<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
Commission File No. 1-11463
3
PROMUS HOTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 62-1596939
(State of Incorporation) (I.R.S. Employer Identification No.)
850 Ridge Lake Blvd., Suite 400
Memphis, Tennessee 38120
(Address of principal executive offices)
(901) 680-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
At September 30, 1995, there were outstanding 51,373,688
shares of the Company's Common Stock.
Page 1 of 60
Exhibit Index Page 32
<PAGE> 2
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
- ------------------------------
As discussed in Note 1, on June 30, 1995, The Promus Companies
Incorporated (Parent) completed the planned spin-off (Spin-Off)
that split Parent into two independent public corporations, one
for conducting its casino entertainment business and one for
conducting its hotel business. Parent's interests in the Embassy
Suites, Hampton Inn and Homewood Suites hotel divisions and
certain other hotel-related assets and liabilities were
transferred to Promus Hotel Corporation (PHC or the Company).
The accompanying consolidated condensed financial statements of
PHC include the assets and liabilities, revenues, expenses and
cash flows of Parent's hotel business on a stand-alone basis as
of December 31, 1994, and through the six months ended June 30,
1995, as well as actual results of the Company for the three
months ended September 30, 1995.
The accompanying unaudited consolidated condensed financial
statements of PHC, a Delaware corporation, have been prepared in
accordance with the instructions to Form 10-Q, and therefore do
not include all information and notes necessary for complete
financial statements in conformity with generally accepted
accounting principles. The results for the periods indicated are
unaudited, but reflect all adjustments (consisting only of normal
recurring adjustments) which management considers necessary for a
fair presentation of operating results. Results of operations
for interim periods are not necessarily indicative of a full year
of operations. These consolidated condensed financial statements
should be read in conjunction with the PHC combined financial
statements and notes thereto included in the PHC Registration
Statement on Form 10/A as declared effective on May 3, 1995.
<PAGE> 3
PROMUS HOTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
Sept 30, Dec 31,
(in thousands, except share amounts) 1995 1994
--------- --------
ASSETS
Current assets
Cash and cash equivalents $ 1,860 $ 2,222
Receivables, including notes receivable of
$7,992 and $66, less allowance for doubtful
accounts of $1,654 and $1,270 34,001 18,148
Deferred income taxes 1,473 2,844
Supplies 4,298 1,095
Prepayments and other 3,128 1,256
--------- --------
Total current assets 44,760 25,565
--------- --------
Land, buildings and equipment 460,071 410,751
Less: accumulated depreciation (110,665) (88,611)
--------- --------
349,406 322,140
Investments in and advances to nonconsolidated
affiliates (Note 7) 49,416 35,856
Deferred costs and other 45,954 37,004
--------- --------
$ 489,536 $420,565
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 19,390 $ 14,437
Accrued expenses 42,615 18,769
Current portion of long-term debt 983 1,255
--------- --------
Total current liabilities 62,988 34,461
Long-term debt (Note 2) 203,963 189,943
Deferred credits and other 35,752 28,649
Deferred income taxes 28,458 24,504
--------- --------
331,161 277,557
--------- --------
Commitments and contingencies (Notes 5 and 8)
Stockholders' equity
Common stock, $0.10 par value, 360,000,000
shares authorized, 51,373,688 shares
outstanding 5,137 -
Capital surplus 138,814 -
Retained earnings 15,761 -
Deferred compensation related to
restricted stock (1,337) -
Parent company investment - 143,008
--------- --------
158,375 143,008
--------- --------
$ 489,536 $420,565
========= ========
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE> 4
PROMUS HOTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Third Quarter Ended Nine Months Ended
(in thousands, except Sept 30, Sept 30, Sept 30, Sept 30,
per share amounts) 1995 1994 1995 1994
-------- -------- -------- --------
Revenues
Rooms $ 29,333 $ 28,270 $ 88,967 $ 84,167
Food and beverage 1,690 1,791 5,478 5,908
Franchise and management
fees 22,491 22,438 60,684 57,594
Other (Note 7) 18,457 13,007 49,627 36,931
-------- -------- -------- --------
Total revenues 71,971 65,506 204,756 184,600
-------- -------- -------- --------
Operating expenses
Direct
Rooms 14,360 14,598 42,341 42,720
Food and beverage 1,722 1,789 5,276 5,823
Depreciation 6,399 6,612 20,113 18,306
Other 19,004 12,995 51,410 42,277
-------- -------- -------- --------
Total direct operating
expenses 41,485 35,994 119,140 109,126
-------- -------- -------- --------
30,486 29,512 85,616 75,474
General and administrative (1,009) (756) (2,675) (2,276)
Property transactions 2,366 2,324 2,035 1,927
-------- -------- -------- --------
Operating income 31,843 31,080 84,976 75,125
Interest expense, net of
interest capitalized
(Notes 2 and 7) (7,570) (7,682) (24,312) (22,703)
Interest and other income 80 27 353 78
-------- -------- -------- --------
Income before income taxes
and extraordinary item 24,353 23,425 61,017 52,500
Provision for income taxes (10,253) (9,833) (25,688) (22,570)
-------- -------- -------- --------
Income before extraordinary
item 14,100 13,592 35,329 29,930
Extraordinary gain, net of
income tax 1,661 - 1,661 -
-------- -------- -------- --------
Net income $ 15,761 $ 13,592 $ 36,990 $ 29,930
======== ======== ======== ========
Income per common and
common equivalent
share (Note 10) $ .31
========
Average common and common
equivalent shares
outstanding 51,570
========
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE> 5
<TABLE><CAPTION>
PROMUS HOTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS'
EQUITY (NOTES 1 and 4)
(UNAUDITED)
Deferred
Compensation
Related to
Restricted Parent
Common Stock Capital Retained Stock Company
(in thousands) Shares Amount Surplus Earnings (Note 6) Investment Total
------ ------ -------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
December 31, 1994 - $ - $ - $ - $ - $ 143,008 $143,008
Net Income -
January 1, 1995
through
June 30, 1995 - - - - - 21,230 21,230
Intercompany
activity with
Parent - January 1,
1995 through
June 30, 1995 - - - - - (21,967) (21,967)
Spin-Off of the
Company (Note 1) 51,352 5,135 138,490 - (1,354) (142,271) -
Shares issued
under incentive
compensation plan 8 1 174 - (175) - -
------ ------ -------- ------- ------- --------- --------
Balance -
June 30, 1995 51,360 5,136 138,664 - (1,529) - 142,271
Net Income-
July 1, 1995
through
Sept 30, 1995 - - - 15,761 - - 15,761
Net shares issued
under incentive
compensation
plans, including
income tax
benefit of $97 14 1 150 - 192 - 343
------ ------ -------- ------- ------- --------- --------
Balance -
Sept 30, 1995 51,374 $5,137 $138,814 $15,761 $(1,337) $ - $158,375
====== ====== ======== ======= ======= ========= ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE> 6
PROMUS HOTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Sept 30, Sept 30,
(in thousands) 1995 1994
-------- --------
Cash flows from operating activities
Net income $ 36,990 $ 29,930
Adjustments to reconcile net income to cash
flows from operating activities
Depreciation and amortization 22,762 18,737
Other noncash items (723) (3,054)
Equity in earnings and distributions from
nonconsolidated affiliates (4,204) 313
Net gains from property transactions (2,159) (103)
Net change in long-term accounts 4,421 6,173
Net change in working capital accounts (397) (12,419)
-------- --------
Cash flows provided by operating
activities 56,690 39,577
-------- --------
Cash flows from investing activities
Land, building and equipment additions (50,922) (11,099)
Other (7,590) 17,184
-------- --------
Cash flows (used in) provided by
investing activities (58,512) 6,085
-------- --------
Cash flows from financing activities
Debt retirements (16,276) (1,452)
Advances from (to) Parent 17,680 (45,554)
Other 56 -
-------- --------
Cash flows provided by (used in)
financing activities 1,460 (47,006)
-------- --------
Net decrease in cash and cash equivalents (362) (1,344)
Cash and cash equivalents, beginning of period 2,222 3,653
-------- --------
Cash and cash equivalents, end of period $ 1,860 $ 2,309
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE> 7
PROMUS HOTEL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
Note 1 - Basis of Presentation and Organization
- -----------------------------------------------
On June 30, 1995, The Promus Companies Incorporated (Parent)
completed the transfer of the operations, assets and liabilities
of its hotel business (the Hotel Business), composed of three
hotel brands targeted at specific market segments: Embassy
Suites, Hampton Inn and Homewood Suites, to a new publicly traded
entity, Promus Hotel Corporation (PHC or the Company). As
approved by Parent's Board of Directors and stockholders on May
26, 1995, this entity was spun-off (the Spin-Off) from the Parent
and its stock was distributed to Parent's stockholders on a one-
for-two basis effective June 30, 1995 (the Distribution).
Concurrent with the Distribution, Parent changed its name to
Harrah's Entertainment, Inc.
The accompanying consolidated condensed financial statements
include the assets, liabilities, revenues, expenses and cash
flows of Parent's Hotel Business on a stand-alone basis as of
December 31, 1994, and through the six months ended June 30,
1995, as well as actual results of the Company for the three
months ended September 30, 1995.
All significant intercompany accounts and transactions among
PHC entities have been eliminated. Investments in 50% or less
owned companies and joint ventures over which PHC has the ability
to exercise significant influence, but does not control, are
accounted for using the equity method. PHC reflects its share of
income before interest expense and any extraordinary items of
these nonconsolidated affiliates in revenues - other. PHC's
proportionate share of interest expense of such nonconsolidated
affiliates is included in interest expense in the Consolidated
Condensed Statements of Income (see Note 7 for combined
summarized financial information regarding these nonconsolidated
affiliates). Management believes that PHC's income statement
treatment of equity investments is the preferable presentation
due to the nature of PHC's equity investments.
Note 2 - Long-term Debt
- -----------------------
Parent Debt Allocation
----------------------
The Company's financial position at December 31, 1994, and
its results of operations through June 30, 1995, reflect all
indebtedness, together with related interest expense,
specifically identified with PHC entities, as well as a pro-rata
portion of Parent's historical corporate debt balance,
unamortized deferred finance charges and interest expense.
Allocations of those amounts to PHC from Parent were based on the
percentage of Parent's historical corporate debt that was
expected to be retired using proceeds from PHC's new $350 million
bank credit facility (the PHC Facility). The accompanying
Consolidated Condensed Balance Sheet, as of December 31, 1994,
reflects corporate debt allocated to PHC from Parent of $187.8
<PAGE> 8
million, together with debt specifically associated with PHC
entities of $3.3 million, as well as the unamortized deferred
finance charges allocated to PHC of $3.2 million.
PHC's interest expense includes interest related to
indebtedness specifically identified with PHC entities, PHC's
proportionate share of interest expense of its nonconsolidated
affiliates (see Note 7), and Parent's allocation of interest and
deferred finance costs related to the allocated debt. Parent's
corporate interest expense, including deferred finance costs,
allocated to PHC was $4.2 million for third quarter 1994, and
$10.5 million (which represents interest only allocated through
June 30, 1995) and $12.7 million for the nine months ended
September 30, 1995 and 1994, respectively.
New Bank Facility
-----------------
Immediately prior to the Distribution, Parent drew, through
its then wholly-owned subsidiary Embassy Suites, Inc., $218
million under the PHC Facility to retire a portion of existing
Parent debt which had been previously allocated to PHC and to pay
related bank fees and expenses. The actual borrowings
outstanding of $202.5 million, together with deferred finance
charges of $2.3 million, are reflected in long-term debt and
deferred costs and other, respectively, in the accompanying
Consolidated Condensed Balance Sheet as of September 30, 1995.
The PHC Facility is secured by the stock of PHC's material
subsidiaries. The liability associated with all current and
future borrowings under the PHC Facility was assumed by Promus
Hotels, Inc. (PHI), PHC's wholly-owned subsidiary, with PHC as
guarantor, upon consummation of the Spin-Off, at which time
Parent was released from liability.
The PHC Facility consists of a $300 million revolving credit
arrangement with a maturity of five years (the Five-Year
Revolver) and a $50 million annually extendible revolving credit
facility with an initial maturity of 364 days (the Extendible
Revolver). The Extendible Revolver is convertible into a two-
year term loan with equal amortizing payments over such two-year
period. Interest on the drawn portion of the PHC Facility will
be, at the option of the Company, equal to either (i) the Base
Rate, as defined, or (ii) LIBOR plus the applicable spread. Both
agreements incorporate a tiered scale that defines the applicable
LIBOR spread and a facility fee based upon the more favorable of
the Company's current debt rating or leverage ratio, as defined.
Currently, the LIBOR spread on the Five-Year Revolver and the
Extendible Revolver is .35% and .40%, respectively, and the
facility fee required on the total amount of the Five-Year
Revolver and the Extendible Revolver is 0.20% and 0.15%,
respectively. The PHC Facility also contains provisions that
restrict certain investments, limit the Company's ability to
incur additional indebtedness and pay dividends, and require that
certain performance ratios be maintained. As of
September 30, 1995, PHC was in compliance with all such
<PAGE> 9
covenants.
The Five-Year Revolver also provides for a sublimit for
letters of credit of $20 million. At September 30, 1995,
approximately $8.6 million in letters of credit were outstanding
under this agreement.
Interest Rate Agreements
------------------------
In connection with the Spin-Off, PHI assumed two of Parent's
existing interest rate swaps, each with a notional amount of
$50 million, in order to effectively convert to a fixed rate a
portion of the amount of variable rate debt outstanding under the
PHC Facility. The floating rate resets every three months under
both agreements. One swap arrangement specifies a 6.99%
contractual fixed rate (effective rate of 7.54%) with a March 20,
2000 expiration, while the other bears a 7.8625% contractual
fixed rate (effective rate of 8.4125%) expiring July 28, 1997.
Note 3 - Supplemental Disclosure of Cash Paid for Interest and
Taxes
- ----------------------------------------------------------------
The following table reconciles PHC's interest expense, net of
interest capitalized, to cash paid for interest:
Third Quarter Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
(in thousands) 1995 1994 1995 1994
------- ------- ------- -------
Interest expense, net of amount
capitalized (Note 2) $ 7,570 $ 7,682 $24,312 $22,703
Adjustments to reconcile to cash
paid for interest
PHC's share of interest
expense of nonconsolidated
affiliates (Note 7) (3,208) (3,302) (9,823) (9,454)
Amortization of deferred
finance charges (192) (196) (594) (558)
Amounts accrued but not yet
paid (1,791) - (1,791) -
Net amortization of discounts
and premiums - (12) (8) (34)
Other (39) (35) (116) (104)
------- ------- ------- -------
Cash paid for interest, net of
amount capitalized $ 2,340 $ 4,137 $11,980 $12,553
======= ======= ======= =======
Cash paid for income taxes $ 640 $ - $ 640 $ -
======= ======= ======= =======
For purposes of this presentation, interest expense allocated
to PHC by Parent is assumed to have been paid in the quarter
allocated. Additionally, Parent was responsible for the payment
of PHC income taxes for periods prior to the Spin-Off.
<PAGE> 10
Concurrent with the Spin-Off, the historical net assets and
liabilities of the Hotel Business were transferred to PHC by
Parent, and the issuance of PHC common stock was completed in
connection with the Distribution.
Note 4 - Stockholders' Equity
- -----------------------------
In addition to its common stock, the Company has the
following classes of stock authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, 5,000,000 shares authorized -
Series A, $1.125 par value
Note 5 - Commitments and Contingencies
- --------------------------------------
Contractual Commitments
-----------------------
PHC manages certain hotels for others under agreements that
provide for payments/loans to the hotel owners if stipulated
levels of financial performance are not maintained. In addition,
PHC is liable under certain lease agreements where it has
assigned the direct obligation to third party interests, and
under certain loan guarantees. PHC believes the likelihood is
remote that material payments will be required under these
agreements. PHC's estimated maximum exposure under such
agreements is currently less than $39 million over the next
30 years.
FelCor Agreements
-----------------
During September 1995, PHI entered into an agreement with
FelCor Suite Hotels, Inc. and Felcor Suites Limited Partnership
(FelCor), resulting from FelCor's agreement to acquire the Crown
Sterling hotel chain (the Crown Sterling Agreement). In
connection with the acquisition, FelCor plans to convert up to 16
of these hotels (over 4,000 suites) to the Embassy Suites brand.
In return, PHI will make available up to $50 million to FelCor
for the conversion through investments in FelCor common stock
and/or limited partnership interests that are convertible to
FelCor common stock. These investments may be subsequently sold
on the open market subject to certain restrictions. PHI will
also guarantee a third party loan, not to exceed $25 million.
Each converted hotel will operate under a 20-year license
agreement, and a ten-year management contract will be awarded to
the Company. Pursuant to this agreement, PHI loaned FelCor $7.5
million representing one-half of the deposit required for the
acquisition. Availability under the Subscription Agreement
(described below) has been reduced by the outstanding loan
amount.
<PAGE> 11
On May 3, 1995, Parent entered into a Subscription Agreement
with FelCor whereby Parent agreed to purchase up to $25 million
in FelCor limited partnership interests. Parent's commitment,
which was assumed by PHI at the Distribution date, is subject to
various conditions which include, but are not limited to, the
limited partnership's acquisition of additional hotels to be
converted to the Embassy Suites hotel brand (Embassy) and PHI
being granted the management contract for the subject property.
The limited partnership interests are convertible into FelCor
common stock at $25.00 per share, subject to some limitations.
Pursuant to the terms of the Subscription Agreement, an all-
suites hotel was purchased by FelCor and converted to an Embassy
on July 1, 1995. FelCor subsequently purchased an interest in
three other properties that were already in the Embassy system,
and management contracts for all four properties were awarded to
PHI. In accordance with the agreement, PHI agreed to purchase
$12.5 million of limited partnership interests representing
consideration for all four hotels.
Virtually all of the $75 million committed under these
agreements (subject to the reduction associated with the loan
advanced under the Crown Sterling Agreement) is expected to be
funded before the end of the first quarter 1996.
Litigation
----------
Upon completion of the Distribution, PHC assumed
responsibility for various inquiries, administrative proceedings
and litigation relating to contracts, sales of property and other
matters arising in the normal course of the Hotel Business.
While any proceeding or litigation has an element of uncertainty,
management believes that the final outcome of these matters will
not have a materially adverse effect upon PHC's consolidated
financial position or its results of operations.
Employment and Severance Agreements
-----------------------------------
PHC has entered into individual severance agreements with 13
senior officers of the Company that provide for a compensation
payment of 2.99 times the average annual cash compensation
(salary and bonus) paid to each such executive for the five
preceding calendar years, including such compensation paid during
service with Parent, as well as accelerated payment of any
compensation or awards payable to such executive under any PHC
incentive compensation or stock option plan if the executive is
terminated subsequent to a change in control of PHC, as defined.
The maximum amount of compensation that would be payable under
all agreements if a change in control occurred and if such
executives were terminated as of September 30, 1995, would be
approximately $13.7 million.
<PAGE> 12
Self-Insurance Reserves
-----------------------
Prior to the Spin-Off, PHC, along with its joint venture and
management contract properties, was covered under Parent-
sponsored self-insurance and captive insurance programs for
various levels of general liability, workers' compensation and
employee medical coverage. Concurrent with the Spin-Off, PHC
established similar programs and indemnified Parent against any
future self-insurance obligations. For five years following the
Spin-Off, PHC will guarantee, but Parent will retain, the
insurance reserves related to the Company's general liability and
workers' compensation claims for all periods prior to the Spin-
Off date. PHC claims prior to the Spin-Off will be administered
by the Company, but will be funded by Parent. Medical insurance
claims and reserves related to PHC that existed at June 30, 1995,
were transferred from Parent in connection with the Spin-Off.
All self-insurance reserves include accruals of estimated
settlements for known claims, as well as accruals of actuarial
estimates of incurred but not reported claims.
Note 6 - Employee Benefit Plans
- -------------------------------
Savings and Retirement Plan
---------------------------
In connection with the Spin-Off, PHC established a defined
contribution savings and retirement plan (PHC S&RP) to replace
Parent's S&RP. Employees participating in the PHC S&RP may elect
to make pre-tax and after-tax contributions of up to 16 percent
of their eligible earnings, the first six percent of which PHC
will match fully. Amounts contributed to the plan are invested,
at the participant's option, in a PHC common stock fund, an
aggressive stock fund, a diversified stock fund, a long-term bond
fund, an income fund and/or a treasury fund. On June 30, 1995,
all PHC employee participant accounts were transferred from
Parent's S&RP to the PHC S&RP while retaining participants'
current investment elections. Previous investments in Parent's
common stock fund were converted to PHC common stock on a dollar
value basis. Participants become vested in PHC's matching
contributions over seven years of credited service, including any
previous credited service under Parent's plan.
Restricted Stock
----------------
The Company established a restricted stock plan (RSP) in
connection with the Spin-Off. At the Distribution date, PHC
employees with unvested restricted stock in Parent's RSP received
a dividend of one share of PHC common stock for each two shares
of Parent RSP common stock held as of the Spin-Off date.
Concurrent with the Spin-Off, the unamortized Parent RSP shares
<PAGE> 13
held by PHC employees were cancelled and replaced by an adjusted
number of PHC RSP shares that will vest under the same terms and
conditions as the Parent RSP shares they replaced. Under the new
PHC RSP, executives and key employees may be awarded shares of
PHC's common stock. Shares granted under the PHC RSP are
restricted as to transfer, are subject to forfeiture prior to
vesting and will generally vest evenly over periods from two to
four years. The deferred compensation expense is amortized over
the vesting period.
Stock Option Plan
-----------------
Parent maintained a stock option plan (SOP) under which
options had been granted to PHC key management personnel to
purchase Parent's common stock at a price equal to its market
value at the date of grant. Pursuant to the Spin-Off, the
Company established a similar plan and outstanding options for
Parent's common stock held by PHC employees were cancelled and
new options for PHC common stock were issued under PHC's SOP.
The number of shares subject to option and the exercise price
were calculated so as to preserve the intrinsic value of Parent
options cancelled while maintaining the ratio of the exercise
price per option to market value per share as of the Spin-Off
date. As of September 30, 1995, there were approximately 1.9
million unexercised PHC options outstanding at option prices
ranging from $2.41 to $30.71.
Deferred Compensation Plans
---------------------------
Concurrent with the Spin-Off, PHC established deferred
compensation plans similar to Parent's under which certain
employees may defer a portion of their compensation. Amounts
deposited into these plans are unsecured and earn interest at
rates approved by the Human Resources Committee of the Board of
Directors. In connection with the administration of the
executive deferred compensation plan, company-owned life
insurance policies insuring the lives of certain directors,
officers and key employees have been purchased. As of
September 30, 1995, the total liability under these plans was
$7.7 million, and the related cash surrender value of life
insurance policies was $11.0 million.
Stock Incentive Plan
--------------------
The Company has established a PHC 1996 Non-Management
Directors Stock Incentive Plan under which (i) directors will
automatically receive each May 1, August 1, November 1, and
February 1, in lieu of cash payments, shares of PHC common stock
based upon one-half of the meeting and retainer fees earned and
the fair market value of PHC common stock and (ii) may elect to
receive the remaining one-half of compensation due in the form of
a cash payment or as PHC common stock. Shares issued under the
plan are restricted as to transfer for at least six months after
the date of grant, and the compensation expense will be amortized
ratably over such restricted period. The plan becomes effective
as of the date of the 1996 PHC annual stockholders' meeting.
<PAGE> 14
Note 7 - Nonconsolidated Affiliates
- -----------------------------------
Combined summarized income statements of nonconsolidated
affiliates, which PHC accounted for using the equity method, were
as follows:
Third Quarter Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
(in thousands) 1995 1994 1995 1994
------- ------- -------- --------
Combined Summarized Income
Statements
Revenues $40,643 $41,753 $121,413 $120,534
======= ======= ======== ========
Operating income $ 9,573 $ 9,381 $ 28,745 $ 26,196
======= ======= ======== ========
Net income $ 8,017 $ 2,398 $ 13,022 $ 6,212
======= ======= ======== ========
PHC's share of nonconsolidated affiliates' combined net income is reflected
in the accompanying Consolidated Condensed Statements of Income as follows:
Third Quarter Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
(in thousands) 1995 1994 1995 1994
------- ------- ------- -------
Pre-interest operating income
(included in revenues-other) $ 5,182 $ 5,310 $15,648 $14,350
======= ======= ======= =======
Interest expense (included in
interest expense) $(3,208) $(3,302) $(9,823) $(9,454)
======= ======= ======= =======
Extraordinary gain on
forgiveness of debt
(included in extraordinary
gain, net of income tax) $ 1,661 - $ 1,661 -
======= ======= ======= =======
Sept 30, Dec 31,
1995 1994
------- -------
PHC's investments in and
advances to nonconsolidated
affiliates
At equity $39,388 $25,551
At cost 10,028 10,305
------- -------
$49,416 $35,856
======= =======
<PAGE> 15
Note 8 - Relationship Between PHC and Parent after the
Distribution
- ----------------------------------------------------------------
General
-------
For the purpose of governing certain ongoing relationships
between PHC and Parent after the Distribution and to provide
mechanisms for an orderly transition, Parent and PHC have entered
into various agreements and have adopted policies governing their
future relationship. PHC believes that the agreements are fair
to both parties and contain terms which generally are comparable
to those which would have been reached in arm's-length
negotiations with unaffiliated parties (although comparisons are
difficult with respect to certain agreements that relate to the
specific circumstances of this transaction). In some cases the
agreements are comparable to those used by other companies in
similar transactions.
Tax Sharing Agreement
---------------------
In connection with the Spin-Off, PHC and Parent entered into
a tax sharing agreement that defines each company's rights and
obligations with respect to deficiencies and refunds of federal,
state and other income or franchise taxes relating to PHC's
business for tax years prior to the Distribution and with respect
to certain tax attributes of PHC after the Distribution. In
general, with respect to periods ending on or before December 31,
1995, Parent is responsible for (i) filing federal tax returns
for the Parent and PHC for the periods such companies were
members of the same consolidated group, and (ii) paying taxes
relating to such returns (to include any subsequent adjustments
resulting from the redetermination of such tax liabilities by the
applicable taxing authorities; PHC will reimburse Parent for the
portion of such adjustments relating to the Hotel Business). PHC
is responsible for filing returns and paying taxes for periods
beginning after the Spin-Off. PHC and Parent have agreed to
cooperate with each other and to share information in preparing
such tax returns and in dealing with other tax matters.
<PAGE> 16
Note 9 - Summarized Financial Information
- -----------------------------------------
Promus Hotels, Inc. (PHI) is a wholly-owned subsidiary of
PHC and the primary entity through which the operations of PHC
are conducted. PHI is also PHC's principal asset. Summarized
financial information for PHI, prepared on the same basis as PHC,
is as follows:
Sept 30, Dec 31,
(in thousands) 1995 1994
-------- --------
ASSETS
Current assets $ 44,685 $ 25,565
Land, buildings and equipment, net 349,406 322,140
Other assets 94,566 72,860
-------- --------
488,657 420,565
-------- --------
LIABILITIES
Current liabilities 62,988 34,461
Long-term debt 203,963 189,943
Other liabilities 64,210 53,153
-------- --------
331,161 277,557
-------- --------
Net assets $157,496 $143,008
======== ========
Third Quarter Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
(in thousands) 1995 1994 1995 1994
------- ------- -------- --------
Revenues $71,971 $65,506 $204,756 $184,600
======= ======= ======== ========
Operating income $32,092 $31,080 $ 85,255 $ 75,125
======= ======= ======== ========
Net income $15,905 $13,592 $ 37,134 $ 29,930
======= ======= ======== ========
<PAGE> 17
Note 10 - Earnings Per Share
- ----------------------------
The Company's stock was distributed in connection with the
Spin-Off on June 30, 1995. In order to present earnings per
share on a comparable basis, the average common shares
outstanding below for periods prior to the Spin-Off is assumed to
be equal to the actual common and common equivalent shares
outstanding on June 30, 1995. Historical net income is used for
all periods presented.
Third Quarter Ended Nine Months Ended
(in thousands, except Sept 30, Sept 30, Sept 30, Sept 30,
per share amounts) 1995 1994 1995 1994
------- ------- ------- -------
Net income $15,761 $13,592 $36,990 $29,930
======= ======= ======= =======
Average common and common
equivalent shares
outstanding 51,570 51,573 51,566 51,573
======= ======= ======= =======
Earnings per share $ 0.31 $ 0.26 $ 0.72 $ 0.58
======= ======= ======= =======
<PAGE> 18
PERFORMANCE STATISTICS
- ----------------------
Third Quarter Ended Nine Months Ended
Sept 30, Sept 30, Inc/ Sept 30, Sept 30, Inc/
1995 1994 (Dec) 1995 1994 Dec)
-------- -------- ----- ------- ------- ----
COMPARABLE SYSTEM
HOTELS*
Embassy Suites
Occupancy 77.3% 78.1% (0.8)pts 76.4% 76.7% (0.3)pts
ADR $101.74 $96.79 5.1% $102.28 $96.75 5.7%
RevPAS $ 78.62 $75.58 4.0% $ 78.11 $74.21 5.3%
Hampton Inn
Occupancy 81.8% 81.9% (0.1)pts 77.4% 76.7% 0.7 pts
ADR $58.44 $54.86 6.5% $56.65 $53.40 6.1%
RevPAR $47.81 $44.95 6.4% $43.86 $40.95 7.1%
Homewood Suites
Occupancy 83.3% 84.9% (1.6)pts 80.3% 80.6% (0.3)pts
ADR $84.88 $78.43 8.2% $81.63 $75.81 7.7%
RevPAS $70.73 $66.58 6.2% $65.53 $61.09 7.3%
TOTAL SYSTEM HOTELS
Embassy Suites
Occupancy 77.1% 78.1% (1.0)pts 76.2% 76.6% (0.4)pts
ADR $101.69 $97.47 4.3% $101.99 $97.63 4.5%
RevPAS $ 78.37 $76.12 3.0% $ 77.69 $74.82 3.8%
Hampton Inn
Occupancy 80.4% 81.6% (1.2)pts 76.3% 76.4% (0.1)pts
ADR $58.84 $54.96 7.1% $57.01 $53.51 6.5%
RevPAR $47.33 $44.84 5.6% $43.49 $40.86 6.4%
Homewood Suites
Occupancy 83.0% 84.3% (1.3)pts 79.5% 79.8% (0.3)pts
ADR $84.55 $77.74 8.8% $82.13 $76.28 7.7%
RevPAS $70.19 $65.50 7.2% $65.27 $60.88 7.2%
TOTAL SYSTEM REVENUES
(in thousands)
Embassy Suites $190,243 $181,088 5.1% $ 555,340 $ 529,728 4.8%
Hampton Inn 240,824 196,777 22.4% 626,820 512,028 22.4%
Homewood Suites 18,539 17,408 6.5% 52,111 47,205 10.4%
-------- -------- ---------- ----------
$449,606 $395,273 13.7% $1,234,271 $1,088,961 13.3%
======== ======== ========== ==========
*Includes results for only those hotels open for the entire applicable period
for both years.
<PAGE 19>
PERFORMANCE STATISTICS (CONTINUED)
- ----------------------------------
TOTAL HOTELS AND ROOMS/SUITES
Number of Hotels Rooms/Suites
Sept 30, Sept 30, Sept 30, Sept 30,
1995 1994 1995 1994
------- ------- ------- -------
Embassy Suites
Company owned 9 9 2,025 2,026
Joint venture 23 23 5,901 5,912
Management contract 27 24 6,280 6,075
Franchised 52 50 12,048 11,531
--- --- ------ ------
111 106 26,254 25,544
=== === ====== ======
Hampton Inn
Company owned 14 15 1,916 2,048
Joint venture 19 19 2,376 2,376
Management contract 4 5 464 585
*Franchised 467 382 51,254 43,553
--- --- ------ ------
504 421 56,010 48,562
=== === ====== ======
Homewood Suites
Company owned 9 8 1,024 932
Joint venture - - - -
Management contract - - - -
Franchised 18 18 1,881 1,949
--- --- ------ ------
27 26 2,905 2,881
=== === ====== ======
Total System
Company owned 32 32 4,965 5,006
Joint venture 42 42 8,277 8,288
Management contract 31 29 6,744 6,660
Franchised 537 450 65,183 57,033
--- --- ------ ------
642 553 85,169 76,987
=== === ====== ======
*1995 includes three Hampton Inn & Suites with 332 rooms.
<PAGE> 20
Item 2. Management's Discussion and Analysis
- --------------------------------------------
of Financial Condition and Results of Operations
- ------------------------------------------------
On June 30, 1995, The Promus Companies Incorporated (Parent)
completed the previously announced and approved spin-off that
split the company into two independent public corporations, one
for conducting its casino entertainment business and one for
conducting its hotel business (the Spin-Off). Parent's hotel
operations were transferred to a new entity, Promus Hotel
Corporation (PHC or the Company), the stock of which was
distributed to Parent's stockholders on a one-for-two basis (the
Distribution). The following is a discussion and analysis of the
financial condition and results of operations of PHC as a stand-
alone business.
RESULTS OF OPERATIONS
- ---------------------
The principal factors affecting PHC results are: continued
growth in the number of hotels; occupancies and room rates
achieved by the three hotel brands; number and relative mix of
owned, managed and franchised hotels; and PHC's ability to manage
costs. The number of rooms/suites at franchised and managed
properties and revenue per available room/suite (RevPAR/S)
significantly affect PHC results since franchise royalty fees and
management fees are based upon a percentage of rooms/suites
revenues. Increases in franchise and management fee revenues
have a disproportionate favorable impact on PHC's operating
margin due to lower incremental costs associated with these
revenues. Although occupancy decreased slightly compared to
1994, increases in the average daily rate (ADR), which
contributed to higher RevPAR/S, and the addition of new
(primarily franchised) hotels, resulted in improved financial
results over the prior year for both the three and nine months
ended September 30, 1995.
As of September 30, 1995, PHC's combined hotel system had
grown to include 642 properties, a net increase of 89 properties
compared to September 30, 1994. Embassy Suites', Hampton Inn's
and Homewood Suites' RevPAR/S for comparable hotels improved by
4.0%, 6.4% and 6.2%, respectively, for the third quarter and
5.3%, 7.1%, and 7.3%, respectively, for the nine months ended
September 30, 1995. Total system revenues for the third quarter
and first nine months of the year increased 13.7% and 13.3% over
the comparable periods last year to $450 million and $1.2
billion, respectively. The continued unit growth of the
franchise systems, coupled with a continued focus on rate growth
and cost management, contributed to the Company's higher revenues
and operating income.
<PAGE> 21
Third Quarter Ended Nine Months Ended
Sept 30, Sept 30, Inc/ Sept 30, Sept 30, Inc/
(in millions) 1995 1994 (Dec) 1995 1994 (Dec)
--------- ------- ----- ------- ------- -----
Revenues $72.0 $65.5 9.9% $204.8 $184.6 10.9%
Operating profit
before general and
administrative
expense and
property transactions 30.5 29.5 3.4% 85.6 75.5 13.4%
Operating income 31.8 31.1 2.3% 85.0 75.1 13.2%
Net income 15.8 13.6 16.2% 37.0 29.9 23.7%
Operating margin 44.2% 47.5% (3.3)pts 41.5% 40.7% 0.8 pts
Net income for the third quarter of 1994 includes approximately
$3.7 million of non-recurring management fees and other operating
income, as well as $2.3 million of gains on property transactions.
Net income for the third quarter of 1995 includes approximately
$1.0 million of non-recurring operating income, $2.4 million of gains
from property transactions, and incremental costs associated with
operating as a separate publicly-traded entity estimated at
approximately $1.8 million. Excluding the impact of these items
from both periods, as well as the extraordinary gain in the third
quarter of 1995, a comparison of third quarter results would be
as follows:
As Adjusted
Third Quarter Ended
Sept 30, Sept 30, Inc/
(in millions) 1995 1994 (Dec)
--------- ------- -----
Revenues $71.7 $62.5 14.7%
Operating profit before general and
administrative expense and property
transactions 31.3 25.8 21.3%
Operating income 30.3 25.1 20.7%
Net income 13.2 10.1 30.7%
Operating margin 42.3% 40.1% 2.2 pts
The increase in revenues for both the three and nine months
ended September 30, 1995 was due primarily to the addition of new
franchised hotels and improved ADR and RevPAR/S throughout the
system. As adjusted for unusual income and incremental stand-
alone company expenses, for purposes of comparability, operating
profit before general and administrative expense and property
transactions for both the third quarter and the first nine months
of the year increased primarily as the result of franchise
royalties and favorable results of operations at company owned
hotels.
Third Quarter Ended Nine Months Ended
Sept 30, Sept 30, Inc/ Sept 30, Sept 30, Inc/
(in millions) 1995 1994 (Dec) 1995 1994 (Dec)
--------- ------- ----- ------- ------- -----
General and
administrative $ 1.0 $ 0.8 25.0 % $ 2.7 $ 2.3 17.4 %
Property transactions (2.4) (2.3) 4.3 % (2.0) (1.9) 5.3 %
Interest expense 7.6 7.7 (1.3)% 24.3 22.7 7.0 %
Extraordinary gain,
net of income tax 1.7 - N/M 1.7 - N/M
Effective tax rate 42.1% 42.0% 0.1 pts 42.1% 43.0% (0.9)pts
<PAGE> 22
General and administrative expense reflects the cost of
specific PHC staff functions which support all three hotel
brands. Other general corporate support functions (both those
allocated to PHC by Parent prior to the Spin-Off, and the actual
incurred after that date), along with the incremental costs
attributable to operating as a stand-alone entity, are reflected
in other operating expenses in the accompanying Consolidated
Condensed Statements of Income.
During the third quarter 1995, the Company sold a Hampton Inn
hotel to a franchisee, which resulted in a pre-tax property
transaction gain of $2.3 million. The hotel continues to be
operated as a franchised Hampton Inn hotel. The property
transaction gain recorded in the third quarter 1994 was the
result of several property related transactions within the
Embassy Suites brand, and the sale of a Hampton Inn hotel.
Interest expense through June 30, 1995, includes the pro-rata
allocation of corporate interest by Parent related to the debt
that was expected to be retired in connection with the
Distribution using funds drawn on the PHC Facility. (See
"Liquidity and Capital Resources" for additional discussion).
Beginning with third quarter 1995, interest expense reflects the
costs associated with the actual amounts outstanding under the
revolving credit agreements. Interest expense (for all periods
presented) also includes PHC's share of interest expense of its
nonconsolidated affiliates. Interest expense decreased slightly
in the third quarter compared with the same period last year, as
higher average debt balances and higher interest attributable to
deferred compensation balances were offset by the impact of lower
interest rates than previously incurred as part of Parent.
Interest expense for the first nine months of 1995 increased due
primarily to higher average debt balances, higher interest
attributable to deferred compensation balances and an increase in
PHC's share of interest expense associated with its
nonconsolidated affiliates.
During the third quarter 1995, an Embassy Suites hotel, in
which the Company is a 50 percent joint venture partner, realized
an extraordinary gain related to the early payoff and forgiveness
of a portion of its existing debt. The cash to fund the early
debt payoff was made available through additional capital
contributions to the joint venture of approximately $9 million
from each of its partners. PHC's share of this nonconsolidated
affiliate's gain, net of applicable income tax expense, was $1.7
million.
The effective tax rate for all periods is higher than the
federal statutory rate primarily due to state income taxes.
<PAGE> 23
DEVELOPMENT AND CAPITAL SPENDING
- --------------------------------
FelCor Agreements
-----------------
During September 1995, PHI entered into an agreement with
FelCor Suite Hotels, Inc. and Felcor Suites Limited Partnership
(FelCor), in connection with FelCor's agreement to acquire the
Crown Sterling hotel chain (the Crown Sterling Agreement).
FelCor plans to convert up to 16 of the Crown Sterling hotels
(over 4,000 suites) to the Embassy Suites brand, which PHI will
manage. In return, PHI will make available up to $50 million to
FelCor for the conversion through investments in FelCor common
stock and/or limited partnership interests that are convertible
into FelCor common stock. These investments may be subsequently
sold on the open market subject to certain restrictions. PHI
will also guarantee a third party loan to FelCor, not to exceed
$25 million. Each converted hotel will operate under a 20-year
license agreement and a ten-year management contract. Pursuant
to this agreement, PHI loaned FelCor $7.5 million representing
one-half of the deposit required for the acquisition.
Availability under the Subscription Agreement (described below)
has been reduced by the outstanding loan amount.
On May 3, 1995, Parent entered into a Subscription Agreement
with FelCor whereby Parent agreed to purchase up to $25 million
in FelCor limited partnership interests. Parent's commitment,
which was assumed by PHI at the Distribution date, is subject to
various conditions which include, but are not limited to, the
limited partnership's acquisition of additional hotels to be
converted to the Embassy Suites hotel brand (Embassy) and PHI
being granted the management contract for the subject property.
The limited partnership interests are convertible into FelCor
common stock at $25.00 per share, subject to some limitations.
Pursuant to the terms of the Subscription Agreement, an all-
suites hotel was purchased by FelCor and converted to an Embassy
on July 1, 1995. FelCor has subsequently purchased an interest
in three other properties that were already in the Embassy
system, and management contracts for all four properties were
awarded to PHI. In accordance with the agreement, PHC has agreed
to purchase $12.5 million of limited partnership interests
representing consideration for all four hotels.
Virtually all of the $75 million committed under these
agreements (subject to the reduction associated with the loan
advanced under the Crown Sterling Agreement) is expected to be
funded before the end of first quarter 1996.
Hotel Development
-----------------
PHC had net additions of 69 franchised properties during the
first nine months of 1995, compared to 49 in the comparable 1994
period. The system growth occurred primarily in the Hampton Inn
brand. As of September 30, 1995, 86 properties were under
construction, 81 of which will operate under franchise agreements
as PHC brands: 68 Hampton Inn hotels (including eight Hampton Inn
& Suites); ten Homewood Suites hotels; and eight Embassy Suites
hotels. These 86 properties will add 9,312 rooms/suites to the
PHC hotel system. The Company had 68 properties under
construction at the same time last year. PHC had 175 hotels in
the design phase at September 30, 1995.
<PAGE> 24
By the end of the third quarter, PHC had opened three Hampton
Inn & Suites hotels. These franchised hotels are the newest PHC
hotel product and combine, as a single hotel, Hampton-style rooms
with two-room suites and a common lodge in the center. Of the
175 hotels in the design phase at September 30, 1995, 21 were
Hampton Inn & Suites. To further encourage system growth, PHC
currently plans to spend up to $130 million to expand the
Homewood Suites hotel brand by developing as many as 15
additional company owned properties over the next three to five
years. PHC, however, plans to continue to follow its general
strategy of growing its systems primarily through franchising and
management contracts. As in the past, company owned hotels may
be sold to franchisees and the proceeds used to fuel additional
system growth, develop new concepts or for other corporate
purposes.
Mezzanine Financing Program
---------------------------
To encourage growth (primarily in the Hampton Inn & Suites
and Homewood Suites franchise segments of the business), in light
of the lack of available financing for new hotel construction,
PHC has developed a mezzanine financing program whereby the
Company provides conservatively underwritten secondary financing
to franchisees. A minimum of 20 percent equity in the project is
required by the borrower, and the investment must meet certain
defined underwriting criteria. The terms of the mezzanine
financing must be consistent with the terms of the first mortgage
lender, with whom PHC will enter into an inter-creditor
agreement. PHC provided $6.8 million in mezzanine loans during
the first nine months of 1995, and anticipates providing an
additional $.7 million during the remainder of the year.
Outstanding loans bear interest at rates ranging from 10.0% to
11.5%.
Other
-----
Ongoing refurbishment of PHC's existing company owned hotel
properties to maintain the quality standards set for those
properties will continue in 1995 at an estimated annual cost of
$11.5 million. In early 1995, PHC acquired for approximately
$22.0 million an office complex in Memphis, Tennessee, which will
serve as its future corporate headquarters.
Cash necessary to finance projects currently under
development, as well as additional projects to be developed by
PHC, will be made available from operating cash flows, the PHC
Facility (see "Liquidity and Capital Resources"), joint venture
partners, specific project financing, sales of existing hotel
assets and, if necessary, PHC debt and equity offerings. PHC
capital expenditures totaled $58.5 million during the nine months
ended September 30, 1995. Approximately $59.8 million is
expected to be spent during the remainder of 1995 to fund project
development, including those projects discussed above, to
refurbish existing facilities and for other corporate related
projects.
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The accompanying financial statements represent the portion
of Parent's historical revenues, expenses, assets, liabilities
and cash flows associated with its hotel operations through June
30, 1995, and actual results as a stand-alone company beginning
July 1, 1995. The year to date results of operations and cash
flows are not necessarily indicative of PHC's future results as a
separate corporation. The most significant items that will
affect such future results are incremental costs associated with
operating as a stand-alone company, a decrease in the Company's
average borrowing rate, and the fact that PHC will assume
responsibility for payment of state and federal income taxes
subsequent to the Distribution (Parent historically paid PHC
taxes).
Cash flows from operating activities for the nine months
ended September 30, 1995, were $56.7 million, compared with $39.6
million for the same period last year, representing a 43.2%
increase. EBITDA, consisting of income before extraordinary
items plus interest, taxes, depreciation, amortization and net
earnings of, or distributions from, nonconsolidated affiliates,
was $96.1 million for the first nine months of 1995, compared
with $84.2 million for the comparable period in 1994,
representing a 14.1% increase. EBITDA is a supplemental financial
measurement used by management as well as by industry analysts to
evaluate operations, but should not be construed as an
alternative to operating income (as an indicator of the Company's
operating performance) or to cash flows from operating activities
(as a measure of liquidity) as determined in accordance with
generally accepted accounting principles.
Parent, through its wholly-owned subsidiary Embassy Suites,
Inc., entered into a $350 million bank credit facility to be
secured by the stock of certain material subsidiaries of PHC (the
PHC Facility). Concurrent with the Distribution, $218 million
was drawn on the PHC Facility by Parent to retire existing Parent
debt which had been previously allocated to PHC and to pay PHC
Facility fees and expenses. Subsequent to the Distribution, the
liability associated with the actual outstanding borrowings was
assumed by PHI with PHC as guarantor, and Parent was released
from liability related to any current or future borrowings under
the PHC Facility. The PHC Facility consists of two agreements,
the significant terms of which are as follows:
Total
Facility Maturity Date Interest Rate Facility Fees
------------ ------------- ----------------- --------------
Base Rate, as 0.20% of the
Five-Year defined, or LIBOR total facility
Revolver $300,000,000 June 30, 2000 +35 basis points
Base Rate, as 0.15% of the
Extendible defined, or LIBOR total facility
Revolver $ 50,000,000 June 6, 1996 +40 basis points
The Extendible Revolver is a 364-day facility with annual
renewals and may be converted into a two-year term loan with
equal amortizing payments over such two-year period. Facility
fees and interest on Base Rate loans are paid quarterly. The
agreements contain a tiered scale for facility fees and the
applicable LIBOR spread (current rates for both reflected above)
<PAGE> 26
that is based on the more favorable of PHC's current credit
rating or leverage ratio, as defined. They also contain
provisions that restrict certain investments, limit the Company's
ability to incur additional indebtedness and pay dividends, and
require that certain performance ratios be maintained. As of
September 30, 1995, PHC was in compliance with all such
covenants.
PHC's initial credit rating by Standard & Poor's was
Investment Grade. The Investment Grade rating allows PHC to
receive more favorable interest rate spreads on borrowings and
facility fees under the PHC Facility.
The Five-Year Revolver includes a sublimit for letters of
credit of $20 million. At September 30, 1995, approximately
$8.6 million in letters of credit were outstanding under this
agreement (related primarily to the Company's self-insurance
reserves). There was approximately $139 million of availability
under the PHC Facility as of September 30, 1995. The remaining
borrowing capacity available under the PHC Facility is available
for working capital, hotel development and other general
corporate purposes.
A pro-rata portion of Parent's historical outstanding debt
balance and unamortized deferred finance charges was allocated to
PHC and reflected in the accompanying Consolidated Condensed
Balance Sheet as of December 31, 1994. A pro-rata portion of
Parent's interest expense was also allocated to PHC through June
30, 1995, and is reflected in the accompanying Consolidated
Condensed Statements of Income for all periods presented. In
addition to amounts allocated by Parent, all indebtedness,
together with related interest expense specifically identified
with a PHC entity, is included in the accompanying Consolidated
Condensed Financial Statements. The amounts allocated by Parent
are based on the percentage of Parent's existing debt that was
expected to be retired using proceeds from the PHC Facility. The
amount of Parent's corporate interest expense allocated to PHC
was $4.2 million for third quarter 1994, and $10.5 million
(representing interest allocated through June 30) and $12.7
million for the nine months ended September 30, 1995 and 1994,
respectively. Beginning with third quarter 1995, interest
expense reflects the costs associated with the actual amounts
outstanding under the PHC Facility. The amount of Parent's
corporate interest allocated to PHC is in addition to the
interest expense included in PHC's financial statements on
indebtedness specifically identified with a PHC entity and PHC's
proportionate share of interest expense of its nonconsolidated
affiliates (see Note 7 to financial statements).
PHI assumed two of Parent's existing interest rate swap
agreements, each with a notional amount of $50 million. The
effect of the swap agreements was to convert to a fixed rate a
portion of the amount of variable rate debt outstanding under the
PHC Facility. The floating rate resets every three months under
both agreements. One swap specifies a 6.99% contractual fixed
rate (effective rate of 7.54%) and expires on March 20, 2000,
while the other has a 7.8625% contractual fixed rate (effective
rate of 8.4125%) with a July 28, 1997 expiration.
<PAGE> 27
RELATIONSHIP BETWEEN PHC AND PARENT AFTER THE DISTRIBUTION
- ----------------------------------------------------------
For the purpose of governing certain of the ongoing
relationships between PHC and Parent after the Distribution and
to provide mechanisms for an orderly transition, Parent and PHC
have entered into various agreements and adopted policies to
govern their future relationship. PHC believes that the
agreements are fair to both parties and contain terms which
generally are comparable to those which would have been reached
in arm's-length negotiations with unaffiliated parties (although
comparisons are difficult with respect to certain agreements that
relate to the specific circumstances of this transaction). In
some cases the agreements are comparable to those used by other
companies in similar transactions.
TAX SHARING AGREEMENT
- ---------------------
In connection with the Spin-Off, PHC and Parent entered into
a tax sharing agreement that defines each company's rights and
obligations with respect to deficiencies and refunds of federal,
state and other income or franchise taxes relating to PHC's
business for tax years prior to the Distribution and with respect
to certain tax attributes of PHC after the Distribution. In
general, with respect to periods ending on or before December 31,
1995, Parent is responsible for (i) filing federal tax returns
for the Parent and PHC for the periods such companies were
members of the same consolidated group, and (ii) paying the taxes
relating to such returns (to include any subsequent adjustments
resulting from the redetermination of such tax liabilities by the
applicable taxing authorities; PHC will reimburse Parent for the
portion of such adjustments relating to the Hotel Business). PHC
is responsible for filing returns and paying taxes for periods
beginning after the Spin-Off. PHC and Parent have agreed to
cooperate with each other and to share information in preparing
such tax returns and in dealing with other tax matters.
<PAGE> 28
PART II - OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities
- ------------------------------
The PHC Facility requires the Company to maintain certain
specified financial covenants. Although the payment of dividends
is not prohibited by the agreement, the covenants are structured
such that the Company's ability to pay dividends is limited.
Item 6. Exhibit and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
EX-10.1 Promus Hotel Corporation Savings and Retirement
Plan. (1)
EX-10.2 Promus Hotel Corporation 1995 Stock Option Plan.
(2)
EX-10.3 Promus Hotel Corporation Restricted Stock Plan.
(2)
EX-10.4 Promus Hotel Corporation Non-Management Directors
Stock Incentive Plan. (2)
EX-10.5 Plan of Reorganization and Distribution Agreement,
dated as of June 30, 1995, between The Promus
Companies Incorporated and Promus Hotel
Corporation. (4)
EX-10.6 Tranche A Credit Agreement, dated as of June 7,
1995, among Embassy Suites, Inc., as Initial
Borrower, Promus Hotels, Inc., as the Subsequent
Borrower, certain subsidiaries and related parties
from time to time party thereto, as Guarantors,
the several lenders from time to time party
thereto, and NationsBank, N.A. (Carolinas), as
Agent. (3)
Ex-10.7 First Amendment to Tranche A Credit Agreement
dated as of June 30, 1995, by and among Embassy
Suites, Inc., Promus Hotels, Inc., The Promus
Companies Incorporated, Promus Hotel Corporation
and NationsBank, N.A. (Carolinas). (4)
EX-10.8 Tranche A Assignment and Assumption Agreement
dated as of June 30, 1995, among Embassy Suites,
Inc., Promus Hotels, Inc., The Promus Companies
Incorporated and NationsBank, N.A. (Carolinas).
(4)
EX-10.9 Tranche B Credit Agreement, dated as of June 7,
1995, among Embassy Suites, Inc., as Initial
Borrower, Promus Hotels, Inc., as the Subsequent
Borrower, certain subsidiaries and related parties
from time to time party thereto, as Guarantors,
the several lenders from time to time party
thereto, and NationsBank, N.A. (Carolinas), as
Agent. (3)
<PAGE> 29
EX-10.10 First Amendment to Tranche B Credit Agreement
dated as of June 30, 1995, by and among Embassy
Suites, Inc., Promus Hotels, Inc., The Promus
Companies Incorporated, Promus Hotel Corporation
and NationsBank, N.A. (Carolinas). (4)
EX-10.11 Tranche B Assignment and Assumption Agreement
dated as of June 30, 1995, by and among Embassy
Suites, Inc., Promus Hotels, Inc., The Promus
Companies Incorporated and NationsBank, N.A.
(Carolinas). (4)
EX-10.12 Pledge Agreement dated as of June 30, 1995, by and
among Promus Hotel Corporation, Promus Hotels,
Inc., certain subsidiaries which may now be owners
of Credit Parties and NationsBank, N.A.
(Carolinas). (4)
EX-10.13 Escrow Agreement, dated as of June 30, 1995, among
Promus Hotel Corporation, Promus Hotels, Inc. and
NationsBank. (3)
EX-10.14 Employee Benefits and Other Employment Matters
Allocation Agreement, dated as of June 30, 1995,
between The Promus Companies Incorporated and
Promus Hotel Corporation. (4)
EX-10.15 Risk Management Allocation Agreement, dated as
of June 30, 1995, between The Promus Companies
Incorporated and Promus Hotel Corporation. (4)
EX-10.16 Tax Sharing Agreement, dated as of June 30, 1995,
between The Promus Companies Incorporated and
Promus Hotel Corporation. (4)
EX-10.17 Promus Hotel Corporation Executive Deferred
Compensation Plan. (3)
EX-10.18 Promus Hotel Corporation Deferred Compensation
Plan. (3)
EX-10.19 Promus Hotel Corporation Savings and Retirement
Plan Trust Agreement, dated as of May 26, 1995,
among Promus Hotel Corporation, and Robert S.
Davis, Donald H. Dempsey, Patricia R. Ferguson,
Jeffery M. Jarvis, Kelly R. Jenkins, Frederick G.
Schultz and Mark C. Wells. (3)
EX-10.20 Form of Severance Agreement, dated as of June 30,
1995, entered into with Donald H. Dempsey, Thomas
L. Keltner, Ralph B. Lake, David C. Sullivan, and
Mark C. Wells. (4)
EX-10.21 Form of Severance Agreement, dated June 30, 1995,
entered into with Michael D. Rose and Raymond E.
Schultz. (4)
EX-10.22 Employment Agreement, dated as of June 30, 1995,
between Michael D. Rose and Promus Hotel
Corporation. (4)
EX-10.23 Employment Agreement, dated as of July 1, 1995,
between Raymond E. Schultz and Promus Hotel
Corporation.(5)
<PAGE> 30
EX-10.24 Promus Hotel Corporation Key Executive Officer
Annual Incentive Plan. (2)
EX-10.25 International Swap Dealers Association, Inc.
Master Agreement, dated as of June 30, 1995, among
Promus Hotels, Inc. and NationsBank, N.A.
(Carolinas). (4)
EX-10.26 Transfer Agreement, dated as of June 30, 1995,
among Embassy Suites, Inc., Promus Hotels, Inc.,
and NationsBank, N.A. (Carolinas). (4)
EX-10.27 Subscription Agreement, dated as of October 17,
1995, by and among Promus Hotels, Inc., FelCor
Suite Hotels, Inc., and FelCor Suites Limited
Partnership.(5)
EX-27 Financial Data Schedule. (5)
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
Footnotes
- ---------
(1) Incorporated by reference from Promus Hotel Corporation
Registration Statement No. 33-59977 on Form S-8 for the
Promus Hotel Corporation 1995 Stock Option Plan, filed
June 6, 1995.
(2) Incorporated by reference from Promus Hotel Corporation Form
10/A, filed May 3, 1995, File No. 1-11463.
(3) Incorporated by reference from Promus Hotel Corporation Form
8-K, filed June 14, 1995, File No. 1-11463.
(4) Incorporated by reference from Promus Hotel Corporation Form
10-Q, filed August 11, 1995, File No. 1-11463.
(5) Filed herewith.
<PAGE> 31
Signature
---------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
PROMUS HOTEL CORPORATION
November 9, 1995 By: /s/ JEFFERY M. JARVIS
---------------------------
Jeffery M. Jarvis
Vice President and Controller
(Chief Accounting Officer)
<PAGE> 32
Exhibit Index
- -------------
Exhibit No. Description Sequential
Page No.
- ------------- ------------------------------- -----------
(a) EX-10.1 Promus Hotel Corporation Savings
and Retirement Plan. (1)
EX-10.2 Promus Hotel Corporation 1995 Stock
Option Plan. (2)
EX-10.3 Promus Hotel Corporation Restricted
Stock Plan. (2)
EX-10.4 Promus Hotel Corporation Non-Management
Directors Stock Incentive Plan. (2)
EX-10.5 Plan of Reorganization and Distribution
Agreement, dated as of June 30, 1995,
between The Promus Companies Incorporated
and Promus Hotel Corporation. (4)
EX-10.6 Tranche A Credit Agreement, dated as of
June 7, 1995, among Embassy Suites, Inc.,
as Initial Borrower, Promus Hotels, Inc.,
as the Subsequent Borrower, certain
subsidiaries and related parties from time
to time party thereto, as Guarantors, the
several lenders from time to time party
thereto, and NationsBank, N.A. (Carolinas),
as Agent. (3)
Ex-10.7 First Amendment to Tranche A Credit
Agreement dated as of June 30, 1995,
by and among Embassy Suites, Inc.,
Promus Hotels, Inc., The Promus Companies
Incorporated, Promus Hotel Corporation
and NationsBank, N.A. (Carolinas). (4)
EX-10.8 Tranche A Assignment and Assumption
Agreement dated as of June 30, 1995,
among Embassy Suites, Inc., Promus
Hotels, Inc., The Promus Companies
Incorporated and NationsBank, N.A.
(Carolinas). (4)
EX-10.9 Tranche B Credit Agreement, dated as of
June 7, 1995, among Embassy Suites, Inc.,
as Initial Borrower, Promus Hotels, Inc.,
as the Subsequent Borrower, certain
subsidiaries and related parties from time
to time party thereto, as Guarantors, the
several lenders from time to time party
thereto, and NationsBank, N.A. (Carolinas),
as Agent. (3)
<PAGE> 33
EX-10.10 First Amendment to Tranche B Credit
Agreement dated as of June 30, 1995,
by and among Embassy Suites, Inc., Promus
Hotels, Inc., The Promus Companies
Incorporated, Promus Hotel Corporation
and NationsBank, N.A. (Carolinas). (4)
EX-10.11 Tranche B Assignment and Assumption
Agreement dated as of June 30, 1995, by
and among Embassy Suites, Inc., Promus
Hotels, Inc., The Promus Companies
Incorporated and NationsBank, N.A.
(Carolinas). (4)
EX-10.12 Pledge Agreement dated as of June 30, 1995,
by and among Promus Hotel Corporation,
Promus Hotels, Inc., certain subsidiaries
which may now be owners of Credit Parties
and NationsBank, N.A. (Carolinas). (4)
EX-10.13 Escrow Agreement, dated as of June 30, 1995,
among Promus Hotel Corporation, Promus
Hotels, Inc. and NationsBank. (3)
EX-10.14 Employee Benefits and Other Employment
Matters Allocation Agreement, dated as of
June 30, 1995, between The Promus
Companies Incorporated and Promus Hotel
Corporation. (4)
EX-10.15 Risk Management Allocation Agreement,
dated as of June 30, 1995, between The
Promus Companies Incorporated and
Promus Hotel Corporation. (4)
EX-10.16 Tax Sharing Agreement, dated as of
June 30, 1995, between The Promus
Companies Incorporated and Promus
Hotel Corporation. (4)
EX-10.17 Promus Hotel Corporation Executive
Deferred Compensation Plan. (3)
EX-10.18 Promus Hotel Corporation Deferred
Compensation Plan. (3)
<PAGE> 34
EX-10.19 Promus Hotel Corporation Savings and
Retirement Plan Trust Agreement, dated
as of May 26, 1995, among Promus Hotel
Corporation, and Robert S. Davis,
Donald H. Dempsey, Patricia R. Ferguson,
Jeffery M. Jarvis, Kelly R. Jenkins,
Frederick G. Schultz and Mark C. Wells. (3)
EX-10.20 Form of Severance Agreement, dated as
of June 30, 1995, entered into with
Donald H. Dempsey, Thomas L. Keltner,
Ralph B. Lake, David C. Sullivan, and
Mark C. Wells. (4)
EX-10.21 Form of Severance Agreement, dated
June 30, 1995, entered into with
Michael D. Rose and Raymond E. Schultz. (4)
EX-10.22 Employment Agreement, dated as of
June 30, 1995, between Michael D. Rose
and Promus Hotel Corporation. (4)
EX-10.23 Employment Agreement, dated as of
July 1, 1995, and Raymond E. Schultz 36
and Promus Hotel Corporation. (5)
EX-10.24 Promus Hotel Corporation Key Executive
Officer Annual Incentive Plan. (2)
EX-10.25 International Swap Dealers Association,
Inc. Master Agreement, dated as of
June 30, 1995, among Promus Hotels,
Inc. and NationsBank, N.A. (Carolinas). (4)
EX-10.26 Transfer Agreement, dated as of June 30,
1995, among Embassy Suites, Inc.,
Promus Hotels, Inc., and NationsBank, N.A.
(Carolinas). (4)
EX-10.27 Subscription Agreement, dated as of
October 17, 1995, by and among Promus
Hotels, Inc., FelCor Suite Hotels, Inc.,
and FelCor Suites Limited Partnership.(5) 47
EX-27 Financial Data Schedule. (5) 59
<PAGE> 35
Footnotes
- ---------
(1) Incorporated by reference from Promus Hotel Corporation
Registration Statement No. 33-59977 on Form S-8 for the
Promus Hotel Corporation 1995 Stock Option Plan, filed
June 6, 1995.
(2) Incorporated by reference from Promus Hotel Corporation Form
10/A, filed May 3, 1995, File No. 1-11463.
(3) Incorporated by reference from Promus Hotel Corporation Form
8-K, filed on June 14, 1995, File No. 1-11463.
(4) Incorporated by reference from Promus Hotel Corporation Form
10-Q, filed August 11, 1995, File No. 1-11463.
(5) Filed herewith.
<PAGE 36>
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 1st day of July, 1995, between
Promus Hotel Corporation, a Delaware corporation with its executive
offices at 850 Ridge Lake Boulevard, Memphis, Tennessee (the
"Company"), and Raymond E. Schultz (the "Executive").
The Company and the Executive agree as follows:
1. Introductory Statement.
The Company desires to secure the services of the Executive as
Chief Executive Officer, and the Executive is willing to execute
this Agreement with respect to his employment. This Agreement is
effective on July 1, 1995, and shall expire on December 31, 1999
("the Termination Date"), subject to the terms and conditions
herein.
2. Agreement of Employment.
The Company agrees to, and hereby does, employ the Executive,
and the Executive agrees to, and hereby does accept, employment by
the Company, in a full-time capacity as Chief Executive Officer,
pursuant to the provisions of this Agreement and of the bylaws of
the Company and subject to the control of the Board of Directors.
It is understood that the Executive's position as Chief Executive
Officer is subject to his yearly re-election as Chief Executive
Officer by the Board. See paragraph 6 herein for Executive's
rights if such re-election does not occur during the term of this
Agreement.
3. Executive's Obligations.
During the period of his service under this Agreement, the
Executive shall devote substantially all of his time and energies
during business hours to the supervision and conduct, faithfully
and to the best of his ability, of the business and affairs of the
Company and to the furtherance of its interests, and to such other
duties as directed by the Board.
4. Compensation.
The Company shall pay to Executive a salary at the rate of
$310,000 per year, in equal bi-weekly installments, provided,
however, that the Human Resources Committee of the Board (the
"HRC") shall in good faith review the salary of the Executive, on
an annual basis, with a view to consideration of appropriate merit
increases in such salary. In addition, except as otherwise
provided in this Agreement, during the term of this Agreement the
Executive shall be entitled to participate in incentive
compensation programs and to receive employee benefits and
perquisites at least as favorable to the Executive as those
presently provided to Executive by the Company, and as may be
enhanced for all senior officers. Such benefits include, but are
not limited to, the rabbi trust (provided pursuant to the escrow
agreement dated June 30, 1995 as amended (the "Escrow Agreement"))
and his Severance Agreement dated June 30, 1995, a copy of which is
attached hereto as Exhibit A (the "Severance Agreement") both of
which will continue in force subject to their terms and conditions
including the termination and amendment provisions thereof. There
will be no diminution of the above compensation, perquisites, or
benefits except as provided in this Agreement.
<PAGE> 37
The Executive will use the Company's aircraft for security
purposes for himself and his family (with standard charges for
non-employee family members and for non-Company business usage).
The Company will also provide Executive with appropriate security
arrangements at his residence.
If the Executive dies or resigns pursuant to this Agreement or
pursuant to any other agreement between the Company and the
Executive providing for such resignation during the period of this
Agreement, service for any part of the month in which any such
event occurs shall be considered service for the entire month.
5. Termination From Employment on December 31, 1999
5.1 Except as otherwise provided in this Agreement, the date
of Executive's termination from employment shall be December 31,
1999 ("the Termination Date").
5.2 After the date of Executive's termination from employment
at any time (including termination or resignation prior to the
Termination Date, if that should occur), he will be entitled to
participate at the Company's expense for his lifetime in the
Company's group health insurance plans applicable to corporate
executives including family coverage as applicable (medical, dental
and vision coverage). It is understood that the Executive will be
subject to income tax on the cost of the benefits provided to him
after his termination. His group health insurance benefits after
any termination of employment will not be less than those offered
to corporate officers of the Company, and he will be entitled to
any later enhancements in such benefits. His benefits will be the
same as normally provided to other retired management directors
pursuant to the policy adopted by the HRC on May 26, 1995,
including term life insurance of $50,000 (except to the extent he
voluntarily elects not to participate in any plan).
5.3 After the date of Executive's termination from
employment, his EDCP account and any other deferred compensation
balances will continue to be protected by the Escrow Agreement if
it is then in force subject to the terms and conditions of the
Escrow Agreement including its termination and amendment
provisions.
6. Termination Without Cause or Resignation for Good Reason
6.1 The Board reserves the right to terminate Executive from
his then current position without cause at any time upon at least
three months prior written notice. The failure of the Board to
elect Executive as Chief Executive Officer during the annual
election of officers shall also be deemed termination without cause
for purposes of this Agreement unless, before the election, the
Board has sent the written notice initiating termination for Cause
as provided in paragraph 11.1, and Executive is thereafter
terminated for Cause. Executive reserves the right to resign his
position for Good Reason (as defined in paragraph 11.2 herein) by
giving the Company 30 days written notice which states the reason
for his resignation. For purposes of this Agreement, Good Reason
does not include changes that are expressly permitted by this
Agreement.
6.2 Upon Executive's termination without cause or resignation
from his position with Good Reason as described in paragraph 6.1
above:
<PAGE> 38
(a) Executive will continue in employee status as a
consultant-employee for two years beginning on the date of such
termination without cause or resignation with Good Reason (the
"Transition Period"). His stock options and any restricted stock
will continue in force for vesting purposes during the Transition
Period. Any unvested stock options and unvested shares of
restricted stock that do not vest during the Transition Period will
be forfeited.
(b) Executive will become vested at the retirement rate under
the Executive Deferred Compensation Plan ("EDCP") on the date of
such termination without cause or resignation with Good Reason.
(c) Executive will continue to receive his then-current
salary rate and the right to participate in the Company's benefit
plans during the Transition Period but he will no longer be
eligible for bonus, stock option or restricted stock grants or any
other long term incentive awards then in effect.
(d) After the expiration of the Transition Period, Executive
will be entitled to the lifetime group insurance benefits described
in paragraph 5.2.
7. Termination For Cause or Resignation Without Good Reason
7.1 The Board will have the right to terminate Executive at
any time from his then-current position for Cause (as defined in
paragraph 11.1 herein).
7.2 If Executive is terminated for Cause or if he resigns his
position without Good Reason (including if he retires without Good
Reason, except as otherwise provided in Paragraph 7.3 below), then
(a) all of his rights and benefits under this Agreement shall
thereupon terminate and his employment shall be deemed terminated
on the date of such termination or resignation, (b) he shall be
entitled to all accrued rights, payments and benefits vested or
paid on or before such date under the Company's plans and programs,
but unvested stock options and unvested shares of restricted stock,
if any, will be forfeited, (c) his right to exercise vested stock
options will expire at 12:00 p.m. midnight on the date of such
termination or resignation and all stock options not so exercised
will be forfeited, (d) his indemnification agreement will continue
in force, (e) the Escrow Agreement, if then in force, will continue
in force, unless such agreement is thereafter amended or terminated
pursuant to its terms, (f) he will be entitled to the lifetime
group insurance benefits described in paragraph 5.2 above except
that any future amendments to such benefits shall apply to him in
the same manner as such amendments apply to other employees and (g)
his Severance Agreement and all rights thereunder will terminate as
of such termination or resignation date unless a Change in Control
or Potential Change in Control (as such terms are defined in the
Severance Agreement) has occurred prior to such termination or
resignation date.
If Executive's Severance Agreement is in force upon a Change
in Control (as defined in the Severance Agreement), the provisions
of this paragraph 7.2 will not be applicable if he resigns (with or
without Good Reason) within two (2) years after the Change in
<PAGE> 39
Control, and in the event of such resignation after a Change in
Control he will be entitled to the payments, rights and benefits as
provided in paragraph 10 below.
7.3 If Executive retires anytime after June 30, 1997, and
prior to the Termination Date, any stock options and shares of
restricted stock scheduled to vest during the two years after the
date of retirement shall vest immediately on the date of
retirement. If Executive retires after the Termination Date, all
unvested stock options and shares of restricted stock shall vest
immediately on the date of retirement. Except as provided in this
paragraph, all other provisions of Paragraph 7.2 shall apply if
Executive retires without Good Reason. This provision shall
survive the termination of the agreement, but shall not apply if
Executive could, at the time of retirement, be discharged for
Cause.
8. Death
In the event of Executive's death prior to the Termination
Date, during his employment under this Agreement, his salary and
all rights and benefits under this Agreement will terminate, and
his estate and beneficiary(ies) will receive the benefits they are
entitled to under the terms of the Company's benefit plans and
programs by reason of a participant's death during active
employment including the death benefits provided by the EDCP and
the applicable rights and benefits under the Company's stock plans.
The Escrow Agreement if then in force will continue in force
(subject to its amendment or termination in accordance with its
terms) for the benefit of Executive's beneficiaries until his
deferred compensation accounts are paid in full, and Executive's
indemnification agreement will continue in force for the benefit of
his estate.
9. Disability
In the event of Executive's disability prior to the
Termination Date, during his employment, he will be entitled to
apply at his option for the Company's long term disability
benefits. If he is accepted for such benefits, then the terms and
provisions of the Company's benefit plans and programs (including
the EDCP and the Company's Stock Option and Restricted Stock Plans)
that are applicable in the event of such disability of an employee
shall apply in lieu of the salary and benefits under this
Agreement, except that (a) the Escrow Agreement (if then in force)
and his indemnification agreement will continue in force (the
Escrow Agreement will be subject to amendment or termination in
accordance with its terms), and (b) he will be entitled to the
lifetime group insurance benefits described in paragraph 5.2. If
Executive is disabled so that he cannot perform his duties (as
determined by the HRC), and if he does not apply for long term
disability benefits or is not accepted for such benefits, then the
Board may terminate his duties under this Agreement and, in such
event, he will receive two years salary continuation together with
all other benefits, and during such period of salary continuation
any stock options and restricted stock grants then in existence
will continue in force for vesting purposes. However, during such
period of salary continuation for disability, Executive will not be
eligible to participate in the annual bonus plan nor will he be
eligible to receive stock option or restricted stock grants or any
other long term incentive awards except to the extent approved by
the HRC.
<PAGE> 40
10. Change in Control
If a Change in Control as defined in Executive's Severance
Agreement occurs prior to Executive's termination of employment and
if the Severance Agreement is in force when the Change in Control
occurs, then, upon his termination or voluntary or involuntary
resignation within two years after the Change in Control (including
termination on December 31, 1999 due to expiration of this
Agreement), except if his termination of employment is for "Cause,"
"Disability" or "Retirement" as set forth in the Severance
Agreement, he will be entitled to all the rights, payments and
benefits provided under his Severance Agreement including the
benefits that the Severance Agreement provides with respect to the
benefit plans and programs of the Company resulting from his
termination or voluntary resignation, in lieu of the rights and
benefits that would otherwise apply under this Agreement by virtue
of his termination or resignation, provided that (a) the Escrow
Agreement (if then in force) and his indemnification agreement will
continue in force (the Escrow Agreement will be subject to
amendment or termination in accordance with its terms) and (b) he
will be entitled to the lifetime group insurance benefits described
in paragraph 5.2.
11. Definitions of Cause and Good Reason.
11.1 Cause. Termination by the Company of this Agreement
for "Cause" shall mean termination upon the Executive's engaging in
willful and continued misconduct, or the Executive's willful and
continued failure to substantially perform his duties with the
Company (other than due to physical or mental illness), if such
failure or misconduct is materially damaging or materially
detrimental to the business and operations of the Company; provided
that Executive shall have received written notice of such failure
or misconduct and shall have continued to engage in such failure or
misconduct after 30 days following receipt of such notice from the
Board, which notice specifically identifies the manner in which the
Board believes that Executive has engaged in such failure or
misconduct. For purposes of this Paragraph, no act, or failure to
act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and
without reasonable belief that the Executive's action or omission
was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for such purposes (after reasonable notice to the Executive and an
opportunity for him, together with his counsel, to be heard before
the Board), finding that in the good faith opinion of the Board the
Executive was guilty of failure to substantially perform his duties
or of misconduct in accordance with the first sentence of this
paragraph, and of continuing such failure to substantially perform
his duties or misconduct as aforesaid after notice from the Board,
and specifying the particulars thereof in detail.
11.2 Good Reason. "Good Reason" shall mean, without
Executive's express written consent, the occurrence of any of the
following circumstances unless, in the case of paragraphs (a), (e),
(f) or (g), such circumstances are fully corrected prior to the
date of termination specified in the written notice given by
Executive notifying the Company of his resignation for Good Reason:
<PAGE> 41
(a) The assignment to Executive of any duties inconsistent
with his status as Chief Executive Officer of the Company or a
substantial adverse alteration in the nature or status of his
responsibilities;
(b) A reduction by the Company in his annual base salary of
$310,000 or as the same may be increased from time to time pursuant
to paragraph 4 hereof;
(c) The relocation of the Company's principal executive
offices where Executive is working to a location more than 50 miles
from the location of such offices on the date of this Agreement, or
the Company's requiring Executive to be based anywhere other than
the location of the Company's principal offices where Executive is
working on the date of this Agreement except for required travel on
the Company's business to an extent substantially consistent with
Executive's present business travel obligations;
(d) The failure by the Company, without Executive's consent,
to pay to him any portion of his current compensation except
pursuant to a compensation deferral elected by the Executive, or to
pay to Executive any portion of an installment of deferred
compensation under any deferred compensation program of the Company
within thirty days of the date such compensation is due;
(e) Except as permitted by this Agreement, the failure by the
Company to continue in effect any compensation plan in which
Executive is participating on the date of this Agreement which is
material to Executive's total compensation, including, but not
limited to, the Company's annual bonus plan, the EDCP (which may be
modified or terminated as to further deferrals after 1995), the
Restricted Stock Plan, or the Stock Option Plan or any substitute
plans unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan, or the failure by the Company to continue Executive's
participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of Executive's
participation relative to other participants at Executive's grade
level;
(f) The failure by the Company to continue to provide
Executive with benefits substantially similar to those enjoyed by
him under the S&RP, except as required by law, and the life
insurance, medical, health and accident, and disability plans in
which Executive is participating on the date of this Agreement, the
taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive
Executive of any material fringe benefit enjoyed by Executive on
the date of this Agreement except as permitted by this Agreement,
or the failure by the Company to provide Executive with the number
of paid vacation days to which Executive is entitled; or
(g) The failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 14 hereof.
Executive's right to terminate his employment pursuant to this
Agreement for Good Reason shall not be affected by Executive's
incapacity due to physical or mental illness. Executive's
continued employment shall not constitute consent to, or a waiver
of rights with respect to, any circumstance constituting Good
Reason hereunder.
<PAGE> 42
12. Non-Competition Agreement.
12.1 For a period of two years after Executive's full-time,
active employment (which period, for purposes of this paragraph
12.1, shall not include employee status as a consultant-employee in
paragraph 6.2(a)) with the Company (or with a direct or indirect
subsidiary of the Company) ends, he will not, directly or
indirectly, solicit or recruit any employee of the Company or of
any of its direct or indirect subsidiaries, and he will not engage
(as an employee, consultant, director, investor, contractor, or
otherwise) directly or indirectly in any business in the United
States, Canada or Mexico that is competitive with any business that
the Company or its direct or indirect subsidiaries are engaged (as
owner, manager, consultant, licensor, partner, or otherwise) in at
the time such employment ends except with the prior specific
approval of the Board.
12.2 If Executive breaches any of the above covenants in
12.1, then the Board may terminate any of his rights under this
Agreement upon thirty days written notice whereupon all of the
Company's obligations under this Agreement shall terminate
(including, without limitation, the right to lifetime group
insurance) without further obligation to him except for obligations
that have been paid, accrued or are vested as of or prior to such
termination date. In addition the Company shall be entitled to
enforce any such covenants including obtaining monetary damages,
specific performance and injunctive relief.
13. Binding Arbitration.
Any and all claims, disputes or controversies arising out of
or related to this Agreement or the breach thereof shall be
resolved by arbitration in accordance with the rules of the
American Arbitration Association (the "AAA") then in existence,
subject to this paragraph 13. Such arbitration shall be conducted
by a panel of three arbitrators. The Executive shall appoint one
arbitrator, the Company shall appoint one arbitrator, and the third
shall be appointed by the two arbitrators appointed by the parties.
The third arbitrator shall serve as chairman of the panel. The
parties shall appoint their arbitrators within 30 days after the
demand for arbitration is served, failing which the AAA promptly
shall appoint a defaulting party's arbitrator, and the two
arbitrators shall select the third arbitrator within 15 days after
their appointment, or if they cannot agree or fail to so appoint,
then the AAA promptly shall appoint the third arbitrator. The
arbitrators shall render their decision in writing within 60 days
after the close of evidence or other termination of the proceedings
by the panel. The determination or award rendered in such
arbitration shall be binding and conclusive upon the parties and
shall not be appealable, and judgment may be entered thereon in
accordance with applicable law in any court of competent
jurisdiction. Any hearings in the arbitration shall be held in
Memphis, Tennessee, and shall be private and not open to the
public. Each party shall bear the fees and expenses of its
arbitrator, counsel and witnesses, and the fees and expenses of the
third arbitrator shall be shared equally by the parties. Other
costs of the arbitration, including the fees of AAA, shall be
shared equally by the parties.
<PAGE> 43
14. Assumption of Agreement on Merger, Consolidation or Sale of
Assets.
The Company agrees that until the termination of this
Agreement as above provided, it will not enter into any merger or
consolidation with another company in which the Company is not the
surviving company, or sell or dispose of all or substantially all
of its assets, unless the company which is to survive such merger
or consolidation or the prospective purchaser of such assets first
makes a written agreement with the Executive either (1) assuming
the Company's financial obligations to the Executive under this
Agreement, or (2) making such other provision for the Executive as
is satisfactory to the Executive and approved by him in writing in
lieu of assuming the Company's financial obligations to him under
this Agreement.
15. Assurances on Liquidation.
The Company agrees that until the termination of this
Agreement as above provided, it will not voluntarily liquidate or
dissolve without first making a full settlement or, at the
discretion of the Executive, a written agreement with the Executive
satisfactory to and approved by him in writing, in fulfillment of
or in lieu of its obligations to him under this Agreement.
16. Amendments.
This Agreement may not be amended or modified orally, and no
provision hereof may be waived, except in a writing signed by the
parties hereto.
17. Assignment.
17.1 Except as otherwise provided in paragraph 17.2, this
Agreement cannot be assigned by either party hereto except with the
written consent of the other. Any assignment of this Agreement by
either party hereto shall not relieve such party of its or his
obligations hereunder.
17.2 The Company may elect to perform any or all of its
obligations under this Agreement through its wholly-owned
subsidiary, Promus Hotels, Inc., or another subsidiary, and if the
Company so elects, Executive will be an employee of Promus Hotels,
Inc., or such other subsidiary. Notwithstanding any such election,
the Company's obligations to Executive under this Agreement will
continue in full force and effect as obligations of the Company,
and the Company shall retain primary liability for their
performance.
18. Binding Effect.
This Agreement shall be binding upon and inure to the benefit
of the personal representatives and successors in interest of the
Company.
19. Choice of Law.
This Agreement shall be governed by the law of the State of
Tennessee as to all matters, including but not limited to matters
of validity, construction, effect and performance.
<PAGE> 44
20. Severability of Provisions.
In case any one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or
impaired thereby, and this Agreement shall be interpreted as if
such invalid, illegal or unenforceable provision was not contained
herein.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and the Company has caused this Agreement to be executed in its
name and on its behalf and its corporate seal to be hereunto
affixed and attested by its corporate officers thereunto duly
authorized.
/s/ Raymond E. Schultz
Raymond E. Schultz
(Corporate Seal) PROMUS HOTEL CORPORATION
By:
ATTEST:
Secretary
<PAGE> 45
Summary of Employment Agreement
of
Raymond E. Schultz
1. Term: Four and one-half (4 1/2) years from July 1, 1995 to
December 31, 1999.
2. Duties: Chief Executive Officer, or as otherwise
determined by the Board.
3. Compensation and Benefits: He receives an annual salary
of $310,000, plus merit increases as determined by the Human
Resource Committee, incentive compensation, and benefits including
use of company aircraft for business, family and personal use and
appropriate security arrangements. Following any termination of
employment, he will receive lifetime health and life insurance
benefits at Company expense as provided to retired management
directors.
4. Termination without Cause or Resignation For Good Reason:
The Board can terminate him without cause, or he can resign for
"Good Reason." If either occurs, he will receive two years salary
continuation as a employee-consultant plus benefits (except for new
stock grants and annual bonus). His unvested stock options and
restricted stock continue in force for vesting purposes during the
two year period, and any that do not vest during that period will
be forfeited. His EDCP will vest at the retirement rate on the
date of termination of active employment.
Note: "Good Reason" includes such events as an adverse change
in his duties, salary reduction, decreased benefits, or a
relocation of his office by more than 50 miles.
5. Termination for Cause; Resignation Without Good Reason;
Retirement: The Board can terminate him for "Cause." If so, or if
he resigns without Good Reason, any unvested options and restricted
stock are forfeited. However, if he retires after June 30, 1997
but before December 31, 1999, any stock options and restricted
stock scheduled to vest during the next two years vest immediately;
if he retires after December 31, 1999, all unvested options and
shares of restricted stock vest immediately. He can exercise
vested stock options up to 12:00 p.m. on the termination date.
Benefits cease except for lifetime health insurance.
6. Expiration of Agreement: Upon expiration of the
agreement, all salary and benefits will cease (except for lifetime
health insurance).
7. Change in Control: If he resigns or is terminated (except
due to death, disability or retirement) within two years after a
change in control, he receives benefits under his severance
agreement in lieu of salary continuation or other rights under his
employment agreement.
<PAGE> 46
8. Death: Upon his death, the employment agreement
terminates, and his beneficiary/estate will receive the benefits
normally provided to the beneficiaries of a deceased employee.
9. Disability: Upon disability, he can apply for standard
long-term disability benefits. If he does not apply or does not
qualify, and if the Human Resources Committee nevertheless
determines he is unable to perform his job, the Board can terminate
his agreement. If this occurs, he will receive two years salary
continuation and all benefits (except for new stock grants and
annual bonus), and his unvested options and restricted stock will
continue in force for vesting purposes during the salary
continuation period. He will receive lifetime insurance benefits.
If he does qualify for long-term disability, then the terms of the
applicable plans and programs will apply in lieu of salary and
benefits under this agreement.
10. Escrow Agreement (Rabbi Trust) and Indemnification
Agreement: If his employment terminates for any reason, his
indemnification agreement will continue in effect, and the Escrow
Agreement will continue in effect subject to amendment or
termination under its own terms.
11. Covenant Not to Compete: For two years after his
termination of employment status or consultancy, he agrees not to
engage directly or indirectly in any business in the U.S., Mexico,
or Canada that is competitive with any business of the Company and
not to solicit or recruit Promus Hotel employees without prior
specific Board approval.
12. Arbitration: All disputes under the agreement are to be
settled by binding arbitration with each party bearing its own cost
and expenses.
13. Merger/Liquidation: The Company cannot liquidate or
merge into another company unless the new company assumes the
financial obligation of the employment agreement or unless a
settlement agreement is entered into that is satisfactory to him.
14. Employment by Subsidiary: He may legally be an employee
of Promus Hotels, Inc., or another Promus Hotel Corporation
subsidiary, but Promus Hotel Corporation will remain primarily
obligated for the obligations under this agreement.
<PAGE> 47
EXHIBIT 10.27
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (the "Agreement") is made and
entered as of this 17th day of October, 1995, by and among PROMUS
HOTELS, INC. ("Promus"), a Delaware corporation, FELCOR SUITE
HOTELS, INC. (the "Company"), a Maryland corporation, and FELCOR
SUITES LIMITED PARTNERSHIP (the "Partnership"), a Delaware limited
partnership.
RECITALS
A. Promus owns, operates and franchises hotels under the
trademark and service mark Embassy Suites ("Embassy Suites
hotels").
B. The Company owns an approximate 82.8% general partner
interest in the Partnership, which currently owns interests in
thirteen Embassy Suites hotels, all of which hotels are leased by
the Partnership to DJONT Operations, L.L.C. (the "Lessee").
C. All of the Embassy Suites hotels currently owned by the
Partnership are operated by the Lessee under franchise licenses
from Promus pursuant to franchise license agreements between the
Lessee and Promus, and twelve of the Embassy Suites hotels
currently owned by the Partnership are managed on behalf of the
Lessee by Promus pursuant to management agreements between the
Lessee and Promus.
D. As of September 19, 1995, Felcor/CSS Holdings, L.P. and
PFS Ventures, Inc. ("FelCor") entered into documents (as in effect
on such date and without regard to any subsequent amendments or
modifications thereto, the "Acquisition Documents") regarding the
acquisition by FelCor of fee ownership of thirteen Crown Sterling
hotels, ground leases in three Crown Sterling hotels, general and
limited partnership interests in the LAX and Mandalay Crown
Sterling hotels (the "Partnership Interests"), the Crown Sterling
trademark and related intellectual property and all management and
license agreements with respect to Crown Sterling (collectively the
"Crown Sterling Hotel Chain"). The acquisition contemplated by the
Acquisition Documents is intended to be closed in two or more
phases. At a closing anticipated for November 15, 1995 (the "First
Crown Sterling Closing"), it is contemplated that FelCor will
acquire up to seven Crown Sterling hotels, the Partnership
Interests, the Crown Sterling trademark and related intellectual
property, and the management and license agreements relating to
such hotels. It is contemplated that FelCor will acquire the
remaining Crown Sterling hotels and the remainder of the Crown
Sterling Hotel Chain at a second closing (the "Second Crown
Sterling Closing") anticipated for January 3, 1996, but extendible
to a date not later than February 15, 1996.
E. The Company intends to undertake a public offering of its
common stock, $0.01 par value (the "Common Stock") pursuant to a
registration statement to be filed with the Securities and Exchange
Commission on or shortly after October 18, 1995 (the "Public
Offering"), all of the proceeds of which will be contributed by the
Company to the Partnership for use by the Partnership, in part, to
complete the acquisition by FelCor contemplated by the Acquisition
Documents. Concurrently with the Public Offering, Promus shall
purchase Common Stock in the amount of Twenty-Five Million Dollars
($25,000,000), at a per share price equal to the per share price at
which shares of Common Stock are sold in the Public Offering,
<PAGE> 48
pursuant to the same registration statement in a concurrent
offering (the "Promus Offering").
F. Also in connection with the acquisition contemplated by
the Acquisition Documents and certain other acquisitions as set
forth herein, Promus has agreed to subscribe for the purchase of up
to Twenty-Five Million Dollars ($25,000,000) in Common Stock and/or
units of limited partner interest of the Partnership (the "Units")
upon the terms outlined in this Agreement (the "Crown Sterling
Subscription"). Subject to the terms and conditions set forth in
this Agreement, the aggregate amount committed by Promus in
connection with the Promus Offering and the Crown Sterling
Subscription shall be up to Fifty Million Dollars ($50,000,000),
subject to compliance with applicable law.
G. The parties to this Agreement agree that Promus will have
the right to sell to the public any Common Stock and/or Units
received in the Promus Offering and/or pursuant to the Crown
Sterling Subscription at any time following one year from the date
of first issuance of said Common Stock and/or Units to Promus.
AGREEMENT
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual
promises and covenants contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties do hereby agree as follows:
1. Terms of Subscription
(a) Promus Offering. Promus hereby
subscribes for and agrees to consummate the Promus
Offering at the purchase price determined in
accordance with Section 2 below.
(b) Crown Sterling Subscription. Promus
hereby subscribes for and agrees to purchase, from
time to time, Common Sock and/or Units in
consummation of the Crown Sterling Subscription,
subject to the limitations set forth in Section
1(e) below, at the purchase price determined in
accordance with Section 2 below. The Crown
Sterling Subscription shall consist exclusively of
Common Stock unless, at the time of any incremental
purchase (each a "Crown Sterling Incremental
Purchase"), Promus owns the maximum amount of
Common Stock (the "Limit") permitted under the
charter of the Company and no waiver of such Limit
can be made without jeopardizing the Company's REIT
status.
(c) Units. Any Crown Sterling Incremental
Purchase which, if consisting exclusively of Common
Stock, would result in Promus owning an amount of
Common Stock in excess of the Limit shall consist
of (i) in those instances where, prior to
undertaking the Crown Sterling Incremental Purchase
in question, Promus did not own an amount of Common
Stock equal to or in excess of the Limit, (A)
Common Stock up to and until such point as Promus
owns the Limit of Common Stock and (B) Units in
sufficient number to satisfy any difference between
the dollar amount of such Crown Sterling
Incremental Purchase and the dollar amount of
Common Stock received by Promus pursuant to clause
(A) above, or (ii) in those instances where, prior
to undertaking the Crown Sterling Incremental
<PAGE> 49
Purchase in question, Promus owns an amount of
Common Stock equal to or in excess of the Limit,
Units exclusively. To the extent that any
provision of the charter of the Company would
restrict the amount of Common Stock which Promus
could acquire, the Company agrees to waive such
restriction so long as its REIT status would not be
jeopardized as a result of such waiver.
(d) Redemption of Units. Each Unit shall be
redeemable by Promus, at any time following one
year after the date of first issuance of such Units
pursuant to this Section 1 for one share of Common
Stock, subject only to the restrictions contained
in Section 7.5 of the Amended and Restated
Agreement of Limited Partnership of the
Partnership, dated as of July 25, 1994 (as in
effect as of the date of this Agreement and without
regard to any subsequent amendments or
modifications thereto, the "Partnership
Agreement"); provided, that if Promus would be
subject to the recovery of profits under
Section 16(b) of the Securities Exchange Act of
1934, as amended, with respect to the redemption of
such Units for cash, the Partnership shall not
satisfy such redemption in whole or in part with
cash without the prior consent of Promus.
(e) Limitations. Promus' agreement herein to
purchase Common Stock and/or Units in the Crown
Sterling Subscription, the proceeds of which are to
be used by the Partnership to complete the
acquisition by FelCor pursuant to the Acquisition
Documents shall not exceed at any time the amount
(the "Aggregate Subscription Limit") by which the
Closed Hotel Amount (as hereinafter defined)
exceeds Twenty-Five Million Dollars ($25,000,000).
The "Closed Hotel Amount" shall equal Fifty Million
Dollars ($50,000,000) times a fraction, the
numerator of which is the sum of the Allocated
Purchase Price (as set forth on Exhibit A hereto)
for all hotels the purchase of which has been
closed pursuant to the Acquisition Documents, and
the denominator of which shall equal Four Hundred
Eighty-Five Million Five Hundred Thirty-Eight
Thousand Seven dollars ($485,538,007). The
difference between the Aggregate Subscription Limit
and Twenty Five Million Dollars ($25,000,000) shall
be available for purchases of Qualifying Hotels, as
defined in, and pursuant to the terms and
conditions of, that certain Subscription Agreement,
dated as of May 3, 1995 by and among Embassy
Suites, Inc., the Company and the Partnership (the
"Prior Subscription Agreement") as though such
terms and conditions of the Prior Subscription
Agreement were set forth herein, and in no event
shall the amount of Common Stock and/or Units
purchased by Promus hereunder (other than pursuant
to the Promus Offering) exceed Twenty Five Million
Dollars ($25,000,000).
(f) Sale. Subject to Section 8(d) hereof,
Promus may not sell to the public any Common Stock
and/or Units received in the Promus Offering,
pursuant to the Crown Sterling Subscription or upon
redemption of such Units until at least one year
following the date of first issuance of said Common
Stock and/or Units.
<PAGE> 50
2. Purchase Price. The purchase price for each share of
Common Stock and each Unit acquired hereunder (the "Crown Sterling
Purchase Price") shall be equal to the public offering price per
share at which shares of Common Stock are sold in the Public
Offering.
3. Conditions to Purchase. The following shall be
conditions precedent to the obligation of Promus to purchase Common
Stock and/or Units in connection with the Crown Sterling
Subscription:
(a) FelCor shall have made a formal request
upon Promus in connection with either (i) the First
Crown Sterling Closing, (ii) the Second Crown
Sterling Closing, (iii) an interim closing of the
purchase by FelCor of interests in one or more
Crown Sterling hotels pursuant to the Acquisition
Documents or (iv) following the date on which a
minimum of fourteen (14) of the hotels listed on
Exhibit A have been acquired pursuant to the
Acquisition Documents, the purchase of any other
Qualifying Hotel.
(b) With respect to acquisitions pursuant to
the Acquisition Documents, any request for a Crown
Sterling Incremental Purchase from the Company
shall be for an amount which, when aggregated with
all amounts previously purchased hereunder, shall
not exceed the Aggregate Subscription Limit. No
request hereunder shall, when aggregated with all
amounts previously subscribed hereunder, exceed
Twenty-Five Million Dollars ($25,000,000) in the
aggregate.
4. Purchase Closings. In connection with the Crown
Sterling Subscription, Promus shall pay to the Partnership, by wire
transfer or by certified or bank cashier's check, amounts as
designated by the Partnership from time to time, the aggregate
amount not to exceed the Aggregate Subscription Limit with respect
to the acquisition pursuant to the Acquisition Documents, and
Twenty Five Million Dollars ($25,000,000) in the aggregate. In
connection with each Crown Sterling Incremental Purchase, the
Partnership shall issue to Promus one or more certificates
representing the whole number of shares of Common Stock and/or
Units, as provided in Section 1 hereof, equal to the quotient of
(i) the amount paid by Promus to the Partnership in connection with
such incremental purchase divided by (ii) the Crown Sterling
Purchase Price. The Partnership shall not be required to issue
fractional shares of Common Stock or Units in connection with such
incremental purchase and, in lieu thereof, the Partnership shall
refund to Promus the cash amount represented by the fractional
share of Common Stock or Unit based upon the Crown Sterling
Purchase Price.
5. Term. Promus' obligations in connection with the
Crown Sterling Subscription shall terminate (a) upon the earliest
to occur of (i) the date that Promus shall have completed its
subscription obligation in connection with the Crown Sterling
Subscription, (ii) delivery of written notice to Promus that the
Partnership has terminated Promus' obligation in connection with
the Crown Sterling Subscription and (iii) with respect to hotels
acquired pursuant to the Acquisition Documents, the date on which
the final Crown Sterling Closing occurs, but not later than March
31, 1996, and (b) with respect to any other Qualifying Hotels, June
30, 1996.
6. Representations and Warranties of Promus. Promus
hereby represents and warrants to the Company and the Partnership
as follows:
<PAGE> 51
(a) The execution, delivery and performance
of this Agreement by Promus has been duly
authorized by all necessary corporate action. This
Agreement constitutes a valid and binding
obligation of Promus, enforceable in accordance
with its terms.
(b) It is familiar with the business and
financial condition of the Company and the
Partnership, and is not relying upon any
representations made to it by the Company, the
Partnership or any of the officers, employees or
agents of either of them that are not contained
herein.
(c) It is aware of the risks involved in
making an investment in the Common Stock and in the
Units. It has had an opportunity to ask questions
of, and to receive answers from, the Partnership
and the Company, or a person or persons authorized
to act on their behalf, concerning the terms and
conditions of this investment. Promus confirms
that all documents, records and books pertaining to
its investment in the Partnership that have been
requested by it have been made available or
delivered to it prior to the date hereof.
(d) It understands that neither the Common
Stock nor the Units to be issued pursuant to the
Crown Sterling Subscription have been registered
under the Securities Act of 1933, as amended, or
any state securities acts, and are instead being
offered and sold in reliance on an exemption from
such registration requirements. The Common Stock
and Units for which Promus hereby subscribes are
being acquired solely for its own account, for
investment, and are not being purchased with a view
to, or for resale in connection with, any
distribution, subdivision or fractionalization
thereof, in violation of such laws and Promus has
no present intention to enter into any contract,
undertaking, agreement or arrangement with respect
to any such resale.
(e) It is an accredited investor as that term
is defined in Rule 501 and Regulation D of the
Securities Act of 1933, as amended.
The foregoing representations and warranties are true and
accurate as of the date hereof and shall be true and accurate as of
the date of each incremental purchase pursuant to the terms of this
Agreement. If in any respect such representations and warranties
shall not be true and accurate as of any such incremental purchase,
Promus shall give written notice of such fact to the Company and
the Partnership prior to such purchase, specifying which
representations and warranties are not true and accurate and the
reasons therefor.
7. Representations and Warranties of the Company and the
Partnership. Each of the Company and the Partnership hereby
jointly and severally represents and warrants to Promus that the
representations and warranties set forth in Exhibit B attached
hereto and by this reference incorporated herein shall be true and
correct in all material respects as of the date of the consummation
of the Public Offering, and each of the Company and the Partnership
further jointly and severally represents and warrants to Promus as
follows:
<PAGE> 52
(a) The Company and the Partnership each have
full legal right, power and authority to enter into
this Agreement and the registration rights
agreement referred to in Section 8 hereof, and to
consummate the transactions contemplated herein and
therein. This Agreement has been, and the
registration rights agreement referred to in
Section 8 hereof will be, duly authorized by all
necessary corporate and partnership action, and
each will constitute the valid and binding
obligation of each of the Company and the
Partnership, enforceable in accordance with their
respective terms. The Partnership Agreement
constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms.
(b) Units, when issued to Promus, will have
been duly and validly authorized and issued, free
of any preemptive or similar rights, and be fully
paid and nonassessable, without any obligation to
restore capital except as required by the Delaware
Revised Uniform Limited Partnership Act (the
"Delaware Act"). As a holder thereof, Promus shall
be admitted as a limited partner of the Partnership
entitled to all of the rights and protections of
limited partners under the Delaware Act and the
provisions of the Partnership Agreement, with the
same rights, preferences and privileges as all
existing limited partners on a pari passu basis.
The Common Stock has been validly authorized and,
when issued to Promus, will be duly and validly
issued, fully paid, nonassessable and free of
preemptive or similar rights. Authorized and
unissued shares of Common Stock sufficient to
satisfy the Company's obligation to issue such
shares to Promus upon redemption of Units shall at
all times be reserved by the Company, and the
Company shall take no action to prevent the
redemption of the Units by virtue of Section
7.5(c)(v) of the Partnership Agreement.
(c) Assuming the accuracy of the
representations of Promus set forth in Section 6
hereof, (i) the Common Stock and Units will have
been issued, offered and sold to Promus in
compliance with all applicable laws (including,
without limitation, federal and state securities
laws), (ii) any share of Common Stock issued to
Promus, either in connection with an incremental
purchase pursuant to the terms of this Agreement or
upon redemption of Units so received, shall have
been issued, offered and sold in compliance with
all applicable laws (including, without limitation,
federal and state securities laws) and (iii) each
consent, approval, authorization, order, license,
certificate, permit, registration, designation or
filing by or with any governmental agency or body
necessary for the valid authorization, issuance,
sale and delivery of any Common Stock or Units to
Promus, the valid authorization, issuance, sale and
delivery of such shares upon redemption of the
Units, the execution, delivery and performance of
this Agreement and the registration rights
agreement referred to in Section 8 hereof and the
consummation by the Company and the Partnership of
the transactions contemplated hereby and thereby
has been made or obtained and is in full force and
effect.
<PAGE> 53
(d) Neither the issuance, sale and delivery
to Promus by the Partnership of the Units, nor the
issuance, sale and delivery to Promus by the
Company of the Common Stock directly or upon
redemption of the Units, nor the execution,
delivery and performance of this Agreement and the
registration rights agreement referred to in
Section 8 hereof, nor the consummation of the
transactions contemplated hereby or thereby by the
Company or the Partnership, as applicable, will
conflict with or result in a breach or violation of
any of the terms and provisions of, or (with or
without the giving of notice or passage of time or
both) constitute a default under, any agreement to
which the Company, the Partnership, the Lessee or
FelCor is a party, the certificate of
incorporation, bylaws, certificate of limited
partnership, partnership agreement or limited
liability company agreement, as the case may be, of
the Company, the Partnership or the Lessee, any
indenture, mortgage, deed of trust, loan agreement,
note, lease or other agreement or instrument to
which the Company, the Partnership or the Lessee is
a party or to which any of them, any of their
respective properties or other assets or any hotel
is subject, or any applicable statute, judgment,
decree, rule or regulation of any court or
governmental agency or body applicable to any of
the foregoing or any of their respective
properties, or result in the creation or imposition
of any lien, charge, claim or encumbrance upon any
property or asset of any of the foregoing.
The foregoing representations and warranties are true
and accurate as of the date hereof, or such other date as of which
they are deemed to be made, and shall be true and accurate as of
the date of the first subscription pursuant to the terms of this
Agreement, and shall survive such date; and the representations and
warranties set forth in Exhibit B hereto, and paragraphs (a)
through (d) above, shall also be true and accurate as of the date
of each subsequent Crown Sterling Incremental Purchase, and shall
survive each such date.
8. Registration Rights. Prior to the earlier to occur
of the first purchase of Units hereunder and the closing of the
Promus Offering, the Company shall enter into with Promus a
registration rights agreement in form and substance agreeable to
Promus and the Company, providing, among other things, for the
following with respect to Common Stock purchased by Promus pursuant
to the Promus Offering, Common Stock acquired by Promus pursuant to
the Crown Sterling Subscription and Common Stock issued upon
redemption of the Units:
(a) On or before July 1, 1996, the Company shall
file and use its best efforts to cause to become
effective, a registration statement under the Securities
Act of 1933, as amended, and necessary qualifications or
registrations under the securities laws covering the
resale by Promus of all shares of Common Stock issued to
Promus under and pursuant to this Agreement and pursuant
to the redemption of any Units issued to Promus under and
pursuant to this Agreement. The Company shall use its
best efforts to maintain the effectiveness of such
registration statement and such qualifications or
registrations (except during periods when Promus shall be
restricted from selling shares hereunder) until the
earlier of (i) such time as all of the shares of Common
Stock issuable upon redemption of the Units and pursuant
<PAGE> 54
to the Promus Offering have been issued to and sold by
Promus, (ii) such time as all remaining shares of Common
Stock issuable upon redemption of the Units and pursuant
to the Promus Offering have been issued to and may be
resold by Promus without restriction under the Securities
Act of 1933, as amended, and (iii) December 31, 2000.
(b) During any consecutive three month period,
Promus shall be prohibited, unless the Company shall
otherwise consent thereto in writing, from selling more
than 3% of the outstanding shares of Common Stock,
whether pursuant to said registration statement or
otherwise, except in an underwritten public offering in
which the managing underwriter is one reasonably
acceptable to the Company.
(c) All expenses of such registration statement,
other than any underwriting discounts or commissions or
transfer taxes, but including the reasonable fees and
expenses of all separate counsel for Promus, shall be
borne by the Company.
(d) (i) Promus shall refrain from the sale of any
shares of Common Stock for one or more periods of not
more than sixty (60) days following written notice from
the Company that the registration statement is not then
current, due to the existence of material non-public
information disclosure of which would materially
adversely affect the business interests of the Company,
and prior to Promus' receipt from the Company of written
notice that such registration statement is again current,
provided that Promus shall not be precluded from
effecting sales pursuant to this clause (i) for more than
ninety (90) days during any 360-day period.
(ii) Following written notice from the Company
that it has filed and caused to become effective a
registration statement including an offering of shares of
Common Stock for sale by the Company to the public in an
underwritten public offering, Promus shall enter into
agreements with the underwriters of such public offering,
substantially in the same form as agreements entered into
by the officers and directors of the Company, precluding
the sale of Common Stock by Promus for a period not to
exceed one hundred eighty (180) days following such
notice, provided that Promus was given the opportunity to
include its shares for sale in such public offering.
9. Use of Proceeds. The Company and the Partnership
agree with Promus that the proceeds of the sale of Common Stock
and/or Units in connection with the Crown Sterling Subscription
will be used solely to complete the acquisition by FelCor of the
Crown Sterling Hotel Chain pursuant to the Acquisition Documents
or, prior to June 30, 1996, as a portion of the purchase price for
the Partnership or FelCor to acquire other Qualifying Hotels
(provided that a minimum of fourteen (14) of the hotels listed on
Exhibit A have been acquired pursuant to the Acquisition
Documents).
<PAGE> 55
10. Miscellaneous
(a) All notices or other communications given
or made hereunder shall be in writing and shall be
delivered or mailed by registered or certified
mail, return receipt requested, postage prepaid, to
Promus at 850 Ridge Lake Boulevard, Suite 300,
Memphis, Tennessee 38120, Attention: General
Counsel, with a copy to the same address,
Attention: Chief Financial Officer, and to the
Company or the Partnership at 5215 N. O'Connor
Blvd., Suite 330, Irving, Texas 75039.
(b) NOTWITHSTANDING THE PLACE WHERE THIS
AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES
HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL OF THE
TERMS AND PROVISIONS HEREOF SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS (WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES), APPLICABLE TO AGREEMENTS MADE AND TO
BE WHOLLY PERFORMED THEREIN.
(c) This Agreement supersedes that certain
Memorandum of Terms, dated as of September 20,
1995, by and between Promus and the Company, and
constitutes the entire agreement between the
parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an
instrument in writing executed by all parties.
Promus may assign and transfer its rights and
obligations hereunder, and the Common Stock or
Units it acquires, to any direct or indirect
subsidiary thereof.
(d) This Agreement shall inure to the benefit
of and be binding upon the successors and assigns
of the parties hereto.
(e) All terms used herein shall be deemed to
include the masculine and the feminine and the
singular and the plural as the context requires.
Captions herein are for convenience of reference
only and shall not alter or affect the meaning or
construction of the paragraphs hereof to which they
relate.
(f) The parties hereto agree to take all
actions, including the entering into of any
documents, agreements or instruments, or amendments
thereof, as may be necessary or appropriate to
effectuate the intents and purposes hereof and
consummate and make effective the transactions
contemplated hereby.
(g) Counterparts. This Agreement may be
executed in two or more counterparts, any one of
which need not contain the signatures of more than
one party, but all such counterparts taken together
will constitute one and the same Agreement.
<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on and as of the date first above written.
PROMUS HOTELS, INC.,
a Delaware corporation
By:
Name:
Title:
FELCOR SUITE HOTELS, INC.,
a Maryland corporation
By:
Name:
Title:
FELCOR SUITES LIMITED PARTNERSHIP,
a Delaware limited partnership
By: FELCOR SUITE HOTELS, INC.,
a Maryland corporation and its sole
general partner
By:
Name:
Title:
<PAGE> 57
EXHIBIT A
PURCHASE PRICE ALLOCATION
October 17, 1995
LOCATION SUITES AMOUNT
Phase I
Burlingame 339 $41,004,865
Mandalay-Beach 249 24,058,551
Los Angeles Airport 350 26,770,178
Minneapolis-Airport 311 42,918,886
Minneapolis-Downtown 218 18,267,959
Napa 205 18,548,195
St. Paul 210 19,469,864
Phase II
Anaheim, CA 222 $ 17,823,484
Baton Rouge, LA 224 21,882,805
Birmingham, AL 242 32,162,141
Deerfield Beach, FL 224 34,905,960
Ft. Lauderdale, FL 359 53,833,588
Miami Airport 314 30,228,707
Milpitas 267 28,194,773
Phoenix 233 39,767,715
S. San Francisco 312 35,700,343
------------
TOTAL PURCHASE PRICE $485,538,007
============
<PAGE> 58
EXHIBIT B
REPRESENTATIONS & WARRANTIES
Representations and warranties under the Underwriting
Agreement relating to the Public Offering shall be attached hereto
and incorporated herein provided that they are satisfactory to
Promus. In the event that an Exhibit B which is reasonably
satisfactory to Promus has not been attached hereto and
incorporated herein prior to the closing of the Public Offering,
Promus shall have the right to terminate this Agreement upon
written notice to FelCor with no liability to Promus whatsoever.
<PAGE> 59
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) AS OF SEPTEMBER
30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
[/LEGEND]
[RESTATED]
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] SEP-30-1995
[CASH] 1,860
[SECURITIES] 0
[RECEIVABLES] 35,655
[ALLOWANCES] 1,654
[INVENTORY] 4,298
[CURRENT-ASSETS] 44,760
[PP&E] 460,071
[DEPRECIATION] 110,665
[TOTAL-ASSETS] 489,536
[CURRENT-LIABILITIES] 62,988
[BONDS] 203,963
[COMMON] 5,137
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 153,238
[TOTAL-LIABILITY-AND-EQUITY] 489,536
[SALES] 0
[TOTAL-REVENUES] 204,756
[CGS] 0
[TOTAL-COSTS] 119,140
[OTHER-EXPENSES] 640
[LOSS-PROVISION] 71
[INTEREST-EXPENSE] 24,312
[INCOME-PRETAX] 61,017
[INCOME-TAX] 25,688
[INCOME-CONTINUING] 35,329
[DISCONTINUED] 0
[EXTRAORDINARY] 1,661
[CHANGES] 0
[NET-INCOME] 36,990
[EPS-PRIMARY] 0<F1>
[EPS-DILUTED] 0<F1>
<FN>
<F1>See Note 10 - Earnings Per Share, Notes to Consolidated Condensed Financial
Statements, September 30, 1995.
</FN>
</TABLE>
<PAGE> 60
