<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1997.
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a--6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
DOUBLETREE CORPORATION*
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
PROMUS HOTEL CORPORATION*
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11:
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which the transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
* The Proxy Statement also constitutes the Prospectus of Parent Holding Corp.
("New Promus"). Accordingly, New Promus is the Registrant with respect to
the Form S-4 Registration Statement to be filed under the Securities Act of
1933, as amended, with the Securities and Exchange Commission to register
the shares of common stock of New Promus which may be issued pursuant to the
Agreement and Plan of Merger to which the Proxy Statement relates.
<PAGE>
[LOGO] [LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Doubletree Corporation and Promus Hotel
Corporation have agreed on a merger of equals designed to create one of the
premier lodging companies in the United States. The combined company will be
named Promus Hotel Corporation, also known as New Promus, and will be
headquartered in Memphis, Tennessee.
If the merger is completed, Doubletree stockholders will receive one share
of New Promus common stock in exchange for each share of Doubletree common stock
that they own. Promus stockholders will receive 0.925 of a share of New Promus
common stock in exchange for each share of Promus stock that they own. Based on
closing prices on November 13, 1997, the market value of one share of Promus
common stock was $37.44, one share of Doubletree common stock was $39.25 and
0.925 of a share of Doubletree common stock was $36.31. We estimate that,
following the merger, Doubletree stockholders will own approximately 46% of the
stock of New Promus and Promus stockholders will own approximately 54%.
The merger cannot be completed unless the stockholders of both companies
approve it. We have scheduled special meetings for our stockholders to vote on
the merger. YOUR VOTE IS VERY IMPORTANT. At the special meetings, you also will
vote on the 1997 Equity Participation Plan of New Promus.
Whether or not you plan to attend a meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. If you sign, date and mail
your proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of the merger and the 1997 Equity Participation Plan.
If you fail to return your card, the effect in most cases will be a vote against
the merger and the 1997 Equity Participation Plan.
The dates, times and places of the meetings are as follows:
For Doubletree Stockholders:
THURSDAY, DECEMBER 18, 1997
10:00 A.M.
DOUBLETREE PARADISE VALLEY RESORT
5401 N. SCOTTSDALE ROAD
SCOTTSDALE, ARIZONA
For Promus Stockholders:
THURSDAY, DECEMBER 18, 1997
10:00 A.M.
EMBASSY HALL
EMBASSY SUITES HOTEL
1022 SOUTH SHADY GROVE ROAD
MEMPHIS, TENNESSEE
This Joint Proxy Statement/Prospectus provides you with detailed information
about the proposed merger. In addition, you may obtain information about our
companies from documents that we have filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully.
/s/ RICHARD J. FERRIS /s/ MICHAEL D. ROSE
- -------------------------------------- --------------------------------------
Richard J. Ferris Michael D. Rose
Co-Chairman of the Board Chairman of the Board
Doubletree Corporation Promus Hotel Corporation
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE NEW PROMUS COMMON STOCK TO BE ISSUED UNDER THIS
JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Joint Proxy Statement/Prospectus dated November 14, 1997 and first mailed to
stockholders on November 18, 1997.
<PAGE>
DOUBLETREE CORPORATION
410 NORTH 44TH STREET
SUITE 700
PHOENIX, ARIZONA 85008
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 18, 1997
------------------------
To the Stockholders of Doubletree Corporation:
A Special Meeting of Stockholders of Doubletree Corporation ("Doubletree")
will be held on December 18, 1997, at 10:00 a.m., at Doubletree Paradise Valley
Resort, 5401 North Scottsdale Road, Scottsdale, Arizona (the "Doubletree Special
Meeting"), for the following purposes:
(a) To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of September 1, 1997 (the "Merger Agreement")
by and among Doubletree, Promus Hotel Corporation ("Promus"), and Parent
Holding Corp., a newly-formed corporation jointly owned by Doubletree and
Promus ("New Promus"), pursuant to which, among other things, (i)
Doubletree and Promus will become wholly-owned subsidiaries of New
Promus; (ii) each outstanding share of common stock of Doubletree will be
converted into the right to receive one share of common stock of New
Promus; and (iii) each outstanding share of common stock of Promus will
be converted into the right to receive 0.925 of a share of common stock
of New Promus;
(b) To consider and vote on a proposal to approve and adopt the 1997 Equity
Participation Plan of New Promus; and
(c) To transact such other business as may properly come before the
Doubletree Special Meeting and any or all adjournments thereof.
THE BOARD OF DIRECTORS OF DOUBLETREE HAS APPROVED THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. THE BOARD OF DIRECTORS OF
DOUBLETREE ALSO RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF
THE 1997 EQUITY PARTICIPATION PLAN OF NEW PROMUS.
The Merger Agreement and other important matters are explained in the
accompanying Joint Proxy Statement/Prospectus, which you are urged to read
carefully. A copy of the Merger Agreement is attached as Annex A to the Joint
Proxy Statement/Prospectus. In addition, a copy of the 1997 Equity Participation
Plan of New Promus is attached as Annex F to the Joint Proxy
Statement/Prospectus.
The Board of Directors of Doubletree has fixed the close of business on
October 31, 1997 as the record date for determining the stockholders entitled to
receive notice of and to vote at the Doubletree Special Meeting and at any and
all adjournments or postponements thereof.
<PAGE>
Management welcomes your attendance at the Doubletree Special Meeting.
Whether or not you expect to attend the Doubletree Special Meeting in person,
however, you are requested to complete, sign, date and promptly return the
enclosed proxy in the accompanying postage-paid envelope. The prompt return of
your proxy will save expenses involved in further communication. Your proxy will
not affect your right to vote in person in the event you attend the Doubletree
Special Meeting. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE IN
PERSON AT THE DOUBLETREE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER AGREEMENT.
<TABLE>
<S> <C> <C>
By: /s/ DAVID L. STIVERS
-----------------------------------------
David L. Stivers
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
</TABLE>
Phoenix, Arizona
November 14, 1997
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXIES.
<PAGE>
PROMUS HOTEL CORPORATION
755 CROSSOVER LANE
MEMPHIS, TENNESSEE 38117
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 18, 1997
------------------------
To the Stockholders of Promus Hotel Corporation:
A Special Meeting of Stockholders of Promus Hotel Corporation ("Promus")
will be held on December 18, 1997, at 10:00 a.m., at the Embassy Hall, Embassy
Suites Hotel, 1022 South Shady Grove Road, Memphis, Tennessee (the "Promus
Special Meeting"), for the following purposes:
(a) To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of September 1, 1997 (the "Merger Agreement")
by and among Promus, Doubletree Corporation ("Doubletree") and Parent
Holding Corp., a newly-formed corporation jointly owned by Promus and
Doubletree ("New Promus"), pursuant to which, among other things, (i)
Promus and Doubletree will become wholly-owned subsidiaries of New
Promus; (ii) each outstanding share of common stock of Promus will be
converted into the right to receive 0.925 of a share of common stock of
New Promus; and (iii) each outstanding share of common stock of
Doubletree will be converted into the right to receive one share of
common stock of New Promus;
(b) To consider and vote on a proposal to approve and adopt the 1997 Equity
Participation Plan of New Promus; and
(c) To transact such other business as may properly come before the Promus
Special Meeting and any or all adjournments thereof.
THE BOARD OF DIRECTORS OF PROMUS HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. THE BOARD OF DIRECTORS OF PROMUS
ALSO RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE 1997
EQUITY PARTICIPATION PLAN OF NEW PROMUS.
The Merger Agreement and other important matters are explained in the
accompanying Joint Proxy Statement/Prospectus, which you are urged to read
carefully. A copy of the Merger Agreement is attached as Annex A to the Joint
Proxy Statement/Prospectus. In addition, a copy of the 1997 Equity Participation
Plan of New Promus is attached as Annex F to the Joint Proxy
Statement/Prospectus.
The Board of Directors of Promus has fixed the close of business on October
31, 1997 as the record date for determining the stockholders entitled to receive
notice of and to vote at the Promus Special Meeting and at any and all
adjournments or postponements thereof.
<PAGE>
Management welcomes your attendance at the Promus Special Meeting. Whether
or not you expect to attend the Promus Special Meeting in person, however, you
are requested to complete, sign, date and promptly return the enclosed proxy in
the accompanying postage-paid envelope. The prompt return of your proxy will
save expenses involved in further communication. Your proxy will not affect your
right to vote in person in the event you attend the Promus Special Meeting.
FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE IN PERSON AT THE
PROMUS SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER.
/s/ RALPH B. LAKE
----------------------------------------
Ralph B. Lake
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
Memphis, Tennessee
November 14, 1997
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXIES.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
DOUBLETREE/PROMUS MERGER.................. 1
WHO CAN HELP ANSWER YOUR QUESTIONS.......... 2
SUMMARY..................................... 3
RISK FACTORS................................ 14
THE DOUBLETREE SPECIAL MEETING.............. 16
General................................... 16
Record Date and Voting.................... 16
Voting and Revocation of Proxies.......... 17
THE PROMUS SPECIAL MEETING.................. 18
General................................... 18
Record Date and Voting.................... 19
Voting and Revocation of Proxies.......... 19
THE MERGER.................................. 21
Background of the Merger.................. 21
Recommendations of the Boards of Directors
of Doubletree and Promus; Reasons for
the Merger.............................. 24
Opinion of Financial Advisor to
Doubletree.............................. 29
Opinion of Financial Advisor to Promus.... 33
Interests of Certain Persons in the
Merger.................................. 38
Accounting Treatment of the Merger........ 44
Certain Federal Regulatory Matters........ 45
Certain Federal Income Tax Consequences... 45
Delisting and Deregistration of Doubletree
Common Stock and Promus Common Stock;
Listing of New Promus Common Stock...... 47
Resales of New Promus Common Stock Issued
in Connection with the Merger; Affiliate
Agreements.............................. 48
No Appraisal Rights....................... 48
Cautionary Statement Concerning Forward-
Looking Statements...................... 48
THE COMBINED COMPANY........................ 50
Business and Strategy..................... 50
Hotel Properties.......................... 52
Directors and Executive Officers.......... 57
THE MERGER AGREEMENT........................ 58
The Merger................................ 58
Conversion of Shares...................... 58
Exchange of Stock Certificates............ 59
Representations and Warranties............ 61
Certain Covenants......................... 61
Conditions to Obligations to Effect the
Merger.................................. 66
Termination; Termination Fees and
Expenses................................ 68
Amendment and Waiver...................... 70
OTHER AGREEMENTS............................ 71
Doubletree Stock Option Agreement......... 71
Promus Stock Option Agreement............. 72
Stockholder Support Agreement............. 73
REFINANCING ARRANGEMENTS.................... 74
COMPARATIVE MARKET PRICES AND DIVIDENDS..... 75
<CAPTION>
PAGE
-----
<S> <C>
UNAUDITED PRO FORMA FINANCIAL
INFORMATION............................... 76
PRO FORMA SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF NEW
PROMUS.................................... 79
DESCRIPTION OF NEW PROMUS CAPITAL STOCK..... 81
General................................... 81
New Promus Common Stock................... 81
Preferred Stock........................... 81
Preferred Share Purchase Rights........... 82
Certain Effects of Preferred Share
Purchase Rights......................... 82
Prohibited Business Transactions.......... 82
Registrar and Transfer Agent.............. 83
COMPARISON OF RIGHTS OF HOLDERS OF
DOUBLETREE COMMON STOCK AND PROMUS COMMON
STOCK BEFORE AND AFTER THE MERGER......... 84
Authorized Capital........................ 84
Number of Directors....................... 84
Classes and Terms of Directors............ 84
Actions by Written Consent of
Stockholders; Special Meetings of
Stockholders............................ 85
Amendment of Bylaws....................... 85
Business Combination Provisions........... 85
Retirement of Directors................... 85
PROPOSAL TO APPROVE NEW PROMUS EQUITY
PARTICIPATION PLAN........................ 86
New Promus Equity Participation Plan...... 86
Administration............................ 86
Eligibility............................... 86
Awards under the New Promus Equity
Participation Plan...................... 87
Securities Laws and Federal Income
Taxes................................... 88
Recommendation of the Boards of
Directors............................... 89
STOCKHOLDER PROPOSALS....................... 90
LEGAL MATTERS............................... 90
EXPERTS..................................... 90
OTHER MATTERS............................... 91
WHERE YOU CAN FIND MORE INFORMATION......... 92
ANNEXES
A. MERGER AGREEMENT
B. FAIRNESS OPINION OF MORGAN STANLEY
C. FAIRNESS OPINION OF BT WOLFENSOHN
D. FORM OF RESTATED CERTIFICATE OF INCORPORATION OF
NEW PROMUS
E. FORM OF AMENDED AND RESTATED BYLAWS OF NEW PROMUS
F. FORM OF NEW PROMUS EQUITY PARTICIPATION PLAN
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE DOUBLETREE/PROMUS MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: Because we believe New Promus will provide you with substantial benefits and
enable us to better serve our customers. The merger will create one of the
largest hotel companies in the United States, with over 1,180 hotels with
approximately 177,000 rooms under management or franchise. We believe that
the merger will combine Promus's strength in franchising and building brands
with Doubletree's strength in hotel management. The merger will create a
portfolio of hotel brands, including Doubletree Hotels, Embassy Suites,
Doubletree Guest Suites, Homewood Suites, Club Hotels by Doubletree, Hampton
Inn, Hampton Inn & Suites, and Red Lion Hotels & Inns.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special meetings.
The Doubletree and Promus special meetings will both take place on December
18, 1997. The Boards of Directors of both Doubletree and Promus recommend
voting in favor of the proposed merger.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how
to instruct your broker to vote your shares.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
stockholder meeting. You can do this in one of three ways. First, you can
send a written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy card to Doubletree at the address on page 18 if you are a Doubletree
stockholder, or to Promus at the address on page 20 if you are a Promus
stockholder. Third, you can attend the stockholder meeting and vote in
person. Simply attending the meeting, however, will not revoke your proxy.
If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions for
exchanging your share certificates.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Promus stockholders will receive 0.925 of a share of New Promus common stock
in exchange for each share of Promus common stock. We will not issue
fractional shares. Promus stockholders who would otherwise be entitled to
receive a fractional share instead will receive cash based on the market
value of the fractional share of New Promus common stock.
Doubletree stockholders will receive one share of New Promus common stock in
exchange for each share of Doubletree common stock.
EXAMPLE:
- IF YOU CURRENTLY OWN 100 SHARES OF PROMUS COMMON STOCK, THEN AFTER THE
MERGER YOU WILL BE ENTITLED TO RECEIVE 92 SHARES OF NEW PROMUS COMMON
STOCK AND A CHECK FOR THE MARKET VALUE OF THE 0.5 FRACTIONAL SHARE.
- IF YOU CURRENTLY OWN 100 SHARES OF DOUBLETREE COMMON STOCK, THEN AFTER THE
MERGER YOU WILL BE ENTITLED TO RECEIVE 100 SHARES OF NEW PROMUS COMMON
STOCK.
1
<PAGE>
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the merger as quickly as possible. In
addition to stockholder approvals, we must also obtain regulatory approvals.
We expect to complete the merger by the end of December 1997.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A: The merger generally will be tax-free to you for federal income tax
purposes. To review the tax consequences to stockholders in greater detail,
see page 45.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETINGS?
A: In addition to the merger, Doubletree and Promus stockholders will be asked
at their special meetings to approve the 1997 Equity Participation Plan of
New Promus, which will be used following the merger to grant stock options,
restricted stock and other benefits to officers and employees of New Promus.
We do not expect to ask you to vote on any other matters at the special
meetings.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger you should contact:
DOUBLETREE STOCKHOLDERS:
Doubletree Corporation
410 North 44th Street, Suite 700
Phoenix, Arizona 85008
Attention: Office of Investor Relations
Phone Number: (602) 220-6666
PROMUS STOCKHOLDERS:
Promus Hotel Corporation
755 Crossover Lane
Memphis, Tennessee 38117
Attention: Investor Relations
Phone Number: (901) 374-5468
If you would like additional copies of the Joint Proxy Statement/Prospectus
or if you have questions about the merger, you should contact:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Phone Number: 800-755-3107
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE
REFERRED YOU TO. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 92.
THE COMPANIES
DOUBLETREE CORPORATION
410 North 44th Street, Suite 700
Phoenix, Arizona 85008
(602) 220-6666
Doubletree Corporation is one of the largest full service hotel operating
companies in the United States. Doubletree provides hotel owners with management
and franchise services under its Doubletree Hotels, Doubletree Guest Suites,
Doubletree Club Hotels, Club Hotels by Doubletree and Red Lion Hotels & Inns
brand names, as well as management services for other non-Doubletree brand
hotels.
PROMUS HOTEL CORPORATION
755 Crossover Lane
Memphis, Tennessee 38117
(901) 374-5468
Promus Hotel Corporation is one of the leading hotel companies in the United
States. Promus operates the Embassy Suites, Hampton Inn, Hampton Inn & Suites
and Homewood Suites hotel brands, and Embassy Vacation Resort and Hampton
Vacation Resort vacation interval ownership brands.
OUR REASONS FOR THE MERGER
We believe that by combining Doubletree's strengths as a leading hotel
management company with Promus's strengths as a leading hotel franchisor, we
will create a powerful new hotel company in the lodging industry. We also
believe that the merger will provide opportunities for significant revenue
growth and operating cost savings.
To review the reasons for the merger in greater detail, see pages 24 through
29.
THE STOCKHOLDERS' MEETINGS (PAGES 16 AND 18)
The Doubletree Special Meeting will be held at the Doubletree Paradise
Valley Resort, 5401 N. Scottsdale Road, Phoenix, Arizona at 10:00 a.m. on
December 18, 1997.
The Promus Special Meeting will be held at Embassy Hall, Embassy Suites
Hotel, 1022 South Shady Grove Road, Memphis, Tennessee, at 10:00 a.m. on
December 18, 1997.
OUR RECOMMENDATIONS TO STOCKHOLDERS
TO DOUBLETREE STOCKHOLDERS:
The Doubletree Board believes that the merger is in your best interest and
recommends that you vote FOR the proposals to:
(a) approve and adopt the merger agreement and the merger; and
(b) approve the New Promus 1997 Equity Participation Plan.
TO PROMUS STOCKHOLDERS:
The Promus Board believes that the merger is in your best interest and
recommends that you vote FOR the proposals to:
(a) approve and adopt the merger agreement and the merger; and
(b) approve the New Promus 1997 Equity Participation Plan.
VOTES REQUIRED
In order to approve the merger, a majority of the outstanding shares of each
of Doubletree and Promus must vote in favor of approving and adopting the merger
agreement and the merger.
Certain directors and holders of shares of Doubletree common stock who
collectively own more than 39% of the outstanding Doubletree shares have already
agreed to vote their Doubletree shares in favor of the merger. In addition,
other directors and officers of Doubletree who collectively own less than 1% of
the outstanding Doubletree shares, and directors and officers of Promus who
collectively own approximately 4% of the outstanding Promus shares, have
expressed their intent to vote for the merger.
Approval of the New Promus 1997 Equity Participation Plan will require the
affirmative vote of a majority of the shares voted on the matter at each of the
special meetings.
3
<PAGE>
THE MERGER
THE MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT AS IT IS THE
LEGAL DOCUMENT THAT GOVERNS THE MERGER.
WHAT PROMUS STOCKHOLDERS WILL RECEIVE (SEE PAGE 58)
As a result of the merger, Promus stockholders will receive 0.925 of a share
of New Promus common stock for each share of Promus common stock that they own.
No fractional shares will be issued. Instead, Promus stockholders will receive a
check in payment for any fractional shares based on the market value of the New
Promus common stock.
Promus stockholders should not send in their stock certificates until
instructed to do so after the merger is completed.
WHAT DOUBLETREE STOCKHOLDERS WILL RECEIVE
(SEE PAGE 58)
As a result of the merger, Doubletree stockholders will receive one share of
New Promus common stock for each share of Doubletree common stock that they own.
Doubletree stockholders should not send in their stock certificates until
instructed to do so after the merger is completed.
OWNERSHIP OF NEW PROMUS FOLLOWING THE MERGER
Doubletree stockholders will own approximately 46% of the stock of New
Promus after the merger and Promus stockholders will own approximately 54%. On a
pro forma basis giving effect to the merger, approximately 72% of total assets,
72% of revenues and 39% of net income of New Promus as of and for the nine
months ending September 30, 1997 would have been attributable to Doubletree,
with all remaining amounts attributable to Promus.
BOARD OF DIRECTORS AND MANAGEMENT OF NEW PROMUS FOLLOWING THE MERGER (SEE PAGE
57)
If the merger is completed, Raymond E. Schultz, the current President and
Chief Executive Officer of Promus, will become Chief Executive Officer and
Chairman of the Board of New Promus. Richard M. Kelleher, the current President
and Chief Executive Officer of Doubletree, will become the President and Chief
Operating Officer of New Promus. Upon Mr. Schultz's retirement, Mr. Kelleher
will succeed as Chairman of the Board and Chief Executive Officer of New Promus.
The Board of Directors of New Promus initially will consist of 14 members,
half chosen by Doubletree and half chosen by Promus.
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 38)
A number of officers and directors of Doubletree and Promus have interests
in the merger that are different from or in addition to your interests. For
example, some officers, including some officers who are also directors, have
severance agreements that entitle them to compensation if they are terminated
after the merger. Doubletree and Promus currently estimate that the aggregate
payments required to be paid under severance agreements to executive officers,
if all such persons were to be terminated after the merger, would be
approximately $10.3 million for Doubletree executive officers and approximately
$14.3 million for Promus executive officers.
A number of officers and directors also have stock options and restricted
stock which will vest as a result of the merger. The aggregate value of stock
options and restricted stock which will vest as a result of the merger is
approximately $10.1 million for executive officers and directors of Doubletree
and approximately $8.7 million for executive officers and directors of Promus.
These amounts are based on the prices of Doubletree and Promus common stock on
October 31, 1997.
For the aggregate value of benefits of each named executive officer and
director of Doubletree and Promus, see the table on page 43.
In addition, several of the executive officers of Doubletree and Promus will
receive new employment contracts that may provide such officers significant
compensation if the merger is consummated. The specific amounts of the salaries
for such officers have not yet been determined.
Please refer to pages 39 through 44 generally for more information
concerning employment arrangements, severance agreements, acceleration
4
<PAGE>
of stock options and restricted stock and other arrangements benefitting each
company's officers and directors.
CONDITIONS TO THE MERGER (SEE PAGE 66)
The completion of the merger depends upon meeting a number of conditions,
including the following:
(a) the approval of the holders of a majority of the common stock of each of
Doubletree and Promus;
(b) there shall have been no law enacted or injunction entered which
effectively prohibits the merger;
(c) the receipt of legal opinions regarding certain tax consequences of the
merger; and
(d) the receipt of letters from each of our independent accountants stating
that the merger will qualify for pooling of interests accounting
treatment.
Certain of the conditions to the merger may be waived by the company
entitled to assert the condition.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 68)
Doubletree and Promus can agree to terminate the merger agreement without
completing the merger, and either of Doubletree or Promus can terminate the
merger agreement if any of the following occurs:
(a) the merger is not completed by January 31, 1998, but this deadline may
be extended to March 31, 1998 at the election of either of Doubletree or
Promus;
(b) the approval of the holders of a majority of the common stock of either
Doubletree or Promus is not received;
(c) a court or other governmental authority permanently prohibits the
merger;
(d) the other party breaches or materially fails to comply with any of its
representations or warranties or obligations under the merger agreement;
(e) the Board of Directors of the other party: (A) withdraws or modifies in
any adverse manner its approval or recommendation in favor of the
merger, or (B) approves or recommends a significant transaction with a
third party; or
(f) the Board of Directors of either company determines, under certain
circumstances and before the approval of the merger agreement by its
stockholders, that the Board's fiduciary obligations require acceptance
of an offer from a third party to enter into a significant transaction.
TERMINATION FEES (SEE PAGE 68)
The merger agreement generally requires Doubletree or Promus to pay to the
other a termination fee of $45 million if the merger agreement terminates under
certain circumstances.
RECIPROCAL STOCK OPTION AGREEMENTS (SEE PAGES 71 AND 72)
We have both signed reciprocal stock option agreements under which we each
granted an option to the other party to purchase approximately 19.9% of its
outstanding common stock if certain events occur that entitle the party
exercising the option to receive a termination fee under the merger agreement.
The combined value of the termination fee and the stock option is limited to $65
million. These stock option agreements may make it more difficult and expensive
for Doubletree or Promus to consummate an alternative transaction.
ACCOUNTING TREATMENT (SEE PAGE 44)
We expect the merger to qualify as a pooling of interests, which means that
we will treat our companies as if they had always been combined for accounting
and financial reporting purposes. We have conditioned the merger on our receipt
of letters from our accountants stating that the merger will qualify for pooling
of interests accounting treatment.
OPINIONS OF FINANCIAL ADVISORS
(SEE PAGES 29 AND 33)
In deciding to approve the merger, our Boards considered opinions from our
respective financial advisors as to the fairness of the exchange ratio from a
financial point of view. Doubletree received an opinion from its financial
advisor, Morgan Stanley & Co. Incorporated, and Promus received an opinion from
its financial advisor, BT Wolfensohn. These opinions are
5
<PAGE>
attached as Annexes B and C to this Joint Proxy Statement/Prospectus and you are
encouraged to read them.
The financial advisors performed several analyses in connection with
delivering their opinions. These analyses included comparing Doubletree and
Promus historical stock prices, comparing Doubletree and Promus to other
publicly traded companies, and estimating the relative values of Doubletree and
Promus and their contributions to New Promus based on past and estimated future
financial performance.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 45)
We have structured the merger so that no gain or loss generally should be
recognized for federal income tax purposes on the exchange of shares of
Doubletree and Promus common stock for shares of New Promus common stock. We
have conditioned the merger on our receipt of legal opinions regarding certain
tax consequences of the merger.
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisor for a full understanding of the tax consequences of the merger to you.
NO APPRAISAL RIGHTS (SEE PAGE 48)
Under Delaware law, Doubletree and Promus stockholders have no right to an
appraisal of the value of their shares in connection with the merger.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (SEE PAGE 48)
We have each made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Doubletree, Promus or New
Promus, including the anticipated synergies from the merger. Also, when we use
words such as "believes," "expects," "anticipates" or similar expressions, we
are making forward-looking statements. Stockholders should note that many
factors could affect the future financial results of New Promus, Doubletree and
Promus, and could cause these results to differ materially from those expressed
in our forward-looking statements. These factors include the following:
- operating, legal and regulatory risks;
- economic, political and competitive forces affecting our businesses;
- the risk that we are unable to achieve the revenue growth and cost savings
in the amounts and in the time frames contemplated; and
- the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
COMPARATIVE MARKET PRICE INFORMATION (SEE PAGE 75)
Shares of Doubletree are listed on the Nasdaq National Market. Shares of
Promus are listed on the New York Stock Exchange and certain other stock
exchanges. On August 29, 1997, the last full trading day prior to the public
announcement of the proposed merger, Doubletree common stock closed at $50.00
per share and Promus common stock closed at $38.81 per share. In the 30 trading
days ending August 29, 1997, the average closing price of Doubletree common
stock was $45.41 and the average closing price of Promus common stock was
$39.43. On November 13, 1997, Doubletree common stock closed at $39.25 per share
and Promus common stock closed at $37.44 per share. We urge you to obtain
current market quotations.
LISTING OF NEW PROMUS COMMON STOCK (SEE PAGE 47)
New Promus will list the shares of New Promus common stock to be issued in
the merger on the New York Stock Exchange.
THE 1997 EQUITY PARTICIPATION PLAN (SEE PAGE 86)
Doubletree and Promus stockholders also will vote on the 1997 Equity
Participation Plan of New Promus, which will be used following the merger to
grant stock options, restricted stock and other benefits to officers and
employees of New Promus. The 1997 Equity Participation Plan of New Promus is
attached as Annex F to this Joint Proxy Statement/Prospectus and we encourage
you to read the plan in its entirety.
6
<PAGE>
DOUBLETREE SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. We derived the historical
information from audited financial statements for 1992 through 1996 and
unaudited financial statements for the nine months ended September 30, 1996 and
1997. The information is only a summary and you should read it in conjunction
with our historical financial statements (and related notes) contained in the
annual reports and other information we have filed with the SEC. See "Where You
Can Find More Information" on page 92.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------------- ----------------------
PREDECESSOR(1) DOUBLETREE PRO PRO DOUBLETREE
ACTUAL ACTUAL FORMA(3) FORMA(3) ACTUAL
-------------------- ---------------------------------- ---------- ---------- ----------
1992 1993 1994 1995 1996(2) 1996 1996 1996
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Franchise and management fees.... $ 8,556 $ 10,612 $ 26,330 $ 30,082 $ 38,621 $ 49,341 $ 37,483 $ 28,258
Owned hotel revenues............. 3,786 9,943 92 7,081 38,350 228,362 171,200 5,972
Leased hotel revenues............ 5,932 14,923 73,769 141,942 205,163 326,594 243,686 137,701
Purchasing and service fees...... -- 329 10,746 16,487 19,848 63,365 51,553 11,800
Other fees and income............ 419 2,547 1,545 994 2,953 3,160 2,030 2,233
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues................. 18,693 38,354 112,482 196,586 304,935 670,822 505,952 185,964
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Operating costs and expenses:
General and administrative
expenses....................... 5,683 7,485 11,879 14,901 18,079 24,882 18,850 12,811
Owned hotel expenses............. 2,810 6,400 101 6,049 27,889 150,376 112,653 4,740
Leased hotel expenses............ 4,972 14,266 68,981 132,644 190,797 287,584 211,857 127,153
Purchasing and service
expenses....................... -- 620 9,807 13,437 14,796 56,066 46,238 8,694
Depreciation and amortization.... 599 1,572 2,943 4,686 12,018 48,358 36,275 4,417
Business combination expenses.... -- 1,865 -- 2,565 -- -- -- --
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating costs and
expenses..................... 14,064 32,208 93,711 174,282 263,579 567,266 425,873 157,815
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income................... 4,629 6,146 18,771 22,304 41,356 103,556 80,079 28,149
Interest and dividend income... 159 254 1,630 4,147 5,561 11,113 8,473 3,478
Interest expense............... -- (1,228) (831) (227) (6,648) (42,290) (31,581) (175)
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and
minority interest................ 4,788 5,172 19,570 26,224 40,269 72,379 56,971 31,452
Minority interest share of net
(income) loss.................. (372) 175 -- 35 (373) (1,726) (1,347) 6
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes......... 4,416 5,347 19,570 26,259 39,896 70,653 55,624 31,458
Income tax expense............... (65) (414) (6,335) (8,468) (13,962) (29,393) 23,140 (11,011)
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Net income......................... $ 4,351 $ 4,933 $ 13,235 $ 17,791 $ 25,934 $ 41,260 $ 32,484 $ 20,447
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
--------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings per share................. $ 0.66 $ 0.80 $ 1.01 $ 1.04 $ 0.82 $ 0.88
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Weighted average shares
outstanding...................... 20,071 22,219 25,766 39,834 39,662 23,183
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
1997(4)
----------
<S> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Franchise and management fees.... $ 43,145
Owned hotel revenues............. 181,526
Leased hotel revenues............ 314,945
Purchasing and service fees...... 25,860
Other fees and income............ 18,890
----------
Total revenues................. 584,366
----------
Operating costs and expenses:
General and administrative
expenses....................... 23,996
Owned hotel expenses............. 112,156
Leased hotel expenses............ 276,203
Purchasing and service
expenses....................... 19,028
Depreciation and amortization.... 36,611
Business combination expenses.... --
----------
Total operating costs and
expenses..................... 467,994
----------
Operating income................... 116,372
Interest and dividend income... 8,761
Interest expense............... (32,655)
----------
Income before income taxes and
minority interest................ 92,478
Minority interest share of net
(income) loss.................. (2,504)
----------
Income before income taxes......... 89,974
Income tax expense............... 34,456
----------
Net income......................... $ 55,518
----------
----------
Earnings per share................. $ 1.37
----------
----------
Weighted average shares
outstanding...................... 40,524
----------
----------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER
AS OF DECEMBER 31, 30,
---------------------------------------------------------- ----------
1992 1993 1994 1995 1996 1996
--------- --------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 5,741 $ 6,826 $ 23,169 $ 32,652 $ 25,588 $ 50,701
Total assets......................................... 22,368 89,072 134,701 163,107 1,730,949 229,987
Long-term debt, net of current portion............... 5,736 25,000 -- -- 545,492 --
Stockholders' equity................................. 9,773 13,645 91,587 114,386 801,530 162,647
<CAPTION>
1997
------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 16,277
Total assets......................................... 1,746,322
Long-term debt, net of current portion............... 437,817
Stockholders' equity................................. 859,840
</TABLE>
- --------------------------
(1) The 1992 historical financial data for Samantha Hotel Corporation,
Doubletree's predecessor (the "Predecessor"), include only the operations of
Guest Quarters Hotel Partnership ("GQHP"). From January 1, 1993 to December
16, 1993, the historical financial data for the Predecessor include the
operations of GQHP and RFS, Inc. ("RFS"), and subsequent to such date
include the combined operations of GQHP, RFS and Doubletree Hotels
Corporation.
(2) Includes the operating results of Red Lion Hotels, Inc. (Red Lion) for the
period commencing November 8, 1996 through December 31, 1996.
(3) Pro forma adjustments have been made to give effect to the acquisition of
Red Lion and related transactions as if each had occurred on January 1,
1996.
(4) During the nine months ended September 30, 1997 Doubletree realized three
unusual items: (1) a break-up fee of $10.9 million (net of expenses) related
to the terminated Renaissance Hotel Group transaction, (2) a $3.0 million
gain from the sale of the Company's management rights for a hotel under
development, and (3) $5.5 million of expenses for the establishment of
long-term compensation plans for senior management. These items contributed
$5.2 million and $0.13, respectively, to net income and earnings per share
for the nine months ended September 30, 1997.
8
<PAGE>
PROMUS SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. We derived this information
from audited financial statements for 1992 through 1996 and unaudited financial
statements for the nine months ended September 30, 1996 and 1997. The
information is only a summary and you should read it in conjunction with our
historical financial statements (and related notes) contained in the annual
reports and other information we have filed with the SEC. See "Where You Can
Find More Information" on page 92.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Income Data:
Revenues
Company owned hotels
Rooms.............................. $ 124,192 $ 121,104 $ 110,205 $ 116,094 $ 121,000 $ 93,360 $ 90,630
Food and beverage.................. 8,310 8,094 8,001 7,180 6,353 4,632 4,460
Other.............................. 7,250 7,207 6,879 6,805 7,190 5,530 5,226
Franchise and management fees........ 51,655 60,359 76,874 79,935 101,653 77,040 96,666
Other................................ 15,106 17,801 20,602 26,499 30,429 23,777 23,434
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues..................... 206,513 214,565 222,561 236,513 266,625 204,339 220,416
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Expenses
Company owned hotels
Rooms.............................. 71,191 65,529 56,952 56,228 58,823 44,870 42,739
Food and beverage.................. 8,696 8,235 7,760 6,832 5,982 4,373 4,113
Other.............................. 13,984 13,488 12,547 12,946 12,452 9,604 9,378
Depreciation expense................. 20,122 20,244 18,829 20,890 22,246 16,793 16,367
General and administrative
expenses(a)........................ 42,910 42,311 34,711 37,969 43,248 31,375 35,057
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses........... 156,903 149,807 130,799 134,865 142,751 107,015 107,654
---------- ---------- ---------- ---------- ---------- ---------- ----------
Property transactions.................. (5,713) 1,345 626 1,942 4,967 3,939 30,508
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income....................... 43,897 66,103 92,388 103,590 128,841 101,263 143,270
Interest expense, net of interest
capitalized(b)....................... (40,674) (33,061) (30,759) (31,138) (29,016) (22,409) (18,608)
Dividend income........................ -- -- -- 547 5,713 3,982 3,924
Interest and other income.............. 19 (2,247) 1,488 2,580 4,350 3,033 15,006
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and
extraordinary items.................. 3,242 30,795 63,117 75,579 109,888 85,869 143,592
Provision for income taxes............. (1,401) (13,869) (26,798) (31,819) (45,164) (35,292) (56,575)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before extraordinary items...... 1,841 16,926 36,319 43,760 64,724 50,577 87,017
Extraordinary items, net of income
tax.................................. 4,520 -- -- 2,819 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............................. $ 6,361 $ 16,926 $ 36,319 $ 46,579 $ 64,724 $ 50,577 $ 87,017
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings per share..................... (c) (c) (c) (c) $ 1.25 $ 0.98 $ 1.69
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares outstanding.... (c) (c) (c) (c) 51,690 51,659 51,441
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............. $ 2,243 $ 3,657 $ 2,221 $ 2,668 $ 3,700 $ 5,549 $ 3,781
Total assets.......................... 506,111 438,016 413,308 519,809 631,965 604,049 650,538
Long-term debt, net of current
portion(b).......................... 216,386 172,326 188,725 229,479 243,682 248,160 213,237
Stockholders' equity.................. 212,229 180,522 143,088 167,367 248,089 228,438 277,701
</TABLE>
- ------------------------------
(a) The Promus historical operating results before June 30, 1995, do not reflect
any incremental costs expected to be incurred by Promus to support its
operations as a stand-alone entity.
(b) The financial information presented for periods prior to June 30, 1995
includes certain allocations for overhead expenses from Promus Parent. In
anticipation of the retirement of a portion of Promus Parent's outstanding
debt using proceeds drawn under a new Promus bank facility, a pro-rata
portion of Promus Parent's historical outstanding debt balance, unamortized
deferred finance charges and interest expense was allocated to Promus. These
allocations were based on the percentage of Promus Parent's existing debt
expected to be retired using proceeds to be drawn under the new Promus bank
facility.
(c) Not applicable for periods prior to the June 30, 1995 spin-off of Promus by
The Promus Companies Incorporated ("Promus Parent"). On such date, Promus
Parent completed the spin-off of its hotel business to Promus.
10
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATE)
We expect that the merger will be accounted for as a "pooling of interests,"
which means that for accounting and financial reporting purposes we will treat
our companies as if they had always been combined. For a more detailed
description of pooling of interests accounting see "The Merger-- Accounting
Treatment of the Merger" on page 44.
We have presented below unaudited pro forma consolidated financial
information that reflects the pooling of interests method of accounting and is
intended to give you a better picture of what our businesses might have looked
like had they always been combined. We prepared the pro forma income statement
and summary balance sheet data by adding or combining the historical amounts of
each company. We then reclassified certain of the combined amounts to achieve a
consistent presentation. The companies may have performed differently if they
were combined. You should not rely on the pro forma information as being
indicative of the historical results that we would have had or the future
results that we will experience after the merger. See "Unaudited Pro Forma
Financial Information" on page 76.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996(3) 1996(3) 1997(1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA(4):
Revenues:
Franchise and management fees.......................... $ 104,040 $ 110,350 $ 140,768 $ 105,607 $ 140,695
Owned hotel revenues................................... 125,177 137,160 172,893 109,494 281,842
Leased hotel revenues.................................. 73,769 141,942 205,163 137,701 314,945
Purchasing and service fees............................ 3,624 6,112 9,867 6,486 12,622
Other fees and income.................................. 20,045 26,265 31,522 23,414 44,162
--------- --------- --------- --------- ---------
Total revenues....................................... 326,655 421,829 560,213 382,702 794,266
--------- --------- --------- --------- ---------
Operating costs and expenses:
General and administrative expenses.................... 46,013 52,952 62,638 44,886 61,283
Owned hotel expenses................................... 77,360 82,055 105,146 63,587 168,386
Leased hotel expenses.................................. 68,981 132,644 190,797 127,153 276,203
Depreciation and amortization.......................... 24,603 27,759 36,276 22,719 54,094
Business combination expenses.......................... -- 2,565 -- -- --
--------- --------- --------- --------- ---------
Total operating costs and expenses................... 216,957 297,975 394,857 258,345 559,966
--------- --------- --------- --------- ---------
Operating income..................................... 109,698 123,854 165,356 124,357 234,300
--------- --------- --------- --------- ---------
Interest and dividend income........................... 3,210 7,551 17,175 11,618 17,776
Interest expense....................................... (32,011) (31,818) (36,647) (22,883) (54,326)
Gain on sale of real estate and securities............. 1,882 2,334 4,439 4,387 38,482
--------- --------- --------- --------- ---------
Income before income taxes, minority interest and
extraordinary items................................ 82,779 101,921 150,323 117,479 236,232
Minority interest share of net income.................... (92) (83) (539) (152) (2,666)
--------- --------- --------- --------- ---------
Income before income taxes and extraordinary item........ 82,687 101,838 149,784 117,327 233,566
Income tax expense................................... (33,133) (40,287) (59,126) (46,303) (91,031)
--------- --------- --------- --------- ---------
Income before extraordinary item......................... $ 49,554 $ 61,551 $ 90,658 $ 71,024 $ 142,535
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share before extraordinary item............. $ 0.73 $ 0.88 $ 1.23 $ 1.00 $ 1.62
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding(2)................... 67,776 69,920 73,579 70,968 88,107
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
-----------------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 20,058
Total assets............................................................................. 2,396,860
Long-term debt, net of current portion................................................... 651,054
Stockholders' equity..................................................................... 1,137,541
</TABLE>
- ------------------------
(1) During the nine months ended September 30, 1997, Doubletree and Promus each
experienced certain unusual items. Doubletree realized a $10.9 million
breakup fee, net of expenses, from the terminated Renaissance Hotel Group
transaction, $3.0 million from the sale of its management rights for a hotel
under development in Atlantic City and $5.5 million of expenses for the
establishment of long-term compensation plans for senior management. Promus
recognized a gain on the sale of real estate and a common stock investment
of $38.5 million and a gain of $3.2 million on the disposition of certain
joint venture investments. The effect of these transactions, net of taxes,
was to increase pro forma net income by approximately $30.5 million and to
increase pro forma earnings per share by approximately $0.35.
(2) Combined weighted average shares outstanding have been derived from each
company's historical weighted average outstanding shares adjusted for the
exchange ratio. Promus's weighted average shares outstanding for periods
prior to the spin-off are assumed to be equal to the actual common and
common equivalent shares outstanding on June 30, 1995.
(3) Doubletree acquired Red Lion Hotels, Inc. on November 8, 1996 in a
transaction accounted for as a purchase. The following pro forma summary
presents the combined results of Doubletree and Promus as if the Red Lion
acquisition had occurred on January 1, 1996. The weighted average shares
outstanding assumes that 16.4 million shares issued in connection with the
Red Lion acquisition were issued on January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Total revenues........................................ $ 890,552 $ 668,937
Operating income...................................... 230,445 178,813
Income before income taxes............................ 180,541 141,493
Net income............................................ 105,984 83,061
Earnings per share.................................... 1.21 0.95
Weighted average shares outstanding................... 87,647 87,447
</TABLE>
(4) Doubletree and Promus expect to incur expenses in the fourth quarter of 1997
related to the Merger of approximately $105.0 million. These costs will
include approximately $25.5 million of legal, professional and accounting
fees and due diligence costs, approximately $48.2 million of severance,
relocation and certain other costs necessary to complete the transaction and
the write-off of approximately $26.2 million of deferred financing costs and
other assets whose benefit will not be realized after the Merger. Payments
for these costs are expected to commence during the fourth quarter of 1997
and are expected to continue during the first nine months of 1998. No such
costs are reflected in the pro forma Consolidated Statement of Operations
Data presented above.
12
<PAGE>
COMPARATIVE HISTORICAL AND PRO FORMA COMBINED PER SHARE DATA
The following table sets forth information on the income from continuing
operations (before extraordinary item), book value and dividends declared per
common share for our respective companies on a historical, pro forma combined
and pro forma equivalent basis. The Pro Forma Promus Equivalent amounts were
calculated by multiplying the Pro Forma Combined per share amounts by 0.925.
Promus stockholders will receive 0.925 of a share of New Promus common stock in
exchange for each share of Promus common stock.
<TABLE>
<CAPTION>
HISTORICAL
------------------------ PRO FORMA PRO FORMA DOUBLETREE PRO FORMA PROMUS
DOUBLETREE PROMUS COMBINED EQUIVALENT EQUIVALENT
----------- ----------- ----------- --------------------- -------------------
<S> <C> <C> <C> <C> <C>
COMPARATIVE PER SHARE DATA:
Income per share from continuing
operations (before extraordinary
item):
Year ended December 31, 1994....... $ 0.66 $ 0.70(1) $ 0.73 $ 0.73 $ 0.68
Year ended December 31, 1995....... 0.80 0.85(1) 0.88 0.88 0.81
Year ended December 31, 1996....... 1.01 1.25 1.23 1.23 1.14
Nine months ended September 30,
1997............................. 1.37 1.69 1.62 1.62 1.50
Book value per share:
December 31, 1996.................. 20.26 4.83 12.05 12.05 11.15
September 30, 1997................. 21.66 5.56 13.24 13.24 12.25
Cash dividends declared per share:
Year ended December 31, 1994....... -- -- -- -- --
Year ended December 31, 1995....... -- -- -- -- --
Year ended December 31, 1996....... -- -- -- -- --
Nine months ended September 30,
1997............................. -- -- -- -- --
</TABLE>
(1) For purposes of computing earnings per share on a comparable basis, the
weighted average shares outstanding for periods prior to the June 30, 1995
spin-off of Promus by its parent company are assumed to be equal to the
actual common and common equivalent shares outstanding on June 30, 1995.
13
<PAGE>
RISK FACTORS
IN ADDITION TO GENERAL INVESTMENT RISKS AND THOSE FACTORS SET FORTH
ELSEWHERE HEREIN (INCLUDING UNDER THE CAPTION "THE MERGER--CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS"), THE FOLLOWING RISKS SHOULD BE
CONSIDERED BY STOCKHOLDERS OF DOUBLETREE CORPORATION ("DOUBLETREE") AND PROMUS
HOTEL CORPORATION ("PROMUS") IN DECIDING WHETHER TO APPROVE AND ADOPT THE MERGER
AGREEMENT, PURSUANT TO WHICH DOUBLETREE AND PROMUS WILL MERGE AND BECOME
SUBSIDIARIES OF A NEWLY-FORMED CORPORATION ("NEW PROMUS").
RISKS RELATING TO THE MERGER
RISKS ASSOCIATED WITH THE INTEGRATION OF THE TWO COMPANIES. The merger
involves the integration of two companies that have previously operated
independently. We cannot assure that New Promus will be able to integrate the
respective operations of Doubletree and Promus without encountering
difficulties. Such difficulties could include integrating different business
strategies with respect to franchising, managing, owning and leasing hotels and
integrating personnel with disparate business backgrounds and corporate
cultures. New Promus may also lose key Doubletree or Promus personnel due to the
merger and the relocation of Doubletree's corporate offices to New Promus's
headquarters. We cannot assure whether and to what extent the integration and
consolidation will achieve cost savings and operating synergies.
RISKS ASSOCIATED WITH FIXED EXCHANGE RATIOS. Upon completion of the merger,
each share of Doubletree common stock will be converted into the right to
receive one share of New Promus common stock and each share of Promus Common
Stock will be converted into the right to receive 0.925 of a share of New Promus
common stock. The exchange ratios for both Doubletree and Promus are fixed
numbers and will not be adjusted in the event of any increase or decrease in the
price of either Doubletree common stock or Promus common stock. As a result, the
value of the shares of New Promus common stock received by Doubletree and Promus
stockholders in the merger could vary depending on fluctuations in the value of
Doubletree common stock or Promus common stock. Such fluctuations may be the
result of changes in business, operations or prospects of Doubletree, Promus or
New Promus, market assessments of the likelihood that the merger will be
consummated, the timing thereof, and the prospects of Doubletree, Promus or New
Promus, regulatory considerations, general market and economic conditions and
other factors. Accordingly, there can be no assurance that the value of the
merger consideration on the date of this Joint Proxy Statement/Prospectus will
be the same as on the date of the special meetings of the stockholders of
Doubletree and Promus or the effective time of the merger.
RISKS RELATING TO THE BUSINESS OF NEW PROMUS
COMPETITION. New Promus's managed and franchised hotel will be in
competition for guests with a wide range of lodging facilities offering
full-service, limited-service and all-suite lodging options to the public.
Competitive factors in the lodging industry include room rates, quality of
accommodations, name recognition, service levels and convenience of location. We
cannot assure that new or existing competitors will not significantly expand or
improve facilities in a market in which New Promus's hotels compete, thereby
adversely affecting New Promus's operations. New Promus also will compete for
management contracts, leases and franchise agreements with other hotel
management companies and national brand franchisers. Some of the larger hotel
chains with which New Promus will compete include Marriott, Sheraton, Hyatt,
Hilton, Westin and Wyndham. In addition, many of New Promus's competitors will
be hotel management companies that do not have their own brand. We cannot assure
that New Promus will be successful in retaining current, or competing for
additional, management contractors, leases or franchise agreements.
RISKS ASSOCIATED WITH OWNING AND LEASING REAL ESTATE. After the merger, New
Promus will own and lease hotels. New Promus will be subject to varying degrees
of risk generally related to leasing and owning real estate. In addition to
general risks related to the lodging industry, these risks include, among
others, liability for long-term lease obligations, changes in national, regional
and local economic conditions, local real estate market conditions, changes in
interest rates and in the availability, cost and terms of financing,
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the potential for uninsured casualty and other losses, the impact of present or
future environment legislation and compliance with environmental laws (as
discussed below), and adverse changes in zoning laws and other regulations, many
of which are beyond the control of New Promus. Moreover, real estate investments
are relatively illiquid, which means that the ability of New Promus to vary its
portfolio of hotels in response to changes in economic and other conditions may
be limited.
Under various federal, state, and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for the presence of such
hazardous or toxic substances. For example, liability may arise as a result of
the historical use of a site or from the migration of contamination from
adjacent or nearby properties. Any such contamination or liability may also
reduce the value of the property. In addition, certain environmental laws and
common law principles could be used to impose liability for release of
asbestos-containing materials into the air, and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
exposure to such materials. In connection with the ownership or operation of
hotels, including properties managed, leased or franchised by Doubletree or
Promus, New Promus may be potentially liable for any such costs. We cannot
assure that the current conditions at Doubletree's or Promus's properties have
not been or will not be affected by the historical or current uses of such
properties, or that the activities in the vicinity of such properties or the
potential liability resulting from non-compliance or other claims relating to
environmental matters will not have a material adverse effect on New Promus.
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 GNP growth, 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.
GOVERNMENT REGULATION. The hotel industry is subject to numerous federal,
state and local government regulations, including those relating to the
preparation and sale of food and beverages (such as health and liquor license
laws) and building and zoning requirements. Also, New Promus and its customers
are subject to laws governing their relationships with employees, including
minimum wage requirements, overtime, working conditions and work permit
requirements. New Promus will also be subject to federal regulations and certain
state laws that govern the offer and sale of franchises, including certain state
laws that require approvals before franchises can be offered or sold in that
state. The failure to obtain or retain liquor licenses or approvals to sell
franchises, or an increase in the minimum wage rate, employee benefit costs or
other costs associated with employees, could adversely affect New Promus.
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. We believe that the hotels that we own or
that are under our management are substantially in compliance with these
requirements. However, a determination that such hotels are not in compliance
with the ADA could result in the imposition of fines, an award of damages to
private litigants or significant expense to New Promus in bringing these hotels
into compliance.
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THE DOUBLETREE SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Doubletree as part of the solicitation of proxies by the Doubletree Board of
Directors for use at a Special Meeting of Stockholders of Doubletree (the
"Doubletree Special Meeting") to be held on December 18, 1997 at 10:00 a.m.
local time, at the Doubletree Paradise Valley Resort, 5401 North Scottsdale
Road, Scottsdale, Arizona. This Joint Proxy Statement/Prospectus and the
enclosed form of proxy are first being mailed to stockholders of Doubletree on
or about November 18, 1997.
The purpose of the Doubletree Special Meeting is:
(a) to consider and vote on a proposal to approve and adopt an Agreement
and Plan of Merger dated September 1, 1997 (the "Merger Agreement") by and
among Promus, Doubletree, and Parent Holding Corp., a newly-formed
corporation jointly owned by Doubletree and Promus ("New Promus"), pursuant
to which, among other things, (i) a newly-formed wholly-owned subsidiary of
New Promus ("Doubletree Sub") will merge with and into Doubletree (the
"Doubletree Merger"), with Doubletree surviving and becoming a wholly-owned
subsidiary of New Promus, (ii) each issued and outstanding share of
Doubletree common stock, par value $.01 per share ("Doubletree Common
Stock"), will be converted into the right to receive one fully paid and
nonassessable share of common stock, par value $.01 per share, of New Promus
("New Promus Common Stock"), (iii) a second newly-formed wholly-owned
subsidiary of New Promus ("Promus Sub") will merge with and into Promus (the
"Promus Merger," and together with the Doubletree Merger, the "Merger") with
Promus surviving and becoming a wholly-owned subsidiary of New Promus and
(iv) each issued and outstanding share of Promus common stock, par value
$.10 per share ("Promus Common Stock"), will be converted into the right to
receive 0.925 of a fully paid and nonassessable share of New Promus Common
Stock;
(b) to consider and vote on a proposal to approve and adopt a plan to
permit the grant of stock options and other stock awards to employees,
directors, and consultants of New Promus and its subsidiaries under the 1997
Equity Participation Plan of New Promus (the "New Promus Equity
Participation Plan"); and
(c) to transact such other business that may properly come before the
Doubletree Special Meeting.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
Doubletree Common Stock is accompanied by a form of proxy for use at the
Doubletree Special Meeting.
The Board of Directors of Doubletree recommends that stockholders vote FOR
the approval and adoption of the Merger Agreement and the New Promus Equity
Participation Plan.
RECORD DATE AND VOTING
Doubletree has fixed the close of business on October 31, 1997 as the record
date for the determination of the Doubletree stockholders entitled to notice of
and to vote at the Doubletree Special Meeting. Accordingly, only holders of
record of Doubletree Common Stock on the record date will be entitled to notice
of and to vote at the Doubletree Special Meeting. As of October 31, 1997, there
were outstanding and entitled to vote 39,760,058 shares of Doubletree Common
Stock (constituting all of the voting stock of Doubletree), which shares were
held by approximately 453 holders of record. Each holder of record of shares of
Doubletree Common Stock on the record date is entitled to one vote per share,
which may be cast either in person or by properly executed proxy, at the
Doubletree Special Meeting. The presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of Doubletree
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Common Stock entitled to vote at the Doubletree Special Meeting is necessary to
constitute a quorum at the Doubletree Special Meeting.
The approval of the Merger Agreement and the transactions contemplated
thereby will require the affirmative vote of the holders of a majority of the
shares of Doubletree Common Stock outstanding on the record date. The approval
of the New Promus Equity Participation Plan will require the affirmative vote of
the holders of shares of Doubletree Common Stock representing a majority of the
votes cast on the matter, provided that the total votes cast on the matter
represent over 50% in interest of all shares entitled to vote on the matter.
Shares of Doubletree Common Stock represented in person or by proxy will be
counted for the purposes of determining whether a quorum is present at the
Doubletree Special Meeting. Shares which abstain from voting as to a particular
matter will be treated as shares that are present and entitled to vote at the
Doubletree Special Meeting for purposes of determining whether a quorum exists,
but will not be counted as votes cast on such matter. If a broker or nominee
holding stock in "street name" indicates on a proxy that it does not have
discretionary authority to vote as to a particular matter ("broker non-votes"),
those shares will be treated as present and entitled to vote at the Doubletree
Special Meeting for purposes of determining whether a quorum exists, but will
not be counted as votes cast on such matter. Accordingly, abstentions and broker
non-votes will have the same effect as votes against approval of the Merger
Agreement, and may have the same effect as votes against approval of the New
Promus Equity Participation Plan if they result in a failure of the total votes
cast on the matter to represent over 50% in interest of all shares of Doubletree
Common Stock entitled to vote on the matter.
Holders of an aggregate of 15,671,069 shares of Doubletree Common Stock (the
"Key Stockholders"), representing over 39% of the outstanding shares of
Doubletree Common Stock as of the record date for the Doubletree Special
Meeting, have entered into a Stockholder Support Agreement (the "Stockholder
Support Agreement") with Promus pursuant to which such holders have agreed,
among other things, to vote their shares of Doubletree Common Stock in favor of
the Merger Agreement. See "Other Agreements--Stockholder Support Agreement." As
of the record date for the Doubletree Special Meeting, directors and executive
officers of Doubletree and their affiliates may be deemed to be beneficial
owners of an additional approximately 1% of the outstanding shares of Doubletree
Common Stock (excluding shares covered by the Stockholder Support Agreement) and
have expressed their intent to vote their shares in favor of the Merger
Agreement.
VOTING AND REVOCATION OF PROXIES
All shares of Doubletree Common Stock which are entitled to vote and are
represented at the Doubletree Special Meeting by properly executed proxies
received prior to or at such Meeting, and not revoked, will be voted at such
Meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated (other than in the case of broker non-votes), such
proxies will be voted for approval and adoption of the Merger Agreement and the
New Promus Equity Participation Plan.
The Doubletree Board of Directors does not know of any matters other than
those described in the notice of the Doubletree Special Meeting that are to come
before such Meeting. If any other matters are properly presented at the
Doubletree Special Meeting for consideration, including, among other things,
consideration of a motion to adjourn such meeting to another time and/or place
(including, without limitation, for the purposes of soliciting additional
proxies or allowing additional time for the satisfaction of conditions to the
Merger), the persons named in the enclosed forms of proxy and acting thereunder
generally will have discretion to vote on such matters in accordance with their
best judgment. Notwithstanding the foregoing, proxies voting against a specific
proposal may not be used by the persons named in the proxies to vote for
adjournment of the meeting for the purpose of giving management additional time
to solicit votes to approve such proposal.
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Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Doubletree, at or before the taking of the vote at the
Doubletree Special Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of Doubletree before the taking of the
vote at the Doubletree Special Meeting or (iii) attending the Doubletree Special
Meeting and voting in person (although attendance at the Doubletree Special
Meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent to Doubletree
Corporation, 410 North 44th Street, Suite 700, Phoenix, Arizona 85008,
Attention: Secretary, or hand delivered to the Secretary of Doubletree at or
before the taking of the vote at the Doubletree Special Meeting.
All expenses of Doubletree's solicitation of proxies for the Doubletree
Special Meeting will be borne by Doubletree, except that the cost of preparing
and mailing this Joint Proxy Statement/Prospectus will be borne equally by
Doubletree and Promus. In addition to solicitation by use of the mails, proxies
may be solicited from Doubletree stockholders by directors, officers and
employees of Doubletree in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Doubletree has retained D.F. King & Co.,
Inc., a proxy solicitation firm, for assistance in connection with the
solicitation of proxies for the Doubletree Special Meeting at a cost of
approximately $10,000 plus reimbursement of reasonable out-of-pocket expenses.
Arrangements will also be made with brokerage houses, custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such brokerage houses, custodians, nominees and
fiduciaries, and Doubletree will reimburse such brokerage houses, custodians,
nominees and fiduciaries for their reasonable expenses incurred in connection
therewith.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES.
DOUBLETREE COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR SHARES OF NEW PROMUS
COMMON STOCK FOLLOWING CONSUMMATION OF THE MERGER IN ACCORDANCE WITH
INSTRUCTIONS TO BE SENT TO HOLDERS OF DOUBLETREE COMMON STOCK AFTER THE MERGER.
THE PROMUS SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Promus as part of the solicitation of proxies by the Promus Board of Directors
for use at the Special Meeting of Stockholders of Promus (the "Promus Special
Meeting") to be held on December 18, 1997 at 10:00 a.m. local time, at the
Embassy Hall, Embassy Suites Hotel, 1022 South Shady Grove Road, Memphis,
Tennessee. This Joint Proxy Statement/Prospectus and the enclosed form of proxy
are first being mailed to stockholders of Promus on or about November 18, 1997.
The purpose of the Promus Special Meeting is:
(a) to consider and vote on a proposal to approve and adopt the Merger
Agreement, pursuant to which, among other things, (i) Promus Sub will merge
with and into Promus with Promus surviving the Promus Merger and becoming a
wholly-owned subsidiary of New Promus, (ii) each issued and outstanding
share of Promus Common Stock will be converted into the right to receive
0.925 of a fully paid and nonassessable share of New Promus Common Stock,
(iii) Doubletree Sub will merge with and into Doubletree with Doubletree
surviving the Doubletree Merger and becoming a wholly-owned subsidiary of
New Promus and (iv) each issued and outstanding share of Doubletree Common
Stock will be converted into the right to receive one fully paid and
nonassessable share of New Promus Common Stock;
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(b) to consider and vote on a proposal to approve and adopt the New
Promus Equity Participation Plan; and
(c) to transact such other business that may properly come before the
Promus Special Meeting.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
Promus Common Stock is accompanied by a form of proxy for use at the Promus
Special Meeting.
The Board of Directors of Promus recommends that stockholders vote FOR the
approval and adoption of the Merger Agreement and the New Promus Equity
Participation Plan.
RECORD DATE AND VOTING
Promus has fixed the close of business on October 31, 1997 as the record
date for the determination of the Promus stockholders entitled to notice of and
to vote at the Promus Special Meeting. Accordingly, only holders of record of
Promus Common Stock on the record date will be entitled to notice of and to vote
at the Promus Special Meeting. As of October 31, 1997, there were outstanding
and entitled to vote 49,986,058 shares of Promus Common Stock (constituting all
of the voting stock of Promus), which shares were held by approximately 11,350
holders of record. Each holder of record of shares of Promus Common Stock on the
record date is entitled to one vote per share, which may be cast either in
person or by properly executed proxy, at the Promus Special Meeting. The
presence, in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of Promus Common Stock entitled to vote at the Promus
Special Meeting is necessary to constitute a quorum at the Promus Special
Meeting.
The approval of the Merger Agreement will require the affirmative vote of
the holders of a majority of the shares of Promus Common Stock outstanding on
the record date. The approval of the New Promus Equity Participation Plan will
require the affirmative vote of the holders of shares of Promus Common Stock
representing a majority of the votes cast on the matter, provided that the total
votes cast on the matter represent over 50% in interest of all shares entitled
to vote on the matter.
Shares of Promus Common Stock represented in person or by proxy will be
counted for the purposes of determining whether a quorum is present at the
Promus Special Meeting. Shares which abstain from voting as to a particular
matter will be treated as shares that are present and entitled to vote at the
Promus Special Meeting for purposes of determining whether a quorum exists, but
will not be counted as votes cast on such matter. If a broker or nominee holding
stock in "street name" indicates on a proxy that it does not have discretionary
authority to vote as to a particular matter ("broker non-votes"), those shares
will be treated as present and entitled to vote at the Promus Special Meeting
for purposes of determining whether a quorum exists, but will not be counted as
votes cast on such matter. Accordingly, abstentions and broker non-votes will
have the same effect as votes against approval of the Merger Agreement, and may
have the same effect as votes against approval of the New Promus Equity
Participation Plan if they result in a failure of the total votes cast on the
matter to represent over 50% in interest of all shares of Promus Common Stock
entitled to vote on the matter.
As of the record date for the Promus Special Meeting, directors and
executive officers of Promus and their affiliates may be deemed to be beneficial
owners of approximately 4% of the outstanding shares of Promus Common Stock and
have expressed their intent to vote their shares in favor of the Merger
Agreement.
VOTING AND REVOCATION OF PROXIES
All shares of Promus Common Stock which are entitled to vote and are
represented at the Promus Special Meeting by properly executed proxies received
prior to or at such Meeting, and not revoked, will be voted at such Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated (other than in the case of broker non-votes), such proxies will be
voted for approval of the Merger Agreement and the New Promus Equity
Participation Plan.
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The Promus Board of Directors does not know of any matters other than those
described in the notice of the Promus Special Meeting that are to come before
such Meeting. If any other matters are properly presented at the Promus Special
Meeting for consideration, including, among other things, consideration of a
motion to adjourn such Meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Merger), the persons
named in the enclosed forms of proxy and acting thereunder generally will have
discretion to vote on such matters in accordance with their best judgment.
Notwithstanding the foregoing, proxies voting against a specific proposal may
not be used by the persons named in the proxies to vote for adjournment of the
meeting for the purpose of giving management additional time to solicit votes to
approve such proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Corporate Secretary of Promus, at or before the taking of the vote at
the Promus Special Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Corporate Secretary of Promus before the taking
of the vote at the Promus Special Meeting or (iii) attending the Promus Special
Meeting and voting in person (although attendance at the Promus Special Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice of revocation or subsequent proxy should be sent to Promus Hotel
Corporation, 755 Crossover Lane, Memphis, Tennessee 38117, Attention: Corporate
Secretary; or hand delivered to the Corporate Secretary of Promus at or before
the taking of the vote at the Promus Special Meeting.
All expenses of Promus's solicitation of proxies for the Promus Special
Meeting will be borne by Promus, except that the cost of preparing and mailing
this Joint Proxy Statement/Prospectus will be borne equally by Doubletree and
Promus. In addition to solicitation by use of the mails, proxies may be
solicited from Promus stockholders by directors, officers and employees of
Promus in person or by telephone, telegram or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Promus has retained D.F. King & Co., Inc., a proxy solicitation
firm, for assistance in connection with the solicitation of proxies for the
Promus Special Meeting at a cost of approximately $10,000 plus reimbursement of
reasonable out-of-pocket expenses. Arrangements will also be made with brokerage
houses, custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
brokerage houses, custodians, nominees and fiduciaries, and Promus will
reimburse such brokerage houses, custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection therewith.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES. PROMUS
COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR SHARES OF NEW PROMUS COMMON
STOCK AND CASH IN LIEU OF FRACTIONAL SHARES FOLLOWING CONSUMMATION OF THE MERGER
IN ACCORDANCE WITH INSTRUCTIONS TO BE SENT TO HOLDERS OF PROMUS COMMON STOCK
AFTER THE MERGER.
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THE MERGER
BACKGROUND OF THE MERGER
Over the past few years, Doubletree has pursued a growth strategy that
includes acquiring hotel companies with a product mix complementary to
Doubletree's existing hotel operations. In pursuing such strategy, Doubletree's
management identified Promus as a company that would satisfy such criteria and
decided to approach Promus concerning a possible combination of the two
companies. During the same period, Promus has pursued growth primarily through
development of new branded hotels, and from time to time has evaluated other
strategic acquisition opportunities, including a possible business combination
with Doubletree. Despite each company's consideration of various acquisition
opportunities, however, neither Doubletree nor Promus engaged in any discussions
with, or received any offers from, third parties (other than those leading to
the Merger) with respect to selling or combining with Doubletree or Promus, as
the case may be.
In early June, 1997, Richard M. Kelleher, President and CEO of Doubletree,
contacted Raymond E. Schultz, President and CEO of Promus, to explore the
possibility of a combination of the two companies. Mr. Kelleher and Mr. Schultz
met in Memphis, Tennessee on June 12. On July 7, 1997, Mr. Schultz, Michael D.
Rose, Chairman of the Board of Promus, Richard J. Ferris, Co-Chairman of the
Board of Doubletree, Peter V. Ueberroth, Co-Chairman of the Board of Doubletree
and Mr. Kelleher met to further discuss the possible transaction. At each of
these meetings and at subsequent meetings held in July, Mr. Schultz, Mr. Rose,
Mr. Kelleher, William L. Perocchi, Executive Vice President and Chief Financial
Officer of Doubletree and other representatives of the two companies discussed
the strategic merits of a business combination of the companies, as well as the
financial and organizational aspects of such a transaction.
In late June, Promus's management discussed the proposed transaction with BT
Wolfensohn, whom Promus's management intended to retain as financial advisor to
Promus in connection with the transaction (which engagement was formalized in
mid-August). Over the next few weeks, Promus's management consulted with BT
Wolfensohn on various financial matters concerning the transaction and BT
Wolfensohn prepared certain written financial analyses that would be used by
Promus's management and the Promus Board in evaluating the transaction.
On July 23 and 24, all members of the Board of Directors of Promus met in
person, immediately following a regularly scheduled board meeting on July 23, to
discuss various strategic matters affecting Promus, including the possibility of
Promus merging with Doubletree. The members of the Promus Board considered the
proposed combination as a strategic alternative to Promus's then existing growth
plans and objectives. As a result of such discussions, Promus management was
directed to continue negotiations with Doubletree.
A regular meeting of the Board of Directors of Doubletree was held on July
25 to discuss, among other things, the possibility of a business combination
with Promus. At this meeting, Doubletree's senior management presented its view
of the strategic benefits of a merger of equals transaction with Promus and
reviewed the discussions to date. The Doubletree Board then directed its
management to continue negotiations with Promus.
Prior to the Board meeting, Doubletree had been consulting with Morgan
Stanley & Co. Incorporated ("Morgan Stanley") on various financial matters
concerning the proposed transaction. On August 6, Morgan Stanley was formally
retained by Doubletree. Over the next several weeks, Morgan Stanley prepared
various financial analyses of the transaction for use by Doubletree's management
and the Doubletree Board.
In early August, the parties and their respective financial advisors
continued to discuss the possible terms of a combination of the two companies,
including possible exchange ratios for each company's capital stock. Each of the
companies' financial advisors prepared and discussed with their respective
clients various financial analyses and models based on a range of exchange
ratios of Promus Common Stock to Doubletree Common Stock (which included a range
of 0.85:1.0 to 1.0:1.0 prepared by Morgan Stanley and
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a range of 0.87:1.0 to 1.05:1.0 prepared by BT Wolfensohn). The discussions
between the parties and their financial advisors culminated in a meeting in Salt
Lake City, Utah on August 13 between Mr. Schultz, Mr. Rose, Mr. Kelleher and Mr.
Ferris. At this meeting, Messrs. Schultz, Rose, Kelleher and Ferris discussed
certain terms of the transaction, including appropriate exchange ratios and
corporate governance matters.
On August 15, Doubletree and Promus entered into confidentiality agreements
with each other with respect to the proposed transaction and the representatives
of the two parties began due diligence on each other's operations and financial
condition. During the week of August 18, representatives of Doubletree and
Promus continued to have discussions regarding the specific terms of the
transaction.
On August 21, a special telephonic meeting of the Board of Directors of
Doubletree was held for the purpose of reviewing the proposed transaction with
Promus. All of the Doubletree directors participated in this meeting, together
with representatives of Morgan Stanley and Dewey Ballantine, legal counsel to
Doubletree in connection with the transaction. At the meeting, the basic outline
and terms of the transaction were reviewed and discussed, as were the pros and
cons of, the transaction. Doubletree's senior management reviewed for the
Doubletree Board certain historical and pro forma financial information
regarding the two companies and the combined enterprise. Doubletree's management
also reviewed for the Doubletree Board the due diligence process undertaken to
that point. Morgan Stanley reviewed its financial analysis of the terms of the
proposed combination and its views on the strategic merits of the transaction.
At the conclusion of the meeting, the Doubletree Board authorized its management
to continue the negotiations with Promus.
The Board of Directors of Promus also held a special telephonic meeting on
August 21 for purposes of further evaluating the proposed combination. At such
meeting, in which all of Promus's directors and certain members of Promus's
senior management participated, Mr. Rose, as Chairman of the Board, reported on
the negotiations with Doubletree to date and led a discussion about the general
business terms of the transaction as then proposed, including the exchange
ratios for each company's capital stock. Members of the Promus Board discussed,
among other things, the relative valuation of Promus and Doubletree, various
issues pertaining to the management composition and corporate governance
structure of New Promus, and the importance of preserving Promus's guest
satisfaction guarantee program at all Promus hotel properties. Representatives
of BT Wolfensohn also participated in the meeting and presented certain
preliminary financial analyses regarding the transaction, including certain
historical and pro forma financial information regarding Promus and Doubletree
and New Promus. At the conclusion of the meeting, the Promus Board authorized
Promus's management to continue negotiations with Doubletree.
During the negotiation process, the managements of Doubletree and Promus did
not solicit offers from third parties to purchase or combine with their
respective companies. This was due primarily to the view adopted by each
company's management that the proposed combination offered benefits to each
company that would not be obtained by alternative transactions and that
soliciting alternative transactions could jeopardize the companies' ability to
consummate the proposed merger of equals.
During the period from August 21 to September 1, representatives of
Doubletree and Promus negotiated the remaining issues with respect to the
transaction, including the legal structure to be used for the business
combination, the terms and conditions of the Merger Agreement (including the
conversion of each outstanding share of Doubletree Common Stock into the right
to receive one share of New Promus Common Stock (the "Doubletree Exchange
Ratio") and the conversion of each outstanding share of Promus Common Stock into
the right to receive 0.925 shares of New Promus Common Stock (the "Promus
Exchange Ratio"), and the existence and amount of termination fees), the terms
of the Stock Option Agreements and the Stockholder Support Agreement, various
organizational and employee matters, and other aspects of the proposed business
combination. Also during this period, the two sides completed their due
diligence review of each other and prepared documentation for the transaction.
On September 1, meetings of the Boards of Directors of Doubletree and Promus
were held to review the final terms of the proposed transaction.
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At the Doubletree Board meeting on September 1, in which all of the
Directors other than Mr. Leventhal (who was out of the country) participated,
Mr. Ferris, as Co-Chairman of the Board, led a discussion of the proposed
transaction. Dewey Ballantine reviewed the fiduciary duties of the directors of
Doubletree, and Mr. Ferris reviewed Doubletree's strategic alternatives,
including maintaining the status quo, seeking to grow through alternative
transactions, seeking to sell the company, and the merger of equals transaction
with Promus. The consensus of the Board was that the long-term interests of
Doubletree and its stockholders would be best served by pursuing a growth
strategy, as opposed to maintaining the status quo or seeking a sale of the
company. Moreover, the Doubletree Board believed that the proposed business
combination with Promus presented unusually attractive opportunities for growth,
by broadening the categories in which Doubletree would be able to compete and by
providing critical mass and economies of scale. See "--Recommendation of the
Boards of Directors of Doubletree and Promus; Reasons for the
Merger--Doubletree." Mr. Kelleher reviewed for the Doubletree Board the material
terms of the Merger Agreement, and David L. Stivers, Senior Vice President and
General Counsel, reviewed the results of the due diligence review performed with
respect to Promus. Morgan Stanley made a presentation to the Doubletree Board
regarding Promus, the terms of the proposed transaction, the potential market
reaction of the transaction and the fairness to the Doubletree stockholders,
from a financial point of view, of the Doubletree Exchange Ratio (taking into
account the Promus Exchange Ratio), but did not provide any analyses regarding
possible alternative transactions available to Doubletree. See "The
Merger--Opinion of Financial Advisor to Doubletree." Following this discussion,
the Board reviewed the terms of the proposed severance arrangements for
Doubletree employees (see "--Interests of Certain Persons in the
Merger--Severance Agreements") and considered the proposal that Doubletree adopt
a Stockholder Rights Plan. Following such discussions, the Merger Agreement and
the transactions contemplated thereby were approved by the Doubletree Board by a
unanimous vote of all Directors attending the meeting. Mr. Leventhal, who was
not present at the meeting, subsequently confirmed that he would have voted to
approve the Merger Agreement if he had been at the meeting.
The Promus Board held a special telephonic meeting in Memphis, Tennessee on
September 1 that was attended by all members of the Promus Board other than
Christopher W. Hart (who was unavailable). At such meeting, Mr. Rose, as
Chairman of the Board, led a discussion regarding the proposed combination of
Doubletree and Promus and reported on the results of both parties' negotiations
to date. The Promus Board did not receive presentations regarding, and did not
discuss, pursuing any other transactions as an alternative to the merger with
Doubletree. BT Wolfensohn made a presentation about the fairness, from a
financial point of view, of the Promus Exchange Ratio to Promus stockholders.
See "The Merger-- Opinion of Financial Advisor to Promus." The meeting also was
attended by a representative of Latham & Watkins, Promus's outside legal counsel
for the transaction, who discussed the significant terms of the Merger Agreement
and explained the fiduciary duties of the members of the Promus Board in
deciding whether to approve such agreement. A representative of Arthur Andersen,
Promus's public accountants, then made a presentation as to the accounting
treatment of the Merger as a "pooling of interests". Following such
presentations and further discussion among the members of the Promus Board, all
members of the Promus Board of Directors present at the meeting voted
unanimously to approve and authorize the execution of the Merger Agreement and
other related agreements and authorized Promus's management to take all such
actions necessary to consummate the transactions contemplated thereby. Mr. Hart,
who was not present at the meeting, later confirmed that he would have voted to
approve the Merger Agreement if he had been present at the meeting. The Promus
Board also authorized the modification of certain existing severance and
benefits arrangements and adoption of certain new severance benefits
arrangements (see "--Interests of Certain Persons in the Merger--Severance
Agreements"), which actions had been recommended by the Human Resources
Committee of the Promus Board at a meeting of such committee earlier that day.
Following the Board meetings, the Merger Agreement and the Stock Option
Agreements were executed and delivered by representatives of Doubletree and
Promus, and the Stockholder Support
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Agreement was executed and delivered by representatives of Promus and the Key
Stockholders. On the morning of September 2, Doubletree and Promus issued a
joint press release announcing the transaction.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF DOUBLETREE AND PROMUS; REASONS FOR
THE MERGER
DOUBLETREE. The Doubletree Board of Directors believes that the terms of
the Merger are fair to, and in the best interests of, Doubletree and its
stockholders. Accordingly, the Board of Directors has approved and adopted the
Merger Agreement and the transactions contemplated thereby and recommends its
approval and adoption by the stockholders of Doubletree.
The Doubletree Board of Directors believes that the Merger represents the
best strategic alternative for Doubletree. It also believes that by combining
Doubletree's strengths as a leading hotel management company with Promus's
strengths as a leading hotel franchisor, it will create a powerful new hotel
company in the lodging industry. See "The Combined Company." The Doubletree
Board of Directors also believes that the Merger will provide important critical
mass and economies of scale that will allow New Promus to offer to guests,
franchisees, developers and investors an even more complete line of hotels and
hotel development opportunities with a strong presence in segments in which
Doubletree currently does not compete.
In reaching its determination to approve the Merger Agreement and recommend
approval of the Merger to the Doubletree stockholders, the Doubletree Board of
Directors considered the information presented to it by Doubletree's management,
as well as Doubletree's professional advisors, and weighed the positive and
countervailing factors associated with the transaction. The factors considered
by the Doubletree Board of Directors included, without limitation:
(i) DOUBLETREE'S BUSINESS. The Doubletree Board of Directors
considered historical and prospective information concerning the financial
condition, results of operation and business of Doubletree. The Doubletree
Board of Directors considered the current state (and its perception of the
future state) of the hotel industry and the economic and market conditions
relating to the management and franchising of hotels, and the differences
therein. The Doubletree Board of Directors reviewed the historical basis for
Doubletree's growth since Doubletree's formation, including obtaining
individual hotel management contracts, franchise agreements and leases and
the acquisition of other hotel companies, and the prospects for Doubletree's
future growth. Doubletree's management and professional advisors made
presentations to the Doubletree Board of Directors providing it with
operational, financial and legal information concerning Doubletree. The
Board of Directors of Doubletree considered the strategic alternatives
available to Doubletree in lieu of the transaction, including maintaining
the status quo, seeking to grow through alternative transactions and seeking
to sell the company. The Board of Directors of Doubletree considered that
the Merger is expected to be accretive to Doubletree's earnings in the first
full year following the consummation of the Merger, excluding transaction
costs. In making such determination, the Doubletree Board focused primarily
on the anticipated impact of the Merger on future per share earnings for the
combined company rather than on the pro forma impact of the Merger on
Doubletree's historical book value per share, which would have been $12.05
at December 31, 1996 (as opposed to $20.26 actual) and $13.24 at September
30, 1997 (as opposed to $21.66 actual).
(ii) PROMUS'S BUSINESS. The Doubletree Board of Directors considered
the operational, financial and legal due diligence provided to it by
Doubletree's management and professional advisors. Such due diligence
included historical and prospective information regarding the results of
operations, financial condition and business of Promus and the current state
(and its perception of the future state) of the hotel industry and the
economic and market conditions relating to the management and franchising of
hotels, and the differences therein. Factors included in evaluating Promus
included, among other things, (a) the operating performance of Promus's
hotels, (b) the terms and conditions of Promus's existing management
contracts and franchise agreements, (c) Promus's hotel deal pipeline, (d)
the leading position of Promus's Hampton Inns brand in the mid-priced
segment of the lodging industry and its continued growth expectations given
its size and market share and the segment's
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competitive environment, (e) comparing the existing Promus brands with the
existing Doubletree brands and recognizing their complementary nature, (f)
the high quality of the Promus brand names and their reputation as a leader
in the customer satisfaction arena, (g) the number of hotels in the Promus
portfolio and their broad geographic dispersion, (h) Promus's corporate
management, infrastructure and facilities, (i) Promus's recent growth trends
and its future prospects for growth and (j) the results of Doubletree's
legal due diligence.
(iii) OPINION OF MORGAN STANLEY. The Doubletree Board of Directors
considered the presentation, and oral opinion, delivered by Morgan Stanley
on September 1, 1997, that as of such date, the Doubletree Exchange Ratio,
taking into account the Promus Exchange Ratio, is fair, from a financial
point of view, to the stockholders of Doubletree. Morgan Stanley's oral
opinion was subsequently confirmed in writing. See "Opinion of Financial
Advisor to Doubletree." A copy of Morgan Stanley's written opinion, which
sets forth the assumptions made, matters considered and limitation on the
review undertaken is attached as Annex B to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference.
(iv) STRATEGIC MERITS OF THE MERGER. The Board of Directors of
Doubletree considered that by entering into the transaction, it could seek
to capitalize on certain strategic elements that may not have been available
in other alternative transactions. These elements included, among others:
(a) the belief that the Merger will create opportunities to
cross-sell and cross-market Doubletree's strength in managing hotels and
Promus's strength in franchising hotels, including providing franchising
opportunities for Doubletree brands and management opportunities for
Promus's brands;
(b) the belief that the Doubletree and Promus management teams would
complement each other and work well together, and that the succession of
senior management of the combined company would be established;
(c) the belief that the Merger creates a platform for international
development as well as future growth into other market segments not
currently significantly penetrated by the combined company, such as the
luxury and vacation interval ownership segments;
(d) the belief that the Merger will reduce the dependence of
Doubletree on the full-service segment of the lodging industry and
provide better balance across major market segments (including upscale,
all-suites, mid-price and extended-stay);
(e) the belief that the Merger would allow the combined company to
improve operating efficiencies, reduce costs and achieve synergies,
particularly in the areas of reservations systems, information system
development and maintenance, physical plant, purchasing, accounting and
payroll; and
(f) the belief that the combined company's fourteen member Board of
Directors of New Promus, made up of seven members selected by each of
Doubletree and Promus and an Executive Committee comprised of Richard J.
Ferris, Peter V. Ueberroth, Michael D. Rose and Raymond E. Schultz, and a
seasoned and proven management team drawn from both companies, will
provide sound and effective leadership for the combined company.
(v) STRUCTURE OF MERGER; TERMS OF MERGER AGREEMENT. The Board of
Directors of Doubletree considered the terms of the Merger Agreement and its
legal and tax implications. The Board of Directors of Doubletree considered
the size of the termination fee payable, in certain circumstances, by either
party under the Merger Agreement and also considered the Stock Option
Agreements, the Stockholder Support Agreement and the exchange ratios of New
Promus Stock for Doubletree Common Stock and Promus Common Stock. The Board
of Directors of Doubletree considered that the Merger is expected to be
accounted for as a pooling of interests transaction and is generally not
expected to result in federal income taxes. The Doubletree Board of
Directors considered the "merger of equals" transaction structure and the
fact that the Promus Exchange Ratio and the
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Doubletree Exchange Ratio are fixed numbers and will not be adjusted in the
event that there are any increases or decreases in the in price of either
the Doubletree Common Stock or the Promus Common Stock.
(vi) COUNTERVAILING CONSIDERATIONS. The Board of Directors of
Doubletree considered certain factors which may be characterized as
countervailing considerations, including:
(a) The fact that, based on the recent trading prices for Doubletree
Common Stock and Promus Common Stock, the Promus stockholders would
receive a premium over the then current market price of Promus Common
Stock (which premium was 19.2% based on the closing stock prices of
Doubletree and Promus on August 29, 1997, or 6.7% based on the average of
stock prices of Doubletree and Promus was for the 30-day period ending on
August 29, 1997); see "Comparative Market Prices and Dividends." While
the Doubletree Board would have preferred that the Merger not involve a
premium or discount for either side, it was felt that Promus would not
agree to the transaction without a premium, and the amount of the
premium, when viewed in the context of recent trading averages for the
two stocks, was not viewed as inappropriate.
(b) The risks inherent in attempting to successfully integrate the
management of Doubletree and Promus into an effective leadership
organization and the difficulties that may be encountered in achieving
the anticipated synergies from the Merger.
(c) The concern over the (as of then) undetermined location of the
combined company's corporate offices and the possibility that key
employees and members of the management of Doubletree or Promus, may not
be willing to relocate and therefore may leave Doubletree or Promus, as
the case may be.
(d) The voting power dilution of the Merger to the Doubletree
stockholders, resulting in Doubletree's stockholder's ownership of
roughly 44% of the shares of the combined company after the consummation
of the Merger (as opposed to 100% prior thereto). This factor was not
viewed as being as significant as those referred to above.
In addition, the Doubletree Board reviewed the severance arrangements of
executive officers of Doubletree and other employee benefit provisions of the
Merger Agreement described below under "--Interests of Certain Persons in the
Merger." The Doubletree Board was aware that such arrangements would give
certain individuals interests in the Merger that were in addition to their
interests as stockholders of Doubletree generally.
The foregoing discussion of the information and factors considered and given
weight by the Doubletree Board of Directors is not intended to be exhaustive but
is believed to include all material factors considered by the Board of Directors
of Doubletree. In addition, in reaching the determination to approve and
recommend approval and adoption of the Merger Agreement, in view of the wide
variety of factors considered in connection with its evaluation thereof, the
Board of Directors of Doubletree did not assign any relative or specific weights
to the foregoing factors, and individual directors may have given differing
weights to the different factors. The Doubletree Board did not attempt to
analyze the fairness of the Exchange Ratio in isolation from the considerations
as to the businesses of Doubletree and Promus, the strategic merits of the
Merger or the other considerations referred to above. The Doubletree Board did,
however, take into account, and placed reliance upon, the analyses performed by,
and the opinion rendered by, Morgan Stanley as to the fairness, from a financial
point of view, of the Exchange Ratio. The Board of Directors of Doubletree also
did not distinguish between factors that support a determination that the Merger
is "fair" and factors that support a determination that the Merger is in the
"best interests" of Doubletree's stockholders.
THE DOUBLETREE BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS OF
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THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, DOUBLETREE AND ITS
STOCKHOLDERS. THE DOUBLETREE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
PROMUS. The Promus Board of Directors has determined and believes that the
terms of the Merger are fair to, and in the best interests of, Promus and its
stockholders. Accordingly, the Promus Board of Directors has approved and
adopted the Merger Agreement and the transactions contemplated thereby and
recommends its approval and adoption by the stockholders of Promus.
In reaching its determination, the Promus Board of Directors consulted with
Promus management, as well as its legal counsel and financial advisor, and
considered a number of positive and negative factors, including:
(i) PROMUS'S BUSINESS, CONDITION AND PROSPECTS. The Promus Board of
Directors considered information with respect to the financial condition,
results of operations and business of Promus, on both a historical and
prospective basis, and current industry, economic and market conditions. The
Promus Board of Directors considered Promus's historical growth strategies,
including selective hotel acquisitions and the increase in the number of
hotel franchises. Management and Promus's legal and financial
representatives made presentations to and provided the Promus Board of
Directors with information regarding Promus's financial condition and
prospects after conducting business, legal and financial due diligence. In
addition, the Promus Board concluded that the Merger should be accretive to
Promus's earnings in the first full year, excluding transaction costs. In
making such determination, the Promus Board relied primarily on projections
of future per share earnings for the combined company (and not on historical
earnings per share data).
(ii) DOUBLETREE'S BUSINESS, CONDITION AND PROSPECTS. The Promus Board
of Directors considered information with respect to the financial condition,
results of operations and business of Doubletree, on both a historical and
prospective basis, and current industry, economic and market conditions.
Management and Promus's legal and financial representatives made
presentations to and provided the Promus Board of Directors with information
regarding Doubletree's financial condition and prospects after conducting
business, legal and financial due diligence. In evaluating Doubletree's
prospects, the Promus Board of Directors considered, among other things, the
performance of Doubletree's hotels, the strength of its management team, the
success of its recent hotel acquisitions and the reputation of the
Doubletree brand name in the hotel industry. The Promus Board of Directors
also considered Doubletree's geographical distribution of hotels and found
it to be complementary to the distribution of Promus hotels.
(iii) OPINION OF BT WOLFENSOHN. The Promus Board of Directors
considered the oral opinion delivered on September 1, 1997 by BT Wolfensohn
(which was subsequently confirmed in writing on that date) that as of such
date the Promus Exchange Ratio, in connection with the Merger pursuant to
the Merger Agreement, is fair, from a financial point of view, to the
stockholders of Promus. The Promus Board also considered the oral and
written presentations made to it by BT Wolfensohn. See "The Merger--Opinion
of Financial Advisor to Promus." A copy of BT Wolfensohn's written opinion,
which sets forth the assumptions made, matters considered and limitations on
the review undertaken, is attached as Annex C to this Proxy
Statement/Prospectus and is incorporated herein by reference.
(iv) FIXED EXCHANGE RATIO. The Promus Board of Directors considered
that the Promus Exchange Ratio is a fixed number and will not be adjusted in
the event of any increases or decreases in the price of either the Promus
Common Stock or Doubletree Common Stock. The Promus Board considered that
the prices of Promus Common Stock and Doubletree Common Stock at the closing
of the Merger may vary from their respective prices at the date of this
Joint Proxy Statement/Prospectus and at the date of the Promus Special
Meeting and the Doubletree Special Meeting. Such variations may be the
result of changes in the business, operations or prospects of Promus or
Doubletree, market assessments of the likelihood that the Merger will be
consummated, the timing thereof and the
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prospects of the Merger and post-Merger operations, regulatory
considerations, general market and economic conditions and other factors.
(v) STRATEGIC COMBINATION. The Promus Board of Directors considered
that the Merger would combine the strength and maturity of Promus's
franchising system with Doubletree's brand presence. Further, it is the
opinion of the Promus Board that the management team, growth strategy and
hotel brands of Doubletree are complementary to those of Promus. In
considering the Merger, the Promus Board of Directors took into account that
the combined company will have enhanced market presence. The Promus Board of
Directors considered the likelihood that the combination of Promus and
Doubletree would create significant opportunities for the development and
growth of the companies on a combined basis, including international
development as well as further growth into the luxury and vacation interval
ownership market segments. The Promus Board also considered that the
management of New Promus will implement Promus's 100% Satisfaction Guarantee
program at all of New Promus's hotel properties.
(vi) FINANCIAL CONDITION. The Promus Board of Directors considered the
likelihood that the Merger would enable Promus and Doubletree to realize
higher total revenues and cash flows through a number of means, including
the cross selling of hotel brands, the increase of franchise sales of
Doubletree brands and the generation of preferred vendor fees to Promus. The
Promus Board of Directors also considered the likelihood that a combination
with Doubletree would allow New Promus to enjoy opportunities for operating
efficiencies, cost reductions and synergies as a result of the Merger,
particularly through the integration of information systems and support
functions and the combined purchasing power of the two companies. The Promus
Board also considered as a negative factor the fact that Doubletree is more
leveraged than Promus.
(vii) TERMS OF THE MERGER. The Promus Board of Directors considered
the terms and conditions of the Merger Agreement, the Stock Option
Agreements and the Stockholder Support Agreement, including the terms of the
Merger Agreement that allow Doubletree or Promus to terminate the Merger
Agreement under certain circumstances upon payment to the other party of a
$45 million termination fee. The Promus Board of Directors considered such a
termination fee in light of the range of fees payable in comparable
transactions. The Promus Board also considered that, pursuant to the
Stockholder Support Agreement, the holders of over 39% of the outstanding
shares of Doubletree Common Stock have agreed to vote their shares of
Doubletree Common Stock in favor of the Merger Agreement. The Promus Board
also considered the fact that the Merger is expected to be accounted for as
a pooling of interests transaction and is generally not expected to result
in federal income taxes.
(viii) MANAGEMENT AND OWNERSHIP OF NEW PROMUS. The Promus Board of
Directors considered that the combined company will have a Board of
Directors consisting of fourteen members, with seven members selected by
each of Promus and Doubletree and an Executive Committee, which will
initially be comprised of Raymond E. Schultz, Richard J. Ferris, Michael D.
Rose and Peter V. Ueberroth. The Promus Board considered the likelihood that
the management teams of Promus and Doubletree will complement each other and
work well together in the combined company (as well as the corresponding
risk that the companies might not succeed in integrating management teams).
The Promus Board also discussed and took into consideration the employment,
severance and other arrangements benefitting officers and directors of
Promus provided for in the Merger Agreement and described below under the
caption "--Interests of Certain Persons in the Merger." The Promus Board
also considered the pro forma ownership of New Promus, noting that Promus
stockholders would own approximately 54% of New Promus and Doubletree
stockholders would own approximately 46%. As a company with no concentrated
voting control, however, the Promus Board did not assign any significance to
the fact that the Merger would further dilute the voting control of Promus
Stockholders.
(ix) INTEGRATION OF OPERATIONS; NONREALIZATION OF SYNERGIES. As
described above, the Promus Board of Directors considered the extent to
which the Merger would provide opportunities for revenue growth and
operating cost savings that might not otherwise be available. However, the
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Promus Board also took into account that the Merger involves the integration
of two companies that have previously operated independently. The Promus
Board of Directors considered as a negative factor the possibility that New
Promus will not be able to integrate the respective operations of Promus and
Doubletree without encountering difficulties or experiencing the loss of key
Promus or Doubletree personnel due to relocation or other reasons and the
possibility that the benefits expected from such integration will not be
realized. In addition, the Promus Board considered the possibility that New
Promus will not be able to realize anticipated operating synergies and cost
reductions from the Merger.
The foregoing discussion of the information and factors considered and given
weight by the Promus Board of Directors is not intended to be exhaustive but is
believed to include all material factors considered by Board of Directors of
Promus. In addition, in reaching the determination to approve and recommend
approval and adoption of the Merger Agreement, in view of the wide variety of
factors considered in connection with its evaluation thereof, the Board of
Directors of Promus did not assign any relative or specific weights to the
foregoing factors, and individual directors may have given differing weights to
the different factors. In determining that the terms of the Merger are fair to,
and in the best interests of, Promus and its stockholders, the Promus Board
considered all of the foregoing factors, including, with respect to its analysis
of the fairness of the Exchange Ratios from a financial point of view, the
opinion of BT Wolfensohn and the oral presentations by Promus's executive
management regarding its independent financial analysis of Promus, Doubletree
and New Promus. However, the Board of Directors of Promus did not distinguish
between factors that support a determination that the Merger is "fair" and
factors that support a determination that the Merger is in the "best interests"
of Promus's stockholders.
THE PROMUS BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, PROMUS AND ITS STOCKHOLDERS. THE PROMUS
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO DOUBLETREE
Morgan Stanley was retained by Doubletree to act as its financial advisor in
connection with the Merger and related matters based upon Morgan Stanley's
experience and expertise. On September 1, 1997, Morgan Stanley rendered to the
Board of Directors of Doubletree an oral opinion, confirmed in writing as of
such date, to the effect that, as of such date and based on and subject to
certain considerations stated therein, the Doubletree Exchange Ratio, taking
into account the Promus Exchange Ratio, pursuant to the Merger Agreement was
fair from a financial point of view to the holders of shares of Doubletree
Common Stock. Morgan Stanley has consented to the use of its name and the
summary of the Morgan Stanley opinion in this Joint Proxy Statement/Prospectus.
THE FULL TEXT OF THE MORGAN STANLEY OPINION DATED SEPTEMBER 1, 1997, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND
IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF DOUBLETREE COMMON STOCK ARE
URGED TO, AND SHOULD, READ THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS
ENTIRETY. THE MORGAN STANLEY OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF
DOUBLETREE AND IS LIMITED TO THE FAIRNESS OF THE DOUBLETREE EXCHANGE RATIO,
TAKING INTO ACCOUNT THE PROMUS EXCHANGE RATIO, FROM A FINANCIAL POINT OF VIEW TO
THE HOLDERS OF SHARES OF DOUBLETREE COMMON STOCK, AND IT DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER
OF DOUBLETREE COMMON STOCK AS TO HOW TO VOTE AT THE DOUBLETREE SPECIAL MEETING.
THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley: (i) reviewed certain publicly
available financial statements and other information of Promus and Doubletree;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning Doubletree prepared by the management of Doubletree;
(iii) analyzed certain financial projections prepared by the management of
Doubletree; (iv) discussed the
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past and current operations and financial condition and the prospects of
Doubletree with senior executives of Doubletree and analyzed the pro forma
impact of the Merger on Doubletree's earnings per share; (v) reviewed certain
internal financial statements and other financial and operating data concerning
Promus prepared by the management of Promus; (vi) analyzed certain financial
projections prepared by the management of Promus; (vii) discussed the past and
current operations and financial condition and the prospects of Promus with
senior executives of Promus; (viii) reviewed the reported prices and trading
activity for Doubletree Common Stock and Promus Common Stock; (ix) discussed
with the managements of Doubletree and Promus their views of the strategic
rationale for the Merger and the cost savings and other synergies expected to
result from the Merger; (x) participated in discussions and negotiations among
representatives of Doubletree and Promus and their financial and legal advisors;
and (xi) reviewed the Merger Agreement, the Stock Option Agreements, and certain
related documents.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to
financial projections, Morgan Stanley assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of Doubletree and Promus. Morgan
Stanley relied upon, with the consent of Doubletree, the assumptions of the
management of Doubletree and Promus regarding cost savings and other synergies
that will result from the Merger. Morgan Stanley did not make any independent
valuation or appraisal of the assets or liabilities of Promus or Doubletree, nor
was Morgan Stanley furnished with any such appraisals. Morgan Stanley assumed
that the Merger will qualify as a "pooling of interests" business combination
for accounting and financial reporting purposes and will generally not result in
federal income taxes. Morgan Stanley also assumed that the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement. The
Morgan Stanley opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to Morgan Stanley
as of, the date thereof.
In arriving at its opinion, Morgan Stanley was not authorized to solicit,
and did not solicit, interest from any party with respect to the acquisition of
Doubletree.
The following is a brief summary of all material analyses performed and
factors considered by Morgan Stanley and reviewed with the Board of Directors of
Doubletree in connection with the preparation by Morgan Stanley of its oral
presentation to the Board of Directors of Doubletree on September 1, 1997.
PUBLIC MARKET OVERVIEW. Morgan Stanley reviewed certain trading information
for each of Doubletree and Promus, including market value, market capitalization
and institutional ownership. Morgan Stanley also reviewed historical and forward
trading multiples for each company.
HISTORICAL STOCK PERFORMANCE. Morgan Stanley compared the trading price of
the shares of Doubletree Common Stock and Promus Common Stock. This stock
performance review indicated that for Doubletree's and Promus's last twelve
months ("LTM") ended August 31, 1997, the high and low closing prices for shares
of Doubletree Common Stock and Promus Common Stock were $50.00 and $30.69 and
$40.25 and $28.25, respectively. The exchange ratios implied by comparing the
respective high to low prices and low to high prices of the Promus common stock
and Doubletree common stock were 0.505 and 1.311, respectively, compared to the
exchange ratio of 0.925 pursuant to the Merger Agreement. The Public Market
Overview and the Historical Stock Performance review were performed to provide
background information and to add context to the other analyses performed by
Morgan Stanley as described below.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted cash
flow analysis to calculate a present value of the stand-alone unlevered free
cash flows for Promus and Doubletree. With respect to Doubletree, Morgan Stanley
analyzed two scenarios: (i) the "Doubletree Management Case," which was based on
certain financial forecasts prepared by Doubletree management and (ii) the
"Sensitivity Case" which adjusted the aforementioned Management Case based on
several contingencies specified by Doubletree management. With respect to
Promus, Morgan Stanley analyzed: (i) the "Promus Management Base Case," based on
a series of projections prepared by Doubletree management based on Promus
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management projections and (ii) the "Sensitivity Case" which adjusted the
aforementioned Promus Management Base Case based on several contingencies
specified by Doubletree management. For the Doubletree analysis, Morgan Stanley
discounted the estimated unleveraged free cash flows using a range of discount
rates from 11.0% to 12.0%. The discount rate range was selected based upon a
weighted average cost of capital analysis of Doubletree. For the Promus
analysis, Morgan Stanley discounted the estimated unleveraged free cash flows
using a range of discount rates from 10.5% to 11.5%. The discount rate range was
selected based upon a weighted average cost of capital analysis of Promus.
Morgan Stanley added to the present values of the cash flows the terminal values
of Promus and Doubletree, respectively, in the year 2001, and discounted the
terminal value using the same range of discount rates as was used to discount
the unleveraged free cash flows. The terminal value was calculated using the
terminal multiple method, assuming a range of terminal multiples of earnings
before interest, income taxes, depreciation and amortization ("EBITDA") between
10.0 and 12.0 for Doubletree and 11.0 and 13.0 for Promus. Based on this
analysis Morgan Stanley calculated a per share equity value of Doubletree
ranging from $48.83 to $61.54 based on the Doubletree Management Case and $37.77
to $47.95 using the Sensitivity Case. The per share equity values calculated for
Promus ranged from $41.77 to $51.96 in the Promus Management Base Case and
$34.85 to $43.58 in the Sensitivity Case. Morgan Stanley noted that, based upon
the August 27, 1997 closing price of Doubletree Common Stock of $44.25, the
0.925 exchange ratio implied a value per share of Promus Common Stock of $40.93,
which was below the range of values in the Promus Management Base Case and
within the range of values in the Sensitivity Case. The results of this analysis
helped support Morgan Stanley's fairness opinion.
HISTORICAL EXCHANGE RATIO ANALYSIS. Morgan Stanley analyzed the historical
exchange ratio between Promus Common Stock and Doubletree Common Stock over
several time periods. For each time period selected, Morgan Stanley calculated
the high, average and low exchange ratios. The time periods selected for the
analysis ended on August 29, 1997 and included: last two years, last twelve
months, last six months, last 90 days and last 30 days. The ranges of exchange
ratios for each of the aforementioned time periods were 0.621 to 1.125, 0.621 to
1.040, 0.757 to 1.040, 0.758 to 0.942 and 0.776 to 0.938, respectively. Morgan
Stanley observed that the exchange ratio pursuant to the Merger Agreement was
within each of these ranges. The average exchange ratio for each aforementioned
time period was 0.878, 0.821, 0.882, 0.859 and 0.868, respectively. Morgan
Stanley also calculated an exchange ratio of 0.893 based on the closing prices
of Doubletree Common Stock and Promus Common Stock on August 27, 1997.
RELATIVE CONTRIBUTION ANALYSIS. Morgan Stanley analyzed the pro forma
contribution of each of Doubletree and Promus to New Promus. Such analysis
included, among other things, relative contributions of equity value determined
in accordance with EBITDA, earnings before interest and income taxes ("EBIT")
and net income. Morgan Stanley observed that Doubletree would contribute a range
of 47.0% to 49.1 % of 1996 to 1998 projected EBITDA, 41.1% to 45.6% of 1996 to
1998 projected EBIT and 40.0% to 48.5% of 1996 to 1998 projected net income. The
ranges of implied exchange ratios between Promus Common Stock and Doubletree
Common Stock derived from relative contributions of equity value determined in
accordance with EBITDA, EBIT and net income were: (i) 0.825 to 0.899; (ii) 0.910
to 1.141, and (iii) 0.846 to 1.191, respectively. Morgan Stanley observed that
the relative ratio pursuant to the Merger Agreement was within the range of
exchange ratios suggested by the contribution analysis.
ANALYSIS OF EXCHANGE RATIO IMPLIED BY DISCOUNTED CASH FLOW ANALYSIS. Morgan
Stanley calculated the range of exchange ratios implied by dividing the low end
of the value range per Promus share suggested by the various Promus discounted
cash flow scenarios by the high end of the value range per Doubletree share
suggested by various Doubletree discounted cash flow scenarios and by dividing
the high end of the value range per Promus share suggested by the various Promus
discounted cash flow scenarios by the low end of the value range per Doubletree
share suggested by various Doubletree discounted cash flow scenarios. For the
purposes of this analysis, Morgan Stanley compared (i) the Management Case
discounted cash flow valuation of Promus to the Management Case discounted cash
flow valuation of Doubletree and (ii) the Sensitivity Case discounted cash flow
valuation of Promus to the Sensitivity Case discounted cash flow
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valuation of Doubletree. The exchange ratios between Promus Common Stock and
Doubletree Common Stock implied by each of these scenarios were: (i) 0.678 to
1.064 and (ii) 0.727 to 1.154, respectively, compared with the exchange ratio
pursuant to the Merger Agreement of 0.925.
Morgan Stanley observed that the Exchange Ratio in the Merger was within the
implied range of exchange ratios suggested by each of the Historical Exchange
Ratio Analysis, the Relative Contribution Analysis and the Exchange Ratio
Implied by Discounted Cash Flow Analysis, and such facts helped support Morgan
Stanley's fairness opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying the Morgan Stanley opinion.
In addition, Morgan Stanley may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Doubletree or Promus.
In performing its analysis, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Doubletree and Promus.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of whether the Doubletree Exchange Ratio, taking into account
the Promus Exchange Ratio, is fair from a financial point of view to the holders
of shares of Doubletree Common Stock and were provided to the Board of Directors
of Doubletree in connection with the delivery of the Morgan Stanley opinion. The
analyses do not purport to be appraisals or to reflect the prices at which
Doubletree or Promus might actually be sold. In addition, as described above,
the Morgan Stanley opinion, including Morgan Stanley's presentation to the Board
of Directors of Doubletree, was one of many factors taken into consideration by
the Board of Directors of Doubletree in making its determination to approve the
Merger.
The consideration to be received by holders of Doubletree Common Stock
pursuant to the Merger Agreement was determined through negotiations between
Doubletree and Promus, and was approved by the Doubletree Board of Directors.
The Board of Directors of Doubletree retained Morgan Stanley based upon
Morgan Stanley's experience and expertise. Morgan Stanley is an internationally
recognized investment banking and financial advisory firm. Morgan Stanley, as
part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. Morgan Stanley is a full-service
securities firm engaged in securities trading and brokerage activities, as well
as providing investment banking and financial advisory services. In the ordinary
course of its trading and brokerage activities, Morgan Stanley or its affiliates
may at any time hold long or short positions, and may trade or otherwise effect
transactions, for its own account or the accounts of customers, in debt or
equity securities of Doubletree and Promus. In the past, Morgan Stanley and it
affiliates have provided financial advisory and financing services to Doubletree
and its affiliates and Promus and have received fees for the rendering of these
services.
Pursuant to a letter agreement dated August 6, 1997, Doubletree has agreed
to pay Morgan Stanley (i) an advisory fee estimated to be $100,000 in the event
that the Merger is not consummated, (ii) an agreement fee of $1,000,000, payable
upon announcement of the Merger and (iii) an additional cash fee of $6,000,000,
if the Merger is consummated. In addition to the foregoing, Doubletree has
agreed to reimburse Morgan Stanley for its expenses, including fees and expenses
of counsel, and to indemnify Morgan Stanley for liabilities and expenses arising
out of the engagement and the transactions in connection therewith including
liabilities under federal securities laws.
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OPINION OF FINANCIAL ADVISOR TO PROMUS
BT Wolfensohn has acted as financial advisor to Promus in connection with
the Merger. On September 1, 1997, BT Wolfensohn delivered its oral opinion,
which opinion was subsequently confirmed in writing on that date (the "BT
Wolfensohn Opinion"), to the Promus Board of Directors to the effect that, based
upon the assumptions made, matters considered and limits of the review
undertaken by BT Wolfensohn, the Promus Exchange Ratio was fair, from a
financial point of view, to the stockholders of Promus. BT Wolfensohn has
consented to the use of its name and the summary of the BT Wolfensohn opinion in
this Joint Proxy Statement/Prospectus.
A COPY OF THE BT WOLFENSOHN OPINION IS ATTACHED AS ANNEX C TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE BT
WOLFENSOHN OPINION IS ADDRESSED TO THE BOARD OF DIRECTORS OF PROMUS AND IS
LIMITED TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE STOCKHOLDERS OF
PROMUS OF THE PROMUS EXCHANGE RATIO, AND DOES NOT ADDRESS THE MERITS OF THE
UNDERLYING DECISION BY PROMUS TO ENGAGE IN THE MERGER. THE BT WOLFENSOHN OPINION
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF PROMUS OR DOUBLETREE
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER. THE SUMMARY OF THE BT
WOLFENSOHN OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. HOLDERS
OF PROMUS COMMON STOCK ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND
IN ITS ENTIRETY.
In connection with BT Wolfensohn's role as financial advisor to Promus, and
in arriving at its opinion, BT Wolfensohn has, among other things: (i) reviewed
the publicly available consolidated financial statements of Doubletree for
recent years and interim periods to date and certain other relevant financial
and operating data of Doubletree available from public sources or provided to BT
Wolfensohn by Doubletree; (ii) reviewed the publicly available consolidated
financial statements of Promus for recent years and interim periods to date and
certain other relevant financial and operating data of Promus available from
public sources or provided to BT Wolfensohn by Promus; (iii) reviewed certain
internal financial and operating information, including certain projections,
relating to Promus and Doubletree, provided to BT Wolfensohn by Promus and
Doubletree, respectively; (iv) discussed the business, financial condition and
prospects of Promus and Doubletree with certain officers and certain members of
management of each organization; (v) considered the strategic objectives of
Promus as outlined to BT Wolfensohn by Promus management; (vi) reviewed the
trading prices and activity for Promus Common Stock and Doubletree Common Stock;
(vii) reviewed the financial terms of the Merger Agreement; (viii) reviewed the
financial terms of selected transactions in the lodging industry which BT
Wolfensohn believed to be relevant; (ix) reviewed certain public information
pertaining to companies engaged in businesses that BT Wolfensohn believed to be
generally comparable to those of Promus and Doubletree, including, without
limitation, the trading prices for the equity securities of such companies; (x)
analyzed the pro forma impact of the Merger on Promus and Doubletree, including
with respect to the combined company's earnings per share, consolidated
capitalization and financial ratios; and (xi) performed such other analyses and
examinations and considered such other information, financial studies, analyses
and investigations and financial, economic and market data as BT Wolfensohn
deemed relevant. (Except to the extent related to the analyses described below,
the analyses, examinations and information referenced in clause (xi) were not
material to the BT Wolfensohn Opinion.)
In preparing its opinion, BT Wolfensohn did not assume responsibility for
the independent verification of any information, whether publicly available or
furnished to it, concerning Promus or Doubletree, including, without limitation,
any financial information, forecasts or projections, considered in connection
with the rendering of its opinion. Accordingly, for purposes of its opinion, BT
Wolfensohn assumed and relied upon the accuracy and completeness of all such
information, and BT Wolfensohn did not conduct a physical inspection of any of
the properties or assets, and did not prepare or obtain any independent
evaluation or appraisal of any of the assets or liabilities of Promus or
Doubletree. With respect to the financial forecasts and projections made
available to BT Wolfensohn and used in its analysis, including estimates of the
operating savings and other benefits and cost reductions achievable as a result
of the Merger, BT Wolfensohn assumed that they have been reasonably prepared on
bases reflecting the best
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currently available estimates and judgments of the management of Promus or
Doubletree as to the matters covered thereby. In rendering its opinion, BT
Wolfensohn expressed no view as to the reasonableness of such forecasts and
projections or the assumptions on which they are based. In addition, BT
Wolfensohn expressed no opinion as to prices at which shares of New Promus will
trade following the Merger. BT Wolfensohn also assumed that the Merger will
qualify for pooling-of-interests accounting treatment in accordance with
generally accepted accounting principles and will generally not result in
federal income taxes. The BT Wolfensohn Opinion was necessarily based upon
economic, market and other conditions as in effect on, and the information made
available to BT Wolfensohn as of, the date of such opinion.
BT Wolfensohn assumed that the Merger will be consummated on the terms and
subject to the conditions described in the Merger Agreement, and that all
conditions to the consummation of the Merger contained in the Merger Agreement
will be satisfied without the waiver of such conditions. BT Wolfensohn also
assumed that all necessary governmental and regulatory approvals and consents of
third parties will be obtained on terms and conditions that will not have a
material adverse effect on Promus or Doubletree. In connection with its
engagement, BT Wolfensohn was not authorized to solicit, nor has it solicited,
any third-party indications of interest for the acquisition of Promus, nor did
BT Wolfensohn review with Promus or its Board of Directors any potential
alternative transactions in lieu of the Merger. The terms of the Merger were
determined through negotiations between Promus and Doubletree and were approved
by the Promus Board of Directors. Although BT Wolfensohn provided advice to
Promus during the course of these negotiations, the decision to enter into the
Merger Agreement and to accept the Promus Exchange Ratio was solely that of the
Promus Board of Directors.
The following is a brief summary of all material analyses performed by BT
Wolfensohn in connection with its opinion and discussed with the Promus Board of
Directors on September 1, 1997. In arriving at its opinion, BT Wolfensohn
compared the Promus Exchange Ratio and the results implied from such ratio to
the ranges of values generated by BT Wolfensohn's analyses.
CONTRIBUTION ANALYSIS. BT Wolfensohn analyzed and compared the pro forma
contributions made by each of Promus and Doubletree to the combined entity,
based on a comparison of certain stock market and financial information and
projections for each company on a stand-alone basis. Accordingly, this analysis
did not take into account any cost savings or revenue enhancements that may
result from the Merger. This analysis indicated that Promus would contribute to
the combined entity approximately (a) 53.9% of combined net income in 1997,
51.7% in 1998, 51.8% in 1999, and 52.0% in 2000; and (b) 46.8% of the combined
cash flow (that is, net income plus depreciation and amortization) in 1997,
45.1% in 1998, 46.3% in 1999, and 47.7% in 2000.
BT Wolfensohn considered these projected contributions to combined net
income and cash flow in light of the proposed Promus Exchange Ratio, which would
result in holders of Promus Common Stock owning approximately 54% of the common
stock of New Promus following the Merger.
HISTORICAL EXCHANGE RATIO ANALYSIS. BT Wolfensohn reviewed the daily ratio
of the closing trading prices of Promus Common Stock and Doubletree Common Stock
for the year ended August 28, 1997. This ratio ranged from 0.621 to 1.040, with
a median of 0.827. BT Wolfensohn also reviewed the median historical exchange
ratios for specified periods within the year ended August 28, 1997. These ratios
ranged from 0.880 to 0.859. The ratio of the closing market prices of Promus
Common Stock ($39.13) and Doubletree Common Stock ($46.13) on August 28, 1997
was 0.848. BT Wolfensohn compared each of these historical ratios to the
proposed Promus Exchange Ratio of 0.925. BT Wolfensohn observed that the
proposed Promus Exchange Ratio is higher than the median historical exchange
ratios observed. The positive variance (that is, the difference between the
proposed Promus Exchange Ratio and any given median historical exchange ratio)
ranged from 0.045 to 0.098. BT Wolfensohn also considered the historical
exchange ratios and the Promus Exchange Ratio in light of the closing market
prices of Promus Common Stock ($38.81) and Doubletree Common Stock ($50.00) on
August 29, 1997.
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DISCOUNTED CASH FLOW ANALYSIS. BT Wolfensohn performed a discounted cash
flow ("DCF") analysis of Promus and Doubletree using projections (provided by
respective managements) for the fiscal years ending December 31, 1997 through
December 31, 2001. Projections for Promus after 2001 were provided by Promus
management; projections for Doubletree after 2001 were based on the average
projected earnings before interest and income taxes ("EBIT") margins and revenue
growth rates for the period 1998-2001. In addition, BT Wolfensohn assumed
discount rates ranging from 11% to 13%, based on a weighted average cost of
capital ("WACC") analysis showing Promus's WACC as 12.4% and Doubletree's WACC
as 11.8%. This WACC analysis relied on projected weightings of the cost of
equity and the after-tax cost of debt derived from discussions with the
managements of Promus and Doubletree.
DCF analysis is a method of estimating the present value of the stand-alone
unlevered cash flows that Promus and Doubletree would be expected to generate if
each performed in accordance with certain projections. Because the DCF values
were calculated as stand-alone values, no cost savings or revenue enhancements
were assumed. BT Wolfensohn calculated DCF values as the sum of the net present
values of (1) the projected unlevered free cash flows for each of Promus and
Doubletree for the years 1997 through 2006, plus (2) terminal value in the year
2006, calculated as the product of (a) projected EBITDA in 2006 and (b)
normalized hotel industry multiples ranging from 8.0x to 10.0x.
Utilizing the DCF method, BT Wolfensohn calculated a stand-alone valuation
reference range for shares of Doubletree Common Stock of $42.32 to $58.94 per
share, implying a valuation reference range for Promus of $39.15 to $54.52 per
share after applying the Promus Exchange Ratio. BT Wolfensohn compared these
results to the stand-alone DCF valuation reference range for Promus of $34.24 to
$52.43 per share. In addition, based on the stand-alone valuation reference
ranges for Promus and Doubletree, BT Wolfensohn calculated implied exchange
ratios of a share of Doubletree Common Stock to a share of Promus Common Stock
ranging from 0.81 to 0.89, as compared with the proposed Promus Exchange Ratio
of 0.925.
COMPARABLE COMPANY ANALYSIS. BT Wolfensohn performed an analysis of the
implied transaction price for Promus (based on the 0.925 Promus Exchange Ratio
and the closing market price per share of Doubletree Common Stock of $46.13 on
August 28, 1997) as a multiple of projected EBITDA and of earnings per share. BT
Wolfensohn also analyzed the multiples of such financial performance measures as
of the same date for a group of public companies that BT Wolfensohn deemed to be
comparable (the "Promus Comparables"): Marriott International, Choice Hotels and
Four Seasons (the "Management and Franchise Comparables"); Host Marriott, Red
Roof Inns, La Quinta Inns and Sholodge (the "Hotel Ownership Comparables"); and
Capstar, Interstate Hotels, Servico, Prime Hospitality, John Q. Hammons Hotel
and Bristol Hotels (the "Non-Branded Comparables"). To calculate the trading
multiples for the Promus Comparables, BT Wolfensohn used publicly available
information concerning historical and projected financial performance for the
Promus Comparables, including published historical information, earnings
estimates from the Institutional Brokers Estimate System and estimates of EBITDA
based on analyst research reports.
BT Wolfensohn then compared the trading multiples for the Promus Comparables
to the implied transaction multiples for Promus. The market values of the Promus
Comparables as multiples of estimated 1997 earnings per share ("EPS") ranged
from (a) 26.4x to 37.9x for Management and Franchise Comparables, with a median
of 30.8x; (b) 10.2x to 18.8x for Hotel Ownership Comparables, with a median of
13.8x; and (c) 10.3x to 26.2x for Non-Branded Comparables, with a median of
21.6x; as compared with an implied transaction multiple of 28.8x for Promus. The
market values of the Promus Comparables as multiples of estimated 1998 EPS of
the Promus Comparables ranged from (x) 22.3x to 32.1x for Management and
Franchise Comparables, with a median of 24.4x; (y) 8.6x to 14.9x for Hotel
Ownership Comparables, with a median of 11.9x; and (z) 9.7x to 20.9x for
Non-Branded Comparables, with a median of 17.7x; as compared with an implied
transaction multiple of 23.7x for Promus. The market values of the Promus
Comparables as multiples of estimated 1997 EBITDA of the Promus Comparables
ranged from (a) 11.2x to 16.5x for Management and Franchise Comparables, with a
median of 11.6x; (b) 7.2x to 11.1x
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for Hotel Ownership Comparables, with a median of 8.6x; and (c) 6.9x to 12.0x
for Non-Branded Comparables, with a median of 9.7x; as compared to an implied
transaction multiple of 13.4x for Promus. The market capitalizations of the
Promus Comparables as multiples of estimated 1998 EBITDA of the Promus
Comparables ranged from (x) 9.4x to 13.9x for Management and Franchise
Comparables, with a median of 10.5x; (y) 5.6x to 9.0x for Hotel Ownership
Comparables, with a median of 7.3x; and (z) 6.0x to 9.2x for Non-Branded
Comparables, with a median of 7.8x; as compared with an implied transaction
multiple of 11.5x for Promus.
None of the companies utilized as a comparison is identical to Promus,
Doubletree or the business segment for which a comparison is being made.
Accordingly, an analysis of publicly traded comparable companies is not simply
mathematical. Rather, it involves complex considerations and qualitative
judgments, reflected in BT Wolfensohn's opinion, concerning differences in
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies.
PRO FORMA COMBINATION ANALYSIS. BT Wolfensohn analyzed the pro forma impact
of the Merger on Promus's EPS for the fiscal years ended 1998 through 2001. The
analysis was performed utilizing stand-alone earnings estimated for the fiscal
years ended 1998 through 2000 for Promus and Doubletree based on certain
financial projections prepared by the respective managements of each company.
Based on such analysis, the Merger will be accretive to Promus's EPS without
considering any cost savings or transaction costs that may result from the
Merger. BT Wolfensohn considered the pro forma impact of the Merger on Promus's
coverage ratios. In this regard, BT Wolfensohn noted that while the pro forma
debt/capital ratios for New Promus are greater than the projected Promus
stand-alone ratio, and the pro forma EBITDA/ interest ratios (calculated without
considering any cost savings or transaction costs that may result from the
Merger) for New Promus are less than the projected Promus stand-alone ratio, the
New Promus ratios are projected to improve over time and remain within published
S&P 3-year median credit rating ratios for investment grade companies. BT
Wolfensohn also considered pro forma DCF reference values of New Promus,
prepared by combining stand-alone projections provided by respective managements
and in accordance with the procedures described under the caption "Discounted
Cash Flow Analysis" above. In this analysis, BT Wolfensohn included a
hypothetical $20 million of transaction expenses. BT Wolfensohn compared pro
forma DCF reference valuations implied for Promus shareholders (the "Implied
Promus Valuation") to Promus stand-alone valuations (the "Stand-alone Promus
Valuation"). BT Wolfensohn observed that the Implied Promus Valuation compared
favorably to the Stand-alone Promus Valuation without considering any cost
savings or incremental transaction expenses greater than $20 million that may
result from the Merger.
COMPARABLE TRANSACTIONS ANALYSIS. BT Wolfensohn reviewed and analyzed
certain financial, operating and stock market information relating to selected
merger transactions. BT Wolfensohn analyzed seven transactions that had closed
or were currently pending involving the acquisition of companies in the lodging
industry (the "Lodging Transactions"). The Lodging Transactions and the date
each such transaction was announced are as follows: Patriot American
Hospitality/Wyndham Hotel Corporation (April 14, 1997); Marriott International
Corp./Renaissance Hotels, Inc. (February 18, 1997); Extended Stay America/
Studio Plus Hotels, Inc. (January 19, 1997); Bristol Hotels/Bass Plc (Holiday
Inn portfolio) (December 13, 1996); Interstate Hotels Company/Equity Inns. Inc.
(Trust Leasing Inc.) (September 19, 1996); Doubletree Corporation/Red Lions
Hotels, Inc. (September 12, 1996); Doubletree Corporation/RFS Inc. (December 19,
1995). Based on available data, this analysis showed that (a) the premium paid
to market price for the acquired companies ranged from 9.5% to 59.1%, with a
median of 22%; (b) total enterprise value as a multiple of last twelve months'
EBITDA for the acquired companies ranged from 7.5x to 29.8x, with a median of
19.3x; and (c) equity value as a multiple of last twelve months' earnings for
the acquired companies ranged from 21.2x to 63.1x, with a median of 26.05x.
Based on its review of the terms of the Lodging Transactions (which each
involved the acquisition of one company by another and payment of a premium for
the resulting change of control), BT Wolfensohn
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determined that none of the Lodging Transactions were directly comparable to the
Merger (which is structured as a merger of equals). BT Wolfensohn therefore
concluded that the multiples observed in the Lodging Transactions did not
constitute an appropriate valuation methodology for the Merger.
BT Wolfensohn also analyzed six merger-of-equals transactions in which the
board of directors of the combined company was evenly split: NYNEX/Bell Atlantic
(announced April 21, 1996), UtiliCorp United/ Kansas City Power & Light Company
(announced January 19, 1996), The Upjohn Company/Pharmacia Aktiebolag (announced
August 20, 1995), Northern States Power Company/Wisconsin Energy Corporation
(announced April 28, 1995), Lockheed Corporation/Martin Marietta Corporation
(announced August 29, 1994), and KeyCorp/Society Corporation (announced October
1, 1993). This analysis indicated that the exchange ratios for such transactions
ranged from 0.768 to 1.630, generating implied share prices at premiums (or
discounts) ranging from 1.7% to -1.7% and 19.2% to -16.1% for the respective
parties to such transactions, based on share prices one day prior to the
announcement of such transactions. Based on currently outstanding shares and the
August 28, 1997 closing market prices for Promus Common Stock and Doubletree
Common Stock, the implied transaction price for Promus resulting from the Promus
Exchange Ratio represents a premium above the market price for Promus Common
Stock of approximately 9.0%.
Because the reasons for, and circumstances surrounding, each of the
transactions analyzed were so diverse, and due to the inherent differences
between the operations and financial conditions of Promus and the selected
companies, BT Wolfensohn believes that a comparable transaction analysis is not
simply mathematical. Rather, it involves complex considerations and qualitative
judgments, reflected in BT Wolfensohn's opinion, concerning differences between
the characteristics of these transactions and the Merger that could affect the
value of the subject companies and businesses and Promus.
OTHER MATTERS RELATING TO THE BT WOLFENSOHN OPINION. The preparation of a
fairness opinion is a complex process involving the application of subjective
business judgment in determining the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. BT Wolfensohn believes that its analyses must be considered
as a whole and that considering any portions of such analyses and of the factors
considered, without considering all analyses and factors, could create a
misleading view of the process underlying the opinion. Accordingly, BT
Wolfensohn did not assign specific weights to any particular analyses.
In conducting its analyses and arriving at its opinions, Wolfensohn utilized
a variety of generally accepted valuation methods. In its analyses, Wolfensohn
made numerous assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond Promus's or
Doubletree's control. Estimates or forecasts of future results incorporated in
the analyses performed by BT Wolfensohn are not necessarily indicative of actual
past or future values or results, which may be significantly more or less
favorable than any such estimates or forecasts. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of Promus, Doubletree or their respective advisors, none of
Promus, Doubletree, BT Wolfensohn or any other person assumes responsibility if
future results or actual values are materially different from these forecasts or
assumptions.
Promus selected BT Wolfensohn as financial advisor in connection with the
Merger based on BT Wolfensohn's qualifications, expertise, reputation and
experience in transactions similar to the Merger. Promus has retained BT
Wolfensohn pursuant to a letter agreement dated August 15, 1997 (the "Engagement
Letter"). As compensation for BT Wolfensohn's services in connection with the
Merger, Promus has agreed to pay BT Wolfensohn a cash fee of $1,000,000 and, if
the Merger is consummated, an additional cash fee of $6,000,000. Regardless of
whether the Merger is consummated, Promus has agreed to reimburse BT Wolfensohn
for all reasonable fees and disbursements of BT Wolfensohn's counsel and all of
BT Wolfensohn's reasonable travel and other out-of-pocket expenses incurred in
connection with the Merger or otherwise arising out of the retention of BT
Wolfensohn under the Engagement Letter. Promus
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has also agreed to indemnify BT Wolfensohn and certain related persons to the
full extent lawful against certain liabilities, including certain liabilities
under the federal securities laws, arising out of its engagement or the Merger.
BT Wolfensohn is engaged in the merger and acquisition and client advisory
business of Bankers Trust and, for legal and regulatory purposes, is a division
of BT Alex. Brown Incorporated, a registered broker dealer and member of the
NYSE. BT Wolfensohn is familiar with Promus, having provided financial advisory
and investment banking services to Promus for a number of years. BT Wolfensohn
receives fees for the rendering of these services. BT Wolfensohn or its
affiliates may actively trade equity securities of Promus or Doubletree for
their own account or the account of their customers and, accordingly, may from
time to time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of Doubletree
and Promus with respect to the Merger, Doubletree and Promus stockholders should
be aware that certain members of management of Doubletree and Promus and of the
Doubletree Board of Directors and the Promus Board of Directors have interests
in the Merger that are different from, or in addition to, the interests of the
stockholders of Doubletree and Promus generally. The Board of Directors of each
of Doubletree and Promus was aware of such interests and considered them, among
other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
BOARD OF DIRECTORS, COMMITTEES AND MANAGEMENT OF NEW PROMUS. As provided in
the Merger Agreement, upon the filing of certificates of merger with the
Secretary of State of the State of Delaware or at such later time as specified
therein (the "Effective Time"), the New Promus Board of Directors will consist
of 14 directors, seven of which will be designated by Doubletree (the "Initial
Doubletree Directors") and seven of which will be designated by Promus (the
"Initial Promus Directors'). Two, two and three of the Initial Doubletree
Directors will be Class I, II and III directors of New Promus, respectively, and
two, three and two of the Initial Promus Directors will be Class I, II and III
directors of New Promus, respectively. The Merger Agreement also provides that
until December 31, 2002, (a) the Board of Directors of New Promus and each
committee of the Board as constituted following each election of directors shall
consist of equal numbers of Doubletree Directors (as defined below) and Promus
Directors (as defined below), and (b) the size of the Board of Directors of New
Promus and each committee of the Board shall not be increased unless such
increase is approved by 75% of the directors of New Promus. If at any time prior
to December 31, 2002, the number of Doubletree Directors and Promus Directors
serving, or that would be serving following the next stockholders' meeting at
which directors of New Promus are to be elected, as directors of New Promus or
as members of any such committee, would not be equal, then, subject to their
fiduciary duties, the Board of Directors of New Promus and the Human Resources
Committee thereof shall nominate for election at the next stockholders' meeting
at which directors are to be elected, such person or persons as may be requested
by the remaining Doubletree Directors (if the number of Doubletree Directors is,
or would otherwise become, less than the number of Promus Directors) or by the
remaining Promus Directors (if the number of Promus Directors is, or would
otherwise become, less than the number of Doubletree Directors) to ensure that
there shall be an equal number of Doubletree Directors and Promus Directors. The
term "Doubletree Director" means (i) any Initial Doubletree Director and (ii)
any person who becomes a director of New Promus pursuant to the preceding
sentence and who is designated by the then Doubletree Directors. The term
"Promus Director" means (i) any Initial Promus Director and (ii) any person who
becomes a director of New Promus pursuant to the second preceding sentence and
who is designated by the then Promus Directors. The Bylaws of New Promus provide
that the above provisions may be amended by the Board of Directors of New Promus
only with the approval of 75% of the directors of New Promus.
The Board of Directors of New Promus will have an Executive Committee
comprised of Messrs. Ferris, Rose, Schultz and Ueberroth. In addition, Mr.
Kelleher will be an ex-officio member of the
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Executive Committee, with the right to attend, but not vote at, all meetings of
the Executive Committee. The non-employee members of the Executive Committee
will be paid $300,000 annually as compensation for serving on such Committee.
See "The Combined Company--Directors and Executive Officers." The Board of
Directors of New Promus also will have a Human Resources Committee, which is
expected to be chaired by Dale Frey.
At the Effective Time, pursuant to the terms of the employment agreements
described below under "--Interests of Certain Persons in the Merger--Employment
Agreements," (i) Raymond E. Schultz, the current President and Chief Executive
Officer of Promus, will become Chief Executive Officer and Chairman of the Board
of New Promus; (ii) Richard M. Kelleher, the current President and Chief
Executive Officer of Doubletree, will become the President and Chief Operating
Officer of New Promus, (iii) William L. Perocchi, the current Executive Vice
President and Chief Financial Officer of Doubletree, will become the Executive
Vice President and Chief Financial Officer of New Promus and (iv) Thomas L.
Keltner, the current Executive Vice President and Chief Development Officer of
Promus, will become the Executive Vice President and Chief Development Officer
of New Promus. Mr. Schultz will continue as Chairman of the Board and Chief
Executive Officer of New Promus until his retirement and, pursuant to the terms
of Mr. Kelleher's employment agreement and subject to the Bylaws of New Promus,
Mr. Kelleher will succeed Mr. Schultz as Chairman of the Board and Chief
Executive Officer of New Promus. The provisions of the New Promus Bylaws
governing Mr. Kelleher's succession to Mr. Schultz as Chairman of the Board and
Chief Executive Officer of New Promus may only be amended, altered or repealed
through a vote by 75% of the Board of Directors of New Promus.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF DOUBLETREE AND PROMUS. The
Merger Agreement provides that (a) from and after the Effective Time, New Promus
will, and will cause Promus and Doubletree to, indemnify and hold harmless each
present and former director and officer of Doubletree and Promus (the
"Indemnified Parties"), 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
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Doubletree or Promus, as the case may be, would
have been permitted under Delaware law and its certificate of incorporation or
bylaws in effect on the date of the Merger Agreement to indemnify such
Indemnified Party, and (b) for a period of six years after the Effective Time,
New Promus will cause to be maintained in effect policies of directors' and
officers' liability insurance with coverage in amount and scope at least as
favorable as Doubletree's and Promus's existing coverage (provided the annual
aggregate premium does not exceed 200% of the annual premium currently paid by
Doubletree and Promus for such coverage) with respect to claims arising from
facts or events which occurred on or before the Effective Time.
EMPLOYMENT AGREEMENTS. Prior to the closing of the Merger, New Promus will
enter into employment agreements with Messrs. Schultz, Kelleher, Perocchi and
Keltner. New Promus will employ Mr. Schultz as Chairman of the Board and Chief
Executive Officer of New Promus from the Effective Time until December 31, 1999.
Mr. Kelleher initially will be employed as President and Chief Operating Officer
of New Promus. Mr. Kelleher's employment agreement, which will have an initial
term of five years, will provide that upon Mr. Schultz's retirement, Mr.
Kelleher will succeed Mr. Schultz as Chairman of the Board and Chief Executive
Officer of New Promus. Both Mr. Schultz's and Mr. Kelleher's initial annual
salary will be set by the Human Resources Committee and thereafter will be
subject to merit increases as may be approved by the Human Resources Committee.
During the terms of their respective employment agreements, Mr. Schultz and Mr.
Kelleher will each be eligible for benefits available to other executives,
including eligibility for bonus compensation in the form of stock options and
restricted stock awards as may be approved by the Human Resources Committee. If
the employment agreement of Mr. Schultz or Mr. Kelleher is terminated without
"cause" by New Promus or for "good reason" (each as defined in the employment
agreement) by the employee, Mr. Schultz or Mr. Kelleher, as the case may be,
will receive a
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lump sum payment equal to the sum of (i) his then current base salary, (ii) his
then current target annual bonus or the prior year's annual bonus, if greater,
and (iii) a benefit allowance of 25% of his then current base salary (such sum
referred to as the "Base Amount") times three. In addition, with respect to Mr.
Schultz, upon a termination without "cause" or a resignation for any reason,
unvested options and restricted stock issued after the Merger to Mr. Schultz
which are scheduled to vest over the next two years shall immediately vest upon
the date of termination, and all other unvested options and restricted stock
issued after the Merger to Mr. Schultz will continue to vest and, in the case of
options, be exercisable, pursuant to the terms of such options and restricted
stock as if such termination or resignation had not occurred. With respect to
Mr. Kelleher, upon a termination without "cause" or resignation for "good
reason," all unvested options and restricted stock issued after the Merger to
Mr. Kelleher will continue to vest and, in the case of options, be exercisable,
pursuant to the terms of such options and restricted stock as if such
termination or resignation had not occurred. Upon termination of Mr. Schultz's
or Mr. Kelleher's employment for "cause," their respective unvested options and
restricted stock will be cancelled. In the event that Mr. Schultz or Mr.
Kelleher becomes entitled to a lump sum payment as described above which is
subject to taxation under Section 4999 (the "Excise Tax") of the Internal
Revenue Code, the employment agreements of Mr. Schultz and Mr. Kelleher will
provide that New Promus will pay Mr. Schultz or Mr. Kelleher, as the case may
be, an additional amount (the "Gross-Up Payment") such that the net amount
retained by Mr. Schultz or Mr. Kelleher, as the case may be, after deduction of
the Excise Tax on the lump sum payment and all Excise Tax and other taxes on the
Gross-Up Payment shall equal the initial lump sum amount. After the termination
of his employment with New Promus, Mr. Schultz or Mr. Kelleher, as the case may
be, will be entitled to receive group insurance benefits at New Promus's cost
for his lifetime similar to the benefits provided to any retired management
director of New Promus. The employment agreements of Mr. Schultz and Mr.
Kelleher provide for certain restrictive covenants relating to nondisclosure of
confidential information, nonsolicitation of protected employees, and
noninterference with company opportunities for a period of two years following
the termination of employment. New Promus will indemnify and hold Mr. Schultz
and Mr. Kelleher harmless for any costs or liabilities arising out of or
pertaining to matters existing or occurring at or prior to their termination of
employment. For a period of six years after Mr. Schultz's and Mr. Kelleher's
termination of employment, New Promus shall maintain in effect liability
insurance with coverage in amount and scope at least as favorable as coverage
existing on the date of termination of employment. If Mr. Schultz's or Mr.
Kelleher's employment is terminated under circumstances that entitle him to
payment under his severance agreement (described below), Mr. Schultz or Mr.
Kelleher, as the case may be, would be entitled to receive the severance
payments under his severance agreement (if then in force) in lieu of the
severance payments under his employment agreement, but would still be entitled
to the lifetime group insurance benefits and vesting of options and restricted
stock to the extent provided in the employment agreement.
The employment agreements to be entered into with Messrs. Perocchi and
Keltner will be substantially similar to the employment agreement to be entered
into with Mr. Schultz and Mr. Kelleher, except that Mr. Perocchi will be
employed as Executive Vice President and Chief Financial Officer, and Mr.
Keltner will be employed as Executive Vice President and Chief Development
Officer. In addition, upon a termination without "cause" or a resignation for
"good reason," all unvested options and restricted stock issued after the Merger
to Mr. Perocchi or Mr. Keltner, as the case may be, shall continue to vest and,
in the case of options, be exercisable, pursuant to the terms of such options
and restricted stock as if such termination or resignation had not occurred. The
provisions of the New Promus Bylaws require that, until such time as Mr.
Kelleher succeeds Mr. Schultz as Chairman of the Board and Chief Executive
Officer of New Promus, Mr. Perocchi shall serve as Executive Vice President and
Chief Financial Officer of New Promus, unless 75% or more of the members of the
New Promus Board of Directors vote otherwise.
SEVERANCE AGREEMENTS. In connection with the Merger, Doubletree entered
into severance agreements with 43 officers of Doubletree (including eight
executive officers) which provide certain benefits in the event of the
termination of such officer's employment without "cause" or by such officer for
"good
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reason" (each as defined in the severance agreements) or, in the case of Messrs.
Kelleher and Perocchi, by such officer for any reason, within two years after a
"reorganization event" of Doubletree (or until Mr. Kelleher becomes Chairman and
Chief Executive Officer of New Promus, if later). The Merger will constitute
such a "reorganization event" with respect to both companies. Severance payments
under these agreements will equal three times the Base Amount for Senior Vice
Presidents and above, and two times the Base Amount for other officers. In the
event that an employee becomes entitled to a severance payment as described
above, which is subject to the Excise Tax of the Internal Revenue Code, the
severance agreement provides that New Promus shall pay such employee an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the employee after deduction of the Excise Tax on the lump sum payment and all
Excise Tax and other taxes on the Gross-Up Payment shall equal the initial lump
sum amount. In addition, upon consummation of the Merger, Mr. Kelleher will
receive a $600,000 payment in connection with the termination of his existing
severance arrangements with Doubletree.
In connection with the Merger, Promus entered into severance agreements (or
amendments to pre-existing severance agreements) with 45 officers and employees
of Promus (including seven executive officers) which provide certain benefits in
the event of the termination of such officer's or employee's employment without
cause or by such officer or employee for good reason (or, in certain cases, by
such officer or employee for any reason) within two years (three years in the
case of one officer) after the closing of the Merger. Severance payments under
these agreements will equal three times the Base Amount for certain corporate
officers, and two times the Base Amount for division officers and certain other
officers and executives. In the event that an employee becomes entitled to a
severance payment as described above, which is subject to an Excise Tax, the
employment agreement provides that New Promus shall pay such employee a Gross-Up
Payment such that the net amount retained by the employee after deduction of the
Excise Tax on the lump sum payment and all Excise Tax and other taxes on the
Gross-Up Payment shall equal the initial lump sum amount.
For a summary of the estimated maximum value of the severance benefits
provided to the executive officers of Doubletree and Promus following
consummation of the Merger, see the table below under "--Stock Options and
Restricted Stock."
Doubletree and Promus also entered into new severance agreements and/or
adopted new severance policies with respect to certain other employees of
Doubletree and Promus, respectively.
Prior to the commencement of discussions between Promus and Doubletree with
respect to the Merger, Promus had entered into severance agreements with certain
of its corporate officers, including Messrs. Schultz and Rose. With respect to
the agreements with officers other than Messrs. Schultz and Rose, these
agreements were amended simultaneously with the execution of the severance
agreements described above. With respect to the agreements with officers other
than Messrs. Schultz and Rose, the amendments had the effect of excluding the
Merger and the execution of the Merger Agreement from the definition of a
"change of control" or "potential change in control" and to provide that these
earlier severance agreements would terminate upon the closing of the Merger. The
amendments also had the effect of changing the circumstance in which benefits
arise, and the potential amount payable in the event of a change of control
other than the Merger. With respect to Messrs. Schultz and Rose, the
pre-existing severance agreements have been amended to include the foregoing
provision.
STOCK OPTIONS AND RESTRICTED STOCK. The Amended and Restated Equity
Participation Plan of Doubletree Corporation, as amended (the "Doubletree
Incentive Plan"), provides for vesting of options and restricted stock upon a
"change in control." The Merger will constitute a change in control under the
Doubletree Incentive Plan. As a result, all of the currently unvested options
and restricted stock outstanding under the Doubletree Incentive Plan will become
fully vested and immediately exercisable upon consummation of the Merger. The
treatment in the Merger of outstanding options and restricted
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stock granted under the Doubletree Incentive Plan is described under "The Merger
Agreement--Certain Covenants--Stock Plans."
The Promus 1995 Stock Option Plan and the Promus 1995 Restricted Stock Plan
(collectively, the "Promus Incentive Plans") provide for vesting of options and
restricted stock upon a "change in control." The Merger will constitute a change
in control under the Promus Incentive Plans. As a result, all of the options and
restricted stock outstanding under the Promus Incentive Plans will become fully
vested upon consummation of the Merger. The treatment in the Merger of
outstanding options and restricted stock granted under the Promus Incentive
Plans is described under "The Merger Agreement--Certain Covenants--Stock Plans."
The following table sets forth the estimated maximum value of certain
benefits afforded to the named executive officers, all executive officers as a
group, non-employee directors and all non-employee directors as a group of
Doubletree and Promus in connection with the Merger, including the amount of
severance payments that would be made to the such executive officers (assuming
for purposes of presentation that such executive officers are terminated within
the first year following the Merger) and the value of outstanding stock options
and restricted stock held by such executive officers and directors of Doubletree
and Promus which will be accelerated as a result of the Merger:
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ESTIMATED MAXIMUM VALUE OF POTENTIAL BENEFITS TO DOUBLETREE
AND PROMUS EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
ESTIMATED VALUE OF VALUE OF VALUE OF
VALUE OF UNVESTED STOCK RESTRICTED TOTAL
CONTINGENT OPTIONS STOCK POTENTIAL
SEVERANCE ACCELERATED BY ACCELERATED BENEFITS FROM
EXECUTIVE OFFICERS AND DIRECTORS PAYMENT(1) MERGER(2) BY MERGER(3) MERGER(4)
- ------------------------------------------------------ ------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
PROMUS
NAMED EXECUTIVE OFFICERS:
Donald H. Dempsey................................... $ 1,398,951 $ 652,146 $ 4,671 $ 2,055,768
Thomas L. Keltner................................... 1,479,165 839,211 2,316 2,320,692
Michael D. Rose..................................... 1,842,875 2,159,634 -- 4,002,509
Raymond E. Schultz.................................. 3,345,195 2,272,417 -- 5,617,612
David C. Sullivan................................... 3,642,695 1,319,125 -- 4,961,820
All Executive Officers as a Group................... 14,293,036 8,449,449 18,841 22,761,326
NON-EMPLOYEE DIRECTORS:
U. Bertram Ellis, Jr................................ -- -- 23,550 23,550
Debra J. Fields..................................... -- -- 23,550 23,550
Christopher W. Hart................................. -- -- 23,550 23,550
C. Warren Neal...................................... -- -- 23,550 23,550
Ben C. Peternell.................................... -- -- 23,550 23,550
Michael I. Roth..................................... -- -- 23,550 23,550
Jay Stein........................................... -- -- 23,550 23,550
Ronald Terry........................................ -- -- 23,550 23,550
All Non-employee Directors as a Group............... -- -- 188,400 188,400
DOUBLETREE
NAMED EXECUTIVE OFFICERS:
Richard M. Kelleher................................. 2,362,500(5) 1,825,313 -- 4,187,813
William L. Perocchi................................. 1,485,000 1,101,094 -- 2,586,094
James P. Evans...................................... 1,366,200 1,186,875 -- 2,553,075
Margaret Ann Rhoades................................ 821,700 978,750 -- 1,800,450
Thomas W. Storey.................................... 1,287,000 930,938 -- 2,217,938
All Executive Officers as a Group................... 10,297,500 7,272,031 -- 17,569,531
NON-EMPLOYEE DIRECTORS:
Richard J. Ferris................................... -- 432,500 832,500 1,265,000
Peter V. Ueberroth.................................. -- 432,500 832,500 1,265,000
William R. Fatt..................................... -- 71,563 5,720 77,283
Dale F. Frey........................................ -- 3,750 5,720 9,470
Ronald K. Gamey..................................... -- 71,563 5,720 77,283
Edward A. Gilhuly................................... -- 9,844 5,720 15,564
Norman B. Leventhal................................. -- 71,563 5,720 77,283
Michael W. Michelson................................ -- 9,844 5,720 15,564
John H. Myers....................................... -- -- -- --
Priscilla Florence.................................. -- 5,000 5,720 10,720
All Non-employee Directors as a Group............... -- 1,108,127 1,705,040 2,813,167
</TABLE>
- ------------------------
(1) The estimated value of the contingent severance payments that may be made
assumes for purposes of presentation that termination of employment occurs
within one year following consummation of the Merger. Payment of such
amounts is subject to termination of employment under certain circumstances
described above under "--Severance Agreements," and it cannot be estimated
what amounts, if any, will actually be paid to executive officers. The
amounts shown are exclusive of the amounts, if any, that would be required
under the Severance Agreements as Gross-Up Payments.
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(2) The estimated value represents the number of shares of Promus Common Stock
or Doubletree Common Stock, as the case may be, subject to currently
unvested stock options that become vested and exercisable as a result of
consummating the Merger, multiplied by the "Option Spread." For purposes of
this table, the "Option Spread" is the difference between the exercise price
per share of each such option and the per share trading price of Doubletree
Common Stock or Promus Common Stock, as the case may be, on the record dates
of the Special Meetings (Promus: $39.25 per share; Doubletree: $41.625 per
share) (the "Record Date Price").
(3) The estimated value represents the number of shares of restricted Doubletree
Common Stock or restricted Promus Common Stock, as the case may be, with
respect to which the restrictions will lapse as a result of consummating the
Merger, multiplied by the Record Date Price (defined above).
(4) The estimated value of the total potential benefits represents the aggregate
of the value of contingent severance payments, the value of unvested stock
options accelerated by the Merger and the value of restricted stock
accelerated by the Merger. Does not include the value of stock options that
are fully vested prior to (and thus unaffected by) the Merger.
(5) Does not include a $600,000 payment to be received by Mr. Kelleher upon
consummation of the Merger in connection with the termination of his
existing severance arrangements with Doubletree.
OPTION AGREEMENT. Pursuant to an Option Agreement between Doubletree and GE
Investment Hotel Partners I, Limited Partnership ("GEHOP") dated June 30, 1994,
Doubletree issued to GEHOP an option to purchase 20,000 shares of Doubletree
Common Stock at an exercise price of $13.00 per share. As of the record date for
the Doubletree Special Meeting, 15,000 of such shares were vested and 5,000 were
unvested. Upon consummation of the Merger, all such shares will become fully
vested. Certain directors of Doubletree are affiliates of GEHOP.
SUPPLEMENTAL RETIREMENT. Messrs. Kelleher and Perocchi participate in a
Supplemental Executive Retirement Plan ("SERP") maintained by Doubletree. Under
the SERP, upon a "Change of Control" of Doubletree, a participant's retirement
benefits will be calculated on the basis of an unreduced age 60 normal
retirement benefit, regardless of the participant's age at retirement, rather
than a reduced age 55 benefit. The Merger will constitute a Change of Control
under the SERP. The present value of the additional accrued benefit for Messrs.
Kelleher and Perocchi as a result of the Merger will be approximately $526,000
and $222,000, respectively. In the event that SERP benefits become subject to an
excise tax under Section 4999 of the Internal Revenue Code, Doubletree will make
an additional "gross-up" payment to the participant to account for such tax.
WARRANTS AND REGISTRATION RIGHTS. In connection with the Merger, New Promus
will assume all obligations under a warrant to purchase 262,753 shares of
Doubletree Common Stock issued to PT Investments, Inc., an affiliate of General
Electric Pension Trust ("GEPT") (the "GEPT Warrant"). Certain directors of
Doubletree are affiliates of GEPT. After the Merger, the holder of the GEPT
Warrant shall have the right to acquire the same number of shares of New Promus
Common Stock as such holder would have been entitled to receive pursuant to the
Merger had such holder exercised the GEPT Warrant in full immediately prior to
the Merger at an aggregate purchase price equal to the aggregate exercise price
for the shares of Doubletree Common Stock purchasable pursuant to the GEPT
Warrant immediately prior to the Merger.
In connection with the Merger, New Promus will enter into a registration
rights agreement with certain stockholders of Doubletree, including certain
directors and parties affiliated with directors of Doubletree, providing them
with certain "demand," "piggyback," and "shelf" registration rights with respect
to New Promus Common Stock then owned by them.
ACCOUNTING TREATMENT OF THE MERGER
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of Doubletree and Promus
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will be carried forward to the combined company at their recorded amounts, the
operating results of New Promus will include the operating results of Doubletree
and Promus for the entire fiscal year in which the combination occurs and the
reported operating results of the separate companies for prior periods will be
combined and restated as the operating results of the combined company. A
condition to the Merger is that Doubletree and Promus each receive a letter from
their respective independent auditors, KPMG Peat Marwick LLP and Arthur Andersen
LLP, regarding their concurrence with the conclusions of the management of
Doubletree and Promus that the transactions contemplated by the Merger
Agreement, if consummated, will qualify for pooling of interests accounting
treatment. See "The Merger--Accounting Treatment of the Merger" and
"--Conditions to Obligations to Effect the Merger."
Pooling of interests accounting treatment requires the sharing of rights and
risks among the affiliates of each of the parties to a business combination such
that sales of stock by affiliates cannot occur in the period commencing 30 days
prior to the consummation of the combination and ending on the date on which the
combined company publicly announces financial results covering at least 30 days
of combined operations. To ensure that such pooling requirements are satisfied,
each of Doubletree and Promus agreed in the Merger Agreement to use all
reasonable efforts to obtain written agreements from their respective affiliates
containing, among other things, the restrictions described above. See "The
Merger--Resales of New Promus Common Stock Issued in Connection with the Merger;
Affiliate Agreements."
CERTAIN FEDERAL REGULATORY MATTERS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")
rules and regulations thereunder require that parties of a certain size to a
proposed merger or business combination exceeding a certain size file with the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the Federal Trade Commission (the "FTC") Notification and Report Forms ("Forms")
with respect to such merger or business combination. The parties thereafter are
required to observe a waiting period before consummating the reported
transaction. In compliance with the HSR Act, Doubletree and Promus filed Forms
on October 3, 1997 with the Antitrust Division and the FTC with respect to the
Merger. The FTC granted early termination of the applicable waiting period under
the HSR Act on October 20, 1997. At any time before or after the Effective Time,
the Antitrust Division, the FTC, state antitrust authorities or a private person
or entity could seek to enjoin the Merger under the antitrust laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Dewey Ballantine LLP, counsel to Doubletree, the material
federal income tax considerations generally applicable to holders of Doubletree
Common Stock who, pursuant to the Doubletree Merger, exchange their Doubletree
Common Stock solely for New Promus Common Stock, and in the opinion of Latham &
Watkins, counsel to Promus, the material federal income tax considerations
generally applicable to holders of Promus Common Stock who, pursuant to the
Promus Merger, exchange their Promus Common Stock solely for New Promus Common
Stock, are described below. Consummation of the Doubletree Merger is conditioned
upon the receipt by Doubletree of an opinion of Dewey Ballantine LLP, based upon
reasonably requested representation letters and dated the closing date, to the
effect that the Doubletree Merger will be treated for federal income tax
purposes as a reorganization described in Section 368(a) of the Code and/or,
taken together with the Promus Merger, as a transfer of property to New Promus
by holders of Doubletree Common Stock described in Section 351 of the Code. The
portion of the discussion below under "Treatment of Holders of Doubletree Common
Stock" assumes that the Doubletree Merger will be treated in accordance with the
opinion of Dewey Ballantine LLP described in the preceding sentence.
Consummation of the Promus Merger is conditioned upon the receipt by Promus of
an opinion of Latham & Watkins, based upon reasonably requested representation
letters and dated the closing date, to the effect that the Promus Merger will be
treated for federal income tax purposes as a reorganization described in Section
368(a) of the Code and/or, taken together with the Doubletree Merger, as a
transfer of property to New Promus by holders of Promus Common Stock
45
<PAGE>
described in Section 351 of the Code. The portions of the discussion below under
"--Treatment of Holders of Promus Common Stock" and "--Cash in Lieu of
Fractional Shares" assume that the Promus Merger will be treated in accordance
with the opinion of Latham & Watkins described in the preceding sentence.
The discussion below and the opinions of Dewey Ballantine LLP and Latham &
Watkins are based upon current provisions of the Code, currently applicable
Treasury regulations, and judicial and administrative decisions and rulings.
There can be no assurance that the Internal Revenue Service (the "IRS") will not
take a contrary view, and no ruling from the IRS has been or will be sought.
Future legislative, judicial or administrative changes or interpretations could
alter or modify the statements and conclusions set forth herein, and any such
changes or interpretations could be retroactive and could affect the tax
consequences to the stockholders of Doubletree and Promus.
The discussion below and the opinions of Dewey Ballantine LLP and Latham &
Watkins do not purport to deal with all aspects of federal income taxation that
may affect particular stockholders in light of their individual circumstances,
and is not intended for stockholders subject to special treatment under the
federal income tax law (including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign persons, stockholders who hold
their stock as part of a hedge, appreciated financial position, straddle or
conversion transaction, stockholders who do not hold their stock as capital
assets and stockholders who have acquired their stock upon the exercise of
employee options or otherwise as compensation). In addition, the discussion
below and the opinions do not consider the effect of any applicable state, local
or foreign tax laws.
TREATMENT OF HOLDERS OF DOUBLETREE COMMON STOCK. A holder of Doubletree
Common Stock who, pursuant to the Doubletree Merger, exchanges Doubletree Common
Stock for New Promus Common Stock will not recognize gain or loss upon such
exchange. (See, however, the discussion below under "-- Transfer Taxes"
regarding certain deemed dividends that may arise as a result of the Merger.)
Such holder's tax basis in the New Promus Common Stock received pursuant to the
Doubletree Merger will be equal to its tax basis in the Doubletree Common Stock
surrendered, and its holding period for the New Promus Common Stock will include
its holding period for the Doubletree Common Stock surrendered.
TREATMENT OF HOLDERS OF PROMUS COMMON STOCK. Except as discussed below
under "--Cash in Lieu of Fractional Shares," a holder of Promus Common Stock
who, pursuant to the Promus Merger, exchanges Promus Common Stock for New Promus
Common Stock will not recognize gain or loss upon such exchange. (See, however,
the discussion below under "--Transfer Taxes" regarding certain deemed dividends
that may arise as a result of the Merger.) Such holder's tax basis in the New
Promus Common Stock received pursuant to the Promus Merger will be equal to its
tax basis in the Promus Common Stock surrendered (excluding any portion of its
tax basis allocated to fractional shares), and its holding period for the New
Promus Common Stock will include its holding period for the Promus Common Stock
surrendered.
CASH IN LIEU OF FRACTIONAL SHARES. A holder of Promus Common Stock who
receives cash in lieu of fractional shares of New Promus Common Stock will be
treated as having received such fractional shares pursuant to the Promus Merger
and then as having exchanged such fractional shares for cash in a redemption by
New Promus. Any gain or loss attributable to fractional shares generally will be
capital gain or loss. The amount of such gain or loss will be equal to the
difference between the portion of the holder's tax basis in the Promus Common
Stock surrendered in the Promus Merger that is allocated to its fractional share
and the cash received in lieu thereof. Any such capital gain or loss will
constitute long-term capital gain or loss if the Promus Common Stock has been
held by the holder for more than one year at the Effective Time. Long-term
capital gain recognized by certain non-corporate stockholders is subject to
federal income tax at preferential capital gains rates, and such gain recognized
with respect to an asset with a holding period of more than 18 months is subject
to federal income tax at further reduced capital gains rates.
46
<PAGE>
TRANSFER TAXES. Pursuant to the Merger Agreement, Doubletree and Promus
will each pay certain New York State Real Estate Transfer Tax and certain other
transfer taxes ("Transfer Taxes") that arise as a result of the Merger. Such
payments may be considered for federal income tax purposes to be taxable
distributions paid to each holder of the corresponding corporation's common
stock. In that event, each holder of Doubletree Common Stock or Promus Common
Stock would be treated as if it received cash equal to the amount of Transfer
Taxes paid on its behalf by Doubletree or Promus, as the case may be. Pursuant
to the Merger Agreement and this Joint Proxy Statement/Prospectus, stockholders
of Doubletree and Promus will be deemed to have authorized Doubletree and Promus
to prepare, file and execute any tax returns related to such Transfer Taxes and
to have agreed to be bound by the values and allocations established by
Doubletree, Promus or New Promus on any such tax returns relating to Transfer
Taxes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING. Each stockholder of
Doubletree and Promus receiving New Promus Common Stock as a result of the
Merger will be required to retain certain records and file with its federal
income tax return a statement setting forth certain facts relating to the
Merger.
Backup withholding at the rate of 31% may apply with respect to certain
payments unless the recipient (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A stockholder who does not provide New Promus with
its correct taxpayer identification number may be subject to penalties imposed
by the IRS. Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against the stockholder's federal income tax
liability provided that certain required information is furnished to the IRS.
New Promus will report to stockholders of New Promus and to the IRS the
amount of "reportable payments" and any amount withheld with respect to New
Promus Common Stock during each calendar year.
THE FOREGOING GENERAL DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
IS NOT TAX ADVICE AND MAY NOT APPLY TO ALL STOCKHOLDERS OF DOUBLETREE AND
PROMUS. ACCORDINGLY, EACH STOCKHOLDER OF DOUBLETREE AND PROMUS IS URGED TO
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL OR FOREIGN TAX LAWS.
DELISTING AND DEREGISTRATION OF DOUBLETREE COMMON STOCK AND PROMUS COMMON STOCK;
LISTING OF NEW PROMUS COMMON STOCK
Doubletree Common Stock currently is listed for quotation on the Nasdaq
National Market ("Nasdaq") under the symbol "TREE." Upon consummation of the
Merger, Doubletree Common Stock will be delisted from Nasdaq and deregistered
under Securities Exchange Act of 1934, as amended (the "Exchange Act"). Promus
Common Stock currently is listed on the New York Stock Exchange (the "NYSE")
under the symbol "PRH." Upon consummation of the Merger, Promus Common Stock
will be delisted from NYSE and deregistered under the Exchange Act. Application
will be made for the listing on the NYSE, the Chicago Stock Exchange, the
Pacific Stock Exchange and the Philadelphia Stock Exchange of the shares of New
Promus Common Stock to be issued in the Merger. This listing on the NYSE is a
condition to the consummation of the Merger. See "The Merger
Agreement--Conditions to Obligations to Effect the Merger." Following the
Merger, Doubletree and Promus stockholders will need to exchange their
outstanding stock certificates for shares of New Promus Common Stock. See "The
Merger Agreement--Exchange of Stock Certificates."
HOLDERS OF DOUBLETREE COMMON STOCK OR PROMUS COMMON STOCK SHOULD NOT SEND IN
THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM FROM FIRST UNION
NATIONAL BANK, THE EXCHANGE AGENT THEREFOR.
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<PAGE>
RESALES OF NEW PROMUS COMMON STOCK ISSUED IN CONNECTION WITH THE MERGER;
AFFILIATE AGREEMENTS
New Promus Common Stock issued in connection with the Merger will be freely
transferable, except that shares of New Promus Common Stock received by persons
who are deemed to be "affiliates" (as such term is defined by Rule 144 under the
Securities Act of 1933 (the "Securities Act") of Doubletree or Promus at the
Effective Time may be resold by them only in transactions permitted by the
resale provisions of Rule 145 under the Securities Act or as otherwise permitted
under the Securities Act. Doubletree and Promus have agreed that they will use
all reasonable efforts to cause each of their executive officers and directors
and persons who may be deemed to be "affiliates" to execute a written agreement
(an "Affiliate Agreement") providing, among other things, that such person will
not offer, sell, transfer or otherwise dispose of any of the shares of New
Promus Common Stock obtained as a result of the Merger except in compliance with
the Securities Act and the rules and regulations of the Securities and Exchange
Commission (the "SEC") thereunder. Each Affiliate Agreement also (i) will
provide that the affiliate covered by such agreement may not take certain
actions that would jeopardize the accounting treatment of the Merger as a
"pooling of interests" and (ii) require such affiliate to make certain
representations with respect to certain tax matters. This summary is qualified
in its entirety by reference to the specific provisions of the Affiliate
Agreements, the forms of which are included as exhibits to the Current Report on
Form 8-K of Promus filed with the SEC on September 5, 1997 and the Current
Report on Form 8-K of Doubletree filed with the SEC on September 5, 1997, as
amended. See "Where You Can Find More Information."
NO APPRAISAL RIGHTS
Holders of Doubletree Common Stock and Promus Common Stock are not entitled
to dissenters' or appraisal rights in connection with the Merger because (i) the
Doubletree Common Stock was quoted on the Nasdaq on the record date for the
Doubletree Special Meeting, (ii) the Promus Common Stock was listed on the NYSE
on the record date for the Promus Special Meeting and (iii) the shares of New
Promus Common Stock that such holders will be entitled to receive in the Merger
will be listed on the NYSE as of the Effective Time.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Doubletree and Promus have made forward-looking statements in this document
and the documents incorporated by reference herein that are subject to risks and
uncertainties. These statements are based on management's beliefs and
assumptions, based on information currently available to management. Forward-
looking statements include the information concerning possible or assumed future
results of operations of Doubletree and Promus set forth (i) under "Summary,"
"Risk Factors," "The Merger--Background of the Merger," "--Recommendations of
the Boards of Directors of Doubletree and Promus; Reasons for the Merger,"
"--Opinion of Financial Advisor to Doubletree " and "--Opinion of Financial
Advisor to Promus," and "Unaudited Pro Forma Financial Information," (ii) under
"Business" and "Management's Discussion and Analysis" in each company's Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q incorporated by reference
into this document, (iii) under "The Combined Company--Business and Strategy"
and (iv) in this document and the documents incorporated herein by reference
preceded by, followed by or that include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of Doubletree, Promus and New Promus may differ materially from those expressed
in these forward-looking statements. Many of the factors that will determine
these results and values are beyond Doubletree's and Promus's ability to control
or predict. Shareholders are cautioned not to put undue reliance on any
forward-looking statements. In addition, Doubletree and Promus do not have any
intention or obligation to update forward-looking statements after they
distribute this Joint Proxy Statement/Prospectus, even if new information,
future events or other
48
<PAGE>
circumstances have made them incorrect or misleading. For those statements,
Doubletree and Promus claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
Shareholders of Doubletree and Promus should understand that the following
important factors, in addition to those discussed elsewhere in the documents
which are incorporated by reference into this Joint Proxy Statement/Prospectus,
could affect the future results of New Promus and could cause results to differ
materially from those expressed in such forward-looking statements: (i) the
effect of economic conditions; (ii) the ability of Doubletree and Promus to
successfully integrate their operations; (iii) the impact of competition; and
(iv) customer demand.
49
<PAGE>
THE COMBINED COMPANY
As a result of the Merger, Doubletree and Promus will become wholly-owned
subsidiaries of New Promus, which will succeed to the businesses currently
conducted by Doubletree and Promus. The corporate headquarters of New Promus
will be in Memphis, Tennessee. The executive management of New Promus will be
comprised of members of the existing executive management of Doubletree and
Promus, with Raymond E. Schultz serving as Chief Executive Officer and Chairman
of the Board of New Promus and Richard M. Kelleher serving as the President and
Chief Operating Officer of New Promus. The Board of Directors of New Promus will
consist of 14 persons (with Doubletree and Promus each selecting seven members)
and will have an Executive Committee which will initially be comprised of Mr.
Schultz, Richard J. Ferris, Michael D. Rose and Peter V. Ueberroth. In addition,
Mr. Kelleher will be an ex-officio member of the Executive Committee. See
"--Directors and Executive Officers."
Management of Doubletree and Promus are jointly reviewing the two companies'
operations in order to develop plans and proposals regarding the integration and
combination of all functional areas of the combined business. The goal of
management of Doubletree and Promus is to complete its transition plan prior to
the consummation of the Merger, so that the plan may be implemented as soon
thereafter as possible.
Management of Doubletree and Promus believe that the Merger will create one
of the premier hotel management and franchising companies in the United States,
with the goal of becoming one of the world's premier hotel companies.
BUSINESS AND STRATEGY
As a result of the Merger, New Promus will be one of the largest lodging
companies in the U.S., with approximately $5 billion in annual system-wide
revenues under management or franchise. As of September 30, 1997, on a pro forma
basis, New Promus would have owned, operated or franchised 1,180 hotels, with
approximately 177,000 rooms. In addition, New Promus would have had more than
40,000 employees in all regions of the United States and its major markets, as
well as other selected locations in Canada, Latin America and Asia. In addition,
on a pro forma basis for the year ended December 31, 1996, New Promus would have
had revenues of $560 million, operating income of $165 million and net income of
$90.7 million.
New Promus's principal business strategy will be to provide its hotel owners
with high quality, value-based hotel management and franchise services designed
to improve hotel profitability and to deliver excellent service to every hotel
guest, every time. As part of implementing this strategy:
- New Promus will seek to maintain its competitive position in the
marketplace by providing strategic distribution of its brands in key
segments of the industry. These brands, which will initially include
Doubletree Hotels, Embassy Suites, Doubletree Guest Suites, Homewood
Suites, Club Hotels by Doubletree, Hampton Inn, Hampton Inn & Suites and
Red Lion Hotels & Inns, provide hotel owners and guests with high quality
products across all major segments of the industry other than the luxury
segment.
- New Promus will focus on delivering to its hotel owners high quality
management and franchising services designed to increase revenues and
maximize hotel operating profitability. The combined company will seek to
increase revenues by strengthening its brands through continued growth in
the number of hotels in its systems and continued high levels of service.
The combined company will seek to maintain high operating margins by
leveraging its increased size to provide purchasing services to hotel
owners at favorable prices, by continuing to focus on minimizing the costs
associated with operating under its brand names, and by promoting employee
productivity and morale through its employee empowerment programs.
50
<PAGE>
- New Promus will seek to maximize hotel performance and thus the underlying
asset value of the hotel real estate it owns. New Promus expects to
realize this value through periodic disposition of such hotel real estate.
- The value of New Promus's product offerings will be strengthened by
Promus's 100% Satisfaction Guarantee program and Doubletree's CARE
program. Management of Doubletree and Promus believe that these programs
lead to higher guest satisfaction, greater productivity, more guest
loyalty and thus higher brand equity value.
- New Promus will focus on enhancing the reputation of both Doubletree and
Promus as hotel employers of choice. By continuing to enhance an
employee-focused work environment which results in increased employee
retention, New Promus will be able to attract high quality, customer-
oriented employees focused on the best possible guest experience.
New Promus's growth strategy will focus on five areas: (a) improving
comparable hotel results; (b) increasing the number of rooms under management or
franchise; (c) acquiring other hotel companies; (d) expanding the number and
type of products offered; and (e) broadening the support services it offers to
its hotel owners.
Management of Doubletree and Promus believe that the Merger will strengthen
the competitive position of New Promus and will generate several benefits as it
implements the New Promus growth strategy, including:
- New Promus will bring together two proven management teams with
complementary strengths. Doubletree is primarily a management company that
has grown its business through the conversion of existing hotels to
Doubletree's management and, where appropriate, its brands. Doubletree has
also achieved significant growth through major acquisitions of other hotel
companies. Promus is primarily a franchise company that has grown its
brands through new hotel development by its franchisees. Management of
Doubletree and Promus believes that their combined strengths in
franchising, conversions, hotel company acquisitions and ground-up
development by its franchisees will enable New Promus to more effectively
grow all of its brands and its management and franchise business.
- New Promus will be able to offer its hotel owners and guests hotel
products in key segments of the lodging industry. Management of Doubletree
and Promus believes that these product offerings will enhance the combined
company's ability to cross sell its products to existing owners and
franchisees, will provide diversification in order to more effectively
adapt to changes in the supply and demand for these products, and will
create more opportunities to convert existing hotels to its management or
brand.
- Doubletree and Promus both have extensive relationships with hotel real
estate investors, and have entered into a number of strategic alliances
designed to enhance each company's growth strategies. These relationships,
coupled with the combined company's financial strength, should allow New
Promus to compete more aggressively for hotels to be converted to its
management and one of its brands.
- Although New Promus will be one of the largest lodging companies in the
U.S., the combined company will have a significant number of diverse
growth opportunities to pursue. First, there are many geographic markets
that Doubletree Hotels has not penetrated. The growth of Doubletree
managed and franchised hotels will be a primary initiative of the combined
company. Second, although Embassy Suites and Doubletree Guest Suites are
the two largest full service, all-suite hotel brands in the lodging
industry, these product types continue to be underrepresented in the
industry as a whole. Management of Doubletree and Promus believes that
investors will pursue these brands first as they consider ground-up
development opportunities of first class full service properties, because
of the all-suite concept's inherent competitive advantage. Third, Homewood
Suites and
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Club Hotels by Doubletree are relatively new brands, competing in two
rapidly-growing segments, upscale extended stay and midprice. Fourth, both
Doubletree and Promus are in the initial stages of targeting growth
opportunities in international markets, in the luxury segment and in
vacation interval ownership resorts. Management of Doubletree and Promus
believe that New Promus will be able to leverage its management,
development and franchising expertise to penetrate these potential markets
more quickly.
- New Promus will realize substantial synergies and cost savings from the
merger through the combination of reservation systems, information systems
development and maintenance and other corporate support functions. On a
pro forma basis giving effect to the Merger, Doubletree and Promus expect
that the Merger will create synergies and cost savings of $15 million to
$20 million annually, which amounts represent approximately 18% to 24% of
the current annualized pro forma general and administrative expenses of
Doubletree and Promus taken together. Additionally, the increased
purchasing power of New Promus will provide the opportunity to expand
existing preferred vendor programs and to introduce new programs.
- New Promus would have had a pro forma book value of $1.1 billion and a
long-term debt to total capitalization ratio of approximately 36% as of
September 30, 1997. For the nine months ended September 30, 1997, New
Promus would have had EBITDA of $342 million and a ratio of EBITDA to
interest expense of 6.3x. Management of Doubletree and Promus believe that
New Promus's financial condition and cash flow will enhance its ability to
execute its growth strategies.
HOTEL PROPERTIES
The following tables present certain hotel information with respect to
Doubletree and Promus in all of North America and in each of eight geographic
regions: 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).
TOTAL NEW PROMUS HOTEL PORTFOLIO
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997(1)
AS OF SEPTEMBER 30, 1997
------------------------------ -----------------------------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS/SUITES PERCENTAGE RATE REVPAR/S(3)
--------------- ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Doubletree Full-Service(2).................... 103 30,720 73.6% $ 95.31 $ 70.16
Doubletree Guest Suites....................... 42 8,980 77.7 123.38 95.92
Club Hotels by Doubletree..................... 21 4,335 69.7(4) 71.56(4) 49.89(4)
----- -------------
Total Doubletree Brand Hotels............... 166 44,035
----- -------------
Red Lion Hotels & Inns(2)..................... 16 2,853 69.6 71.04 49.46
Non-Doubletree Brand Hotels................... 76 12,171 76.5 78.77 60.22
----- -------------
Total Doubletree Hotel Portfolio............ 258 59,059
----- -------------
----- -------------
Embassy Suites................................ 137 33,186 76.8 113.52 87.19
Hampton Inn................................... 707 76,012 74.6 64.27 47.96
Hampton Inn & Suites.......................... 28 3,089 72.5 71.42 51.75
Homewood Suites............................... 50 5,180 81.1 92.17 74.74
----- -------------
Total Promus Hotels(5)...................... 922 117,467
----- -------------
----- -------------
TOTAL COMBINED HOTEL PORTFOLIO.............. 1,180 176,526
----- -------------
----- -------------
</TABLE>
(FOOTNOTES ON PAGE 56)
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NEW ENGLAND(6)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997(1)
AS OF SEPTEMBER 30, 1997
------------------------------ -----------------------------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS/SUITES PERCENTAGE RATE REVPAR/S(3)
------------- --------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Doubletree Full-Service......................... 2 402 64.0% $ 155.06 $ 99.30
Doubletree Guest Suites......................... 2 585 79.4 140.80 111.83
Club Hotels by Doubletree....................... 1 239 --(1) --(1) --(1)
----- -----
Total Doubletree Brand Hotels................. 5 1,226
----- -----
Red Lion Hotels & Inns.......................... -- -- -- -- --
Non-Doubletree Brand Hotels..................... 5 712 77.8 165.85 129.12
----- -----
Total Doubletree Hotel Portfolio.............. 10 1,938
----- -----
----- -----
Embassy Suites.................................. 2 348 82.6 106.73 88.19
Hampton Inn..................................... 14 1,816 72.7 68.19 49.58
Hampton Inn & Suites............................ -- -- -- -- --
Homewood Suites................................. 1 132 81.5 89.31 72.80
----- -----
Total Promus Hotels(5)........................ 17 2,296
----- -----
----- -----
TOTAL COMBINED HOTEL PORTFOLIO................ 27 4,234
----- -----
----- -----
</TABLE>
MIDDLE ATLANTIC
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
AS OF SEPTEMBER 30, 1997 30, 1997(1)
-------------------------------- ----------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS/SUITES PERCENTAGE RATE
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Doubletree Full-Service......................... 11 3,815 70.9% $ 98.04
Doubletree Guest Suites......................... 7 1,541 83.3 151.59
Club Hotels by Doubletree....................... 4 755 --(1) --(1)
--- ------
Total Doubletree Brand Hotels................. 22 6,111
--- ------
Red Lion Hotels & Inns.......................... -- -- -- --
Non-Doubletree Brand Hotels..................... 4 635 73.9 78.58
--- ------
Total Doubletree Hotel Portfolio.............. 26 6,746
--- ------
--- ------
Embassy Suites.................................. 15 3,648 78.3 123.64
Hampton Inn..................................... 109 12,507 75.9 68.16
Hampton Inn & Suites............................ 5 547 89.3 66.88
Homewood Suites................................. 5 451 76.8 87.85
--- ------
Total Promus Hotels(5)........................ 134 17,153
--- ------
--- ------
TOTAL COMBINED HOTEL PORTFOLIO................ 160 23,899
--- ------
--- ------
<CAPTION>
REVPAR/S(3)
-----------------
<S> <C>
Doubletree Full-Service......................... $ 69.47
Doubletree Guest Suites......................... 126.23
Club Hotels by Doubletree....................... --(1)
Total Doubletree Brand Hotels.................
Red Lion Hotels & Inns.......................... --
Non-Doubletree Brand Hotels..................... 58.04
Total Doubletree Hotel Portfolio..............
Embassy Suites.................................. 96.77
Hampton Inn..................................... 51.74
Hampton Inn & Suites............................ 59.76
Homewood Suites................................. 67.47
Total Promus Hotels(5)........................
TOTAL COMBINED HOTEL PORTFOLIO................
</TABLE>
(FOOTNOTES ON PAGE 56)
53
<PAGE>
MOUNTAIN
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997(1)
AS OF SEPTEMBER 30, 1997
------------------------------ -----------------------------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS/SUITES PERCENTAGE RATE REVPAR/S(3)
------------- --------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Doubletree Full-Service(2)...................... 10 2,869 81.7 $ 90.62 $ 74.06
Doubletree Guest Suites......................... -- -- -- -- --
Club Hotels by Doubletree....................... 1 158 70.9 70.79 50.20
----- -----
Total Doubletree Brand Hotels................. 11 3,027
----- -----
Red Lion Hotels & Inns(2)....................... 2 140 61.5 56.46 34.74
Non-Doubletree Brand Hotels..................... 3 386 81.1 61.74 50.07
----- -----
Total Doubletree Hotel Portfolio.............. 16 3,553
----- -----
----- -----
Embassy Suites.................................. 7 1,510 77.4 110.62 85.63
Hampton Inn..................................... 26 3,062 78.2 60.95 47.64
Hampton Inn & Suites............................ 2 181 --(1) --(1) --(1)
Homewood Suites................................. 2 210 83.9 115.23 96.70
----- -----
Total Promus Hotels(5)........................ 37 4,963
----- -----
----- -----
TOTAL COMBINED HOTEL PORTFOLIO................ 53 8,516
----- -----
----- -----
</TABLE>
PACIFIC
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
AS OF SEPTEMBER 30, 1997 30, 1997(1)
-------------------------------- ----------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS/SUITES PERCENTAGE RATE
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Doubletree Full-Service(2)...................... 42 12,303 76.2% $ 94.00
Doubletree Guest Suites......................... 3 674 79.4 120.42
Club Hotels by Doubletree....................... 4 765 --(1) --(1)
--- ------
Total Doubletree Brand Hotels................. 49 13,742
--- ------
Red Lion Hotels & Inns(2)....................... 12 2,094 69.4 71.63
Non-Doubletree Brand Hotels..................... 7 1,433 91.0 94.16
--- ------
Total Doubletree Hotel Portfolio.............. 68 17,269
--- ------
--- ------
Embassy Suites.................................. 31 8,065 75.5 121.46
Hampton Inn..................................... 23 2,729 75.5 63.96
Hampton Inn & Suites............................ -- -- -- --
Homewood Suites................................. 3 350 86.3 108.95
--- ------
Total Promus Hotels(5)........................ 57 11,144
--- ------
--- ------
TOTAL COMBINED HOTEL PORTFOLIO................ 125 28,413
--- ------
--- ------
<CAPTION>
REVPAR/S(3)
-----------------
<S> <C>
Doubletree Full-Service(2)...................... $ 71.65
Doubletree Guest Suites......................... 95.57
Club Hotels by Doubletree....................... --(1)
Total Doubletree Brand Hotels.................
Red Lion Hotels & Inns(2)....................... 49.73
Non-Doubletree Brand Hotels..................... 85.65
Total Doubletree Hotel Portfolio..............
Embassy Suites.................................. 91.74
Hampton Inn..................................... 48.30
Hampton Inn & Suites............................ --
Homewood Suites................................. 94.05
Total Promus Hotels(5)........................
TOTAL COMBINED HOTEL PORTFOLIO................
</TABLE>
(FOOTNOTES ON PAGE 56)
54
<PAGE>
MIDWEST
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
AS OF SEPTEMBER 30, 1997 30, 1997(1)
-------------------------------- ----------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS/SUITES PERCENTAGE RATE
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Doubletree Full-Service(2)...................... 4 1,111 --%(1) $ --(1)
Doubletree Guest Suites......................... 9 1,939 74.2 112.67
Club Hotels by Doubletree....................... 1 242 --(1) --(1)
--- ------
Total Doubletree Brand Hotels................. 14 3,292
--- ------
Red Lion Hotels & Inns(2)....................... -- -- -- --
Non-Doubletree Brand Hotels..................... 11 1,426 75.4 71.57
--- ------
Total Doubletree Hotel Portfolio.............. 25 4,718
--- ------
--- ------
Embassy Suites.................................. 12 3,025 76.3 120.08
Hampton Inn..................................... 111 11,418 73.3 64.81
Hampton Inn & Suites............................ 4 377 --(1) --(1)
Homewood Suites................................. 10 944 81.5 81.74
--- ------
Total Promus Hotels(5)........................ 137 15,764
--- ------
--- ------
TOTAL COMBINED HOTEL PORTFOLIO................ 162 20,482
--- ------
--- ------
<CAPTION>
REVPAR/S(3)
-----------------
<S> <C>
Doubletree Full-Service(2)...................... $ --(1)
Doubletree Guest Suites......................... 83.61
Club Hotels by Doubletree....................... --(1)
Total Doubletree Brand Hotels.................
Red Lion Hotels & Inns(2)....................... --
Non-Doubletree Brand Hotels..................... 53.97
Total Doubletree Hotel Portfolio..............
Embassy Suites.................................. 91.59
Hampton Inn..................................... 47.52
Hampton Inn & Suites............................ --(1)
Homewood Suites................................. 66.65
Total Promus Hotels(5)........................
TOTAL COMBINED HOTEL PORTFOLIO................
</TABLE>
PLAINS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997(1)
AS OF SEPTEMBER 30, 1997
------------------------------ -----------------------------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS/SUITES PERCENTAGE RATE REVPAR/S(3)
------------- --------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Doubletree Full-Service(2)...................... 5 1,612 75.5% $ 91.56 $ 69.11
Doubletree Guest Suites......................... 3 638 --(1) --(1) --(1)
Club Hotels by Doubletree....................... 1 181 --(1) --(1) --(1)
----- ------
Total Doubletree Brand Hotels................. 9 2,431
----- ------
Red Lion Hotels & Inns(2)....................... -- -- -- -- --
Non-Doubletree Brand Hotels..................... 7 995 78.0 71.27 55.62
----- ------
Total Doubletree Hotel Portfolio.............. 16 3,426
----- ------
----- ------
Embassy Suites.................................. 10 2,377 75.0 103.06 77.30
Hampton Inn..................................... 45 5,082 69.4 63.49 44.09
Hampton Inn & Suites............................ -- -- -- -- --
Homewood Suites................................. 3 319 68.9 72.91 50.25
----- ------
Total Promus Hotels(5)........................ 58 7,778
----- ------
----- ------
TOTAL COMBINED HOTEL PORTFOLIO................ 74 11,204
----- ------
----- ------
</TABLE>
(FOOTNOTES ON PAGE 56)
55
<PAGE>
SOUTHEAST
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
AS OF SEPTEMBER 30, 1997 30, 1997(1)
-------------------------------- ----------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS/SUITES PERCENTAGE RATE
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Doubletree Full-Service......................... 12 3,344 70.9% $ 91.30
Doubletree Guest Suites......................... 14 2,467 73.4 106.94
Club Hotels by Doubletree(7).................... 6 1,441 68.6 72.31
--- ------
Total Doubletree Brand Hotels................. 32 7,252
--- ------
Red Lion Hotels & Inns.......................... -- -- -- --
Non-Doubletree Brand Hotels..................... 25 4,513 73.8 68.42
--- ------
Total Doubletree Hotel Portfolio.............. 57 11,765
--- ------
--- ------
Embassy Suites.................................. 31 7,545 78.0 113.36
Hampton Inn..................................... 298 30,629 75.7 63.04
Hampton Inn & Suites............................ 14 1,581 63.3 78.37
Homewood Suites................................. 15 1,546 81.9 92.63
--- ------
Total Promus Hotels(5)........................ 358 41,301
--- ------
--- ------
TOTAL COMBINED HOTEL PORTFOLIO................ 415 53,066
--- ------
--- ------
<CAPTION>
REVPAR/S(3)
-----------------
<S> <C>
Doubletree Full-Service......................... $ 64.75
Doubletree Guest Suites......................... 78.49
Club Hotels by Doubletree(7).................... 49.60
Total Doubletree Brand Hotels.................
Red Lion Hotels & Inns.......................... --
Non-Doubletree Brand Hotels..................... 50.49
Total Doubletree Hotel Portfolio..............
Embassy Suites.................................. 88.46
Hampton Inn..................................... 47.74
Hampton Inn & Suites............................ 49.64
Homewood Suites................................. 75.89
Total Promus Hotels(5)........................
TOTAL COMBINED HOTEL PORTFOLIO................
</TABLE>
SOUTHWEST(6)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
AS OF SEPTEMBER 30, 1997 30, 1997(1)
-------------------------------- ----------------------------
NUMBER OF NUMBER OF OCCUPANCY AVERAGE DAILY
HOTELS ROOMS/SUITES PERCENTAGE RATE
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Doubletree Full-Service(2)...................... 14 4,709 71.3% $ 95.57
Doubletree Guest Suites......................... 4 1,136 83.9 114.15
Club Hotels by Doubletree....................... 3 554 --(1) --(1)
--- ------
Total Doubletree Brand Hotels................. 21 6,399
--- ------
Red Lion Hotels & Inns(2)....................... 2 619 74.8 72.79
Non-Doubletree Brand Hotels..................... 14 2,071 80.3 66.72
--- ------
Total Doubletree Hotel Portfolio.............. 37 9,089
--- ------
--- ------
Embassy Suites.................................. 24 5,350 76.1 101.05
Hampton Inn..................................... 72 7,686 70.6 62.52
Hampton Inn & Suites............................ 2 299 73.7 67.28
Homewood Suites................................. 11 1,228 79.6 99.10
--- ------
Total Promus Hotels(5)........................ 109 14,563
--- ------
--- ------
TOTAL COMBINED HOTEL PORTFOLIO................ 146 23,652
--- ------
--- ------
<CAPTION>
REVPAR/S(3)
-----------------
<S> <C>
Doubletree Full-Service(2)...................... $ 68.17
Doubletree Guest Suites......................... 95.73
Club Hotels by Doubletree....................... --(1)
Total Doubletree Brand Hotels.................
Red Lion Hotels & Inns(2)....................... 54.48
Non-Doubletree Brand Hotels..................... 53.60
Total Doubletree Hotel Portfolio..............
Embassy Suites.................................. 76.91
Hampton Inn..................................... 44.17
Hampton Inn & Suites............................ 49.60
Homewood Suites................................. 78.89
Total Promus Hotels(5)........................
TOTAL COMBINED HOTEL PORTFOLIO................
</TABLE>
- ------------------------
(1) Revenue statistics are for comparable hotels, which includes only those
hotels in the Doubletree or Promus systems for the entire period from
January 1, 1996 through September 30, 1997. Doubletree revenue statistics
exclude franchised hotels. Promus revenue statistics exclude hotels that had
room additions.
(2) During the nine months ended September 30, 1997, 40 Red Lion hotels were
converted to Doubletree full service hotels. The converted hotels are
included in the number of Doubletree full service hotels and rooms at
September 30, 1997. Revenue statistics for the converted hotels are included
in the Doubletree full service hotel statistics.
(3) Revenue per available room/suite is the product of the occupancy percentage
times the average daily rate.
(4) Includes the results for only two properties.
(5) Excludes four vacation interval resorts operated by Promus.
(6) The geographical regional data presented above excludes three Doubletree
hotels, with an agregate of 555 rooms, located outside at the United Sates
and 15 Promus hotels, with an aggregate of 2,505 rooms/suites, located
outside of the United States.
(7) Includes the results for only one property.
56
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Following the Merger, the Board of Directors of New Promus is expected to
consist of the following 14 persons: (a) Richard J. Ferris, Priscilla Florence,
Dale F. Frey, Richard M. Kelleher, Michael W. Michelson, John H. Myers and Peter
V. Ueberroth (all of whom were designated by Doubletree), and (b) Christopher W.
Hart, C. Warren Neel, Michael D. Rose, Michael I. Roth, Raymond E. Schultz, Jay
Stein and Ronald Terry (all of whom were designated by Promus). New Promus will
also have an Executive Committee of the Board of Directors, which will initially
be comprised of Mr. Schultz, Mr. Ferris, Mr. Rose and Mr. Ueberroth. Mr.
Kelleher will be an ex-officio member of the Executive Committee.
For information regarding the business experience of Messrs. Ferris, Frey,
Hart, Kelleher, Michelson, Myers, Neel, Rose, Roth, Schultz, Stein, Terry and
Ueberroth, see "Where You Can Find More Information." Ms. Florence, 56, has
served as a director of Doubletree since May 1997. Since 1985, Ms. Florence has
been the president and owner of Priscilla Florence & Associates and Boston's
Card Stores, Inc. From 1985 to 1994, Ms. Florence served as Vice President,
Human Resources of World Cup USA, 1994, Inc. She served as a director of Adia
Services Inc. from 1993 to 1994.
The Board of Directors of New Promus will be divided into three classes.
Class I shall consist of four directors, and each of Class II and Class III will
consist of five directors. Class I directors will be initially elected for a
term expiring at the first annual meeting of New Promus Stockholders. Class II
directors will be initially elected for a term expiring at the second annual
meeting of New Promus Stockholders. Class III directors will be initially
elected for a term expiring at the third annual meeting of New Promus
Stockholders. Successors to the class of directors whose term expires at the
annual meeting will be elected for a three-year term. In no case will a decrease
in the number of directors shorten the term of any incumbent director.
There will be two, two, and three Initial Doubletree Directors in Class I,
II and III of New Promus's Board of Directors and there will be two, three, and
two Initial Promus Directors in Class I, II and III, respectively, of New
Promus's Board of Directors. The Bylaws of New Promus provide that until
December 31, 2002 the Board of Directors and each committee of the Board of
Directors of New Promus shall consist of an equal number of Doubletree Directors
and Promus Directors. Any change to these provisions of the Bylaws or increase
in the size of the Board of Directors or its committees by the Board of
Directors of New Promus will require the approval of 75% of the members of the
New Promus Board of Directors.
At the Effective Time, pursuant to the terms of the employment agreements
described above under "--Interests of Certain Persons in the Merger--Employment
Agreements," (i) Raymond E. Schultz, the current President and Chief Executive
Officer of Promus, will become Chief Executive Officer and Chairman of the Board
of New Promus; (ii) Richard M. Kelleher, the current President and Chief
Executive Officer of Doubletree, will become the President and Chief Operating
Officer of New Promus, (iii) William L. Perocchi, the current Executive Vice
President and Chief Financial Officer of Doubletree, will become the Executive
Vice President and Chief Financial Officer of New Promus and (iv) Thomas L.
Keltner, the current Executive Vice President and Chief Development Officer of
Promus, will become the Executive Vice President and Chief Development Officer
of New Promus. Mr. Schultz will continue as Chairman of the Board and Chief
Executive Officer of New Promus until his retirement no later than December 31,
1999 and, pursuant to the terms of Mr. Kelleher's employment agreement and
subject to the Bylaws of New Promus, Mr. Kelleher will succeed Mr. Schultz as
Chairman of the Board and Chief Executive Officer of New Promus. The provisions
of the New Promus Bylaws governing Mr. Kelleher's succession to Mr. Schultz as
Chairman of the Board and Chief Executive Officer of New Promus may only be
amended, altered or repealed through a vote by 75% of the Board of Directors of
New Promus.
57
<PAGE>
THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE MERGER AGREEMENT, A
COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS JOINT PROXY STATEMENT/PROSPECTUS
AND IS INCORPORATED HEREIN BY REFERENCE. SUCH SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT. STOCKHOLDERS OF DOUBLETREE AND
PROMUS ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE
COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE MERGER.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger by
the stockholders of Doubletree and Promus and the satisfaction or waiver of the
other conditions to the Merger, Doubletree and Promus will become wholly-owned
subsidiaries of New Promus, which will be renamed "Promus Hotel Corporation",
and the holders of Doubletree Common Stock and Promus Common Stock will become
holders of New Promus Common Stock.
If the Merger Agreement is approved by the stockholders of Doubletree and
Promus, and the other conditions to the Merger are satisfied or waived, the
Closing will take place on the second business day (the "Closing Date")
following the date on which the last of the conditions is satisfied or waived,
or at such other time and date to which Doubletree and Promus mutually agree. On
the Closing Date, Promus and Doubletree will cause certificates of merger to be
filed with the Secretary of State of the State of Delaware as provided in
Section 251 of the General Corporation Law of the State of Delaware (the
"DGCL"). The Merger will become effective upon the filing of such certificates
of merger or at such later time as is specified therein. See "The Merger
Agreement--Conditions to Obligations to Effect the Merger." Subject to the
satisfaction (or waiver) of the other conditions to the obligations of
Doubletree and Promus to consummate the Merger, it is presently expected that
the Merger will be consummated by the end of 1997.
CONVERSION OF SHARES
The Merger Agreement provides that the Merger will be effected by merger of
two newly-formed subsidiaries of New Promus, Doubletree Sub and Promus Sub, with
and into Doubletree and Promus, respectively, in which Doubletree and Promus
will be the surviving corporations.
At the Effective Time, in the Doubletree Merger: (i) each issued and
outstanding share of Doubletree Common Stock (other than shares that are
canceled as described below) will be converted into one share of fully paid and
nonassessable share of New Promus Common Stock; (ii) each issued and outstanding
share of common stock of Doubletree Sub will be converted into one share of
common stock of Doubletree, the surviving corporation in the Doubletree Merger;
and (iii) each share of Doubletree Common Stock that is owned by Doubletree as
treasury stock or is owned by Promus or any of its wholly-owned subsidiaries
will be canceled and will cease to exist and no stock of New Promus or other
consideration shall be delivered in exchange therefor.
At the Effective Time, in the Promus Merger: (i) each issued and outstanding
share of Promus Common Stock (other than shares that are canceled as described
below) will be converted into 0.925 shares of fully paid and nonassessable
shares of New Promus Common Stock; (ii) each issued and outstanding share of
common stock of Promus Sub will be converted into one share of Common Stock of
Promus, the surviving corporation in the Promus Merger; and (iii) each share of
Promus Common Stock that is owned by Promus as treasury stock or is owned by
Doubletree or any of its wholly-owned subsidiaries will be canceled and will
cease to exist and no stock of New Promus or other consideration shall be
delivered in exchange therefor.
Consequently, as a result of the Mergers, Doubletree and Promus will become
wholly owned subsidiaries of New Promus and holders of Doubletree Common Stock
and Promus Common Stock will become holders of New Promus Common Stock. At the
Effective Time, each share of New Promus
58
<PAGE>
Common Stock issued and outstanding immediately prior to the Effective Time will
be surrendered and canceled, and the amount paid by Doubletree and Promus for
their shares of New Promus Common Stock will be returned to them by New Promus.
Based upon the number of shares of common stock of Doubletree and Promus
outstanding on the record date for the Doubletree Special Meeting and the record
date for the Promus Special Meeting, respectively, and the exchange ratios
described above, Doubletree's current stockholders will own approximately 46%
and Promus's current stockholders will own approximately 54% of New Promus
Common Stock that will be outstanding upon completion of the Merger.
EXCHANGE OF STOCK CERTIFICATES
As soon as reasonably practicable after the Effective Time, an exchange
agent will mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Doubletree Common Stock or Promus Common Stock, a letter of transmittal and
instructions for use in effecting the surrender of such certificates in exchange
for shares of New Promus Common Stock. Upon surrender of a certificate for
cancellation to the exchange agent, together with such letter of transmittal,
duly executed, the holder of such certificate will be entitled to receive in
exchange therefor that number of whole shares of New Promus Common Stock and the
amount of any cash payable in lieu of fractional shares of New Promus Common
Stock and other dividends or distributions which such holder is entitled to
receive as provided in the next three paragraphs, and the certificates so
surrendered will promptly be canceled. The shares of New Promus Common Stock to
be issued in exchange for certificates which immediately prior to the Effective
Time represented shares of Doubletree Common Stock or Promus Common Stock will
be held in book-entry form on the records of New Promus's Registrar and Transfer
Agent, First Union National Bank. Holders of New Promus Common Stock may receive
a certificate representing their shares of New Promus Common Stock by following
the instructions in the letter of transmittal or by requesting a certificate
from New Promus's Registrar and Transfer Agent.
NO FURTHER OWNERSHIP RIGHTS IN DOUBLETREE COMMON STOCK OR PROMUS COMMON
STOCK. All shares of New Promus Common Stock (and cash in lieu of fractional
shares in the case of Promus Common Stock) issued upon the surrender for
exchange of certificates which immediately prior to the Effective Time
represented shares of Doubletree Common Stock or Promus Common Stock will be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of Doubletree Common Stock or Promus Common Stock
theretofore represented by such certificates, subject, however, to the
obligations of the surviving corporations in the Doubletree Merger and the
Promus Merger to pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared or made by
Doubletree on such shares of Doubletree Common Stock or by Promus on such shares
of Promus Common Stock prior to the date of the Merger Agreement and which
remain unpaid at the Effective Time, and from and after the Effective Time there
shall be no further registration of transfers on the stock transfer books of the
surviving corporations in the Doubletree Merger and the Promus Merger, as the
case may be, of the shares of Doubletree Common Stock or Promus Common Stock,
respectively, which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, certificates which immediately prior to the
Effective Time represented shares of Doubletree Common Stock or Promus Common
Stock are presented to one of such surviving corporations or New Promus for any
reason, such certificates will be canceled and exchanged in the manner described
above.
FRACTIONAL SHARES. No fractional shares of New Promus Common Stock will be
issued in the Merger. In lieu of any such fractional shares, each holder of
shares of Promus Common Stock outstanding immediately prior to the Effective
Time exchanged pursuant to the Promus Merger who would otherwise have been
entitled to receive a fraction of a share of New Promus Common Stock (after
taking into account all certificates representing shares of Promus Common Stock
delivered by such holder) will receive, in lieu thereof, cash (without interest)
in an amount equal to such fractional part of a share of New Promus Common Stock
multiplied by the per share sales price of New Promus Common Stock (as
59
<PAGE>
reported on the NYSE Composite Tape) on the closing of the first day of
regular-way trading of New Promus Common Stock on the NYSE after the Effective
Time.
DIVIDENDS AND DISTRIBUTIONS. No dividends or other distributions declared
or made after the Effective Time with respect to New Promus Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered certificate representing shares of Doubletree Common Stock or
Promus Common Stock with respect to the shares of New Promus Common Stock the
holder thereof is entitled to receive in respect thereof and no cash payment in
lieu of fractional shares will be paid to any such holder until the holder of
record of such certificate shall surrender such certificate to New Promus as
described above. Subject to the effect of applicable laws, following surrender
of any such certificate, there will be paid to the record holder of the
certificates representing whole shares of New Promus Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of New Promus Common
Stock to which such holder is entitled under "--Fractional Shares" above and an
amount equal to the amount of dividends or other distributions with a record
date after the Effective Time previously paid with respect to whole shares of
New Promus Common Stock, and (ii) at the appropriate payment date, an amount
equal to the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to whole shares of New Promus Common Stock, in
each case without interest.
FAILURE TO EXCHANGE. Any shares of New Promus Common Stock, and any portion
of monies from which cash payments in lieu of fractional shares of Promus Common
Stock and any dividends or distributions on shares of New Promus Common Stock
will be made, which remain undistributed to the former stockholders of
Doubletree or Promus for 180 days after the Effective Time will be delivered to
New Promus upon demand, and any former stockholder of Doubletree or Promus who
has not previously exchanged certificates which immediately prior to the
Effective Time represented shares of Doubletree Common Stock or Promus Common
Stock will thereafter look only to New Promus for payment of such former
stockholder's claim for New Promus Common Stock, any cash in lieu of fractional
shares of New Promus Common Stock and any amounts in respect of dividends or
distributions with respect to New Promus Common Stock.
NO LIABILITY. None of Doubletree, Promus, New Promus or the exchange agent
will be liable to any holder of shares of Doubletree Common Stock or Promus
Common Stock, as the case may be, for any shares of New Promus Common Stock (or
cash in lieu of fractional shares of New Promus Common Stock or any dividends or
distributions with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law. New Promus and each
of the surviving corporations in the Doubletree Merger and the Promus Merger
will be entitled to deduct and withhold from the consideration otherwise payable
to any holder of certificates which prior to the Effective Time represented
shares of Doubletree Common Stock or Promus Common Stock such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld, such withheld amounts shall be treated as having
been paid to the holder of the shares of Doubletree Common Stock or Promus
Common Stock, as the case may be, in respect of which such deduction and
withholding was made.
LOST CERTIFICATES. If any certificate which prior to the Effective Time
represented shares of Doubletree Common Stock or Promus Common Stock shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such certificate to be lost, stolen or destroyed and, if
required by New Promus or one of the surviving corporations in the Doubletree
Merger and the Promus Merger, the posting by such person of a bond in such
reasonable amount as New Promus or such surviving corporation may direct as
indemnity against any claim that may be made against it with respect to such
certificate, the exchange agent will issue in exchange for such lost, stolen or
destroyed certificate the shares
60
<PAGE>
of New Promus Common Stock and any cash in lieu of fractional shares and unpaid
dividends and distributions on shares of New Promus Common Stock otherwise
deliverable in respect thereof.
HOLDERS OF DOUBLETREE COMMON STOCK OR PROMUS COMMON STOCK SHOULD NOT SEND IN
THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM FROM FIRST UNION
NATIONAL BANK, THE EXCHANGE AGENT THEREFOR.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties, subject to identified exceptions, relating to, among other things,
(a) due organization, valid existence and good standing of each of Doubletree,
Promus and their respective subsidiaries and certain similar corporate matters;
(b) the capital structure of each of Doubletree and Promus; (c) the
authorization, execution, delivery and enforceability of the Merger Agreement
and the Stock Option Agreements, the consummation of the transactions
contemplated by the Merger Agreement and the Stock Option Agreements and related
matters; (d) conflicts under charters or by-laws, required consents or approvals
and violations of any instruments or law; (e) documents and financial statements
filed by each of Doubletree and Promus with the SEC and the accuracy of
information contained therein; (f) the absence of undisclosed liabilities; (g)
the absence of certain material adverse events, changes or events; (h) taxes and
tax returns; (i) properties; (j) intellectual property; (k) agreements,
contracts and commitments; (l) litigation; (m) environmental matters and
hazardous materials; (n) employee benefit plans; (o) compliance with laws; (p)
accounting and tax matters relating to the Merger; (q) the accuracy of
information supplied by each of Doubletree and Promus in connection with the
Registration Statement and this Joint Proxy Statement/ Prospectus; (r) labor
matters; (s) insurance; (t) the long-range plans of each of Doubletree and
Promus; (u) opinions of financial advisors; (v) the absence of existing
discussions with other parties; (w) the inapplicability to the Merger of certain
provisions of the DGCL; and (x) the Doubletree Rights Plan and the Promus Rights
Plan.
CERTAIN COVENANTS
CONDUCT OF BUSINESS. Pursuant to the Merger Agreement, each of Doubletree
and Promus has agreed that, during the period from the date of the Merger
Agreement until the Effective Time, except as included on the disclosure
schedules attached to the Merger Agreement or as otherwise consented to in
writing by the other party or as contemplated by the Merger Agreement, it and
each of its respective subsidiaries will: (a) carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted; (b) pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, and pay or perform other obligations when
due; (c) use reasonable efforts to preserve intact its present business
organization, management team and business relationships; (d) not accelerate,
amend or change the period of exercisability of options or restricted stock
granted under any employee stock plan or authorize cash payments in exchange for
any options granted under any employee stock plan, except as required pursuant
to the plan or any related agreement; (e) not declare or pay any dividends on or
make other distributions in respect of any of its capital stock, not effect
certain other changes in its capitalization, and not purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with the termination of
service; (f) not issue or sell, or authorize or propose the issuance or sale of,
any shares of its capital stock or securities convertible into shares of its
capital stock, or any subscriptions, rights, warrants or options to acquire or
other agreements obligating it to issue any such shares or other convertible
securities (subject to certain exceptions, including the grant of options
consistent with past practices to employees or directors (up to 25,000 shares
for each of Doubletree and Promus), the issuance of shares upon the exercise of
outstanding stock options and convertible debt and the issuance of capital stock
under the Doubletree Rights Plan or the Promus Rights Plan if required by the
respective terms thereof); (g) not make any material acquisitions; (h) not sell,
lease,
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license or otherwise dispose of material properties or assets outside the
ordinary course of business; (i) not increase the compensation payable to its
officers or employees (except for increases to non-officer employees consistent
with past practices), grant additional severance or termination pay or enter
into employment or severance agreements, enter into any collective bargaining
agreement (other than as required by law) or establish, adopt, enter into or
amend any plan for the benefit of its directors, officers, or employees; (j) not
amend its certificate of incorporation or bylaws, except as contemplated by the
Merger Agreement; (k) not incur indebtedness for money borrowed other than in
the ordinary course of business; (l) not take any action that would or is
reasonably likely to result in a material breach of any provision of the Merger
Agreement or the Stock Option Agreements or in any of its representations or
warranties set forth in the Merger Agreement or the Stock Option Agreements
being untrue on the Closing Date; (m) not make or rescind any material tax
elections, settle any tax claims or make any material change in its accounting
methods; (n) settle any material litigation relating to the transactions
contemplated by the Merger Agreement; and (o) not take, or agree in writing to
take, any of the actions described in (d) through (n) above.
NO SOLICITATION. The Merger Agreement provides that Doubletree and Promus
will not, directly or indirectly, through any officer, director, employee,
financial advisor, representative or agent, (i) solicit, initiate or encourage
any inquiries or proposals that constitute, or could reasonably be expected to
lead to, a proposal or offer for a merger, consolidation, business combination,
sale of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transaction involving such party
or any of its subsidiaries, other than the transactions contemplated by the
Merger Agreement (any of the foregoing inquiries or proposals being referred to
as an "Acquisition Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Acquisition Proposal, or (iii) agree to or recommend any
Acquisition Proposal; provided, however, that nothing contained in the Merger
Agreement will prevent Doubletree or Promus or their respective Boards of
Directors from (a) furnishing non-public information to, or entering into
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide written Acquisition Proposal by such person or entity or
recommending an unsolicited bona fide written Acquisition Proposal to the
stockholders of such party, if and only to the extent that (1) the Board of
Directors of such party believes in good faith (after consultation with its
financial advisor) that such Acquisition Proposal is reasonably capable of being
completed on the terms proposed and, after taking into account the strategic
benefits anticipated to be derived from the Merger and the prospects of Promus
and Doubletree as a combined company, would, if consummated, result in a
transaction more favorable to the stockholders of such party over the long term
than the transaction contemplated by the Merger Agreement (any such more
favorable Acquisition Proposal being referred to as a "Superior Proposal") and
the Board of Directors of such party determines in good faith after consultation
with outside legal counsel that such action is required for such Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law and (2) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, such Board of Directors
receives from such person or entity an executed confidentiality agreement with
terms no less favorable to such party than those contained in the
Confidentiality Agreements, each dated August 16, 1997 between Doubletree and
Promus; or (b) complying with Rule 14e-2 promulgated under the Exchange Act with
regard to an Acquisition Proposal. Each of Doubletree and Promus also agrees not
to release any third party from, or waive any provision of, any standstill
agreement to which it is a party or any confidentiality agreement between it and
another person who has made, or who may reasonably be considered likely to make,
an Acquisition Proposal, unless its Board of Directors determines in good faith
after consultation with outside legal counsel that such action is required for
such Board of Directors to comply with its fiduciary duties to stockholders
under applicable law.
The Merger Agreement requires each of Doubletree and Promus to promptly
notify the other party (orally and in writing) upon receipt of any Acquisition
Proposal or request for non-public information or access to its properties,
books or records in connection with an Acquisition Proposal. The party providing
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such notice also is required to indicate in reasonable detail the identity of
the offeror and the terms and conditions of such proposal, inquiry or contact,
and continue thereafter to keep the other party informed, on a current basis, of
the status of any such discussions or negotiations and the terms being discussed
or negotiated.
STOCKHOLDERS' MEETINGS. The Merger Agreement provides that each of
Doubletree and Promus will call a meeting of its respective stockholders to be
held as promptly as practicable for the purpose of voting upon the Merger
Agreement and the Merger. Subject to the discussion above under "--No
Solicitation," each of Doubletree and Promus agreed to recommend to its
stockholders adoption of the Merger Agreement and approval of such matters, to
coordinate and cooperate with respect to the timing of its stockholders' meeting
and to use its best efforts to hold such meeting on the same day as the other
party's stockholders' meeting and as soon as practicable after the date of the
Merger Agreement. Unless otherwise required to comply with the applicable
fiduciary duties of the respective directors of Doubletree and Promus, as
determined by such directors in good faith after consultation with outside legal
counsel, each party agreed to use all reasonable efforts to solicit from
stockholders of such party proxies in favor of such matters.
POST-MERGER CORPORATE GOVERNANCE; EMPLOYMENT ARRANGEMENTS. The Merger
Agreement provides that certain corporate governance matters relating to New
Promus will be as described above under "The Merger--Interests of Certain
Persons in the Merger--Board of Directors and Committees of New Promus" and "The
Combined Company--Directors and Executive Officers." The Merger Agreement also
provides that New Promus will enter into certain executive employment agreements
and have certain executive officers as described under "The Merger--Interests of
Certain Person in the Merger--Employment Agreements" and "The Combined
Company--Directors and Executive Officers."
The Merger Agreement provides that New Promus will have an Executive
Committee which initially will be comprised of the following four members of the
Board of Directors of New Promus: Richard J. Ferris, Michael D. Rose, Raymond E.
Schultz and Peter V. Ueberroth. In addition, Richard M. Kelleher will be an
ex-officio member of the Executive Committee with the right to attend but not
vote at all meetings of the Executive Committee. The Executive Committee will
have responsibility for developing New Promus's long-term strategic plans,
making significant capital allocation decisions and such other duties and
responsibilities as specified by the Board of Directors of New Promus at or
after the Effective Time. The Executive Committee also will be required to
oversee the implementation of Promus's existing 100% guest satisfaction
guarantee program at all of New Promus's hotel properties (other than non-New
Promus brand hotels) following the Effective Time. Each member of the Executive
Committee that is not an employee of New Promus will be entitled to receive
$300,000 per year as compensation for serving on the Executive Committee. See
"The Combined Company--Directors and Executive Officers." It also is the
intention of Doubletree, Promus and New Promus that Mr. Dale Frey will be
designated as the initial Chairman of the Human Resources Committee of New
Promus immediately following the Effective Time.
The Merger Agreement provides that each of Doubletree and Promus will cause
New Promus to incorporate the provisions described in the three preceding
paragraphs into the Bylaws of New Promus in effect at the Effective Time, which
provisions will thereafter be amended by the Board of Directors of New Promus
only with the approval of 75% of the members of the Board of Directors of New
Promus.
STOCK PLANS. At the Effective Time, each outstanding option to purchase
shares of Doubletree Common Stock (a "Doubletree Stock Option") and each
outstanding option to purchase shares of Promus Common Stock (a "Promus Stock
Option"), in each case whether vested or unvested, will be deemed to constitute
an option to acquire, on the same terms and conditions as were applicable under
such Doubletree Stock Option or Promus Stock Option, as the case may be, the
same number of shares of New Promus Common Stock as the holder of such
Doubletree Stock Option or Promus Stock Option, as the case may be, would have
been entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time. The exercise price per
share of each such option, as
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so converted, will be equal to (x) the aggregate exercise price for the shares
of Doubletree Common Stock or Promus Stock Option, as the case may be,
purchasable pursuant to such Doubletree Stock Option or Promus Stock Option, as
the case may be, immediately prior to the Effective Time divided by (y) the
number of whole shares of New Promus Common Stock deemed purchasable pursuant to
such Doubletree Stock Option or Promus Stock Option, as the case may be, as
determined above (rounded up to the nearest whole cent). As of the record date
for the Doubletree Special Meeting and the record date for the Promus Special
Meeting, respectively, options to acquire 3,253,300 and 2,468,316 shares of
Doubletree Common Stock and Promus Common Stock, respectively, were outstanding.
All outstanding Doubletree Stock Options and Promus Stock Options will become
exercisable in full upon the Closing, pursuant to the terms of such stock
options.
Pursuant to the Merger Agreement, New Promus has agreed to reserve for
issuance a sufficient number of shares of New Promus Common Stock for delivery
upon exercise of the Doubletree Stock Options or the Promus Stock Options, as
the case may be, assumed as described above. As soon as practicable after the
Effective Time, New Promus will file a registration statement on Form S-8 with
respect to the shares of New Promus Common Stock subject to such options and
will use its best efforts to maintain the effectiveness of such registration
statement for so long as such options remain outstanding.
DIRECTOR AND OFFICER INDEMNIFICATION. The Merger Agreement provides that,
from and after the Effective Time, New Promus and/or the surviving corporations
in the Doubletree Merger and the Promus Merger will indemnify and hold harmless
each present and former director and officer of Promus 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 arising out of or pertaining to any
matter existing or occurring at or prior to the Effective Time, whether asserted
or claimed prior to, or at or after the Effective Time, to the fullest extent
that Doubletree or Promus, as the case may be, would have been permitted under
Delaware law and its certificate of incorporation or bylaws in effect on the
date of the Merger Agreement to indemnify such person. New Promus and/or such
surviving corporations will also be obligated to advance expenses as incurred to
the fullest extent permitted under applicable law, provided the person to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to indemnification.
For a period of six years after the Effective Time, New Promus will cause
the surviving corporations in the Doubletree Merger and the Promus Merger to
maintain (to the extent available in the market) in effect a directors' and
officers' liability insurance policy covering those persons who are covered as
of the date of the Merger Agreement by Doubletree's or Promus's directors' and
officers' liability insurance policy, with coverage in an amount and scope at
least as favorable as Doubletree's or Promus's existing coverage; provided that
in no event will New Promus or the surviving corporations in the Doubletree
Merger and the Promus Merger be required to expend in excess of 200% of the
annual premium paid by Doubletree or Promus for such coverage, and if the
premium would at any time exceed 200% of such amount, then New Promus or
surviving corporations in the Doubletree Merger and the Promus Merger will
maintain insurance policies which provide the maximum coverage available at an
annual premium equal to 200% of such amount.
STOCKHOLDER RIGHTS PLANS. Doubletree entered into a Rights Agreement dated
as of September 1, 1997 with Harris Trust Company of California (the "Doubletree
Rights Plan"). The Doubletree Rights Plan provides that the transactions
contemplated by the Merger Agreement and the Promus Stock Option Agreement and
the Stockholders Support Agreement are exempt from the provisions of the
Doubletree Rights Plan, and all rights issued pursuant to the Doubletree Rights
Plan will become non-exercisable at the Effective Time. Promus is a party to a
Rights Agreement dated June 30, 1995 with First Union National Bank (the "Promus
Rights Plan"). The provisions of the Promus Rights Plan will not be triggered by
the transactions contemplated by the Merger Agreement and the Doubletree Stock
Option Agreement,
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and all rights issued pursuant to the Promus Rights Plan will become
non-exercisable at the Effective Time.
The Merger Agreement also provides that Doubletree and Promus will cause New
Promus, prior to the Closing Date, to adopt a Stockholder Rights Plan that is
substantially similar to the Promus Rights Plan, with such modifications as are
acceptable to both Doubletree and Promus. See "Description of New Promus Capital
Stock--Preferred Share Purchase Rights."
GEPT WARRANT; DOUBLETREE REGISTRATION RIGHTS AGREEMENT. The Merger
Agreement provides that, at the Effective Time, New Promus will assume all
obligations under the GEPT Warrant, and the holder of the GEPT Warrant
thereafter will have the right to acquire, on the same pricing and payment terms
and conditions as are currently applicable under the GEPT Warrant the same
number of shares of New Promus Common Stock as the holder of the GEPT Warrant
would have been entitled to receive pursuant to the Doubletree Merger had such
holder exercised the GEPT Warrant in full immediately prior to the Effective
Time (rounded downward to the nearest whole number), at the price per share
(rounded downward to the nearest whole cent) equal to (x) the aggregate exercise
price for the shares of Doubletree Common Stock purchasable pursuant to the GEPT
Warrant immediately prior to the Effective Time divided by (y) the number of
full shares of New Promus Common Stock deemed purchasable pursuant to the GEPT
Warrant in accordance with the foregoing. Doubletree and Promus also have agreed
to cause New Promus, at the Effective Time, to enter into a Registration Rights
Agreement (the "New Promus Registration Rights Agreement") substantially similar
to the Incorporation and Registration Rights Agreement dated as of December 16,
1993, as amended on June 30, 1994, February 27, 1996 and November 8, 1996 by and
among Doubletree and certain stockholders of Doubletree (the "Doubletree
Registration Rights Agreement") pursuant to which New Promus will provide
registration rights to parties to the Doubletree Registration Rights Agreement
(other than Doubletree) with respect to all shares of New Promus Common Stock
issued in the Doubletree Merger on account of the shares of Doubletree Common
Stock covered by the Doubletree Registration Rights Agreement.
EMPLOYEE BENEFITS; SEVERANCE. The Merger Agreement provides that New Promus
will cause to continue to be maintained the existing Doubletree and Promus
annual bonus plans for management employees for the 1997 fiscal year and will
calculate the amounts payable to participants thereunder on a basis consistent
with the terms of each such plan and the past practice of Doubletree or Promus,
as applicable. For purposes of determining eligibility to participate, vesting,
entitlement to benefits and in all other respects where length of service is
relevant (except for pension benefit accruals) under any employee benefit plan
or arrangement covering employees of Doubletree and its subsidiaries and
employees of Promus and its subsidiaries following the Effective Time, New
Promus will cause such plans or arrangements to recognize service credit for
service with Doubletree or Promus (as applicable) and any of their respective
subsidiaries to the same extent such service was recognized under the applicable
employee benefit plans immediately prior to the Effective Time. In addition, the
Merger Agreement also requires New Promus to assume and honor in accordance with
their terms the severance agreements and severance pay policies described under
"The Merger--Interests of Certain Persons in the Merger--Severance Agreements."
Each of Promus and Doubletree may enter into retention and transition bonus
arrangements with its employees prior to the Effective Time, with the terms and
amounts of such payments to be determined jointly by the Chief Executive
Officers of Promus and Doubletree; provided, however, that in no event will the
aggregate of all such payments exceed approximately $2.5 million. Promus also
will use all reasonable efforts, including obtaining any necessary employee
consents, to prevent the automatic funding of any escrow, trust or similar
arrangement pursuant to any employment agreement, arrangement or benefit plan
that arises in connection with the execution of the Merger Agreement or the
consummation of any of the transactions contemplated thereby.
NAME OF NEW PROMUS. The Merger Agreement provides that, at the Effective
Time, New Promus will change its corporate name to "Promus Hotel Corporation."
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OTHER COVENANTS. Pursuant to the Merger Agreement, each of Doubletree and
Promus has also agreed: (a) to confer with the other party on a regular basis
regarding ongoing operations and to give prompt notice to the other of, and use
all commercially reasonable efforts to come before the Closing Date, any event,
transaction or circumstance which causes or will cause any breach, of any
representation, warranty covenant or agreement; (b) to file this Joint Proxy
Statement/Prospectus and the Registration Statement, and obtain all necessary
state securities laws permits or approvals; (c) to give (and to cause their
respective subsidiaries to give) the other such party and its representatives
access to all its personnel, properties, books, contracts, commitments and
records, and to furnish related information reasonably requested by the other;
(d) to use its best efforts to take all appropriate action to consummate the
transactions contemplated by the Merger Agreement as promptly as practical,
obtain any consents, licenses, permits, waivers, approvals, authorizations or
orders from governmental entities or other third parties required in connection
with the transactions contemplated by the Merger Agreement, and make all
necessary filings and submissions with respect to the transactions contemplated
by the Merger Agreement under federal, state and foreign securities laws,
antitrust laws and other applicable laws; (e) to consult with the other party
before issuing, and use all reasonable efforts to agree upon, any press release
or other public statement concerning the transactions contemplated by the Merger
Agreement; (f) to not take any action, or knowingly fail to take any action,
that is reasonably likely to jeopardize the tax or accounting treatment of the
Merger; (g) to use all reasonable efforts to obtain and deliver to the other
party the Affiliate Agreements; (h) to use all reasonable efforts to cause the
New Promus Common Stock to be issued in the Merger to be approved for listing on
the NYSE, prior to the Effective Time; (i) to use all reasonable efforts to
obtain customary "comfort" letters of such party's independent public
accountants with respect to the Registration Statement; and (j) that Doubletree
and Promus will cooperate in the preparations and filing of all returns and
other documents regarding the Merger Agreement and will pay any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees or any similar taxes
which become payable in connection with the transactions contemplated by the
Merger Agreement, and that Doubletree will pay, and Promus will pay, on behalf
of the stockholders of Doubletree and Promus, respectively, any New York State
Real Estate Transfer Tax, New York City Real Property Transfer Tax, New York
State Stock Transfer Tax and any similar taxes imposed on the stockholders of
Doubletree and Promus, respectively, by any other state which become payable in
connection with the transactions contemplated by the Merger Agreement.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The respective obligations of Doubletree and Promus to effect the Merger are
subject to the satisfaction (or waiver) of the following conditions: (a) the
Merger Agreement, the Doubletree Merger and the Promus Merger shall have been
approved in the manner required under the DGCL by the respective holders of the
issued and outstanding shares of capital stock of Doubletree and Promus; (b) the
waiting period applicable to the consummation of the Mergers under the HSR Act
shall have expired or been terminated; (c) all authorizations, consents, orders
or approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any Governmental Entity (as defined in the Merger Agreement)
the failure of which to file, obtain or occur is reasonably likely to have a
Material Adverse Effect on Doubletree or a Material Adverse Effect on Promus
shall have been filed, been obtained or occurred; (d) the Registration Statement
shall have become effective under the Securities Act and shall not be the
subject of any stop order or proceedings seeking a stop order; (e) no
Governmental Entity shall have enacted, issued, promulgated, enforced or entered
any order, executive order, stay, decree, judgment or injunction or statute,
rule, regulation which is in effect and which has the effect of making the
Merger illegal or otherwise prohibiting consummation of the Merger; (f)
Doubletree and Promus shall have received letters from KPMG Peat Marwick LLP and
Arthur Andersen LLP, respectively, addressed to Doubletree and Promus,
respectively, regarding their concurrence with the respective conclusions of
management of Doubletree and Promus, as to the appropriateness of the pooling of
interests accounting, under Accounting Principles Board Opinion No. 16, for the
transactions contemplated by the Merger
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Agreement; (g) the shares of New Promus Common Stock to be issued in the Merger
and upon exercise of Doubletree Options, the GEPT Warrant and Promus Options
shall have been approved for listing on the NYSE, subject to official notice of
issuance; and (h) Doubletree and Promus shall have taken all actions necessary
so that (1) not later than the Effective Time, the Certificate of Incorporation
and Bylaws of New Promus shall have been as contemplated by the Merger
Agreement, (2) at the Effective Time, the composition of the Board of Directors
of New Promus and of each Committee of the Board of Directors of New Promus
shall be as described above under "Interests of Certain Persons in the
Merger--Board of Directors and Committees of New Promus," and (3) not later than
the Effective Time, New Promus shall have adopted the New Promus Rights Plan.
The obligation of Doubletree to effect the Merger are subject to the
satisfaction (or waiver) of the following conditions: (a) the representations
and warranties of Promus set forth in the Merger Agreement shall be true and
correct as of the date of the Merger Agreement and (except to the extent such
representations speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date, except for, (i) changes contemplated by the
Merger Agreement and (ii) inaccuracies which, individually or in the aggregate,
have not had and are not reasonably likely to have a Material Adverse Effect on
Promus or a material adverse effect upon the consummation of the transactions
contemplated hereby; and Doubletree shall have received a certificate signed on
behalf of Promus by the chief executive officer and the chief financial officer
of Promus to such effect (the "Doubletree Representation Bringdown Condition");
(b) Promus shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Closing Date, and Doubletree shall have received a certificate signed on behalf
of Promus by the chief executive officer and the chief financial officer of
Promus to such effect; (c) Doubletree shall have received the opinion of Dewey
Ballantine LLP, counsel to Doubletree, based upon reasonably requested
representation letters and dated the Closing Date, to the effect that the
Doubletree Merger will be treated as a reorganization described in Section
368(a) of the Code and/or, taken together with the Promus Merger, as a transfer
of property to New Promus by holders of Doubletree Common Stock described in
Section 351 of the Code; and (d) no event shall have occurred that has or would
result in the triggering of any right or entitlement of stockholders of Promus
under the Promus Rights Plan, or will occur as a result of the consummation of
the Merger.
The obligation of Promus to effect the Merger are subject to the
satisfaction (or waiver) of the following conditions: (a) the representations
and warranties of Doubletree set forth in the Merger Agreement shall be true and
correct as of the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except for (i) changes
contemplated by the Merger Agreement and (ii) inaccuracies which, individually
or in the aggregate, have not had and are not reasonably likely to have a
Material Adverse Effect on Doubletree, or a material adverse effect upon the
consummation of the transactions contemplated hereby; and Promus shall have
received a certificate signed on behalf of Doubletree by the chief executive
officer and the chief financial officer of Doubletree to such effect (the
"Promus Representation Bringdown Condition"); (b) Doubletree shall have
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to the Closing Date; and Promus shall
have received a certificate signed on behalf of Doubletree by the chief
executive officer and the chief financial officer of Doubletree to such effect;
(c) Promus shall have received the opinion of Latham & Watkins, counsel to
Promus, based upon reasonably requested representation letters and dated the
Closing Date, to the effect that the Promus Merger will be treated as a
reorganization described in Section 368(a) of the Code and/or, taken together
with the Doubletree Merger, as a transfer of property to New Promus by holders
of Promus Common Stock described in Section 351 of the Code; and (d) no event
shall have occurred that has or would result in the triggering of any right or
entitlement of stockholders of Doubletree under the Doubletree Rights Plan, or
will occur as a result of the consummation of the Merger.
A "Material Adverse Effect" means on the business, properties, financial
condition or results of operations of the referenced corporation and its
subsidiaries, taken as a whole.
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TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of Doubletree and Promus:
(a) by mutual written consent of Doubletree and Promus; or
(b) by either Doubletree or Promus if the Merger has not been consummated by
January 31, 1998 (provided that (i) either Doubletree or Promus may extend such
date to March 31, 1998 by providing written notice thereof to the other party on
or prior to January 31, 1998 (January 31, 1998, as it may be so extended, will
be referred to herein as the "Outside Date") and (ii) the right to terminate the
Merger Agreement under this clause (b) will not be available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date); or
(c) by either Doubletree or Promus if a court of competent jurisdiction or
other Governmental Entity has issued a nonappealable final order, decree or
ruling or taken any other nonappealable final action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; or
(d) (i) by Doubletree or Promus, if, at the Promus Stockholders' Meeting
(including any adjournment or postponement), the requisite vote of the
stockholders of Promus in favor of the approval and adoption of the Merger
Agreement and the Promus Merger has not been obtained; or (ii) by Promus or
Doubletree if, at the Doubletree Stockholders' Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Doubletree in favor of the approval and adoption of the Merger Agreement and the
Doubletree Merger has not been obtained; or
(e) by Doubletree, if (i) the Board of Directors of Promus has withdrawn or
modified its recommendation of the Merger Agreement or the Promus Merger
(provided that Doubletree's right to terminate the Merger Agreement under such
clause (i) will not be available if at such time Promus would be entitled to
terminate the Merger Agreement by reason of a breach by Doubletree); (ii) after
the receipt by Promus of an Acquisition Proposal, Doubletree requests in writing
that the Board of Directors of Promus reconfirm its recommendation of the Merger
Agreement and the Promus Merger to the stockholders of Promus and the Board of
Directors of Promus fails to do so within 10 business days after its receipt of
Doubletree's request; (iii) the Board of Directors of Promus has recommended to
the stockholders of Promus an Alternative Transaction (as defined in the Merger
Agreement); (iv) a tender offer or exchange offer for 20% or more of the
outstanding shares of Promus Common Stock is commenced (other than by Doubletree
or an Affiliate of Doubletree) and the Board of Directors of Promus recommends
that the stockholders of Promus tender their shares in such tender or exchange
offer; or (v) for any reason Promus fails to call and hold the Promus Special
Meeting by the Outside Date (provided that Doubletree's right to terminate the
Merger Agreement under such clause (v) will not be available if at such time
Promus would be entitled to terminate the Merger Agreement by reason of a breach
by Doubletree); or
(f) by Promus, if (i) the Board of Directors of Doubletree has withdrawn or
modified its recommendation of the Merger Agreement or the Doubletree Merger
(provided that Promus's right to terminate the Merger Agreement under such
clause (i) will not be available if at such time Doubletree would be entitled to
terminate the Merger Agreement by reason of a breach by Promus); (ii) after the
receipt by Doubletree of an Acquisition Proposal, Promus requests in writing
that the Board of Directors of Doubletree reconfirm its recommendation of the
Merger Agreement and the Doubletree Merger to the stockholders of Promus and the
Board of Directors of Doubletree fails to do so within 10 business days after
its receipt of Promus's request; (iii) the Board of Directors of Doubletree has
recommended to the stockholders of Doubletree an Alternative Transaction; (iv) a
tender offer or exchange offer for 20% or more of the outstanding shares of
Doubletree Common Stock is commenced (other than by Promus or an Affiliate of
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<PAGE>
Promus) and the Board of Directors of Doubletree recommends that the
stockholders of Doubletree tender their shares in such tender or exchange offer;
or (v) for any reason Doubletree fails to call and hold the Doubletree Special
Meeting by the Outside Date (provided that Promus's right to terminate the
Merger Agreement under such clause (v) will not be available if at such time
Doubletree would be entitled to terminate the Merger Agreement by reason of a
breach of Promus); or
(g) by Doubletree or Promus, prior to the approval of the Merger Agreement
by the stockholders of such party, if, as a result of a Superior Proposal
received by such party from a third party, the Board of Directors of such party
determines in good faith after consultation with outside legal counsel that
accepting such Superior Proposal is required for such Board of Directors to
comply with its fiduciary duties to stockholders under applicable law; provided,
however, that no such termination will be effective under the circumstances
described in this clause (g) under circumstances in which a termination fee is
payable by the terminating party as described below, unless concurrently with
such termination, such termination fee is paid in full by the terminating party
as described below; or
(h) by Doubletree or Promus, if (A) there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in the Merger Agreement, which breach (i) will cause the Promus
Representation Bringdown Condition (in the case of termination by Doubletree) or
the Doubletree Representation Bringdown Condition (in the case of termination by
Promus) not to be satisfied, and (ii) has not been cured within 20 business days
following receipt by the breaching party of written notice of such breach from
the other party; or (B) any event has occurred which makes it impossible for the
conditions described above under "--Conditions to Obligations to Effect the
Merger" (other than the conditions regarding stockholder approval of the Merger,
the absence of injunctions by Government Entities and the triggering of the
Doubletree Rights Plan of the Promus Rights Plan) to be satisfied, provided that
any termination pursuant to this clause (B) will not be effective until 20
business days after notice thereof is delivered by the party seeking to
terminate to the other party, and will be automatically rescinded if (1) such
condition is solely for the benefit of the party receiving such notice and (2)
such party, prior to such 20th business day, irrevocably waives satisfaction of
such condition based on such event.
In the event of any termination of the Merger Agreement by either Doubletree
or Promus as provided above, the Merger Agreement will become void and there
will be no liability or obligation (with limited exceptions) on the part of
Doubletree, Promus, New Promus or their respective officers, directors,
stockholders or affiliates, except as provided below with respect to termination
fees and except that such termination will not limit liability for a willful
breach of the Merger Agreement; provided that, the indemnification provisions
described above under "--Indemnification of Doubletree and Promus Directors and
Officers" and the termination fee provisions described below will remain in full
force and effect and survive any termination of the Merger Agreement.
Except as set forth below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses.
Doubletree will pay Promus a termination fee of $45 million (the "Doubletree
Termination Fee") upon the earliest to occur of the following events: (i) the
termination of the Merger Agreement by either Promus or Doubletree under the
circumstances described in paragraph (d) above, if a proposal for an Alternative
Transaction involving Doubletree has been publicly announced prior to the
Doubletree Special Meeting and either a definitive agreement for an Alternative
Transaction is entered into, or an Alternative Transaction is consummated,
within eighteen months of such termination; (ii) the termination of the Merger
Agreement by Promus under the circumstances described in paragraph (f) above; or
(iii) the termination of the Merger Agreement by Doubletree under the
circumstances described in paragraph (g) above. Doubletree's payment of such
termination fee will be the sole and exclusive remedy of Promus against
Doubletree and any of its subsidiaries and their respective directors, officers,
employees, agents,
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<PAGE>
advisors or other representatives with respect to the occurrences giving rise to
such payment; provided that this limitation will not apply in the event of a
willful breach of the Merger Agreement by Doubletree. Notwithstanding the
foregoing, the amount of the Doubletree Termination Fee will be reduced to the
extent that the Doubletree Total Profit (as defined below under "Other
Agreements--Doubletree Stock Option Agreement") exceeds $65 million.
Promus will pay Doubletree a termination fee of $45 million (the "Promus
Termination Fee") upon the earliest to occur of the following events: (i) the
termination of the Merger Agreement by either Doubletree or under the
circumstances described in paragraph (d) above, if a proposal for an Alternative
Transaction involving Promus has been publicly announced prior to the Promus
Special Meeting and either an Alternative Transaction is entered into, or an
Alternative Transaction is consummated, within eighteen months of such
termination; (ii) the termination of the Merger Agreement by Doubletree under
the circumstances described in paragraph (e) above; or (iii) the termination of
the Merger Agreement by Promus under the circumstances described in paragraph
(g) above. Promus's payment of such termination fee will be the sole and
exclusive remedy of Doubletree against Promus and any of its subsidiaries and
their respective directors, officers, employees, agents, advisors or other
representatives with respect to the occurrences giving rise to such payment;
provided that this limitation will not apply in the event of a willful breach of
the Merger Agreement by Promus. Notwithstanding the foregoing, the amount of the
Promus Termination Fee will be reduced to the extent that the Promus Total
Profit (as defined below under "Other Agreements--Promus Stock Option
Agreement") exceeds $65 million.
If applicable, the fees payable as described above will be paid concurrently
with the first to occur of the relevant termination events.
AMENDMENT AND WAIVER
The Merger Agreement provides that it may be amended by the parties thereto,
by action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of Doubletree or Promus, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. The Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto; provided, however, that the Merger Agreement may be amended in
writing without obtaining the signatures of Doubletree, Promus or New Promus
solely for the purpose of adding Doubletree Sub and Merger Sub as parties to the
Merger Agreement. At any time prior to the Effective Time, the parties to the
Merger Agreement, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
thereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant thereto and (iii) waive
compliance with any of the agreements or conditions contained therein. Any
agreement on the part of a party to the Merger Agreement to any such extension
or waiver shall be valid only if set forth in a written instrument signed on
behalf of such party.
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OTHER AGREEMENTS
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE DOUBLETREE STOCK
OPTION AGREEMENT, THE PROMUS STOCK OPTION AGREEMENT AND THE STOCKHOLDER SUPPORT
AGREEMENT, COPIES OF WHICH AGREEMENTS ARE FILED AS EXHIBITS TO DOUBLETREE'S
CURRENT REPORT ON FORM 8-K, DATED SEPTEMBER 5, 1997, AS AMENDED, AND PROMUS'S
CURRENT REPORT ON FORM 8-K, DATED SEPTEMBER 5, 1997, AND ARE HEREBY INCORPORATED
HEREIN BY REFERENCE. SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE
TO THE STOCK OPTION AGREEMENTS AND THE STOCKHOLDER SUPPORT AGREEMENT.
DOUBLETREE STOCK OPTION AGREEMENT
Pursuant to the Doubletree Stock Option Agreement, Doubletree has the right
(the "Doubletree Option"), under the circumstances described below, to acquire
up to 9,929,485 shares of authorized but unissued Promus Common Stock (the
"Doubletree Option Shares") (or approximately 19.9% of the outstanding shares of
Promus Common Stock as of August 29, 1997 prior to giving effect to the exercise
of such option), including the associated rights under the Promus Rights Plan,
at a per share cash purchase price of $38.8125 (the "Doubletree Option Price").
The Doubletree Stock Option Agreement could have the effect of making an
acquisition of Promus by a third party more costly because of the need to
acquire in any such transaction the Doubletree Option Shares issued under the
Doubletree Stock Option Agreement, and could also jeopardize the ability of a
third party to acquire Promus in a transaction accounted for as a pooling of
interests.
The Doubletree Option may be exercised by Doubletree, in whole or in part,
at any time or from time to time after the occurrence of an event which would
entitle Doubletree, upon termination of the Merger Agreement, to payment of the
Doubletree Termination Fee (as described above in "The Merger
Agreement--Termination; Termination Fees and Expenses"); provided that the
Doubletree Option may not be exercised if Doubletree is in material breach of
any of its material representations, warranties, covenants or agreements
contained in the Doubletree Stock Option Agreement or in the Merger Agreement.
Doubletree may exercise the Doubletree Option by either (a) paying the
Doubletree Option Price in cash and receiving the Doubletree Option Shares or
(b) electing, in lieu of the payment of the Doubletree Option Price and the
receipt of the Doubletree Option Shares, to receive a cash payment (the "Cash
Exercise Payment") from Promus in the amount of the excess of (i) the higher of
the price paid for the Promus Common Stock in an Alternative Transaction or the
then current market price of the Promus Common Stock over (ii) the Doubletree
Option Price.
In the event that Doubletree exercises the Doubletree Option in whole or in
part and a change in control event (as defined in the Doubletree Stock Option
Agreement) with respect to Promus has not occurred prior to the first
anniversary of the termination of the Merger Agreement, Promus will have the
right, during the 30-day period beginning on such anniversary, to purchase all
(but not less than all) of the Doubletree Option Shares at a purchase price
equal to the greater of (i) the Doubletree Option Price or (ii) the average of
the closing sales prices for shares of Promus Common Stock on the 20 trading
days ending five days prior to the date Promus gives notice of its intention to
exercise such repurchase right.
The Doubletree Stock Option Agreement further provides that if Doubletree
desires to sell any of the Doubletree Option Shares within three years after the
purchase of such shares and such sale requires the registration of such shares
under the Securities Act, Promus will be required to prepare and file (subject
to certain limitations) a registration statement under the Securities Act for
the purpose of permitting such sale of shares by Doubletree. Promus will not be
required to have declared effective more than two such registration statements.
Notwithstanding any other provisions of the Doubletree Stock Option
Agreement, in no event will the Doubletree Total Profit (as defined below)
exceed $65 million. "Doubletree Total Profit" means the aggregate amount (before
taxes) of (i) the Doubletree Termination Fee received by Doubletree, (ii) the
amount received by Doubletree for the repurchase of the Doubletree Option Shares
by Promus pursuant
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to the second preceding paragraph, less the purchase price paid by Doubletree
for such shares, and (iii) the amount received by Doubletree in the sale of
Doubletree Option Shares, less the purchase price paid by Doubletree for such
shares.
The Doubletree Option will terminate upon the earlier of (i) the Effective
Time, (ii) the date on which Doubletree realizes a Doubletree Total Profit of
$65 million, (iii) the date on which the Merger Agreement is terminated,
provided that the Doubletree Option is not exercisable at such time and does not
become exercisable simultaneous with such termination, and (iv) 90 days after
the date the Doubletree Option becomes exercisable, provided that if the
Doubletree Option cannot be exercised, or the Doubletree Option Shares cannot be
delivered to Promus upon such exercise, because of a preliminary or permanent
injunction or other court order or because the applicable waiting period under
the HSR Act has not expired or been terminated, the date referred to in clause
(iv) above will be extended until 30 days after such impediment to exercise has
been removed.
PROMUS STOCK OPTION AGREEMENT
Pursuant to the Promus Stock Option Agreement, Promus has the right (the
"Promus Option"), under the circumstances described below, to acquire up to
7,898,003 shares of authorized but unissued Doubletree Common Stock (the "Promus
Option Shares") (or approximately 19.9% of the outstanding Doubletree Common
Stock as of August 29, 1997 prior to giving effect to the exercise of such
option), including the associated rights under the Doubletree Rights Plan, at a
per share cash purchase price of $47.825 (the "Promus Option Price"). The Promus
Stock Option Agreement could have the effect of making an acquisition of
Doubletree by a third party more costly because of the need to acquire in any
such transaction the Promus Option Shares issued under the Promus Stock Option
Agreement, and could also jeopardize the ability of a third party to acquire
Doubletree in a transaction accounted for as a pooling of interests.
The Promus Option may be exercised by Promus, in whole or in part, at any
time or from time to time after the occurrence of an event which would entitle
Promus, upon termination of the Merger Agreement, to payment of the Promus
Termination Fee (as described above in "The Merger Agreement--Termination;
Termination Fees and Expenses"); provided that the Promus Option may not be
exercised if Promus is in material breach of any of its material
representations, warranties, covenants or agreements contained in the Promus
Stock Option Agreement or the Merger Agreement. Promus may exercise the Promus
Option by either (a) paying the Promus Option Price in cash and receiving the
Promus Option Shares or (b) electing, in lieu of the payment of the Promus
Option Price and the receipt of the Promus Option Shares, to receive a Cash
Exercise Payment from Doubletree in the amount of the excess of (i) the higher
of the price paid for the Doubletree Common Stock in an Alternative Transaction
or the then current market price of the Doubletree Common Stock over (ii) the
Promus Option Price.
In the event Promus exercises the Promus Option in whole or in part and a
change in control event (as defined in the Promus Stock Option Agreement) with
respect to Doubletree has not occurred prior to the first anniversary of the
termination of the Merger Agreement, Doubletree will have the right, during the
30-day period beginning on such anniversary, to purchase all (but not less than
all) of the Promus Option Shares at a purchase price equal to the greater of (i)
the Promus Option Price or (ii) the average of the closing sales prices for
shares of Doubletree Common Stock on the 20 trading days ending five days prior
to the date Doubletree gives notice of its intention to exercise such repurchase
right.
The Promus Stock Option Agreement further provides that if Promus desires to
sell any of the Promus Option Shares within three years after the purchase of
such shares and such sale requires the registration of such shares under the
Securities Act, Doubletree will be required to prepare and file (subject to
certain limitations) a registration statement under the Securities Act for the
purpose of permitting such sale of shares by Promus. Doubletree will not be
required to have declared effective more than two such registration statements.
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Notwithstanding any other provisions of the Promus Stock Option Agreement,
in no event will the Promus Total Profit (as defined below) exceed $65 million.
"Promus Total Profit" means the aggregate amount (before taxes) of (i) the
Promus Termination Fee received by Promus, (ii) the amount received by Promus
for the repurchase of the Promus Option Shares by Doubletree pursuant to the
second preceding paragraph, less the purchase price paid by Promus for such
shares, and (iii) the amount received by Promus in the sale of Promus Option
Shares, less the purchase price paid by Promus for such shares.
The Promus Option will terminate upon the earlier of (i) the Effective Time,
(ii) the date on which Promus realizes a Promus Total Profit of $65 million,
(iii) the date on which the Merger Agreement is terminated, provided that the
Promus Option is not exercisable at such time and does not become exercisable
simultaneous with such termination, and (iv) 90 days after the date the Promus
Option becomes exercisable, provided that if the Promus Option cannot be
exercised, or the Doubletree Option Shares cannot be delivered to Doubletree
upon such exercise, because of a preliminary or permanent injunction or other
court order or because the applicable waiting period under the HSR Act has not
expired or been terminated, the date referred to in clause (iv) above will be
extended until 30 days after such impediment to exercise has been removed.
STOCKHOLDER SUPPORT AGREEMENT
As an inducement and condition to the willingness of Promus and Doubletree
to enter into the Merger Agreement and the Stock Option Agreements, the Key
Stockholders entered into the Stockholder Support Agreement. The Key
Stockholders are GE Investment Management Incorporated, GEHOP, the Trustees of
General Electric Pension Trust, Red Lion, a California limited partnership,
Richard J. Ferris, Ridge Partners, L.P., Kelrick, Inc., Peter V. Ueberroth, The
Ueberroth Family Trust and The Ueberroth Investment Trust. Collectively, the Key
Stockholders held, at the record date for the Doubletree Special Meeting and the
record date for the Promus Special Meeting, respectively, over 39% of the
combined voting power of the outstanding capital stock of Doubletree, and
therefore, together, are able to significantly influence the vote on the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby by the Doubletree stockholders.
In the Stockholder Support Agreement, each Key Stockholder has agreed, at
the Doubletree Special Meeting or at any other meeting of the stockholders of
Doubletree, however called, and in any action by written consent of the
stockholders of Doubletree, to vote all of such Key Stockholder's shares of
Doubletree Common Stock (a) in favor of the adoption of the Merger Agreement and
the approval of the Doubletree Merger, and the other transactions contemplated
by the Merger Agreement, and (b) in favor of any other matter necessary to the
consummation of the transactions contemplated by the Merger Agreement and
considered and voted upon by the stockholders of Doubletree (or any class
thereof). In addition, each Key Stockholder has agreed that it will, upon
request by Promus, furnish written confirmation, in form and substance
reasonably satisfactory to Promus, of such Key Stockholders' support for the
Merger Agreement and the Doubletree Merger.
Pursuant to the terms of the Stockholder Support Agreement, each Key
Stockholder has agreed (a) that it will not, nor will it authorize or permit any
of its officers, directors, employees, agents and representatives to, directly
or indirectly, initiate or solicit any inquiries or the making of any
Acquisition Proposal and (b) that it will notify Promus as soon as possible (and
in any event within 48 hours) if any such inquiries or proposals are received
by, any information or documents is requested from, or any negotiations or
discussions are sought to be initiated or continued with, it or any of its
affiliates.
The Stockholder Support Agreement will terminate upon the earliest to occur
of the Effective Time or any termination of the Merger Agreement in accordance
with the terms thereof.
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REFINANCING ARRANGEMENTS
In connection with the Merger, New Promus intends to refinance and
consolidate the existing credit facilities of Doubletree and Promus with the
proceeds of a new credit facility that is expected to be obtained prior to or
concurrently with the closing of the Merger (the "New Credit Facility").
Doubletree and Promus have obtained a commitment letter from NationsBank, N.A.
("NationsBank") to act as the agent for up to $1.0 billion in senior credit
facilities to be provided by NationsBank and a syndicate of other lenders.
Borrowings under the New Credit Facility will be used by New Promus for
refinancing borrowings under existing credit facilities, working capital and
capital expenditures. The closing of the Merger is not conditioned on the
closing of the New Credit Facility and, if New Promus is unable to close the New
Credit Facility on or before the Effective Time, Doubletree and Promus will
continue to borrow funds under their existing credit facilities until
refinancing is obtained. Such continued borrowing would require Doubletree and
Promus to obtain the consent of the lenders under such facilities.
As presently contemplated, the New Credit Facility will consist of two
revolving credit facilities in the amounts of $750 million ("Tranche A") and
$250 million ("Tranche B") against which Doubletree and Promus Hotels, Inc., a
wholly-owned subsidiary of Promus ("PHI"), will be able to borrow on a joint and
several basis. Amounts borrowed under the New Credit Facility will bear interest
at a rate equal to the London Interbank Offered Rate plus a margin determined
periodically with reference to New Promus's leverage and credit rating or an
alternative base rate (defined as the higher of (i) NationBank's prime rate and
(ii) the federal funds rate plus .50%). All borrowings under the New Credit
Facility will be guaranteed by New Promus and Promus. New Promus will have the
option in the future, subject to certain conditions, of increasing the aggregate
amount available to be borrowed under the New Credit Facility to $1.25 billion.
Borrowings under the New Credit Facility will be unsecured and, subject to
certain exceptions, will mature in five years (in the case of Tranche A) and 364
days (in the case of Tranche B) from the Effective Time. The New Credit Facility
will include covenants that prohibit or limit, among other things, the sale of
assets, the making of investments, the incurrence of liens and transactions with
affiliates. The New Credit Facility also will include covenants that prohibit
each of Doubletree and PHI from exceeding a maximum ratio of consolidated funded
debt (defined to include, without limitation, balance sheet debt and guaranteed
debt) to consolidated earnings before interest, taxes, depreciation and
amortization and require each of Doubletree and PHI to maintain a minimum
consolidated net worth.
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COMPARATIVE MARKET PRICES AND DIVIDENDS
The following table sets forth, for the fiscal quarters indicated, the range
of high and low sale prices of Promus Common Stock on the NYSE and Doubletree
Common Stock on Nasdaq.
<TABLE>
<CAPTION>
DOUBLETREE PROMUS COMMON
COMMON STOCK STOCK
-------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
YEAR ENDING DECEMBER 31, 1997
4rd Quarter (through November 13, 1997)..................................... $49.38 $38.50 $45.38 $37.00
3rd Quarter................................................................. 50.75 41.38 46.88 38.00
2nd Quarter................................................................. 49.00 30.25 39.25 30.50
1st Quarter................................................................. 45.25 35.00 36.38 28.25
YEAR ENDED DECEMBER 31, 1996
4th Quarter................................................................. $47.50 $39.25 $34.00 $28.25
3rd Quarter................................................................. 40.38 30.75 32.25 24.75
2nd Quarter................................................................. 35.75 26.50 29.63 25.25
1st Quarter................................................................. 28.50 22.75 28.00 20.88
YEAR ENDED DECEMBER 31, 1995
4th Quarter................................................................. $26.38 $20.50 $24.13 $20.75
3rd Quarter................................................................. 24.75 18.94 25.00 20.38
2nd Quarter................................................................. 22.00 18.75 26.38(1) 21.00(1)
1st Quarter................................................................. 20.25 16.25 -- (2) -- (2)
</TABLE>
- ------------------------
(1) Trading on a "when-issued" basis.
(2) Promus was incorporated on March 2, 1995 and its Common Stock was not traded
in the first quarter of 1995.
On August 29, 1997, the last trading date prior to the date on which
Doubletree and Promus publicly announced the signing of the Merger Agreement,
the high and low sales prices on Nasdaq were $50.50 and $45.81 per share,
respectively, for Doubletree Common Stock, and on the NYSE were $39.13 and
$38.75 per share, respectively, for Promus Common Stock. The average closing
price of Doubletree Common Stock and Promus Common Stock for the 30 consecutive
trading days ending August 29, 1997 were $45.41 and $39.43 per share,
respectively. On November 13, 1997, the high and low sales prices and last
reported sales price on Nasdaq were $40.00, $38.88 and $39.25 per share for
Doubletree Common Stock, and on the NYSE were $37.75, $37.25 and $37.44 per
share, respectively, for Promus Common Stock. STOCKHOLDERS OF BOTH DOUBLETREE
AND PROMUS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR DOUBLETREE COMMON
STOCK AND PROMUS COMMON STOCK.
Doubletree and Promus have not declared or paid any dividends with respect
to Doubletree Common Stock or Promus Common Stock, respectively. New Promus does
not currently intend to declare or pay any cash dividends on its Common Stock.
Any determination to pay dividends in the future will be at the discretion of
New Promus's Board of Directors and will be dependent upon New Promus's results
of operations, financial conditions, capital expenditures, working capital
requirements, any contractual restrictions and other factors deemed relevant by
the New Promus's Board of Directors.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following tables set forth the Unaudited Pro Forma Consolidated Results
of Operations for the years ended December 31, 1994, 1995 and 1996 and the nine
months ended September 30, 1996 and 1997 and unaudited pro forma Consolidated
Balance Sheets as of June 30, 1997 as if the merger of Doubletree Corporation
and Promus Hotel Corporation had been consummated as of January 1, 1994. The pro
forma results give effect to accounting for the merger as a "pooling of
interests" and accordingly, previously issued financial statements will be
restated in the future to combine the financial information of the previously
separate companies. The weighted average common and common equivalent shares
outstanding reflects the issuance of the shares of New Promus as if they had
been issued as of January 1, 1994. The pro forma information for the years ended
December 31, 1994, 1995 and 1996 presented below has been derived from the
audited financial statements of Promus and Doubletree. The unaudited pro forma
results of operations are not necessarily indicative of the results of
operations as they may be in the future or as they might have been had the
companies been combined as of January 1, 1994.
UNAUDITED PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS (4)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996(3) 1996(3) 1997(1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Franchise and management fees............................... $ 104,040 $ 110,350 $ 140,768 $ 105,607 $ 140,695
Owned hotel revenues........................................ 125,177 137,160 172,893 109,494 281,842
Leased hotel revenues....................................... 73,769 141,942 205,163 137,701 314,945
Purchasing and service fees................................. 3,624 6,112 9,867 6,486 12,622
Other fees and income....................................... 20,045 26,265 31,522 23,414 44,162
--------- --------- --------- --------- ---------
Total revenues.......................................... 326,655 421,829 560,213 382,702 794,266
--------- --------- --------- --------- ---------
Operating costs and expenses:
General and administrative expenses......................... 46,013 52,952 62,638 44,886 61,283
Owned hotel expenses........................................ 77,360 82,055 105,146 63,587 168,386
Leased hotel expenses....................................... 68,981 132,644 190,797 127,153 276,203
Depreciation and amortization............................... 24,603 27,759 36,276 22,719 54,094
Business combination expenses............................... -- 2,565 -- -- --
--------- --------- --------- --------- ---------
Total operating costs and expenses...................... 216,957 297,975 394,857 258,345 559,966
--------- --------- --------- --------- ---------
Operating income........................................ 109,698 123,854 165,356 124,357 234,300
--------- --------- --------- --------- ---------
Interest and dividend income................................ 3,210 7,551 17,175 11,618 17,776
Interest expense............................................ (32,011) (31,818) (36,647) (22,883) (54,326)
Gain on sale of real estate and securities.................. 1,882 2,334 4,439 4,387 38,482
--------- --------- --------- --------- ---------
Income before income taxes, minority
interest and extraordinary items...................... 82,779 101,921 150,323 117,479 236,232
Minority interest share of net income......................... (92) (83) (539) (152) (2,666)
--------- --------- --------- --------- ---------
Income before income taxes and extraordinary
item........................................................ 82,687 101,838 149,784 117,327 233,566
Income tax expense...................................... (33,133) (40,287) (59,126) (46,303) (91,031)
--------- --------- --------- --------- ---------
Income before extraordinary item.............................. 49,554 61,551 90,658 $ 71,024 $ 142,535
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share before extraordinary item.................. $ 0.73 $ 0.88 $ 1.23 $ 1.00 $ 1.62
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding(2)........................ 67,776 69,920 73,579 70,968 88,107
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------------
76
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS (4)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) During the nine months ended September 30, 1997, Doubletree and Promus each
experienced certain unusual items. Doubletree realized a $10.9 million
breakup fee, net of expenses, from the terminated Renaissance Hotel Group
transaction, $3.0 million from the sale of its management rights for a hotel
under development in Atlantic City and $5.5 million of expenses for the
establishment of long-term compensation plans for senior management. Promus
recognized a gain on the sale of real estate and a common stock investment
of $38.5 million and a gain of $3.2 million on the disposition of certain
joint venture investments. The effect of these transactions, net of taxes,
was to increase pro forma net income by approximately $30.5 million and to
increase pro forma earnings per share by approximately $0.35.
(2) Combined weighted average shares outstanding have been derived from each
company's historical weighted average outstanding shares adjusted for the
exchange ratio. Promus's weighted average shares for periods prior to the
spin-off are assumed to be equal to the actual common and common equivalent
shares outstanding on June 30, 1995.
(3) Doubletree acquired Red Lion Hotels, Inc. on November 8, 1996 in a
transaction accounted for as a purchase. The following pro forma summary
presents the combined results of Doubletree and Promus as if the Red Lion
acquisition had occurred on January 1, 1996. The weighted average shares
outstanding assumes that the 16.4 million shares issued in connection with
the Red Lion acquisition were issued on January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Total revenues............................................. $ 890,552 $ 668,937
Operating income........................................... 230,445 178,813
Income before income taxes................................. 180,541 141,493
Net income................................................. 105,984 83,061
Earnings per share......................................... 1.21 0.95
Weighted Average Shares Outstanding........................ 87,647 87,447
</TABLE>
(4) Doubletree and Promus expect to incur expenses in the fourth quarter of 1997
related to the Merger of approximately $105.0 million. These costs will
include approximately $25.5 million of legal, professional and accounting
fees and due diligence costs, approximately $48.2 million of severance,
relocation and certain other costs necessary to complete the Merger and the
write-off of approximately $26.2 million of deferred financing costs and
other assets whose benefit will not be realized after the Merger. Payments
for these costs are expected to commence during the fourth quarter of 1997
and are expected to continue during the first nine months of 1998. No such
costs are reflected in the pro forma Consolidated Statement of Operating
Data presented above.
77
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
ASSETS
Cash and cash equivalents.................................................. $ 20,058
Accounts receivable, net................................................... 88,730
Other...................................................................... 20,758
-------------
Total current assets..................................................... 129,546
-------------
Property and equipment, net................................................ 937,332
Investments................................................................ 248,574
Management contracts, net.................................................. 455,516
Goodwill, net.............................................................. 371,190
Notes receivable........................................................... 92,546
Investment in franchise system............................................. 49,501
Deferred costs and other assets............................................ 112,655
-------------
$ 2,396,860
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Account payable and accrued expenses....................................... $ 167,936
Current portion of notes payable........................................... 75,591
-------------
Total current liabilities................................................ 243,527
-------------
Deferred income taxes...................................................... 306,382
Notes payable.............................................................. 651,054
Other long-term obligations................................................ 58,356
-------------
1,259,319
-------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value. Authorized 500,000,000 shares; 87,387,651
issued and outstanding................................................. 873
Additional paid-in capital............................................... 909,476
Unrealized gain on marketable equity securities.......................... 15,361
Unearned employee compensation........................................... (460)
Retained earnings........................................................ 272,434
Treasury stock, 1,461,903 shares in treasury............................. (60,143)
-------------
1,137,541
-------------
$ 2,396,860
-------------
-------------
</TABLE>
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<PAGE>
PRO FORMA SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF NEW PROMUS
The following table sets forth certain pro forma information as to the
number of shares of New Promus Common Stock that will be beneficially owned by
(i) each person known by New Promus to be the beneficial owner of more than 5%
of any of New Promus's voting securities, (ii) each director of New Promus,
(iii) the Chief Executive Officer and the other highly compensated executive
officers of New Promus and (iv) New Promus's executive officers and directors as
a group assuming the Merger had been consummated on October 31, 1997. Except as
indicated by the notes to the following table (a) the holders listed below will
have sole voting power and investment power over the shares beneficially held by
them and (b) the beneficial ownership is direct.
<TABLE>
<CAPTION>
PRO FORMA BENEFICIAL
OWNERSHIP(1)
AS OF OCTOBER 31, 1997
-------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
- -------------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
5% BENEFICIAL HOLDERS:
GE Entities (2)....................................................................... 9,098,402 10.5%
Massachusetts Financial Services Company (3).......................................... 6,173,830 7.1
American Express Company (4).......................................................... 4,752,742 5.5
The Prudential Insurance Company of America (5)....................................... 4,665,689 5.4
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Raymond E. Schultz.................................................................... 488,084 *
Richard M. Kelleher................................................................... 431,622 *
Richard J. Ferris (6)................................................................. 1,607,432 1.9
Priscilla Florence.................................................................... 10,123 *
Dale F. Frey.......................................................................... 10,123 *
Christopher W. Hart................................................................... 4,285 *
Michael W. Michelson (7).............................................................. 10,123 *
John H. Myers (8)..................................................................... -- --
C. Warren Neel........................................................................ 3,673 *
Michael D. Rose (9)................................................................... 1,208,013 1.4
Michael I. Roth....................................................................... 10,169 *
Jay Stein............................................................................. 413,132 *
Ronald Terry.......................................................................... 81,139 *
Peter V. Ueberroth (10)............................................................... 1,155,432 1.3
Thomas L. Keltner..................................................................... 105,866 *
William L. Perocchi................................................................... 260,759 *
Thomas W. Storey...................................................................... 220,085 *
All Directors and Executive Officers as a group (17 individuals)...................... 6,020,060 7.0
</TABLE>
- ------------------------
* Less than 1%
(1) Includes shares subject to options and warrants which will be exercisable at
the Effective Time. All percentages assume that the options or warrants of
the particular person or group in question, and no others, have been
exercised.
(2) Based on Schedule 13D filed jointly by GEHOP, GE Investment Management
Incorporated ("GEIM"), General Electric Company ("GE") and the Trustees of
General Electric Pension Trust ("GEPT") (together, the "GE Entities") with
the SEC. Shares indicated as beneficially owned by GEIM include 6,049,226
shares owned of record by GEHOP, of which GEIM is the sole general partner,
1,755 shares owned of record by GEIM and 3,027,421 shares beneficially owned
by GEPT.
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<PAGE>
GEIM is a wholly-owned subsidiary of GE, and thus GE may be deemed to be the
beneficial owner of the 1,755 shares owned of record by GEIM. GEHOP, GEIM
and GEPT each disclaim beneficial ownership of the shares owned by the
others, and GE disclaims beneficial ownership of the shares owned by GEHOP
and GEPT. Mr. Myers is an executive officer and director of GEIM and a
Trustee of GEPT. Mr. Myers has voting and investment power with respect to
such shares and, therefore, may be deemed to be a beneficial owner of such
shares. Mr. Myers disclaims beneficial ownership of all such shares owned by
the GE Entities.
(3) Based upon a Schedule 13G filed with the SEC on February 11, 1997.
Massachusetts Financial Services Company has sole voting power as to
6,101,263 shares and has sole dispositive power as to 6,173,830 shares.
(4) Based upon a Schedule 13G filed jointly by American Express Company ("AEC")
and American Express Financial Corporation ("AEFC") with the SEC on October
9, 1997. AEFC is a subsidiary of AEC. Both AEC and AEFC have shared voting
power as to 2,111,590 shares and shared dispositive power as to 4,752,742
shares. AEC disclaims beneficial ownership of all such shares.
(5) Based upon a Schedule 13G filed with the SEC on February 5, 1997, 4,640,725
shares are beneficially owned by Jennison Associates Capital Corp., a
wholly-owned subsidiary of Prudential. Prudential has sole voting power as
to 485,555 shares, shared voting power as to 3,710,303 shares, sole
dispositive power as to 485,555 shares, and shared dispositive power as to
4,180,134 shares.
(6) Includes 1,532,432 shares owned of record by Ridge Partners, L.P ("Ridge").
Mr. Ferris disclaims beneficial ownership of the shares of record owned by
Ridge, except to the extent of his ownership of Ridge, through Kelrick,
Inc., the sole general partner of Ridge. Also includes 30,000 restricted
shares and 45,000 shares reserved for issuance upon exercise of options.
(7) Red Lion, a California Limited Partnership (the "Partnership") has sole
voting and investment power with respect to 3,882,283 shares. RLA-GP, Inc.
("RLA") as the general partner of the Partnership may be deemed to be the
beneficial owner of the shares owned by the Partnership. Mr. Michelson is a
stockholder, director and an executive vice president of RLA and a director
of Doubletree. Mr. Michelson is also a general partner of KKR Associates
(Delaware), which is a limited partner of the Partnership. KKR Associates
(Delaware) does not have the power to vote or dispose of shares owned by the
Partnership. Mr. Michelson disclaims beneficial ownership of any shares of
Common Stock held by the Partnership.
(8) Excludes 6,049,226 shares owned of record by GEHOP, 1,755 shares owned of
record by GEIM, and 137,134 shares owned of record by GEPT. Mr. Myers is an
executive officer and director of GEIM and Trustee of GEPT. Mr. Myers has
voting and investment power with respect to such shares, and therefore, may
be deemed to be a beneficial owner of such shares. Also excludes 20,000
shares reserved for issuance upon exercise of an outstanding option granted
to GEHOP. Also excludes 2,890,287 shares owned beneficially by GEPT. Mr.
Myers disclaims beneficial ownership of all such shares.
(9) Includes 61,836 shares held by a charitable foundation of which Mr. Rose
serves as a director and 8,182 shares owned by members of Mr. Rose's family.
He disclaims beneficial ownership of such shares.
(10) Includes 919,459 shares beneficially owned by Peter V. and Virginia M.
Ueberroth as co-trustees of The Ueberroth Family Trust. Also includes
160,973 shares beneficially owned by Alice J. Saviez as trustee for the
Ueberroth Investment Trust. Mr. Ueberroth disclaims beneficial ownership of
such shares. Also includes 30,000 restricted shares of Common Stock granted
to Mr. Ueberroth on January 2, 1997, and 45,000 shares reserved for issuance
upon exercise of options.
80
<PAGE>
DESCRIPTION OF NEW PROMUS CAPITAL STOCK
THE FOLLOWING SUMMARY DESCRIPTION OF THE CAPITAL STOCK OF NEW PROMUS IS
QUALIFIED IN ITS ENTIRETY BY THE COMPLETE TEXT OF NEW PROMUS'S RESTATED
CERTIFICATE OF INCORPORATION AND BYLAWS WHICH ARE INCORPORATED HEREIN BY
REFERENCE AND ARE ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEXES D
AND E, RESPECTIVELY.
GENERAL
The authorized capital stock of New Promus upon completion of the Merger
will consist of 500,000,000 shares of New Promus Common Stock and 10,000,000
shares of preferred stock, par value $.01 per share of New Promus ("New Promus
Preferred Stock"). Based upon the number of shares of Doubletree Common Stock
and Promus Common Stock outstanding on the record date of the Doubletree Special
Meeting and the record date of the Promus Special Meeting, respectively, it is
anticipated that approximately 85,997,162 shares of New Promus Common Stock and
no shares of New Promus Preferred Stock will be issued and outstanding
immediately after the completion of the Merger.
NEW PROMUS COMMON STOCK
Each share of New Promus Common Stock entitles the holder to one vote on
matters submitted to a vote of the stockholders. Under New Promus's Restated
Certificate of Incorporation the Board of Directors of New Promus will be
classified into three classes consisting of four, five and five directors,
respectively. The holders of New Promus Common Stock will not be entitled to
cumulate votes for the election of directors.
The holders of New Promus Common Stock are entitled to receive ratably a
share of dividends declared by the New Promus Board of Directors. In the event
of liquidation, dissolution or winding up of New Promus, holders of New Promus
Common Stock have the right to a ratable portion of the assets remaining after
the payment of liabilities and liquidation preferences of any outstanding shares
of New Promus Preferred Stock. The holders of New Promus Common Stock have no
preemptive rights or rights to convert their New Promus Common Stock into other
securities. All outstanding shares of New Promus Common Stock immediately
following completion of the Merger will be fully paid and nonassessable. The
rights of the holders of New Promus Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of New Promus Preferred Stock,
if any.
It is a condition to the completion of the Merger that New Promus Common
Stock be approved for listing on the NYSE, subject to official notification of
issuance.
PREFERRED STOCK
New Promus's Restated Certificate of Incorporation provides that New Promus
Preferred Stock may be issued from time to time in one or more series. The Board
of Directors has the authority to fix and determine the number of shares
constituting each such series and the relative rights, preferences, privileges
and immunities, if any, and any qualifications, limitations or restrictions
thereof, of the shares thereof, including the authority to fix and determine the
dividend rights, dividend rates, conversion rights, voting rights and terms of
redemption (including sinking fund provisions), redemption prices and
liquidation preferences of any wholly unissued series of New Promus Preferred
Stock and to increase or decrease the number of shares of any outstanding
series, without further vote or action by New Promus's stockholders. No New
Promus Preferred Stock is outstanding, no New Promus Preferred Stock will be
issued in connection with the Merger, and New Promus has no present plans to
issue any shares of New Promus Preferred Stock.
81
<PAGE>
PREFERRED SHARE PURCHASE RIGHTS
Prior to the Effective Time, the New Promus Board will authorize New
Promus's entry into a Rights Agreement (the "Rights Agreement") pursuant to
which one preferred stock purchase right (the "Rights") will be attached to each
share of New Promus Common Stock. The Rights will be transferable only with New
Promus Common Stock, until they become exercisable at an exercise price to be
determined by the New Promus Board prior to the time New Promus enters into the
Rights Agreement.
Generally, the Rights will become exercisable only if a person or group
(other than certain affiliates of New Promus) acquires 15% or more of the issued
and outstanding shares of New Promus Common Stock or announces a tender offer,
the consummation of which would result in ownership by a person or group of 15%
or more of the issued and outstanding shares of New Promus Common Stock. Each
Right will entitle the holder, until the tenth anniversary of the Rights
Agreement, to buy one one-hundredth of a share of New Promus Preferred Stock, at
an exercise price to be determined by the New Promus Board prior to the time New
Promus enters the Rights Agreement.
If a person or group (other than certain affiliates of New Promus) acquires
15% or more of the issued and outstanding shares of New Promus Common Stock or
if New Promus is the surviving corporation in a merger, each Right will entitle
its holder (other than such person or members of such group) to purchase, at the
Right's then current exercise price, shares of New Promus Common Stock having a
market value of twice the Right's exercise price. If New Promus is acquired in a
merger or other business combination transaction, other than a merger which
follows an offer which the Continuing Directors determines to be fair and in the
best interests of the stockholders, each Right will entitle its holder to
purchase, at the Right's then current exercise price, a number of the acquiring
company's common shares having a then current market value of twice the Rights'
exercise price.
Following the acquisition by a person or group of beneficial ownership of
15% or more of the New Promus Common Stock, the Board of Directors of New Promus
may exchange the Rights (other than Rights owned by such person or group), in
whole or in part, at an exchange ratio of one share of New Promus Common Stock
per Right.
Prior to the acquisition by a person or group of beneficial ownership of 15%
or more of the New Promus Common Stock, the Rights will be redeemable in whole,
not in part, for one cent per Right.
New Promus's Transfer Agent, First Union National Bank, is expected to be
the Rights Agent under the Rights Agreement.
CERTAIN EFFECTS OF PREFERRED SHARE PURCHASE RIGHTS
The issuance of the Rights to purchase shares of New Promus Preferred Stock
will have certain anti-takeover effects. The Rights will cause substantial
dilution to a person or group that attempts to acquire New Promus on terms not
approved by the Board of Directors of New Promus. The Rights should not
interfere with any merger or other business combination approved by the Board of
Directors of New Promus prior to ten days after the time that a person or group
has acquired beneficial ownership of 15% or more of the New Promus Common Stock,
as the Rights will be redeemable by New Promus at $0.01 per Right prior to such
time.
PROHIBITED BUSINESS TRANSACTIONS
As a corporation organized under the laws of the State of Delaware, New
Promus is subject to Section 203 of the DGCL, which restricts certain business
combinations between New Promus and an "interested stockholder" (in general, a
stockholder owning 15% or more of the outstanding voting stock of New Promus) or
such stockholder's affiliates or associates for a period of three years
following the date on which the stockholder becomes an "interested stockholder."
The restrictions do not apply if: (i) prior to an interested stockholder
becoming such, the New Promus Board approves either the business combination or
82
<PAGE>
the transaction by which such person became an interested stockholder; (ii) upon
consummation of the transaction, the interested stockholder owns at least 85% of
the voting stock of New Promus outstanding at the time the transaction commenced
(excluding shares owned by certain employee stock plans and persons who are both
directors and officers of New Promus); or (iii) at or subsequent to the time an
interested stockholder becomes such, the Business Combination is both approved
by the New Promus Board and authorized at an annual or special meeting of New
Promus's stockholder by the affirmative vote of at least two-thirds of the
outstanding voting stock of New Promus not owned by the interested stockholder.
New Promus's Restated Certificate of Incorporation also prohibits business
combinations with "Interested Stockholders" and defines them to be anyone who is
or intends to become the beneficial owner of 10% or more of the voting stock of
New Promus. Unless approved by a majority of Continuing Directors (as defined in
the New Promus Restated Certificate of Incorporation) or the Interested
Stockholder satisfies a number of criteria relating to, among other things, the
consideration to be received by New Promus stockholders and the public
disclosure of the business combination, a proposed business combination with an
Interested Stockholder requires the affirmative vote of 75% of all the votes
entitled to be cast by holders of New Promus voting stock and not less than a
majority of votes entitled to be cast by holders of New Promus voting stock,
excluding the votes of the interested stockholder.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent of New Promus is First Union National Bank.
83
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF DOUBLETREE COMMON STOCK AND
PROMUS COMMON STOCK BEFORE AND AFTER THE MERGER
The following is a summary of certain of the material differences between
the rights of holders of Promus and Doubletree Common Stock before the Merger
and the rights of holders of New Promus Common Stock after the Merger. Because
Doubletree, Promus and New Promus are all organized under the laws of the State
of Delaware, the differences arise solely from differences between various
provisions of their respective Certificates of Incorporation and Bylaws. Other
than as described below under
"--Authorized Capital," "--Number of Directors" and "--Amendment of Bylaws," the
Restated Certificate of Incorporation and Bylaws of New Promus will be
substantially similar to the Restated Certificate of Incorporation and the
Bylaws of Promus.
The discussion of the comparative rights of the stockholders of Doubletree,
Promus and New Promus set forth below does not purport to be complete and is
subject to and qualified in its entirety by reference to the Certificates of
Incorporation and Bylaws of Doubletree, Promus and New Promus.
AUTHORIZED CAPITAL
The total number of shares New Promus will have the authority to issue will
be 510,000,000, consisting of 500,000,000 shares of common stock, par value
$0.01 per share, and 10,000,000 shares of New Promus Preferred Stock. The total
number of shares of capital stock which Doubletree has authority to issue is
105,000,000, consisting of 100,000,000 shares of common stock, par value $0.01
per share and 5,000,000 shares of preferred stock, par value $0.01 per share.
The total number of shares of stock which Promus has the authority to issue is
365,150,000, consisting of 360,000,000 shares of common stock, par value $0.10
per share, 150,000 shares of preferred stock, par value $100.00 per share, and
5,000,000 shares of special stock, par value $1.125 per share.
NUMBER OF DIRECTORS
New Promus's Bylaws fix the number of directors at fourteen, half of whom
shall be Doubletree Directors and half of whom shall be Promus Directors. Each
Committee of the Board of Directors will have an equal number of Promus
Directors and Doubletree Directors. Until December 31, 2002, in the event that
the number of Doubletree Directors or Promus Directors serving on the New Promus
Board of Directors or any Committee thereof shall not be equal, then the New
Promus Board of Directors and the Nominating Committee thereof shall nominate
for election at the next stockholders' meeting at which directors are to be
elected, such person or persons as may be requested by the remaining Doubletree
Directors (if the number of Doubletree Directors is less than the number of
Promus Directors) or by the remaining Promus Directors (if the number of Promus
Directors is less than the number of Doubletree Directors) to ensure that there
shall be an equal number of Doubletree Directors and Promus Directors.
The size of the New Promus Board of Directors and each Committee of the New
Promus Board of Directors shall not be increased until December 31, 2002 without
being approved by 75% of the members of the New Promus Board of Directors.
Doubletree's Bylaws state that the number of directors shall be such number as
the Board of Directors shall designate, and in the absence of a designation the
number shall be eight. Promus's Restated Certificate of Incorporation provides
for a Board of Directors consisting of not less than three or more than
seventeen members, with the specific number of directors being set by the Promus
Board of Directors. New Promus's Restated Certificate of Incorporation provides
for a Board of Directors consisting of not less than three or more than twenty
members, with the specific number of directors being set by the New Promus Board
of Directors.
CLASSES AND TERMS OF DIRECTORS
New Promus's Restated Certificate of Incorporation provides for a classified
Board of Directors consisting of three classes of directors, four Class I
directors, five Class II directors and five Class III
84
<PAGE>
directors. After initial one, two and three year terms for Class I, Class II and
Class III directors respectively, each director will be elected for a term
expiring at the third succeeding annual meeting of stockholders after his or her
election. Promus's Restated Certificate of Incorporation also provides for a
classified Board of Directors, consisting of three classes of directors.
Doubletree's and Bylaws do not provide for a classified Board of Directors.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS; SPECIAL MEETINGS OF STOCKHOLDERS
The Restated Certificates of Incorporation of Promus and New Promus provide
that stockholders may not take any action by written consent in lieu of a
meeting. Doubletree's Certificate of Incorporation provide that an action
required to be taken by a meeting of a class of stockholders may be taken
without a meeting if a consent in writing is given by all the holders of the
outstanding class of stock.
The Restated Certificates of Incorporation of Promus and New Promus provide
that special meetings of stockholders may only be called by a majority of the
entire Board of Directors or by the Chairman of the Board of Directors or
President. The Certificate of Incorporation of Doubletree provides that special
meetings of stockholders may be called by the Board of Directors, the Chairman
or Co-Chairman of the Board of Directors or the President.
AMENDMENT OF BYLAWS
New Promus's Restated Certificate of Incorporation provides that
stockholders can amend New Promus's Bylaws with an affirmative vote of 75% of
the votes entitled to be cast. The New Promus Board of Directors may amend its
Bylaws by majority vote, other than certain provisions of New Promus's Bylaws
regarding the Board of Directors and executive officers of New Promus,
amendments to which by the New Promus Board of Directors require the approval of
75% of the Board of Directors of New Promus. The Doubletree Bylaws may be
altered, amended or repealed, or new Bylaws may be adopted by a majority of the
Board of Directors or by a majority of the stockholders of Doubletree.
BUSINESS COMBINATION PROVISIONS
New Promus, Promus and Doubletree are all subject to Section 203 of the
DGCL. In addition, unless approved by a majority of Continuing Directors (as
defined in their respective Restated Certificates of Incorporation) or an
"Interested Stockholder" (defined as anyone who is or intends to become the
beneficial owner of 10% or more of the voting stock of Promus or New Promus, as
applicable) satisfies a number of criteria relating to, among other things, the
consideration to be received by stockholders and the public disclosure of the
business combination, the Restated Certificates of Incorporation of Promus and
New Promus prohibit a business combination with an Interested Stockholder
without an affirmative vote of 75% of the votes entitled to be cast by holders
of voting stock of Promus and New Promus, as applicable, and not less than a
majority of the votes entitled to be cast by holders of voting stock of Promus
and New Promus, as applicable, excluding the votes of the Interested
Stockholder.
RETIREMENT OF DIRECTORS
Doubletree's Bylaws require all current and future directors to retire
immediately prior to the annual meeting of stockholders in the year the director
reaches 70 years of age. Neither New Promus's nor Promus's Bylaws contain a
similar provision.
85
<PAGE>
PROPOSAL TO APPROVE NEW PROMUS EQUITY PARTICIPATION PLAN
NEW PROMUS EQUITY PARTICIPATION PLAN
Prior to the Special Meetings, the New Promus Board of Directors will adopt
and approve the 1997 Equity Participation Plan of New Promus (the "New Promus
Equity Participation Plan") and reserve 10,000,000 shares of New Promus Common
Stock for stock options and other stock awards to employees of New Promus and
its subsidiaries and other eligible participants after the Merger. The principal
purposes of the New Promus Equity Participation Plan will be to provide
incentives for officers, employees and consultants of New Promus and its
subsidiaries through granting of options, restricted stock and other awards
("Awards"), thereby stimulating their personal and active interest in New
Promus's development and financial success, and inducing them to remain in New
Promus's employ. In addition to Awards made to officers, employees or
consultants, the New Promus Equity Participation Plan will permit the granting
of Awards to New Promus's independent, non-employee directors ("Independent
Directors").
Under the New Promus Equity Participation Plan, not more than 10,000,000
shares of New Promus Common Stock (or the equivalent in other equity securities)
will be authorized for issuance upon exercise of options, stock appreciation
rights ("SARs"), and other Awards, or upon vesting of restricted or deferred
stock awards. Under the New Promus Equity Participation Plan, no more than
150,000 shares of New Promus Common Stock may be issued with respect to Awards
which are not stock options or which are not issued in lieu of cash payments of
compensation or directors' fees. These options will be in addition to
outstanding options to purchase Doubletree Common Stock and Promus Common Stock,
which will be deemed to constitute options to purchase New Promus Common Stock
at the Effective Time. See "The Merger Agreement--Certain Covenants--Stock
Plans." No stock options or other equity awards will be granted under the
Doubletree Incentive Plan or the Promus Incentive Plans after the Effective
Time. Furthermore, the maximum number of shares which may be subject to Awards
granted under the New Promus Equity Participation Plan to any individual in any
calendar year will not exceed 500,000 shares.
The principal features of the New Promus Equity Participation Plan are
summarized below, but the summary is qualified in its entirety by reference to
the New Promus Equity Participation Plan which is attached as Annex F to this
Joint Proxy Statement/Prospectus.
ADMINISTRATION
The Human Resources Committee of the New Promus Board of Directors (the
"Committee") will administer the New Promus Equity Participation Plan with
respect to grants to officers, employees or consultants of New Promus and the
full Board will administer the New Promus Equity Participation Plan with respect
to grants to Independent Directors. The Committee will consist of at least two
members of the Board, each of whom is a "non-employee director" for purposes of
Rule 16b-3 under the Exchange Act ("Rule 16b-3") and an "outside director" for
the purposes of Section 162(m) of the Code ("Section 162(m)"). Subject to the
terms and conditions of the New Promus Equity Participation Plan, the New Promus
Board or the Committee has the authority to select the persons to whom Awards
are to be made, to determine the number of shares to be subject thereto and the
terms and conditions thereof, and to make all other determinations and to take
all other actions necessary or advisable for the administration of the New
Promus Equity Participation Plan. Similarly, the New Promus Board has discretion
to determine the terms and conditions of grants to Independent Directors and to
interpret and administer the New Promus Equity Participation Plan with respect
to grants to Independent Directors.
ELIGIBILITY
Options, SARs, restricted stock and other Awards under the New Promus Equity
Participation Plan may be granted to individuals who are then officers or other
employees of New Promus or any of its present or future subsidiaries. Such
Awards also may be granted to consultants of New Promus selected by the
Committee for participation in the New Promus Equity Participation Plan.
Independent Directors of
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New Promus will be granted NQSOs (as defined herein) and stock payments and may
be granted restricted stock or deferred stock in lieu of directors' fees by the
New Promus Board.
AWARDS UNDER THE NEW PROMUS EQUITY PARTICIPATION PLAN
The New Promus Equity Participation Plan provides that the Committee may
grant or issue stock options, SARs, restricted stock, deferred stock, dividend
equivalents, performance awards, stock payments and other stock related
benefits, or any combination thereof. Each Award will be set forth in a separate
agreement or certificate and will indicate the type, terms and conditions of the
Award.
NONQUALIFIED STOCK OPTIONS ("NQSOS") will provide for the right to purchase
New Promus Common Stock at a specified price which may not be less than fair
market value on the date of grant and usually will become exercisable, in the
discretion of the Committee (and the New Promus Board with respect to grants to
Independent Directors) in one or more installments after the grant date, subject
to the participant's continued provision of services to New Promus and/or
subject to the satisfaction of individual or New Promus performance targets
established by the Committee. NQSOs may be granted for any term specified by the
Committee, not to exceed ten years from the date of grant. The New Promus Equity
Participation Plan will authorize the Committee and the New Promus Board with
respect to Independent Directors to, and it is expected that the Committee and
the New Promus Board with respect to Independent Directors will, adopt
procedures pursuant to which employees, consultants and Independent Directors
will be permitted to elect to receive bonuses or directors' fees, which would
otherwise be payable to them in cash, in the form of NQSOs.
Under the New Promus Equity Participation Plan, each person who is an
Independent Director as of the Effective Time will be granted an NQSO to
purchase 10,000 shares of New Promus Common Stock as of the Effective Time and
each Independent Director who is initially elected to the Board after the
Effective Time will be granted an NQSO to purchase 10,000 shares of New Promus
Common Stock as of the date of such initial election. Such NQSOs will (i) have a
per share exercise price equal to the fair market value of a share of New Promus
Common Stock as of the date of grant, (ii) have a term of ten years and (iii)
become exercisable in four equal annual installments, beginning on the first
anniversary of the date of grant.
INCENTIVE STOCK OPTIONS ("ISOS"), will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of New Promus Common Stock on the date of
grant, may only be granted to employees, must expire within a specified period
of time following the optionee's termination of employment, and must be
exercised within the ten years after the date of grant; but, subject to the
consent of the optionee, may be subsequently modified to disqualify them from
treatment as ISOs. In the case of an ISO granted to an individual who owns (or
is deemed to own) at least 10% of the total combined voting power of all classes
of stock of New Promus, the New Promus Equity Participation Plan provides that
the exercise price must be at least 110% of the fair market value of a share of
New Promus Common Stock on the date of grant and the ISO must expire upon the
fifth anniversary of the date of its grant.
RESTRICTED STOCK may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the New Promus Board or the Committee. Restricted stock, typically, may be
repurchased by New Promus at the original purchase price if the conditions or
restrictions are not met. In general, restricted stock may not be sold, or
otherwise transferred or hypothecated, until restrictions are removed or expire.
Purchasers of restricted stock, unlike recipients of options, will have voting
rights and will receive dividends prior to the time when the restrictions lapse.
The New Promus Equity Participation Plan will authorize the New Promus Board to
adopt procedures pursuant to which Independent Directors may receive a portion
of their directors' fees in the form of restricted stock.
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DEFERRED STOCK may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Committee. Like restricted stock,
deferred stock may not be sold, or otherwise transferred or hypothecated, until
vesting conditions are removed or expire. Unlike restricted stock, deferred
stock will not be issued until the deferred stock award has vested, and
recipients of deferred stock generally will have no voting or dividend rights
prior to the time when vesting conditions are satisfied. The New Promus Equity
Participation Plan will authorize the New Promus Board to, and it's expected
that the New Promus Board will, adopt procedures pursuant to which Independent
Directors may elect to receive a portion of their directors' fees in the form of
deferred stock.
STOCK APPRECIATION RIGHTS may be granted in connection with stock options or
other Awards, or separately. SARs granted by the Committee in connection with
stock options or other awards typically will provide for payments to the holder
based upon increases in the price of New Promus's Common Stock over the exercise
price of the related option or other Awards, but alternatively may be based upon
criteria such as book value. Except as required by Section 162(m) with respect
to an SAR which is intended to qualify as performance-based compensation as
described in Section 162(m), there are no restrictions specified in the New
Promus Equity Participation Plan on the exercise of SARs or the amount of gain
realizable therefrom, although restrictions may be imposed by the Committee in
the SAR agreements. The Committee may elect to pay SARs in cash or in New Promus
Common Stock or in a combination of both. The holder does not pay any
consideration to New Promus upon the grant or exercise of a SAR.
DIVIDEND EQUIVALENTS represent the value of the dividends per share paid by
New Promus, calculated with reference to the number of shares covered by the
stock options, SARs or other Awards held by the participant.
PERFORMANCE-BASED AWARDS may be granted by the Committee on an individual or
group basis. Generally, these Awards will be based upon specific performance
targets and may be paid in cash or in New Promus Common Stock or in a
combination of both. Performance Awards may include "phantom" stock Awards that
provide for payments based upon increases in the price of New Promus Common
Stock over a predetermined period. Performance-Based Awards may also include
bonuses which may be granted by the Committee on an individual or group basis
and which may be payable in cash or in New Promus Common Stock or in a
combination of both. The payment of a Performance-Based Award in cash will not
reduce the number of shares reserved under the New Promus Equity Participation
Plan.
STOCK PAYMENTS may be authorized by the Committee in the form of shares of
New Promus Common Stock or an option or other right to purchase New Promus
Common Stock as part of a deferred compensation arrangement in lieu of all or
any part of compensation, including bonuses, that would otherwise be payable in
cash to the key employee or consultant. In addition, during the term of the
Plan, on the date of each annual meeting of stockholders, each Independent
Director who is entitled to receive a payment of cash fees on such date shall be
granted a stock payment, in lieu of cash fees which such Independent Director
would otherwise receive, which shall have an aggregate fair market value of
$15,000 as of the date of such grant.
SECURITIES LAWS AND FEDERAL INCOME TAXES
SECURITIES LAWS. The New Promus Equity Participation Plan is intended to
conform to the extent necessary with all provisions of the Securities Act and
the Exchange Act and any and all regulations and rules promulgated by the SEC
thereunder, including without limitation Rule 16b-3. The New Promus Equity
Participation Plan will be administered, and Awards will be granted and may be
exercised, only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the New Promus Equity
Participation Plan and Awards granted thereunder shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
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GENERAL FEDERAL TAX CONSEQUENCES. Under current federal laws, in general,
recipients of awards and grants of nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, dividend equivalents,
performance awards, and stock payments under the New Promus Equity Participation
Plan are taxable under Section 61 or 83 of the Code upon their receipt of New
Promus Common Stock or cash with respect to such awards or grants and, subject
to Section 162(m) of the Code, New Promus will be entitled to an income tax
deduction with respect to the amounts taxable to such recipients. Under Sections
421 and 422 of the Code, recipients of ISOs are generally not taxable on their
receipt of New Promus Common Stock upon their exercises of ISOs if the ISOs and
option stock are held for certain minimum holding periods and, in such event,
New Promus is not entitled to income tax deductions with respect to such
exercises. Participants in the New Promus Equity Participation Plan will be
provided with detailed information regarding the tax consequences relating to
the various types of awards and grants under the plan.
SECTION 162(M) LIMITATION. In general, under Section 162(m), income tax
deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises,
transfers of property and benefits paid under non-qualified plans) for certain
executive officers exceeds $1 million (less the amount of any "excess parachute
payments" as defined in Section 280G of the Code) per officer in any one year.
However, under Section 162(m), the deduction limit does not apply to certain
"performance-based compensation."
Under Section 162(m), stock options and SARs will satisfy the
"performance-based compensation" exception if the award of the options or SARs
are made by a Board of Directors committee consisting solely of 2 or more
"outside directors," the plan sets the maximum number of shares that can be
granted to any person within a specified period and the compensation is based
solely on an increase in the stock price after the grant date (i.e. the option
or SAR exercise price is equal to or greater than the fair market value of the
stock subject to the award on the grant date). Other types of awards may only
qualify as "performance-based compensation" if such awards are only granted or
payable to the recipients based upon the attainment of objectively determinable
and pre-established performance goals which are established by a qualifying
committee and which relate to performance criteria which are approved by the
corporation's shareholders.
The New Promus Equity Participation Plan has been designed in order to
permit the Committee to grant stock options and SARs which will qualify as
"performance-based compensation." In addition, in order to permit Awards other
than stock options and SARS to qualify as "performance-based compensation," the
New Promus Equity Participation Plan provides that the Committee may designate
as "Section 162(m) Participants" certain employees whose compensation for a
given fiscal year may be subject to the limit on deductible compensation imposed
by Section 162(m). The Committee may grant Awards to Section 162(m) Participants
that vest or become exercisable upon the attainment of performance criteria
which are related to one or more of the following performance goals: (i)
net-income; (ii) pre-tax income; (iii) operating income; (iv) cash flow; (v)
earnings per share; (vi) return on equity; (vii) return on invested capital or
assets; (viii) cost reductions or savings; (ix) funds from operations, (x)
appreciation in the fair market value of New Promus Common Stock and (xi)
earnings before any one or more of the following items: interest, taxes,
depreciation or amortization.
RECOMMENDATION OF THE BOARDS OF DIRECTORS
The Board of Directors of Doubletree, Promus and New Promus recommend
approval of the New Promus Equity Participation Plan. The proposal must be
approved by the holders of at least at majority of the shares present and
entitled to vote on the matter at the Doubletree Special Meeting, PROVIDED that
the total votes cast on the matter represent over 50% of the Common Stock
entitled to vote on the matter. The proposal must also be approved by the
holders of at least a majority of the total votes of the shares present and
entitled to vote on the matter at the Promus Special Meeting, PROVIDED that the
total votes cast on the matter represent over 50% in interest of all securities
entitled to vote on the matter. Neither abstentions
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nor broker non-votes will be counted as votes cast for purposes of determining
whether the votes cast represent over 50% in interest of the securities entitled
to vote, and because an affirmative vote of a majority of the total votes of the
shares present and entitled to vote is required, abstentions and broker
non-votes may have the same effect as votes against approval of the New Promus
Equity Participation Plan if they result in a failure of the total votes cast to
represent over 50% in interest of the securities entitled to vote. The enclosed
proxy will be voted in accordance with the instructions specified in the space
provided on the form of proxy. If no instructions are given, proxies will be
voted for approval of the New Plan. Approval of the Merger is not conditioned
upon approval of the New Plan.
STOCKHOLDER PROPOSALS
If the Merger is consummated, the first annual meeting of the stockholders
of New Promus after such consummation is expected to be held on or about April
29, 1998. If the Merger is not consummated, the 1998 annual meeting of
stockholders of Doubletree is expected to be held on or about May 1, 1998 and
the 1998 annual meeting of the stockholders of Promus is expected to be held on
or about April 29, 1998.
Subject to the foregoing, if any New Promus stockholder intends to present a
proposal at the 1998 New Promus annual meeting and wishes to have such proposal
considered for inclusion in the proxy materials for such meeting, such holder
must submit the proposal to the Secretary of New Promus in writing so as to be
received at the executive offices of New Promus by November 14, 1997. Such
proposals must also meet the other requirements of the rules of the SEC relating
to stockholders' proposals.
In addition to any other applicable requirements, the Bylaws of New Promus
require that for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof, containing
the information required by the New Promus Bylaws and in writing, to the
Corporate Secretary of New Promus. To be timely, a stockholder's notice
containing the information required by the New Promus Bylaws must be delivered
to or mailed and received at the principal executive offices of New Promus not
less than sixty days nor more than ninety days prior to the meeting; provided,
however, that in the event that less than seventy 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 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.
In the event the Merger is not consummated, the only stockholder proposals
eligible to be considered for inclusion in the proxy materials for the 1998
annual meetings of Doubletree and Promus will be those which were duly submitted
to the Secretary of Doubletree or Promus, as the case may be, by November 14,
1997, as provided in the respective 1997 Annual Meeting Proxy Statements of
Doubletree and Promus.
LEGAL MATTERS
The validity of the shares of New Promus Common Stock to be issued in
connection with the Merger will be passed upon by Latham & Watkins, Los Angeles,
California.
EXPERTS
The consolidated financial statements of Doubletree Corporation and
subsidiaries as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996, have been incorporated by reference
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. It is expected
that a representative of KPMG Peat Marwick LLP will be present at the Doubletree
Special Meeting to respond to appropriate questions of stockholders and to make
a statement if such representative desires.
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The consolidated financial statements of Red Lion Hotels, Inc. as of and for
the ten months ended December 31, 1995 and of Red Lion, a California Limited
Partnership (Historical Red Lion), for the seven months ended July 31, 1995
incorporated herein by reference from Doubletree's Current Report on Form 8-K
filed November 22, 1996 have been audited by Deloitte & Touche LLP, independent
accountants, as stated in their reports which are incorporated herein by
reference, and have been so incorporated in reliance upon reports of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Promus incorporated by reference
into this Joint Proxy Statement/Prospectus have been audited by Arthur Andersen
LLP, independent certified public accountants, as indicated in their reports
with respect thereto, and are incorporated by reference herein in reliance upon
the authority of said firm as experts in giving said reports. A representative
of Arthur Andersen LLP is expected to be present at the Promus Special Meeting
with an opportunity to make a statement if he desires to do so, and such
representative is expected to be available to respond to appropriate questions.
The consolidated financial statements incorporated by reference into this
Joint Proxy Statement/ Prospectus relating to Historical Red Lion and its
subsidiaries, to the extent and for the periods indicated in their reports, have
been audited by Arthur Andersen LLP, independent public accountants, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports. Reference is made to the report on the Financial
Statements of Historical Red Lion, which includes an explanatory paragraph with
respect to changes in accounting for joint ventures and the accounting method
for measuring impairment of hotel properties, effective January 1, 1993, as
discussed in Note 1 of those Financial Statements.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Doubletree
Board of Directors and the Promus Board of Directors know of no matters that
will be presented for consideration at the Doubletree Special Meeting or the
Promus Special Meeting other than as described in this Joint Proxy Statement/
Prospectus. If any other matters shall properly come before either stockholder
meeting or any adjournments or postponements thereof and be voted upon, the
enclosed proxies will be deemed to confer discretionary authority on the
individuals named as proxies therein to vote the shares represented by such
proxies as to any such matters. The persons named as proxies intend to vote or
not to vote in accordance with the recommendation of the respective managements
of Doubletree and Promus.
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WHERE YOU CAN FIND MORE INFORMATION
Doubletree and Promus file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
New Promus filed a Registration Statement on Form S-4 to register with the
SEC the New Promus Common Stock to be issued to Doubletree and Promus
stockholders in the Merger. This Joint Proxy Statement/Prospectus is a part of
that Registration Statement and constitutes a prospectus of New Promus in
addition to being a proxy statement of Doubletree and Promus for the Special
Meetings. As allowed by SEC rules, this Joint Proxy Statement/Prospectus does
not contain all the information you can find in the Registration Statement or
the exhibits to the Registration Statement.
The SEC allows us to "incorporate by reference" information into this Joint
Proxy Statement/ Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Joint Proxy Statement/Prospectus, except for any information superseded by
information in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about our companies and their finances.
<TABLE>
<CAPTION>
DOUBLETREE SEC FILINGS (FILE NO. 0-24392) PERIOD
- --------------------------------------------------------------- ------------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1996
Quarterly Reports on Form 10-Q Quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997
Current Reports on Form 8-K and Form 8-K/A Filed on November 22, 1996, September 5, 1997,
September 9, 1997 and October 9, 1997
PROMUS SEC FILINGS (FILE NO. 1-11463) PERIOD
- --------------------------------------------------------------- ------------------------------------------------
Annual Report on Form 10-K Year ended December 31, 1996
Quarterly Reports on Form 10-Q Quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997
Current Reports on Form 8-K Filed on September 5, 1997
</TABLE>
We are also incorporating by reference additional documents that we may file
with the SEC between the date of this Joint Proxy Statement/Prospectus and the
dates of the Special Meetings of our stockholders.
Doubletree has supplied all information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus relating to Doubletree and
Promus has supplied all such information relating to Promus.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this Joint Proxy Statement/Prospectus. Stockholders may obtain
documents incorporated by
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reference in this Joint Proxy Statement/Prospectus by requesting them in writing
or by telephone from the appropriate party at the following addresses:
<TABLE>
<S> <C>
Doubletree Corporation Promus Hotel Corporation
Attention: David L. Stivers,
Secretary Attention: Ralph B. Lake, Secretary
410 North 44th Street, Suite 700 755 Crossover Lane
Phoenix, Arizona 85008 Memphis, Tennessee 38117
Telephone: (602) 220-6666 Telephone: (901) 374-5101
</TABLE>
If you would like to request documents from us, please do so by December 11,
1997 to receive them before the Special Meetings.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT
PROXY STATEMENT/PROSPECTUS IS DATED NOVEMBER 14, 1997. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN NOVEMBER 14, 1997, AND NEITHER THE MAILING OF
THE JOINT PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF NEW
PROMUS COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 1, 1997
AMONG
DOUBLETREE CORPORATION,
PROMUS HOTEL CORPORATION
AND
PARENT HOLDING CORP.
A-1
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
ARTICLE I. THE MERGERS.......................................................................... A-9
Section 1.1. Certificate of Incorporation and Bylaws of Parent.................................... A-9
Section 1.2. The Doubletree Merger................................................................ A-9
Section 1.3. The Promus Merger.................................................................... A-9
Section 1.4. Effective Time of the Mergers........................................................ A-9
Section 1.5. Closing.............................................................................. A-9
Section 1.6. Effect of the Mergers................................................................ A-9
Section 1.7. Certificate of Incorporation and Bylaws of the Surviving Corporations................ A-10
Section 1.8. Directors and Officers of the Surviving Corporations................................. A-10
ARTICLE II. CONVERSION OF SECURITIES............................................................. A-10
Section 2.1. Conversion of Doubletree Capital Stock............................................... A-10
Section 2.2. Conversion of Promus Capital Stock................................................... A-11
Section 2.3. Cancellation of Parent Stock......................................................... A-11
Section 2.4. Exchange of Certificates............................................................. A-11
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF DOUBLETREE......................................... A-14
Section 3.1. Organization of Doubletree........................................................... A-14
Section 3.2. Doubletree Capital Structure......................................................... A-14
Section 3.3. Authority; No Conflict; Required Filings and Consents................................ A-15
Section 3.4. SEC Filings; Financial Statements.................................................... A-16
Section 3.5. No Undisclosed Liabilities........................................................... A-17
Section 3.6. Absence of Certain Changes or Events................................................. A-17
Section 3.7. Taxes................................................................................ A-17
Section 3.8. Properties........................................................................... A-18
Section 3.9. Intellectual Property................................................................ A-18
Section 3.10. Agreements, Contracts and Commitments................................................ A-18
Section 3.11. Litigation........................................................................... A-19
Section 3.12. Environmental Matters................................................................ A-19
Section 3.13. Employee Benefit Plans............................................................... A-19
Section 3.14. Compliance With Laws................................................................. A-20
Section 3.15. Accounting and Tax Matters........................................................... A-20
Section 3.16. Registration Statement; Joint Proxy Statement/Prospectus............................. A-21
Section 3.17. Labor Matters........................................................................ A-21
Section 3.18. Insurance............................................................................ A-21
Section 3.19. Doubletree Long-Range Plans.......................................................... A-22
Section 3.20. Opinion of Financial Advisor......................................................... A-22
Section 3.21. No Existing Discussions.............................................................. A-22
Section 3.22. Section 203 of the DGCL Not Applicable............................................... A-22
Section 3.23. Doubletree Rights Plan............................................................... A-22
</TABLE>
A-2
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<TABLE>
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<S> <C> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PROMUS............................................. A-22
Section 4.1. Organization of Promus............................................................... A-22
Section 4.2. Promus Capital Structure............................................................. A-23
Section 4.3. Authority; No Conflict; Required Filings and Consents................................ A-23
Section 4.4. SEC Filings; Financial Statements.................................................... A-24
Section 4.5. No Undisclosed Liabilities........................................................... A-25
Section 4.6. Absence of Certain Changes or Events................................................. A-25
Section 4.7. Taxes................................................................................ A-25
Section 4.8. Properties........................................................................... A-26
Section 4.9. Intellectual Property................................................................ A-26
Section 4.10. Agreements, Contracts and Commitments................................................ A-26
Section 4.11. Litigation........................................................................... A-26
Section 4.12. Environmental Matters................................................................ A-27
Section 4.13. Employee Benefit Plans............................................................... A-27
Section 4.14. Compliance With Laws................................................................. A-28
Section 4.15. Accounting and Tax Matters........................................................... A-28
Section 4.16. Registration Statement; Joint Proxy Statement/Prospectus............................. A-28
Section 4.17. Labor Matters........................................................................ A-29
Section 4.18. Insurance............................................................................ A-29
Section 4.19. Promus Long-Range Plans.............................................................. A-29
Section 4.20. Opinion of Financial Advisor......................................................... A-29
Section 4.21. No Existing Discussions.............................................................. A-29
Section 4.22. Section 203 of the DGCL Not Applicable............................................... A-29
Section 4.23. Promus Rights Plan................................................................... A-29
ARTICLE V. COVENANTS............................................................................ A-29
Section 5.1. Conduct of Business.................................................................. A-29
Section 5.2. Cooperation; Notice; Cure............................................................ A-31
Section 5.3. No Solicitation...................................................................... A-31
Section 5.4. Joint Proxy Statement/Prospectus; Registration Statement............................. A-32
Section 5.5. NASDAQ Quotation and NYSE Listing.................................................... A-32
Section 5.6. Access to Information................................................................ A-33
Section 5.7. Stockholders' Meetings............................................................... A-33
Section 5.8. Legal Conditions to Merger........................................................... A-33
Section 5.9. Public Disclosure.................................................................... A-34
Section 5.10. Nonrecognition Exchange.............................................................. A-34
Section 5.11. Pooling Accounting................................................................... A-34
Section 5.12. Affiliate Agreements................................................................. A-34
Section 5.13. NYSE Listing......................................................................... A-34
Section 5.14. Stock Plans.......................................................................... A-35
Section 5.15. Brokers or Finders................................................................... A-36
Section 5.16. Indemnification...................................................................... A-36
</TABLE>
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Section 5.17. Letter of Promus's Accountants....................................................... A-36
Section 5.18. Letter of Doubletree's Accountants................................................... A-37
Section 5.19. Stock Option Agreements.............................................................. A-37
Section 5.20. Post-Merger Corporate Governance; Employment Arrangements............................ A-37
Section 5.21. Name of Parent....................................................................... A-38
Section 5.22. Parent Stockholder Rights Plan; Amendment of Promus Rights Plan...................... A-38
Section 5.23. GEPT Warrant; Doubletree Registration Rights Agreement............................... A-39
Section 5.24. Conveyance Taxes..................................................................... A-39
Section 5.25. Transfer Taxes....................................................................... A-39
Section 5.26. Stockholder Litigation............................................................... A-39
Section 5.27. Employee Benefits; Severance......................................................... A-40
ARTICLE VI. CONDITIONS TO MERGER................................................................. A-40
Section 6.1. Conditions to Each Party's Obligation to Effect the Mergers.......................... A-40
Section 6.2. Additional Conditions to Obligations of Doubletree................................... A-41
Section 6.3. Additional Conditions to Obligations of Promus....................................... A-42
ARTICLE VII. TERMINATION AND AMENDMENT............................................................ A-42
Section 7.1. Termination.......................................................................... A-42
Section 7.2. Effect of Termination................................................................ A-44
Section 7.3. Fees and Expenses.................................................................... A-44
Section 7.4. Amendment............................................................................ A-45
Section 7.5. Extension; Waiver.................................................................... A-45
ARTICLE VIII. MISCELLANEOUS........................................................................ A-46
Section 8.1. Nonsurvival of Representations, Warranties and Agreements............................ A-46
Section 8.2. Notices.............................................................................. A-46
Section 8.3. Interpretation....................................................................... A-46
Section 8.4. Counterparts......................................................................... A-47
Section 8.5. Entire Agreement; No Third Party Beneficiaries....................................... A-47
Section 8.6. Governing Law........................................................................ A-47
Section 8.7. Assignment........................................................................... A-47
EXHIBITS
Exhibit A Stock Option Agreement (Doubletree)
Exhibit B Stock Option Agreement (Promus)
Exhibit C Stockholder Support Agreement
Exhibit D Certificate of Incorporation of Parent
Exhibit E Bylaws of Parent
Exhibit F Form of Doubletree Affiliate Agreement
Exhibit G Form of Promus Affiliate Agreement
</TABLE>
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TABLES OF DEFINED TERMS
<TABLE>
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CROSS REFERENCE
TERMS IN AGREEMENT
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Acquisition Proposal........................................................................... Section 5.3(a)
Affiliate...................................................................................... Section 5.12
Affiliate Agreement............................................................................ Section 5.12
Agreement...................................................................................... Preamble
Alternative Transaction........................................................................ Section 7.3(e)
Bankruptcy and Equity Exception................................................................ Section 3.3(a)
Certificate of Merger.......................................................................... Section 1.4
Certificates................................................................................... Section 2.4(b)
Closing........................................................................................ Section 1.5
Closing Date................................................................................... Section 1.5
Code........................................................................................... Preamble
Confidentiality Agreements..................................................................... Section 5.3(a)
DGCL........................................................................................... Section 1.2
Doubletree..................................................................................... Preamble
Doubletree Balance Sheet....................................................................... Section 3.4(b)
Doubletree Common Stock........................................................................ Section 2.1
Doubletree Director............................................................................ Section 5.20(a)
Doubletree Disclosure Schedule................................................................. Article III
Doubletree Employee Plans...................................................................... Section 3.13(a)
Doubletree Employees........................................................................... Section 5.27(b)
Doubletree Exchange Ratio...................................................................... Section 2.1(c)
Doubletree Material Adverse Effect............................................................. Section 3.1
Doubletree Material Contracts.................................................................. Section 3.10(a)
Doubletree Merger.............................................................................. Section 1.2
Doubletree Preferred Stock..................................................................... Section 3.2(a)
Doubletree Rights Plan......................................................................... Section 3.2(b)
Doubletree SEC Reports......................................................................... Section 3.4(a)
Doubletree Stock Option........................................................................ Section 5.14(a)
Doubletree Stock Option Agreement.............................................................. Preamble
Doubletree Stock Plans......................................................................... Section 3.2(a)
Doubletree Stockholders' Meeting............................................................... Section 3.16
Doubletree Sub................................................................................. Section 1.2
Doubletree Surviving Corporation............................................................... Section 1.6
Effective Time................................................................................. Section 1.4
Environmental Law.............................................................................. Section 3.12(b)
ERISA.......................................................................................... Section 3.13(a)
ERISA Affiliate................................................................................ Section 3.13(a)
Exchange Act................................................................................... Section 3.3(c)
Exchange Agent................................................................................. Section 2.4(a)
Exchange Fund.................................................................................. Section 2.4(a)
GEPT Warrant................................................................................... Section 3.2(b)
</TABLE>
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<TABLE>
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CROSS REFERENCE
TERMS IN AGREEMENT
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Governmental Entity............................................................................ Section 3.3(c)
Hazardous Substance............................................................................ Section 3.12(c)
HSR Act........................................................................................ Section 3.3(c)
Indemnified Parties............................................................................ Section 5.16(a)
IRS............................................................................................ Section 3.7(b)
Joint Proxy Statement/Prospectus............................................................... Section 3.16
Material Lease(s).............................................................................. Section 3.8(a)
Mergers........................................................................................ Section 1.3
NYSE........................................................................................... Section 2.4(e)
Order.......................................................................................... Section 5.8(b)
Outside Date................................................................................... Section 7.1(b)
Parent......................................................................................... Preamble
Parent Common Stock............................................................................ Section 2.1(c)
Parent Rights Plan............................................................................. Section 5.22
Promus......................................................................................... Preamble
Promus Balance Sheet........................................................................... Section 4.4(b)
Promus Common Stock............................................................................ Section 2.2
Promus Director................................................................................ Section 5.20(a)
Promus Disclosure Schedule..................................................................... Article IV
Promus Employee Plans.......................................................................... Section 4.13(a)
Promus Employees............................................................................... Section 5.27(b)
Promus Exchange Ratio.......................................................................... Section 2.2(c)
Promus Material Adverse Effect................................................................. Section 4.1
Promus Material Contracts...................................................................... Section 4.10(a)
Promus Merger.................................................................................. Section 1.3
Promus Preferred Stock......................................................................... Section 4.2(a)
Promus Rights Plan............................................................................. Section 4.2(b)
Promus SEC Reports............................................................................. Section 4.4(a)
Promus Special Stock........................................................................... Section 4.2(a)
Promus Stock Option............................................................................ Section 5.14(a)
Promus Stock Option Agreement.................................................................. Preamble
Promus Stock Plans............................................................................. Section 4.2(a)
Promus Stockholders' Meeting................................................................... Section 3.16
Promus Sub..................................................................................... Section 1.3
Promus Surviving Corporation................................................................... Section 1.6
Registration Statement......................................................................... Section 3.16
Rule 145....................................................................................... Section 5.12
SEC............................................................................................ Section 3.3(c)
Securities Act................................................................................. Section 2.4(j)
Stock Option Agreements........................................................................ Preamble
Stockholder Support Agreement.................................................................. Preamble
Subsidiary..................................................................................... Section 3.1
Superior Proposal.............................................................................. Section 5.3(a)
</TABLE>
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CROSS REFERENCE
TERMS IN AGREEMENT
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Surviving Corporation.......................................................................... Section 1.6
Tax............................................................................................ Section 3.7(a)
Taxes.......................................................................................... Section 3.7(a)
Third Party.................................................................................... Section 5.3(a)
Transfer Taxes................................................................................. Section 5.25
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of September 1,
1997, by and among DOUBLETREE CORPORATION, a Delaware corporation
("Doubletree"), PROMUS HOTEL CORPORATION, a Delaware corporation ("Promus") and
PARENT HOLDING CORP., a newly-formed Delaware corporation with nominal
capitalization, one-half of the issued and outstanding capital stock of which is
nominally owned by each of Doubletree and Promus ("Parent").
WHEREAS, the Boards of Directors of Doubletree and Promus deem it advisable
and in the best interests of each corporation and its respective stockholders
that Doubletree and Promus combine in a "merger of equals" in order to advance
the interests of Doubletree and Promus and their respective stockholders;
WHEREAS, the combination of Doubletree and Promus shall be effected by the
terms of this Agreement through (i) a merger of a wholly-owned subsidiary of
Parent with and into Doubletree and (ii) a merger of another wholly-owned
subsidiary of Parent with and into Promus, such that Doubletree and Promus
become wholly-owned subsidiaries of Parent and the stockholders of Doubletree
and Promus become stockholders of Parent;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to each of Doubletree's and Promus's willingness
to enter into this Agreement, Doubletree and Promus have entered into (i) a
Stock Option Agreement dated as of the date of this Agreement and attached
hereto as Exhibit A (the "Doubletree Stock Option Agreement"), pursuant to which
Promus granted Doubletree an option to purchase shares of common stock of Promus
under certain circumstances, and (ii) a Stock Option Agreement dated as of the
date of this Agreement and attached hereto as Exhibit B (the "Promus Stock
Option Agreement" and, together with the Doubletree Stock Option Agreement, the
"Stock Option Agreements"), pursuant to which Doubletree granted Promus an
option to purchase shares of common stock of Doubletree under certain
circumstances;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Promus's willingness to enter into this
Agreement, certain stockholders of Doubletree have entered into a Stockholder
Support Agreement with Promus dated as of the date of this Agreement and
attached hereto as Exhibit C (the "Stockholder Support Agreement"), pursuant to
which such stockholders have agreed, among other things, to vote all voting
securities of Doubletree beneficially owned by them in favor of approval and
adoption of the Agreement and the Doubletree Merger (as defined in Section 1.2);
WHEREAS, for Federal income tax purposes, it is intended that (i) the
Doubletree Merger shall qualify as a reorganization described in Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code") and/or, taken
together with the Promus Merger (as defined in Section 1.3), as a transfer of
property to Parent by holders of Doubletree Common Stock (as defined in Section
2.1) described in Section 351 of the Code and (ii) the Promus Merger shall
qualify as a reorganization described in Section 368(a) of the Code and/or,
taken together with the Doubletree Merger, as a transfer of property to Parent
by holders of Promus Common Stock described in Section 351 of the Code;
WHEREAS, for accounting purposes, it is intended that the transactions
contemplated by this Agreement shall be accounted for as a pooling of interests;
and
WHEREAS, the Boards of Directors of Doubletree and Promus have approved this
Agreement, the Stock Option Agreements and the Stockholder Support Agreement.
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NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I.
THE MERGERS
Section 1.1 CERTIFICATE OF INCORPORATION AND BYLAWS OF PARENT. Doubletree
and Promus shall cause the Certificate of Incorporation and Bylaws of Parent to
be amended prior to the Effective Time (as defined in Section 1.4) to be
substantially in the form of Exhibit D and Exhibit E hereto, respectively. From
the date hereof until the Effective Time, Doubletree and Promus shall consult
with each other prior to causing or permitting Parent to take any action and
neither shall cause or permit Parent to take any action inconsistent with the
provisions of this Agreement without the written consent of the other.
Section 1.2. THE DOUBLETREE MERGER. Doubletree and Promus shall cause
Parent to form a wholly-owned subsidiary named Doubletree Acquisition Corp.
("Doubletree Sub") under the laws of the State of Delaware. Doubletree and
Promus will cause Parent to cause Doubletree Sub to execute and deliver this
Agreement. Upon the terms and subject to the provisions of this Agreement, and
in accordance with the Delaware General Corporation Code (the "DGCL"),
Doubletree Sub will merge with and into Doubletree (the "Doubletree Merger") at
the Effective Time (as defined in Section 1.4). Doubletree Sub will be formed
solely to facilitate the Doubletree Merger and will conduct no business or
activity other than in connection with the Doubletree Merger.
Section 1.3. THE PROMUS MERGER. Doubletree and Promus shall cause Parent
to form a wholly-owned subsidiary named Promus Acquisition Corp. ("Promus Sub")
under the laws of the State of Delaware. Doubletree and Promus will cause Parent
to cause Promus Sub to execute and deliver this Agreement. Upon the terms and
subject to the provisions of this Agreement, and in accordance with the DGCL,
Promus Sub will merge with and into Promus (the "Promus Merger" and together
with the Doubletree Merger, the "Mergers") at the Effective Time (as defined in
Section 1.4). Promus Sub will be formed solely to facilitate the Promus Merger
and will conduct no business or activity other than in connection with the
Promus Merger.
Section 1.4. EFFECTIVE TIME OF THE MERGERS. Subject to the provisions of
this Agreement, a certificate of merger with respect to each Merger in such form
as is required by the relevant provisions of the DGCL (individually, a
"Certificate of Merger" with respect to one of the Mergers, and collectively
with respect to both Mergers, the "Certificates of Merger") shall be duly
prepared, executed and acknowledged and thereafter delivered to the Secretary of
State of the State of Delaware for filing, as provided in the DGCL, as early as
practicable on the Closing Date (as defined in Section 1.5). Each Merger shall
become effective at such time as is specified in the Certificate of Merger (the
time at which both Mergers have become fully effective being hereinafter
referred to as the "Effective Time").
Section 1.5 CLOSING. The closing of the Mergers (the "Closing") will take
place at such time and place to be agreed upon by the parties hereto, on a date
to be specified by Promus and Doubletree, which shall be no later than the
second business day after satisfaction or, if permissible, waiver of the
conditions set forth in Article VI (the "Closing Date"), unless another date is
agreed to in writing by Promus and Doubletree.
Section 1.6. EFFECT OF THE MERGERS. As a result of the Doubletree Merger,
the separate corporate existence of Doubletree Sub shall cease and Doubletree
shall continue as the surviving corporation (the "Doubletree Surviving
Corporation"). As a result of the Promus Merger, the separate corporate
existence of Promus Sub shall cease and Promus shall continue as the surviving
corporation (the "Promus Surviving Corporation" and together with the Doubletree
Surviving Corporation, the "Surviving Corporations"). Upon becoming effective,
the Mergers shall have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, (i) all
properties, rights, privileges,
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powers and franchises of Doubletree and Doubletree Sub shall vest in the
Doubletree Surviving Corporation, and all debts, liabilities and duties of
Doubletree and Doubletree Sub shall become the debts, liabilities and duties of
the Doubletree Surviving Corporation and (ii) all properties, rights,
privileges, powers and franchises of Promus and Promus Sub shall vest in the
Promus Surviving Corporation, and all debts, liabilities and duties of Promus
and Promus Sub shall become the debts, liabilities and duties of the Promus
Surviving Corporation.
Section 1.7. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATIONS. At the Effective Time, (i) the Certificate of Incorporation and
Bylaws of the Doubletree Surviving Corporation shall be amended to be identical
to the Certificate of Incorporation and Bylaws, respectively, of Doubletree Sub
as in effect immediately prior to the Effective Time (except that the name of
the Doubletree Surviving Corporation shall be Doubletree Inc.), in each case
until duly amended in accordance with applicable law, and (ii) the Certificate
of Incorporation and Bylaws of the Promus Surviving Corporation shall be amended
to be identical to the Certificate of Incorporation and Bylaws, respectively, of
Promus Sub as in effect immediately prior to the Effective Time (except that the
name of the Promus Surviving Corporation shall be Promus Acquisition Corp.), in
each case until duly amended in accordance with applicable law.
Section 1.8. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATIONS
(a) DOUBLETREE SURVIVING CORPORATION. The directors of Doubletree Sub
immediately prior to the Effective Time shall be the initial directors of the
Doubletree Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Doubletree Surviving Corporation.
The officers of Doubletree immediately prior to the Effective Time shall be the
initial officers of the Doubletree Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Doubletree
Surviving Corporation.
(b) PROMUS SURVIVING CORPORATION. The directors of Promus Sub immediately
prior to the Effective Time shall be the initial directors of the Promus
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Promus Surviving Corporation. The officers of
Promus immediately prior to the Effective Time shall be the initial officers of
the Promus Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Promus Surviving Corporation.
ARTICLE II.
CONVERSION OF SECURITIES
Section 2.1. CONVERSION OF DOUBLETREE CAPITAL STOCK. At the Effective
Time, by virtue of the Doubletree Merger and without any action on the part of
any of the parties hereto or the holders of any shares of Common Stock, par
value $.01 per share, of Doubletree ("Doubletree Common Stock") or common stock
of Doubletree Sub:
(a) CAPITAL STOCK OF DOUBLETREE SUB. Each issued and outstanding share
of the common stock, par value $.01 per share, of Doubletree Sub shall be
converted into and become one fully paid and nonassessable share of Common
Stock, par value $.01 per share, of the Doubletree Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND PROMUS-OWNED STOCK. All shares
of Doubletree Common Stock that are owned by Doubletree as treasury stock
and any shares of Doubletree Common Stock owned by Promus or any
wholly-owned Subsidiary (as defined in Section 3.1) of Promus shall be
canceled and retired and shall cease to exist and no stock of Parent or
other consideration shall be delivered in exchange therefor.
(c) EXCHANGE RATIO FOR DOUBLETREE COMMON STOCK. Subject to Section
2.4(e), each issued and outstanding share of Doubletree Common Stock (other
than shares to be canceled in accordance with
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Section 2.1(b)) shall be converted into the right to receive one share (the
"Doubletree Exchange Ratio") of Common Stock, par value $.01 per share, of
Parent ("Parent Common Stock"). All such shares of Doubletree Common Stock,
when so converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any ownership
or other rights with respect thereto, except the right to receive the shares
of Parent Common Stock and an amount equal to certain dividends and other
distributions described in Section 2.4(c), without interest, upon the
surrender of such certificate in accordance with Section 2.4.
Section 2.2. CONVERSION OF PROMUS CAPITAL STOCK. At the Effective Time, by
virtue of the Promus Merger and without any action on the part of any of the
parties hereto or the holders of any shares of Common Stock, par value $.10 per
share, of Promus ("Promus Common Stock") or common stock of Promus Sub:
(a) CAPITAL STOCK OF PROMUS SUB. Each issued and outstanding share of
the common stock, par value $.01 per share, of Promus Sub shall be converted
into and become one fully paid and nonassessable share of Common Stock, par
value $.01 per share, of the Promus Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND DOUBLETREE-OWNED STOCK. All
shares of Promus Common Stock that are owned by Promus as treasury stock and
any shares of Promus Common Stock owned by Doubletree or any wholly-owned
Subsidiary (as defined in Section 3.1) of Doubletree shall be canceled and
retired and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) EXCHANGE RATIO FOR PROMUS COMMON STOCK. Subject to Section 2.4(e),
each issued and outstanding share of Promus Common Stock (other than shares
to be canceled in accordance with Section 2.2(b)) shall be converted into
the right to receive 0.925 shares (the "Promus Exchange Ratio") of Parent
Common Stock. All such shares of Promus Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any ownership or other
rights with respect thereto, except the right to receive the shares of
Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock to be issued or paid in consideration therefor and an amount equal to
certain dividends and other distributions described in Section 2.4(c), in
each case upon the surrender of such certificate in accordance with Section
2.4 and without interest.
Section 2.3. CANCELLATION OF PARENT STOCK. At the Effective Time, by
virtue of the Mergers and without any action on the part of any holder of any
capital stock of Doubletree, Promus or Parent, each share of Parent Common Stock
issued and outstanding immediately prior to the Effective Time shall be
surrendered and canceled, and the amount paid by Doubletree and Promus for the
shares of Parent Common Stock held by them shall be returned by Parent to them.
Section 2.4. EXCHANGE OF CERTIFICATES. The procedures for exchanging
certificates which prior to the Effective Time represented shares of Doubletree
Common Stock and Promus Common Stock for certificates representing Parent Common
Stock pursuant to the Mergers are as follows:
(a) EXCHANGE AGENT. As of the Effective Time, Parent shall deposit
with a bank or trust company designated by Promus and Doubletree (the
"Exchange Agent"), for the benefit of the holders of shares of Doubletree
Common Stock and shares of Promus Common Stock outstanding immediately prior
to the Effective Time, for exchange in accordance with this Section 2.4,
through the Exchange Agent, certificates representing the shares of Parent
Common Stock and, with respect to shares of Promus Common Stock, cash in
lieu of fractional shares (such shares of Parent Common Stock and cash in
lieu of fractional shares, together with any dividends or distributions with
respect thereto, being hereinafter referred to as the "Exchange Fund"),
issuable pursuant to Sections 2.1 and
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2.2 in exchange for shares of Doubletree Common Stock and Promus Common
Stock, respectively, outstanding immediately prior to the Effective Time.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Doubletree Common Stock or Promus Common
Stock (collectively, the "Certificates") whose shares were converted
pursuant to Section 2.1 or Section 2.2 into the right to receive shares of
Parent Common Stock (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Doubletree and
Promus may reasonably specify) and (ii) instructions for effecting the
surrender of the Certificates in exchange for certificates representing
shares of Parent Common Stock (plus cash in lieu of fractional shares, if
any, of Parent Common Stock as provided below). Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of
whole shares of Parent Common Stock, the amount of any cash payable in lieu
of fractional shares of Parent Common Stock (with respect to shares of
Promus Common Stock) and an amount equal to certain dividends and other
distributions which such holder has the right to receive pursuant to the
provisions of this Article II, and the Certificate so surrendered shall
immediately be canceled. In the event of a transfer of ownership of
Doubletree Common Stock or Promus Common Stock prior to the Effective Time
which is not registered in the transfer records of Doubletree or Promus,
respectively, a certificate representing the number of shares of Parent
Common Stock issuable and any amounts payable in accordance with this
Agreement may be issued and paid to a transferee if the Certificate
representing such Doubletree Common Stock or Promus Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No amount in
respect of dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock the holder
thereof is entitled to receive in respect thereof and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
subsection (e) below until the holder of record of such Certificate shall
surrender such Certificate to Parent in accordance herewith. Subject to the
effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing
whole shares of Parent Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash payable
in lieu of a fractional share of Parent Common Stock to which such holder is
entitled pursuant to subsection (e) below and an amount equal to the amount
of dividends or other distributions with a record date after the Effective
Time previously paid with respect to whole shares of Parent Common Stock,
and (ii) at the appropriate payment date, an amount equal to the amount of
dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable
with respect to whole shares of Parent Common Stock, in each case without
interest.
(d) NO FURTHER OWNERSHIP RIGHTS IN DOUBLETREE COMMON STOCK AND PROMUS
COMMON STOCK. All shares of Parent Common Stock issued upon the surrender
for exchange of Certificates in accordance with the terms hereof (including
any cash paid pursuant to subsection (c) or (e) of this Section 2.4) shall
be deemed to have been issued in full satisfaction of all rights pertaining
to the shares of Doubletree Common Stock or Promus Common Stock theretofore
represented by such Certificates, subject, however, to the applicable
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared
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or made by Doubletree on such shares of Doubletree Common Stock or by Promus
on such shares of Promus Common Stock, as the case may be, in accordance
with the terms of this Agreement (to the extent permitted under Section 5.1)
prior to the date hereof and which remain unpaid at the Effective Time, and
from and after the Effective Time there shall be no further registration of
transfers on the stock transfer books of the Doubletree Surviving
Corporation or the Promus Surviving Corporation, as the case may be, of the
shares of Doubletree Common Stock or Promus Common Stock, respectively,
which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to one of the Surviving
Corporations or Parent for any reason, such Certificates shall be canceled
and exchanged as provided in this Section 2.4.
(e) NO FRACTIONAL SHARES. No certificate or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates representing shares of Promus Common Stock, and
such fractional share interests will not entitle the owner thereof to vote
or to any other rights of a stockholder of Parent. Notwithstanding any other
provision of this Agreement, each holder of shares of Promus Common Stock
outstanding immediately prior to the Effective Time exchanged pursuant to
the Promus Merger who would otherwise have been entitled to receive a
fraction of a share of Parent Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Parent Common Stock multiplied by the per share sales price of Parent Common
Stock (as reported on the New York Stock Exchange Composite Tape) on the
closing of the first day of regular-way trading of Parent Common Stock on
the New York Stock Exchange (the "NYSE") after the Effective Time.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the former stockholders of Doubletree or
Promus for 180 days after the Effective Time shall be delivered to Parent
upon demand, and any former stockholder of Doubletree or Promus who has not
previously complied with this Section 2.4 shall thereafter look only to
Parent for payment of such former stockholder's claim for Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock and any
amounts in respect of dividends or distributions with respect to Parent
Common Stock.
(g) NO LIABILITY. None of Doubletree, Promus, Parent or the Exchange
Agent shall be liable to any holder of shares of Doubletree Common Stock or
Promus Common Stock, as the case may be, for any shares of Parent Common
Stock (or cash in lieu of fractional shares of Parent Common Stock or any
dividends or distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(h) WITHHOLDING RIGHTS. Parent and each of the Surviving Corporations
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Certificates which prior
to the Effective Time represented shares of Doubletree Common Stock or
Promus Common Stock such amounts as it is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision
of state, local or foreign tax law. To the extent that amounts are so
withheld by Parent or one of the Surviving Corporations, as the case may be,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Doubletree Common Stock or
Promus Common Stock, as the case may be, in respect of which such deduction
and withholding was made.
(i) LOST CERTIFICATES. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by Parent or one of the Surviving Corporations, the posting by such person
of a bond in such reasonable amount as Parent or such Surviving Corporation
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the shares of Parent Common Stock
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and any cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of Parent Common Stock deliverable in respect
thereof pursuant to this Agreement.
(j) AFFILIATES. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Affiliate (as defined in
Section 5.12) of Doubletree or Promus shall not be exchanged until (i)
Parent has received an Affiliate Agreement (as defined in Section 5.12) from
such Affiliate or (ii) until the later of such date as such shares of Parent
Common Stock are freely tradable without jeopardizing the pooling of
interests accounting treatment of the Mergers and without violating the
Securities Act of 1933, as amended (the "Securities Act").
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF DOUBLETREE
Doubletree represents and warrants to Promus that the statements contained
in this Article III are true and correct except as set forth herein and in the
disclosure schedule delivered by Doubletree to Promus on or before the date of
this Agreement (the "Doubletree Disclosure Schedule"). The Doubletree Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III and the disclosure in any
paragraph shall qualify other paragraphs in this Article III only to the extent
that it is reasonably apparent from a reading of such disclosure that it also
qualifies or applies to such other paragraphs.
Section 3.1. ORGANIZATION OF DOUBLETREE. Each of Doubletree and its
Subsidiaries (as defined below) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has all
requisite power to own, lease and operate its property and to carry on its
business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation or
other entity in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the business, properties, financial condition
or results of operations of Doubletree and its Subsidiaries, taken as a whole
(an "Doubletree Material Adverse Effect"). A true and correct copy of the
Certificate of Incorporation and Bylaws of Doubletree has been delivered to
Promus. Except as set forth in Doubletree SEC Reports (as defined in Section
3.4) filed prior to the date hereof, neither Doubletree nor any of its
Subsidiaries directly or indirectly owns (other than ownership interests in
Doubletree or in one or more of its Subsidiaries) any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding (i) securities in any publicly traded company held for investment by
Doubletree and comprising less than five percent (5%) of the outstanding stock
of such company and (ii) any investment or series of related investments with a
book value of less than $15 million. As used in this Agreement, the word
"Subsidiary" means, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such party or
any other Subsidiary of such party is a general partner (excluding partnerships
the general partnership interests of which held by such party or any Subsidiary
of such party do not have a majority of the economic interests in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries.
Section 3.2. DOUBLETREE CAPITAL STRUCTURE.
(a) The authorized capital stock of Doubletree consists of 100,000,000
shares of Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock,
$.01 par value ("Doubletree Preferred Stock"). As of the date hereof, (i)
39,688,458 shares of Doubletree Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable and (ii) no shares of
Doubletree Common Stock were held in the treasury of Doubletree or by
Subsidiaries of Doubletree. The Doubletree Disclosure
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Schedule shows the number of shares of Doubletree Common Stock reserved for
future issuance pursuant to stock options granted and outstanding as of the date
hereof and the plans under which such options were granted (collectively, the
"Doubletree Stock Plans"). As of the date of this Agreement, none of the shares
of Doubletree Preferred Stock is issued and outstanding. There are no
obligations, contingent or otherwise, of Doubletree or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of Doubletree Common Stock
or the capital stock of any Subsidiary or to provide funds to or make any
material investment (in the form of a loan, capital contribution or otherwise)
in any such Subsidiary or any other entity other than guarantees of bank
obligations or indebtedness for borrowed money of Subsidiaries entered into in
the ordinary course of business and other than any obligation the failure of
which to perform or satisfy would not have a Doubletree Material Adverse Effect.
All of the outstanding shares of capital stock or other ownership interests of
each of Doubletree's Subsidiaries are duly authorized, validly issued, fully
paid and nonassessable and all such shares (other than directors' qualifying
shares in the case of foreign Subsidiaries) are owned by Doubletree or another
Subsidiary of Doubletree free and clear of all security interests, liens,
claims, pledges, agreements, limitations in Doubletree's voting rights, charges
or other encumbrances of any nature.
(b) Except as set forth in this Section 3.2 or as reserved for future grants
of options under the Doubletree Stock Plans or the Promus Stock Option Agreement
and except for the preferred stock purchase rights issued and issuable under the
Rights Agreement dated as of September 1, 1997 between Doubletree and Harris
Trust Company of California (the "Doubletree Rights Plan"), options to purchase
an aggregate of 20,000 shares of Doubletree Common Stock, issued on June 30,
1994, to GE Investment Hotel Partners I, Limited Partnership and the Warrants to
purchase an aggregate of 262,753 shares of Doubletree Common Stock, issued on
November 8, 1996, to PT Investments Inc. (the "GEPT Warrant"), (i) there are no
shares of capital stock of any class of Doubletree, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for issuance or
outstanding; (ii) there are no options, warrants, equity securities, calls,
rights, commitments or agreements of any character to which Doubletree or any of
its Subsidiaries is a party or by which it is bound obligating Doubletree or any
of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or other ownership interests of
Doubletree or any of its Subsidiaries or obligating Doubletree or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment or agreement; and
(iii) to the best knowledge of Doubletree, there are no voting trusts, proxies
or other voting agreements or understandings with respect to the shares of
capital stock of Doubletree. All shares of Doubletree Common Stock subject to
issuance as specified in this Section 3.2 are duly authorized and, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, shall be validly issued, fully paid and nonassessable.
Section 3.3. AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Doubletree has all requisite corporate power and authority to enter into
this Agreement and the Stock Option Agreements and to consummate the
transactions contemplated by this Agreement and the Stock Option Agreements. The
execution and delivery of this Agreement and the Stock Option Agreements and the
consummation of the transactions contemplated by this Agreement and the Stock
Option Agreements by Doubletree have been duly authorized by all necessary
corporate action on the part of Doubletree, subject only to the approval and
adoption of this Agreement and the Doubletree Merger by Doubletree's
stockholders under the DGCL. This Agreement and the Stock Option Agreements have
been duly executed and delivered by Doubletree and constitute the valid and
binding obligations of Doubletree, enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception").
(b) The execution and delivery of this Agreement and the Stock Option
Agreements by Doubletree does not, and the consummation of the transactions
contemplated by this Agreement and the Stock Option Agreements will not, (i)
conflict with, or result in any violation or breach of, any provision of the
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Certificate of Incorporation or Bylaws of Doubletree or any of its Subsidiaries,
(ii) result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Doubletree or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound (other than pursuant to the Credit Agreement dated as of
November 8, 1996 by and among Doubletree, Morgan Stanley Senior Funding, Inc.,
The Bank of Nova Scotia and the lenders identified therein) or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Doubletree or
any of its Subsidiaries or any of its or their properties or assets, except in
the case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which (x) are not, individually or
in the aggregate, reasonably likely to have a Doubletree Material Adverse Effect
or (y) would not substantially impair or delay the consummation of the
Doubletree Merger.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Doubletree or any of its Subsidiaries in
connection with the execution and delivery of this Agreement and the Stock
Option Agreements or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing of the pre-merger notification report under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR
Act"), (ii) the filing of a Certificate of Merger with respect to the Doubletree
Merger with the Delaware Secretary of State, (iii) the filing of the Joint Proxy
Statement/Prospectus (as defined in Section 3.16 below) with the Securities and
Exchange Commission (the "SEC") in accordance with the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the Securities Act, (iv) such
consents, approvals, orders, authorizations, permits, filings or registrations
related to, or arising out of, compliance with statutes, rules or regulations
regulating the consumption, sale or serving of alcoholic beverages, (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country and (vi) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not (x) be
reasonably likely to have a Doubletree Material Adverse Effect or (y)
substantially impair or delay the consummation of the Doubletree Merger.
Section 3.4. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Doubletree has filed and made available to Promus all forms, reports and
documents required to be filed by Doubletree with the SEC since January 1, 1996
(collectively, the "Doubletree SEC Reports"). The Doubletree SEC Reports (i) at
the time filed, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Doubletree SEC Reports or necessary in order to
make the statements in such Doubletree SEC Reports, in the light of the
circumstances under which they were made, not misleading. None of Doubletree's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) of Doubletree contained in the Doubletree SEC Reports
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q under the Exchange Act) and fairly presented the consolidated
financial position of Doubletree and its Subsidiaries as of the dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements
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were or are subject to normal and recurring year-end adjustments which were not
or are not expected to be material in amount. The audited balance sheet of
Doubletree as of December 31, 1996 is referred to herein as the "Doubletree
Balance Sheet."
Section 3.5. NO UNDISCLOSED LIABILITIES. Except as disclosed in the
Doubletree SEC Reports filed prior to the date hereof, and except for normal or
recurring liabilities incurred since December 31, 1996 in the ordinary course of
business consistent with past practices, Doubletree and its Subsidiaries do not
have any liabilities, either accrued, contingent or otherwise (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles), and whether due or to become due, which
individually or in the aggregate are reasonably likely to have a Doubletree
Material Adverse Effect.
Section 3.6. ABSENCE OF CERTAIN CHANGES OF EVENTS. Except as disclosed in
the Doubletree SEC Reports filed prior to the date hereof, since the date of the
Doubletree Balance Sheet, Doubletree and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any event, development,
state of affairs or condition, or series or combination of events, developments,
states of affairs or conditions, which, individually or in the aggregate, has
had or is reasonably likely to have a Doubletree Material Adverse Effect (other
than events, developments, states of affairs or conditions that are the effect
or result of actions taken by Promus or economic factors affecting the economy
as a whole or the industry in which Doubletree competes); (ii) any damage,
destruction or loss (whether or not covered by insurance) with respect to
Doubletree or any of its Subsidiaries which is reasonably likely to have a
Doubletree Material Adverse Effect; (iii) any material change by Doubletree in
its accounting methods, principles or practices to which Promus has not
previously consented in writing; (iv) any revaluation by Doubletree of any of
its assets which is reasonably likely to have a Doubletree Material Adverse
Effect; or (v) any other action or event that would have required the consent of
Promus pursuant to Section 5.1 of this Agreement had such action or event
occurred after the date of this Agreement other than such actions or events
that, individually or in the aggregate, have not had or are not reasonably
likely to have a Doubletree Material Adverse Effect.
Section 3.7. TAXES.
(a) For the purposes of this Agreement, a "Tax" or, collectively, "Taxes,"
means any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including taxes based
upon or measured by gross receipts, income, profits, sales, use and occupation,
and value added, ad valorem, transfer, gains, franchise, withholding, payroll,
recapture, employment, excise, unemployment insurance, social security, business
license, occupation, business organization, stamp, environmental and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts. For purposes of this Agreement, "Taxes" also includes any
obligations under any agreements or arrangements with any other person with
respect to Taxes of such other person (including pursuant to Treas. Reg. Section
1.1502-6 or comparable provisions of state, local or foreign tax law) and
including any liability for Taxes of any predecessor entity.
(b) Doubletree and each of its Subsidiaries have (i) filed all federal,
state, local and foreign Tax returns and reports required to be filed by them
prior to the date of this Agreement (taking into account all applicable
extensions), (ii) paid or accrued all Taxes due and payable, and (iii) paid or
accrued all Taxes for which a notice of assessment or collection has been
received (other than amounts being contested in good faith by appropriate
proceedings), except in the case of clauses (i), (ii) or (iii) for any such
filings, payments or accruals that are not reasonably likely, individually or in
the aggregate, to have a Doubletree Material Adverse Effect. Neither the
Internal Revenue Service (the "IRS") nor any other taxing authority has asserted
any claim for Taxes, or to the actual knowledge of the executive officers of
Doubletree, is threatening to assert any claims for Taxes, which claims,
individually or in the aggregate, are reasonably likely to have a Doubletree
Material Adverse Effect. Doubletree and each of its Subsidiaries have withheld
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or collected and paid over to the appropriate governmental authorities (or are
properly holding for such payment) all Taxes required by law to be withheld or
collected, except for amounts that are not reasonably likely, individually or in
the aggregate, to have a Doubletree Material Adverse Effect. Neither Doubletree
nor any of its Subsidiaries has made an election under Section 341(f) of the
Code, except for any such election that shall not have a Doubletree Material
Adverse Effect. There are no liens for Taxes upon the assets of Doubletree or
any of its Subsidiaries (other than liens for Taxes that are not yet due or
delinquent or that are being contested in good faith by appropriate
proceedings), except for liens that are not reasonably likely, individually or
in the aggregate, to have a Doubletree Material Adverse Effect.
(c) Neither Doubletree nor any of its Subsidiaries is or has been a member
of an affiliated group of corporations filing a consolidated federal income tax
return (or a group of corporations filing a consolidated, combined or unitary
income tax return under comparable provisions of state, local or foreign tax
law) for any taxable period beginning on or after the taxable period ending
December 31, 1993, other than a group the common parent of which is or was
Doubletree or any Subsidiary of Doubletree.
(d) Neither Doubletree nor any of its Subsidiaries has any obligation under
any agreement or arrangement with any other person with respect to Taxes of such
other person (including pursuant to Treas. Reg. Section 1.1502-6 or comparable
provisions of state, local or foreign tax law) and including any liability for
Taxes of any predecessor entity, except for obligations that are not reasonably
likely, individually or in the aggregate, to have a Doubletree Material Adverse
Effect.
Section 3.8. PROPERTIES.
(a) Neither Doubletree nor any of its Subsidiaries is in default under any
leases for real property providing for the occupancy, in each case, of (i) a
hotel or (ii) other facilities in excess of 50,000 square feet (collectively
"Material Lease(s)"), except where the existence of such defaults, individually
or in the aggregate, is not reasonably likely to have a Doubletree Material
Adverse Effect.
(b) With respect to each item of real property that Doubletree or any of its
Subsidiaries owns, except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Doubletree Material Adverse
Effect: (i) Doubletree or its Subsidiary has good and clear record and
marketable title to such property, insurable by a recognized national title
insurance company at standard rates, free and clear of any security interest,
easement, covenant or other restriction, except for recorded easements,
covenants and other restrictions which do not materially impair the current uses
or occupancy of such property; and (ii) the improvements constructed on such
property are in good condition, and all mechanical and utility systems servicing
such improvements are in good condition, free in each case of material defects.
Section 3.9. INTELLECTUAL PROPERTY Doubletree owns, or is licensed or
otherwise possesses legally enforceable rights to use, all trademarks, trade
names, service marks, copyrights, and any applications for such trademarks,
trade names, service marks and copyrights, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of Doubletree as currently conducted,
subject to such exceptions that, individually and in the aggregate, would not be
reasonably likely to have a Doubletree Material Adverse Effect. Doubletree has
no knowledge of any assertion or claim challenging the validity of any of such
intellectual property.
Section 3.10. AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Doubletree has not breached, or received in writing any claim or notice
that it has breached, any of the terms or conditions of any material agreement,
contract or commitment filed as an exhibit to the Doubletree SEC Reports
("Doubletree Material Contracts") in such a manner as, individually or in the
aggregate, are reasonably likely to have a Doubletree Material Adverse Effect.
Each Doubletree Material Contract that has not expired by its terms is in full
force and effect.
(b) Without limiting Section 3.10(a), each of the management contracts and
franchise agreements to which Doubletree is a party and each of Doubletree's
Material Leases (i) is valid and binding in
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accordance with its terms and is in full force and effect, (ii) neither
Doubletree nor any of its Subsidiaries is in default in any material respect
thereof, nor does any condition exist that with notice or lapses of time or both
would constitute a material default thereunder, and (iii) no party has given any
written or (to the knowledge of Doubletree) oral notice of termination or
cancellation thereof or that such party intends to assert a breach thereof, or
seek to terminate or cancel, any such agreement, contract or lease, in each case
as a result of the transactions contemplated hereby, subject to such exceptions
that, individually and in the aggregate, would not be reasonably likely to have
a Doubletree Material Adverse Effect.
Section 3.11. LITIGATION. Except as described in the Doubletree SEC
Reports filed prior to the date hereof, there is no action, suit or proceeding,
claim, arbitration or investigation against Doubletree pending or as to which
Doubletree has received any written notice of assertion, which, individually or
in the aggregate, is reasonably likely to have a Doubletree Material Adverse
Effect or a material adverse effect on the ability of Doubletree to consummate
the transactions contemplated by this Agreement.
Section 3.12. ENVIRONMENTAL MATTERS.
(a) To the knowledge of Doubletree and except as disclosed in the Doubletree
SEC Reports filed prior to the date hereof and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Doubletree
Material Adverse Effect: (i) Doubletree and its Subsidiaries have complied with
all applicable Environmental Laws (as defined in Section 3.12(b)); (ii) the
properties currently owned or operated by Doubletree and its Subsidiaries
(including soils, groundwater, surface water, buildings or other structures) are
not contaminated with any Hazardous Substances (as defined in Section 3.12(c));
(iii) the properties formerly owned or operated by Doubletree or any of its
Subsidiaries were not contaminated with Hazardous Substances during the period
of ownership or operation by Doubletree or any of its Subsidiaries; (iv) neither
Doubletree nor its Subsidiaries are subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) neither
Doubletree nor any of its Subsidiaries has been associated with any release or
threat of release of any Hazardous Substance; (vi) neither Doubletree nor any of
its Subsidiaries has received any notice, demand, letter, claim or request for
information alleging that Doubletree or any of its Subsidiaries may be in
violation of or liable under any Environmental Law; (vii) neither Doubletree nor
any of its Subsidiaries is subject to any orders, decrees, injunctions or other
arrangements with any Governmental Entity or is subject to any indemnity or
other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances; and (viii) there are no
circumstances or conditions involving Doubletree or any of its Subsidiaries that
could reasonably be expected to result in any claims, liability, investigations,
costs or restrictions on the ownership, use or transfer of any property of
Doubletree or any of its Subsidiaries pursuant to any Environmental Law.
(b) As used herein, the term "Environmental Law" means any federal, state,
local or foreign law, regulation, order, decree, permit, authorization, opinion,
common law or agency requirement relating to: (A) the protection, investigation
or restoration of the environment, health and safety, or natural resources, (B)
the handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (C) noise, odor, wetlands, pollution, contamination or
any injury or threat of injury to persons or property.
(c) As used herein, the term "Hazardous Substance" means any substance that
is: (A) listed, classified or regulated pursuant to any Environmental Law; (B)
any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (C) any other substance which is the subject of
regulatory action by any Governmental Entity pursuant to any Environmental Law.
Section 3.13. EMPLOYEE BENEFIT PLANS.
(a) For purposes of this Agreement, the "Doubletree Employee Plans" shall
mean all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, incentive, deferred compensation,
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supplemental retirement, severance and other similar employee benefit plans, and
all unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of Doubletree or any trade or
business (whether or not incorporated) which is under common control with
Doubletree within the meaning of Section 414 of the Code (an "ERISA Affiliate"),
or any Subsidiary of Doubletree (together, the "Doubletree Employee Plans").
Doubletree has listed in Section 3.13 of the Doubletree Disclosure Schedule all
Doubletree Employee Plans other plans that are "employee welfare benefit plans"
within the meaning of Section 3(1) of ERISA.
(b) With respect to each Doubletree Employee Plan, Doubletree has made
available to Promus, a true and correct copy of (i) the most recent annual
report (Form 5500) filed with the IRS, (ii) such Doubletree Employee Plan and
all amendments thereto, (iii) each trust agreement and group annuity contract,
if any, and all amendments thereto relating to such Doubletree Employee Plan and
(iv) the most recent actuarial report or valuation relating to a Doubletree
Employee Plan subject to Title IV of ERISA.
(c) With respect to the Doubletree Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Doubletree, there
exists no condition or set of circumstances in connection with which Doubletree
could be subject to any liability that is reasonably likely to have a Doubletree
Material Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Doubletree Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Doubletree, except for obligations which, individually or in the
aggregate, are not reasonably likely to have a Doubletree Material Adverse
Effect.
(e) Except as disclosed in the Doubletree SEC Reports filed prior to the
date of this Agreement, and except as provided for in this Agreement, neither
Doubletree nor any of its Subsidiaries is a party to any oral or written (i)
agreement with any officer or other key employee of Doubletree or any of its
Subsidiaries, the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving Doubletree of
the nature contemplated by this Agreement, (ii) agreement with any officer of
Doubletree providing any term of employment or compensation guarantee extending
for a period longer than one year from the date hereof and for the payment of
compensation in excess of $100,000 per annum, or (iii) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, the
vesting of the benefits of which will be accelerated or the funding of benefits
of which will be required, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
Section 3.14. COMPLIANCE WITH LAWS. Doubletree has complied with, is not
in violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for failures to comply or violations which, individually or in the aggregate,
have not had and are not reasonably likely to have a Doubletree Material Adverse
Effect.
Section 3.15. ACCOUNTING AND TAX MATTERS.
(a) To the best knowledge of Doubletree, after consulting with its
independent auditors with respect to clause (i) below and its tax advisors with
respect to clause (ii) below, neither Doubletree nor any of its Affiliates (as
defined in Section 5.12) has taken or agreed to take any action which would (i)
prevent Parent from accounting for the business combination to be effected by
the Mergers as a pooling of interests or (ii) prevent the Doubletree Merger from
qualifying as a reorganization described in Section 368(a) of the Code and/or,
taken together with the Promus Merger, as a transfer of property to Parent
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by holders of Doubletree Common Stock described in Section 351 of the Code.
Except as contemplated by the Doubletree Option Agreement, neither Doubletree
nor any of its Subsidiaries owns any shares of Promus Common Stock or other
securities convertible into shares of Promus Common Stock (exclusive of any
shares owned by Doubletree's employee benefit plans).
(b) To the best knowledge of Doubletree, the stockholders of Doubletree as a
group have no present plan, intention or arrangement to sell or otherwise
dispose of such number of the shares of Parent Common Stock received in the
Doubletree Merger as would reduce their ownership in Parent Common Stock to a
number of shares having a value, as of the date of the Doubletree Merger, of
less than eighty percent (80%) of the value of all the formerly outstanding
stock of Doubletree as of the same date.
Section 3.16. REGISTRATION STATEMENT; JOINT PROXY
STATEMENT/PROSPECTUS. The information to be supplied by Doubletree for
inclusion in the registration statement on Form S-4 pursuant to which shares of
Parent Common Stock issued in the Mergers will be registered under the
Securities Act (the "Registration Statement"), shall not at the time the
Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances under
which they were made, not misleading. The information supplied by Doubletree for
inclusion in the joint proxy statement/prospectus to be sent to the stockholders
of Promus and Doubletree in connection with the meeting of Doubletree's
stockholders (the "Doubletree Stockholders' Meeting") and the meeting of
Promus's stockholders (the "Promus Stockholders' Meeting") to consider this
Agreement and the Mergers (the "Joint Proxy Statement/Prospectus") shall not, on
the date the Joint Proxy Statement/Prospectus is first mailed to stockholders of
Doubletree or Promus, at the time of the Doubletree Stockholders' Meeting and
the Promus Stockholders' Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, omit to
state any material fact necessary in order to make the statements made in the
Joint Proxy Statement/Prospectus not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Doubletree Stockholders'
Meeting or the Promus Stockholders' Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
Doubletree or any of its Affiliates, officers or directors should be discovered
by Doubletree which should be set forth in an amendment to the Registration
Statement or a supplement to the Joint Proxy Statement/ Prospectus, Doubletree
shall promptly inform Promus.
Section 3.17. LABOR MATTERS. Except as disclosed in the Doubletree SEC
Reports filed prior to the date hereof, neither Doubletree nor any of its
Subsidiaries is a party to or otherwise bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization, nor, as of the date hereof, is Doubletree or any of its
Subsidiaries the subject of any material proceeding asserting that Doubletree or
any of its Subsidiaries has committed an unfair labor practice or is seeking to
compel it to bargain with any labor union or labor organization nor, as of the
date of this Agreement, is there pending or, to the knowledge of the executive
officers of Doubletree, threatened, any material labor strike, dispute, walkout,
work stoppage, slow-down or lockout involving Doubletree or any of its
Subsidiaries.
Section 3.18. INSURANCE. All material fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies maintained by Doubletree or any of its Subsidiaries
are with reputable insurance carriers, provide full and adequate coverage for
all normal risks incident to the business of Doubletree and its Subsidiaries and
their respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Doubletree Material Adverse Effect.
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Section 3.19. DOUBLETREE LONG-RANGE PLANS. Doubletree has provided to
Promus copies of Doubletree's most recent long-range plans prepared in draft
form by Doubletree's management and Doubletree has not adopted any other
long-range plans since January 1, 1997.
Section 3.20. OPINION OF FINANCIAL ADVISOR. The financial advisor of
Doubletree, Morgan Stanley & Co. Incorporated, has delivered to Doubletree an
opinion dated the date of this Agreement to the effect that the Doubletree
Exchange Ratio is fair to the holders of Doubletree Common Stock from a
financial point of view.
Section 3.21. NO EXISTING DISCUSSIONS. As of the date hereof, Doubletree
is not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to an Acquisition Proposal (as defined in Section
5.3).
Section 3.22. SECTION 203 OF THE DGCL NOT APPLICABLE. The restrictions
contained in Section 203 of the DGCL applicable to a "business combination" (as
defined in DGCL Section 203) will not apply to the authorization, execution,
delivery and performance of this Agreement or the Stock Option Agreements by
Doubletree or the Stockholder Support Agreement by the parties thereto or the
consummation of the Doubletree Merger by Doubletree. No other "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation is applicable to Doubletree or (by reason of Doubletree's
participation therein) the Doubletree Merger or the other transactions
contemplated by this Agreement.
Section 3.23. DOUBLETREE RIGHTS PLAN. Under the terms of the Doubletree
Rights Plan, neither the execution of this Agreement, the Promus Stock Option
Agreement, the Stockholder Support Agreement, nor the transactions contemplated
hereby or thereby, will cause a Distribution Date to occur or cause the rights
issued pursuant to the Doubletree Rights Plan to become exercisable, and all
such rights shall become non-exercisable at the Effective Time.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PROMUS
Promus represents and warrants to Doubletree that the statements contained
in this Article IV are true and correct, except as set forth in the disclosure
schedule delivered by Promus to Doubletree on or before the date of this
Agreement (the "Promus Disclosure Schedule"). The Promus Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article IV and the disclosure in any paragraph
shall qualify other paragraphs in this Article IV only to the extent that it is
reasonably apparent from a reading of such document that it also qualifies or
applies to such other paragraphs.
Section 4.1. ORGANIZATION OF PROMUS. Each of Promus and its Subsidiaries
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power to own, lease and
operate its property and to carry on its business as now being conducted and as
proposed to be conducted, and is duly qualified to do business and is in good
standing as a foreign corporation or other entity in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
business, properties, financial condition or results of operations of Promus and
its Subsidiaries, taken as a whole (a "Promus Material Adverse Effect"). A true
and correct copy of the Certificate of Incorporation and Bylaws of Promus has
been delivered to Doubletree. Except as set forth in the Promus SEC Reports (as
defined in Section 4.4) filed prior to the date hereof, neither Promus nor any
of its Subsidiaries directly or indirectly owns (other than ownership interests
in Promus or in one or more of its Subsidiaries) any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding (i) securities in any publicly traded company held for investment by
Promus and comprising less than five percent (5%) of the outstanding stock of
such company and (ii) any investment or series of related investments with a
book value of less than $15 million.
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Section 4.2. PROMUS CAPITAL STRUCTURE.
(a) The authorized capital stock of Promus consists of 360,000,000 shares of
Common Stock, $.10 par value, 150,000 shares of Preferred Stock, $100.00 par
value ("Promus Preferred Stock") and 5,000,000 shares of Special Stock, par
value $1.12 1/2 ("Promus Special Stock"). As of the date hereof, (i) 49,896,911
shares of Promus Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable, and (ii) 1,580,101 additional
shares of Promus Common Stock were held in the treasury of Promus or by
Subsidiaries of Promus. The Promus Disclosure Schedule shows the number of
shares of Promus Common Stock reserved for future issuance pursuant to stock
options granted and outstanding as of the date hereof and the plans under which
such options were granted (collectively, the "Promus Stock Plans"). As of the
date of this Agreement, none of the shares of Promus Preferred Stock or Promus
Special Stock are issued and outstanding. There are no obligations, contingent
or otherwise, of Promus or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of Promus Common Stock or the capital stock of any
Subsidiary or to provide funds to or make any material investment (in the form
of a loan, capital contribution or otherwise) in any such Subsidiary or any
other entity other than guarantees of bank obligations or indebtedness for
borrowed money of Subsidiaries entered into in the ordinary course of business
and other than any obligation the failure of which to perform or satisfy would
not have a Promus Material Adverse Effect. All of the outstanding shares of
capital stock or other ownership interests of each of Promus's Subsidiaries are
duly authorized, validly issued, fully paid and nonassessable and all such
shares (other than directors' qualifying shares in the case of foreign
Subsidiaries) are owned by Promus or another Subsidiary of Promus free and clear
of all security interests, liens, claims, pledges, agreements, limitations in
Promus's voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 4.2 or as reserved for future grants
of options under the Promus Stock Plans or the Doubletree Stock Option
Agreement, and except for the preferred stock purchase rights issued and
issuable under the Rights Agreement dated as of June 30, 1995 between Promus and
Continental Stock Transfer & Trust Company (the "Promus Rights Plan"), (i) there
are no shares of capital stock of any class of Promus, or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding; (ii) there are no options, warrants, equity
securities, calls, rights, commitments or agreements of any character to which
Promus or any of its Subsidiaries is a party or by which it is bound obligating
Promus or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other ownership
interests of Promus or any of its Subsidiaries or obligating Promus or any of
its Subsidiaries to grant, extend, accelerate the vesting of or enter into any
such option, warrant, equity security, call, right, commitment or agreement; and
(iii) to the best knowledge of Promus, there are no voting trusts, proxies or
other voting agreements or understandings with respect to the shares of capital
stock of Promus. All shares of Promus Common Stock subject to issuance as
specified in this Section 4.2 are duly authorized and, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, shall be validly issued, fully paid and nonassessable.
Section 4.3. AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Promus has all requisite corporate power and authority to enter into
this Agreement, the Stock Option Agreements and the Stockholder Support
Agreement and to consummate the transactions contemplated by this Agreement, the
Stock Option Agreements and the Stockholder Support Agreement. The execution and
delivery of this Agreement, the Stock Option Agreements and the Stockholder
Support Agreement and the consummation of the transactions contemplated by this
Agreement, the Stock Option Agreements and the Stockholder Support Agreement by
Promus have been duly authorized by all necessary corporate action on the part
of Promus, subject only to the approval and adoption of this Agreement and the
Promus Merger by Promus's stockholders under the DGCL. This Agreement, the Stock
Option Agreements and the Stockholder Support Agreement have been duly executed
and delivered by Promus and constitute the valid and binding obligations of
Promus, enforceable in accordance with their terms, subject to the Bankruptcy
and Equity Exception.
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(b) The execution and delivery of this Agreement, the Stock Option
Agreements and the Stockholder Support Agreement by Promus does not, and the
consummation of the transactions contemplated by this Agreement, the Stock
Option Agreements and the Stockholder Support Agreement will not, (i) conflict
with, or result in any violation or breach of, any provision of the Certificate
of Incorporation or Bylaws of Promus or any of its Subsidiaries, (ii) result in
any violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any material benefit) under, or
require a consent or waiver under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which Promus or any of its Subsidiaries is a party
or by which any of them or any of their properties or assets may be bound (other
than pursuant to the Tranche A Credit Agreement or the Tranche B Credit
Agreement, each dated as of June 7, 1995, as amended, by and among Promus and
certain of its subsidiaries and NationsBank, N.A. (Carolinas)) or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Promus or any
of its Subsidiaries or any of its or their properties or assets, except in the
case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which (x) are not, individually or
in the aggregate, reasonably likely to have a Promus Material Adverse Effect or
(y) would not substantially impair or delay the consummation of the Promus
Merger.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Promus or any of its Subsidiaries in connection with the execution
and delivery of this Agreement, the Stock Option Agreements and the Stockholder
Support Agreement or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing of the pre-merger notification report under
the HSR Act, (ii) the filing of a Certificate of Merger with respect to the
Promus Merger with the Delaware Secretary of State, (iii) the filing of the
Joint Proxy Statement/Prospectus with the SEC in accordance with the Exchange
Act and the Securities Act, (iv) such consents, approvals, orders,
authorizations, permits, filings, or registrations related to, or arising out
of, compliance with statutes, rules or regulations regulating the consumption,
sale or serving of alcoholic beverages, (v) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country and (vi)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not (x) be reasonably likely to have a Promus
Material Adverse Effect or (y) substantially impair or delay the consummation of
the Promus Merger.
Section 4.4. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Promus has filed and made available to Doubletree all forms, reports and
documents required to be filed by Promus with the SEC since January 1, 1996
(collectively, the "Promus SEC Reports"). The Promus SEC Reports (i) at the time
filed, complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated in
such Promus SEC Reports or necessary in order to make the statements in such
Promus SEC Reports, in the light of the circumstances under which they were
make, not misleading. Other than Promus Hotels, Inc., none of Promus's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) of Promus contained in the Promus SEC Reports complied as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q under the Exchange Act) and fairly presented the consolidated
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financial position of Promus and its Subsidiaries as of the dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The audited balance sheet of Promus as of December 31,
1996 is referred to herein as the "Promus Balance Sheet."
Section 4.5. NO UNDISCLOSED LIABILITIES. Except as disclosed in the Promus
SEC Reports filed prior to the date hereof, and except for normal or recurring
liabilities incurred since December 31, 1996 in the ordinary course of business
consistent with past practices, Promus and its Subsidiaries do not have any
liabilities, either accrued, contingent or otherwise (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate, are reasonably likely to have a Promus Material Adverse
Effect.
Section 4.6. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Promus SEC Reports filed prior to the date hereof, since the date of the
Promus Balance Sheet, Promus and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any event, development,
state of affairs or condition, or series or combination of events, developments,
states of affairs or conditions, which, individually or in the aggregate, has
had or which is reasonably likely to have a Promus Material Adverse Effect
(other than events, developments, states of affairs or conditions that are the
effect or result of actions taken by Doubletree or economic factors affecting
the economy as a whole or the industry in which Promus competes); (ii) any
damage, destruction or loss (whether or not covered by insurance) with respect
to Promus or any of its Subsidiaries which is reasonably likely to have a Promus
Material Adverse Effect; (iii) any material change by Promus in its accounting
methods, principles or practices to which Doubletree has not previously
consented in writing; (iv) any revaluation by Promus of any of its assets which
is reasonably likely to have a Promus Material Adverse Effect; or (v) any other
action or event that would have required the consent of Doubletree pursuant to
Section 5.1 of this Agreement had such action or event occurred after the date
of this Agreement, other than such actions or events that, individually or in
the aggregate, have not had or are not reasonably likely to have a Promus
Material Adverse Effect.
Section 4.7. TAXES.
(a) Promus and each of its Subsidiaries have (i) filed all federal, state,
local and foreign Tax returns and reports required to be filed by them prior to
the date of this Agreement (taking into account all applicable extensions), (ii)
paid or accrued all Taxes due and payable, and (iii) paid or accrued all Taxes
for which a notice of assessment or collection has been received (other than
amounts being contested in good faith by appropriate proceedings), except in the
case of clauses (i), (ii) or (iii) for any such filings, payments or accruals
that are not reasonably likely, individually or in the aggregate, to have a
Promus Material Adverse Effect. Neither the IRS nor any other taxing authority
has asserted any claim for Taxes, or to the actual knowledge of the executive
officers of Promus, is threatening to assert any claims for Taxes, which claims,
individually or in the aggregate, are reasonably likely to have a Promus
Material Adverse Effect. Promus and each of its Subsidiaries have withheld or
collected and paid over to the appropriate governmental authorities (or are
properly holding for such payment) all Taxes required by law to be withheld or
collected, except for amounts that are not reasonably likely, individually or in
the aggregate, to have a Promus Material Adverse Effect. Neither Promus nor any
of its Subsidiaries has made an election under Section 341(f) of the Code,
except for any such election that shall not have a Promus Material Adverse
Effect. There are no liens for Taxes upon the assets of Promus or any of its
Subsidiaries (other than liens for Taxes that are not yet due or delinquent or
that are being contested in good faith by appropriate proceedings), except for
liens that are not reasonably likely, individually or in the aggregate, to have
a Promus Material Adverse Effect.
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(b) Neither Promus nor any of its Subsidiaries is or has been a member of an
affiliated group of corporations filing a consolidated federal income tax return
(or a group of corporations filing a consolidated, combined or unitary income
tax return under comparable provisions of state, local or foreign tax law) for
any taxable period beginning on or after February 7, 1990, other than a group
the common parent of which is or was The Promus Companies Incorporated, Promus
or any Subsidiary of Promus.
(c) Neither Promus nor any of its Subsidiaries has any obligation under any
agreement or arrangement with any other person with respect to Taxes of such
other person (including pursuant to Treas. Reg. Section 1.1502-6 or comparable
provisions of state, local or foreign tax law) and including any liability for
Taxes of any predecessor entity, except for obligations that are not reasonably
likely, individually or in the aggregate, to have an Promus Material Adverse
Effect.
Section 4.8. PROPERTIES.
(a) Neither Promus nor any of its Subsidiaries is in default under any
Material Leases, except where the existence of such defaults, individually or in
the aggregate, is not reasonably likely to have a Promus Material Adverse
Effect.
(b) With respect to each item of real property that Promus or any of its
Subsidiaries owns, except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Promus Material Adverse Effect:
(i) Promus or its Subsidiary has good and clear record and marketable title to
such property, insurable by a recognized national title insurance company at
standard rates, free and clear of any security interest, easement, covenant or
other restriction, except for recorded easements, covenants and other
restrictions which do not materially impair the current uses or occupancy of
such property; and (ii) the improvements constructed on such property are in
good condition, and all mechanical and utility systems servicing such
improvements are in good condition, free in each case of material defects.
Section 4.9. INTELLECTUAL PROPERTY. Promus owns, or is licensed or
otherwise possesses legally enforceable rights to use, all trademarks, trade
names, service marks, copyrights, and any applications for such trademarks,
trade names, service marks and copyrights, know-how, computer software programs
or applications, and tangible or intangible proprietary information or material
that are necessary to conduct the business of Promus as currently conducted,
subject to such exceptions that, individually and in the aggregate, would not be
reasonably likely to have a Promus Material Adverse Effect. Promus has no
knowledge of any assertion or claim challenging the validity of any of such
intellectual property.
Section 4.10. AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Promus has not breached, or received in writing any claim or notice that
it has breached, any of the terms or conditions of any material agreement,
contract or commitment filed as an exhibit to the Promus SEC Reports ("Promus
Material Contracts") in such a manner as, individually or in the aggregate, are
reasonably likely to have a Promus Material Adverse Effect. Each Promus Material
Contract that has not expired by its terms is in full force and effect.
(b) Without limiting Section 4.10(a), each of the management contracts and
franchise agreements to which Promus is a party and each of Promus's Material
Leases (i) is valid and binding in accordance with its terms and is in full
force and effect, (ii) neither Promus nor any of its Subsidiaries is in default
in any material respect thereof, nor does any condition exist that with notice
or lapses of time or both would constitute a material default thereunder, and
(iii) no party has given any written or (to the knowledge of Promus) oral notice
of termination or cancellation thereof or that such party intends to assert a
breach thereof, or seek to terminate or cancel, any such agreement, contract or
lease, in each case as a result of the transactions contemplated hereby, subject
to such exceptions that, individually and in the aggregate, would not be
reasonably likely to have a Promus Material Adverse Effect.
Section 4.11. LITIGATION. Except as described in the Promus SEC Reports
filed prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Promus pending or
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as to which Promus has received any written notice of assertion, which,
individually or in the aggregate, is reasonably likely to have a Promus Material
Adverse Effect or a material adverse effect on the ability of Promus to
consummate the transactions contemplated by this Agreement.
Section 4.12. ENVIRONMENTAL MATTERS. To the knowledge of Promus and except
as disclosed in the Promus SEC Reports filed prior to the date hereof and except
for such matters that, individually or in the aggregate, are not reasonably
likely to have a Promus Material Adverse Effect: (i) Promus and its Subsidiaries
have complied with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Promus and its Subsidiaries (including soils,
groundwater, surface water, buildings or other structures) are not contaminated
with any Hazardous Substances; (iii) the properties formerly owned or operated
by Promus or any of its Subsidiaries were not contaminated with Hazardous
Substances during the period of ownership or operation by Promus or any of its
Subsidiaries; (iv) neither Promus nor its Subsidiaries are subject to liability
for any Hazardous Substance disposal or contamination on any third party
property; (v) neither Promus nor any of its Subsidiaries has been associated
with any release or threat of release of any Hazardous Substance; (vi) neither
Promus nor any of its Subsidiaries has received any notice, demand, letter,
claim or request for information alleging that Promus or any of its Subsidiaries
may be in violation of or liable under any Environmental Law; (vii) neither
Promus nor any of its Subsidiaries is subject to any orders, decrees,
injunctions or other arrangements with any Governmental Entity or is subject to
any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; and (viii)
there are no circumstances or conditions involving Promus or any of its
Subsidiaries that could reasonably be expected to result in any claims,
liability, investigations, costs or restrictions on the ownership, use or
transfer of any property of Promus or any of its Subsidiaries pursuant to any
Environmental Law.
Section 4.13. EMPLOYEE BENEFIT PLANS.
(a) For purposes of this Agreement, the "Promus Employee Plans" shall mean
all employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of Promus or any ERISA Affiliate of
Promus, or any Subsidiary of Promus (together, the "Promus Employee Plans").
Promus has listed in Section 4.13 of the Promus Disclosure Schedule all Promus
Employee Plans other than plans that are "employee welfare benefit plans" within
the meaning of Section 3(1) of ERISA.
(b) With respect to each Promus Employee Plan, Promus has made available to
Doubletree, a true and correct copy of (i) the most recent annual report (Form
5500) filed with the IRS, (ii) such Promus Employee Plan and all amendments
thereto, (iii) each trust agreement and group annuity contract, if any, and all
amendments thereto relating to such Promus Employee Plan and (iv) the most
recent actuarial report or valuation relating to a Promus Employee Plan subject
to Title IV of ERISA.
(c) With respect to the Promus Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Promus, there exists
no condition or set of circumstances in connection with which Promus could be
subject to any liability that is reasonably likely to have a Promus Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Promus Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Promus, except for obligations which, individually or in the
aggregate, are not reasonably likely to have a Promus Material Adverse Effect.
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(e) Except as disclosed in the Promus SEC Reports filed prior to the date of
this Agreement, and except as provided for in this Agreement, neither Promus nor
any of its Subsidiaries is a party to any oral or written (i) agreement with any
officer or other key employee of Promus or any of its Subsidiaries, the benefits
of which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Promus of the nature contemplated by this
Agreement, (ii) agreement with any officer of Promus providing any term of
employment or compensation guarantee extending for a period longer than one year
from the date hereof or for the payment of compensation in excess of $100,000
per annum, or (iii) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, the vesting of the benefits of which
will be accelerated or the funding of benefits of which will be required, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
Section 4.14. COMPLIANCE WITH LAWS. Promus has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which, individually or in the aggregate, have
not had and are not reasonably likely to have a Promus Material Adverse Effect.
Section 4.15. ACCOUNTING AND TAX MATTERS.
(a) To the best knowledge of Promus, after consulting with its independent
auditors with respect to clause (i) below and its tax advisors with respect to
clause (ii) below, neither Promus nor any of its Affiliates (as defined in
Section 5.12) has taken or agreed to take any action which would (i) prevent
Parent from accounting for the business combination to be effected by the
Mergers as a pooling of interests, or (ii) prevent the Promus Merger from
qualifying as a reorganization described in Section 368(a) of the Code and/or,
taken together with the Doubletree Merger, as a transfer of property to Parent
by holders of Promus Common Stock described in Section 351 of the Code. Except
as contemplated by the Promus Option Agreement, neither Promus nor any of its
Subsidiaries owns any shares of Doubletree Common Stock or other securities
convertible into shares of Doubletree Common Stock (exclusive of any shares
owned by Promus's employee benefit plans).
(b) To the best knowledge of Promus, the stockholders of Promus as a group
have no present plan, intention or arrangement to sell or otherwise dispose of
such number of the shares of Parent Common Stock received in the Promus Merger
as would reduce their ownership in Parent Common Stock to a number of shares
having a value, as of the date of the Promus Merger, of less than eighty percent
(80%) of the value of all the formerly outstanding stock of Promus as of the
same date.
Section 4.16. REGISTRATION STATEMENT; JOINT PROXY
STATEMENT/PROSPECTUS. The information to be supplied by Promus for inclusion in
the Registration Statement shall not at the time the Registration Statement is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated in the Registration
Statement or necessary in order to make the statements in the Registration
Statement, in light of the circumstances under which they were made, not
misleading. The information to be supplied by Promus for inclusion in the Joint
Proxy Statement/ Prospectus shall not, on the date the Joint Proxy
Statement/Prospectus is first mailed to stockholders of Promus or Doubletree, at
the time of the Promus Stockholders' Meeting and the Doubletree Stockholder's
Meeting and at the Effective Time, contain any statement which, at such time and
in light of the circumstances under which it shall be made, is false or
misleading with respect to any material fact, omit to state any material fact
necessary in order to make the statements made in the Joint Proxy Statement/
Prospectus not false or misleading, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Promus Stockholders' Meeting or the Doubletree
Stockholders' Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Promus or any of its Affiliates,
officers or directors should be
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discovered by Promus which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement/Prospectus,
Promus shall promptly inform Doubletree.
Section 4.17. LABOR MATTERS. Except as disclosed in the Promus SEC Reports
filed prior to the date hereof, neither Promus nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor,
as of the date hereof, is Promus or any of its Subsidiaries the subject of any
material proceeding asserting that Promus or any of its Subsidiaries has
committed an unfair labor practice or is seeking to compel it to bargain with
any labor union or labor organization nor, as of the date of this Agreement, is
there pending or, to the knowledge of the executive officers of Promus,
threatened, any material labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving Promus or any of its Subsidiaries.
Section 4.18. INSURANCE. All material fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies maintained by Promus or any of its Subsidiaries are
with reputable insurance carriers, provide full and adequate coverage for all
normal risks incident to the business of Promus and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Promus Material Adverse Effect.
Section 4.19. PROMUS LONG-RANGE PLANS. Promus has provided to Doubletree
copies of Promus's long-range plans that are substantially identical to the
long-range plans presented by Promus's management to, and adopted by, the Board
of Directors of Promus on July 23, 1997, and Promus has not adopted any other
long-range plans since such date.
Section 4.20. OPINION OF FINANCIAL ADVISOR. The financial advisor of
Promus, BT Wolfensohn, has delivered to Promus an opinion dated the date of this
Agreement to the effect that the Promus Exchange Ratio is fair to holders of
Promus Common Stock from a financial point of view.
Section 4.21. NO EXISTING DISCUSSIONS. As of the date hereof, Promus is
not engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal.
Section 4.22. SECTION 203 OF THE DGCL NOT APPLICABLE. The restrictions
contained in Section 203 of the DGCL applicable to a "business combination" (as
defined in Section DGCL 203) will not apply to the authorization, execution,
delivery or performance of this Agreement or the Stock Option Agreements by
Promus or the consummation of the Promus Merger by Promus. No other "fair
price," "moratorium," "control share acquisition" or other similar anti-takeover
statute or regulation is applicable to Promus or (by reason of Promus's
participation therein) the Promus Merger or the other transactions contemplated
by this Agreement.
Section 4.23. PROMUS RIGHTS PLAN. Under the terms of the Promus Rights
Plan, neither the execution of this Agreement or the Doubletree Stock Option
Agreement, nor the transactions contemplated hereby or thereby will cause a
Distribution Date to occur or cause the rights issued pursuant to the Promus
Rights Plan to become exercisable, and all such rights shall become
non-exercisable at the Effective Time.
ARTICLE V.
COVENANTS
Section 5.1. CONDUCT OF BUSINESS. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Doubletree and Promus each agrees as to itself and its
respective Subsidiaries (except to the extent that the other party shall
otherwise consent in writing) to carry on its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted, to pay
its debts and taxes when due subject to good
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faith disputes over such debts or taxes, to pay or perform its other obligations
when due, and, to the extent consistent with such business, use all reasonable
efforts consistent with past practices and policies to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, and others having business dealings with it. Except as
expressly contemplated by this Agreement or the Stock Option Agreements or as
set forth in Section 5.1 of the Doubletree Disclosure Schedule, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Doubletree and Promus each
shall not (and shall not permit any of its respective Subsidiaries to), without
the written consent of the other party:
(a) Accelerate, amend or change the period of exercisability of options
or restricted stock granted under any employee stock plan of such party or
authorize cash payments in exchange for any options granted under any of
such plans except as required by the terms of such plans or any related
agreements (including severance agreements) in effect as of the date of this
Agreement;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock,
or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any termination of
service to such party;
(c) Issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than (i) the grant of options consistent with past
practices to employees or directors, which options represent in the
aggregate the right to acquire no more than 25,000 shares (net of
cancellations) of Doubletree Common Stock or Promus Common Stock, as the
case may be, (ii) the issuance of shares of Doubletree Common Stock or
Promus Common Stock, as the case may be, pursuant to the exercise of options
or warrants outstanding on the date of this Agreement, and (iii) the
issuance of capital stock under the Doubletree Rights Plan or the Promus
Rights Plan if required by the respective terms thereof;
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise acquire
or agree to acquire any assets (other than hotel properties, inventory and
other immaterial assets, in each case in the ordinary course of business);
(e) Sell, lease, license or otherwise dispose of any of its material
properties or assets, except for transactions (including sales, leases,
licenses or dispositions of hotel properties, inventory and other immaterial
assets) in the ordinary course of business;
(f) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees (other than officers) in accordance with past
practices, (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, any employees or
officers, (iii) enter into any collective bargaining agreement (other than
as required by law or extensions to existing agreements in the ordinary
course of business), (iv) establish, adopt, enter into or amend any bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, trust, fund, policy or arrangement for the benefit
of any directors, officers or employees;
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(g) Amend or propose to amend its Certificate of Incorporation or Bylaws
except as contemplated by this Agreement;
(h) Incur any indebtedness for borrowed money other than in the ordinary
course of business;
(i) Take any action that would or is reasonably likely to result in a
material breach of any provision of this Agreement or the Stock Option
Agreements or in any of its representations and warranties set forth in this
Agreement or the Stock Option Agreements being untrue on and as of the
Closing Date;
(j) Make or rescind any material express or deemed election relating to
Taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
Taxes, or make any material change to any of its methods of reporting income
or deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
December 31, 1996, except as may be required by applicable law;
(k) Settle any litigation relating to the transactions contemplated
hereby other than any settlement which would not (i) have a Doubletree
Material Adverse Effect (if settled by Doubletree), a Promus Material
Adverse Effect (if settled by Promus) or a material adverse effect on the
business, properties, financial condition or results of operations of Parent
(if settled by either Doubletree or Promus) or (ii) adversely effect the
consummation of the transactions contemplated hereby; or
(l) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (k) above.
Section 5.2. COOPERATION; NOTICE; CURE. Subject to compliance with
applicable law, from the date hereof until the Effective Time, each of
Doubletree and Promus shall confer on a regular and frequent basis with one or
more representatives of the other party to report on the general status of
ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Mergers and the transactions contemplated
hereby and thereby. Each of Doubletree and Promus shall promptly notify the
other in writing of, and will use all commercially reasonable efforts to cure
before the Closing Date, any event, transaction or circumstance, as soon as
practical after it becomes known to such party, that causes or will cause any
covenant or agreement of Doubletree or Promus under this Agreement to be
breached or that renders or will render untrue any representation or warranty of
Doubletree or Promus contained in this Agreement. No notice given pursuant to
this paragraph shall have any effect on the representations, warranties,
covenants or agreements contained in this Agreement for purposes of determining
satisfaction of any condition contained herein.
Section 5.3. NO SOLICITATION.
(a) Doubletree and Promus each shall not, directly or indirectly, through
any officer, director, employee, financial advisor, representative or agent of
such party (i) solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer for
a merger, consolidation, business combination, sale of substantial assets, sale
of shares of capital stock (including without limitation by way of a tender
offer) or similar transaction involving such party or any of its Subsidiaries,
other than the transactions contemplated by this Agreement (any of the foregoing
inquiries or proposals being referred to in this Agreement as an "Acquisition
Proposal"), (ii) engage in negotiations or discussions with any person (or group
of persons) other than Doubletree or Promus or their respective affiliates (a
"Third Party") concerning, or provide any non-public information to any person
or entity relating to, any Acquisition Proposal, or (iii) agree to or recommend
any Acquisition Proposal; provided, however, that nothing contained in this
Agreement shall prevent Doubletree or Promus, or their respective Board of
Directors, from (A) furnishing non-public information to, or entering into
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide
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written Acquisition Proposal by such person or entity or modifying or
withdrawing its recommendation with respect to the transactions contemplated
hereby or recommending an unsolicited bona fide written Acquisition Proposal to
the stockholders of such party, if and only to the extent that (1) the Board of
Directors of such party believes in good faith (after consultation with its
financial advisor) that such Acquisition Proposal is reasonably capable of being
completed on the terms proposed and, after taking into account the strategic
benefits anticipated to be derived from the Mergers and the prospects of
Doubletree and Promus as a combined company, would, if consummated, result in a
transaction more favorable to the stockholders of such party over the long term
than the transaction contemplated by this Agreement (a "Superior Proposal") and
the Board of Directors of such party determines in good faith after consultation
with outside legal counsel that such action is required for such Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law and (2) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, such Board of Directors
receives from such person or entity an executed confidentiality and standstill
agreement with terms no less favorable to such party than those contained in the
Confidentiality Agreements, each dated August 16, 1997 between Promus and
Doubletree (the "Confidentiality Agreements"); or (B) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal. Each
of Doubletree and Promus agrees not to release any third party from, or waive
any provision of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another person who has made, or who may
reasonably be considered likely to make, an Acquisition Proposal, unless its
Board of Directors determines in good faith after consultation with outside
legal counsel that such action is required for such Board of Directors to comply
with its fiduciary duties to stockholders under applicable law.
(b) Doubletree and Promus shall each notify the other party immediately
after receipt by Doubletree or Promus (or any of their advisors) of any
Acquisition Proposal or any request for nonpublic information in connection with
an Acquisition Proposal or for access to the properties, books or records of
such party by any person or entity that informs such party that it is
considering making, or has made, an Acquisition Proposal. Such notice shall be
made orally and in writing and shall indicate in reasonable detail the identity
of the offeror and the terms and conditions of such proposal, inquiry or
contact. Such party shall continue to keep the other party hereto informed, on a
current basis, of the status of any such discussions or negotiations and the
terms being discussed or negotiated.
Section 5.4. JOINT PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.
(a) As promptly as practical after the execution of this Agreement,
Doubletree and Promus shall prepare and file with the SEC the Joint Proxy
Statement/Prospectus and the Registration Statement in which the Joint Proxy
Statement/Prospectus will be included as a prospectus, provided that Doubletree
and Promus may delay the filing of the Registration Statement until approval of
the Joint Proxy Statement/ Prospectus by the SEC. Doubletree and Promus shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon after such filing as practical. The Joint Proxy
Statement/Prospectus shall include the recommendation of the Board of Directors
of Doubletree in favor of adoption of this Agreement and the Doubletree Merger
and the recommendation of the Board of Directors of Promus in favor of adoption
of this Agreement and the Promus Merger; provided that the Board of Directors of
either party may modify or withdraw such recommendation if such Board of
Directors believes in good faith after consultation with outside legal counsel
that the modification or withdrawal of such recommendation is required for such
Board of Directors to comply with its fiduciary duties under applicable law.
(b) Doubletree and Promus shall make all necessary filings with respect to
the Merger under the Securities Act, the Exchange Act, applicable state blue sky
laws and the rules and regulations thereunder.
Section 5.5. NASDAQ QUOTATION AND NYSE LISTING. Each of Doubletree and
Promus agrees to continue the quotation and listing of Doubletree Common Stock
and Promus Common Stock, respectively, on NASDAQ National Market and the NYSE,
respectively, during the term of this Agreement.
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Section 5.6. ACCESS TO INFORMATION. Upon reasonable notice, Doubletree and
Promus shall each (and shall cause each of their respective Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its personnel, properties, books,
contracts, commitments and records and, during such period, each of Doubletree
and Promus shall, and shall cause each of their respective Subsidiaries to,
furnish promptly to the other (a) copies of monthly financial reports and
development reports, (b) a copy of each report, schedule, registration statement
and other document filed or received by it during such period pursuant to the
requirements of federal securities laws and (c) all other information concerning
its business, properties and personnel as such other party may reasonably
request. The parties will hold any such information which is nonpublic in
confidence in accordance with the Confidentiality Agreements. No information or
knowledge obtained in any investigation pursuant to this Section 5.6 shall
affect or be deemed to modify any representation or warranty contained in this
Agreement or the conditions to the obligations of the parties to consummate the
Merger.
Section 5.7. STOCKHOLDERS' MEETINGS. Doubletree and Promus each shall call
a meeting of its respective stockholders to be held as promptly as practicable
for the purpose of voting, in the case of Doubletree, upon this Agreement and
the Doubletree Merger and, in the case of Promus, upon this Agreement and the
Promus Merger. Subject to Sections 5.3 and 5.4, Doubletree and Promus shall,
through their respective Boards of Directors, recommend to their respective
stockholders adoption of this Agreement and approval of such matters and shall
coordinate and cooperate with respect to the timing of such meetings and shall
use their best efforts to hold such meetings on the same day and as soon as
practicable after the date hereof. Unless otherwise required to comply with the
applicable fiduciary duties of the respective directors of Doubletree and
Promus, as determined by such directors in good faith after consultation with
outside legal counsel, each party shall use all reasonable efforts to solicit
from stockholders of such party proxies in favor of such matters. Doubletree and
Promus intend to submit additional proposals to their respective stockholders at
the Doubletree Stockholders' Meeting and the Promus Stockholders' Meeting,
respectively, separate from the proposals referred to in the first sentence of
this Section 5.7. The approval by Doubletree's stockholders or Promus's
stockholders, as the case may be, of such additional proposals shall not be a
condition to the closing of the Mergers under this Agreement.
Section 5.8. LEGAL CONDITIONS TO MERGER.
(a) Doubletree and Promus shall each use all reasonable efforts to (i) take,
or cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary and proper under applicable law to consummate and make
effective the transactions contemplated hereby as promptly as practicable, (ii)
obtain from any Governmental Entity or any other third party any consents,
licenses, permits, waivers, approvals, authorizations, or orders required to be
obtained or made by Doubletree or Promus or any of their Subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby including, without
limitation, the Mergers, and (iii) as promptly as practicable, make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Mergers required under (A) the Securities Act
and the Exchange Act, and any other applicable federal or state securities laws,
(B) the HSR Act and any related governmental request thereunder, and (C) any
other applicable law. Doubletree and Promus shall cooperate with each other in
connection with the making of all such filings, including providing copies of
all such documents to the non-filing party and its advisors prior to filing and,
if requested, to accept all reasonable additions, deletions or changes suggested
in connection therewith. Doubletree and Promus shall use their reasonable
efforts to furnish to each other all information required for any application or
other filing to be made pursuant to the rules and regulations of any applicable
law (including all information required to be included in the Joint Proxy
Statement/Prospectus and the Registration Statement) in connection with the
transactions contemplated by this Agreement.
(b) Doubletree and Promus agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use their respective reasonable efforts to
obtain any government clearances required for Closing
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(including through compliance with the HSR Act and any applicable foreign
government reporting requirements), to respond to any government requests for
information, and to contest and resist any action, including any legislative,
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether temporary,
preliminary or permanent) (an "Order") that restricts, prevents or prohibits the
consummation of the Mergers or any other transactions contemplated by this
Agreement. The parties hereto will consult and cooperate with one another, and
consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in connection
with proceedings under or relating to the HSR Act or any other federal, state or
foreign antitrust or fair trade law. Doubletree and Promus shall cooperate and
work together in any proceedings or negotiations with any Governmental Entity
relating to any of the foregoing. Notwithstanding anything to the contrary in
this Section 5.8, neither Doubletree nor Promus, nor any of their respective
Subsidiaries, shall be required to take any action that would reasonably be
expected to substantially impair the overall benefits expected, as of the date
hereof, to be realized from the consummation of the Mergers.
(c) Each of Doubletree and Promus shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties, and use, and
cause their respective Subsidiaries to use, all reasonable efforts to obtain any
third party consents related to or required in connection with the Mergers.
Section 5.9. PUBLIC DISCLOSURE. Doubletree and Promus shall agree on the
form and content of the initial press release regarding the transactions
contemplated hereby and thereafter shall consult with each other before issuing,
and use all reasonable efforts to agree upon, any press release or other public
statement with respect to any of the transactions contemplated hereby and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law.
Section 5.10. NONRECOGNITION EXCHANGE. From and after the date hereof and
until the Effective Time, neither Doubletree nor Promus, nor any of their
respective Subsidiaries or other Affiliates shall knowingly take any action, or
knowingly fail to take any action, that is reasonably likely to jeopardize the
treatment of either of the Mergers as a reorganization described in Section
368(a) of the Code and/or, taken together with the other of the Mergers, as a
transfer of property to Parent by holders of Doubletree Common Stock or Promus
Common Stock, as applicable, described in Section 351 of the Code.
Section 5.11. POOLING ACCOUNTING. From and after the date hereof and until
the Effective Time, neither Doubletree nor Promus, nor any of their respective
Subsidiaries or other Affiliates shall knowingly take any action, or knowingly
fail to take any action, that is reasonably likely to jeopardize the treatment
of the Mergers as a pooling of interests for accounting purposes.
Section 5.12. AFFILIATE AGREEMENTS. Upon the execution of this Agreement,
Doubletree and Promus will provide each other with a list of those persons who
are, in Doubletree's or Promus's respective reasonable judgment, "affiliates" of
Doubletree or Promus, respectively, within the meaning of Rule 145 (each such
person who is an "affiliate" of Doubletree or Promus within the meaning of Rule
145 is referred to as an "Affiliate") promulgated under the Securities Act
("Rule 145"). Doubletree and Promus shall provide each other such information
and documents as the other party shall reasonably request for purposes of
reviewing such list and shall notify the other party in writing regarding any
change in the identity of its Affiliates prior to the Closing Date. Doubletree
and Promus shall each use all reasonable efforts to deliver or cause to be
delivered to each other by October 15, 1997 (and in any case prior to the
Effective Time) from each of its Affiliates, an executed Affiliate Agreement, in
substantially the form of Exhibit F (with respect to affiliates of Doubletree)
or Exhibit G (with respect to affiliates of Promus) attached hereto (each, an
"Affiliate Agreement," and together, the "Affiliate Agreements").
Section 5.13. NYSE LISTING. Doubletree and Promus shall cause Parent to
promptly prepare and submit to the NYSE a listing application covering the
shares of Parent Common Stock to be issued in the Mergers and upon exercise of
Doubletree Stock Options, the GEPT Warrant and Promus Stock Options,
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and shall use all reasonable efforts to cause such shares to be approved for
listing on the NYSE, prior to the Effective Time, subject to official notice of
issuance.
Section 5.14. STOCK PLANS.
(a) At the Effective Time, each outstanding option to purchase shares of
Doubletree Common Stock (an "Doubletree Stock Option") under the Doubletree
Stock Plans and each outstanding option to purchase shares of Promus Common
Stock (a "Promus Stock Option") under the Promus Stock Plans, in each case
whether vested or unvested, shall be deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such Doubletree Stock
Option or Promus Stock Option, as the case may be, the same number of shares of
Parent Common Stock as the holder of such Doubletree Stock Option or Promus
Stock Option, as the case may be, would have been entitled to receive pursuant
to the Doubletree Merger or the Promus Merger, respectively, had such holder
exercised such option in full immediately prior to the Effective Time (rounded
downward to the nearest whole number), at a price per share (rounded downward to
the nearest whole cent) equal to (y) the aggregate exercise price for the shares
of Doubletree Common Stock or Promus Common Stock, as the case may be,
purchasable pursuant to such Doubletree Stock Option or such Promus Stock Option
immediately prior to the Effective Time divided by (z) the number of full shares
of Parent Common Stock deemed purchasable pursuant to such Doubletree Stock
Option or Promus Stock Option, as the case may be, in accordance with the
foregoing.
(b) As soon as practicable after the Effective Time, Parent shall deliver to
the participants in the Doubletree Stock Plans and the Promus Stock Plans
appropriate notice setting forth such participants' rights pursuant thereto and
the grants pursuant to Doubletree Stock Plans or Promus Stock Plans, as the case
may be, shall continue in effect on the same terms and conditions (subject to
the adjustments required by this Section 5.14 after giving effect to the
Mergers).
(c) Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery under
Doubletree Stock Plans and Promus Stock Plans assumed in accordance with this
Section 5.14. As soon as practicable after the Effective Time, Parent shall file
a registration statement on Form S-8 (or any successor or other appropriate
forms), or another appropriate form with respect to the shares of Parent Common
Stock subject to such options and shall use its reasonable efforts to maintain
the effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding.
(d) The Board of Directors of each of Doubletree and Promus shall, prior to
or as of the Effective Time, take all necessary actions, pursuant to and in
accordance with the terms of the Doubletree Stock Plans and the instruments
evidencing the Doubletree Stock Options, or the Promus Stock Plans and the
instruments evidencing the Promus Stock Options, as the case may be, to provide
for the conversion of the Doubletree Stock Options and the Promus Stock Options
into options to acquire Parent Common Stock in accordance with this Section 5.14
without obtaining consent of the holders of the Doubletree Stock Options or
Promus Stock Options in connection with such conversion; provided, however, that
Promus shall use all reasonable efforts to obtain from each holder of Promus
Stock Options a waiver of any right of such holder to receive any cash payment
which may become due with respect to any Promus Stock Options that are
exercisable immediately prior to the Effective Time as a result of the
consummation of the transactions contemplated hereby.
(e) The Board of Directors of each of Doubletree and Promus shall, prior to
or as of the Effective Time, take appropriate action to approve the deemed
cancellation of the Doubletree Stock Options or Promus Stock Options, as the
case may be, for purposes of Section 16(b) of the Exchange Act. The Board of
Directors of Parent shall, prior to or as of the Effective Time, take
appropriate action to approve the deemed grant of options to purchase Parent
Common Stock under the Doubletree Stock Options and the Promus Stock Options (as
converted pursuant to this Section 5.14) for purposes of Section 16(b) of the
Exchange Act.
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Section 5.15. BROKERS OR FINDERS. Each of Doubletree and Promus
represents, as to itself, its Subsidiaries and its Affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement
except Morgan Stanley & Co. Incorporated, whose fees and expenses will be paid
by Doubletree in accordance with Doubletree's agreement with such firm (a copy
of which has been delivered by Doubletree to Promus prior to the date of this
Agreement), and BT Wolfensohn, whose fees and expenses will be paid by Promus in
accordance with Promus's agreement with such firm (a copy of which has been
delivered by Promus prior to the date of this Agreement). Each of Promus and
Doubletree agrees to indemnify and hold the other harmless from and against any
and all claims, liabilities or obligations with respect to any such fees,
commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or any of its Affiliates.
Section 5.16. INDEMNIFICATION.
(a) From and after the Effective Time, Parent agrees that it will, and will
cause the Surviving Corporations to, indemnify and hold harmless each present
and former director and officer of Doubletree and Promus (the "Indemnified
Parties"), 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
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Doubletree or Promus, as the case may be, would
have been permitted under Delaware law and its certificate of incorporation or
bylaws in effect on the date hereof to indemnify such Indemnified Party (and
Parent and the Surviving Corporation shall also advance expenses as incurred to
the fullest extent permitted under applicable law, provided the Indemnified
Party to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Indemnified Party is not
entitled to indemnification).
(b) For a period of six years after the Effective Time, Parent shall
maintain or shall cause the Surviving Corporations to maintain (to the extent
available in the market) in effect a directors' and officers' liability
insurance policy covering those persons who are currently covered by
Doubletree's or Promus's directors' and officers' liability insurance policy
(copies of which have been heretofore delivered by Doubletree and Promus to each
other) with coverage in amount and scope at least as favorable as Doubletree's
or Promus's existing coverage; provided that in no event shall Parent or the
Surviving Corporations be required to expend in the aggregate in excess of 200%
of the annual premium currently paid by Doubletree and Promus for such coverage;
and if such premium would at any time exceed 200% of the such amount, then the
Parent or the Surviving Corporations 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 5.16 are intended to be an addition to
the rights otherwise available to the current officers and directors of
Doubletree and Promus by law, charter, statute, bylaw or agreement, and shall
operate for the benefit of, and shall be enforceable by, each of the Indemnified
Parties, their heirs and their representatives.
Section 5.17. LETTER OF PROMUS'S ACCOUNTANTS. Promus shall use all
reasonable efforts to cause to be delivered to Doubletree and Promus a letter of
Arthur Andersen LLP, Promus's independent auditors, dated a date within two
business days before the date on which the Registration Statement shall become
effective and addressed to Doubletree, in form reasonably satisfactory to
Doubletree and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
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Section 5.18. LETTER OF DOUBLETREE'S ACCOUNTANTS. Doubletree shall use all
reasonable efforts to cause to be delivered to Promus and Doubletree a letter of
KPMG Peat Marwick LLP, Doubletree's independent auditors, dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to Promus, in form reasonably satisfactory to
Promus and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement.
Section 5.19. STOCK OPTION AGREEMENTS. Promus and Doubletree each agree to
fully perform their respective obligations under the Stock Option Agreements.
Section 5.20. POST-MERGER CORPORATE GOVERNANCE; EMPLOYMENT ARRANGEMENTS.
(a) At the Effective Time, the total number of persons serving on the Board
of Directors of Parent shall be fourteen (unless otherwise agreed in writing by
Doubletree and Promus prior to the Effective Time), half of whom shall be
Doubletree Directors and half of whom shall be Promus Directors (as such terms
are defined below), all of which Doubletree Directors and Promus Directors shall
be spread as evenly as possible among Parent's three classes of Directors. The
persons to serve initially on the Board of Directors of Parent at the Effective
Time who are Doubletree Directors shall be selected solely by and at the
absolute discretion of the Board of Directors of Doubletree prior to the
Effective Time; and the persons to serve initially on the Board of Directors of
Parent at the Effective Time who are Promus Directors shall be selected solely
by and at the absolute discretion of the Board of Directors of Promus prior to
the Effective Time. In the event that, prior to the Effective Time, any person
so selected to serve on the Board of Directors of Parent after the Effective
Time is unable or unwilling to serve in such position, the Board of Directors
which selected such person shall designate another of its members to serve in
such person's stead in accordance with the provisions of the immediately
preceding sentence. From and after the Effective Time and until December 31,
2002, (a) the Board of Directors of Parent and each Committee of the Board of
Directors of Parent as constituted following each election of Directors shall
consist of an equal number of Doubletree Directors and Promus Directors, and (b)
the size of the Board of Directors of Parent and each Committee of the Board of
Directors of Parent shall not be increased unless such increase is approved by
75% of the members thereof. It is the intention of the parties hereto that Mr.
Dale Frey shall be designated as the initial Chairman of the Human Resources
Committee of Parent immediately following the Effective Time. If, at any time
during the period referenced in the second preceding sentence, the number of
Doubletree Directors and Promus Directors serving, or that would be serving
following the next stockholders' meeting at which Directors are to be elected,
as Directors of Parent or as members of any Committee of the Board of Directors
of Parent, would not be equal, then, subject to the fiduciary duties of the
Directors of Parent, the Board of Directors and the Nominating Committee thereof
shall nominate for election at the next stockholders' meeting at which Directors
are to be elected, such person or persons as may be requested by the remaining
Doubletree Directors (if the number of Doubletree Directors is, or would
otherwise become, less than the number of Promus Directors) or by the remaining
Promus Directors (if the number of Promus Directors is, or would otherwise
become, less than the number of Doubletree Directors) to ensure that there shall
be an equal number of Doubletree Directors and Promus Directors. The provisions
of the preceding sentence shall not apply in respect of any stockholders'
meeting which takes place after December 31, 2002. The term "Doubletree
Director" means (i) any person serving as a Director of Doubletree or any of its
Subsidiaries on the date hereof who becomes a Director of Parent at the
Effective Time and (ii) any person who becomes a Director of Parent pursuant to
the second preceding sentence and who is designated by the Doubletree Directors;
and the term "Promus Director" means (i) any person serving as a Director of
Promus or any of its Subsidiaries on the date hereof who becomes a Director of
Parent at the Effective Time and (ii) any person who becomes a Director of
Parent pursuant to the second preceding sentence and who is designated by the
Promus Directors.
(b) At the Effective Time, pursuant to the terms of the employment contracts
referred to in Section 5.20(c) hereof, (i) Raymond E. Schultz, the current Chief
Executive Officer of Promus, shall hold
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the position of Chief Executive Officer and Chairman of the Board of Parent,
(ii) Richard M. Kelleher, the current President and Chief Executive Officer of
Doubletree, shall hold the position of President and Chief Operating Officer of
Parent, (iii) William L. Perocchi, the current Executive Vice President and
Chief Financial Officer of Doubletree, shall hold the position of Executive Vice
President and Chief Financial Officer of Parent and (iv) Thomas L. Keltner, the
current Executive Vice President, Development of Promus, shall hold the position
of Executive Vice President, Development of Parent. Mr. Schultz will continue as
Chairman of the Board and Chief Executive Officer of Parent until his retirement
no later than December 31, 1999, and, pursuant to the terms of the employment
contracts referred to in Section 5.20(c) hereof and subject to the Bylaws of
Parent, Mr. Kelleher will succeed Mr. Schultz as Chairman of the Board and Chief
Executive Officer of Parent. If any of the persons identified above in this
Section 5.20(b) is unable or unwilling to hold such offices as set forth above,
his successor shall be selected by the Board of Directors of Parent in
accordance with the Bylaws of Parent. The authority, duties and responsibilities
of the Chairman and Chief Executive Officer, the President and Chief Operating
Officer, the Executive Vice President and Chief Financial Officer and the
Executive Vice President, Development shall be set forth in the employment
contracts entered into pursuant to Section 5.20(c) hereof, which employment
contracts shall also set forth in their entirety the rights and remedies of
Messrs. Schultz, Kelleher, Perocchi and Keltner with respect to employment by
Parent , and none of them shall have any right, remedy or cause of action under
this Section 5.20, nor shall they be third party beneficiaries of this Section
5.20.
(c) Prior to the Closing, Parent shall offer to enter into employment
agreements with Raymond E. Schultz, Richard M. Kelleher, William L. Perocchi and
Thomas L. Keltner on substantially the terms previously agreed to by Doubletree
and Promus.
(d) At the Effective Time, Parent shall have an Executive Committee which
initially will be comprised of the following four members of the Board of
Directors of Parent: Richard J. Ferris, Michael D. Rose, Raymond E. Schultz and
Peter V. Ueberroth. In addition, Richard M. Kelleher shall be an ex-officio
member of the Executive Committee with the right to attend but not vote at all
meetings of the Executive Committee. The Executive Committee shall have
responsibility for developing Parent's long-term strategic plans, making
significant capital allocation decisions and such other duties and
responsibilities as specified by the Board of Directors of Parent at or after
the Effective Time. The Executive Committee also shall be required to oversee
the implementation of Promus's existing 100% guest satisfaction guarantee
program at all of Promus's and Doubletree's hotel properties following the
Effective Time. Each member of the Executive Committee that is not an employee
of Parent will be entitled to receive $300,000 per year as compensation for
serving on the Executive Committee.
(e) Each of Doubletree and Promus shall cause Parent to incorporate the
provisions contained in this Section 5.20 into the Bylaws of Parent in effect at
the Effective Time, which provisions shall thereafter be amended only with the
approval of 75% of the members of the Board of Directors of Parent.
Section 5.21. NAME OF PARENT. At the Effective Time, Parent shall change
its corporate name to Promus Hotel Corporation.
Section 5.22. PARENT STOCKHOLDER RIGHTS PLAN. Prior to the Effective Time,
Doubletree and Promus shall cause Parent to adopt a Stockholder Rights Plan (the
"Parent Rights Plan") that is substantially similar to the Promus Rights Plan,
with such modifications as are acceptable to both Doubletree and Promus.
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Section 5.23. GEPT WARRANT; DOUBLETREE REGISTRATION RIGHTS AGREEMENT
(a) At the Effective Time, Parent shall assume all obligations under the
GEPT Warrant, and the holder of the GEPT Warrant thereafter shall have the right
to acquire, on the same pricing and payment terms and conditions as are
currently applicable under the GEPT Warrant, the same number of shares of Parent
Common Stock as the holder of the GEPT Warrant would have been entitled to
receive pursuant to the Doubletree Merger had such holder exercised the GEPT
Warrant in full immediately prior to the Effective Time (rounded downward to the
nearest whole number), at the price per share (rounded downward to the nearest
whole cent) equal to (y) the aggregate exercise price for the shares of
Doubletree Common Stock purchasable pursuant to the GEPT Warrant immediately
prior to the Effective Time divided by (z) the number of full shares of Parent
Common Stock deemed purchasable pursuant to the GEPT Warrant in accordance with
the foregoing.
(b) At the Effective Time, Doubletree and Promus shall cause Parent to enter
into a Registration Rights Agreement (the "Parent Registration Rights
Agreement") substantially similar to the Incorporation and Registration Rights
Agreement dated as of December 16, 1993, as amended on June 30, 1994, February
27, 1996 and November 8, 1996 by and among Doubletree and certain stockholders
of Doubletree (the "Doubletree Registration Rights Agreement") pursuant to which
Parent will provide registration rights to parties to the Doubletree
Registration Rights Agreement (other than Doubletree) with respect to all shares
of Parent Common Stock issued in the Doubletree Merger on account of the shares
of Doubletree Common Stock covered by the Doubletree Registration Rights
Agreement.
Section 5.24. CONVEYANCE TAXES. Doubletree and Promus shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees or any similar taxes which become payable
in connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time.
Section 5.25. TRANSFER TAXES. Doubletree shall pay, and Promus shall pay,
on behalf of the stockholders of Doubletree and Promus, respectively, any New
York State Real Estate Transfer Tax, New York City Real Property Transfer Tax,
New York State Stock Transfer Tax and any similar taxes imposed on the
stockholders of Doubletree and Promus, respectively, by any other State of the
United States (and any interest with respect to such taxes) (the "Transfer
Taxes"), which become payable in connection with the transactions contemplated
by this Agreement. Doubletree and Promus shall cooperate in the preparation,
execution and filing of any required returns with respect to such Transfer Taxes
(including returns on behalf of the stockholders of Doubletree and Promus) and
in the determination of the portion of the consideration allocable to the real
property of Doubletree and the Doubletree Subsidiaries and Promus and the Promus
Subsidiaries in New York State and City (or in any other jurisdiction, if
applicable). The Joint Proxy Statement/Prospectus shall provide that the
stockholders of Doubletree and Promus shall be deemed to have (i) authorized
Doubletree and Promus, respectively, to prepare, execute and file any tax
returns relating to Transfer Taxes and pay any Transfer Taxes arising in
connection with the Mergers, in each case, on behalf of such holders and (ii)
agreed to be bound by the values and allocations established by Doubletree and
Promus in the preparation of any return with respect to the Transfer Taxes, if
applicable.
Section 5.26. STOCKHOLDER LITIGATION. Each of Doubletree and Promus shall
give the other the reasonable opportunity to participate in the defense of any
stockholder litigation against Doubletree or Promus, as applicable, and its
directors relating to the transactions contemplated hereby.
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Section 5.27. EMPLOYEE BENEFITS; SEVERANCE.
(a) Parent shall cause to continue to be maintained the Doubletree and
Promus annual bonus plans for management employees for the 1997 fiscal year and
shall calculate the amounts payable to participants thereunder on a basis
consistent with the terms of each such plan and the past practice of Doubletree
or Promus, as applicable.
(b) For purposes of determining eligibility to participate, vesting,
entitlement to benefits and in all other respects where length of service is
relevant (except for pension benefit accruals) under any employee benefit plan
or arrangement covering employees of Doubletree and its Subsidiaries
("Doubletree Employees") employees of Promus and its Subsidiaries ("Promus
Employees") following the Effective Time, Parent shall cause such plans or
arrangements to recognize service credit for service with Doubletree or Promus
(as applicable) and any of their respective Subsidiaries to the same extent such
service was recognized under the applicable employee benefit plans immediately
prior to the Effective Time.
(c) At the Effective Time, Parent shall assume and honor in accordance with
their terms the severance agreements and severance pay policies identified in
Section 5.27 of the Doubletree Disclosure Schedule and Section 5.27 of the
Promus Disclosure Schedule.
(d) Promus and Doubletree agree that each may enter into retention and
transition bonus arrangements with its employees prior to the Effective Time,
with the terms and amounts of such payments to be determined jointly by the
Chief Executive Officers of Promus and Doubletree; provided, however, that in no
event shall the aggregate of all such payments exceed approximately $2.5
million.
(e) Promus agrees to use all reasonable efforts, including obtaining any
necessary employee consents, to prevent the automatic funding of any escrow,
trust or similar arrangement pursuant to any employment agreement, arrangement
or benefit plan that arises in connection with the execution of this Agreement
or the consummation of any of the transactions contemplated hereby.
ARTICLE VI.
CONDITIONS TO MERGER
Section 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGERS. The respective obligations of each party to this Agreement to effect
the Mergers shall be subject to the satisfaction or waiver by each party prior
to the Effective Time of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement, the Doubletree Merger and
the Promus Merger shall have been approved in the manner required under the
DGCL by the respective holders of the issued and outstanding shares of
capital stock of Doubletree and Promus.
(b) HSR ACT. The waiting period applicable to the consummation of the
Mergers under the HSR Act shall have expired or been terminated.
(c) APPROVALS. Other than the filing provided for by Section 1.4, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
the failure of which to file, obtain or occur is reasonably likely to have a
Doubletree Material Adverse Effect or a Promus Material Adverse Effect shall
have been filed, been obtained or occurred.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order.
(e) NO INJUNCTIONS. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay, decree,
judgment or injunction or statute, rule,
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regulation which is in effect and which has the effect of making the Mergers
illegal or otherwise prohibiting consummation of the Mergers.
(f) POOLING LETTERS. Doubletree and Promus shall have received letters
from KPMG Peat Marwick LLP and Arthur Andersen LLP, respectively, addressed
to Doubletree and Promus, respectively, regarding their concurrence with the
respective conclusions of management of Doubletree and Promus, as to the
appropriateness of the pooling of interests accounting, under Accounting
Principles Board Opinion No. 16 for the transactions contemplated hereby, it
being agreed that Doubletree and Promus shall each provide reasonable
cooperation to KPMG Peat Marwick LLP and Arthur Andersen LLP to enable them
to issue such letters.
(g) NYSE LISTING. The shares of Parent Common Stock to be issued in
the Merger and upon exercise of Doubletree Options, the GEPT Warrant and
Promus Options shall have been approved for listing on the NYSE, subject to
official notice of issuance.
(h) CORPORATE GOVERNANCE. Doubletree and Promus shall have taken all
actions necessary so that (i) not later than the Effective Time, the
Certificate of Incorporation and Bylaws of Parent shall have been amended to
be substantially in the form of Exhibit D and Exhibit E hereto; (ii) at the
Effective Time, the composition of the Board of Directors of Parent and of
each Committee of the Board of Directors of Parent shall comply with Section
5.20 hereof (assuming Doubletree has designated the Doubletree Directors and
Promus has designated the Promus Directors, in each case as contemplated by
Section 5.20(a) hereof); and (iii) not later than the Effective Time, Parent
shall have adopted the Parent Rights Plan.
Section 6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF DOUBLETREE. The
obligation of Doubletree to effect the Doubletree Merger is subject to the
satisfaction of each of the following conditions prior to the Effective Time,
any of which may be waived in writing exclusively by Doubletree:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Promus set forth in this Agreement shall be true and correct as of the
date of this Agreement and (except to the extent such representations speak
as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date, except for, (i) changes contemplated by this Agreement and
(ii) inaccuracies which, individually or in the aggregate, have not had and
are not reasonably likely to have a Promus Material Adverse Effect or a
material adverse effect upon the consummation of the transactions
contemplated hereby; and Doubletree shall have received a certificate signed
on behalf of Promus by the chief executive officer and the chief financial
officer of Promus to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PROMUS. Promus shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Doubletree shall
have received a certificate signed on behalf of Promus by the chief
executive officer and the chief financial officer of Promus to such effect.
(c) TAX OPINION. Doubletree shall have received the opinion of Dewey
Ballantine, counsel to Doubletree, based upon reasonably requested
representation letters and dated the Closing Date, to the effect that the
Doubletree Merger will be treated as a reorganization described in Section
368(a) of the Code and/or, taken together with the Promus Merger, as a
transfer of property to Parent by holders of Doubletree Common Stock
described in Section 351 of the Code.
(d) NO TRIGGER OF PROMUS RIGHTS PLAN. No event shall have occurred
that has or would result in the triggering of any right or entitlement of
stockholders of Promus under the Promus Rights Plan, or will occur as a
result of the consummation of the Mergers.
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Section 6.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PROMUS. The
obligations of Promus to effect the Promus Merger are subject to the
satisfaction of each of the following conditions prior to the Effective Time,
any of which may be waived in writing exclusively by Promus:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Doubletree set forth in this Agreement shall be true and correct as of
the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date, except for, (i) changes contemplated by
this Agreement and (ii) inaccuracies which, individually or in the
aggregate, have not had and are not reasonably likely to have a Doubletree
Material Adverse Effect, or a material adverse effect upon the consummation
of the transactions contemplated hereby; and Promus shall have received a
certificate signed on behalf of Doubletree by the chief executive officer
and the chief financial officer of Doubletree to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF DOUBLETREE. Doubletree shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date; and Promus shall
have received a certificate signed on behalf of Doubletree by the chief
executive officer and the chief financial officer of Doubletree to such
effect.
(c) TAX OPINION. Promus shall have received the opinion of Latham &
Watkins, counsel to Promus, based upon reasonably requested representation
letters and dated the Closing Date, to the effect that the Promus Merger
will be treated as a reorganization described in Section 368(a) of the Code
and/or, taken together with the Doubletree Merger, as a transfer of property
to Parent by holders of Promus Common Stock described in Section 351 of the
Code.
(d) NO TRIGGER OF DOUBLETREE RIGHTS PLAN. No event shall have occurred
that has or would result in the triggering of any right or entitlement of
stockholders of Doubletree under the Doubletree Rights Plan, or will occur
as a result of the consummation of the Mergers.
ARTICLE VII.
TERMINATION AND AMENDMENT
Section 7.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 7.1(b) through 7.1(h), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Mergers by the
stockholders of Doubletree or Promus:
(a) by mutual written consent of Doubletree and Promus; or
(b) by either Doubletree or Promus if the Mergers shall not have been
consummated by January 31, 1998 (provided that (i) either Doubletree or
Promus may extend such date to March 31, 1998 by providing written notice
thereof to the other party on or prior to January 31, 1998 (January 31,
1998, as it may be so extended, shall be referred to herein as the "Outside
Date") and (ii) the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the
failure of the Mergers to occur on or before such date); or
(c) by either Doubletree or Promus if a court of competent jurisdiction
or other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other nonappealable final action, in each case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Mergers; or
(d) (i) by Doubletree or Promus, if, at the Promus Stockholders' Meeting
(including any adjournment or postponement), the requisite vote of the
stockholders of Promus in favor of the approval and adoption of this
Agreement and the Promus Merger shall not have been obtained; or
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(ii) by Promus or Doubletree if, at the Doubletree Stockholders' Meeting
(including any adjournment or postponement), the requisite vote of the
stockholders of Doubletree in favor of the approval and adoption of this
Agreement and the Doubletree Merger shall not have been obtained; or
(e) by Doubletree, if (i) the Board of Directors of Promus shall have
withdrawn or modified its recommendation of this Agreement or the Promus
Merger (provided that Doubletree's right to terminate this Agreement under
such clause (i) shall not be available if at such time Promus would be
entitled to terminate this Agreement under Section 7.1(h) without giving
effect to the cure period); (ii) after the receipt by Promus of an
Acquisition Proposal, Doubletree requests in writing that the Board of
Directors of Promus reconfirm its recommendation of this Agreement and the
Promus Merger to the stockholders of Promus and the Board of Directors of
Promus fails to do so within 10 business days after its receipt of
Doubletree's request; (iii) the Board of Directors of Promus shall have
recommended to the stockholders of Promus an Alternative Transaction (as
defined in Section 7.3(e)); (iv) a tender offer or exchange offer for 20% or
more of the outstanding shares of Promus Common Stock is commenced (other
than by Doubletree or an Affiliate of Doubletree) and the Board of Directors
of Promus recommends that the stockholders of Promus tender their shares in
such tender or exchange offer; or (v) for any reason Promus fails to call
and hold the Promus Stockholders' Meeting by the Outside Date (provided that
Doubletree's right to terminate this Agreement under such clause (v) shall
not be available if at such time Promus would be entitled to terminate this
Agreement under Section 7.1(h) without giving effect to the cure period); or
(f) by Promus, if (i) the Board of Directors of Doubletree shall have
withdrawn or modified its recommendation of this Agreement or the Doubletree
Merger (provided that Promus's right to terminate this Agreement under such
clause (i) shall not be available if at such time Doubletree would be
entitled to terminate this Agreement under Section 7.1(h) without giving
effect to the cure period); (ii) after the receipt by Doubletree of an
Acquisition Proposal, Promus requests in writing that the Board of Directors
of Doubletree reconfirm its recommendation of this Agreement and the
Doubletree Merger to the stockholders of Promus and the Board of Directors
of Doubletree fails to do so within 10 business days after its receipt of
Promus's request; (iii) the Board of Directors of Doubletree shall have
recommended to the stockholders of Doubletree an Alternative Transaction (as
defined in Section 7.3(e)); (iv) a tender offer or exchange offer for 20% or
more of the outstanding shares of Doubletree Common Stock is commenced
(other than by Promus or an Affiliate of Promus) and the Board of Directors
of Doubletree recommends that the stockholders of Doubletree tender their
shares in such tender or exchange offer; or (v) for any reason Doubletree
fails to call and hold the Doubletree Stockholders' Meeting by the Outside
Date (provided that Promus's right to terminate this Agreement under such
clause (v) shall not be available if at such time Doubletree would be
entitled to terminate this Agreement under Section 7.1(h) without giving
effect to the cure period); or
(g) by Doubletree or Promus, prior to the approval of this Agreement by
the stockholders of such party, if, as a result of a Superior Proposal
received by such party from a Third Party, the Board of Directors of such
party determines in good faith after consultation with outside legal counsel
that accepting such Superior Proposal is required for such Board of
Directors to comply with its fiduciary duties to stockholders under
applicable law; provided, however, that no termination shall be effective
pursuant to this Section 7.1(g) under circumstances in which a termination
fee is payable by the terminating party pursuant to Section 7.3(b)(iii) or
(c)(iii), unless concurrently with such termination, such termination fee is
paid in full by the terminating party in accordance with Section 7.3(b)(iii)
or (c)(iii), as applicable; or
(h) by Doubletree or Promus, if (A) there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach (i) will cause the
conditions set forth in Section 6.2(a) or (b) (in the case of termination by
Doubletree) or 6.3(a) or (b) (in the case of termination by Promus) not to
be satisfied, and (ii) shall not have been cured within 20 business days
following receipt by the breaching party of written notice of such breach
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from the other party; or (B) any event shall have occurred which makes it
impossible for the conditions set forth in Article VI hereof (other than
Section 6.1(a), 6.1(e), 6.2(d) and 6.3(d)) to be satisfied, provided that
any termination pursuant to this clause (B) shall not be effective until 20
business days after notice thereof is delivered by the party seeking to
terminate to the other party, and shall be automatically rescinded if (1)
such condition is solely for the benefit of the party receiving such notice
and (2) such party, prior to such 20th business day, irrevocably waives
satisfaction of such condition based on such event.
Section 7.2. EFFECT OF TERMINATION. In the event of termination of
this Agreement as provided in Section 7.1, this Agreement shall immediately
become void and there shall be no liability or obligation on the part of
Doubletree, Promus, Parent or their respective officers, directors,
stockholders or Affiliates, except as set forth in Sections 5.15 and 7.3 and
except that such termination shall not limit liability for a willful breach
of this Agreement; provided that, the provisions of Sections 5.15 and 7.3 of
this Agreement, the Stock Option Agreements and the Confidentiality
Agreements shall remain in full force and effect and survive any termination
of this Agreement.
Section 7.3. FEES AND EXPENSES.
(a) Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not
the Mergers are consummated.
(b) Doubletree shall pay Promus a termination fee of $45 million upon
the earliest to occur of the following events:
(i) the termination of this Agreement by either Promus or Doubletree
pursuant to Section 7.1(d)(ii), if a proposal for an Alternative
Transaction (as defined below) involving Doubletree shall have been
publicly announced prior to the Doubletree Stockholders' Meeting and
either a definitive agreement for an Alternative Transaction is entered
into, or an Alternative Transaction is consummated, within eighteen
months of such termination;
(ii) the termination of this Agreement by Promus pursuant to Section
7.1(f); or
(iii) the termination of this Agreement by Doubletree pursuant to
Section 7.1(g).
Doubletree's payment of a termination fee pursuant to this subsection
shall be the sole and exclusive remedy of Promus against Doubletree and any
of its Subsidiaries and their respective directors, officers, employees,
agents, advisors or other representatives with respect to the occurrences
giving rise to such payment; provided that this limitation shall not apply
in the event of a willful breach of this Agreement by Doubletree.
Notwithstanding the foregoing, if and to the extent that Promus has
purchased shares of Doubletree Common Stock pursuant to the Promus Stock
Option Agreement prior to the payment of the $45 million fee provided for
herein (the "Fee Payment Date"), the amount payable to Promus under this
Section 7.3(b), together with (i)(x) the net cash amount received by Promus
prior to the Fee Payment Date pursuant to Doubletree's repurchase of Shares
(as defined in the Promus Stock Option Agreement) pursuant to Section 7 of
the Promus Stock Option Agreement, less (y) Promus's purchase price for such
Shares, and (ii)(x) the amounts received by Promus prior to the Fee Payment
Date pursuant to the sale of Shares (or any other securities into which such
Shares are converted or exchanged), less (y) Promus's purchase price for
such Shares, shall not exceed $65 million.
(c) Promus shall pay Doubletree a termination fee of $45 million upon
the earliest to occur of the following events:
(i) the termination of this Agreement by either Doubletree or Promus
pursuant to Section 7.1(d)(i), if a proposal for an Alternative
Transaction (as defined below) involving Promus shall have been publicly
announced prior to the Promus Stockholders' Meeting and either an
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Alternative Transaction is entered into, or an Alternative Transaction is
consummated, within eighteen months of such termination;
(ii) the termination of this Agreement by Doubletree pursuant to
Section 7.1(e); or
(iii) the termination of this Agreement by Promus pursuant to Section
7.1 (g).
Promus's payment of a termination fee pursuant to this subsection shall
be the sole and exclusive remedy of Doubletree against Promus and any of its
Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the occurrences giving
rise to such payment; provided that this limitation shall not apply in the
event of a willful breach of this Agreement by Promus. Notwithstanding the
foregoing, if and to the extent that Doubletree has purchased shares of
Promus Common Stock pursuant to the Doubletree Stock Option Agreement prior
to the Fee Payment Date, the amount payable to Doubletree under this Section
7.3(c), together with (i)(x) the net cash amount received by Doubletree
prior to the Fee Payment Date pursuant to Promus's repurchase of Shares (as
defined in the Doubletree Stock Option Agreement) pursuant to Section 7 of
the Doubletree Stock Option Agreement, less (y) Doubletree's purchase price
for such Shares, and (ii)(x) the amounts received by Doubletree prior to the
Fee Payment Date pursuant to the sale of Shares (or any other securities
into which such Shares are converted or exchanged), less (y) Doubletree's
purchase price for such Shares, shall not exceed $65 million.
(d) The fees payable pursuant to Section 7.3(b) or 7.3(c) shall be paid
concurrently with the first to occur of the events described in Section
7.3(b)(i), (ii) or (iii) or 7.3(c)(i), (ii) or (iii), respectively.
(e) As used in this Agreement, "Alternative Transaction" means either
(i) a transaction pursuant to which any Third Party acquires more than 20%
of the outstanding shares of Doubletree Common Stock or Promus Common Stock,
as the case may be, pursuant to a tender offer or exchange offer or
otherwise, (ii) a merger or other business combination involving Doubletree
or Promus pursuant to which any Third Party (or the stockholders of a Third
Party) acquires more than 20% of the outstanding shares of Doubletree Common
Stock or Promus Common Stock, as the case may be, or the entity surviving
such merger or business combination, (iii) any other transaction pursuant to
which any Third Party acquires control of assets (including for this purpose
the outstanding equity securities of Subsidiaries of Doubletree or Promus,
and the entity surviving any merger or business combination including any of
them) of Doubletree or Promus having a fair market value (as determined by
the Board of Directors of Doubletree or Promus, as the case may be, in good
faith) equal to more than 20% of the fair market value of all the assets of
Doubletree or Promus, as the case may be, and their respective Subsidiaries,
taken as a whole, immediately prior to such transaction, or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or
any agreement to engage in any of the foregoing.
Section 7.4. AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after approval of the matters presented in
connection with the Mergers by the stockholders of Doubletree or Promus,
but, after any such approval, no amendment shall be made which by law
requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto; provided, however,
that this Agreement may be amended in writing without obtaining the
signatures of Doubletree, Promus or Parent solely for the purpose of adding
Doubletree Sub and Merger Sub as parties to this Agreement.
Section 7.5. EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or
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conditions contained here. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Sections
1.6, 2.1, 2.2, 2.4, 5.16, 5.19, 5.20 and 5.27 and Article VIII, and the
agreements of the Affiliates delivered pursuant to Section 5.12. The
Confidentiality Agreements shall survive the execution and delivery of this
Agreement.
Section 8.2. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Doubletree, to
Doubletree Corporation
410 North 44th Street, Suite 700
Phoenix, AZ 85008
Attn: Richard M. Kelleher
Telecopy: (602) 220-6753
with a copy to
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019-6092
Attn: William J. Phillips, Esq.
Telecopy: (212) 295-6333
(b) if to Promus, to
Promus Hotel Corporation
755 Crossover Lane
Memphis, TN 38117
Attn: Raymond E. Schultz
Telecopy: (901) 374-5636
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071-2007
Attn: John M. Newell, Esq.
Telecopy: (213) 891-8763
Section 8.3. INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made
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available" in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to be
made available. The phrases "the date of this Agreement", "the date hereof," and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to September 1, 1997.
Section 8.4. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 8.5. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and all documents and instruments referred to herein (a) constitute
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 5.16 are not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder;
provided that the Confidentiality Agreements shall remain in full force and
effect until the Effective Time. Each party hereto agrees that, except for the
representations and warranties contained in this Agreement, neither Doubletree
nor Promus makes any other representations or warranties, and each hereby
disclaims any other representations and warranties made by itself or any of its
officers, directors, employees, agents, financial and legal advisors or other
representatives, with respect to the execution and delivery of this Agreement or
the transactions contemplated hereby, notwithstanding the delivery or disclosure
to the other or the other's representatives of any documentation or other
information with respect to any one or more of the foregoing.
Section 8.6. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
Section 8.7. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Doubletree, Promus and Parent have caused this Agreement
to be signed by their respective duly authorized officers as of the date first
written above.
DOUBLETREE CORPORATION
/s/ Richard M. Kelleher
--------------------------------------
By: Richard M. Kelleher
Its: President & CEO
PROMUS HOTEL CORPORATION
/s/ Raymond E. Schultz
--------------------------------------
By: Raymond E. Schultz
Its: President & Chief Executive
Officer
PARENT HOLDING CORP.
/s/ Raymond E. Schultz
--------------------------------------
By: Raymond E. Schultz
Its: Chief Executive Officer &
Chairman of the Board
A-48
<PAGE>
ANNEX B
[LOGO]
[LOGO]
September 1, 1997
Board of Directors
Doubletree Corporation
410 North 44th Street, Suite 700
Phoenix, AZ 85008
Gentlemen and Madam:
We understand that Doubletree Corporation ("Doubletree"), Promus Hotel
Corporation ("Promus") and Parent Holding Corp. ("Parent"), have entered into an
Agreement and Plan of Merger, dated as of September 2, 1997 (the "Merger
Agreement"), which provides, among other things, for (i) the merger of a
wholly-owned subsidiary of Parent with and into Doubletree and (ii) for the
merger of another wholly-owned subsidiary of Parent with and into Promus
(collectively, the "Mergers"), such that the stockholders of Doubletree and
Promus will become wholly-owned subsidiaries of the Parent. Pursuant to the
Mergers, (i) each outstanding share of common stock, par value $0.10 per share,
of Promus ("Promus Common Stock"), other than shares of Promus Common Stock held
in the treasury or any shares held by Doubletree or any wholly-owned subsidiary
of Doubletree, will be converted into 0.9250 shares (the "Promus Exchange
Ratio") of common stock, par value $0.01 per share, of the Parent ("Parent
Common Stock") and (ii) each outstanding share of common stock, par value $0.01
per share, of Doubletree ("Doubletree Common Stock"), other than shares of
Doubletree Common Stock held in the treasury or any shares held by Promus or any
wholly-owned subsidiary of Promus, will be converted into 1.0000 shares (the
"Doubletree Exchange Ratio") of Parent Common Stock. It is also our
understanding that Doubletree and Promus have entered into Stock Option
Agreements, each dated as of September 1, 1997 (the "Option Agreements"), which
provide, among other things, for the grant by Doubletree to Promus of an option
to acquire certain shares of Doubletree Common Stock, the grant by Promus to
Doubletree to acquire certain shares of Promus Common Stock, in each case, upon
the terms and conditions provided in such agreements (collectively, the
"Options"). The terms and conditions of the Mergers and the Options are more
fully set forth in the Merger Agreement and the Option Agreements, respectively.
You have asked for our opinion as to whether the Doubletree Exchange Ratio,
taking into account the Promus Exchange Ratio, pursuant to the Merger Agreement
is fair from a financial point of view to the holders of shares of Doubletree
Common Stock.
For purposes of the opinion set forth herein, we have:
i) reviewed certain publicly available financial statements and other
information of Promus and Doubletree;
ii) reviewed certain internal financial statements and other financial and
operating data concerning Doubletree prepared by the management of
Doubletree;
iii) analyzed certain financial projections prepared by the management of
Doubletree;
iv) discussed on a limited basis the past and current operations and
financial condition and the prospects of Doubletree with senior
executives of Doubletree and analyzed the proforma impact of the Merger
on Doubletree's earnings per share;
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[LOGO]
v) reviewed certain internal financial statements and other financial and
operating data concerning Promus prepared by the management of Promus;
vi) analyzed certain financial projections prepared by the management of
Promus;
vii) discussed on a limited basis the past and current operations and
financial condition and the prospects of Promus with senior executives
of Promus;
viii) reviewed the reported prices and trading activity for Doubletree Common
Stock and Promus Common Stock;
ix) discussed with the managements of Doubletree and Promus their views of
the strategic rationale for the Merger and the cost savings and other
synergies expected to result from the Merger;
x) participated in discussions and negotiations among representatives of
Doubletree and Promus and their financial and legal advisors;
xi) reviewed the Merger Agreement, the Option Agreements, and certain
related documents; and
xii) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
Doubletree and Promus. We have relied upon, with your consent, the assumptions
of the managements of Doubletree and Promus regarding cost savings and other
synergies expected to result from the Merger. We have not made any independent
valuation or appraisal of the assets or liabilities of Promus or Doubletree, nor
have we been furnished with any such appraisals. We have assumed that the Merger
will be treated as a "pooling-of-interests" business combination in accordance
with U.S. Generally Accepted Accounting Principles and will qualify as a tax-
free exchange within the meaning of Section 351(a) of the Internal Revenue Code
of 1986. We have also assumed that the Merger will be consummated in accordance
with the terms set forth in the Merger Agreement. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof. In arriving at our
opinion, we were not authorized to solicit, and did not solicit, interest from
any party with respect to the acquisition of Doubletree, nor did we negotiate
with any party other than Promus in connection with a transaction involving
Doubletree.
We have acted as financial advisor to the Board of Directors of Doubletree
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Doubletree and Promus and have
received fees for the rendering of those services.
It is understood that this letter is for the information of the Board of
Directors of Doubletree and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by Doubletree with the Securities and Exchange Commission
with respect to the Merger. In addition, we express no opinion and make no
recommendation as to how the holders of Doubletree Common Stock should vote at
the stockholders' meeting held in connection with the Merger.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the Doubletree Exchange Ratio, taking into account the Promus
Exchange Ratio, pursuant to the Merger Agreement is fair from a financial point
of view to the holders of shares of Doubletree Common Stock.
Very truly yours,
<TABLE>
<S> <C> <C>
MORGAN STANLEY & CO. INCORPORATED
By: By: /s/ Mahmoud A. Mamdani
-----------------------------------------
Mahmoud A. Mamdani
MANAGING DIRECTOR
</TABLE>
B-2
<PAGE>
ANNEX C
[LOGO]
September 1, 1997
The Board of Directors
Promus Hotel Corporation
755 Crossover Lane
Memphis, TN 38117
Gentlemen and Madame:
BT Wolfensohn ("BT Wolfensohn") has acted as financial advisor to Promus
Hotel Corporation ("Promus") in connection with the proposed merger of Promus
and Doubletree Corporation ("Doubletree") pursuant to the Agreement and Plan of
Merger (the "Merger Agreement"), to be dated as of September 1, 1997 among
Promus, Doubletree and a newly formed holding company, Parent Holding
Corporation ("Parent"), which provides, among other things, for the merger of
Promus with a wholly-owned subsidiary of Parent ("Promus Subsidiary Merger") and
the merger of Doubletree with another wholly-owned subsidiary of Parent
("Doubletree Subsidiary Merger") (the Promus Subsidiary Merger and the
Doubletree Subsidiary Merger, when taken together, the "Transaction"). As a
result of the Transaction, Promus and Doubletree will become wholly-owned
subsidiaries of Parent. As set forth more fully in the Merger Agreement, as a
result of the Transaction each share of Common Stock, par value $.10, of Promus
("Promus Common Stock") not owned directly or indirectly by Promus or Doubletree
will be converted into the right to receive 0.925 of a share of Common Stock of
Parent (the "Exchange Ratio") and each share of Common Stock, par value $.01, of
Doubletree ("Doubletree Common Stock"), not owned directly or indirectly by
Promus or Doubletree, will be converted into the right to receive 1.0 share of
Common Stock of Parent (the "Doubletree Exchange Ratio"). The terms and
conditions of the Transaction are more fully set forth in the Merger Agreement.
You have requested BT Wolfensohn's opinion, as investment bankers, as to the
fairness, from a financial point of view, of the Exchange Ratio to Promus
shareholders.
In connection with BT Wolfensohn's role as financial advisor to Promus, and
in arriving at its opinion, BT Wolfensohn has, among other things:
(i) reviewed the publicly available consolidated financial statements of
Doubletree for recent years and interim periods to date and certain other
relevant financial and operating data of Doubletree available from public
sources or provided to BT Wolfensohn by Doubletree;
(ii) reviewed the publicly available consolidated financial statements of
Promus for recent years and interim periods to date and certain other
relevant financial and operating data of Promus available from public
sources or provided to BT Wolfensohn by Promus;
(iii) reviewed certain internal financial and operating information,
including certain projections, relating to Promus and Doubletree,
provided to BT Wolfensohn by Promus and Doubletree, respectively;
[LOGO]
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<PAGE>
[LOGO]
The Board of Directors
Promus Hotel Corporation
September 1, 1997
Page 2
(iv) discussed the business, financial condition and prospects of Promus and
Doubletree with certain officers and certain members of management of
each organization;
(v) considered the strategic objectives of Promus as outlined to BT
Wolfensohn by Promus management;
(vi) reviewed the trading prices and activity for Promus Common Stock and
Doubletree Common Stock;
(vii) reviewed the financial terms of the Merger Agreement;
(viii)reviewed the financial terms of selected transactions in the lodging
industry which BT Wolfensohn believed to be relevant;
(ix) reviewed certain public information pertaining to companies engaged in
businesses that BT Wolfensohn believed to be generally comparable to
those of Promus and Doubletree, including, without limitation, the
trading prices for the equity securities of such companies;
(x) analyzed the pro forma impact of the Transaction on Promus and
Doubletree, including with respect to the combined company's earnings per
share, consolidated capitalization and financial ratios; and
(xi) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as BT Wolfensohn deemed relevant.
BT Wolfensohn has not assumed responsibility for independent verification of
any information, whether publicly available or furnished to it, concerning
Promus or Doubletree, including, without limitation, any financial information,
forecasts or projections, considered in connection with the rendering of its
opinion. Accordingly, for purposes of its opinion, BT Wolfensohn has assumed and
relied upon the accuracy and completeness of all such information and BT
Wolfensohn has not conducted a physical inspection of any of the properties or
assets, and has not prepared or obtained any independent evaluation or appraisal
of any of the assets or liabilities, of Promus or Doubletree. With respect to
the financial forecasts and projections made available to BT Wolfensohn and used
in its analysis, including estimates of the operating savings and other benefits
and cost reductions achievable as a result of the Transaction, BT Wolfensohn has
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Promus or
Doubletree as to the matters covered thereby and in rendering its opinion BT
Wolfensohn expresses no view as to the reasonableness of such forecasts and
projections or the assumptions on which they are based. In addition, BT
Wolfensohn expresses no opinion as to prices at which shares of Parent will
trade following the Transaction. BT Wolfensohn has also assumed that the
Transaction will qualify for pooling-of-interests accounting treatment in
accordance with generally accepted accounting principles and as a tax-free
reorganization for United
[LOGO]
C-2
<PAGE>
[LOGO]
The Board of Directors
Promus Hotel Corporation
September 1, 1997
Page 3
States federal income tax purposes. BT Wolfensohn's opinion is necessarily based
upon economic, market and other conditions as in effect on, and the information
made available to us as of, the date hereof.
In connection with our engagement, we have not been authorized by Promus or
its Board of Directors to solicit, nor have we solicited, any third party
indications of interest for the acquisition of the Company, nor have we reviewed
with Promus or its Board of Directors any potential transactions in lieu of the
Transaction.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Promus and is not a recommendation to the stockholders of Promus or
Doubletree to approve the Transaction.
In connection with its opinion, BT Wolfensohn has assumed that the
Transaction will be consummated on the terms and subject to the conditions
described in the Merger Agreement and that all conditions to the consummation of
the Transaction contained in the Merger Agreement will be satisfied without the
waiver of such conditions. BT Wolfensohn has also assumed that all necessary
governmental and regulatory approvals and consents of third parties will be
obtained on terms and conditions that will not have a material adverse effect on
Promus or Doubletree.
BT Wolfensohn will receive a fee for its financial advisory services
rendered in connection with the currently contemplated Transaction, a
substantial portion of which fee is contingent on the consummation of the
Transaction. In the ordinary course of business, BT Wolfensohn or its affiliates
may actively trade equity securities of Promus or Doubletree for its own account
or for the accounts of its customers and, accordingly, may from time to time
hold a long or short position in such securities.
BT Wolfensohn is engaged in the merger and acquisition and client advisory
business of Bankers Trust and, for legal and regulatory purposes, is a division
of BT Alex. Brown Incorporated, a registered broker dealer and member of the New
York Stock Exchange.
Based upon and subject to the foregoing, it is BT Wolfensohn's opinion as
investment bankers that the Exchange Ratio in connection with the Transaction
pursuant to the Merger Agreement is fair, from a financial point of view, to
Promus shareholders.
Very truly yours,
/s/ BT Wolfensohn
--------------------------------------
BT WOLFENSOHN
[LOGO]
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ANNEX D
FORM OF
RESTATED
CERTIFICATE OF INCORPORATION
OF
PARENT HOLDING CORP.
The present name of the Corporation is Parent Holding Corp. and the
Corporation was incorporated by the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware on August 29,
1997. This Restated Certificate of Incorporation of the Corporation, which both
restates and further amends the provisions of the Corporation's Certificate of
Incorporation, was duly adopted in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware and by the
written consent of stockholders in accordance with Section 228 of the General
Corporation Law of the State of Delaware. The Certificate of Incorporation of
the Corporation is hereby amended and restated to read in its entirety as
follows:
FIRST: The name of the Corporation is Promus Hotel Corporation.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Service Company, 1013 Centre Road, in the
City of Wilmington, County of New Castle, State of Delaware. The name of its
registered agent at that address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of Delaware as set forth in Title 8 of the Delaware Code
(the "GCL").
FOURTH: A. The total number of shares of stock which the Corporation
shall have authority to issue is 510,000,000 (the "Capital Stock")
consisting of 500,000,000 shares of Common Stock, par value $0.01 per share
(the "Common Stock"), and 10,000,000 shares of Preferred Stock, par value of
$0.01 per share (the "Preferred Stock").
B. Shares of Preferred Stock may be issued from time to time in one or
more series, as provided for herein or as provided for by the Board of
Directors as permitted hereby. All shares of Preferred Stock shall be of
equal rank and shall be identical, except in respect of the terms fixed
herein for the series provided for herein or fixed by the Board of Directors
for series provided for by the Board of Directors as permitted hereby. All
shares of any one series shall be identical in all respects with all the
other shares of such series, except the shares of any one series issued at
different times may differ as to the dates from which dividends thereon may
be cumulative.
The Board of Directors is hereby authorized, by resolution or
resolutions, to establish, out of the unissued shares of Preferred Stock not
then allocated to any series of Preferred Stock, additional series of
Preferred Stock. Before any shares of any such additional series are issued,
the Board of Directors shall fix and determine, and is hereby expressly
empowered to fix and determine, by resolution or resolutions, the number of
shares constituting such series and the distinguishing characteristics and
the relative rights, preferences, privileges and immunities, if any, and any
qualifications, limitations or restrictions thereof, of the shares thereof,
so far as not inconsistent with the provisions of this Article FOURTH.
Without limiting the generality of the foregoing, the Board of Directors may
fix and determine:
1. The designation of such series and the number of shares which
shall constitute such series of such shares;
2. The rate of dividend, if any, payable on shares of such series;
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3. Whether the shares of such series shall be cumulative,
non-cumulative or partially cumulative as to dividends, and the dates
from which any cumulative dividends are to accumulate;
4. Whether the shares of such series may be redeemed, and, if so,
the price or prices at which and the terms and conditions on which shares
of such series may be redeemed;
5. The amount payable upon shares of such series in the event of
the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Corporation;
6. The sinking fund provisions, if any, for the redemption of
shares of such series;
7. The voting rights, if any, of the shares of such series;
8. The terms and conditions, if any, on which shares of such series
may be converted into shares of capital stock of the Corporation of any
other class or series;
9. Whether the shares of such series are to be preferred over
shares of capital stock of the Corporation of any other class or series
as to dividends, or upon the voluntary or involuntary dissolution,
liquidation, or winding up of the affairs of the Corporation, or
otherwise; and
10. Any other characteristics, preferences, limitations, rights,
privileges, immunities or terms not inconsistent with the provisions of
this Article FOURTH.
C. Except as otherwise provided in this Restated Certificate of
Incorporation, each holder of Common Stock shall be entitled to one vote for
each share of Common Stock held by him on all matters submitted to
stockholders for a vote and each holder of Preferred Stock of any series
that is Voting Stock shall be entitled to such number of votes for each
share held by him as may be specified in the resolutions providing for the
issuance of such series.
Except as otherwise provided by law, the presence, in person or by
proxy, of the holders of record of issued and outstanding shares of Capital
Stock entitling the holders thereof to cast a majority of the votes entitled
to be cast by the holders of issued and outstanding shares of Capital Stock
entitled to vote shall constitute a quorum at all meetings of the
stockholders.
FIFTH: A. The Board of Directors shall have the power to make, adopt,
alter, amend, change or repeal the Bylaws of the Corporation by resolution
adopted by the affirmative vote of a majority of the entire Board of
Directors, subject to any bylaw requiring the affirmative vote of a larger
percentage of the members of the Board of Directors.
B. Stockholders may not make, adopt, alter, amend, change or repeal the
Bylaws of the Corporation except upon the affirmative vote of at least 75%
of the votes entitled to be cast by the holders of all outstanding shares
then entitled to vote generally in the election of directors, voting
together as a single class.
SIXTH: The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors, which shall consist of not
less than three or more than twenty directors, the exact number of directors
to be determined from time to time by resolution adopted by affirmative vote
of a majority of the entire Board of Directors, subject to any bylaw
requiring the affirmative vote of a larger percentage of the members of the
Board of Directors. The Board of Directors shall be divided into three
classes, designated Class I, Class II and Class III. Class I shall consist
of four directors, and each of Class II and Class III shall consist of five
directors. Class I directors shall be initially elected for a term expiring
at the first annual meeting of stockholders of the Corporation following the
date hereof, Class II directors shall be initially elected for a term
expiring at the second annual meeting of stockholders of the Corporation
following the date hereof, and Class III directors shall be initially
elected for a term expiring at the third annual meeting of stockholders of
the Corporation following the date hereof. At each annual meeting of
stockholders following the date
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hereof, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three year term. If the number of
directors is changed, any increase or decrease shall be apportioned among
the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected
to fill a vacancy resulting from an increase in such class shall hold office
for a term that shall coincide with the remaining term of that class, but in
no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor shall be
elected and shall qualify, subject, however, prior to death, resignation,
retirement, disqualification or removal from office. Any vacancy on the
Board of Directors that results from an increase in the number of directors
and any other vacancy may only be filled by a majority of the directors then
in office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, removal,
filling of vacancies and other features of such directorships shall be
governed by the terms of this Restated Certificate of Incorporation
applicable thereto (including the resolutions of the Board of Directors
pursuant to Article FOURTH hereof), and such Directors so elected shall not
be divided into classes pursuant to this Article SIXTH unless expressly
provided by such terms.
SEVENTH: Special meetings of the stockholders of the Corporation, for
any purpose or purposes, may only be called at any time by a majority of the
entire Board of Directors or by either the Chairman or the President of the
Corporation.
EIGHTH: No stockholder action may be taken except at an annual or
special meeting of stockholders of the Corporation and stockholders of the
corporation may not take any action by written consent in lieu of a meeting.
NINTH: A. In addition to any affirmative vote required by law or this
Restated Certificate of Incorporation (including any resolutions of the
Board of Directors pursuant to Article FOURTH hereof) or the Bylaws of the
Corporation, and except as otherwise expressly provided in Section B of this
Article NINTH, a Business Combination (as hereinafter defined) with, or
proposed by or on behalf of, any Interested Stockholder (as hereinafter
defined) or any Affiliate or Associate (as hereinafter defined) of any
Interested Stockholder or any person who thereafter would be an Affiliate or
Associate of such Interested Stockholder shall, except as otherwise
prohibited by applicable law, require the affirmative vote of (i) not less
than 75% of the votes entitled to be cast by the holders of all of the then
outstanding shares of Voting Stock (as hereinafter defined), voting together
as a single class and (ii) not less than a majority of the votes entitled to
be cast by holders of all the then outstanding Voting Stock, voting together
as a single class, excluding Voting Stock beneficially owned by such
Interested Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage or separate class vote may be specified, by law or in any
agreement with any national securities exchange or otherwise.
B. The provisions of Section A of this Article NINTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is required
by law or by any other provision of this Restated Certification of
Incorporation (including any resolutions of the Board of Directors pursuant
to Article FOURTH hereof) or the Bylaws of the Corporation, or any agreement
with any national securities exchange, if all the conditions specified in
either of the following Paragraphs 1 or 2 are met or, in the case of
Business
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Combination not involving the payment of consideration to the holders of the
Corporation's outstanding Capital Stock (as hereinafter defined), if the
condition specified in the following Paragraph 1 is met:
1. The Business Combination shall have been approved, either
specifically or as a transaction which is in an approved category of
transactions, by a majority (whether such approval is made prior to or
subsequent to the acquisition of, or announcement or public disclosure of
the intention to acquire, beneficial ownership of the Voting Stock that
caused the Interested Stockholder to become an Interested Stockholder) of
the Continuing Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the
Business Combination of consideration other than cash to be received
per share by holders of Common Stock in such Business Combination
shall be at least equal to the highest amount determined under
clauses (i) and (ii) below:
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of Common Stock in connection with the acquisition by the
Interested Stockholder of beneficial ownership of shares of
Common Stock (x) within the two-year period immediately prior to
the first public announcement of the proposed Business
Combination (the "Announcement Date") or (y) in the transaction
in which it became an Interested Stockholder, whichever is
higher, in either case as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with
respect to common stock; and
(ii) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (the "Determination
Date"), whichever is higher.
b. The aggregate amount of cash and the Fair Market Value, as of
the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by holders of
shares of each class or series of outstanding Capital Stock, other
than Common Stock, shall be at least equal to the highest amount
determined under clauses (i), (ii) and (iii) below:
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of such class or series of Capital Stock in connection with
the acquisition by the Interested Stockholder of beneficial
ownership of shares of such class or series of Capital Stock (x)
within the two-year period immediately prior to the Announcement
Date or (y) in the transaction in which it became an Interested
Stockholder, whichever is higher, in either case as adjusted for
any subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock;
(ii) the Fair Market Value per share of such class or series
of Capital Stock on the Announcement Date or on the Determination
Date, whichever is higher, as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with
respect to such class or series of Capital Stock; and
(iii) (if applicable) the highest preferential amount per
share to which the holders of shares of such class or series of
Capital Stock would be entitled in the event of any
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voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation regardless of whether the
Business Combination to be consummated constitutes such an event.
The provisions of this Paragraph 2(b) shall be required to be met
with respect to every class or series of outstanding Capital Stock,
whether or not the Interested Stockholder has previously acquired
beneficial ownership of any shares of a particular class or series of
Capital Stock.
c. The consideration to be received by holders of a particular
class or series of outstanding Capital Stock shall be in cash or in
the same form as previously has been paid by or on behalf of the
Interested Stockholder in connection with its direct or indirect
acquisition of beneficial ownership of shares of such class or series
of Capital Stock. If the consideration so paid for shares of any
class or series of Capital Stock varied as to form, the form of
consideration for such class or series of Capital Stock shall be
either cash or the form used to acquire beneficial ownership of the
largest number of shares of such class or series of Capital Stock
previously acquired by the Interested Stockholder.
d. After the Determination Date and prior to the consummation of
such Business Combination: (i) except as approved by a majority of
the Continuing Directors, there shall have been no failure to declare
and pay at the regular date therefor any full periodic dividends
(whether or not cumulative) payable in accordance with the terms of
any outstanding Capital Stock; (ii) there shall have been no
reduction in the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any stock split, stock dividend or
subdivision of the Common Stock), except as approved by a majority of
the Continuing Directors; (iii) there shall have been an increase in
the annual rate of dividends paid on the Common Stock as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction that has
the effect of reducing the number of outstanding shares of Common
Stock, unless the failure so to increase such annual rate is approved
by a majority of the Continuing Directors; and (iv) such Interested
Stockholders shall not have become the beneficial owner of any
additional shares of Capital Stock except as part of the transaction
that results in such Interested Stockholder becoming an Interested
Stockholder and except in a transaction that, after giving effect
thereto, would not result in any increase in the Interested
Stockholder's percentage beneficial ownership of any class or series
of Capital Stock.
e. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (the "Act") (or any subsequent provisions replacing such
Act, rules or regulations) shall be mailed to all stockholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions). The proxy or information statement shall contain on the
first page thereof, in a prominent place, such statement, if any, as
to the advisability (or inadvisability) of the Business Combination
that the Continuing Directors, or any of them, may choose to make
and, if deemed advisable by a majority of the Continuing Directors,
the opinion of an investment banking firm selected by a majority of
the Continuing Directors as to the fairness (or not) of the terms of
the Business Combination from a financial point of view to the
holders of the outstanding shares of Capital Stock other than the
Interested Stockholder and its Affiliates or Associates, such
investment banking firm to be paid a reasonable fee for its services
by the Corporation.
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f. Such Interested Stockholder shall not have made any major
change in the Corporation's business or equity capital structure
without the approval of a majority of the Continuing Directors.
g. After the Determination Date, such Interested Stockholder
shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
C. The following definitions shall apply with respect to this article
NINTH:
1. The term "Business Combination" shall mean:
a. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder or (ii) any other company (whether or not itself an
Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate or Associate of an Interested
Stockholder; or
b. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition or security arrangement, investment, loan, advance,
guarantee, agreement to purchase or sell, agreement to pay, extension
of credit, joint venture participation or other arrangement (in one
transaction or a series of transactions) with or for the benefit of
any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder involving any assets, securities or
commitments of the Corporation, any Subsidiary or any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder which (except for any arrangement, whether as employee or
consultant or otherwise, other than as director, pursuant to which
any Interested Stockholder or any Affiliate or Associate thereof
shall, directly or indirectly, have any control over or
responsibility for the management of any aspect of the business or
affairs of the Corporation, with respect to which arrangement the
value test set forth below shall not apply), together with all other
such arrangements (including all contemplated future events), has an
aggregate Fair Market Value and/or involves aggregate commitments of
$100,000,000 or more or constitutes more than 5 percent of the book
value of the total assets (in the case of transactions involving
assets or commitments other than capital stock) or 5 percent of the
stockholders' equity (in the case of transactions in capital stock)
of the entity in question (the "Substantial Part"), as reflected in
the most recent fiscal year-end consolidated balance sheet of such
entity existing at the time the stockholders of the Corporation would
be required to approve or authorize the Business Combination
involving the assets, securities and/or commitments constituting any
Substantial Part; provided, that if stockholders' equity is negative,
the fair market value of the outstanding Capital Stock at the date of
such balance sheet shall be used in lieu thereof in determining if a
transaction involves a Substantial Part; or
c. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation or for any amendment to the
Corporation's Bylaws; or
d. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or otherwise involving an
Interested Stockholder) that has the effect, directly or indirectly,
of increasing the proportionate share of any class or series of
Capital Stock, or any securities convertible into Capital Stock or
into equity securities of any Subsidiary, that is beneficially owned
by any Interested Stockholder or any affiliate or Associate of any
Interested Stockholder; or
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e. any agreement, contract or other arrangement providing for
any one or more of the actions specified in the foregoing clauses (a)
to (d).
2. The term "Voting Stock" shall mean all Capital Stock which by
its terms may be voted on all matters submitted to stockholders of the
Corporation generally.
3. The term "person" shall mean any individual, firm, company or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Capital Stock.
4. The term "Interested Stockholder" shall mean any person (other
than (i) the Corporation or any Subsidiary, any profit-sharing, employee
stock ownership or other employee benefit plan of the Corporation or any
Subsidiary or any trustee of or fiduciary with respect to any such plan
when acting in such capacity and (ii) Doubletree Corporation, Promus
Acquisition Corp. and any Subsidiary thereof) who (a) is, or has
announced or publicly disclosed a plan or intention to become, the
beneficial owner of Voting Stock representing ten percent or more of the
votes entitled to be cast by the holders of all the then outstanding
shares of Voting Stock; or (b) is an Affiliate or Associate of the
Corporation and at any time within the two-year period immediately prior
to the date in question was the beneficial owner of Voting Stock
representing ten percent or more of the votes entitled to be cast by the
holders of all the then outstanding shares of Voting Stock; or (c) is an
assignee of or has otherwise succeeded to any Voting Stock which was at
any time within the two-year period immediately prior to the date in
question beneficially owned by an Interested Stockholder, if such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933, as amended.
5. A person shall be a "beneficial owner" of any Capital Stock (a)
which such person or any of its Affiliates or Associates beneficially
owns, directly or indirectly; (b) which such person or any of its
Affiliates or Associates has, directly or indirectly, (i) the right to
acquire (whether such right is exercisable immediately or subject only to
the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding (but neither such person nor
any such Affiliate or Associate shall be deemed to be the beneficial
owner of any shares of Voting Stock solely by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, and with respect to which
shares neither such person nor any such Affiliate or Associate is
otherwise deemed the beneficial owner); or (c) which is beneficially
owned, directly or indirectly, by any other person with which such person
or any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (except to
the extent contemplated by the parenthetical clause in Section
C.5(b)(ii)) or disposing of any shares of Capital Stock; provided that:
(x) no director or officer of the Corporation (nor any Affiliate or
Associate of any such director or officer) shall, solely by reason of any
or all of such directors or officers acting in their capacities as such,
be deemed the "beneficial owner" of any shares of Capital Stock that are
beneficially owned by any other such director or officer; (y) in the case
of any employee stock ownership or similar plan of the Corporation or of
any Subsidiary in which the beneficiaries thereof possess the right to
vote the shares of Voting Stock held by such plan, no such plan nor any
trustee with respect thereto (nor any Affiliate or Associate of such
trustee), solely by reason of such capacity of such trustee, shall be
deemed the "beneficial owner" of the shares of Voting Stock held under
such plan; and (z) no person shall be deemed the "beneficial owner" of
any shares of Voting Stock held in any voting trust, employee stock
ownership plan or any similar plan or trust if such person does not
possess the right to vote such shares. For the purposes of determining
whether a person is an
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Interested Stockholder pursuant to Paragraph 4 of this section C, the
number of shares of Capital Stock deemed to be outstanding shall include
shares deemed beneficially owned by such person through application of
this Paragraph 5 of Section C, but shall not include any other shares of
Capital Stock that may be issuable pursuant to any agreement, arrangement
or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise. Notwithstanding the foregoing, for purposes of
this Article NINTH, a person shall not be deemed a "beneficial owner" of
any Capital Stock which such person has the right to acquire upon
exercise of the Rights issued pursuant to the Parent Rights Agreement,
dated as of , 1997, between the Corporation and
(including any successor rights plan thereto, the "Rights Agreement"), if
such person would not be deemed the beneficial owner of such Capital
Stock under the terms of such Rights Agreement.
6. The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Act as in effect
on the date that this Article NINTH is approved by the Board (the term
"registrant" in said Rule 12b-2 meaning in this case the Corporation).
7. The term "Subsidiary" means any company of which a majority of
any class of equity security is beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 4 of this Section C, the term
"Subsidiary" shall mean only a company of which a majority of each class
of equity security is beneficially owned by the Corporation.
8. The term "Continuing Director" means any member of the Board of
Directors of the Corporation (the "Board of Directors"), while such
person is a member of the Board of Directors, who is not an Affiliate or
Associate or representative of the Interested Stockholder and was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any director who is
thereafter chosen to fill any vacancy or newly-created directorship on
the Board of Directors or who is elected and who, in either event, is not
an Affiliate or Associate or representative of the Interested Stockholder
and, in connection with such person's initial assumption of office, is
recommended for appointment or election by a majority of the Continuing
Directors then on the Board.
9. The term "Fair Market Value" means (a) in the case of cash, the
amount of such cash; (b) in the case of stock the highest closing sales
price during the 30-day period immediately preceding the date in question
of a share of such stock on the Composite Tape for New York Stock
Exchange--Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Act on which such stock is listed, or, if such stock
is not listed on any such exchange, the highest closing sales price or
bid quotation with respect to a share of such stock during the 30-day
period preceding the date in question on the NASDAQ National Market or
any similar system then in use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock as
determined by a majority of the Continuing Directors in good faith; and
(c) in the case of property other than cash or stock, the fair market
value of such property on the date in question as determined in good
faith by a majority of the Continuing Directors.
10. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Paragraphs 2.a and 2.b of Section B of this Article
NINTH shall include the shares of Common Stock and/or the shares of any
other class or series of Capital Stock retained by the holders of such
shares.
D. A majority of the Continuing Directors shall have the power and duty
to determine for the purposes of this Article NINTH, on the basis of
information known to them after reasonable inquiry,
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all questions arising under this Article NINTH including, without
limitation, (a) whether a person is an Interested Stockholder, (b) the
number of shares of Capital Stock or other securities beneficially owned by
any person, (c) whether a person is an Affiliate or Associate of another,
(d) whether a Proposed Action (as hereinafter defined) is with, or proposed
by, or on behalf of, an Interested Stockholder or an Affiliate or Associate
of an Interested Stockholder, (e) whether the assets that are the subject of
any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any Subsidiary in
any Business Combination has, an aggregate Fair Market Value of $100,000,000
or more, (f) whether the assets or securities that are the subject of any
Business Combination constitute a Substantial Part, and (g) whether the
applicable conditions set forth in paragraph 2 of Section B of this Article
NINTH have been met with respect to any Business Combination. Any such
determination made good faith shall be binding and conclusive on all
parties.
E. Nothing contained in this Article NINTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. The fact that any Business combination complies with the provisions
of Section B of this Article NINTH shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board of Directors, or
any member thereof, to approve such Business Combination or recommend its
adoption or approval to the stockholders of the Corporation, nor shall such
compliance limit, prohibit or otherwise restrict in any manner the Board of
Directors, or any member thereof, with respect to evaluations of or actions
and responses taken with respect to such Business Combination.
G. For the purpose of this Article NINTH, a Business Combination or any
proposal to amend, repeal or adopt any provision of this Restated
Certificate of Incorporation inconsistent with this Article NINTH
(collectively, "Proposed Action") is presumed to have been proposed by, or
on behalf of, an Interested Stockholder or a person who thereafter would
become such if (1) after the Interested Stockholder became such, the
Proposed Action is proposed following the election of any director of the
Corporation who with respect to such Interested Stockholder, would not
qualify to serve as a Continuing Director or (2) such Interested
Stockholder, Affiliate, Associate or person votes for or consents to the
adoption of any such Proposed Action, unless as to such Interested
Stockholder, Affiliate, Associate or person, a majority of the Continuing
Directors makes a good faith determination that such Proposed Action is not
proposed by or on behalf of such Interested Stockholder, Affiliate,
Associate or person, based on information known to them after reasonable
inquiry.
H. Notwithstanding any other provisions of this Restated Certificate of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law,
this Restated Certificate of Incorporation or the Bylaws of the
Corporation), or any proposal to amend, repeal or adopt any provision of
this Restated Certificate of Incorporation inconsistent with this Article
NINTH which is proposed by or on behalf of an Interested Stockholder or an
Affiliate or Associate of an Interested Stockholder shall require the
affirmative vote of (i) the holders of not less than 75% of the votes
entitled to be cast by the holders of all the then outstanding shares of
Voting Stock, voting together as a single class, and (ii) the holders of not
less than a majority of the votes entitled to be cast by the holders of the
then outstanding shares of Voting Stock, voting together as a single class,
excluding Voting Stock beneficially owned by such Interested Stockholder,
provided, however, that this Section H shall not apply to, and such vote
shall not be required for, any amendment, repeal or adoption unanimously
recommended by the Board of Directors if all of such directors are persons
who would be eligible to serve as Continuing Directors within the meaning of
Section C, Paragraph 8 of this Article NINTH.
TENTH: A. Subject to Section C of this Article TENTH, the Corporation
shall indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
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than an action by or in the right of the Corporation) by reason of the fact
that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interest of the Corporation, or, with respect to any criminal action or
proceeding, had reasonable cause to believe his conduct was unlawful.
B. Subject to Section C of this Article TENTH, the Corporation shall
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other court shall deem
proper.
C. Any indemnification under this Article TENTH (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director or officer is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Section A or Section B of this Article TENTH, as the
case may be. Such determination shall be made (i) by a majority vote of
directors who were not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) by a committee of such disinterested
directors designated by a majority vote of such disinterested directors,
even though less than a quorum, or (iii) if there are no such disinterested
directors or if such disinterested directors so directs, by independent
legal counsel in a written opinion, or (iv) by the stockholders. To the
extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described in Section A or Section B of this Article TENTH, or in
defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of
authorization in the specific case.
D. For purposes of any determination under Section C of this Article
TENTH, a person shall be deemed to have acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe his conduct was unlawful, if his action
is based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser
or other expert selected with reasonable care by the Corporation or another
enterprise. The
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term "another enterprise" as used in this Section D of Article TENTH shall
mean any other corporation or any partnership, joint venture, trust or other
enterprise of which such person is or was serving at the request of the
Corporation as a director or officer. The provisions of this Section D shall
not be deemed to be exclusive or to limit in any way the circumstances in
which a person may be deemed to have met the applicable standard of conduct
set forth in Sections A or B of this Article TENTH as the case may be.
E. Notwithstanding any contrary determination in the specific case
under Section C of this Article TENTH, and notwithstanding the absence of
any determination thereunder, any director or officer may apply to any court
of competent jurisdiction in the State of Delaware for indemnification to
the extent otherwise permissible under Sections A and B of this Article
TENTH. The basis of such indemnification by a court shall be a determination
by such court that indemnification of the director or officer is proper in
the circumstances because he has met the applicable standards of conduct set
forth in Sections A or B of this Article TENTH, as the case may be. Notice
of any application for indemnification pursuant to this Section E of Article
TENTH shall be given to the Corporation promptly upon the filing of such
application.
F. Expenses incurred by a director or officer of the Corporation in
defending or investigating a threatened or pending action, suit or
proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article TENTH.
G. The indemnification and advancement of expenses provided by this
Article TENTH shall not be deemed exclusive of any other rights to which any
person seeking indemnification or advancement of expenses may be entitled
under any Bylaw, agreement, contract, vote of stockholders or disinterested
directors or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of, and advancement
of expenses to, the persons specified in Sections A and B of this Article
TENTH shall be made to the fullest extent permitted by law. The provisions
of this Article TENTH shall not be deemed to preclude the indemnification
of, and advancement of expenses to, any person who is not specified in
Sections A or B of this Article TENTH but whom the Corporation has the power
or obligation to indemnify under the provisions of the General Corporation
Law of the State of Delaware, or otherwise. The indemnification provided by
this Article TENTH shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors
and administrators of such person.
H. The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the Corporation, or, while a
director or officer of the Corporation, is or was serving at the request of
the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article TENTH.
I. For purposes of this Article TENTH, reference to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors or officers,
so that any person who is or was a director or officer of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article TENTH with
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respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
ELEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this Corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers appointed for
this Corporation under the provisions of Section 291 of the GCL or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of the
GCL, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of this Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or thereafter prescribed by statute, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
THIRTEENTH: No director of this Corporation shall be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law, (iii) under Section 174 of the GCL, or
(iv) for any transaction from which the director derived an improper
personal benefit. If the GCL is hereafter amended to authorize corporate
action further limiting or eliminating the personal liability of directors,
then the liability of each director of the Corporations shall be limited or
eliminated to the fullest extent permitted by the GCL as so amended from
time to time.
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IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by Raymond E. Schultz, its Chief Executive Officer and attested by Ralph
B. Lake, its Secretary, this day of , 1997.
By:
- --------------------------------------------------------------------------------
Raymond E. Schultz
CHIEF EXECUTIVE OFFICER
ATTEST:
------------------------------------------
Ralph B. Lake
SECRETARY
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ANNEX E
FORM OF
AMENDED AND RESTATED
BYLAWS
OF
PROMUS HOTEL CORPORATION
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 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
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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 II, 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.
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.
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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. NUMBER OF DIRECTORS; QUALIFICATIONS. The total number of
persons serving on the Board of Directors of the Corporation shall be fourteen,
half of whom shall be Doubletree Directors and half of whom shall be Promus
Directors (as such terms are defined below), all of which Doubletree Directors
and Promus Directors shall be spread as evenly as possible among the
Corporation's three classes of Directors. Until December 31, 2002, (a) the Board
of Directors of the Corporation and each Committee of the Board of Directors of
the Corporation as constituted following each election of Directors shall
consist of an equal number of Doubletree Directors and Promus Directors, and (b)
the size of the Board of Directors of the Corporation and each Committee of the
Board of Directors of the Corporation shall not be increased unless such
increase is approved by 75% of the members. If, at any time during the period
referenced in the immediately preceding sentence, the number of Doubletree
Directors and Promus Directors serving, or that would be serving following the
next stockholders' meeting at which Directors are to be elected, as Directors of
the Corporation or as members of any Committee of the Board of Directors of the
Corporation, would not be equal, then, subject to the fiduciary duties of the
Directors of the Corporation, the Board of Directors and the Nominating
Committee thereof shall nominate for election at the next stockholders' meeting
at which Directors are to be elected, such person or persons as may be requested
by the remaining Doubletree Directors (if the number of Doubletree Directors is,
or would otherwise become, less than the number of Promus Directors) or by the
remaining Promus Directors (if the number of Promus Directors is, or would
otherwise become, less than the number of Doubletree Directors) to ensure that
there shall be an equal number of Doubletree Directors and Promus Directors. The
provisions of the preceding sentence shall not apply in respect of any
stockholders' meeting which takes place after December 31, 2002. The term
"Doubletree Director" means (i) any person who was selected by the Board of
Directors of Doubletree Corporation, a Delaware corporation, to serve as a
Director of the Corporation and (ii) any person who becomes a Director of the
Corporation pursuant to the second preceding sentence and who is designated by
the Doubletree Directors; and the term "Promus Director" means (i) any person
who was selected by the Board of Directors of Promus Hotel Corporation, a
Delaware corporation, to serve as a Director of the Corporation and (ii) any
person who becomes a Director of the Corporation pursuant to the second
preceding sentence and who is designated by the Promus Directors. The provisions
of this Article III, Section 1 may be amended only with the approval of 75% of
the members of the Board of Directors of the Corporation.
Section 2. 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 2. 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, 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
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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 3. 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 4. 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 5. 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 writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 6. 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 6 shall
constitute presence in person at such meeting.
Section 7. 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
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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 8. EXECUTIVE COMMITTEE. The Executive Committee of the Corporation
shall have responsibility for developing the long-term strategic plans of the
Corporation, making significant capital allocation decisions and such other
duties and responsibilities as specified by the Board of Directors. The
Executive Committee shall also be required to oversee the implementation of the
100% guest satisfaction guarantee program at all of the Corporation's hotel
properties.
Section 9. 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 10. 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 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
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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.
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. Raymond E. Schultz shall serve as
Chairman of the Board and Chief Executive Officer of the Corporation until his
retirement no later than December 31, 1999. Richard M. Kelleher shall succeed
Mr. Schultz as Chairman of the Board and Chief Executive Officer no later than
January 1, 2000, unless 75% or more of the members of the Board of Directors
vote otherwise.
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. Unless 75% or more of the members of the Board of Directors
vote otherwise, Richard M. Kelleher shall continue to serve as President and
Chief Operating Officer until Raymond E. Schultz retires as Chairman of the
Board and Chief Executive Officer.
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
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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 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 Corporation a bond in such sum
and with such surety or sureties as shall be
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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. Initially and
until such time as Richard M. Kelleher succeeds Raymond E. Schultz as Chairman
of the Board and Chief Executive Officers of the Corporation, William L.
Perocchi shall serve as Executive Vice President and Chief Financial Officer of
the Corporation, unless 75% or more of the members of the Board of Directors
vote otherwise.
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 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.
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ANNEX F
THE 1997 EQUITY PARTICIPATION PLAN
OF
PARENT HOLDING CORP.
(TO BE KNOWN AS PROMUS HOTEL CORPORATION)
Parent Holding Corp. (to be renamed Promus Hotel Corporation), a Delaware
corporation, has adopted The 1997 Equity Participation Plan of Promus Hotel
Corporation (the "Plan"), effective , 1997, for the benefit of
its eligible employees, consultants and directors. The Plan consists of two
plans, one for the benefit of key Employees (as such term is defined below) and
consultants and one for the benefit of Independent Directors (as such term is
defined below).
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, key Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock and/or
rights which recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of directors,
key Employees and consultants considered essential to the long range success of
the Company by offering them an opportunity to own stock in the Company and/or
rights which will reflect the growth, development and financial success of the
Company.
ARTICLE I
DEFINITIONS
1.1 GENERAL. Wherever the following terms are used in this Plan they shall
have the meanings specified below, unless the context clearly indicates
otherwise.
1.2 AWARD AGREEMENT. "Award Agreement" shall mean a written agreement or
certificate executed by an authorized officer of the Company which shall contain
such terms and conditions with respect to an Award as the Committee (or the
Board, in the case of Awards granted to Independent Directors) shall determine,
consistent with the Plan.
1.3 AWARD LIMIT. "Award Limit" shall mean five-hundred thousand (500,000)
shares of Common Stock, as adjusted pursuant to Section 10.3.
1.4 AWARD. "Award" shall mean an Option, a Restricted Stock award, a
Performance Award, a Dividend Equivalents award, a Deferred Stock award, a Stock
Payment award or a Stock Appreciation Right which may be awarded or granted
under the Plan (collectively, "Awards").
1.5 BOARD. "Board" shall mean the Board of Directors of the Company.
1.6 CHANGE IN CONTROL. "Change in Control" shall mean the occurrence of
any of the following after the date hereof:
(a) any "person" (as such term is used in Section 13(d) and 14(d) of 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 twenty-five percent (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 Change in Control; or
(b) during any period of two (2) consecutive years (not including any
period prior to the execution of the Plan), 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
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shall have entered into an agreement with the Company to effect a
transaction described in clauses (a) or (b) 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
approved (each such new Director being considered a member of the "Incumbent
Board"), cease for any reason to constitute a majority thereof; or
(c) the holders of securities of the Company entitled to vote thereon
approve of the following:
(i) 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 sixty-six and
two-thirds percent (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
(ii) 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 "Change in Control" as set forth in the
Plan, the Board shall have full and final authority, which shall be exercised in
its discretion, to determine conclusively whether a Change in Control 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 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 sixty-six and two-thirds percent (66 2/3%) of whose voting securities are
held, immediately following such transaction or series of transactions would
otherwise constitute a Change in Control under the definition set forth in the
Plan.
1.7 CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.8 COMMITTEE. "Committee" shall mean the Human Resources Committee of the
Board, or another committee or subcommittee of the Board, appointed as provided
in Section 9.1.
1.9 COMMON STOCK. "Common Stock" shall mean the common stock of the
Company, par value $.01 per share, and any equity security of the Company issued
or authorized to be issued in the future, but excluding any preferred stock and
any warrants, options or other rights to purchase Common Stock. Debt securities
of the Company convertible into Common Stock shall be deemed equity securities
of the Company.
1.10 COMPANY. "Company" shall mean Parent Holding Corp. (to be renamed
Promus Hotel Corporation), a Delaware corporation.
1.11 CORPORATE TRANSACTION. "Corporate Transaction" shall mean any of the
following stockholder-approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State in which the Company is incorporated, form a holding company or effect a
similar reorganization as to form whereupon the Plan and all Options are assumed
by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions to
clause (a), above; or
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(c) any reverse merger in which the Company is the surviving entity but in
which securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are transferred or issued
to a person or persons different from those who held such securities immediately
prior to such merger.
1.12 DEFERRED STOCK. "Deferred Stock" shall mean Common Stock awarded
under Article VII of the Plan.
1.13 DIRECTOR. "Director" shall mean a member of the Board.
1.14 DIVIDEND EQUIVALENT. "Dividend Equivalent" shall mean a right to
receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VII of the Plan.
1.15 EMPLOYEE. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.16 EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
1.17 FAIR MARKET VALUE. "Fair Market Value" of a share of Common Stock as
of a given date shall be (i) the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any (or
as reported on any composite index which includes such principal exchange), on
the trading day previous to such date, or if shares were not traded on the
trading day previous to such date, then on the next preceding date on which a
trade occurred, or (ii) if Common Stock is not traded on an exchange but is
quoted on Nasdaq or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by Nasdaq or such successor quotation system;
or (iii) if Common Stock is not publicly traded on an exchange and not quoted on
Nasdaq or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Committee (or the Board, in the case of
Options granted to Independent Directors) acting in good faith.
1.18 GRANTEE. "Grantee" shall mean an Employee, consultant or Independent
Director granted a Performance Award, Dividend Equivalent, Stock Payment or
Stock Appreciation Right, or an award of Deferred Stock, under the Plan.
1.19 HOLDER. "Holder" shall mean a person who has been granted or awarded
an Award.
1.20 INCENTIVE STOCK OPTION. "Incentive Stock Option" shall mean an option
which conforms to the applicable provisions of Section 422 of the Code and which
is designated as an Incentive Stock Option by the Committee.
1.21 INDEPENDENT DIRECTOR. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.
1.22 NON-QUALIFIED STOCK OPTION. "Non-Qualified Stock Option" shall mean
an Option which is not designated as an Incentive Stock Option by the Committee.
1.23 OPTION. "Option" shall mean a stock option granted under Article III
of the Plan. An Option granted under the Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
PROVIDED, HOWEVER, that Options granted to Independent Directors and consultants
shall be Non-Qualified Stock Options.
1.24 OPTIONEE. "Optionee" shall mean an Employee, consultant or
Independent Director granted an Option under the Plan.
1.25 PERFORMANCE AWARD. "Performance Award" shall mean a cash bonus, stock
bonus or other performance or incentive award that is paid in cash, Common Stock
or a combination of both, awarded under Article VII of the Plan.
1.26 PERFORMANCE CRITERIA. "Performance Criteria" shall mean the following
business criteria with respect to the Company or any Subsidiary: (i) net income,
(ii) pre-tax income, (iii) operating income,
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(iv) cash flow, (v) earnings per share, (vi) return on equity, (vii) return on
invested capital or assets, (viii) cost reductions or savings, (ix) funds from
operations, (x) appreciation in the fair market value of Common Stock and (xi)
earnings before any one or more of the following items: interest, taxes,
depreciation or amortization.
1.27 PERMITTED TRANSFEREE. "Permitted Transferee" shall mean (i) one or
more of the following family members of a Holder: spouse, former spouse, child
(whether natural or adopted), stepchild, any other lineal descendant of the
Holder, (ii) a trust, partnership or other entity established and existing for
the sole benefit of, or under the sole control of, one or more of the above
family members of the Holder, or (iii) any other transferee specifically
approved by the Committee after taking into account any state or federal tax or
securities laws applicable to transferable Awards.
1.28 PLAN. "Plan" shall mean The 1997 Equity Participation Plan of Parent
Holding Corp. (to be known as Promus Hotel Corporation).
1.29 QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
1.30 RESTRICTED STOCK. "Restricted Stock" shall mean Common Stock awarded
under Article VI of the Plan.
1.31 RESTRICTED STOCKHOLDER. "Restricted Stockholder" shall mean an
Employee, consultant or Independent Director granted an award of Restricted
Stock under Article VI of the Plan.
1.32 RULE 16B-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
1.33 SECTION 162(M) PARTICIPANT. "Section 162(m) Participant" shall mean
any key Employee designated by the Committee as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
1.34 SECURITIES ACT. "Securities Act" shall mean the Securities Act of
1933, as amended.
1.35 STOCK APPRECIATION RIGHT. "Stock Appreciation Right" shall mean a
stock appreciation right granted under Article VIII of the Plan.
1.36 STOCK PAYMENT. "Stock Payment" shall mean (i) a payment in the form
of shares of Common Stock, or (ii) an option or other right to purchase shares
of Common Stock, as part of a deferred compensation arrangement, made in lieu of
all or any portion of the compensation, including without limitation, salary,
bonuses and commissions, that would otherwise become payable to a key Employee,
consultant or Independent Director in cash, awarded under Article VII of the
Plan.
1.37 SUBSIDIARY. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
1.38 TERMINATION OF CONSULTANCY. "Termination of Consultancy" shall mean
the time when the engagement of a Holder as a consultant to the Company or a
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death or retirement; but
excluding terminations where there is a simultaneous commencement of employment
with the Company or any Subsidiary. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Consultancy, including, but not by way of limitation, the question of whether
a Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Terminations of
Consultancy. Notwithstanding any other provision of the Plan, the Company or any
Subsidiary has an absolute and unrestricted right to
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terminate a consultant's service at any time for any reason whatsoever, with or
without cause, except to the extent expressly provided otherwise in writing.
1.39 TERMINATION OF DIRECTORSHIP. "Termination of Directorship" shall mean
the time when an Optionee who is an Independent Director ceases to be a Director
for any reason, including, but not by way of limitation, a termination by
resignation, failure to be elected, death or retirement. The Board, in its sole
and absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Directorship with respect to Independent Directors.
1.40 TERMINATION OF EMPLOYMENT. "Termination of Employment" shall mean the
time when the employee-employer relationship between a Holder and the Company or
any Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (i) terminations where there is a
simultaneous reemployment or continuing employment of a Holder by the Company or
any Subsidiary, (ii) at the discretion of the Committee, terminations which
result in a temporary severance of the employee-employer relationship, and (iii)
at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Terminations of
Employment; PROVIDED, HOWEVER, that, with respect to Incentive Stock Options,
unless otherwise determined by the Committee in its discretion, a leave of
absence, change in status from an employee to an independent contractor or other
change in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that, such leave of absence, change in status
or other change interrupts employment for the purposes of Section 422(a)(2) of
the Code and the then applicable regulations and revenue rulings under said
Section. Notwithstanding any other provision of the Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 SHARES SUBJECT TO PLAN.
(a) The shares of stock subject to Awards shall be Common Stock, initially
shares of the Company's Common Stock, par value $.01 per share. The aggregate
number of such shares which may be issued upon grant or exercise of Awards under
the Plan shall not exceed ten million (10,000,000), provided, however, that the
aggregate number of shares which may be issued upon grant or exercise of Awards
which are not Options or Awards which are not issued in lieu of cash payments of
compensation or directors' fees shall not exceed one-hundred and fifty thousand
(150,000). The shares of Common Stock issuable upon exercise of such Options or
rights or upon any such awards may be either previously authorized but unissued
shares or treasury shares.
(b) The maximum number of shares which may be subject to Awards granted
under the Plan to any individual in any calendar year shall not exceed the Award
Limit. To the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled continue to be counted against the Award Limit.
2.2 ADD-BACK OF OPTIONS AND OTHER RIGHTS. If any Option, or other right to
acquire shares of Common Stock under any other award under the Plan, expires or
is canceled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by the Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to
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Section 10.3 and become exercisable with respect to shares of stock of another
corporation shall be considered cancelled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any share of Restricted Stock is
forfeited by the Grantee or repurchased by the Company pursuant to Section 6.6
hereof, such share may again be optioned, granted or awarded hereunder, subject
to the limitations of Section 2.1. Notwithstanding the provisions of this
Section 2.2, no shares of Common Stock may again be optioned, granted or awarded
if such action would cause an Incentive Stock Option to fail to qualify as an
incentive stock option under Section 422 of the Code.
ARTICLE III
GRANTING OF OPTIONS
3.1 ELIGIBILITY. Any Employee or consultant selected by the Committee
pursuant to Section 3.4(a)(i) shall be eligible to be granted an Option. Each
Independent Director of the Company shall be eligible to be granted Options at
the times and in the manner set forth in subsections (d) and (e) of Section 3.4.
3.2 DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted an
Incentive Stock Option under the Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section
422 of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
3.3 QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock Option
shall be granted to any person who is not an Employee.
3.4 GRANTING OF OPTIONS
(a) The Committee shall from time to time, in its absolute discretion, and
subject to applicable limitations of the Plan:
(i) Determine which Employees are key Employees and select from among
the key Employees or consultants (including Employees or consultants who
have previously received Awards under the Plan) such of them as in its
opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected key Employees or
consultants;
(iii) Subject to Section 3.3, determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and whether such
Options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent with
the Plan; PROVIDED, HOWEVER, that the terms and conditions of Options
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions
of Section 162(m) of the Code.
(b) Upon the selection of a key Employee or consultant to be granted an
Option, the Committee shall instruct the Secretary of the Company to issue the
Option and may impose such conditions on the grant of the Option as it deems
appropriate.
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(c) Any Incentive Stock Option granted under the Plan may be modified by the
Committee, with the consent of the Optionee, to disqualify such Option from
treatment as an "incentive stock option" under Section 422 of the Code.
(d) During the term of the Plan, each person who is an Independent Director
as of the date of the consummation of the merger of Promus Hotel Corporation and
Doubletree Corporation shall be granted an Option to purchase ten thousand
(10,000) shares of Common Stock (subject to adjustment as provided in Section
10.3) on the date of the closing of such merger. During the term of the Plan, a
person who is initially elected to the Board after the consummation of the
merger of Promus Hotel Corporation and Doubletree Corporation and who is an
Independent Director at the time of such initial election automatically shall be
granted an Option to purchase ten thousand (10,000) shares of Common Stock
(subject to adjustment as provided in Section 10.3) on the date of such initial
election. Members of the Board who are employees of the Company who subsequently
retire from the Company and remain on the Board will not receive an initial
Option grant pursuant to the preceding sentence, but to the extent that they are
otherwise eligible, will receive, after retirement from employment with the
Company, Options as described in the preceding sentence. All the foregoing
Option grants authorized by this Section 3.4(d) are subject to stockholder
approval of the Plan.
(e) Options may be granted under the Plan to Employees and consultants in
lieu of cash bonuses which would otherwise be payable to such Employees and
consultants and to Independent Directors in lieu of directors' fees which would
otherwise be payable to such Independent Directors, pursuant to such policies
which may be adopted by the Committee (or the Board, in the case of Options
granted to Independent Directors) from time to time.
ARTICLE IV
TERMS OF OPTIONS
4.1 AWARD AGREEMENT. Each Option shall be evidenced by an Award Agreement.
Award Agreements evidencing Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
4.2 OPTION PRICE. The price per share of the shares subject to each Option
shall be set by the Committee; PROVIDED, HOWEVER, that such price shall be no
less than 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted; PROVIDED, HOWEVER, that (i) in the case of Incentive
Stock Options granted to an individual then owning (within the meaning of
Section 424(d) of the Code) more than 10% of the total combined voting power of
all classes of stock of the Company or any Subsidiary or parent corporation
thereof (within the meaning of Section 422 of the Code), such price shall not be
less than 110% of the Fair Market Value of a share of Common Stock on the date
the Option is granted (or the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code) and (ii) in the case of Options
granted to Independent Directors under Section 3.4(d), such price shall equal
100% of the Fair Market Value of a share of Common Stock on the date the Option
is granted.
4.3 OPTION TERM. The term of an Option shall be set by the Committee in
its discretion, but shall not be more than ten (10) years from the date the
Option is granted; PROVIDED, HOWEVER, that, (i) in the case of Options granted
to Independent Directors under Section 3.4(d), the term shall be ten (10) years
from the date the Option is granted, without variation or acceleration
hereunder, but subject to Section 5.6, and (ii) in the case of Incentive Stock
Options, the term shall not be more than five (5) years from the date the
Incentive Stock Option is granted if the Incentive Stock Option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
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Section 422 of the Code). Except as limited by requirements of Section 422 of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee may extend the term of any outstanding Option in
connection with any Termination of Employment or Termination of Consultancy of
the Optionee, or amend any other term or condition of such Option relating to
such a termination.
4.4 OPTION VESTING
(a) The period during which the right to exercise an Option in whole or in
part vests in the Optionee shall be set by the Committee and the Committee may
determine that an Option may not be exercised in whole or in part for a
specified period after it is granted; PROVIDED, HOWEVER, that, unless the
Committee otherwise provides in the terms of the Option or otherwise, no Option
shall be exercisable by any Optionee who is then subject to Section 16 of the
Exchange Act within the period ending six months and one day after the date the
Option is granted; and provided, further, that Options granted to Independent
Directors under Section 3.4(d) shall become exercisable in cumulative annual
installments of 25% on each of the first, second, third and fourth anniversaries
of the date of Option grant, without variation or acceleration hereunder except
as provided in Section 10.3(b). At any time after grant of an Option, the
Committee may, in its sole and absolute discretion and subject to whatever terms
and conditions it selects, accelerate the period during which an Option (except
an Option granted to an Independent Director) vests.
(b) No portion of an Option which is unexercisable at Termination of
Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee in the case of Options granted to Employees or
consultants either in the Award Agreement or by action of the Committee
following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with respect
to which "incentive stock options" (within the meaning of Section 422 of the
Code, but without regard to Section 422(d) of the Code) are exercisable for the
first time by an Optionee during any calendar year (under the Plan and all other
incentive stock option plans of the Company and any parent or subsidiary
corporation (within the meaning of Section 422 of the Code) of the Company)
exceeds $100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.4(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such stock
is granted.
ARTICLE V
EXERCISE OF OPTIONS
5.1 PARTIAL EXERCISE. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Committee (or the Board, in the case of Options granted to
Independent Directors) may require that, by the terms of the Option, a partial
exercise be with respect to a minimum number of shares.
5.2 MANNER OF EXERCISE. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his office:
(a) A written notice complying with the applicable rules established by the
Committee (or the Board, in the case of Options granted to Independent
Directors) stating that the Option, or a portion thereof, is exercised. The
notice shall be signed by the Optionee or other person then entitled to exercise
the Option or such portion of the Option;
(b) Such representations and documents as the Committee (or the Board, in
the case of Options granted to Independent Directors), in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee or Board may, in
its absolute discretion, also take
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whatever additional actions it deems appropriate to effect such compliance
including, without limitation, placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to Section 10.1
by any person or persons other than the Optionee, appropriate proof of the right
of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares with
respect to which the Option, or portion thereof, is exercised. However, the
Committee (or the Board, in the case of Options granted to Independent
Directors), may in its discretion (i) allow a delay in payment up to thirty (30)
days from the date the Option, or portion thereof, is exercised; (ii) allow
payment, in whole or in part, through the delivery of shares of Common Stock
which have been owned by the Optionee for at least six months, duly endorsed for
transfer to the Company with a Fair Market Value on the date of delivery equal
to the aggregate exercise price of the Option or exercised portion thereof;
(iii) allow payment, in whole or in part, through the surrender of shares of
Common Stock then issuable upon exercise of the Option having a Fair Market
Value on the date of Option exercise equal to the aggregate exercise price of
the Option or exercised portion thereof; (iv) allow payment, in whole or in
part, through the delivery of property of any kind which constitutes good and
valuable consideration; (v) allow payment, in whole or in part, through the
delivery of a full recourse promissory note bearing interest (at no less than
such rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Committee or the Board; (vi)
allow payment, in whole or in part, through the delivery of a notice that the
Optionee has placed a market sell order with a broker with respect to shares of
Common Stock then issuable upon exercise of the Option, and that the broker has
been directed to pay a sufficient portion of the net proceeds of the sale to the
Company in satisfaction of the Option exercise price; or (vii) allow payment
through any combination of the consideration provided in the foregoing
subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory note,
the Committee (or the Board, in the case of Options granted to Independent
Directors) may also prescribe the form of such note and the security to be given
for such note. The Option may not be exercised, however, by delivery of a
promissory note or by a loan from the Company when or where such loan or other
extension of credit is prohibited by law.
5.3 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;
(b) The completion of any registration or other qualification of such shares
under any state or federal law, or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee (or Board, in the case of
Options granted to Independent Directors) shall, in its absolute discretion,
determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise of
the Option as the Committee (or Board, in the case of Options granted to
Independent Directors) may establish from time to time for reasons of
administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including
payment of any applicable withholding tax, which in the discretion of the
Committee or the Board may be in the form of consideration used by the Optionee
to pay for such shares under Section 5.2(d).
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5.4 RIGHTS AS STOCKHOLDERS. Optionees shall not be, nor have any of the
rights or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Optionees.
5.5 OWNERSHIP AND TRANSFER RESTRICTIONS. The Committee (or Board, in the
case of Options granted to Independent Directors), in its absolute discretion,
may impose such restrictions on the ownership and transferability of the shares
purchasable upon the exercise of an Option as it deems appropriate. Any such
restriction shall be set forth in the respective Award Agreement and may be
referred to on the certificates evidencing such shares. The Committee may
require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Employee or (ii) one year after the transfer of such shares to
such Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirement to give prompt
notice of disposition.
5.6 LIMITATIONS ON EXERCISE OF OPTIONS GRANTED TO INDEPENDENT
DIRECTORS. No Option granted to an Independent Director under Section 3.4(d)
may be exercised to any extent by anyone after the first to occur of the
following events:
(a) The expiration of twelve (12) months from the date of the Optionee's
death;
(b) the expiration of twelve (12) months from the date of the Optionee's
Termination of Directorship by reason of his permanent and total disability
(within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three (3) months from the date of the Optionee's
Termination of Directorship for any reason other than such Optionee's death or
his permanent and total disability, unless the Optionee dies within said
three-month period; or
(d) The expiration of ten (10) years from the date the Option was granted.
5.7 ADDITIONAL LIMITATIONS ON EXERCISE OF OPTIONS. Optionees may be
required to comply with any timing or other restrictions with respect to the
settlement or exercise of an Option, including a window-period limitation, as
may be imposed in the discretion of the Board or the Committee.
ARTICLE VI
AWARD OF RESTRICTED STOCK
6.1 ELIGIBILITY. Subject to the Award Limit, Restricted Stock may be
awarded to any Employee who the Committee determines is a key Employee or any
consultant whom the Committee determines should receive such an award. In
addition, Independent Directors may be awarded Restricted Stock in lieu of
directors' fees, as provided in Section 6.2(d).
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6.2 AWARD OF RESTRICTED STOCK
(a) The Committee may from time to time, in its absolute discretion:
(i) Determine which Employees are key Employees and select from among
the key Employees or consultants (including Employees or consultants who
have previously received other awards under the Plan) such of them as in its
opinion should be awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with the Plan.
(b) The Committee shall establish the purchase price, if any, and form of
payment for Restricted Stock awarded to Employees or consultants; PROVIDED,
HOWEVER, that such purchase price shall be no less than the par value of the
Common Stock to be purchased, unless otherwise permitted by applicable state
law. In all cases, legal consideration shall be required for each issuance of
Restricted Stock.
(c) Upon the selection of a key Employee or consultant to be awarded
Restricted Stock, the Committee shall instruct the Secretary of the Company to
issue such Restricted Stock and may impose such conditions on the issuance of
such Restricted Stock as it deems appropriate.
(d) Restricted Stock may be awarded to Independent Directors in payment of a
portion of their directors' fees, pursuant to such policies which may be adopted
by the Board from time to time.
6.3 AWARD AGREEMENT. Restricted Stock shall be issued only pursuant to an
Award Agreement.
6.4 RIGHTS AS STOCKHOLDERS. Subject to Section 6.5, upon delivery of the
shares of Restricted Stock to the escrow holder pursuant to Section 6.7, the
Restricted Stockholder shall have, unless otherwise provided by the Committee
(or the Board, in the case of Restricted Stock awarded to Independent
Directors), all the rights of a stockholder with respect to said shares, subject
to the restrictions in his Award Agreement, including the right to receive all
dividends and other distributions paid or made with respect to the shares;
PROVIDED, HOWEVER, that in the discretion of the Committee (or the Board, in the
case of Restricted Stock awarded to Independent Directors), any extraordinary
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 6.5.
6.5 RESTRICTION. All shares of Restricted Stock issued under the Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Committee (or the Board, in the case of
Restricted Stock awarded to Independent Directors) shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; PROVIDED, HOWEVER,
that, unless the Committee (or the Board, in the case of Restricted Stock
awarded to Independent Directors) otherwise provides in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person subject
to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and PROVIDED, FURTHER, that, except with
respect to shares of Restricted Stock granted pursuant to Section 6.9, by action
taken after the Restricted Stock is issued, the Committee (or the Board, in the
case of Restricted Stock awarded to Independent Directors) may, on such terms
and conditions as it may determine to be appropriate, remove any or all of the
restrictions imposed by the terms of the Award Agreement. Restricted Stock may
not be sold or encumbered until all restrictions are terminated or expire. If no
consideration was paid by the Restricted Stockholder upon issuance, a Restricted
Stockholder's rights in unvested Restricted Stock shall lapse upon Termination
of Employment or, if applicable, upon Termination of Consultancy with the
Company.
6.6 REPURCHASE OF RESTRICTED STOCK. The Committee (or the Board, in the
case of Restricted Stock awarded to Independent Directors) shall provide in the
terms of each individual Award Agreement that
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the Company shall have the right to repurchase from the Restricted Stockholder
the Restricted Stock then subject to restrictions under the Award Agreement
immediately upon a Termination of Employment or, if applicable, upon a
Termination of Consultancy or Termination of Directorship between the Restricted
Stockholder and the Company, at a cash price per share equal to the price paid
by the Restricted Stockholder for such Restricted Stock.
6.7 ESCROW. The Secretary of the Company or such other escrow holder as
the Committee (or the Board, in the case of Restricted Stock awarded to
Independent Directors) may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Award Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
6.8 LEGEND. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee (or the Board, in the case of
Restricted Stock awarded to Independent Directors) shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under Award Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
6.9 PROVISIONS APPLICABLE TO SECTION 162(M) PARTICIPANTS.
(a) Notwithstanding anything in the Plan to the contrary, the Committee may
grant Restricted Stock to a Section 162(m) Participant the restrictions with
respect to which lapse upon the attainment of performance goals which are
related to one or more of the Performance Criteria.
(b) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
Restricted Stock which may be granted to one or more Section 162(m)
Participants, no later than ninety (90) days following the commencement of any
designated period of service (or such other time as may be required or permitted
by Section 162(m) of the Code), the Committee shall, in writing, (i) designate
one or more Section 162(m) Participants, (ii) select the Performance Criteria
applicable to the designated period of service, (iii) establish the various
performance targets, in terms of an objective formula or standard, and amounts
of Restricted Stock which may be earned for such fiscal year or other designated
fiscal period or period of service and (iv) specify the relationship between
Performance Criteria and the performance targets and the amounts of Restricted
Stock to be earned by each Section 162(m) Participant for such fiscal year or
other designated fiscal period or period of service. Following the completion of
each fiscal year or other designated fiscal period or period of service, the
Committee shall certify in writing whether the applicable performance targets
have been achieved for such fiscal year or other designated fiscal period or
period of service. In determining the amount earned by a Section 162(m)
Participant, the Committee shall have the right to reduce (but not to increase)
the amount payable at a given level of performance to take into account
additional factors that the Committee may deem relevant to the assessment of
individual or corporate performance for the fiscal year or other designated
fiscal period or period of service.
6.10 SECTION 83(B) ELECTION. If a Restricted Stockholder makes an election
under Section 83(b) of the Code, or any successor section thereto, to be taxed
with respect to the Restricted Stock as of the date of transfer of the
Restricted Stock rather than as of the date or dates upon which the Restricted
Stockholder would otherwise be taxable under Section 83(a) of the Code, the
Restricted Stockholder shall deliver a copy of such election to the Company
immediately after filing such election with the Internal Revenue Service.
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ARTICLE VII
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
7.1 ELIGIBILITY. Subject to the Award Limit, one or more Performance
Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock Payments
may be granted to any Employee whom the Committee determines is a key Employee
or any consultant whom the Committee determines should receive such an award. In
addition, Independent Directors may be granted Stock Payments and Deferred Stock
in lieu of directors' fees, as provided in Sections 7.4 and 7.5.
7.2 PERFORMANCE AWARDS. Any key Employee or consultant selected by the
Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to any one or more of Performance Criteria or
other specific performance criteria determined appropriate by the Committee, in
each case on a specified date or dates or over any period or periods determined
by the Committee. In making such determinations, the Committee shall consider
(among such other factors as it deems relevant in light of the specific type of
award) the contributions, responsibilities and other compensation of the
particular key Employee or consultant.
7.3 DIVIDEND EQUIVALENTS. Any key Employee or consultant selected by the
Committee may be granted Dividend Equivalents based on the dividends declared on
Common Stock, to be credited as of dividend payment dates, during the period
between the date an Option, Stock Appreciation Right, Deferred Stock or
Performance Award is granted, and the date such Option, Stock Appreciation
Right, Deferred Stock or Performance Award is exercised, vests or expires, as
determined by the Committee. Such Dividend Equivalents shall be converted to
cash or additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee. With respect
to Dividend Equivalents granted with respect to Options intended to be qualified
performance-based compensation for purposes of Section 162(m) of the Code, such
Dividend Equivalents shall be payable regardless of whether such Option is
exercised.
7.4 STOCK PAYMENTS. Any key Employee or consultant selected by the
Committee may receive Stock Payments in the manner determined from time to time
by the Committee. The number of shares shall be determined by the Committee and
may be based upon the Performance Criteria or other specific performance
criteria determined appropriate by the Committee, determined on the date such
Stock Payment is made or on any date thereafter. During the term of the Plan, on
the date of each annual meeting of stockholders, each person who is an
Independent Director and who is entitled to receive a payment of cash fees on
such date shall be granted a Stock Payment, in lieu of cash fees which such
Independent Director would otherwise receive, which shall have an aggregate Fair
Market Value of $15,000 as of the date of such grant.
7.5 DEFERRED STOCK. Any key Employee or consultant selected by the
Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee. The number of shares of Deferred Stock shall
be determined by the Committee and may be linked to the Performance Criteria or
other specific performance criteria determined to be appropriate by the
Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. In addition, Deferred Stock may be granted
to Independent Directors in lieu of directors' fees which would otherwise be
payable to such Independent Directors, pursuant to such policies as may be
adopted by the Board from time to time. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Grantee of Deferred Stock shall have no
rights as a Company stockholder with respect to such Deferred Stock until such
time as the award has vested and the Common Stock underlying the award has been
issued.
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7.6 AWARD AGREEMENT. Each Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment shall be evidenced by an Award Agreement.
7.7 TERM. The term of a Performance Award, Dividend Equivalent, award of
Deferred Stock and/ or Stock Payment shall be set by the Committee (or the
Board, in the case of Awards granted to Independent Directors) in its
discretion.
7.8 EXERCISE OR PURCHASE PRICE. The Committee (or the Board, in the case
of Awards granted to Independent Directors) may establish the exercise or
purchase price of a Performance Award, shares of Deferred Stock, or shares
received as a Stock Payment; PROVIDED, HOWEVER, that such price shall not be
less than the par value for a share of Common Stock, unless otherwise permitted
by applicable state law.
7.9 EXERCISE UPON TERMINATION OF EMPLOYMENT. A Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or
payable only while the Grantee is an Employee or consultant; PROVIDED, HOWEVER,
that except with respect to Performance Awards granted pursuant to Section 7.11,
the Committee in its sole and absolute discretion may provide that the
Performance Awards may be exercised or paid following a Termination of
Employment or a Termination of Consultancy without cause, or following a change
in control of the Company, or because of the Grantee's retirement, death or
disability, or otherwise.
7.10 PAYMENT ON EXERCISE. Payment of the amount determined under Section
7.1 or 7.2 above shall be in cash, in Common Stock or a combination of both, as
determined by the Committee. To the extent any payment under this Article VII is
effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 5.3.
7.11 PROVISIONS APPLICABLE TO SECTION 162(M) PARTICIPANTS.
(a) Notwithstanding anything in the Plan to the contrary, the Committee may
grant any performance or incentive awards described in Article VII to a Section
162(m) Participant that vest or become exercisable or payable upon the
attainment of performance goals which are related to one or more of the
Performance Criteria.
(b) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
performance or incentive awards described in Article VII which may be granted to
one or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall, in
writing, (i) designate one or more Section 162(m) Participants, (ii) select the
Performance Criteria applicable to the fiscal year or other designated fiscal
period or period of service, (iii) establish the various performance targets, in
terms of an objective formula or standard, and bonus amounts which may be earned
for such fiscal year or other designated fiscal period or period of service and
(iv) specify the relationship between the Performance Criteria and performance
targets and the amounts to be earned by each Section 162(m) Participant for such
fiscal year or other designated fiscal period or period of service. Following
the completion of each fiscal year or other designated fiscal period or period
of service, the Committee shall certify in writing whether the applicable
performance targets have been achieved for such fiscal year or other designated
fiscal period or period of service. In determining the amount earned by a
Section 162(m) Participant, the Committee shall have the right to reduce (but
not to increase) the amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or other
designated fiscal period or period of service.
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ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 GRANT OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right may be
granted to any key Employee or consultant selected by the Committee. A Stock
Appreciation Right may be granted (i) in connection and simultaneously with the
grant of an Option, (ii) with respect to a previously granted Option, or (iii)
independent of an Option. A Stock Appreciation Right shall be subject to such
terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by an Award Agreement. The Committee, in its
discretion, may determine whether a Stock Appreciation Right is to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
and Award Agreements evidencing Stock Appreciation Rights intended to so qualify
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
8.2 COUPLED STOCK APPRECIATION RIGHTS
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than the number of
shares subject to the simultaneously or previously granted Option to which it is
coupled.
(c) A CSAR shall entitle the Grantee (or other person entitled to exercise
the Option pursuant to the Plan) to surrender to the Company unexercised a
portion of the Option to which the CSAR relates (to the extent then exercisable
pursuant to its terms) and to receive from the Company in exchange therefor an
amount determined by multiplying the difference obtained by subtracting the
Option exercise price from the Fair Market Value of a share of Common Stock on
the date of exercise of the CSAR by the number of shares of Common Stock with
respect to which the CSAR shall have been exercised, subject to any limitations
the Committee may impose.
8.3 INDEPENDENT STOCK APPRECIATION RIGHTS
(a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated to
any Option and shall have a term set by the Committee. An ISAR shall be
exercisable in such installments as the Committee may determine. An ISAR shall
cover such number of shares of Common Stock as the Committee may determine;
provided, however, that unless the Committee otherwise provides in the terms of
the ISAR or otherwise, no ISAR granted to a person subject to Section 16 of the
Exchange Act shall be exercisable until at least six months have elapsed from
(but excluding) the date on which the Option was granted. The exercise price per
share of Common Stock subject to each ISAR shall be set by the Committee. An
ISAR is exercisable only while the Grantee is an Employee or consultant;
provided that the Committee may determine that the ISAR may be exercised
subsequent to Termination of Employment or Termination of Consultancy without
cause, or following a Change in Control of the Company, or because of the
Grantee's retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Grantee (or other person entitled to exercise
the ISAR pursuant to the Plan) to exercise all or a specified portion of the
ISAR (to the extent then exercisable pursuant to its terms) and to receive from
the Company an amount determined by multiplying the difference obtained by
subtracting the exercise price per share of the ISAR from the Fair Market Value
of a share of Common Stock on the date of exercise of the ISAR by the number of
shares of Common Stock with respect to which the ISAR shall have been exercised,
subject to any limitations the Committee may impose.
8.4 PAYMENT AND LIMITATIONS ON EXERCISE
(a) Payment of the amount determined under Section 8.2(c) and 8.3(b) above
shall be in cash, in Common Stock (based on its Fair Market Value as of the date
the Stock Appreciation Right is exercised) or a combination of both, as
determined by the Committee. To the extent such payment is effected in Common
Stock it shall be made subject to satisfaction of all provisions of Section 5.3
above pertaining to Options.
(b) Grantees of Stock Appreciation Rights may be required to comply with any
timing or other restrictions with respect to the settlement or exercise of a
Stock Appreciation Right, including a window-period limitation, as may be
imposed in the discretion of the Board or Committee.
F-15
<PAGE>
ARTICLE IX
ADMINISTRATION
9.1 COMMITTEE. The Human Resources Committee (or another committee or a
subcommittee of the Board assuming the functions of the Committee under the
Plan) shall consist solely of two or more Independent Directors appointed by and
holding office at the pleasure of the Board, each of whom is both a
"non-employee director" as defined by Rule 16b-3 and an "outside director" for
purposes of Section 162(m) of the Code. Appointment of Committee members shall
be effective upon acceptance of appointment. Committee members may resign at any
time by delivering written notice to the Board. Vacancies in the Committee may
be filled by the Board.
9.2 DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the Committee
to conduct the general administration of the Plan in accordance with its
provisions. The Committee shall have the power to interpret the Plan and the
agreements pursuant to which Awards are granted or awarded, and to adopt such
rules for the administration, interpretation, and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Awards granted to Independent Directors. Any such grant or award
under the Plan need not be the same with respect to each Holder. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan except with respect to matters
which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or
rules issued thereunder, are required to be determined in the sole discretion of
the Committee.
9.3 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is present
or by a memorandum or other written instrument signed by all members of the
Committee.
9.4 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS. Members of
the Committee shall receive such compensation, if any, for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of the Plan
shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Holders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or Awards, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 NON-TRANSFERABILITY. No Award under the Plan may be sold, pledged,
assigned or transferred in any manner other than by will or the laws of descent
and distribution or pursuant to a QDRO unless and until such Award has been
exercised, or the shares underlying such Award have been issued, and all
restrictions applicable to such shares have lapsed. However, the Committee (or
the Board in the case of Awards granted to Independent Directors) may in its
discretion, permit a Holder to transfer an Award to a Permitted Transferee
subject to the following terms and conditions:
F-16
<PAGE>
(a) An Award transferred to a Permitted Transferee shall not be assignable
or transferable by the Permitted Transferee other than by will or the laws of
descent and distribution.
(b) Any Award which is transferred to a Permitted Transferee shall continue
to be subject to all the terms and conditions of the Award as applicable to the
original holder (other than the ability to further transfer the Award).
(c) The Holder and the Permitted Transferee shall execute any and all
documents reasonably requested by the Committee, including without limitation
documents to (i) confirm the status of the transferee as a Permitted Transferee,
(ii) satisfy any requirements for an exemption for the transfer under applicable
federal and state securities laws and (iii) evidence the transfer.
(d) Shares of Common Stock acquired by a Permitted Transferee through
exercise of an Option have not been registered under the Securities Act or any
state securities act and may not be transferred, nor will any assignee or
transferee thereof be recognized as an owner of such shares of Common Stock for
any purpose, unless a registration statement under the Securities Act and any
applicable state securities act with respect to such shares shall then be in
effect or unless the availability of an exemption from registration with respect
to any proposed transfer or disposition of such shares shall be established to
the satisfaction of counsel for the Company.
No Award or interest or right therein shall be liable for the debts,
contracts or engagements of the Holder or his successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding provisions of
this Section 10.1.
10.2 AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. Except as otherwise
provided in this Section 10.2, the Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Board or the Committee. However, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, except as
provided in Section 10.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under the Plan. No amendment,
suspension or termination of the Plan shall, without the consent of the Holder
alter or impair any rights or obligations under any Award theretofore granted or
awarded, unless the Award itself otherwise expressly so provides. No Awards may
be granted or awarded during any period of suspension or after termination of
the Plan, and in no event may any Incentive Stock Option be granted under the
Plan after the first to occur of the following events: (i) the expiration of ten
years from the date the Plan is adopted by the Board or (ii) the expiration of
ten years from the date the Plan is approved by the Company's stockholders under
Section 10.4. In addition, if the Board determines that Awards other than
Options or Stock Appreciation Rights which may be granted to Section 162(m)
Participants should continue to be eligible to qualify as performance-based
compensation under Section 162(m)(4)(C) of the Code, the Performance Criteria
must be disclosed to and reapproved by the Company's stockholders no later than
the first stockholder meeting that occurs in the fifth year following the year
in which the Company's stockholders previously approved the Performance
Criteria.
10.3 CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR
LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS.
(a) Subject to Section 10.3(d), in the event that the Committee (or the
Board, in the case of Awards granted to Independent Directors) determines that
any dividend or other distribution (whether in the form of cash, Common Stock,
other securities, or other property), recapitalization, reclassification, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase,
F-17
<PAGE>
liquidation, dissolution, or sale, transfer, exchange or other disposition of
all or substantially all of the assets of the Company (including, but not
limited to, a Corporate Transaction), or exchange of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Common Stock or other securities of the Company, or other similar corporate
transaction or event, in the Committee's sole discretion (or in the case of
Awards granted to Independent Directors, the Board's sole discretion), affects
the Common Stock such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Award, then the Committee (or the Board, in the case of Awards granted to
Independent Directors) shall, in such manner as it may deem equitable, adjust
any or all of
(i) the number and kind of shares of Common Stock (or other securities
or property) with respect to which Awards may be granted or awarded
(including, but not limited to, adjustments of the limitations in Section
2.1 on the maximum number and kind of shares which may be issued and
adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other securities
or property) subject to outstanding Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the
number and kind of shares of outstanding Restricted Stock or Deferred Stock,
and
(iii) the grant or exercise price with respect to any Award.
(b) Subject to Section 10.3(d), in the event of any Corporate Transaction or
other transaction or event described in Section 10.3(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate of the
Company, or the financial statements of the Company or any affiliate, or of
changes in applicable laws, regulations, or accounting principles, the Committee
(or the Board, in the case of Awards granted to Independent Directors) in its
discretion is hereby authorized to take any one or more of the following actions
whenever the Committee (or the Board, in the case of Awards granted to
Independent Directors) determines that such action is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan or with respect to any option, right or
other award under the Plan, to facilitate such transactions or events or to give
effect to such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Awards granted to Independent Directors) may provide, either by the terms
of the agreement or by action taken prior to the occurrence of such
transaction or event and either automatically or upon the Holder's request,
for either the purchase of any such Award for an amount of cash equal to the
amount that could have been attained upon the exercise of such Award or
realization of the Holder's rights had such Award been currently exercisable
or payable or fully vested or the replacement of such Award with other
rights or property selected by the Committee (or the Board, in the case of
Awards granted to Independent Directors) in its sole discretion;
(ii) In its sole and absolute discretion, the Committee (or the Board,
in the case of Awards granted to Independent Directors) may provide, either
by the terms of such Award or by action taken prior to the occurrence of
such transaction or event that it cannot vest, be exercised or become
payable after such event;
(iii) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Awards granted to Independent Directors) may provide, either by the terms
of such Award or by action taken prior to the occurrence of such transaction
or event, that for a specified period of time prior to such transaction or
event, such Award shall be
F-18
<PAGE>
exercisable as to all shares covered thereby, notwithstanding anything to
the contrary in (i) Section 4.4 or (ii) the provisions of such Award;
(iv) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Awards granted to Independent Directors) may provide, either by the terms
of such Award or by action taken prior to the occurrence of such transaction
or event, that upon such event, such Award be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the stock of
the successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and prices;
and
(v) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Awards granted to Independent Directors) may make adjustments in the
number and type of shares of Common Stock (or other securities or property)
subject to outstanding Awards, and in the number and kind of outstanding
Restricted Stock or Deferred Stock and/or in the terms and conditions of
(including the grant or exercise price), and the criteria included in,
outstanding options, rights and awards and options, rights and awards which
may be granted in the future.
(vi) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee may provide either by the
terms of a Restricted Stock award or Deferred Stock award or by action taken
prior to the occurrence of such event that, for a specified period of time
prior to such event, the restrictions imposed under an Award Agreement upon
some or all shares of Restricted Stock or Deferred Stock may be terminated,
and, in the case of Restricted Stock, some or all shares of such Restricted
Stock may cease to be subject to repurchase under Section 6.5 or forfeiture
under Section 6.4 after such event.
(vii) Notwithstanding any other provision of the Plan, in the event of
Change in Control, each outstanding Award shall, immediately prior to the
effective date of the Change in Control, automatically become fully
exercisable for all of the shares of Common Stock at the time subject to
such rights and may be exercised for any or all of those shares as
fully-vested shares of Common Stock.
(c) Subject to Section 10.3(d) and 10.8, the Committee (or the Board, in the
case of Awards granted to Independent Directors) may, in its discretion, include
such further provisions and limitations in any Award, agreement or certificate,
as it may deem equitable and in the best interests of the Company.
(d) With respect to Awards described in Article VI or VII which are granted
to Section 162(m) Participants and are intended to qualify as performance-based
compensation under Section 162(m)(4)(C), no adjustment or action described in
this Section 10.3 or in any other provision of the Plan shall be authorized to
the extent that such adjustment or action would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such Award to fail to so qualify
under Section 162(m)(4)(C), as the case may be, or any successor provisions
thereto. Furthermore, no such adjustment or action shall be authorized to the
extent such adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Committee (or the Board, in the case of Awards granted to Independent Directors)
determines that the option or other award is not to comply with such exemptive
conditions. The number of shares of Common Stock subject to any Award shall
always be rounded to the next whole number.
10.4 APPROVAL OF PLAN BY STOCKHOLDERS. The Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date of
the Board's initial adoption of the Plan. Awards may be granted or awarded prior
to such stockholder approval, provided that such Awards shall not be exercisable
or shall not vest prior to the time when the Plan is approved by the
stockholders, and provided further that if such approval has not been obtained
at the end of said twelve-month period, all Awards previously granted or awarded
under the Plan shall thereupon be canceled and become null and void.
F-19
<PAGE>
10.5 TAX WITHHOLDING. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Holder of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Award. The Committee (or the
Board, in the case of Awards granted to Independent Directors) may in its
discretion and in satisfaction of the foregoing requirement allow such Holder to
elect to have the Company withhold shares of Common Stock otherwise issuable
under such Award (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld.
10.6 LOANS. The Committee may, in its discretion, extend one or more loans
to key Employees in connection with the exercise or receipt of an Award granted
or awarded under the Plan, or the issuance of Restricted Stock or Deferred Stock
awarded under the Plan. The terms and conditions of any such loan shall be set
by the Committee.
10.7 FORFEITURE PROVISIONS. Pursuant to its general authority to determine
the terms and conditions applicable to Awards under the Plan, the Committee (or
the Board, in the case of Awards granted to Independent Directors) shall have
the right (to the extent consistent with the applicable exemptive conditions of
Rule 16b-3) to provide, in the terms of Awards made under the Plan, or to
require a Holder to agree by separate written instrument, that (i) any proceeds,
gains or other economic benefit actually or constructively received by the
Holder upon any receipt or exercise of the Award, or upon the receipt or resale
of any Common Stock underlying the Award, must be paid to the Company, and (ii)
the Award shall terminate and any unexercised portion of the Award (whether or
not vested) shall be forfeited, if (a) a Termination of Employment, Termination
of Consultancy or Termination of Directorship occurs prior to a specified date,
or within a specified time period following receipt or exercise of the Award, or
(b) the Holder at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee (or
the Board, as applicable) or the Holder incurs a Termination of Employment,
Termination of Consultancy or Termination of Directorship for cause.
10.8 LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND PERFORMANCE-BASED
COMPENSATION. Notwithstanding any other provision of the Plan, the Plan, and
any Award granted or awarded to any individual who is then subject to Section 16
of the Exchange Act, shall be subject to any additional limitations set forth in
any applicable exemptive rule under Section 16 of the Exchange Act (including
any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan and Awards granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such applicable exemptive rule. Furthermore,
notwithstanding any other provision of the Plan or any Award described in
Article VI or VII which is granted to a Section 162(m) Participant and is
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the
extent necessary to conform to such requirements.
10.9 AT-WILL EMPLOYMENT. Nothing in the Plan or in any Award or agreement
hereunder shall confer upon any Holder any right to continue in the employ of,
or as a consultant for, the Company or any Subsidiary, or as a director of the
Company, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Holder at any time for any reason whatsoever, with or without good cause,
except to the extent expressly provided otherwise in a written employment
agreement between the Holder and the Company and any Subsidiary.
10.10 EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The adoption of
the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (i) to establish any other forms of incentives
F-20
<PAGE>
or compensation for Employees, Directors or Consultants of the Company or any
Subsidiary or (ii) to grant or assume options or other rights or awards
otherwise than under the Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.
10.11 COMPLIANCE WITH LAWS. The Plan, the granting and vesting of Awards
under the Plan and the issuance and delivery of shares of Common Stock and the
payment of money under the Plan or under Awards granted or awarded hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
10.12 TITLES. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.
10.13 GOVERNING LAW. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Parent Holding Corp. (to be renamed Promus Hotel Corporation) on
, 1997.
Executed on this day of , 1997.
--------------------------------------
Secretary
F-21
<PAGE>
PROXY
DOUBLETREE CORPORATION
410 NORTH 44TH STREET, SUITE 700
PHOENIX, ARIZONA 85008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William L. Perocchi and David L.
Stivers as Proxies, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote, as designated below, all
the shares of the common stock of Doubletree Corporation (the "Company") held
of record by the undersigned on October 31, 1997, at the Special Meeting of
Stockholders to be held on December 18, 1997, and at any adjournment or
postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE
ENCLOSED ENVELOPE. IF YOUR ADDRESS IS INCORRECTLY SHOWN, PLEASE PRINT CHANGES.
<PAGE>
DOUBLETREE CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
1. Approval of the Agreement and Plan of Merger by and among Promus,
Doubletree and Parent Holding Corp., as described in the accompanying
proxy statement.
/ / FOR / / AGAINST / / ABSTAIN
2. Approval of the 1997 Equity Participation Plan of New Promus, as described
in the accompanying proxy statement.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournment
or postponement thereof.
ALL OTHER PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED TO VOTE SHARES OF THE
COMMON STOCK OF THE COMPANY WHICH THE UNDERSIGNED WOULD BE ENTITLED TO VOTE
IF PERSONALLY PRESENT AT THE SPECIAL MEETING OF STOCKHOLDERS OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF, ARE HEREBY EXPRESSLY REVOKED.
Dated: ________________________________________________________________, 1997
_____________________________________________________________________________
Signature(s)
_____________________________________________________________________________
Signature(s)
PLEASE DATE THIS PROXY AND SIGN IT EXACTLY AS YOU NAME OR NAME(S) APPEAR
ABOVE. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING
AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH. IF SHARES ARE HELD BY A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY THE PRESIDENT OR OTHER AUTHORIZED OFFICER. IF SHARES ARE
HELD BY A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AN AUTHORIZED
PERSON.
<PAGE>
[LOGO]
PROMUS HOTEL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Promus Hotel Corporation hereby appoints
Michael D. Rose, Raymond E. Schultz and Ralph B. Lake or any one of them, true
and lawful proxies and attorneys, with full power of substitution to each, for,
and in the name, place and stead of the undersigned, and with all the powers the
undersigned would possess if present, to vote all stock of the undersigned in
the Company at the Special Meeting of Stockholders to be held on December 18,
1997 and any adjournment thereof.
The shares represented by this signed Proxy will be voted in accordance with
the choices specified on the reverse side and such authority is hereby granted.
If a choice is not specified, such shares will be voted FOR proposals 1 and 2
and in accordance with the proxy's discretion on any other matter that may
properly come before the meeting, and authority is hereby granted to do so.
MANAGEMENT RECOMMENDS A VOTE FOR THE AGREEMENT AND PLAN OF MERGER, AND FOR
APPROVAL OF THE 1997 EQUITY PARTICIPATION PLAN OF NEW PROMUS.
The undersigned hereby acknowledges receipt of the notice for the Special
Meeting and the Joint Proxy Statement/Prospectus.
(CONTINUED AND TO BE SIGNED AND DATED ON OTHER SIDE)
<PAGE>
/ / PLEASE MARK VOTES AS IN THIS EXAMPLE IN BLUE OR BLACK INK.
The Board of Directors unanimously recommends a vote FOR all items.
<TABLE>
<S> <C> <C> <C>
1. Approval of the Agreement and Plan of Merger
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
<TABLE>
<S> <C> <C> <C>
2. Approval of the 1997 Equity Participation Plan of New Promus.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
<TABLE>
<S> <C> <C> <C>
3. In their discretion, to act upon such other matters as may properly come before the meeting and any
adjournment thereof.
</TABLE>
Mark here for address change and
note at left / /. The undersigned
hereby acknowledges receipt of
notice of said meeting and the
related joint proxy statement/
prospectus.
__________________________________
(Signature) (Date)
__________________________________
(Signature) (Date)
Please sign the Proxy as your name
appears hereon. When signing as
Attorney, Executor, Administrator,
Trustee or Guardian, please give
title. All Joint Owners should
sign.
