholders of
Red Lion with a fair value at the date of closing of $291.5 million and assumed
net liabilities of $90.0 million. The acquisition has been accounted for as a
purchase and the results of operations of Red Lion have been included in the
consolidated financial statements since November 8, 1996. The purchase price was
allocated to the net assets acquired based upon their estimated fair market
values. The excess of the purchase price over the estimated fair value of the
net assets acquired of $372.3 million was recorded as goodwill and is being
amortized over a 40-year life.
The following unaudited pro forma summary financial data presents the
consolidated results of operations of the Company as if Red Lion had been
acquired at the beginning of 1996 with pro forma adjustments to give effect to
(a) amortization of goodwill, (b) additional depreciation expense as a result of
a step-up in the basis of properties and equipment and investments in
unconsolidated joint ventures, (c) increased interest expense on acquisition
debt, (d) the operating results of three hotels acquired in 1996 and (e) related
income tax effects. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that would actually have resulted had the combination been in effect on the date
indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
(Unaudited)
Year ended
December 31,
1996
- - -------------------------------------------------------------
<S> <C>
Revenues $ 890,552
Operating income 230,445
Income before taxes and extraordinary items 180,541
Net income 105,984
Basic earnings per share $ 1.22
Diluted earnings per share $ 1.21
- - -------------------------------------------------------------
</TABLE>
Acquisition of RFS, Inc.
In February 1996, the Company issued 2.7 million shares of common stock in
exchange for all of the outstanding stock of RFS Management in a transaction
accounted for as a pooling-of-interests. Accordingly, the accompanying
consolidated financial statements were restated to include the results of RFS
Management for all periods presented.
Acquisition of Harrison Conference Associates, Inc.
On January 2, 1998, the Company acquired Harrison Conference Associates,
Inc. (Harrison) for approximately $61.2 million cash in a transaction accounted
for as a purchase. The results of operations of Harrison have been included in
the consolidated financial statements since January 2, 1998. The purchase price
was allocated to the net assets acquired based upon their estimated fair values.
The excess of the purchase price over the estimated fair value of the net assets
acquired of $28.5 million was recorded as goodwill and is being amortized over a
40-year life. Harrison is a leading conference center operator with over 1,200
rooms under management, including two owned and six managed properties.
<PAGE> 21
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1998
- - ----------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 140,826 $ 135,200
Buildings and improvements 682,113 786,809
Furniture, fixtures and equipment 207,422 289,035
Construction in progress 55,878 67,064
- - -----------------------------------------------------------------------------
1,086,239 1,278,108
Accumulated depreciation (126,008) (168,240)
- - -----------------------------------------------------------------------------
$ 960,231 $ 1,109,868
- - -----------------------------------------------------------------------------
</TABLE>
NOTE 5--NOTES RECEIVABLE
Notes receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1998
- - -------------------------------------------------------------------------
<S> <C> <C>
Secured
Due from Red Lion MLP $ 23,133 $ --
Secured notes, with interest at
rates varying from 6.0%-12.0%,
maturing through 2016 38,241 26,348
- - ---------------------------------------------------------------------------
61,374 26,348
Unsecured
Candlewood $15.0 million credit
facility, with interest at rates
varying from 7.0%-10.0% in 1997
and 10.0%-15.0% in 1998, maturing
in 2001 14,608 14,608
Unsecured notes, with interest at
rates varying from 5.0%-15.0%,
maturing through 2008 14,541 28,037
- - ---------------------------------------------------------------------------
90,523 68,993
Less current portion (1,071) (2)
- - ---------------------------------------------------------------------------
$ 89,452 $ 68,991
- - ---------------------------------------------------------------------------
</TABLE>
Interest is generally received monthly with principal due upon the earlier
of termination of the management contract or sale of the hotel. Certain of the
notes receivable bear a variable interest rate based on Prime or LIBOR. At
December 31, 1998, the variable interest rates ranged from Prime minus 1.5%
(7.0% and 6.25% at December 31, 1997 and 1998, respectively) to Prime plus 2%
(10.5% and 9.75% at December 31, 1997 and 1998, respectively). At December 31,
1998, management does not consider any of its notes receivable to be impaired.
The note receivable due from Red Lion MLP generally bore interest at Prime plus
0.5% (9.0% at December 31, 1997). In May 1998, Red Lion MLP merged with Boykin
Lodging Company (Boykin). This merger resulted in the Company being paid in
full. The Company continues to manage for Boykin the 10 hotels formerly owned by
Red Lion MLP.
<PAGE> 22
NOTE 6--INVESTMENTS
Investments consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1998
- - -------------------------------------------------------------------------
<S> <C> <C>
Hotel partnerships $ 168,884 $ 165,678
Investments in common stock (at
market) 63,304 36,090
Convertible preferred stock 18,500 18,500
- - ---------------------------------------------------------------------------
$ 250,688 $ 220,268
- - ---------------------------------------------------------------------------
</TABLE>
The Company's noncontrolling general and/or limited partnership interests
in hotel partnerships range from less than 1.0% to 50.0%. Investments in common
stock are carried at market value and include investments in FelCor Suite
Hotels, Inc. and FelCor Limited Partnership (collectively, FelCor), Boykin,
Winston Hotels, Inc. (Winston) and RFS Hotel Investors, Inc. (RHI). Promus' cost
of these investments at December 31, 1997 and 1998 was approximately $41.1
million and $40.9 million, respectively.
In 1995, Promus invested $75.0 million in FelCor limited partnership
interests and common stock. FelCor used the proceeds to help acquire all- suites
upscale hotels which it converted to the Embassy Suites brand. The limited
partnership interests may be converted to shares of FelCor common stock on a
one-for-one basis. During 1997, Promus sold approximately $38.9 million of its
original investment in FelCor stock, resulting in a pre-tax gain of
approximately $11.2 million.
During 1996, Promus invested $7.1 million and $1.5 million in the common
stock of Equity and Winston, respectively, in exchange for their purchase of
four hotels and one hotel, respectively. During 1997, Promus sold approximately
$5.5 million of its original Equity stock, resulting in a pre-tax gain of $1.8
million. In 1998, Promus sold the remaining $1.6 million of its Equity stock at
a pre-tax gain of $0.6 million.
In 1996, the Company purchased 973,684 shares of convertible preferred
stock of RHI for $19 per share, or approximately $18.5 million. This investment
is recorded at cost as there is no ready market for these securities. The
convertible preferred stock pays a fixed annual dividend of $1.45 per share and
is convertible on a one-for-one basis at the end of seven years. RHI also owns a
partnership in which the Company has an investment. This partnership investment
is convertible into common stock of RHI. RHI granted the Company a 10-year first
right of refusal to manage and lease future hotels acquired or developed by RHI.
The Company has committed to RHI to maintain $15.0 million of net worth in RFS
Management.
In 1998, Promus sold all of its common stock in Pegasus Systems, Inc. which
had a cost basis of $0.2 million, resulting in a pre-tax gain of $9.7 million.
NOTE 7--LEASES
The Company leases hotel properties, land and administrative office space.
All such leases are operating leases. As of December 31, 1996, 1997 and 1998,
the Company leased 82, 86 and 77 hotels, respectively. As of December 31, 1998,
51 of these hotels are leased from RHI. All of the Company's hotel leases
require the payment of rent equal to the greater of fixed base rent or
percentage rent based on a percentage of gross room revenue, beverage revenue
and food revenue (if the hotel offers food and beverage service) and expire
beginning December 1999 through July 2015, with varying renewal options.
Substantially all of the hotels leased from RHI are cross-defaulted with one
another. Promus' land leases represent ground leases for certain owned hotels
and, in addition to minimum base rental payments, may require the payment of
percentage rents based on hotel revenues, a share of maintenance expenses and/
or real estate taxes.
Total rent expense incurred under the Company's leases was as follows (in
thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1996 1997 1998
- - -----------------------------------------------------------------------
<S> <C> <C> <C>
Hotel and ground leases:
Base rent $ 35,776 $ 63,452 $ 64,956
Percentage rent 40,121 57,786 64,957
Other leases 2,814 3,954 3,737
- - -----------------------------------------------------------------------
Total $ 78,711 $ 125,192 $ 133,650
- - -----------------------------------------------------------------------
</TABLE>
The following is a schedule of future minimum rental payments required
under Promus' noncancelable operating leases for years ending December 31, as
follows (in thousands):
<TABLE>
<S> <C>
- - ---------------------------------------------------------
1999 $ 56,899
2000 50,336
2001 49,819
2002 49,768
2003 49,099
Thereafter 189,372
- - ---------------------------------------------------------
Total future minimum lease payments $ 445,293
- - ---------------------------------------------------------
</TABLE>
<PAGE> 23
NOTE 8--NOTES PAYABLE
Promus' indebtedness consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1998
- - ------------------------------------------------------------------------------
<S> <C> <C>
Promus Facility $ 607,050 $ 634,250
Mortgages, 6.9%-8.6%, maturities
through 2008 85,037 95,660
Convertible rate term loan 20,000 20,000
Notes payable and other unsecured
debt, 6.0%-13.0%, maturities
through 2022 5,911 20,778
- - ------------------------------------------------------------------------------
717,998 770,688
Current portion of notes payable (46,020) (1,797)
- - ------------------------------------------------------------------------------
$ 671,978 $ 768,891
- - ------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1998, a consolidated joint venture of the Company
refinanced its debt. At December 31, 1997, the debt outstanding was $45 million
and was included in the current portion of notes payable.
Annual maturities of long-term debt are: 1999, $1.8 million; 2000, $1.9
million; 2001, $2.1 million; 2002, $707.1 million; 2003, $1.3 million; and $56.5
million, thereafter.
Promus Facility
Concurrent with the Merger, Promus entered into a revolving credit facility
(the Promus Facility), under which it borrowed $592.0 million on December 19,
1997. These funds were used to repay the existing bank facilities of both
Doubletree and PHC. The Promus Facility consists of a $750.0 million revolving
credit facility which is scheduled to mature on December 19, 2002 (the Five-
Year Revolver) and a $250.0 million annually extendible revolving credit
facility (the Extendible Revolver) which matured on December 18, 1998. On
December 18, 1998, the Extendible Revolver was extended through December 17,
1999, and the borrowing capacity was changed from $250.0 million to $209.6
million. The Extendible Revolver is convertible into a four-year term loan with
equal amortizing payments over the four-year period.
Interest on the drawn portion of the Promus Facility is, at the Company's
option, equal to either (i) the base rate, as defined, or (ii) LIBOR plus the
applicable spread. Both agreements incorporate a tiered scale that defines the
applicable LIBOR spread and a facility fee based upon the more favorable of the
Company's current debt rating or leverage ratio, as defined. At December 31,
1998, the LIBOR spread on the Five-Year Revolver and the Extendible Revolver was
reduced to 0.225% and 0.25%, respectively, from 0.25% and 0.27%, respectively,
at December 31, 1997. The facility fee required on the total amount of both the
Five-Year Revolver and the Extendible Revolver was 0.1% at December 31, 1998,
compared to 0.125% and 0.105%, respectively, at December 31, 1997. Additionally,
the Extendible Revolver incorporates a tiered scale of additional usage fees
that apply when at least 25% of the Extendible Revolver is used. The fee begins
at 0.1% for borrowings of 25% to 49% and increases 0.1% for each additional 25%
borrowed to a maximum of 0.3% for the use of the entire $209.6 million of the
Extendible Revolver.
At December 31, 1997 and 1998, the weighted average interest rate on
outstanding Promus Facility borrowings, including the applicable LIBOR spread,
was 6.6% and 6.2%, respectively. Both the Five-Year Revolver and the Extendible
Revolver are unsecured. The Promus Facility contains provisions that restrict
certain investments, limit the Company's ability to dispose of property and
require that certain performance ratios be maintained. As of December 31, 1997
and 1998, Promus was in compliance with all such covenants.
The Five-Year Revolver also provides a sublimit for letters of credit of
$100.0 million. At December 31, 1997 and 1998, approximately $16.0 million and
$47.8 million, respectively, in letters of credit were outstanding under this
agreement.
Convertible Rate Term Loan
This $20.0 million loan is unsecured and bears interest until October 28,
1999 at the three-month LIBOR rate minus 15 basis points (5.7% and 5.1% at
December 31, 1997 and 1998, respectively). Thereafter, the rate changes to a
fixed rate of 6.71%. The bank may elect to convert this fixed rate to the
three-month LIBOR rate plus 32.5 basis points, under a conversion option that is
exercisable annually beginning on October 28, 1999. The loan matures on October
28, 2002.
Derivative Financial Instruments
Promus' use of derivative financial instruments is limited to the
management of its interest rate exposure. The Company maintains interest rate
swap agreements which exchange floating interest payments for fixed interest
payments over the life of the agreements. Existing swap agreements, with an
aggregate notional amount of $376.6 million, expire between January 1999 and
January 2002, and as of December 31, 1997 and 1998, carried a weighted average
fixed rate of approximately 6.1% and 6.2%, respectively, and a weighted average
effective rate of 6.7% and 6.5%, respectively, (including the applicable
spreads). The differential to be paid or received is accrued as interest rates
change and is recognized as an adjustment to interest expense. At December 31,
1997 and 1998, the fair value of the swap agreements, which Promus would have
been required to pay to terminate them, was approximately $2.1 and $3.6 million,
respectively.
These agreements contain a credit risk that the counterparties may be
unable to meet the terms of the agreements. Promus minimizes that risk by
evaluating the creditworthiness of its counterparties, which are limited to
major banks and financial institutions, and does not anticipate nonperformance
by the counterparties.
NOTE 9--STOCKHOLDERS' EQUITY
One special right (Right) is attached to each outstanding share of common
stock. These Rights entitle the holders to purchase, under certain conditions,
units consisting of fractional shares of preferred stock at an exercise price to
be determined by Promus' Board of Directors. Under certain conditions, the
Rights also entitle the holders to purchase, at the Rights' then exercise price,
new shares of common stock having a market value of twice the Rights' exercise
price. These Rights expire on December 17, 2007, unless Promus decides to redeem
them earlier at $0.01 per Right or upon the occurrence of certain other events.
In April 1997, PHC's Board of Directors authorized PHC to repurchase up to
$150.0 million of its common stock pursuant to which PHC repurchased 1,573,800
shares at a cost of $60.0 million. All shares repurchased have been retired and
are not available for reissuance. As a result of the Merger of PHC into Promus,
the Company terminated this share repurchase program.
In August 1998, Promus' Board of Directors authorized the Company to
repurchase up to $200.0 million of its common stock for cash. The authorization
allows the Company to conduct the repurchase program in the open market, or in
negotiated or block transactions at prevailing market prices until December 31,
1999. Through December 31, 1998, the Company had repurchased 3,620,000 shares of
its common stock at a total cost of approximately $117.6 million.
In addition to its common stock, the Company has 10,000,000 shares of
authorized but unissued preferred stock, with a $0.01 par value.
<PAGE> 24
NOTE 10--EARNINGS PER SHARE
The following table reflects Promus' weighted average common shares
outstanding and the impact of its dilutive common share equivalents (in
thousands):
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1996 1997 1998
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Basic weighted average shares
outstanding 72,581 86,573 86,178
Effect of dilutive securities:
Restricted stock 14 15 --
Stock options and warrants 984 1,316 586
- - ---------------------------------------------------------------------------
Diluted weighted average shares
outstanding 73,579 87,904 86,764
- - ---------------------------------------------------------------------------
</TABLE>
Options to purchase approximately 792,000, 54,000 and 4,736,466 shares of
common stock were outstanding at December 31, 1996, 1997 and 1998, respectively,
but were not included in the above computations of diluted weighted average
outstanding shares because the options' exercise prices were greater than the
average market price of the common shares.
NOTE 11--TRANSACTIONS WITH RELATED PARTIES
Revenues and expenses include amounts derived from or paid to entities in
which affiliates of the Company own interests and, in general, exercise
operational control. A summary of these transactions is as follows (in
thousands):
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1996 1997 1998
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Franchise and management fees $ 11,198 $ 12,925 $ 13,588
Interest income 881 1,192 1,244
Purchasing and service fees 279 383 807
Expenses
Hotel rent 4,123 5,407 6,204
- - --------------------------------------------------------------------------
</TABLE>
Amounts due from affiliates included in accounts receivable at December 31,
1997 and 1998 were $4.1 million and $1.0 million, respectively. Notes receivable
include amounts due from affiliates at December 31, 1997 and 1998 of $6.0
million and $4.7 million, respectively.
NOTE 12--COMMITMENTS AND CONTINGENCIES
Promus is liable under certain lease agreements pursuant to which it has
assigned the direct obligation to third party interests. Additionally, Promus
manages certain hotels for others under agreements that provide for payments or
loans to the hotel owners if stipulated levels of financial performance are not
maintained. The Company has also provided guarantees for certain loans and
leases related to joint venture investments. Management believes the likelihood
is remote that material payments will be required under these agreements.
Promus' estimated maximum exposure under such agreements is approximately $41.0
million over the next 30 years. Promus also has construction commitments
pursuant to development agreements, other than those specifically discussed
below, of approximately $12.0 million.
FelCor Agreements
On May 1, 1998, Promus announced an agreement with FelCor under which
Promus will manage five Embassy Suites hotels and one Doubletree hotel that were
purchased by FelCor. These hotels, all of which were previously franchised
properties, will operate under 20-year license agreements and 10- year
management contracts. Under the terms of this agreement, Promus has guaranteed
payment of 12.5% of the first year's rent to the lessee.
In connection with its FelCor agreements, Promus has guaranteed repayment
of a third party loan to FelCor of up to $25.0 million. During 1997, Promus
announced the formation of a new strategic alliance with FelCor, under which
Promus committed to construct at least five Embassy Suites hotel properties.
Upon completion of these developments, FelCor will purchase a 90% interest in
the properties. As part of this new alliance, Promus sold two company owned
Embassy Suites hotels to FelCor in 1997 for approximately $46.7 million. Promus
will receive 20-year license agreements and 15-year management contracts for all
hotels developed pursuant to this agreement. In 1997, FelCor also purchased two
Embassy Suites hotels from a joint venture in which Promus owned a 50% interest.
FelCor owns or has an interest in 76 Promus hotels as of December 31, 1998,
which represents 5.7% and 9.4% of all Promus brand hotels and hotel rooms,
respectively. These hotels contributed approximately 16% of the Company's
franchise and management fee revenue for 1998. Of these 76 hotels, the Company
owns a 50% interest in 12 hotels.
Promus Acceptance Corp.
Promus Acceptance Corp. (ProMAC), a third party lending entity, provides
first mortgage financing to Promus franchisees for newly constructed Hampton
Inn, Hampton Inn & Suites, Homewood Suites and Embassy Suites hotels. ProMAC
will be able to issue up to an aggregate of $152.5 million in commercial paper
backed by a liquidity facility from participating financial institutions. The
terms generally provide for favorably priced floating and fixed rate loans
ranging from $3.0 million to $12.0 million with six-year terms and 20-year
amortization schedules. Promus has provided a guarantee up to $36.0 million and
can increase the guarantee to $45.8 million on loans outstanding under the
program, and has also provided a $1.0 million working capital guarantee to
ProMAC. Additionally, Promus has provided a $2.0 million start-up loan to
ProMAC, which earns interest at Prime and matures in April 2005.
Candlewood
A subsidiary of the Company has committed to provide credit support for a
loan facility utilized by Candlewood to provide construction and permanent
financing to Candlewood and its franchisees on terms that, in most cases, are
more attractive than those which could otherwise be obtained. The Company's
maximum exposure on any individual loan will range from $0.9 million to $1.9
million per hotel, with the aggregate amount of exposure for all such credit
support capped at $30.0 million. As of December 31, 1998, the Company has
guaranteed $12.0 million in such financing.
Litigation
The Company is party to various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty and could have a material impact on quarterly or annual results
of operations, management believes that the final outcome of these matters will
not have a material impact on Promus' consolidated financial position.
Self-Insurance Reserves
Promus self-insures various levels of general liability, workers'
compensation and employee medical coverage. All self-insurance reserves include
accruals of estimated settlements for known claims, as well as accruals of
actuarial estimates of incurred but not reported claims. These estimates are
based on historical information along with certain assumptions about future
events. Though changes in assumptions for such things as medical costs and legal
expenses, as well as changes in actual experience, could cause these estimates
to change significantly in the near term, the Company maintains stop-loss
insurance to minimize the effect of large claims on its financial results.
<PAGE> 25
NOTE 13--EMPLOYEE BENEFIT PLANS
Retirement Savings Plans
Promus and its subsidiaries maintain three defined contribution savings and
retirement plans. Employees who are over 21 years of age and have completed one
year of service are eligible to participate in the plans. Depending on the plan,
participating employees may elect to make pre-tax and after-tax contributions of
up to 16% of their eligible earnings and the Company matches employee
contributions up to 6% of an employee's eligible compensation. Amounts
contributed to the plans are invested in one or more investment funds, at the
participant's option.
The Company also has two nonqualified supplemental employee retirement
plans (SERP). One SERP was designed to supplement key employees whose benefits
would otherwise be reduced or lost due to the statutory limits of 401(k) plans.
This plan is fully funded. The second plan was designed to supplement retirement
income for certain executive officers of the Company. The liability under this
plan at December 31, 1998 was $4.1 million.
The aggregate expense to the Company under all retirement savings plans
amounted to $2.0 million, $4.5 million and $3.1 million for the years ended
December 31, 1996, 1997 and 1998, respectively.
Deferred Compensation Plans
Promus has deferred compensation plans under which certain employees may
defer a portion of their compensation. Amounts deposited into these plans are
unsecured and earn interest at rates approved by the Human Resources Committee
of the Board of Directors. In connection with the administration of the deferred
compensation plans, company-owned life insurance policies have been purchased.
As of December 31, 1997 and 1998, the total liability under these plans was
$14.5 million and $18.5 million, respectively, and the related value of life
insurance policies and other investments was $18.0 million and $19.4 million,
respectively.
NOTE 14--STOCK OPTIONS
The 1997 Equity Participation Plan (the Plan) is a new stock option plan,
approved in conjunction with the Merger, in which options may be granted to key
personnel to purchase shares of the Company's stock at a price not less than the
current market price at the date of grant. The options vest annually and ratably
over a four-year period from the date of grant and expire ten years after the
grant date. An aggregate of 10,000,000 shares have been authorized for issuance.
The Plan also provides for the issuance of stock appreciation rights, restricted
stock or other awards.
Additionally, both PHC and Doubletree had stock option plans prior to the
Merger date. Concurrent with the Merger, options were issued by Promus to
replace PHC options and Doubletree options which were outstanding under the
prior plans. The replacement options were issued with identical remaining terms
and conditions, except such options were immediately vested, in accordance with
the terms of the prior plans.
Promus applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized in the
consolidated statements of operations for these plans. In accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company has estimated
the fair value of each option grant using the Black-Scholes option- pricing
model. Had compensation cost for awards under the Plan and each predecessor plan
been determined based on the fair value at the grant dates, Promus' net income
and earnings per share would have been reduced to the pro forma amounts
indicated below (in thousands, except earnings per share):
<TABLE>
<CAPTION>
1996 1997 1998
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Net income
As reported $ 90,658 $ 95,436 $ 154,088
Pro forma 85,184 86,544 135,205
Basic earnings per share
As reported $ 1.25 $ 1.10 $ 1.79
Pro forma 1.17 1.00 1.57
Diluted earnings per share
As reported $ 1.23 $ 1.09 $ 1.78
Pro forma 1.16 0.98 1.56
- - --------------------------------------------------------------------------
</TABLE>
<PAGE> 26
A summary of Promus stock option transactions, from January 1, 1996 through
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------
Weighted Common
Average Stock
Exercise Available
Price Number for Grant
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance--January 1, 1996 $ 18.78 2,872,151 3,725,743
Granted 34.27 2,333,230 (2,333,230)
Exercised 13.83 (89,206) --
Canceled 22.91 (167,386) 167,386
- - ------------------------------------------------------------------------------
Balance--December 31, 1996 26.03 4,948,789 1,559,899
Approval of new options -- -- 11,200,000
Granted 39.91 4,503,369 (4,503,369)
Exercised 16.52 (410,851) --
Canceled 27.02 (160,334) (1,769,530)
- - ------------------------------------------------------------------------------
Balance--December 31, 1997 33.49 8,880,973 6,487,000
Approval of new options
Granted 31.73 3,551,135 (3,551,135)
Exercised 24.30 (1,331,550) --
Canceled 38.85 (461,308) 461,308
- - ------------------------------------------------------------------------------
Balance--December 31, 1998 $ 34.12 10,639,250 3,397,173
- - ------------------------------------------------------------------------------
Options exercisable at
December 31,
1997 $ 29.44 5,367,973
1998 32.47 5,099,125
- - ------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted by Promus based on the
Black-Scholes option-pricing model for the options granted during 1996, 1997 and
1998 are $10.71, $19.47 and $16.02, respectively. Assumptions included risk-free
interest rates ranging from 5.9% to 6.2%, expected lives of 3.0 years to 6.0
years, volatility factors of 30% to 46%, and no dividends.
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------- ---------------------------------------
Weighted Average Number
Number Outstanding Remaining Weighted Average Exercisable at Weighted Average
Range of at December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1998 Life Price 1998 Price
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.64 to $25.50 852,755 5.15 $ 14.35 852,755 $ 14.35
$26.55 to $34.73 4,648,726 8.90 31.09 1,649,476 29.93
$34.75 to $39.69 3,441,388 8.88 39.54 1,081,013 39.25
$40.13 to $50.00 1,696,381 8.26 41.37 1,515,881 40.60
- - ---------------------------------------------------------------------------------------------------------------------------------
10,639,250 8.49 $ 34.12 5,099,125 $ 32.47
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 15--INCOME TAXES
Income tax expense attributable to income before extraordinary items
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- - -----------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 40,535 $ 79,559 $ 85,787
State 9,085 16,843 13,373
Deferred
Federal 8,612 (13,410) 15,582
State 894 (3,328) 839
- - -----------------------------------------------------------------------
$ 59,126 $ 79,664 $ 115,581
- - -----------------------------------------------------------------------
</TABLE>
<PAGE> 27
The differences between the statutory federal income tax rate and the
effective tax rate expressed as a percentage of income before income taxes and
extraordinary items were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at federal
statutory rate 35.0% 35.0% 35.0%
Business combination expenses -- 6.6% 3.1%
State taxes, net of federal tax
benefit 4.0% 4.3% 3.3%
Goodwill and other permanent
differences 0.6% 2.2% 1.6%
Tax reserve reduction (1.7)% (2.8)% --%
Other 1.6% 0.2% (0.1)%
- - -------------------------------------------------------------------------------
39.5% 45.5% 42.9%
- - -------------------------------------------------------------------------------
</TABLE>
As a result of the acquisition of the common stock of Red Lion and
Harrison, the allocation of the purchase price to the assets and liabilities for
financial reporting purposes significantly exceeds the tax basis carried over
from Red Lion and Harrison. Accordingly, the acquisitions created nondeductible
goodwill and substantial temporary differences. The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets
and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
- - -----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards $ 4,181 $ 3,562
Compensation 22,280 25,627
Deferred income 3,102 2,997
Business combination expenses 11,287 12,592
Reserves 7,137 5,748
Other 1,210 531
Valuation allowance (3,781) (3,562)
- - -----------------------------------------------------------------------------
Total deferred tax assets 45,416 47,495
- - -----------------------------------------------------------------------------
Deferred tax liabilities:
Basis difference in other
assets (167,637) (168,567)
Property and equipment (101,736) (119,313)
Investments (29,313) (19,330)
Franchise system fund
prepayments (3,338) (1,929)
- - -----------------------------------------------------------------------------
Total deferred tax
liabilities (302,024) (309,139)
- - -----------------------------------------------------------------------------
Net deferred tax liability $ (256,608) $ (261,644)
- - -----------------------------------------------------------------------------
</TABLE>
<PAGE> 28
The Company estimates that, more likely than not, it will not realize a
portion of the benefits of its deferred tax assets. Accordingly, it has
established a valuation allowance to reflect this uncertainty. The valuation
allowance was established as a result of deferred tax assets created by previous
business combinations in accordance with purchase accounting methodology and, to
the extent the tax benefits to which this allowance relates are recognized, the
reduction in the valuation allowance will be applied to reduce goodwill. During
1996, 1997 and 1998, $0.5 million, $1.6 million and $0.2 million was used and
credited to goodwill, respectively.
The Company's federal net operating loss carryforwards (NOLs) of $10.2
million expire as follows (in thousands):
<TABLE>
<CAPTION>
Year of Expiration Amount of Federal NOLs
- - ------------------------------------------------------------
<S> <C>
2005 $ 9,210
2008 968
- - ------------------------------------------------------------
</TABLE>
Total NOLs for state income tax purposes are less than the amounts stated
above due primarily to shorter carryforward periods.
Tax Sharing Agreement
POC and Harrah's Entertainment, Inc. (Harrah's) are parties to a tax
sharing agreement that defines each company's rights and obligations with
respect to deficiencies and refunds of federal, state and other income or
franchise taxes relating to POC's business for tax years ending on or before
December 31, 1995, and with respect to certain tax attributes of POC after June
30, 1995. POC will reimburse Harrah's for the portion of subsequent tax
liability redeterminations relating to Harrah's hotel operations.
NOTE 16--DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Other current assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
- - ----------------------------------------------------------------------------
<S> <C> <C>
Federal and state income tax
receivables $ 17,361 $ 7,502
Prepayments 9,507 12,686
Deferred tax assets 8,251 14,854
Other 8,103 9,443
- - -----------------------------------------------------------------------------
$ 43,222 $ 44,485
- - -----------------------------------------------------------------------------
</TABLE>
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
- - ----------------------------------------------------------------------------
<S> <C> <C>
Business combination accruals $ 65,789 $ 37,690
Self-insurance reserves 31,654 27,789
Accounts payable 31,404 19,875
Accrued payroll and other
compensation 31,275 29,692
Operating leases payable 12,146 13,382
Refundable deposits and customer
funds 10,845 5,663
Taxes payable, other than income
taxes 10,495 7,887
Other 27,316 38,211
- - -----------------------------------------------------------------------------
$ 220,924 $ 180,189
- - -----------------------------------------------------------------------------
</TABLE>
NOTE 17--SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest, net of interest capitalized, amounted to $22.9
million, $56.2 million, and $50.9 million for the years ended December 31, 1996,
1997 and 1998, respectively. Cash paid for income taxes amounted to $62.0
million, $100.5 million and $78.1 million for the years ended December 31, 1996,
1997 and 1998, respectively.
NOTE 18--SUMMARIZED FINANCIAL INFORMATION
Promus Hotels, Inc. (PHI) is a wholly-owned subsidiary of PHC and an entity
through which a significant portion of the operations of Promus are conducted.
Among other things, PHI holds the franchise license for many of the Company's
franchised hotels. Summarized financial information for PHI, prepared on the
same basis as Promus, as of and for the years ended December 31, is as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets $ 43,695 $ 36,737
Property and equipment, net 336,553 426,406
Other assets 329,728 409,404
- - ------------------------------------------------------------------------------
$ 709,976 $ 872,547
- - ------------------------------------------------------------------------------
LIABILITIES
Current liabilities $ 73,522 $ 86,412
Notes payable 218,581 242,883
Other long-term obligations 91,524 118,466
- - ------------------------------------------------------------------------------
383,627 447,761
- - ------------------------------------------------------------------------------
Net assets $ 326,349 $ 424,786
- - ------------------------------------------------------------------------------
Revenues $ 266,625 $ 289,905 $ 315,637
- - ------------------------------------------------------------------------------
Operating income $ 129,496 $ 104,079 $ 166,491
- - ------------------------------------------------------------------------------
Net income $ 65,124 $ 73,698 $ 93,196
- - ------------------------------------------------------------------------------
</TABLE>
<PAGE> 29
NOTE 19--SEGMENT REPORTING
On January 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Under
SFAS No. 131, the Company has one operating segment, lodging, which is managed
as one business unit. The accounting policies of the segment are the same as
those described in the summary of significant accounting policies. The Company
does not record taxes at the segment level.
The following table presents the revenues, operating profit and assets of
the Company's reportable segment for the years ended December 31, (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Lodging $ 544,553 $ 1,016,511 $ 1,074,541
Other (a) 15,660 21,500 32,748
- - ------------------------------------------------------------------------------
560,213 1,038,011 1,107,289
- - ------------------------------------------------------------------------------
Operating profit (b)
Lodging $ 219,731 $ 365,609 $ 389,982
Other 8,263 12,542 21,887
- - ------------------------------------------------------------------------------
227,994 378,151 411,869
- - ------------------------------------------------------------------------------
Depreciation and
amortization
Lodging $ 31,180 $ 61,217 $ 67,960
Corporate 5,096 11,910 11,294
- - ------------------------------------------------------------------------------
36,276 73,127 79,254
- - ------------------------------------------------------------------------------
Segment assets
Lodging $ 1,939,091 $ 1,707,362 $ 1,856,700
Other 9,731 34,330 45,646
Corporate 414,092 637,353 571,655
- - ------------------------------------------------------------------------------
2,362,914 2,379,045 2,474,001
- - ------------------------------------------------------------------------------
Capital expenditures (c)
Lodging $ 41,389 $ 139,258 $ 143,327
Other -- -- --
Corporate 18,888 16,730 9,965
- - ------------------------------------------------------------------------------
60,277 155,988 153,292
- - ------------------------------------------------------------------------------
</TABLE>
(a) Other revenues are derived from Promus Vacation Resorts and Promus'
purchasing subsidiary.
(b) Operating profit excludes corporate and business combination expenses,
interest and gain on sale of real estate and securities.
(c) Capital expenditures do not include the purchases of Red Lion in 1996 or
Harrison in 1998.
The Company does not record gains on the sales of real estate and
securities, interest and dividend income, or interest expense at the segment
level; therefore, segment assets do not include investments or notes receivable.
<PAGE> 30
NOTE 20--QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
------------------------------------------------
(In thousands, except per First Second Third Fourth
share amounts) Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Revenues $ 254,543 $ 290,727 $ 296,227 $ 265,792
Operating income 69,903 94,430 89,774 49,268
Net income 36,016 52,189 51,829 14,054
Basic earnings per share (a) $ 0.42 $ 0.60 $ 0.60 $ 0.17
Basic weighted average shares
outstanding 86,415 87,202 86,552 84,882
Diluted earnings per share (a) $ 0.41 $ 0.59 $ 0.60 $ 0.16
Diluted weighted average shares
outstanding 87,639 88,137 86,999 85,214
- - --------------------------------------------------------------------------------
1997
Revenues $ 259,486 $ 260,065 $ 274,715 $ 243,745
Operating income (loss) 74,821 70,121 89,358 (50,398)
Net income (loss) 38,902 47,376 56,257 (47,099)
Basic earnings (loss) per
share (a) $ 0.45 $ 0.55 $ 0.65 $ (0.55)
Basic weighted average shares
outstanding 87,097 86,916 86,206 86,050
Diluted earnings (loss) per
share (a) $ 0.44 $ 0.54 $ 0.64 $ (0.54)
Diluted weighted average shares
outstanding 88,420 88,225 87,939 87,620
- - --------------------------------------------------------------------------------
1996
Revenues $ 113,787 $ 129,994 $ 138,921 $ 177,511
Operating income 33,768 42,388 48,201 40,999
Net income 17,627 25,685 27,712 19,634
Basic earnings per share (a) $ 0.25 $ 0.37 $ 0.39 $ 0.25
Basic weighted average shares
outstanding 69,581 70,087 70,588 80,086
Diluted earnings per share (a) $ 0.25 $ 0.36 $ 0.39 $ 0.24
Diluted weighted average shares
outstanding 70,293 70,982 71,713 81,412
- - --------------------------------------------------------------------------------
</TABLE>
(a) The sum of the quarterly per share amounts may not equal the annual amount
reported, as per share amounts are computed independently for each quarter
while the full year is based on the annual weighted average shares
outstanding.
<PAGE> 31
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
Promus is responsible for preparing the financial statements and related
information appearing in this report. Management believes that the financial
statements present fairly its financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. In preparing
its financial statements, Promus is required to include amounts based on
estimates and judgments which it believes are reasonable under the
circumstances.
Promus maintains accounting and other control systems designed to provide
reasonable assurance that financial records are reliable for purposes of
preparing financial statements and that assets are properly accounted for and
safeguarded. Compliance with these systems and controls is reviewed through a
program of audits by an internal auditing staff. Limitations exist in any
internal control system, recognizing that the system's cost should not exceed
the benefits derived.
The Board of Directors pursues its responsibility for Promus' financial
statements through its Audit Committee, which is composed solely of directors
who are not officers or employees of Promus. The Audit Committee meets from time
to time with the independent public accountants, management and the internal
auditors. Promus' internal auditors report directly to, and the independent
public accountants have access to, the Audit Committee, with and without the
presence of management representatives.
/s/ Norman P. Blake, Jr.
Norman P. Blake, Jr.
Chairman of the Board, President & Chief Executive Officer
/s/ Dan L. Hale
Dan L. Hale
Executive Vice President & Chief Financial Officer
<PAGE> 32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Promus Hotel Corporation:
We have audited the accompanying consolidated balance sheets of Promus
Hotel Corporation (a Delaware corporation) and subsidiaries (Promus) as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
ended December 31, 1998. These financial statements are the responsibility of
Promus' management. Our responsibility is to express an opinion on these
financial statements based on our audits. These financial statements include the
financial position and results of operations of Doubletree Corporation
(Doubletree), pursuant to a merger of Doubletree and Promus effective December
19, 1997. As discussed in Note 1, this merger was accounted for as a
pooling-of-interests, and the financial position and results of operations for
Promus and Doubletree have been combined for the years ended December 31, 1997
and 1996. We have not audited the financial statements of Doubletree for the
year ended December 31, 1996. Those statements were audited by other auditors
whose report, dated March 17, 1997, was furnished to us and our opinion, insofar
as it relates to amounts included for Doubletree, is based solely upon the
report of the other auditors. The financial statements of Doubletree for the
year ended December 31, 1996, audited by other auditors, represent 52 percent of
total consolidated revenues for the year ended December 31, 1996.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Promus Hotel Corporation and subsidiaries as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Memphis, Tennessee,
February 12, 1999.
<PAGE> 1
EXHIBIT 21
Subsidiaries of Promus Hotel Corporation
<PAGE> 2
EXHIBIT 21
SUBSIDIARIES OF PROMUS HOTEL CORPORATION
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION OR ORGANIZATION
---- ------------------------------
<S> <C> <C>
1. Promus Operating Company, Inc. Delaware
2. Promus Hotels, Inc. Delaware
3. Buckleigh, Inc. Delaware
4. Compass, Inc. Tennessee
5. EJP Corporation Delaware
6. Suite Life, Inc. Delaware
7. Embassy Development Corporation Delaware
8. Embassy Equity Development Corporation Delaware
9. Embassy Syracuse Development Corporation Delaware
10. Southfield Hotel Management, Inc. Florida
11. Embassy Memphis Corporation Tennessee
12. Embassy Pacific Equity Corporation Delaware
13. Embassy Suites Club No. 1, Inc. Kansas
14. Embassy Suites Club No. Two, Inc. Texas
15. Embassy Suites Club No. Three, Inc. Louisiana
16. Embassy Suites (Isla Verde), Inc. Delaware
17. Embassy Suites (Puerto Rico), Inc. Delaware
18. Embassy Vacation Resorts, Inc. Delaware
19. Epam Corporation Delaware
20. ESI Mortgage Development Corporation Delaware
21. ESI Mortgage Development Corporation II Delaware
22. Hampton Inns, Inc. Delaware
23. GOL Texas, Inc. Texas
24. Pacific Hotels, Inc. Tennessee
25. ATM Hotels Pty. Limited Australia
26. Promus Hospitality Corporation Delaware
27. Promus Hotel Services, Inc. Delaware
28. Promus Hotels Florida, Inc. Delaware
29. Promus Hotels Minneapolis, Inc. Delaware
30. Promus BPC Corporation Delaware
31. Promus/Kingston Development Corporation Delaware
32. Ziwa Insurance, Inc. Vermont
33. Doubletree Corporation Delaware
34. Harrison Conference Associates, Inc. Delaware
35. TARSA, Inc. New York
36. HARSA, Inc. Delaware
37. Harrison Conference Services, Inc. New York
38. Aloma, Inc. Delaware
39. Harrison Conference Center of Glen Cove, Inc. New York
40. Harrison Conference Center of Heritage Village, Inc. Connecticut
41. Harrison Conference Center of Lake Bluff, Inc. Illinois
42. Harrison Conference Food Services of New Jersey, Inc. New Jersey
43. Harrison Conference Services of Boston, Inc. Massachusetts
44. Harrison Conference Services of Connecticut, Inc. Connecticut
45. Harrison Conference Services of Florida, Inc. Florida
46. Harrison Conference Services of Illinois, Inc. Illinois
47. Harrison Conference Services of Massachusetts, Inc. Massachusetts
48. Harrison Conference Services of Princeton, Inc. New Jersey
49. Harrison Conference Services of North Carolina, Inc. North Carolina
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION OR ORGANIZATION
---- ------------------------------
<S> <C> <C>
50. Harrison Conference Services of Wellesley, Inc. Massachusetts
51. Red Lion Hotels, Inc. Delaware
52. Red Lion Hotel Systems, Inc. Arizona
53. Red Lion Properties, Inc. Delaware
54. Bakersfield Red Lion Motor Inn California
55. Fess Parker-Red Lion Hotel California
56. Glendale Red Lion Hotel California
57. Ontario-Red Lion Motor Inn California
58. Red Lion La Posada Arizona
59. Red Lion Orange County Partners, L.P. California
60. Red Lion/Riverfront, L.L.C. Delaware
61. Santa Barbara Red Lion Hotel California
62. Village Motor Inn Montana
63. VRLB, Inc. Montana
64. Betty MacWilliam & Company Texas
65. Boise-Red Lion/Downtowner, Inc. Idaho
66, SALC, Inc. Texas
67. RFS, Inc. Tennessee
68. RFS Leasing, Inc. Tennessee
69. DDP Partners, L.P. Tennessee
70. Devonshire Associates, L.P. Tennessee
71. Highland Plaza Partners, L.P. Tennessee
72. SF Partners, L.P. Tennessee
73. Shelby Distribution Partners, L. P. Tennessee
74. Candlewood Hotel Company, Inc. Delaware
75. Doubletree Hotels Corporation Arizona
76. Thayer Hotel Investors II, L.P. Delaware
77. Thayer Hotel Investments L.P. Delaware
78. THI Metairie, L.P. Delaware
79. THI Oceanfront, L.P. Delaware
80. THI Plantation, L.P. Delaware
81. THI Rockville, L.P. Delaware
82. THI Skokie, L.P. Delaware
83. THI Somerset, L.P. Delaware
84. INNCO Corporation Arizona
85. Doubletree of Phoenix, Inc. Delaware
86. DT Management, Inc. Arizona
87. Arizona DTM Florida, Inc. Florida
88. Arizona DTM Pasadena, Inc. California
89. DTM Antlers, Inc. Arizona
90. DTM Burlingame, Inc. Arizona
91. DTM Cambridge, Inc. Massachusetts
92. DTM Palm Springs, Inc. Arizona
93. DTM Maryland, Inc. Arizona
94. Praedium II Largo Associates, L.L.C. Maryland
95. Praedium II San Antonio, L.P. Texas
96. DTM Walnut Creek, Inc. Arizona
97. DTM Coconut Grove, Inc. Arizona
98. DTM Nashville, Inc. Arizona
99. DTM Salt Lake City, Inc. Utah
100. DTM Santa Clara, Inc. Arizona
101. DTM Tampa, Inc. Florida
102. DTM Largo, Inc. Arizona
</TABLE>
2
<PAGE> 4
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION OR ORGANIZATION
---- ------------------------------
<S> <C> <C>
103. DTM Ventura, Inc. Arizona
104. DTM St. Louis, Inc. Arizona
105. DTM Oklahoma, Inc. Arizona
106. Tucson Hotel Equity Limited Partnership Arizona
107. DTM Tulsa, Inc. Arizona
108. DTR Limited Partnership Arizona
109. Hotel Equities Co. Arizona
110. Custom House Hotel, L.P. Missouri
111. Doubletree, Inc. of California Arizona
112. Corporate Associates-Boise Limited Partnership Arizona
113. Hotel Properties-Boise Arizona
114. Boise Beverage Corporation Idaho
115. Arlington Hotel Co. Arizona
116. RW Motels, Ltd. Texas
117. Hotel Properties-Newport Arizona
118. Hutton Centre Hotel Associates California
119. Doubletree Hotel Systems, Inc. Arizona
120. Compris Hotel Corporation Delaware
121. DTR RFS Lessee, Inc. California
122. DT Real Estate, Inc. Arizona
123. TUK Inns, Inc. Washington
124. DT Investments, Inc. Arizona
125. Southcenter Motor Hotel, Ltd. Washington
126. Compri Realty Corporation No. 1 Arizona
127. Doubletree Hotel Ventures, Inc. Arizona
128. Louisville Club OPCO, L.L.C. Delaware
129. Norwalk Club OPCO, L.L.C. Delaware
130. DTR Cambridge, Inc. Arizona
131. DTR FCH Holdings, Inc. Arizona
132. FCH/DT Holdings, L.P. Delaware
133. FCH/DT Hotels L.L.C. Delaware
134. FCH/DT BWI Holdings, L.P. Delaware
135. FCH/DT Leasing, L.L.C. Delaware
136. DTR TM Holdings, Inc. Arizona
137. Club Mack OPCO, L.L.C. Nevada
138. Houston Airport Doubletree, Inc. Texas
139. Scottsdale Plaza Doubletree, Inc. Arizona
140. DTR Sonoran Holding, Inc. Arizona
141. DTM Atlanta/Legacy, Inc. Arizona
142. DTR Boston Heights, Inc. Arizona
143. DTR Houston, Inc. Arizona
144. DTR Independence, Inc. Arizona
145. DTR North Canton, Inc. Arizona
146. DTR PAH Holding, Inc. Arizona
147. PAH-DT Allen Partners, L.P. Delaware
148. PAH-DT Chicago O'Hare Partners, L.P. Delaware
149. PAH-DT Miami Airport Partners, L.P. Delaware
150. PAH-DT Minneapolis Suites Partners, L.P. Delaware
151. PAH-DT Park Place Partners, L.P. Delaware
152. PAH-DT Tallahassee Partners, L.P. Delaware
153. DTR San Antonio, Inc. Arizona
154. Doubletree de Mexico, S.A. de C.V. Mexico
155. DTR West Montrose, Inc. Arizona
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION OR ORGANIZATION
---- ------------------------------
<S> <C> <C>
156. Corporate Associates-Newport Limited Partnership Arizona
157. HOSCO Corporation Arizona
158. Samantha Hotel Corporation Delaware
159. Doubletree Partners Delaware
160. Harbor Hotel Corporation Delaware
161. BHH Management Associates Massachusetts
162. Guest Quarters Services Corporation Illinois
</TABLE>
4
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 12, 1999, incorporated by reference in this Form 10-K
for the year ended December 31, 1998, into the Company's previously filed
Registration Statements File Nos. 333-14023-01, 333-42603, 333-42605.
/s/ ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 26, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROMUS HOTEL FOR THE PERIOD ENDED DECEMBER 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,466
<SECURITIES> 0
<RECEIVABLES> 101,742
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 152,693
<PP&E> 1,109,868
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,474,001
<CURRENT-LIABILITIES> 181,986
<BONDS> 770,688
0
0
<COMMON> 875
<OTHER-SE> 1,157,820
<TOTAL-LIABILITY-AND-EQUITY> 2,474,001
<SALES> 0
<TOTAL-REVENUES> 1,107,289
<CGS> 0
<TOTAL-COSTS> 803,914
<OTHER-EXPENSES> (10,390)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,917
<INCOME-PRETAX> 269,669
<INCOME-TAX> 115,581
<INCOME-CONTINUING> 154,088
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,088
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.78
</TABLE>
