<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 NUMBER 1-11463
PROMUS HOTEL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE I.R.S. NO. 62-1596939
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
755 CROSSOVER LANE
MEMPHIS, TENNESSEE 38117
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 374-5000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -------------------------------------------------------------- --------------------------------------------------------------
<S> <C>
Common Capital Stock, Par Value $.10 per share* NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
PHILADELPHIA STOCK EXCHANGE
</TABLE>
* Common Capital Stock also has special stock purchase rights listed on each of
the same exchanges
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price of $35.375 for the Common Stock as
reported on the New York Stock Exchange Composite Tape on February 28, 1997, is
$1,767,634,201.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 28, 1997.
Common Capital Stock...................................51,425,460 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1996, are incorporated by reference into Parts I and II
hereof and portions of the definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
Material from the Annual Report to Stockholders for the fiscal year ended
December 31, 1996 (the "Annual Report") of Promus Hotel Corporation (referred to
herein, together with its subsidiaries where the context requires, as the
"Company" or "Promus") is incorporated by reference in Parts I and II hereof
where referred to herein. Material from the Company's Proxy Statement, prepared
and mailed to stockholders in accordance with Section 14 of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder, for the Annual
Meeting of Stockholders of the Company to be held on April 23, 1997 (the "Proxy
Statement") is incorporated by reference in Part III hereof where referred to
therein.
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<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
Promus Hotel Corporation is one of the leading hotel companies in the United
States. The Company operates the Embassy Suites, Hampton Inn, Hampton Inn &
Suites and Homewood Suites hotel brands and Embassy Vacation Resort interval
ownership brand.
Promus was incorporated on March 2, 1995 under Delaware law and conducts its
hotel business through its wholly-owned subsidiary, Promus Hotels, Inc. ("PHI"),
and PHI's subsidiaries. The principal asset of Promus is the stock of PHI, which
holds, directly or indirectly through subsidiaries, substantially all of the
assets of the Company's businesses. The principal executive offices of Promus
are located at 755 Crossover Lane, Memphis, Tennessee 38117, telephone (901)
374-5000.
Operating data for the three most recent years, together with interest
expense, dividend income, and interest and other income, is set forth on pages
19, 21 and 27 of the Annual Report. Information as to assets is set forth on the
inside front cover of the Annual Report and pages 26, 30, 31, and 36 through 39
of the Annual Report. All of the foregoing pages of the Annual Report are
incorporated herein by reference.
For information on operating results and a discussion of those results, see
the inside front cover and page one and see also "Performance Statistics" on
page 17 of the Annual Report, and "Management's Discussion and Analysis" on
pages 18 through 24 of the Annual Report, which pages are incorporated herein by
reference.
GENERAL
On June 30, 1995, The Promus Companies Incorporated ("PCI") split into two
independent public corporations, one for conducting its casino entertainment
business and one for conducting its hotel business. The stockholders of PCI
retained their shares of PCI (now known as Harrah's Entertainment, Inc.) and
received one share of Promus Hotel Corporation for each two shares of PCI they
owned prior to the split.
The Company operates, owns and licenses hotels bearing the Embassy Suites,
Hampton Inn, Hampton Inn & Suites and Homewood Suites names. Each brand is
targeted to a specific market segment. The Company also operates and licenses an
interval ownership system bearing the name of Embassy Vacation Resort.
Embassy Suites hotels, of which there were 136 hotels in operation on
December 31, 1996, appeal to the business and leisure traveler who has a need or
desire for greater space and more focused services than are available in
traditional upscale hotels. Embassy Suites hotels comprise the largest upscale,
all-suite hotel system in the United States determined by number of suites and
system revenues.
Hampton Inn hotels are moderately priced hotels designed to attract the
business and leisure traveler desiring quality accommodations at affordable
prices. Since 1984, when the brand was introduced, the system has grown to 620
hotels in operation as of December 31, 1996.
Homewood Suites hotels, of which there were 37 in operation on December 31,
1996, appeal to the extended stay market and targets the traveler who stays five
or more consecutive nights, as well as the traditional business and leisure
traveler.
Hampton Inn & Suites hotels incorporate the best features of the Hampton Inn
and Homewood Suites brands, offering both traditional hotel room accommodations
and apartment-style suites within one property. There were 16 Hampton Inn &
Suites hotels in operation as of December 31, 1996.
Embassy Vacation Resort properties, of which there were three as of December
31, 1996, feature a high quality interval ownership system available to the
public.
1
<PAGE>
As of December 31, 1996, the Company's hotel brands included 683 properties
that are licensed by the Company, 98 properties that are licensed and managed by
the Company, and 28 properties that are owned and operated by the Company. These
809 hotels include 105,930 rooms and suites.
All of the Company's hotel brands are managed by a single senior management
team. Although the Company's growth strategy emphasizes obtaining new franchise
or management contracts, the Company also constructs, owns and operates its own
hotels. Owned hotels are sold from time to time to realize the value of the
underlying assets and to increase its return on investment. Following such
sales, the hotels typically are operated either by the Company under management
contracts and franchise licenses or by the purchasers under franchise licenses
from the Company.
Each of the Company's hotel brands uses a fully integrated computerized
system that includes centralized reservations and marketing systems, along with
local property management and revenue management systems. This sophisticated
business system is fully integrated and is linked to the Promus network, a
communications network which connects all Promus hotels to the Company's
reservation offices and more than 300,000 travel agents worldwide. The Embassy
Suites, Embassy Vacation Resort, Hampton Inn, Hampton Inn & Suites and Homewood
Suites business systems' reservation modules receive reservation requests
entered on terminals located at all of their respective hotels, interval
ownership properties and reservation centers, major domestic and international
airlines via their global distribution systems, and direct from consumers via
computer access to each brand's Internet site. The systems immediately confirm
reservations or indicate accommodations available at alternate Promus
properties. Reservations are transmitted automatically to the property for which
the reservation is made. The Company's data centers that house all of the
satellite and reservation, marketing and revenue management computers are
located in Memphis, Tennessee. The Company's primary reservation office is
located in Memphis, Tennessee with a second office in Tampa, Florida. See pages
26 and 31 of the Annual Report, which pages are incorporated by reference, for
"Investment in Franchise System."
A major element of the Company's business strategy and culture is an
unconditional 100% guarantee of service satisfaction. If guests are not
satisfied with their stay, they are not expected to pay. All of the Company's
hotel brands offer suites/rooms exclusively for non-smoking guests.
LICENSING AND MANAGEMENT CONTRACT OPERATIONS
LICENSING
The Company's revenues from licensing operations for all Embassy Suites,
Hampton Inn, Hampton Inn & Suites and Homewood Suites hotels consist of initial
license application fees and continuing royalties. The initial license
application fee for an Embassy Suites hotel is $500 per room, with a minimum of
$100,000, and $450 per room, with a minimum of $45,000, for each Hampton Inn,
Hampton Inn & Suites and Homewood Suites hotel. The license agreements generally
provide for a four percent royalty based upon gross rooms/suites revenues and
also provide for a separate marketing and reservation contribution.
There is no initial license application fee for the Embassy Vacation Resort
interval ownership brand. There are license fees of 2% of net interval sales; 2%
of gross rental pool revenues; and 5.5% of gross rental pool revenues booked
through Promus central reservations.
In screening applicants for license agreements, the Company evaluates the
character, operations ability, experience and financial responsibility of each
applicant or its principals; the Company's prior business dealings, if any, with
the applicant; suitability of the proposed hotel location and other factors. The
license agreement establishes requirements for service and quality of
accommodations. The Company provides certain training for licensee management
and makes regular inspections of licensed hotels.
License agreements for new hotels generally have a 20-year term. The Company
may terminate a license agreement if the licensee fails to cure a breach of the
license agreement in a timely manner. In
2
<PAGE>
certain instances, a license agreement may be terminated by the licensee, but
such termination generally requires a payment to the Company.
MANAGEMENT CONTRACTS
The Company's revenues from management contracts consist primarily of
management fees which are up to five percent of adjusted gross revenues of the
hotel. The contract terms governing management fees vary depending on the size
and location of the hotel and other factors relative to the property.
Under the Company's management contracts, the Company, as the manager,
operates or supervises all aspects of the hotel's operations. The hotel owner is
generally responsible for all costs, expenses and liabilities incurred in
connection with operating the hotel, including the expenses and salaries of all
hotel employees. The hotel owner also enters into a separate license agreement
with the Company and pays the royalty and marketing and reservation
contributions as provided in the license agreement. In addition, the hotel owner
is often required to set aside a certain percentage of hotel revenues for
capital replacement. The Company's management contracts typically have a term of
ten years and most give the Company specified renewal rights. The management
contract may be terminated by either party due to an uncured default by the
other party.
The Company also acts as the manager for two of its Embassy Vacation Resort
properties pursuant to management contracts with generally similar terms and
responsibilities as its hotel management contracts. Fees for the management of
Embassy Vacation Resort properties consist of a percentage of rental pool
revenue and homeowner assessments.
See "Franchise and Management Fees" on page 27 of the Annual Report, which
page is incorporated herein by reference, for revenues from licensing and
management contract operations.
REAL ESTATE INVESTMENT TRUSTS
The Company has acquired equity positions in three publicly-traded real
estate investment trusts ("REITs"), the purpose of which in each case is to
increase development and management of hotels identified by the Company's hotel
brands. In 1995 and 1996, investments totaling $75 million were made in shares
and units of FelCor Suite Hotels, Inc. and FelCor Suites Limited Partnership
("FELCOR"). These funds were used by FELCOR to acquire existing hotels for
conversion to the Embassy Suites brand including 16 Crown Sterling hotels now
managed by the Company. All the Crown Sterling conversions were completed by the
end of 1996. Additionally, the Company has guaranteed up to $25 million of a
third party loan to FELCOR, all of which was drawn as of December 31, 1996. In
1996 the Company committed to invest $15 million in shares of Equity Inns, Inc.
and $15 million in shares of Winston Hotels, Inc. In both cases the investments
will be funded as the REITs acquire hotels developed and managed by the Company.
Although the Company made the equity investments described above for investment
purposes, it is not the strategy of the Company to invest in real estate or the
equity of REITs for protracted periods.
3
<PAGE>
EMBASSY SUITES HOTELS
The following table sets forth information regarding all Embassy Suites
hotels, including company owned hotels, hotels operated by the Company under
management contracts or joint venture arrangements and hotels operated by
licensees:
<TABLE>
<CAPTION>
MANAGEMENT
COMPANY CONTRACTS/
LICENSED OWNED JOINT VENTURES TOTAL
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF OF OF OF
HOTELS SUITES HOTELS SUITES HOTELS SUITES HOTELS SUITES
------ ------- ------ ------ ------ ------- ------ -------
December 31, 1993......................... 52 12,354 9 2,027 46 11,748 107 26,129
1994 Activity:
Additions............................... 1 177 - - 2 410 3 587
Status Changes, net(a).................. - (15) - (2) - 15 - (2)
Sales/Terminations...................... (2) (760) - - (1) (239) (3) (999)
------ ------- ------ ------ ------ ------- ------ -------
December 31, 1994......................... 51 11,756 9 2,025 47 11,934 107 25,715
1995 Activity:
Additions............................... 6 1,052 - - 2 191 8 1,243
Status Changes, net(a).................. (1) (56) - - 1 56 - -
Sales/Terminations...................... (1) (223) - - - - (1) (223)
------ ------- ------ ------ ------ ------- ------ -------
December 31, 1995......................... 55 12,529 9 2,025 50 12,181 114 26,735
1996 Activity:
Additions............................... 3 1,088 - - 19 4,824 22 5,912
Status Changes, net(a).................. - (34) - - - 34 - -
Sales/Terminations...................... - - - - - - - -
------ ------- ------ ------ ------ ------- ------ -------
December 31, 1996......................... 58 13,583 9(b) 2,025 69(c) 17,039 136 32,647
------ ------- ------ ------ ------ ------- ------ -------
------ ------- ------ ------ ------ ------- ------ -------
</TABLE>
- ------------------------
(a) Consists of transfers of properties among the licensed, managed and owned
categories.
(b) Includes one property in which the Company owns more than a 50% interest.
(This property is under a license agreement to a third party and is managed
by Promus.)
(c) Includes 67 hotels that are also licensed to third parties.
As of December 31, 1996, 12 Embassy Suites hotels were under construction,
11 of which will be licensee operated, one of which will be company-managed.
Embassy Suites hotels are located in 34 states, the District of Columbia,
Thailand, Canada and Latin America. Embassy Suites hotels have an average of 240
suites per hotel. Each guest suite has a separate living room and dining/work
area, with a console television, sofa-sleeper, refrigerator and wet bar, as well
as a traditional bedroom (with a king size bed or two double beds). Most Embassy
Suites hotels are built around a landscaped atrium. All hotels offer a free,
cooked-to-order breakfast and, where local law allows, complimentary evening
cocktails.
4
<PAGE>
The following table sets forth information concerning system occupancy,
average daily rate per occupied suite and revenue per available suite for all
Embassy Suites hotels:
<TABLE>
<CAPTION>
AVERAGE DAILY
OCCUPANCY RATE PER REVENUE PER
YEAR RATE OCCUPIED SUITE AVAILABLE SUITE
- -------------------------------------------------- ------------- -------------- ---------------
<S> <C> <C> <C>
1996.............................................. 73.6% $ 107.36 $ 79.00
1995.............................................. 74.2% $ 101.90 $ 75.61
1994.............................................. 74.9% $ 97.28 $ 72.86
</TABLE>
EMBASSY VACATION RESORT PROPERTIES
The following table sets forth information regarding all Embassy Vacation
Resort ("EVR") properties, including resorts licensed and managed by the Company
and those licensed by the Company and managed by the licensee or agent:
<TABLE>
<CAPTION>
LICENSED WITH LICENSED WITH
MANAGEMENT BY LICENSEE MANAGEMENT BY COMPANY
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER NUMBER NUMBER OF NUMBER OF NUMBER NUMBER NUMBER OF NUMBER OF
OF OF INTERVALS INTERVALS OF OF INTERVALS INTERVALS
RESORTS UNITS AVAILABLE SOLD RESORTS UNITS AVAILABLE SOLD
------- ------ --------- --------- ------- ------ --------- ---------
December 31, 1994........ - - - - - - - -
1995 Activity............ 1 207 10,557 281 1 48 2,448 1,523
------- ------ --------- --------- ------- ------ --------- ---------
December 31, 1995........ 1 207 10,557 281 1 48 2,448 1,523
1996 Activity............ - - - 1,145 1 116(a) 5,916(a) 1,575(b)
------- ------ --------- --------- ------- ------ --------- ---------
December 31, 1996........ 1 207 10,557 1,426 2 164 8,364 3,098
------- ------ --------- --------- ------- ------ --------- ---------
------- ------ --------- --------- ------- ------ --------- ---------
</TABLE>
- ------------------------
(a) Included in these numbers are 62 units currently under construction,
resulting in 3,162 intervals available for sale.
(b) Includes 263 intervals sold under pre-sale contracts.
Embassy Vacation Resort is a premium interval ownership concept that
provides consumers the opportunity to purchase use of a one, two or three
bedroom condominium-style unit for one or more weeks annually in a prime leisure
location, for an initial investment plus a reasonable annual maintenance fee.
Each Embassy Vacation Resort property offers a quality, fully furnished
accommodations product (consisting of an inside living area, full kitchen,
bathroom(s), bedroom(s), and outside patio/entertainment area) coupled with
added value facilities like swimming pool, exercise room, hot tub, tennis
courts, volleyball, and kids club. Beach, boating, snow/water skiing facilities
may be available depending on location.
For a separate annual fee (the initial year paid as part of the purchase
price), plus a per exchange service fee, each owner has the opportunity to
exchange his interest for the use of similar facilities at another Embassy
Vacation Resort property or a third party participating resort property.
The Company has two managed and one franchised EVR properties. The resort at
Poipu Point on the Hawaiian island of Kauai was converted to the EVR brand and
has 207 suites. The resort in Orlando, Florida, which is under construction, has
102 suites open and will add an additional 268 suites over the next four years.
Construction is underway on the resort in South Lake Tahoe, California, which
will add 210 suites over the next five years. Sales of timeshare intervals are
underway at all three resorts.
Additionally, in December 1996, the Company created a joint venture
relationship with Vistana Development, Inc. for the purpose of developing
multiple, as yet unidentified, future interval resorts. As part of this
agreement, the Company agreed to franchise two resort projects under the
Company's brands, one of which will also be managed by the Company.
5
<PAGE>
HAMPTON INN HOTELS
The following table sets forth information regarding all Hampton Inn hotels,
including Company owned hotels, hotels operated under management contracts or
joint venture arrangements and hotels operated by licensees:
<TABLE>
<CAPTION>
MANAGEMENT
COMPANY CONTRACTS/
LICENSED OWNED JOINT VENTURES TOTAL
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF OF OF OF
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ------- ------ ------ ------ ------ ------ -------
December 31, 1993.................. 333 39,153 15 2,048 24 2,961 372 44,162
1994 Activity:
Additions........................ 67 6,149 - - - - 67 6,149
Sales/Terminations............... (1) (118) - (1) (1) (121) (2) (240)
------ ------- ------ ------ ------ ------ ------ -------
December 31, 1994.................. 399 45,184 15 2,047 23 2,840 437 50,071
1995 Activity:
Additions........................ 87 8,187 - - - - 87 8,187
Status Changes, net(a)........... 1 131 (1) (131) - - - -
Sales/Terminations............... (4) (544) - - - - (4) (544)
------ ------- ------ ------ ------ ------ ------ -------
December 31, 1995.................. 483 52,958 14 1,916 23 2,840 520 57,714
1996 Activity:
Additions........................ 102 9,996 - (1) - 89 102 10,084
Status Changes, net(a)........... - - (1) (125) 1 125 - -
Sales/Terminations............... (1) (124) (1) (136) - - (2) (260)
------ ------- ------ ------ ------ ------ ------ -------
December 31, 1996.................. 584(b) 62,830 12 1,654 24(c) 3,054 620 67,538
------ ------- ------ ------ ------ ------ ------ -------
------ ------- ------ ------ ------ ------ ------ -------
</TABLE>
- ------------------------
(a) Consists of transfers of properties among the licensed, managed and owned
categories.
(b) Includes one property open only on a seasonal basis.
(c) These hotels are also licensed to third parties.
On December 31, 1996, 95 Hampton Inn hotels were under construction. All of
these hotels will be licensee operated.
Hampton Inn hotels are currently located in 46 states, as well as Canada,
Thailand and Latin America. An average Hampton Inn hotel has 109 rooms. The
Hampton Inn hotel's standardized concept provides for a guest room featuring a
color television, free in-room movies, free local telephone calls and
complimentary continental breakfast. Unlike full-service hotels, Hampton Inn
hotels do not feature restaurants, lounges or large public spaces.
The following table sets forth information concerning system occupancy,
average daily rate per occupied room and revenue per available room for all
Hampton Inn hotels:
<TABLE>
<CAPTION>
AVERAGE DAILY
OCCUPANCY RATE PER REVENUE PER
YEAR RATE OCCUPIED ROOM AVAILABLE ROOM
- ------------------------------------------------- ------------- --------------- ---------------
<S> <C> <C> <C>
1996............................................. 72.1% $ 60.84 $ 43.85
1995............................................. 73.7% $ 56.97 $ 42.01
1994............................................. 74.3% $ 53.46 $ 39.74
</TABLE>
6
<PAGE>
HOMEWOOD SUITES HOTELS
The following table sets forth information regarding all Homewood Suites
hotels, including Company owned hotels, hotels operated under management
contracts or joint venture arrangements and hotels operated by licensees:
<TABLE>
<CAPTION>
MANAGEMENT
COMPANY CONTRACT/
LICENSED OWNED JOINT VENTURE TOTAL
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF OF OF OF
HOTELS SUITES HOTELS SUITES HOTELS SUITES HOTELS SUITES
------ ------ ------ ------ ------ ------ ------ ------
December 31, 1993...................... 16 1,794 8 932 - - 24 2,726
1994 Activity - Additions.............. 2 155 - - - - 2 155
------ ------ ------ ------ ------ ------ ------ ------
December 31, 1994...................... 18 1,949 8 932 - - 26 2,881
1995 Activity:
Additions............................ 4 266 1 92 - - 5 358
Sales/Terminations................... (1) (144) - - - - (1) (144)
------ ------ ------ ------ ------ ------ ------ ------
December 31, 1995...................... 21 2,071 9 1,024 - - 30 3,095
1996 Activity:
Additions............................ 6 637 2 247 - - 8 884
Status Changes, net(a)............... - - (4) (471) 4 471 - -
Sales/Terminations................... (1) (80) - - - - (1) (80)
------ ------ ------ ------ ------ ------ ------ ------
December 31, 1996...................... 26 2,628 7 800 4(b) 471 37 3,899
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
- ------------------------
(a) Consists of transfers of properties among the licensed, managed and owned
categories.
(b) These hotels are also licensed to third parties.
On December 31, 1996, 21 Homewood Suites hotels were under construction, 17
of which will be licensee operated, and four of which will be Company owned.
Homewood Suites hotels, which have an average of 105 suites, are currently
located in 19 states. Homewood Suites hotels feature residential-style
accommodations, which include a living room area (some with fireplaces),
separate bedroom (with a king size bed or two double beds) and a separate
bathroom, and a fully-equipped kitchen. The hotel is centered around a central
community building called the Lodge which affords guests a high level of social
interaction. Amenities include a complimentary breakfast and an evening social
hour, a convenience store, grocery shopping, business center, outdoor pool,
exercise center and limited meeting facilities.
The following table sets forth information concerning system occupancy,
average daily rate per occupied suite and revenue per available suite for all
Homewood Suites hotels:
<TABLE>
<CAPTION>
AVERAGE DAILY
OCCUPANCY RATE PER REVENUE PER
YEAR RATE OCCUPIED SUITE AVAILABLE SUITE
- -------------------------------------------------- ------------- --------------- ---------------
<S> <C> <C> <C>
1996.............................................. 73.2% $ 90.40 $ 66.14
1995.............................................. 76.9% $ 82.42 $ 63.37
1994.............................................. 78.1% $ 76.38 $ 59.67
</TABLE>
7
<PAGE>
HAMPTON INN & SUITES HOTELS
The following table sets forth information regarding all Hampton Inn &
Suites hotels, including hotels operated under management contracts or joint
venture arrangements, and hotels operated by licensees:
<TABLE>
<CAPTION>
MANAGEMENT
CONTRACTS/
LICENSED JOINT VENTURES TOTAL
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF OF
HOTELS SUITES HOTELS SUITES HOTELS SUITES
------ ------ ------ ------ ------ ------
December 31, 1994.............................................. - - - - - -
1995 Activity - Additions...................................... 5 573 - - 5 573
------ ------ ------ ------ ------ ------
December 31, 1995.............................................. 5 573 - - 5 573
1996 Activity - Additions...................................... 10 1,146 1 127 11 1,273
------ ------ ------ ------ ------ ------
December 31, 1996.............................................. 15 1,719 1(a) 127 16 1,846
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
- ------------------------
(a) This hotel is also licensed to a third party.
Hampton Inn & Suites hotels combine standard guest rooms with a significant
block of two-room suites in a single property. Development of this product is
targeted for commercial and suburban markets, as well as destination and resort
markets. Each property contains a centrally located, expanded lobby and
complimentary services area and includes an exercise room, convenience shop,
meeting/hospitality room and coin-laundry. An expanded complimentary continental
breakfast buffet is offered. The first Hampton Inn & Suites hotel opened June 6,
1995.
As of December 31, 1996, 17 Hampton Inn & Suites hotels were under
construction, all of which will be licensee operated. Hampton Inn & Suites have
an average of 115 suites and are currently located in 12 states and Canada.
The following table sets forth information concerning system occupancy,
average daily rate per occupied suite and revenue per available suite for all
Hampton Inn & Suites hotels:
<TABLE>
<CAPTION>
AVERAGE DAILY
OCCUPANCY RATE PER REVENUE PER
YEAR RATE OCCUPIED SUITE AVAILABLE SUITE
- ---------------------------------------------------------------------- ------------- --------------- ---------------
<S> <C> <C> <C>
1996.................................................................. 63.9% $ 73.41 $ 46.89
1995.................................................................. 59.4% $ 70.13 $ 41.65
</TABLE>
OTHER
AUDUBON WOODS BUSINESS CAMPUS
The Company's corporate headquarters, located in Memphis, Tennessee,
consists of four office buildings acquired in 1995 containing approximately
360,000 square feet of office space on 31 acres of land. The Company occupies
50% of the office space while leasing the remaining space. The Company spent
approximately $13 million during 1996 for renovations. Renovations are expected
to be completed in the second quarter of 1997.
TRADEMARKS
The following trademarks used herein are owned by the Company:
Promus-Registered Trademark-; Embassy Suites-Registered Trademark-; Embassy
Vacation Resort-Registered Trademark-; Hampton Inn-Registered Trademark-;
Hampton Inn & Suites-Registered Trademark-, Homewood
Suites-Registered Trademark-. The names
8
<PAGE>
"Embassy Suites," "Embassy Vacation Resort," "Hampton Inn," "Hampton Inn &
Suites," and "Homewood Suites" are registered as service marks in the United
States and in certain foreign countries. The Company considers all of these
marks, and the associated name recognition, to be valuable to its business.
COMPETITION
The Company encounters strong competition as a hotel owner, manager and
franchisor with other lodging related companies in the lodging industry. As of
December 31, 1996, there were more than 150 hotel brands (chains with more than
one hotel). Although most of these companies are privately owned firms, several
large national chains own and operate their own hotels and also franchise their
brands. There is no single competitor which is dominant in the industry.
Affiliation with a national or regional brand is a major trend in the U.S.
lodging industry. In 1996, 67% of U.S. hotel rooms were brand-affiliated,
compared to 62% in 1989. Most of the branded properties are franchises, under
which the operator pays the franchisor a fee for use of its systems, brand
identification and reservation system.
The Company believes that its brands are attractive to hotel owners seeking
a management company or franchise affiliation because its hotels typically
generate higher occupancies and revenue per available room (RevPAR) than direct
competitors in most market areas. The Company attributes this performance
premium to its success in achieving and maintaining strong customer preference.
The Company's brands are also designed to be attractive to leisure guests and
weekend demand. Repeat guest business is enhanced by the Company's unconditional
service guarantee, which is a significant component of the Company's operating
strategy. Customer preference for the Company's brands means the Company neither
needs nor desires to incur the significant cost of frequent stay programs.
The lodging industry in general, including the Company's brands, may be
adversely affected by national and regional economic conditions and government
regulations. The demand for accommodations at a particular hotel may be
adversely affected by many factors including changes in travel patterns, local
and regional economic conditions and the degree of competition with other hotels
in the area.
GOVERNMENTAL REGULATION
LICENSING
A number of states regulate the licensing of hotels and restaurants and the
granting of liquor licenses by requiring registration, disclosure statements and
compliance with specific standards of conduct. Various federal and state
regulations mandate certain disclosures and other practices with respect to the
sales of license agreements and the licensor/licensee relationship. In addition,
there is considerable state regulation of the vacation interval industry. The
Company's operations have not been materially affected by such legislation and
regulations, but the Company cannot predict the effect of future legislation.
EMPLOYEE RELATIONS
Promus, through its subsidiaries, has approximately 11,000 employees, of
whom approximately 1,000 are based in the Company's headquarters, reservations
and data centers in Memphis, Tennessee. Promus' subsidiaries have collective
bargaining agreements covering fewer than ten employees. The Company considers
its relations with employees to be very good.
ITEM 3. LEGAL PROCEEDINGS.
Actions for negligence or other tort claims occur routinely in the ordinary
course of the Company's business, but none of these proceedings involves a claim
for damages (in excess of applicable excess umbrella insurance coverages)
involving more than 10% of current assets of the Company. The Company does not
anticipate any amounts which it may be required to pay as a result of an adverse
determination of
9
<PAGE>
such legal proceedings, individually or in the aggregate, or any other relief
granted by reason thereof, will have a material adverse effect on the Company's
financial position or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
10
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Michael D. Rose (55)................... Chairman of the Board of Promus since April, 1995. Chairman of the Board
of Harrah's Entertainment, Inc. (1995-1996). Chairman of the Board
(1989-1995) of PCI. Chief Executive Officer (1989-1994) and President
(1989-1991) of PCI. Mr. Rose is also a director of Ashland, Inc., Darden
Restaurants, Inc., First Tennessee National Corporation, Stein Mart,
Inc. and General Mills, Inc.
Raymond E. Schultz (63)................ Director, President and Chief Executive Officer of Promus since April,
1995. President and Chief Executive Officer of the Hotel Division of PCI
(1993-1995). President and Chief Executive Officer of Hampton
Inn/Homewood Suites Hotel Division of PCI (1991-1993). President and
Chief Executive Officer of Hampton Inn Hotel Division of PCI
(1983-1991).
David C. Sullivan (57)................. Director, Executive Vice President and Chief Operating Officer of Promus
since April, 1995. Executive Vice President and Chief Operating Officer
of the Hotel Division of PCI (1993-1995). Senior Vice President of
Development and Operations of Hampton Inn/ Homewood Suites Hotel
Division of PCI (1991-1993). Vice President of Development, Hampton Inn
Hotel Division of PCI (1990-1991).
Donald H. Dempsey (52)................. Senior Vice President and Chief Financial Officer of Promus since April,
1995. Senior Vice President of Finance & Administration of the Hotel
Division of PCI (1993-1995). Vice President, Finance of Hampton
Inn/Homewood Suites Hotel Division of PCI (1991-1993). Vice President,
Finance of Hampton Inn Hotel Division of PCI (1990-1991).
Ralph B. Lake (52)..................... Senior Vice President, General Counsel and Secretary of Promus since
April, 1995. Vice President and General Counsel of Gaming Development of
PCI (1992-1995). Associate General Counsel-International of PCI
(1991-1992). Vice President and General Counsel of Homewood Suites Hotel
Division of PCI (1988-1991).
Thomas L. Keltner (50)................. Senior Vice President, Development of Promus since April, 1995. Senior
Vice President, Development of the Hotel Division of PCI (1993-1995).
President, Golf Training Systems, Inc., (1991-1993). Senior Vice
President and Chief Operating Officer, Franchise Division of Holiday Inn
Worldwide (1990). President and Managing Director, Holiday Inns
International (1988-1990).
Mark C. Wells (47)..................... Senior Vice President, Franchise Services of Promus since March, 1996.
Senior Vice President, Marketing of Promus (April 1995-March 1996).
Senior Vice President, Marketing of the Hotel Division of PCI
(1993-1995). Senior Vice President, Marketing of Hampton Inn/Homewood
Suites Hotel Division of PCI (July 1993-October 1993). Senior Vice
President, Marketing of Embassy Suites Hotel Division of PCI
(1991-1993). Vice President, Marketing of Hampton Inn Hotel Division of
PCI (1986-1991).
</TABLE>
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange and
traded under the ticker symbol "PRH". The stock is also listed on the Chicago
Stock Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange.
The following table sets forth the high and low price per share of the
Company's Common Stock for 1996:
<TABLE>
<CAPTION>
1996 HIGH LOW
- --------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter.............................................................. $ 28.00 $ 20.88
Second Quarter............................................................. $ 29.63 $ 25.25
Third Quarter.............................................................. $ 32.25 $ 24.75
Fourth Quarter............................................................. $ 34.00 $ 28.25
</TABLE>
The approximate number of holders of record of the Company's Common Stock as
of February 28, 1997 is as follows:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
OF HOLDERS OF
TITLE OF CLASS RECORD
- ------------------------------------------------------------------------- -------------------
<S> <C>
Common Stock, Par Value $.10 per share................................... 11,960
</TABLE>
The Company does not presently intend to declare cash dividends. The terms
of the Company's existing bank credit facility limit the Company's ability to
pay cash dividends on Common Stock. See "Management's Discussion and
Analysis--Liquidity and Capital Resources" on pages 23 and 24 of the Annual
Report and Note 4 to the financial statements on pages 31 and 32 of the Annual
Report. When permitted under the terms of the existing credit facility, the
declaration and payment of dividends is at the discretion of the Board of
Directors of the Company. The Board of Directors of the Company intends to
reevaluate its dividend policy in the future in light of the Company's results
of operations, financial condition, cash requirements, future prospects and
other factors deemed relevant by the Board of Directors. All of the foregoing
pages of the Annual Report are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
See the information for the years 1992 through 1996 set forth under
"Selected Financial Data" in the Annual Report on page 39, which page is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See "Management's Discussion and Analysis" on pages 18 through 24 of the
Annual Report which pages are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the information set forth in the Annual Report on pages 25 through 39,
which pages are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS
See the information regarding the names, ages, positions and prior business
experience of the directors of the Company set forth on pages 5 through 7 of the
Proxy Statement, which pages are incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
See "Executive Officers of the Registrant" on page 11 in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
See the information set forth in the Proxy Statement on page 8 thereof
entitled "Compensation of Directors" and the information on pages 16 through 20
thereof. The information on page 8 of the Proxy Statement entitled "Compensation
of Directors" and the information on pages 16 through 20 of the Proxy Statement
entitled "Summary Compensation Table," "Options Granted in 1996," "Aggregated
Option Exercises in 1996 and December 31, 1996, Option Values," and "Certain
Employment Arrangements" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information set forth in the Proxy Statement on pages 2 through 4
thereof entitled "Ownership of the Capital Stock of the Company" which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information set forth in the Proxy Statement entitled "Certain
Transactions" on pages 21 and 22 thereof, which information is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements (including related notes to consolidated financial
statements) filed as part of this report are listed below:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1995.
Consolidated Statements of Income for the Years Ended December 31, 1996,
December 31, 1995, and December 31, 1994.
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, December 31, 1995, and December 31, 1994.
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, December 31, 1995, and December 31, 1994.
13
<PAGE>
(a) 2. Financial Statement Schedules for the years ended December 31, 1996,
December 31, 1995, and December 31, 1994, are as follows:
<TABLE>
<CAPTION>
NO.
- ---------
<S> <C>
I Condensed financial information of registrant.
II Valuation and qualifying accounts.
</TABLE>
Schedules III, IV, and V are not applicable and have therefore been
omitted.
(a) 3. Exhibits (footnotes appear on pages 17 and 18):
<TABLE>
<CAPTION>
NO.
- ----------
<C> <S>
3(1) Amended and Restated Certificate of Incorporation of Promus Hotel Corporation dated June 30, 1995. (13)
3(2) Bylaws of Promus Hotel Corporation, as amended and restated dated May 26, 1995. (14)
4(1) Form of Rights Agreement, dated as of June 30, 1995, between Promus Hotel Corporation and Continental
Stock Transfer & Trust Company. (11)
4(2) Form of Debt Securities Indenture. (17)
10(1) Form of Indemnification Agreement entered into by Promus Hotel Corporation and each of its directors
and executive officers. (14)
+10(2) Promus Hotel Corporation 1995 Stock Option Plan. (4)
+10(3) Promus Hotel Corporation 1995 Restricted Stock Plan. (5)
+10(4) The Restatement of the Promus Hotel Corporation Savings and Retirement Plan-A, dated as of June 30,
1995. (17)
+10(5) Amendment to the Promus Hotel Corporation Savings and Retirement Plan-A, dated as of June 30, 1995.
(17)
+10(6) The Restatement of the Promus Hotel Corporation Savings and Retirement Plan-B, dated as of June 30,
1995. (17)
+10(7) Amendment to the Promus Hotel Corporation Savings and Retirement Plan-B, dated as of June 30, 1995.
(17)
+10(8) Promus Hotel Corporation Non-Management Directors Stock Incentive Plan. (7)
+10(9) Promus Hotel Corporation Key Executive Officer Annual Incentive Plan. (6)
+10(10) Promus Hotel Corporation Executive Deferred Compensation Plan. (8)
+10(11) Promus Hotel Corporation Deferred Compensation Plan. (8)
+10(12) 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, as trustees. (8)
+10(13) 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. (9)
+10(14) Form of Severance Agreement, dated June 30, 1995, entered into with Michael D. Rose and Raymond E.
Schultz. (9)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NO.
- ----------
+10(15) Employment Agreement, dated as of June 30, 1995, between Michael D. Rose and Promus Hotel Corporation.
(9)
<C> <S>
+10(16) Employment Agreement, dated as of July 1, 1995, between Raymond E. Schultz and Promus Hotel
Corporation. (10)
+10(17) Form of Letter of Amendment, dated February 22, 1996 to the Employment Agreement between Raymond E.
Schultz and Promus Hotel Corporation. (14)
+10(18) Financial Counseling Plan of The Promus Companies Incorporated as amended February 25, 1993, as adopted
by Promus Hotel Corporation on April 5, 1995. (1)
+10(19) Summary Plan Description of Executive Term Life Insurance Plan adopted by Promus Hotel Corporation on
April 5, 1995. (3)
+10(20) Administrative Regulations, Long Term Compensation Plan (Restricted Stock Plan and Stock Option Plan),
dated as of January 1, 1992, adopted by Promus Hotel Corporation on April 5, 1995. (2)
10(21) Plan of Reorganization and Distribution Agreement, dated as of June 30, 1995, between The Promus
Companies Incorporated and Promus Hotel Corporation. (9)
10(22) 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. (8)
10(23) 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). (9)
10(24) 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). (9)
10(25) 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. (8)
10(26) 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). (9)
10(27) 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). (9)
10(28) 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). (9)
10(29) Escrow Agreement, dated as of June 30, 1995, among Promus Hotel Corporation, Promus Hotels, Inc. and
NationsBank. (8)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NO.
- ----------
10(30) Employee Benefits and Other Employment Matters Allocation Agreement, dated as of June 30, 1995, between
The Promus Companies Incorporated and Promus Hotel Corporation. (9)
<C> <S>
10(31) Risk Management Allocation Agreement, dated as of June 30, 1995, between The Promus Companies
Incorporated and Promus Hotel Corporation. (9)
10(32) Tax Sharing Agreement, dated as of June 30, 1995, between The Promus Companies Incorporated and Promus
Hotel Corporation. (9)
10(33) International Swap Dealers Association, Inc. Master Agreement, dated as of June 30, 1995, among Promus
Hotels, Inc. and NationsBank, N.A. (Carolinas). (9)
10(34) Transfer Agreement, dated as of June 30, 1995, among Embassy Suites, Inc., Promus Hotels, Inc., and
NationsBank, N.A. (Carolinas). (9)
10(35) Subscription Agreement, dated as of October 17, 1995, by and among Promus Hotels, Inc. and FelCor
Suites Hotels, Inc. and FelCor Suites Limited Partnership. (10)
10(36) Form of Aircraft Agreement, dated August 4, 1995, between Promus Hotels, Inc., and Harrah's Operating
Company, Inc. (14)
10(37) Form of Interest Swap Confirmations, between NationsBank, N.A. and Promus Hotels, Inc. dated December
11, 1995. (14)
10(38) Form of Interest Swap Agreement between NationsBank, N.A. and Promus Hotels, Inc. dated January 24,
1995, as amended on December 6, 1995. (14)
10(39) Form of Interest Swap Confirmations, dated January 22, 1996, between NationsBank, N.A. and Promus
Hotels, Inc. (15)
10(40) Form of Unwind Interest Swap Confirmations, dated January 22, 1996, between NationsBank, N.A. and
Promus Hotels, Inc. (15)
10(41) Form of Guarantee Agreement, dated February 5, 1996, among Promus Hotel Corporation, and Promus Hotels,
Inc., Canadian Imperial Bank of Commerce, as agent for the Lenders, FelCor Suites Limited
Partnership, FelCor/CSS Holdings, L.P., and FelCor Suite Hotels, Inc. (15)
10(42) Second Amendment to Tranche A Credit Agreement, dated as of May 15, 1996, by and among Embassy Suites,
Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation, and
NationsBank, N.A. (Carolinas). (16)
10(43) Second Amendment to Tranche B Credit Agreement, dated as of May 15, 1996, by and among Embassy Suites,
Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation, and
NationsBank, N.A. (Carolinas). (16)
* 10(44) Third Amendment to Tranche A Credit Agreement, dated as of November 5, 1996, by and among Embassy
Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation, and
NationsBank, N.A. (Carolinas).
* 10(45) Third Amendment to Tranche B Credit Agreement, dated as of November 5, 1996, by and among Embassy
Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation, and
NationsBank, N.A. (Carolinas).
* +10(46) Form of Amendment to the 1995 Promus Hotel Corporation Stock Option Plan, dated as of November 13,
1996.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NO.
- ----------
* +10(47) Form of Amendment to the 1995 Restricted Stock Plan dated as of November 13, 1996.
<C> <S>
* +10(48) Form of Amendment to the Promus Hotel Corporation 1996 Non-Management Directors Stock Incentive Plan
dated as of December 23, 1996.
* 10(49) Form of Stock Purchase Agreement between Promus Hotels, Inc. and Winston Hotels, Inc. dated as of April
24, 1996.
* 10(50) Form of Amendment No. 1 to Stock Purchase Agreement between Promus Hotels, Inc. and Winston Hotels,
Inc. dated as of August 7, 1996.
* 10(51) Form of Stock Purchase Agreement between Promus Hotels, Inc. and Equity Inns, Inc. and Equity Inns
Partnership, L.P. dated as of May 31, 1996.
* 11(1) Computation of per share earnings.
* 12(1) Computations of ratios.
* 13(1) Portions of Annual Report to Stockholders for the fiscal year ended December 31, 1996.
* 21(1) List of subsidiaries of Promus Hotel Corporation.
* 23(1) Consent of Arthur Andersen LLP.
* 27(1) Financial Data Schedule.
</TABLE>
- ------------------------
* Included herewith.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(a)(3) of Form 10-K.
FOOTNOTES
(1) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410.
(2) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992, filed May 13, 1992, File No. 1-10410.
(3) Incorporated by reference from PCI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, filed March 17, 1993, File No. 1-10410.
(4) Incorporated by reference from PCI's Proxy Statement, Annex III-A, dated
April 25, 1995, File No. 1-10410.
(5) Incorporated by reference from PCI's Proxy Statement, Annex III-B, dated
April 25, 1995, File No. 1-10410.
(6) Incorporated by reference from PCI's Proxy Statement, Annex VII, dated
April 25, 1995, File No. 1-10410.
(7) Incorporated by reference from PCI's Proxy Statement, Annex VIII, dated
April 25, 1995, File No. 1-10410.
(8) Incorporated by reference from the Company's Current Report on Form 8-K,
filed June 14, 1995, File No. 1-11463.
(9) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended June 30, 1995, filed August 11, 1995, File No.
1-11463.
17
<PAGE>
(10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended September 30, 1995, filed November 13, 1995, File No.
1-11463.
(11) Incorporated by reference from the Company's Form 8-A, filed June 6, 1995,
File No. 1-11463.
(12) Incorporated by reference from the Company's Registration Statement No.
33-59997 on Form S-8 for the Promus Hotel Corporation Savings & Retirement
Plan, filed June 6, 1995.
(13) Incorporated by reference from PCI's Proxy Statement, Annex II-A, dated
April 25, 1995, File No. 1-10410.
(14) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, filed March 12, 1996, File No.
1-11463.
(15) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended March 31, 1996, filed May 7, 1996, File No. 1-11463.
(16) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended June 30, 1996, filed August 12, 1996, File No.
1-11463.
(17) Incorporated by reference from the Company's Registration Statement on Form
S-3, filed October 11, 1996, File No. 1-11463.
(b) No Reports on Form 8-K were filed during the fourth quarter of 1996 and
thereafter through February 28, 1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PROMUS HOTEL CORPORATION
By: /s/ MICHAEL D. ROSE
-----------------------------------------
Dated: March 18, 1997 (Michael D. Rose, CHAIRMAN)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ U. BERTRAM ELLIS, JR. Director
- ------------------------------ March 18, 1997
(U. Bertram Ellis, Jr.)
/s/ DEBRA J. FIELDS Director
- ------------------------------ March 18, 1997
(Debra J. Fields)
/s/ CHRISTOPHER W. HART Director
- ------------------------------ March 18, 1997
(Christopher W. Hart)
/s/ C. WARREN NEEL Director
- ------------------------------ March 18, 1997
(C. Warren Neel)
/s/ BEN C. PETERNELL Director
- ------------------------------ March 18, 1997
(Ben C. Peternell)
/s/ MICHAEL D. ROSE Chairman of the Board
- ------------------------------ March 18, 1997
(Michael D. Rose)
/s/ MICHAEL I. ROTH Director
- ------------------------------ March 18, 1997
(Michael I. Roth)
Director, President and
/s/ RAYMOND E. SCHULTZ Chief Executive Officer
- ------------------------------ (Principal Executive March 18, 1997
(Raymond E. Schultz) Officer)
/s/ JAY STEIN Director
- ------------------------------ March 18, 1997
(Jay Stein)
/s/ DAVID C. SULLIVAN Director
- ------------------------------ March 18, 1997
(David C. Sullivan)
/s/ RONALD TERRY Director
- ------------------------------ March 18, 1997
(Ronald Terry)
Senior Vice President and
/s/ DONALD H. DEMPSEY Chief Financial Officer
- ------------------------------ (Principal Financial March 18, 1997
(Donald H. Dempsey) Officer)
Vice President, Controller
/s/ JEFFERY M. JARVIS and Chief Accounting
- ------------------------------ Officer (Principal March 18, 1997
(Jeffery M. Jarvis) Accounting Officer)
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Promus Hotel Corporation:
We have audited in accordance with generally accepted auditing standards the
financial statements included in the Promus Hotel Corporation 1996 annual
report, incorporated by reference in this Form 10-K, and have issued our report
thereon dated February 5, 1997. Our audits were made for the purpose of forming
an opinion on those statements taken as a whole. The schedules listed under Item
14(a)2 are the responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Memphis, Tennessee
March 18, 1997
20
<PAGE>
SCHEDULE I
PROMUS HOTEL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AS OF DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C>
Cash and cash equivalents................................................................. $ - $ -
Deferred income taxes..................................................................... 468 180
Investments in and advances to subsidiaries
(eliminated in consolidation)........................................................... 247,172 166,412
Organizational costs...................................................................... 603 775
---------- ----------
$ 248,243 $ 167,367
---------- ----------
---------- ----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Accrued expenses.......................................................................... $ 154 $ -
Commitments and contingencies (Note 3)
Stockholders' equity
Common stock, $0.10 par value, 360,000,000 shares authorized, 51,399,117 and 51,371,152
shares outstanding, net of 5,698 and 2,626 shares held in treasury.................... 5,140 5,137
Capital surplus......................................................................... 136,513 136,057
Retained earnings....................................................................... 90,073 25,349
Unrealized gain on marketable equity securities of affiliates, net of related deferred
tax liability of $10,844 and $1,165................................................... 16,961 1,822
Deferred compensation related to restricted stock....................................... (598) (998)
---------- ----------
248,089 167,367
---------- ----------
$ 248,243 $ 167,367
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
S-1
<PAGE>
SCHEDULE I (CONTINUED)
PROMUS HOTEL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
FOR THE PERIOD FROM JUNE 30, 1995 (DATE OF REGISTRATION) THROUGH
DECEMBER 31, 1995 AND FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Revenues.................................................................................... $ - $ -
Costs and expenses.......................................................................... 655 547
--------- ---------
Loss before income taxes and equity in subsidiaries' earnings............................... (655) (547)
Income tax benefit.......................................................................... 255 231
--------- ---------
Loss before equity in subsidiaries' earnings................................................ (400) (316)
Equity in subsidiaries' earnings before extraordinary items................................. 65,124 22,846
--------- ---------
Income before extraordinary items........................................................... 64,724 22,530
Extraordinary items, net of income tax expense of $1,635.................................... - 2,819
--------- ---------
Net income.................................................................................. $ 64,724 $ 25,349
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-2
<PAGE>
SCHEDULE I (CONTINUED)
PROMUS HOTEL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JUNE 30, 1995 (DATE OF REGISTRATION) THROUGH
DECEMBER 31, 1995 AND FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income................................................................................ $ 64,724 $ 25,349
Adjustments to reconcile net income to cash flows from operating activities
Extraordinary items..................................................................... - (2,819)
Amortization............................................................................ 501 547
Equity in earnings of subsidiary........................................................ (65,124) (22,846)
Other................................................................................... (101) (231)
--------- ---------
Cash flows provided by operating activities........................................... - -
--------- ---------
Net change in cash and cash equivalents..................................................... - -
Cash and cash equivalents, beginning of period.............................................. - -
--------- ---------
Cash and cash equivalents, end of period.................................................... $ - $ -
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-3
<PAGE>
SCHEDULE I (CONTINUED)
PROMUS HOTEL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1--BASIS OF ORGANIZATION
Promus Hotel Corporation, a Delaware corporation, is a holding company, the
principal assets of which are capital stock in a subsidiary, Promus Hotels,
Inc., (PHI). These condensed financial statements should be read in conjunction
with the consolidated financial statements of Promus and subsidiaries.
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), to a new publicly-traded entity, Promus Hotel Corporation
(Promus 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.
NOTE 2--ORGANIZATIONAL COSTS
Organizational costs are being amortized on a straight-line basis over a
five year period.
NOTE 3--COMMITMENTS AND CONTINGENCIES
The Company is a party to various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty, management believes that the final outcome of these matters will
not have a materially adverse effect upon Promus' consolidated financial
position or its results of operations.
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-Series A, $1.125 par value, 5,000,000 shares authorized
One special right is attached to each outstanding share of common stock.
These rights entitle the holders to purchase, under certain conditions, units
consisting of fractional shares of Special stock-Series A at a purchase price of
$120 per unit, subject to adjustment. The rights also, under certain conditions,
entitle the holders to purchase $240 worth of common stock for $120. These
rights expire on May 1, 2005, unless Promus decides to redeem them earlier at
$0.01 per right or upon the occurrence of certain other events.
NOTE 5--INCOME TAXES
Promus files a consolidated tax return with its subsidiaries.
NOTE 6--EXTRAORDINARY ITEMS
Promus' equity in PHI's net extraordinary items relates to the early payoff
and forgiveness of a portion of existing debt attributable to two of PHI's
equity investments in 1995.
S-4
<PAGE>
SCHEDULE I (CONTINUED)
PROMUS HOTEL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (CONTINUED)
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION
Concurrent with the Spin-Off, the historical assets of the Hotel Business
were transferred to Promus by Parent, and the issuance of Promus common stock
was completed in connection with the Distribution. This noncash transaction has
been excluded from the statement of cash flows.
S-5
<PAGE>
SCHEDULE II
PROMUS HOTEL CORPORATION
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN
COLUMN A B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------ ------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C>
ADDITIONS
-----------------
BALANCE CHARGED
AT TO
BEGINNING COSTS CHARGED BALANCE
OF AND TO OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------------------ ------- ------- -------- -------- ---------
Fiscal Year Ended December 31, 1996
Allowance for doubtful accounts
Current..................................... $1,172 $ 269 $ 171 $ 432(a) $ 1,180
------- ------- -------- -------- ---------
------- ------- -------- -------- ---------
Long-term................................... $ - $ 270 $ 87 $ - $ 357
------- ------- -------- -------- ---------
------- ------- -------- -------- ---------
Self-insurance reserves....................... $8,934 $4,171 $ 8,991(c) $6,045 $ 16,051
------- ------- -------- -------- ---------
------- ------- -------- -------- ---------
Fiscal Year Ended December 31, 1995
Allowance for doubtful accounts
Current..................................... $ 855 $ - $ 349(b) $ 32(a) $ 1,172
------- ------- -------- -------- ---------
------- ------- -------- -------- ---------
Self-insurance reserves....................... $ - $4,036 $ 10,844(b)(c) $5,946 $ 8,934
------- ------- -------- -------- ---------
------- ------- -------- -------- ---------
Fiscal Year Ended December 31, 1994
Allowance for doubtful accounts
Current..................................... $1,089 $ 28 $ - $ 262(a) $ 855
------- ------- -------- -------- ---------
------- ------- -------- -------- ---------
Long-term................................... $ 644 $ - $ - $ 644 $ -
------- ------- -------- -------- ---------
------- ------- -------- -------- ---------
</TABLE>
- ------------------------
(a) Includes uncollectible accounts written off, net of amounts recovered, and
balances transferred to other accounts.
(b) Includes balances received from Parent in connection with the Spin-Off that
had not been previously allocated.
(c) Includes participant contributions to insurance programs.
S-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO.
- ----------
<C> <S>
3(1) Amended and Restated Certificate of Incorporation of Promus Hotel Corporation dated June 30, 1995. (13)
3(2) Bylaws of Promus Hotel Corporation, as amended and restated dated May 26, 1995. (14)
4(1) Form of Rights Agreement, dated as of June 30, 1995, between Promus Hotel Corporation and Continental
Stock Transfer & Trust Company. (11)
4(2) Form of Debt Securities Indenture. (17)
10(1) Form of Indemnification Agreement entered into by Promus Hotel Corporation and each of its directors
and executive officers. (14)
+10(2) Promus Hotel Corporation 1995 Stock Option Plan. (4)
+10(3) Promus Hotel Corporation 1995 Restricted Stock Plan. (5)
+10(4) The Restatement of the Promus Hotel Corporation Savings and Retirement Plan-A, dated as of June 30,
1995. (17)
+10(5) Amendment to the Promus Hotel Corporation Savings and Retirement Plan-A, dated as of June 30, 1995.
(17)
+10(6) The Restatement of the Promus Hotel Corporation Savings and Retirement Plan-B, dated as of June 30,
1995. (17)
+10(7) Amendment to the Promus Hotel Corporation Savings and Retirement Plan-B, dated as of June 30, 1995.
(17)
+10(8) Promus Hotel Corporation Non-Management Directors Stock Incentive Plan. (7)
+10(9) Promus Hotel Corporation Key Executive Officer Annual Incentive Plan. (6)
+10(10) Promus Hotel Corporation Executive Deferred Compensation Plan. (8)
+10(11) Promus Hotel Corporation Deferred Compensation Plan. (8)
+10(12) 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, as trustees. (8)
+10(13) 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. (9)
+10(14) Form of Severance Agreement, dated June 30, 1995, entered into with Michael D. Rose and Raymond E.
Schultz. (9)
+10(15) Employment Agreement, dated as of June 30, 1995, between Michael D. Rose and Promus Hotel Corporation.
(9)
+10(16) Employment Agreement, dated as of July 1, 1995, between Raymond E. Schultz and Promus Hotel
Corporation. (10)
+10(17) Form of Letter of Amendment, dated February 22, 1996 to the Employment Agreement between Raymond E.
Schultz and Promus Hotel Corporation. (14)
+10(18) Financial Counseling Plan of The Promus Companies Incorporated as amended February 25, 1993, as adopted
by Promus Hotel Corporation on April 5, 1995. (1)
+10(19) Summary Plan Description of Executive Term Life Insurance Plan adopted by Promus Hotel Corporation on
April 5, 1995. (3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO.
- ----------
+10(20) Administrative Regulations, Long Term Compensation Plan (Restricted Stock Plan and Stock Option Plan),
dated as of January 1, 1992, adopted by Promus Hotel Corporation on April 5, 1995. (2)
<C> <S>
10(21) Plan of Reorganization and Distribution Agreement, dated as of June 30, 1995, between The Promus
Companies Incorporated and Promus Hotel Corporation. (9)
10(22) 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. (8)
10(23) 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). (9)
10(24) 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). (9)
10(25) 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. (8)
10(26) 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). (9)
10(27) 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). (9)
10(28) 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). (9)
10(29) Escrow Agreement, dated as of June 30, 1995, among Promus Hotel Corporation, Promus Hotels, Inc. and
NationsBank. (8)
10(30) Employee Benefits and Other Employment Matters Allocation Agreement, dated as of June 30, 1995, between
The Promus Companies Incorporated and Promus Hotel Corporation. (9)
10(31) Risk Management Allocation Agreement, dated as of June 30, 1995, between The Promus Companies
Incorporated and Promus Hotel Corporation. (9)
10(32) Tax Sharing Agreement, dated as of June 30, 1995, between The Promus Companies Incorporated and Promus
Hotel Corporation. (9)
10(33) International Swap Dealers Association, Inc. Master Agreement, dated as of June 30, 1995, among Promus
Hotels, Inc. and NationsBank, N.A. (Carolinas). (9)
10(34) Transfer Agreement, dated as of June 30, 1995, among Embassy Suites, Inc., Promus Hotels, Inc., and
NationsBank, N.A. (Carolinas). (9)
10(35) Subscription Agreement, dated as of October 17, 1995, by and among Promus Hotels, Inc. and FelCor
Suites Hotels, Inc. and FelCor Suites Limited Partnership. (10)
10(36) Form of Aircraft Agreement, dated August 4, 1995, between Promus Hotels, Inc., and Harrah's Operating
Company, Inc. (14)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO.
- ----------
10(37) Form of Interest Swap Confirmations, between NationsBank, N.A. and Promus Hotels, Inc. dated December
11, 1995. (14)
<C> <S>
10(38) Form of Interest Swap Agreement between NationsBank, N.A. and Promus Hotels, Inc. dated January 24,
1995, as amended on December 6, 1995. (14)
10(39) Form of Interest Swap Confirmations, dated January 22, 1996, between NationsBank, N.A. and Promus
Hotels, Inc. (15)
10(40) Form of Unwind Interest Swap Confirmations, dated January 22, 1996, between NationsBank, N.A. and
Promus Hotels, Inc. (15)
10(41) Form of Guarantee Agreement, dated February 5, 1996, among Promus Hotel Corporation, and Promus Hotels,
Inc., Canadian Imperial Bank of Commerce, as agent for the Lenders, FelCor Suites Limited
Partnership, FelCor/CSS Holdings, L.P., and FelCor Suite Hotels, Inc. (15)
10(42) Second Amendment to Tranche A Credit Agreement, dated as of May 15, 1996, by and among Embassy Suites,
Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation, and
NationsBank, N.A. (Carolinas). (16)
10(43) Second Amendment to Tranche B Credit Agreement, dated as of May 15, 1996, by and among Embassy Suites,
Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation, and
NationsBank, N.A. (Carolinas). (16)
* 10(44) Third Amendment to Tranche A Credit Agreement, dated as of November 5, 1996, by and among Embassy
Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation, and
NationsBank, N.A. (Carolinas).
* 10(45) Third Amendment to Tranche B Credit Agreement, dated as of November 5, 1996, by and among Embassy
Suites, Inc., Promus Hotels, Inc., The Promus Companies Incorporated, Promus Hotel Corporation, and
NationsBank, N.A. (Carolinas).
* 10(46) Form of Amendment to the 1995 Promus Hotel Corporation Stock Option Plan, dated as of November 13,
1996.
* 10(47) Form of Amendment to the 1995 Restricted Stock Plan dated as of November 13, 1996.
* 10(48) Form of Amendment to the Promus Hotel Corporation 1996 Non- Management Directors Stock Incentive Plan
dated as of December 23, 1996.
* 10(49) Form of Stock Purchase Agreement between Promus Hotels, Inc. and Winston Hotels, Inc. dated as of April
24, 1996.
* 10(50) Form of Amendment No. 1 to Stock Purchase Agreement between Promus Hotels, Inc. and Winston Hotels,
Inc. dated as of August 7, 1996.
* 10(51) Form of Stock Purchase Agreement between Promus Hotels, Inc. and Equity Inns, Inc. and Equity Inns
Partnership, L.P. dated as of May 31, 1996.
* 11(1) Computation of per share earnings.
* 12(1) Computations of ratios.
* 13(1) Portions of Annual Report to Stockholders for the fiscal year ended December 31, 1996.
* 21(1) List of subsidiaries of Promus Hotel Corporation.
* 23(1) Consent of Arthur Andersen LLP.
* 27(1) Financial Data Schedule.
</TABLE>
- ------------------------
* Included herewith.
<PAGE>
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(a)(3) of Form 10-K.
FOOTNOTES
(1) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410.
(2) Incorporated by reference from PCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992, filed May 13, 1992, File No. 1-10410.
(3) Incorporated by reference from PCI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, filed March 17, 1993, File No. 1-10410.
(4) Incorporated by reference from PCI's Proxy Statement, Annex III-A, dated
April 25, 1995, File No. 1-10410.
(5) Incorporated by reference from PCI's Proxy Statement, Annex III-B, dated
April 25, 1995, File No. 1-10410.
(6) Incorporated by reference from PCI's Proxy Statement, Annex VII, dated
April 25, 1995, File No. 1-10410.
(7) Incorporated by reference from PCI's Proxy Statement, Annex VIII, dated
April 25, 1995, File No. 1-10410.
(8) Incorporated by reference from the Company's Current Report on Form 8- K,
filed June 14, 1995, File No. 1-11463.
(9) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended June 30, 1995, filed August 11, 1995, File No. 1-
11463.
(10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended September 30, 1995, filed November 13, 1995, File No.
1-11463.
(11) Incorporated by reference from the Company's Form 8-A, filed June 6, 1995,
File No. 1-11463.
(12) Incorporated by reference from the Company's Registration Statement No.
33-59997 on Form S-8 for the Promus Hotel Corporation Savings & Retirement
Plan, filed June 6, 1995.
(13) Incorporated by reference from PCI's Proxy Statement, Annex II-A, dated
April 25, 1995, File No. 1-10410.
(14) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, filed March 12, 1996, File No.
1-11463.
(15) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended March 31, 1996, filed May 7, 1996, File No. 1- 11463.
(16) Incorporated by reference from the Company's Quarterly Report on Form 10-Q,
for the quarter ended June 30, 1996, filed August 12, 1996, File No.
1-11463.
(17) Incorporated by reference from the Company's Registration Statement on Form
S-3, filed October 11, 1996, File No. 1-11463.
<PAGE>
Exhibit 10.44
THIRD AMENDMENT TO TRANCHE A CREDIT AGREEMENT
THIS THIRD AMENDMENT dated as of November 5, 1996 (the "Third Amendment")
is to that Tranche A Credit Agreement dated as of June 7, 1995 as amended by
that First Amendment to Tranche A Credit Agreement dated as of June 30, 1995 and
as further amended by that Second Amendment to Tranche A Credit Agreement dated
as of May 15, 1996 (the "Credit Agreement"; capitalized terms used but not
otherwise defined herein shall have the meanings provided in the Credit
Agreement) by and among EMBASSY SUITES, INC., a Delaware corporation as the
initial Borrower, and PROMUS HOTELS, INC., a Delaware corporation, as assignee
and subsequent Borrower (the applicable Borrower hereunder being referred to as
the "Borrower"), THE PROMUS COMPANIES INCORPORATED, a Delaware corporation as an
initial guarantor, and PROMUS HOTEL CORPORATION, a Delaware corporation as a
guarantor and those certain Subsidiaries and related parties identified as
"Guarantors" on the signature pages thereto as listed on the signature pages
hereto, the several lenders identified on the signature pages thereto as listed
on the signature pages hereto (each a "Lender" and collectively, the "Lenders")
and NATIONSBANK, N.A., a national banking association formerly known as
NationsBank, N.A. (Carolinas), as agent for the Lenders (in such capacity, the
"Agent").
W I T N E S S E T H :
WHEREAS, the Lenders have executed a $300,000,000 5-year revolving credit
facility pursuant to the terms of the Credit Agreement;
WHEREAS, the Borrower has requested the modification of certain provisions
of the Credit Agreement;
WHEREAS, the Lenders have agreed to the requested modifications on the
terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
A. The Credit Agreement is amended and modified in the following respects:
1. The definition of "Applicable Percentage" in Section 1.1 is
hereby amended and restated in its entirety to read as follows:
"Applicable Percentage" means, for any day, the rate per annum
set forth below opposite the applicable Level Period then in effect,
it being understood that the Applicable Percentage for (i) Base Rate
Loans shall be the percentage set forth under the column "Base Rate
Margin", (ii) Eurodollar Loans shall be the percentage set forth
under the column "Eurodollar Margin", (iii) the Commitment Fee shall
be the percentage set forth under the column "Commitment Fee" and
<PAGE>
(iv) the Letter of Credit Fee shall be the percentage set forth
under the column "Letter of Credit Fee":
Level Base Rate Eurodollar Commitment Letter of
Period Margin Margin Fee Credit Fee
------ ------ ------ --- ----------
Level I Period 0% .225% .10% .225%
Level II Period 0% .275% .125% .275%
Level III Period 0% .325% .15% .325%
Level IV Period 0% .45% .25% .45%
Level V Period 0% .6875% .3125% .6875%
In the event the applicable Level Period is determined by reference
to clause (i) of the definitions of "Level I Period", "Level II
Period", "Level III Period", "Level IV Period" and "Level V Period",
the Applicable Percentage shall be adjusted for all purposes as soon
as reasonably practicable, but in no event later than 5 days, after
the date of receipt by the Agent of notice of a change in the
applicable debt rating. In the event the applicable Level Period is
determined by reference to clause (ii) of the definitions of "Level
I Period", "Level II Period", "Level III Period", "Level IV Period"
and "Level V Period", the Applicable Percentage shall be adjusted
for all purposes quarterly as soon as reasonably practicable, but
not later than 5 days, after the date of receipt by the Agent of the
quarterly financial information in accordance with the provisions of
Section 7.1(b) together with a calculation by the Borrower of the
Leverage Ratio for the period ending on the last day of the most
recent fiscal quarter.
2. The definition of "Consolidated Fixed Charges" in Section 1.1 of
the Credit Agreement is amended and restated to read as follows:
"Consolidated Fixed Charges" means, for any period, without
duplication, the sum of (i) all Rentals (other than Rentals on
Capitalized Leases) payable during such period, (ii) the cash
portion of Consolidated Interest Expense during such period and
(iii) the cash payment portion of current maturities of Funded Debt,
in each case for the Parent Company and its Subsidiaries on a
consolidated basis determined in accordance with GAAP. For the
portion of any such period which is prior to the Closing Date,
Consolidated Fixed Charges shall be calculated with respect to Hotel
Inc. Business.
3. The definition of "Level IV Period" in Section 1.1 of the Credit
Agreement is amended and restated to read as follows:
"Level IV Period" means a period during which none of a Level
I Period, a Level II Period nor a Level III Period shall exist and
(i) the Parent Company and
2
<PAGE>
its consolidated Subsidiaries have an actual or implied senior
unsecured long-term debt rating (without third party credit
enhancement) of "BB+" or better by S&P or "Bal" or better by
Moody's, or (ii) the Leverage Ratio for the period of four
consecutive fiscal quarters ending on the last day of the most
recent fiscal quarter shall be less than 2.50:1.0 but greater than
or equal to 2.25:1.0.
4. The definition of "Level V Period" in Section 1.1 of the Credit
Agreement is amended and restated to read as follows:
"Level V Period" means a period during which none of a Level I
Period, a Level II Period, a Level III Period nor a Level IV Period
shall exist and (i) the Parent Company and its consolidated
Subsidiaries have an actual or implied senior unsecured long-term
debt rating (without third party credit enhancement) of "BB" or
worse by S&P or "Ba2" or worse by Moody's, or (ii) the Leverage
Ratio for the period of four consecutive fiscal quarters ending on
the last day of the most recent fiscal quarter shall be greater than
or equal to 2.50:1.0.
5. The Termination Date as referenced and defined in Section 2.1(a)
of the Credit Agreement is hereby extended to November 1, 2001 and the
reference therein to the date that is the fifth anniversary of the Closing
Date is modified to read "November 1, 2001."
6. Section 7.11(a) of the Credit Agreement entitled "Consolidated
Net Worth" is hereby amended and restated to read as follows:
"(a) Consolidated Net Worth. There shall be maintained
at all times, determined at the end of each fiscal quarter,
Consolidated Net Worth of at least $125,000,000; provided,
however, that the minimum Consolidated Net Worth required
hereunder shall be increased by (i)(A) on the last day of each
fiscal quarter to occur from the Closing Date until September
30, 1996, an amount equal to 50% of Consolidated Net Income
for the fiscal quarter then ended (or if Consolidated Net
Income is a deficit, then zero), (B) on the last day of the
fiscal quarter ending December 31, 1996, an amount equal to
25% of Consolidated Net Income for the fiscal quarter then
ended (or if Consolidated Net Income is a deficit, then zero)
and (C) on the last day of each fiscal year occurring
thereafter, an amount equal to 25% of Consolidated Net Income
for the fiscal year then ended (or if Consolidated Net Income
is a deficit, then zero) and (ii) immediately upon receipt,
100% of the net proceeds received by the Borrower or any
Subsidiary pursuant to any Equity Transaction occurring after
the Closing Date."
7. Section 7.11(b) of the Credit Agreement entitled "Leverage Ratio"
is hereby amended and restated to read as follows:
3
<PAGE>
"(b) Leverage Ratio. The Leverage Ratio, as determined at
the end of each fiscal quarter for the four consecutive fiscal
quarter period then ended, shall not at any time exceed:
Period Ending
-------------
Closing Date through the last day
of fiscal year 1995 3.5:1.0
First day of fiscal year 1996 through
last day of fiscal year 1996 3.25:1.0
First day of fiscal year 1997 and
thereafter 2.5:1.0"
8. Section 7.12 is hereby deleted in its entirety.
9. A new subsection (r) is hereby added to Section 8.1 to read as
follows:
"(r) other unsecured Indebtedness of the Borrower in an
aggregate amount of up to $300,000,000 provided that such
Indebtedness has a maturity later than the Termination Date."
B. In connection with the execution and delivery of this Amendment,
Hampton Inns, Inc. and Embassy Equity Development Corporation (each a "Released
Guarantor", and collectively the "Released Guarantors") are hereby released from
all of their respective obligations and liabilities as Guarantors pursuant to
Section 4 of the Credit Agreement. Each Guarantor, other than the Released
Guarantors, shall remain liable pursuant to Section 4 and by its execution and
delivery of this Amendment, such Guarantor acknowledges and consents to all of
the terms and conditions of this Third Amendment and agrees that this Third
Amendment does not operate to reduce or discharge the Guarantor's obligations
under the Credit Agreement or the other Credit Documents. Each Guarantor, other
than the Released Guarantors, acknowledges and agrees that each such Guarantor
shall have no claims, counterclaims, offsets, credits or defenses to the Credit
Documents and the performance of the Guarantors' obligations thereunder or if
such Guarantor, other than the Released Guarantors, has any such claims,
counterclaims, offsets, credits or defenses to the Credit Documents or any
transaction related to the Credit Documents, the same are hereby waived,
relinquished and released in consideration of the Lenders' execution and
delivery of this Third Amendment.
C. The Borrower and the Guarantors hereby certify that as of the date
hereof:
(i) the representations and warranties set forth in Section 6
of the Credit Agreement are true and correct in all material
respects (except for those which expressly relate to an earlier
date); and
4
<PAGE>
(ii) no Default or Event of Default exists and is continuing
either prior to or after giving effect to this Third Amendment.
D. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and schedules) remain in full force and effect.
E. This Amendment shall be effective upon the execution of this Amendment
by the Borrower, the Guarantors and the Lenders and the payment by the Borrower
of the fees payable in connection herewith.
F. The Borrower agrees to pay all reasonable costs and expenses in
connection with the preparation, execution and delivery of this Third Amendment,
including without limitation the reasonable fees and expenses of Moore & Van
Allen, PLLC.
G. This Third Amendment may be executed in any number of counterparts,
each of which when executed and delivered shall be deemed to be an original and
it shall not be necessary in making proof of this Third Amendment to produce or
account for more than one such counterpart.
H. This Third Amendment and the Credit Agreement, as amended hereby, shall
be deemed to be contracts made under, and for all purposes be construed in
accordance with the laws of the State of North Carolina.
[Remainder of Page Intentionally Left Blank]
5
<PAGE>
PAGE INTENTIONALLY LEFT BLANK
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Third
Amendment to be duly executed and delivered as of the date first above written.
BORROWER:
PROMUS HOTELS, INC.,
a Delaware corporation
By____________________________
Carol G. Champion,
Vice President
GUARANTOR: PROMUS HOTEL CORPORATION,
a Delaware corporation
By____________________________
Carol G. Champion,
Vice President
LENDERS: NATIONSBANK, N.A., a national banking
association formerly known as
NationsBank, N.A. (Carolinas),
individually in its capacity as a
Lender and in its capacity as Agent
By_____________________________
Title__________________________
THE BANK OF NEW YORK
By_____________________________
Title__________________________
7
<PAGE>
THE BANK OF NOVA SCOTIA
By_____________________________
Title__________________________
CIBC INC.
By_____________________________
Title__________________________
THE SUMITOMO BANK, LIMITED, ATLANTA AGENCY
By_____________________________
Title__________________________
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By_____________________________
Title__________________________
LTCB TRUST COMPANY
By_____________________________
Title__________________________
THE NIPPON CREDIT BANK, LTD. -
LOS ANGELES AGENCY
By_____________________________
Title__________________________
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By_____________________________
Title__________________________
CREDIT LYONNAIS, NEW YORK BRANCH
By_____________________________
Title__________________________
FIRST AMERICAN NATIONAL BANK
By_____________________________
Title__________________________
FIRST NATIONAL BANK OF COMMERCE
By_____________________________
Title__________________________
FIRST TENNESSEE BANK, NATIONAL ASSOCIATION
By_____________________________
Title__________________________
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
ATLANTA AGENCY
By_____________________________
Title__________________________
<PAGE>
U.S. NATIONAL BANK OF OREGON
By_____________________________
Title__________________________
SUNTRUST BANK
By_____________________________
Title__________________________
WACHOVIA BANK OF GEORGIA, N.A.
By_____________________________
Title__________________________
10
<PAGE>
Exhibit 10.45
THIRD AMENDMENT TO TRANCHE B CREDIT AGREEMENT
THIS THIRD AMENDMENT dated as of November 5, 1996 (the "Third Amendment")
is to that Tranche B Credit Agreement dated as of June 7, 1995 as amended by
that First Amendment to Tranche B Credit Agreement dated as of June 30, 1995 and
as further amended by that Second Amendment to Tranche B Credit Agreement dated
as of May 15, 1996 (the "Credit Agreement"; capitalized terms used but not
otherwise defined herein shall have the meanings provided in the Credit
Agreement) by and among EMBASSY SUITES, INC., a Delaware corporation as the
initial Borrower, and PROMUS HOTELS, INC., a Delaware corporation, as assignee
and subsequent Borrower (the applicable Borrower hereunder being referred to as
the "Borrower"), THE PROMUS COMPANIES INCORPORATED, a Delaware corporation as an
initial guarantor, and PROMUS HOTEL CORPORATION, a Delaware corporation as a
guarantor and those certain Subsidiaries and related parties identified as
"Guarantors" on the signature pages thereto as listed on the signature pages
hereto, the several lenders identified on the signature pages thereto as listed
on the signature pages hereto (each a "Lender" and collectively, the "Lenders")
and NATIONSBANK, N.A., a national banking association formerly known as
NationsBank, N.A. (Carolinas), as agent for the Lenders (in such capacity, the
"Agent").
W I T N E S S E T H :
WHEREAS, the Lenders have executed a $50,000,000 364-day revolving credit
facility pursuant to the terms of the Credit Agreement;
WHEREAS, the Borrower has requested the modification of certain
provisions of the Credit Agreement;
WHEREAS, the Lenders have agreed to the requested modifications on the
terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
A. The Credit Agreement is amended and modified in the following respects:
1. The definition of "Applicable Percentage" in Section 1.1 is
hereby amended and restated in its entirety to read as follows:
"Applicable Percentage" means, for any day, the rate per annum
set forth below opposite the applicable Level Period then in effect,
it being understood that the Applicable Percentage for (i) Base Rate
Loans shall be the percentage set forth under the column "Base Rate
Margin", (ii) Eurodollar Loans shall be the percentage set forth
under the column "Eurodollar Margin", and (iii) the
<PAGE>
Commitment Fee shall be the percentage set forth under the
column "Commitment Fee":
Level Base Rate Eurodollar Commitment
Period Margin Margin Fee
------ ------ ------ ---
Level I 0% .245% .08%
Period
Level II 0% .295% .105%
Period
Level III 0% .35% .125%
Period
Level IV 0% .50% .20%
Period
Level V 0% .6875% .3125%
Period
In the event the applicable Level Period is determined by reference
to clause (i) of the definitions of "Level I Period", "Level II
Period", "Level III Period", "Level IV Period" and "Level V Period",
the Applicable Percentage shall be adjusted for all purposes as soon
as reasonably practicable, but in no event later than 5 days, after
the date of receipt by the Agent of notice of a change in the
applicable debt rating. In the event the applicable Level Period is
determined by reference to clause (ii) of the definitions of "Level
I Period", "Level II Period", "Level III Period", "Level IV Period"
and "Level V Period", the Applicable Percentage shall be adjusted
for all purposes quarterly as soon as reasonably practicable, but
not later than 5 days, after the date of receipt by the Agent of the
quarterly financial information in accordance with the provisions of
Section 7.1(b) together with a calculation by the Borrower of the
Leverage Ratio for the period ending on the last day of the most
recent fiscal quarter.
2. The definition of "Consolidated Fixed Charges" in Section 1.1 of
the Credit Agreement is amended and restated to read as follows:
"Consolidated Fixed Charges" means, for any period, without
duplication, the sum of (i) all Rentals (other than Rentals on
Capitalized Leases) payable during such period, (ii) the cash
portion of Consolidated Interest Expense during such period and
(iii) the cash payment portion of current maturities of Funded Debt,
in each case for the Parent Company and its Subsidiaries on a
consolidated basis determined in accordance with GAAP. For the
portion of any such period which is prior to the Closing Date,
Consolidated Fixed Charges shall be calculated with respect to Hotel
Inc. Business.
3. The definition of "Level IV Period" in Section 1.1 of the Credit
Agreement is amended and restated to read as follows:
2
<PAGE>
"Level IV Period" means a period during which none of a Level
I Period, a Level II Period nor a Level III Period shall exist and
(i) the Parent Company and its consolidated Subsidiaries have an
actual or implied senior unsecured long-term debt rating (without
third party credit enhancement) of "BB+" or better by S&P or "Bal"
or better by Moody's, or (ii) the Leverage Ratio for the period of
four consecutive fiscal quarters ending on the last day of the most
recent fiscal quarter shall be less than 2.50:1.0 but greater than
or equal to 2.25:1.0.
4. The definition of "Level V Period" in Section 1.1 of the Credit
Agreement is amended and restated to read as follows:
"Level V Period" means a period during which none of a Level I
Period, a Level II Period, a Level III Period nor a Level IV Period
shall exist and (i) the Parent Company and its consolidated
Subsidiaries have an actual or implied senior unsecured long-term
debt rating (without third party credit enhancement) of "BB" or
worse by S&P or "Ba2" or worse by Moody's, or (ii) the Leverage
Ratio for the period of four consecutive fiscal quarters ending on
the last day of the most recent fiscal quarter shall be greater than
or equal to 2.50:1.0.
5. Section 7.11(a) of the Credit Agreement entitled "Consolidated
Net Worth" is hereby amended and restated to read as follows:
"(a) Consolidated Net Worth. There shall be maintained
at all times, determined at the end of each fiscal quarter,
Consolidated Net Worth of at least $125,000,000; provided,
however, that the minimum Consolidated Net Worth required
hereunder shall be increased by (i)(A) on the last day of each
fiscal quarter to occur from the Closing Date until September
30, 1996, an amount equal to 50% of Consolidated Net Income
for the fiscal quarter then ended (or if Consolidated Net
Income is a deficit, then zero), (B) on the last day of the
fiscal quarter ending December 31, 1996, an amount equal to
25% of Consolidated Net Income for the fiscal quarter then
ended (or if Consolidated Net Income is a deficit, then zero)
and (C) on the last day of each fiscal year occurring
thereafter, an amount equal to 25% of Consolidated Net Income
for the fiscal year then ended (or if Consolidated Net Income
is a deficit, then zero) and (ii) immediately upon receipt,
100% of the net proceeds received by the Borrower or any
Subsidiary pursuant to any Equity Transaction occurring after
the Closing Date."
6. Section 7.11(b) of the Credit Agreement entitled "Leverage Ratio"
is hereby amended and restated to read as follows:
3
<PAGE>
"(b) Leverage Ratio. The Leverage Ratio, as determined at
the end of each fiscal quarter for the four consecutive fiscal
quarter period then ended, shall not at any time exceed:
Period Ending
-------------
Closing Date through the last day
of fiscal year 1995 3.5:1.0
First day of fiscal year 1996 through
last day of fiscal year 1996 3.25:1.0
First day of fiscal year 1997 and
thereafter 2.5:1.0"
7. Section 7.12 is hereby deleted in its entirety.
8. A new subsection (r) is hereby added to Section 8.1 to read as
follows:
"(r) other unsecured Indebtedness of the Borrower in an
aggregate amount of up to $300,000,000 provided that such
Indebtedness has a maturity later than the Termination Date."
B. In connection with the execution and delivery of this Amendment,
Hampton Inns, Inc. and Embassy Equity Development Corporation (each a "Released
Guarantor", and collectively the "Released Guarantors") are hereby released from
all of their respective obligations and liabilities as Guarantors pursuant to
Section 4 of the Credit Agreement. Each Guarantor, other than the Released
Guarantors, shall remain liable pursuant to Section 4 and by its execution and
delivery of this Amendment, such Guarantor acknowledges and consents to all of
the terms and conditions of this Third Amendment and agrees that this Third
Amendment does not operate to reduce or discharge the Guarantor's obligations
under the Credit Agreement or the other Credit Documents. Each Guarantor, other
than the Released Guarantors, acknowledges and agrees that each such Guarantor
shall have no claims, counterclaims, offsets, credits or defenses to the Credit
Documents and the performance of the Guarantors' obligations thereunder or if
such Guarantor, other than the Released Guarantors, has any such claims,
counterclaims, offsets, credits or defenses to the Credit Documents or any
transaction related to the Credit Documents, the same are hereby waived,
relinquished and released in consideration of the Lenders' execution and
delivery of this Third Amendment.
C. The Borrower and the Guarantors hereby certify that as of the date
hereof:
(i) the representations and warranties set forth in Section 6
of the Credit Agreement are true and correct in all material
respects (except for those which expressly relate to an earlier
date); and
4
<PAGE>
(ii) no Default or Event of Default exists and is continuing
either prior to or after giving effect to this Third Amendment.
D. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and schedules) remain in full force and effect.
E. This Amendment shall be effective upon the execution of this Amendment
by the Borrower, the Guarantors and the Lenders and the payment by the Borrower
of the fees payable in connection herewith.
F. The Borrower agrees to pay all reasonable costs and expenses in
connection with the preparation, execution and delivery of this Third Amendment,
including without limitation the reasonable fees and expenses of Moore & Van
Allen, PLLC.
G. This Third Amendment may be executed in any number of counterparts,
each of which when executed and delivered shall be deemed to be an original and
it shall not be necessary in making proof of this Third Amendment to produce or
account for more than one such counterpart.
H. This Third Amendment and the Credit Agreement, as amended hereby, shall
be deemed to be contracts made under, and for all purposes be construed in
accordance with the laws of the State of North Carolina.
[Remainder of Page Intentionally Left Blank]
5
<PAGE>
PAGE INTENTIONALLY LEFT BLANK
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Third
Amendment to be duly executed and delivered as of the date first above
written.
BORROWER:
PROMUS HOTELS, INC.,
a Delaware corporation
By____________________________
Carol G. Champion,
Vice President
GUARANTOR: PROMUS HOTEL CORPORATION,
a Delaware corporation
By____________________________
Carol G. Champion,
Vice President
LENDERS: NATIONSBANK, N.A., a national banking
association formerly known as
NationsBank, N.A. (Carolinas),
individually in its capacity as a
Lender and in its capacity as Agent
By_____________________________
Title__________________________
THE BANK OF NEW YORK
By_____________________________
Title__________________________
7
<PAGE>
THE BANK OF NOVA SCOTIA
By_____________________________
Title__________________________
CIBC INC.
By_____________________________
Title__________________________
THE SUMITOMO BANK, LIMITED, ATLANTA AGENCY
By_____________________________
Title__________________________
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By_____________________________
Title__________________________
LTCB TRUST COMPANY
By_____________________________
Title__________________________
THE NIPPON CREDIT BANK, LTD. -
LOS ANGELES AGENCY
By_____________________________
Title__________________________
8
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By_____________________________
Title__________________________
CREDIT LYONNAIS, NEW YORK BRANCH
By_____________________________
Title__________________________
FIRST AMERICAN NATIONAL BANK
By_____________________________
Title__________________________
FIRST NATIONAL BANK OF COMMERCE
By_____________________________
Title__________________________
FIRST TENNESSEE BANK, NATIONAL ASSOCIATION
By_____________________________
Title__________________________
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
ATLANTA AGENCY
By_____________________________
Title__________________________
9
<PAGE>
U.S. NATIONAL BANK OF OREGON
By_____________________________
Title__________________________
SUNTRUST BANK
By_____________________________
Title__________________________
WACHOVIA BANK OF GEORGIA, N.A.
By_____________________________
Title__________________________
<PAGE>
Exhibit 10.46
AMENDMENT
TO THE 1995 PROMUS HOTEL CORPORATION
STOCK OPTION PLAN
Promus Hotel Corporation (the "Company"), a Delaware corporation,
maintains the Promus Hotel Corporation 1995 Stock Option Plan (the "Plan"). In
order to make certain changes to the Plan, as authorized by Section U of the
Plan, this Amendment to the Plan has been approved and adopted by the Human
Resources Committee of the Board of Directors of the Company, effective
immediately.
1. Section B.1. shall be amended to read in its entirety as follows:
This Plan shall be administered by the Human Resources Committee
(the "Committee") of the Board of Directors (the "Board") of the Company
unless the Board designates another committee of the Board to administer
this Plan. The Human Resources Committee (the "Committee") (or such other
committee of the Board so designated) shall consist solely of two or more
non-employee directors appointed by and holding office at the pleasure of
the Board, each of whom is both a "non-employee director" as defined by
Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and an "outside director" for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") ("Section 162(m)").
2. Section F.2. shall be amended to read in its entirety as follows:
The option price shall be payable in United States dollars upon the
exercise of the option and may be paid in cash, by check, or in shares of
Common Stock having a total Fair Market Value on the date of exercise
equal to the option price. The Committee may also permit the option price
incurred by reason of the exercise of an option to be satisfied by
withholding shares (that would otherwise be obtained upon such exercise)
having a Fair Market Value equal to the aggregate option price of the
exercised option. The Committee may permit Optionees to use cashless
exercise methods that are permitted by law and in connection therewith the
Committee may establish a cashless exercise program including a program
where the commissions on the sale of stock subject to an exercised option
are paid by the Company.
3. The last two sentences of Section Q of the Plan are hereby amended to
read in their entirety as follows:
The Committee may also permit any withholding tax obligations incurred by
reason of the exercise of any stock option to be satisfied by withholding
shares (that would otherwise be obtained upon exercise) having a Fair
Market Value equal to the aggregate amount of taxes which are to be
withheld. As used
<PAGE>
herein, "Parent Company" means any domestic or foreign corporation that
beneficially owns, directly or indirectly, at least 50% of the outstanding
voting stock or voting power of the Company.
* * * *
Executed on this 13th day of November, 1996
_____________________________
Patricia R. Ferguson
Vice President
<PAGE>
Exhibit 10.47
AMENDMENT
TO THE 1995 PROMUS HOTEL CORPORATION
RESTRICTED STOCK PLAN
Promus Hotel Corporation (the "Company"), a Delaware corporation,
maintains the Promus Hotel Corporation 1995 Restricted Stock Plan (the "Plan").
In order to make certain changes to the Plan, as authorized by Section 10 of the
Plan, this Amendment to the Plan has been approved and adopted by the Human
Resources Committee of the Board of Directors of the Company, effective
immediately.
1. Section 2(a) is hereby amended to read in its entirety as follows:
The Plan shall be administered by the Human Resources Committee of
the Board of Directors (the "Board") of Promus unless the Board designates
another committee of the Board to administer this Plan. The Human
Resources Committee (the "Committee") (or such other committee of the
Board so designated) shall consist solely of two or more non-employee
directors appointed by and holding office at the pleasure of the Board,
each of whom is both a "non-employee director" as defined by Rule 16b-3
("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and an "outside director" for purposes of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code") ("Section
162(m)"). The Committee shall have full and final authority in its
discretion to interpret conclusively the provisions of the Plan; to decide
all questions of fact arising in its application; to determine the
employees to whom awards shall be made under the Plan; to determine the
awards to be made and the amount, size, terms and restrictions of each
such award; to determine the time when awards will be granted; and to make
all other determinations necessary or advisable for the administration of
the Plan, other than, in each such case, determinations required in
connection with awards granted pursuant to the terms of Section 4(b).
2. Section 2(d) of the Plan is hereby amended to delete the reference to
"Rule 16b-3."
3. Section 10 of the Plan is hereby amended to read in its entirety as
follows:
Amendment. The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time from time to time by the
Committee. However, no action of the Committee may modify the eligibility
requirements of Section 4, or otherwise amend the Plan in a manner
requiring stockholder approval under Section 16, the applicable exemptive
conditions of Rule 16b-3 or Section 162(m) or other applicable law,
regulation or rule without approval of the Company's
<PAGE>
shareholders given within 12 months before or after the action by the
Committee. Neither the amendment, suspension nor termination of the Plan
shall, without the consent of the participant, impair any rights or
obligations under any shares theretofore granted. No shares may be granted
during any period of suspension nor after termination of the Plan, and in
no event may any shares be granted under this Plan after the expiration of
the years from the date the Plan is adopted by the Board.
* * * *
Executed on this 13th day of November, 1996
_____________________________
Patricia R. Ferguson
Vice President
<PAGE>
Exhibit 10.48
AMENDMENT
TO THE PROMUS HOTEL CORPORATION
1996 NON-MANAGEMENT DIRECTORS STOCK INCENTIVE PLAN
Promus Hotel Corporation (the "Company"), a Delaware corporation,
maintains the Promus Hotel Corporation 1996 Non-Management Directors Stock
Incentive Plan (the "Plan"). In order to make certain changes to the Plan, as
authorized by Section 11 of the Plan, this Amendment to the Plan has been
approved and adopted by an action of the Committee appointed by the Board of
Directors of the Company to administer the Plan, effective immediately. This
Amendment, together with the Plan, constitutes the entire Plan as amended to
date.
1. Section 2 of the Plan is hereby amended to add the following sentence
to the end of such section:
Notwithstanding the foregoing, the Board of Directors of the Company (the
"Board") shall exercise any and all rights, duties and powers of the
Committee under the Plan to the extent required by the applicable
exemptive conditions of the Rule 16b-3 under the Securities Exchange Act
of 1934, as amended ("Rule 16b-3"), as determined by the Board in its sole
discretion.
2. The third sentence of the first paragraph of Section 7 of the Plan is
hereby amended to read in its entirety:
The deferral election form signed by the participant prior to the plan
year will be irrevocable except in case of hardship (as defined in Section
8) as determined in good faith by the Board pursuant to Section 8.
3. Section 8 is hereby amended to add the following sentence to the end of
such section:
For purposes of this Section 8, the Committee shall be the Board.
4. Section 10(a) of the Plan is hereby amended to add the following
proviso to the end of such section:
; provided, however, that to the extent required by the applicable
exemptive conditions of Rule 16b-3, any such adjustment shall be subject
to approval by the Board.
5. Section 10(b) of the Plan is hereby amended to add the following
proviso to the end of such section:
<PAGE>
; provided, however, that to the extent required by the applicable
exemptive conditions of Rule 16b-3, any such termination shall be subject
to approval by the Board.
6. Section 10(c) of the Plan is hereby amended to provide in its entirety
as follows:
(c) No adjustment or action under this Section 10 or any other provision
of this Plan shall be authorized to the extent such adjustment or action
would violate Section 16 of the Securities Exchange Act of 1934, as
amended, or the applicable exemptive conditions of Rule 16b-3. The number
of shares finally granted under this Plan shall always be rounded to the
next whole number.
7. Section 10(d) of the Plan is hereby amended to add the following
proviso to the end of such section:
; provided, however, that to the extent required by the applicable
exemptive conditions of Rule 16b-3, any such decision shall be subject to
approval by the Board.
8. Section 11 of the Plan is hereby amended to read in its entirety as
follows:
Amendment. The Committee may terminate, modify or amend the Plan in
such respect as it shall deem advisable, without obtaining approval from
the Company's stockholders except as such approval may be required
pursuant to the applicable exemptive conditions of Rule 16b-3 or Section
16 of the Securities Exchange Act of 1934, as amended. No termination,
modification or amendment of the Plan may, without the consent of a
participant, adversely affect a participant's rights under an award
granted prior thereto.
* * * *
Executed on this 23rd day of December, 1996
___________________________
Patricia R. Ferguson
Vice President
<PAGE>
Exhibit 10.49
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Stock Purchase Agreement") is made and
entered as of this 24th day of April, 1996, by and between PROMUS HOTELS, INC.
("Promus"), a Delaware corporation, and WINSTON HOTELS, INC. (the "Company"), a
North Carolina corporation.
RECITALS
WHEREAS, Promus owns, operates and franchises hotels under, among others,
the trademark and service mark "Homewood Suites."
WHEREAS, as of the date hereof, the Company and Promus executed (A)
purchase agreements ("Purchase Agreements") providing for the acquisition by
WINN Limited Partnership, a North Carolina limited partnership (the
"Partnership"), of (i) a Homewood Suites hotel located in Houston, Texas (the
"Developed Hotel") and (ii) three Homewood Suites hotels currently under
construction in Richmond, Virginia, BWI, Baltimore, Maryland, and Dallas, Texas
(the "Development Hotels"), (B) an option agreement ("Option Agreement")
requiring Promus to provide the Partnership with the option to acquire certain
other hotel properties developed from time to time hereafter by Promus (the
"Additional Hotels" and, together with the Developed Hotel and the Development
Hotels, the "Hotels"), and (C) management agreements providing for the
management of the Hotels by Promus (the Purchase, Option and Management
Agreements, collectively, as in effect on such date, including any acquisition
agreements for Additional Hotels executed subsequently pursuant to the Option
Agreement, and without regard to any subsequent amendments or modifications
thereto, the "Acquisition Documents").
WHEREAS, Promus has agreed to purchase from the Company up to $15 million
of common stock of the Company, par value $.01 per share ("Common Stock"), from
time to time as the Partnership acquires Hotels, generally to provide a source
of funds for such acquisitions, on the terms and conditions set forth in this
Stock Purchase 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 acknowledge, the parties do hereby
agree as follows:
<PAGE>
1. Terms of Subscription - Agreement to Purchase and Sell Common Stock
(a) (i) Stock Purchases Upon Hotel Closings. Promus hereby subscribes for and
agrees to purchase from the Company, and the Company agrees to sell to Promus,
from time to time, Common Stock subject to the limitations set forth in Section
1(c) below, at the purchase price determined in accordance with Section 2 below
(the "Purchase Price"). Subject to the limitations set forth in Section 1(c)
below, Promus hereby subscribes for and agrees to consummate the acquisition of
Common Stock for
(a) Three Million Dollars ($3,000,000), at the per share Purchase
Price determined in accordance with Section 2 below, on the date on which the
Partnership acquires the Developed Hotel, and
(b) the product of Twelve Thousand Five Hundred Dollars ($12,500)
and the number of guest rooms in a Development Hotel or an Additional Hotel, at
the per share Purchase Price determined in accordance with Section 2 below, on
the date on which the Partnership acquires the Development Hotel or Additional
Hotel.
(ii) Option to Purchase Within Six Months. Notwithstanding Section
1(a)(i), Promus may elect to satisfy any or all of its obligations under this
Stock Purchase Agreement at one or more times within six months after the
Company's next public offering of Common Stock (the "Public Offering"), by
notifying the Company in writing within such period, indicating the gross dollar
amount that it is committing to invest in Common Stock. The closing of Promus'
acquisition of such Common Stock will occur within 30 days after the Company's
receipt of such notice, at a per share price determined in accordance with
Section 2 below.
(b) Ownership Limitation. Promus shall only acquire Common Stock hereunder
unless, at the time of any Common Stock purchase hereunder (each an "Incremental
Purchase"), the Company's counsel determines that Promus owns the maximum amount
of Common Stock permitted under the Amended and Restated Articles of
Incorporation of the Company (the "Limit") and that no waiver of such Limit can
be made without jeopardizing the Company's status as a real estate investment
trust. In that event, the
2
<PAGE>
appropriate officer(s) of the Company will recommend that the Board of Directors
consider in good faith waiving the Limit to the extent that a waiver can be made
without jeopardizing its status as a real estate investment trust. In such
cases, if no waiver is made, Promus shall (i) acquire units of limited
partnership interest in the Partnership in the Incremental Purchase, which,
under the Amended and Restated Agreement of Limited Partnership of the
Partnership, are redeemable at the option of the holder for shares of Common
Stock (or, at the Company's election, an equivalent value in cash), for the same
Purchase Price and on the same terms as it would acquire Common Stock and (ii)
be admitted as a limited partner of the Partnership, entitled to all of the
rights, preferences and privileges as all existing limited partners. References
in this Agreement to "Common Stock" shall be deemed to mean "Units" when the
provisions of this Section 1(b) are applicable and the context requires.
(c) Aggregate Subscription Limit. Promus' agreement herein to purchase Common
Stock shall not exceed at any time the amount (the "Aggregate Subscription
Limit") equal to the lesser of (i) Fifteen Million Dollars ($15,000,000) or (ii)
the sum of Three Million Dollars ($3,000,000) and the aggregate Closed Hotel
Amount. The "Closed Hotel Amount" shall equal the product of (A) Twelve Thousand
Five Hundred Dollars ($12,500) and (B) the number of guest rooms in each
Development Hotel or Additional Hotel purchased by the Partnership pursuant to
the Acquisition Documents or any documents executed subsequently by the parties
pursuant to the Acquisition Documents regarding the Partnership's acquisition of
Additional Hotels.
(d) Lock-Up. Promus may not sell to the public any Common Stock (i) purchased
pursuant to this Stock Purchase Agreement or (ii) received upon redemption of
Units purchased pursuant to this Stock Purchase Agreement (through the operation
of Section 1(b)), until at least one year after the Common Stock or Units,
respectively, are acquired by Promus.
2. Purchase Price. The number of shares of Common Stock received by Promus at
each closing of its purchase of Common Stock hereunder shall be equal to the
gross purchase price paid by Promus at such closing divided by, (i) with respect
to Common
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Stock acquired within six months after the Public Offering, the price per share
at which shares of Common Stock are sold in the Public Offering and, (ii) with
respect to all other Common Stock, an amount equal to the Market Price of a
share of Common Stock on the date of acquisition. For purposes of this
Agreement, "Market Price" shall mean, for any date, the average of the high and
low sales prices of the Company's Common Stock as quoted on the Nasdaq Stock
Market for the 10 consecutive business days ending on the second business day
preceding such date.
3. Purchase Closings. At each closing of the acquisition of Common Stock
hereunder,
(a) Promus shall pay to the Company, by wire transfer or by certified or
bank cashier's check, an amount determined under section 1 above, subject to the
aggregate amount not exceeding the Aggregate Subscription Limit; and
(b) The Company shall issue to Promus one or more certificates
representing the whole number of issued and outstanding shares of Common Stock
equal to the quotient of (i) the gross amount paid by Promus to the Company
under Section 3(a) above divided by (ii) the Purchase Price determined under
Section 2 above. The Company shall not be required to issue fractional shares of
Common Stock in connection with any Incremental Purchase and, in lieu thereof,
the Company shall refund to Promus the cash amount represented by the fractional
share of Common Stock based upon the Purchase Price. In addition to the legends
required by the Company's Articles of Incorporation, each certificate or
instrument representing shares of the Common Stock shall bear a legend in
substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND
QUALIFICATION WITHOUT AN OPINION OF COUNSEL FOR THE HOLDER THAT SUCH
REGISTRATION AND QUALIFICATION ARE NOT REQUIRED, WHICH OPINION OF COUNSEL
SHALL BE REASONABLY SATISFACTORY TO THE COMPANY.
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<PAGE>
Such legend shall be removed by the Company upon (i) the U.S. Securities
and Exchange Commission ("SEC") declaring effective a Registration Statement (as
defined in Section 7 below) covering such Common Stock or (ii) delivery to it of
an opinion of counsel reasonably satisfactory to the Company and its counsel
that a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), other than a Registration Statement, is at the time effective
with respect to the transfer of the legended security or that such security can
be transferred without such registration statement being in effect and without
the requirements of a legend on the certificate in the hands of the transferee.
4. Term. Promus' obligations in connection with this Stock Purchase Agreement
shall terminate upon the earliest to occur of (i) the date that Promus shall
have reached the Aggregate Subscription Limit, (ii) the day after the date on
which the Partnership acquires the last Additional Hotel under the Option
Agreement, (iii) delivery of written notice to Promus that the Company has
terminated Promus' obligations hereunder or (iv) April __, 2001.
5. Representations and Warranties of Promus. Promus hereby represents and
warrants to the Company as follows:
(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) Neither the execution, delivery and performance of this Agreement nor the
consummation of the transactions contemplated hereby by Promus Company 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 Promus is a party, the
certificate of incorporation or bylaws of Promus, any indenture, mortgage, deed
of trust, loan agreement, note, lease or other agreement or instrument to which
the Promus is a party or to which any of its properties or other assets is
subject, or any applicable statute, judgment, decree, rule or regulation of any
court or governmental agency or body applicable to Promus or
5
<PAGE>
its assets, or result in the creation or imposition of any lien, charge, claim
or encumbrance upon any property or asset of Promus.
(c) No consent, license, permit or filing of or with any governmental authority
or any person is required in connection with Promus' execution, delivery and
performance of this Stock Purchase Agreement except as has been obtained by
Promus.
(d) No finder, broker, agent, financial advisor or other intermediary has acted
on behalf of Promus in connection with the purchase of the Common Stock pursuant
to this Stock Purchase Agreement or the negotiation or consummation hereof.
(e) 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 or any of its officers, directors, employees, partners or agents that
are not contained herein.
(f) It is aware of the risks involved in making an investment in the Common
Stock (or Units if required under Section 1(b)). It has had an opportunity to
ask questions of, and to receive answers from, the Company, or a person or
persons authorized to act on its behalf, concerning the terms and conditions of
this investment. Promus confirms that all documents, records and books
pertaining to its investment in the Company (or the Partnership, if necessary
under Section 1(c) above) that have been requested by it have been made
available or delivered to it prior to the date hereof.
(g) It understands that the Common Stock has not been registered under the
Securities Act, or any state securities acts, and is being offered and sold to
Promus in reliance on an exemption from such registration requirements. The
Common Stock for which Promus hereby subscribes is being acquired solely for its
own account, for investment, and is 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.
6
<PAGE>
(h) It is an "accredited investor" as that term is defined in Rule 501 and
Regulation D promulgated under the Securities Act.
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 the purchase of
Common Stock made hereunder in connection with the acquisition of the Developed
Hotel and on the date of each Incremental Purchase pursuant to the terms of this
Stock Purchase Agreement, and shall survive such dates.
6. Representations and Warranties of the Company. The Company hereby represents
and warrants to Promus as follows:
(a) The Company has full legal right, power and authority to enter into this
Stock Purchase Agreement and the Registration Rights Agreement referred to in
Section 7 hereof, and to consummate the transactions contemplated herein and
therein. This Stock Purchase Agreement has been, and the Registration Rights
Agreement referred to in Section 7 hereof will be, duly authorized by all
necessary corporate action, and each will constitute the valid and binding
obligation of the Company, enforceable in accordance with their respective
terms.
(b) 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
shall at all times be reserved by the Company. Units, if issued to Promus in
lieu of Common Stock in accordance with Section 1(b) above, will upon issuance
to Promus be validly issued, fully paid and nonassessable, shall not obligate
Promus to restore capital to the Partnership except as may be required by the
North Carolina Revised Uniform Limited Partnership Act and shall not be subject
to any preemptive or similar rights.
(c) Assuming the accuracy of the representations of Promus set forth in Section
5 hereof, (i) the Common Stock will have been issued, offered and sold to Promus
in compliance with all applicable laws (including, without limitation, federal
and state securities laws) and (ii) each consent, approval, authorization,
7
<PAGE>
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 to Promus, the execution,
delivery and performance of this Agreement and the Registration Rights Agreement
referred to in Section 7 hereof and the consummation by the Company of the
transactions contemplated hereby and thereby has been made or obtained and is in
full force and effect.
(d) Neither the issuance, sale and delivery to Promus by the Company of the
Common Stock, nor the execution, delivery and performance of this Agreement and
the Registration Rights Agreement referred to in Section 7 hereof, nor the
consummation of the transactions contemplated hereby or thereby by the Company
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 is a party,
the certificate of incorporation, bylaws of the Company, any indenture,
mortgage, deed of trust, loan agreement, note, lease or other agreement or
instrument to which the Company is a party or to which any of its 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 the Company or its assets, or result in the creation or imposition
of any lien, charge, claim or encumbrance upon any property or asset of the
Company.
(e) No consent, license, permit or filing of or with any governmental authority
or any person is required in connection with the Company's execution, delivery
and performance of this Stock Purchase Agreement except as has been obtained by
the Company.
(f) No finder, broker, agent, financial advisor or other intermediary has acted
on behalf of the Company in connection with the purchase of the Common Stock
pursuant to this Stock Purchase Agreement or the negotiation or consummation
hereof.
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
8
<PAGE>
the date of the purchase of Common Stock made hereunder in connection with the
acquisition of the Developed Hotel and on the date of each Incremental Purchase
pursuant to the terms of this Stock Purchase Agreement, and shall survive such
dates.
7. Registration Rights. Prior to the first anniversary of the acquisition of the
Developed Hotel, the Company shall enter into with Promus a registration rights
agreement ("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 acquired by Promus pursuant to this Stock Purchase
Agreement:
(a) In the time periods and with the frequency described in Section 7(b) below,
the Company shall file and use its best efforts to cause to become effective,
registration statements under the Securities Act, and all necessary
qualifications or registrations under the securities laws covering the resale by
Promus of shares of Common Stock issued to Promus hereunder (each, a
"Registration Statement").
(b) A Registration Statement shall be filed within 60 days after (i) the first
anniversary of the acquisition of the Partnership's acquisition of the Developed
Hotel, and (ii) each subsequent anniversary if Promus has acquired Common Stock
which is not covered by a Registration Statement and which is not then-subject
to the provisions of subsection 1(d) above.
(c) The Company shall use its best efforts to maintain the effectiveness of each
Registration Statement until the earlier of (i) such time as all of the shares
of Common Stock covered thereby have been issued to and sold by Promus and (ii)
such time as all of the shares of Common Stock covered thereby may be resold by
Promus without restriction under the Securities Act.
(d) During any consecutive three month period, Promus shall be prohibited,
unless the Company shall otherwise consent thereto in writing, from selling more
than 25% of the outstanding shares of Common Stock, whether pursuant to a
Registration Statement or otherwise, except in an underwritten public offering
in which the managing underwriter is one reasonably acceptable to the Company.
9
<PAGE>
(e) All expenses of such Registration Statement shall be borne by the Company,
other than (i) any underwriting discounts or commissions or transfer taxes and
(ii) the fees and expenses of all separate counsel for Promus in excess of the
reasonable fees and expenses of one separate counsel retained by Promus to (A)
review the Registration Statement as requested by the Company, (B) review or
prepare information to be provided at the Company's request and (C) review
documents and instruments to be executed by Promus at the request of the
Company.
(f) (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 relevant 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 and for the same time period 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.
(g) With respect to a Registration Statement, the following procedures shall
apply:
(i) The Company will, prior to filing a Registration Statement or
prospectus or any amendment or supplement thereto, furnish to Promus and
counsel designated by Promus, copies of such registration statement or
prospectus as proposed to be filed, together with exhibits thereto, which
10
<PAGE>
documents will be subject to review by the foregoing, and thereafter
furnish to Promus, such number of copies of such Registration Statement,
each amendment and supplement thereto, the prospectus included in such
Registration Statement (including each preliminary prospectus) and such
other documents as Promus may reasonably request in order to facilitate
the disposition of the Common Stock covered by the Registration Statement.
(ii) The Company will use its best efforts to register or qualify
the Common Stock under such other securities or blue sky laws of such
jurisdictions in the United States as Promus reasonably requests;
provided, that the Company will not be required to (A) qualify generally
to do business in any jurisdiction where it would not otherwise be
required to qualify, (B) subject itself to taxation in any such
jurisdiction or (C) consent to general service of process in any such
jurisdiction.
(iii) The Company will immediately notify Promus at any time when a
prospectus included in a Registration Statement is required to be
delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Common Stock,
such prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, and will promptly make
available to Promus any such supplement or amendment.
(iv) The Company will otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC.
(v) The Company shall promptly notify Promus (A) when the prospectus
or any prospectus supplement has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same has
been declared effective, (B) of any request by the SEC for amendments or
supplements to the Registration Statement or the prospectus or for
additional information, (C) of the issuance by the SEC of any stop order
suspending the effectiveness of the
11
<PAGE>
Registration Statement or the initiation of any proceedings for that
purpose, and (D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Common Stock for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose.
(vi) Promus and each officer, director and controlling person of
Promus shall be indemnified by the Company for all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation)
caused by any untrue or alleged untrue statement or any omission or alleged
omission in the then-current prospectus included in a Registration
Statement, unless based upon information (if any) furnished to the Company
by Promus expressly for use in a Registration Statement in a writing signed
by or on behalf of Promus.
(f) The Company and each officer, director and controlling person of
the Company shall be indemnified by Promus for all losses, claims,
damages, liabilities and expenses (including reasonable costs of
investigation) caused by any untrue or alleged untrue statement or any
omission or alleged omission in the then-current prospectus included in a
Registration Statement, if based upon information (if any) furnished to
the Company by Promus expressly for use in a Registration Statement in a
writing signed by or on behalf of Promus.
(g) Promus agrees to promptly provide information or execute and
deliver documents reasonably determined by the Company to be necessary to
facilitate the preparation or filing of a Registration Statement.
12
<PAGE>
8. Miscellaneous.
(a) All notices or other communications given or made hereunder shall be in
writing and shall be delivered in person or mailed by registered or certified
mail, return receipt requested, postage prepaid, or by Federal Express overnight
mail, (A) to Promus at 785 Crossover Lane, Suite 141, Memphis, Tennessee 38117,
Attention: General Counsel, with a copy to the same address, Attention: Chief
Financial Officer, and (B) to the Company at 2209 Century Drive, Suite 300,
Raleigh, North Carolina 27612, with a copy to Mark Murphy, Hunton & Williams,
Riverfront Plaza-East Tower, 951 E. Byrd Street, Richmond, Virginia 23219.
(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 NORTH CAROLINA (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES),
APPLICABLE TO AGREEMENTS MADE AND TO BE WHOLLY PERFORMED THEREIN.
(c) This Agreement (i) supersedes all other agreements or understandings, by and
between Promus and the Company, and (ii) constitutes the entire agreement
between the parties hereto, in each case with respect to the subscription by
Promus for shares of Common Stock of the Company. 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 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
13
<PAGE>
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) 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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement on and as of the date first above written.
PROMUS HOTELS, INC.,
a Delaware corporation
By:_____________________
Name:___________________
Title:__________________
WINSTON HOTELS, INC.,
a North Carolina corporation
By:_____________________
Name:___________________
Title:__________________
15
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Exhibit 10.50
AMENDMENT NO. 1 TO
STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT (the "Amendment") is
made and entered as of this 7th day of August, 1996, by and between PROMUS
HOTELS, INC. ("Promus"), a Delaware corporation, and WINSTON HOTELS, INC.
(the "Company"), a North Carolina corporation.
RECITALS
WHEREAS, the Company and Promus entered into a Stock Purchase Agreement
dated April 24th, 1996 (the "Stock Purchase Agreement").
WHEREAS, the Company and Promus now desire to amend certain parts of
the Stock Purchase Agreement.
WHEREAS, all capitalized terms used but not otherwise defined herein
shall have the meaning assigned to such terms in the Stock Purchase 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. Definition of Development Hotel
The definition of "Development Hotels" set forth in the Recitals
section of the Stock Purchase Agreement is hereby restated in the singular
and is amended for purposes of both the Stock Purchase Agreement and the
Amendment such that "Development Hotel" shall mean the Homewood Suites Hotel
currently under construction in Richmond, Virginia.
2. Amendment of Paragraph 1(a)(i)(a) of the Stock Purchase Agreement
Paragraph 1(a)(i)(a) of the Stock Purchase Agreement shall be deleted
in its entirety and the following provision shall be inserted in lieu thereof:
<PAGE>
(a) One Million Five Hundred Thousand Dollars ($1,500,000), at
the per share Purchase Price determined in accordance with Section 2 below,
on each of (i) the date on which the Partnership acquires the Developed Hotel
and (ii) the date on which the Partnership acquires the Development Hotel, and
3. Amendment of Paragraph 1(a)(i)(b) of the Stock Purchase Agreement
Paragraph 1(a)(i)(b) of the Stock Purchase Agreement shall be deleted
in its entirety and the following provision shall be inserted in lieu thereof:
(b) the product of Fifteen Thousand Dollars ($15,000) and the
number of guest rooms in the Additional Hotels, at the per share Purchase
Price determined in accordance with Section 2 below, on the date on which the
Partnership acquires the Additional Hotels.
4. Amendment of Paragraph 1(c) of the Stock Purchase Agreement
Paragraph 1(c) of the Stock Purchase Agreement shall be deleted in its
entirety and the following provision shall be inserted in lieu thereof:
(c) Aggregate Subscription Limit. Promus' agreement herein to purchase Common
Stock shall not exceed at any time the amount (the "Aggregate Subscription
Limit") equal to the lesser of (i) Fifteen Million Dollars ($15,000,000) or (ii)
the sum of Three Million Dollars ($3,000,000) and the aggregate Closed Hotel
Amount. The "Closed Hotel Amount" shall equal the product of (A) Fifteen
Thousand Dollars ($15,000) and (B) the number of guest rooms in the Additional
Hotels purchased by the Partnership pursuant to the Acquisition Documents or any
documents executed subsequently by the parties pursuant to the Acquisition
Documents regarding the Partnership's acquisition of Additional Hotels.
5. Amendment of Paragraph 2 of the Stock Purchase Agreement
Paragraph 2 of the Stock Purchase Agreement shall be deleted in its
entirety and the following provision shall be inserted in lieu thereof:
2
<PAGE>
2. Purchase Price. The number of shares of Common Stock received by Promus at
each closing of its purchase of Common Stock hereunder shall be equal to the
gross purchase price paid by Promus at such closing divided by, (i) with respect
to up to 681,818 shares of Common Stock acquired within six months after the
Public Offering, $11.00 per share of Common Stock, and, (ii) with respect to all
other Common Stock, an amount equal to the Market Price of a share of Common
Stock on the date of acquisition. For purposes of this Agreement, "Market Price"
shall mean, for any date, the average of the high and low sales prices of the
Company's Common Stock as quoted on the Nasdaq Stock Market for the 10
consecutive business days ending on the second business day preceding such date.
6. Except as expressly amended hereby, all terms and conditions of this
Agreement shall continue to be in full force and effect.
7. This Amendment shall be governed by, and interpreted in accordance with the
laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on and as
of the date first above written.
PROMUS HOTELS, INC.,
a Delaware corporation
By:________________________
Name:______________________
Title:_____________________
WINSTON HOTELS, INC.,
a North Carolina corporation
By:________________________
Name:______________________
Title:_____________________
3
<PAGE>
Exhibit 10.51
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Stock Purchase Agreement") is made and
entered as of this 31st day of May, 1996, by and among PROMUS HOTELS, INC., a
Delaware corporation ("Promus"), EQUITY INNS, INC., a Tennessee corporation (the
"Company") and EQUITY INNS PARTNERSHIP, L.P., a Tennessee limited partnership
(the "Partnership").
RECITALS
WHEREAS, Promus owns, operates and franchises hotels under, among others,
the trademarks and service marks "Hampton Inn," "Hampton Inn & Suites" and
"Homewood Suites;" and
WHEREAS, the Partnership, for which a wholly owned subsidiary of the
Company serves as sole general partner, and Promus have entered into (i) a
Purchase and Sale Agreement dated March 18, 1996 with respect to the
Partnership's purchase and Promus' sale of a 125 room Hampton Inn hotel in
Detroit (Northville), Michigan and (ii) a Purchase and Sale Agreement dated
March 18, 1996 with respect to the Partnership's purchase and Promus' sale of a
132 suite Homewood Suites hotel in Hartford (Windsor Locks), Connecticut (each
an "Acquisition Hotel" and collectively, the "Acquisition Hotels"); and
WHEREAS, upon purchase of the Acquisition Hotels, the Partnership intends
to lease the Acquisition Hotels to Trust Leasing, Inc., a Tennessee corporation
formerly named McNeill Hotel Co., Inc. (the "Lessee") and the Lessee and Promus
intend to enter into management agreements pursuant to which Promus will manage
the Acquisition Hotels on behalf of the Lessee for a ten-year period; and
WHEREAS, as of the date hereof, the Partnership, the Lessee and Promus
have entered into a Development Agreement (the "Development Agreement")
providing for, among other things, as further set forth therein (A) the
acquisition by the Partnership of three Homewood Suites hotels currently under
development by Promus in (i) Phoenix-Camelback, Arizona, (ii) Scottsdale,
Arizona, (iii) San Antonio, Texas and (iv) a new Homewood Suites hotel in
Clearwater, Florida (each, a "PHI Development Hotel" and collectively, the "PHI
Development Hotels"), (B) the development by the Partnership of a new Hampton
Inn & Suites hotel in Bartlett, Tennessee (the "Bartlett Hotel"); (C) the
agreement by Promus to give the Partnership a right of first offer with respect
to the development of up to three additional Promus brand hotels approved by
Promus for development each year over a four-year period with certain
limitations as set forth in the Development Agreement (the "Promus First Offer
Hotels"); (D) the Company's agreement to seek to develop new Promus brand hotels
or acquire existing hotels for conversion to Promus brand hotels (each, an
"Additional Hotel" and, together with the Acquisition Hotels, PHI Development
Hotels, the Bartlett Hotel and the Promus First Offer Hotels, the "Hotels"); and
(E) the Partnership's agreement to lease the Hotels to
<PAGE>
the Lessee and the management of the Hotels by Promus pursuant to a management
agreement between Promus and the Lessee; and
WHEREAS, the parties desire to set forth herein the terms and conditions
on which Promus agrees to purchase from the Company shares of common stock of
the Company, par value $.01 per share ("Common Stock");
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. Agreement to Purchase and Sell Common Stock of the Company.
(a) (i) Stock Purchases Upon Closing of Hotel Acquisitions. Subject to the
limitation that the aggregate purchase prices for Common Stock purchased by
Promus from the Company hereunder shall not exceed Fifteen Million Dollars
($15,000,000) (as such amount may be adjusted pursuant to Section 5 below, the
"Aggregate Subscription Limit"), Promus hereby subscribes for and agrees to
purchase from the Company, and the Company agrees to sell to Promus, shares of
Common Stock of the Company subject to the terms and conditions herein set
forth, at purchase prices determined in accordance with Section 2 below (each
such determination being herein referred to as a "Purchase Price"), as follows:
(A) At the time of closing of the Partnership's acquisition of each
Acquisition Hotel, which closings are expected to occur on or about
the date of this Stock Purchase Agreement, Promus will purchase from
the Company 173,913 newly issued shares of the Company's Common
Stock for each Acquisition Hotel;
(B) At the time of closing of the Partnership's acquisition of each
PHI Development Hotel pursuant to the Development Agreement and upon
opening of the Bartlett Hotel, Promus will purchase from the Company
a number of newly issued shares of Common Stock determined as set
forth below:
Hotel No. of Rooms Number of Shares
----- ------------ ----------------
Homewood Suites 123 $1,537,500 divided by the
Phoenix-Camelback, Arizona Purchase Price
Homewood Suites 114 $1,425,000 divided by the
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Scottsdale, Arizona Purchase Price
Homewood Suites 123 $1,537,500 divided by the
San Antonio, Texas Purchase Price
Homewood Suites 112 $1,400,000 divided by the
Clearwater, Florida Purchase Price
Hampton Inn & Suites 124 $1,550,000 divided by the
Bartlett, Tennessee Purchase Price
(C) At the time of closing of the Partnership's acquisition of each
Promus First Offer Hotel or an Additional Hotel, Promus shall
purchase from the Company, and the Company shall issue to Promus, a
number of newly issued shares of Common Stock determined by
multiplying the number of guest rooms in the Promus First Offer
Hotel or the Additional Hotel by $12,500 and dividing the product
obtained by the Purchase Price.
(ii) Option to Purchase Within Six Months. Notwithstanding the provisions
of Section 1(a)(i), Promus may elect to purchase up to a maximum of
869,565 shares of Common Stock by notifying the Company prior to October
16, 1996 of its election to purchase such shares at a purchase price per
share of $11.50. The aggregate purchase price for any shares of Common
Stock purchased under this Section 1(a)(ii) shall be applied to the
Aggregate Subscription Limit. Notwithstanding Promus' exercise of the
option set forth in this Section 1(a)(ii) and the possibility that the
Aggregate Subscription Limit will be reached prior to the acquisition or
development of all the PHI Development Hotels and the Bartlett Hotel and
the entering into of management agreements for such hotels between Promus
and the Lessee as contemplated in the Development Agreement, the
Partnership's obligations under the Development Agreement shall remain in
full effect.
(b) Ownership Limitation. If the Company's counsel determines that any
purchase by Promus of Common Stock hereunder (an "Incremental Purchase"), will
violate the stock ownership limitations set forth in the Amended and Restated
Charter of the Company (the "Limit") and that no waiver of such Limit can be
made without jeopardizing the Company's status as a real estate investment
trust, upon notice from the Company to the Partnership, rather than purchasing
shares of Common Stock, (i) Promus shall purchase from the Partnership and the
Partnership shall issue to Promus a number of units of limited partnership
interest in the Partnership ("Units") equal to the number of shares of Common
Stock which Promus would otherwise purchase in the
3
<PAGE>
Incremental Purchase at a price per Unit equal to the Purchase Price and (ii)
Promus shall be admitted as a limited partner of the Partnership with respect to
such Units and (iii) Promus and the Partnership shall execute all documents
reasonably necessary for Promus' admission as a Limited Partner of the
Partnership. Such Units shall be redeemable at Promus' option in accordance with
the terms of the Second Amended and Restated Agreement of Limited Partnership of
the Partnership (the "Partnership Agreement"). Notwithstanding the provisions of
Section 1(c) below, Promus may sell without restriction shares acquired upon
redemption of Units any time following the one year anniversary of Promus'
acquisition of the Units so redeemed, without regard to the date that the Common
Stock was acquired. References in this Agreement to "Common Stock" shall be
deemed to be references to "Units" when the provisions of this Section 1(b) are
applicable and when the context requires.
(c) Lock-Up Period for the Company's Common Stock. The shares of Common
Stock issuable to Promus hereunder shall be registered under the Securities Act
of 1933, as amended (the "Securities Act"). Without the prior written consent of
the Company, Promus may not sell any of the shares of Common Stock purchased
pursuant to this Stock Purchase Agreement for a period of one year after the
date of acquisition of such Common Stock by Promus. In the event that under the
Securities Act Promus cannot re-sell all or a portion of the Common Stock
acquired hereunder in a "brokers' transaction", as that term is defined in
Section 4(4) of the Securities Act, without further registration under the
Securities Act, the Company shall, following written notice from Promus
explaining in reasonable detail why further registration under the Securities
Act is necessary for Promus' resale of Common Stock acquired hereunder, use its
reasonable best efforts to cause to become effective under the Securities Act a
registration statement covering the resale by Promus of such shares of Common
Stock acquired by Promus hereunder.
2. Purchase Price. The Purchase Price for shares of Common Stock purchased by
Promus under Section 1(a)(i)(A) will be $11.50 per share. The Purchase Price for
shares of Common Stock purchased under Sections 1(a)(i)(B) and 1(a)(i)(C) shall
be an amount per share equal to the weighted average of the sales prices of the
Company's Common Stock as reported on the Nasdaq Stock Market for the fifteen
(15) business days ending on the business day immediately preceding any closing
date of a purchase and sale of Common Stock hereunder.
3. Purchase Closings. Subject to the provisions of Section 1(a)(ii), each
closing of a purchase and sale of Common Stock hereunder shall occur on the
respective closing dates of the Partnership's purchase of the Acquisition
Hotels, a PHI Development Hotel or any Additional Hotel and the opening date of
the Bartlett Hotel. At each closing of a purchase of Common Stock hereunder:
4
<PAGE>
(a) The Company shall issue to Promus a certificate representing the
number of shares of Common Stock purchased by Promus at each such closing; and
(b) (i) The Company shall receive as a credit against the contract
purchase price for each PHI Development Hotel, the Bartlett Hotel and any
Additional Hotel or (ii) Promus shall pay to the Company, by wire transfer or by
certified or bank cashier's check, in same day funds, the aggregate Purchase
Price for all shares of Common Stock being purchased by Promus simultaneously
with the closing of the Partnership's acquisitions of such hotels as determined
under Section 1 above.
4. Term. Promus' obligations in connection with this Stock Purchase Agreement
shall terminate upon the earlier to occur of (i) the date on which Promus shall
have purchased shares of Common Stock hereunder having purchase prices
aggregating the Aggregate Subscription Limit or (ii) delivery of written notice
by the Company to Promus that the Company has terminated Promus' obligations
hereunder, or (iii) May 31, 2001.
5. Purchase of Lessee Common Stock. Notwithstanding the foregoing, in the event
the Lessee shall complete an initial public offering of its common stock on or
prior to December 31, 1996, and Promus shall purchase in such initial public
offering, at the price to the public, shares of the Lessee's common stock having
an aggregate price of at least One Million Dollars ($1,000,000), the Aggregate
Subscription Limit hereunder shall be reduced to Fourteen Million Dollars
($14,000,000). Any purchase of stock of Lessee pursuant to this Section 5 shall
apply against the next to accrue obligations of Promus to purchase Common Stock
of the Company pursuant to Section 1(a) up to the aggregate purchase price for
the stock of the Lessee purchased by Promus in the Lessee's initial public
offering, not to exceed $1,000,000. Acquisitions of stock of the Lessee shall
not modify the Company's obligations with respect to the acquisition or
development of all the PHI Development Hotels, the Bartlett Hotel and the
entering into of management agreements for such hotels, in any respect.
6. Representations and Warranties of Promus. Promus hereby represents and
warrants to the Company as follows:
(a) Promus has full legal right, power and authority to enter into this Stock
Purchase Agreement and to consummate the transactions contemplated herein. This
Stock Purchase Agreement has been duly authorized by all necessary corporate
action on behalf of Promus and constitutes the valid and binding obligation of
Promus, enforceable in accordance with its terms, except as may be limited or
otherwise affected by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the rights of creditors generally.
5
<PAGE>
(b) Neither the execution, delivery and performance of this Agreement nor the
consummation of the transactions contemplated hereby by Promus 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 Promus is a party, the certificate of
incorporation or bylaws of Promus, any indenture, mortgage, deed of trust, loan
agreement, note, lease or other agreement or instrument to which Promus is a
party or to which any of its properties or other assets is subject, or any
applicable statute, judgment, decree, rule or regulation of any court or
governmental agency or body applicable to Promus or its assets, or result in the
creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of Promus.
(c) No consent, license, permit or filing with or approval by any governmental
authority or any other person or entity is required in connection with Promus'
execution, delivery and performance of this Stock Purchase Agreement except such
as has been obtained by Promus.
(d) No finder, broker, agent, financial advisor or other intermediary has acted
on behalf of Promus in connection with the purchase of the Common Stock pursuant
to this Stock Purchase Agreement or the negotiation or consummation of the
transactions hereunder.
(e) Promus is aware of the risks involved in making an investment in the Common
Stock (or Units, if required under Section 1(b)). Promus has had an opportunity
to ask questions of, and to receive answers from, representatives of the Company
concerning the terms and conditions of this investment. Promus confirms that all
information requested by Promus with respect to Promus' decision to enter into
this Stock Purchase Agreement has been made available or delivered to Promus
prior to the date hereof.
(f) There is not pending, or to the knowledge of Promus threatened, any action,
suit, proceeding, inquiry or investigation against Promus or any of its officers
or directors before or brought by any court or governmental agency or body or
board of arbitrators which could adversely affect the consummation of the
transactions contemplated by this Stock Purchase Agreement.
(g) Assuming the accuracy of the representations of the Company set forth in
Section 7 hereof, at the time of each purchase of Common Stock by Promus
hereunder, each consent, approval, authorization, order, license, certificate,
permit, registration, designation or filing by or with any governmental agency
or body necessary for Promus to purchase the Common Stock hereunder, the
execution, delivery and performance of this Stock Purchase Agreement, and the
consummation by Promus of
6
<PAGE>
the transactions contemplated hereby will have been made or obtained and will be
in full force and effect.
The foregoing representations and warranties are true and accurate as of the
date hereof and will be true as of each date of closing of a purchase and sale
of Common Stock hereunder. Promus shall deliver to the Company on the date of
each purchase of Common Stock hereunder a certificate executed by a duly
authorized officer of Promus confirming that such representations and warranties
are true and correct as of such date.
7. Representations and Warranties of the Company and the Partnership. (a)
The Company and the Partnership hereby represent and warrant (each as to
itself) to Promus as follows:
(i) The Company and the Partnership have full legal right, power and authority
to enter into this Stock Purchase Agreement and to consummate the transactions
contemplated herein. This Stock Purchase Agreement has been duly authorized by
all necessary action on behalf of the Company and the Partnership, and
constitutes the valid and binding obligation of the Company and the Partnership,
enforceable in accordance with its terms, except as may be limited or otherwise
affected by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the rights of creditors generally.
(ii) The issuance of Common Stock pursuant to this Stock Purchase Agreement has
been validly authorized by the Company. When issued to Promus upon receipt from
Promus of the Purchase Price therefor, the shares of Common Stock issuable
hereunder will be validly issued, fully paid, nonassessable shares of Common
Stock of the Company.
(iii) The issuance of the Common Stock to be issued to Promus hereunder or the
resale of such Common Stock by Promus will be registered under an effective
registration statement under the Securities Act.
(iv) Neither the issuance, sale and delivery to Promus of the Common Stock, nor
the execution, delivery and performance of this Agreement, nor the consummation
of the transactions contemplated hereby by the Company and the Partnership 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 either the Company or
the Partnership is a party, the charter or bylaws of the Company or the
organizational documents of the Partnership, any indenture, mortgage, deed of
trust, loan agreement, note, lease or other agreement or instrument to which
either the Company or the Partnership is a party or to which any of
7
<PAGE>
their properties or other assets is subject, or any applicable statute,
judgment, decree, rule or regulation of any court or governmental agency or body
applicable to either the Company or the Partnership or their assets, or result
in the creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company or the Partnership.
(v) No consent, license, permit or filing with or approval by any governmental
authority or any other person or entity is required in connection with the
Company's or the Partnership's execution, delivery and performance of this Stock
Purchase Agreement except such as has been obtained by the Company or the
Partnership.
(vi) No finder, broker, agent, financial advisor or other intermediary has acted
on behalf of the Company or the Partnership in connection with the purchase of
the Common Stock pursuant to this Stock Purchase Agreement or the negotiation or
consummation of the transactions hereunder.
(vii) There is not pending, or to the knowledge of the Company or the
Partnership threatened, any action, suit, proceeding, inquiry or investigation
against the Company or the Partnership or any of their officers or directors
before or brought by any court or governmental agency or body or board of
arbitrators which could adversely affect the consummation of the transactions
contemplated by this Stock Purchase Agreement.
(viii) Assuming the accuracy of the representations of Promus set forth in
Section 6 hereof, (a) the Common Stock will be issued, offered and sold to
Promus in compliance with all applicable laws (including, without limitation,
federal and state securities laws) and (b) at the time of each issuance and sale
of Common Stock to Promus hereunder, 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 by the Company and the Partnership of the Common
Stock to Promus, the execution, delivery and performance of this Stock Purchase
Agreement, and the consummation by the Company and the Partnership of the
transactions contemplated hereby will have been made or obtained and will be in
full force and effect.
The foregoing representations and warranties are true and accurate as of the
date hereof and each of the Company and the Partnership shall deliver to Promus
on the date of each purchase of Common Stock hereunder a certificate executed by
a duly authorized officer of the Company and the Partnership confirming that
such representations and warranties are true and correct as of such date.
(b) The Partnership hereby represents and warrants to Promus that any Units
issued to Promus pursuant to Section 1(b) hereof will, upon payment by Promus of
the
8
<PAGE>
purchase price therefor, be validly issued, fully paid and nonassessable, shall
not obligate Promus to restore capital to the Partnership and shall not be
subject to preemptive or similar rights.
8. 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 United
States mail, return receipt requested, postage prepaid:
(1) To Promus at 755 Crossover Lane, Memphis, Tennessee 38117, Attention:
Chief Financial Officer, with a copy to the same address, Attention:
General Counsel; and
(2) To the Company at 4735 Spottswood, Suite 102, Memphis, Tennessee
38117, Attention: Chairman of the Board, with a copy to David C. Wright,
Hunton & Williams, 2000 Riverview Tower, 900 South Gay Street, Knoxville,
Tennessee 37902.
(3) To the Partnership at 4735 Spottswood, Suite 102, Memphis, Tennessee
38117, Attention: Secretary, with a copy to David C. Wright, Hunton &
Williams, 2000 Riverview Tower, 900 South Gay Street, Knoxville, Tennessee
37902.
(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 TENNESSEE (WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES), APPLICABLE
TO AGREEMENTS MADE AND TO BE WHOLLY PERFORMED THEREIN.
(c) This Agreement supersedes all other agreements or understandings, by and
among Promus and the Company with respect to the subject matter hereof, and
constitutes the entire agreement between the parties hereto with respect to the
subscription by Promus for shares of Common Stock of the Company and, pursuant
to Section 1(b), for Units of the Partnership. This Agreement may be amended
only by an instrument in writing executed by all parties.
(d) This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto.
9
<PAGE>
(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
reasonably necessary or appropriate to effectuate the intent and purposes hereof
and consummate and make effective the transactions contemplated hereby.
(g) 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.
(h) This Agreement may not be assigned by any party without the prior written
consent of each other party hereto.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement on and as of the date first above written.
PROMUS HOTELS, INC.,
a Delaware corporation
By: /s/ Thomas L. Keltner
----------------------------------
Name: Thomas Keltner
Title: Senior Vice President-
Development
EQUITY INNS, INC.,
a Tennessee corporation
By: /s/ Phillip H. McNeill
----------------------------------
Name: Phillip H. McNeill, Sr.
Title: Chairman of the Board and Chief
Executive Officer
EQUITY INNS PARTNERSHIP, L.P.
By Equity Inns Trust, general partner
By: /s/ Phillip H. McNeill
----------------------------------
Name: Phillip H. McNeill, Sr.
Title: Chairman of the Board and Chief
Executive Officer
11
<PAGE>
EXHIBIT 11
PROMUS HOTEL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1996 1995(1) 1994(1)
------------- ------------- -------------
<S> <C> <C> <C>
Income before extraordinary items................................... $ 64,724,000 $ 43,760,000 $ 36,319,000
Extraordinary items, net of income tax.............................. - 2,819,000 -
------------- ------------- -------------
Net income.......................................................... $ 64,724,000 $ 46,579,000 $ 36,319,000
------------- ------------- -------------
------------- ------------- -------------
PRIMARY EARNINGS PER SHARE
Weighted average number of common shares outstanding................ 51,387,321 51,365,016 51,360,013
Common stock equivalents
Additional shares based on average market price for the period
applicable to
Restricted stock................................................ (28,881) (26,295) (39,090)
Stock options................................................... 331,534 229,839 252,002
------------- ------------- -------------
Average number of primary common and common equivalent shares
outstanding....................................................... 51,689,974 51,568,560 51,572,925
------------- ------------- -------------
------------- ------------- -------------
Primary earnings per common and common equivalent share
Income before extraordinary items............................... $ 1.25 $ 0.85 $ 0.70
Extraordinary items, net of income tax.......................... - 0.05 -
------------- ------------- -------------
Net income...................................................... $ 1.25 $ 0.90 $ 0.70
------------- ------------- -------------
------------- ------------- -------------
FULLY DILUTED EARNINGS PER SHARE
Average number of primary common and common equivalent shares
outstanding....................................................... 51,689,974 51,568,560 51,572,925
Change in shares based on period-end price applicable to
Restricted stock................................................ 6,897 - -
Stock options................................................... 33,364 - -
------------- ------------- -------------
Average number of fully diluted common and common equivalent shares
outstanding....................................................... 51,730,235 51,568,560 51,572,925
------------- ------------- -------------
------------- ------------- -------------
Fully diluted earnings per common and common equivalent share
Income before extraordinary items............................... $ 1.25 $ 0.85 $ 0.70
Extraordinary items, net of income tax.......................... - 0.05 -
------------- ------------- -------------
Net income...................................................... $ 1.25 $ 0.90 $ 0.70
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ------------------------
(1) For purposes of computing pro forma earnings per share on a comparable
basis, the weighted average shares outstanding for periods prior to the
Spin-Off are assumed to be equal to the actual common and common equivalent
shares outstanding on June 30, 1995.
<PAGE>
EXHIBIT 12
PROMUS HOTEL CORPORATION
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------
<S> <C> <C> <C> <C>
1996 1995 1994 1993
---------- ---------- ---------- ----------
RETURN ON REVENUES
Net income before extraordinary items............................ $ 64,724 $ 43,760 $ 36,319 $ 16,926
Revenues......................................................... 266,625 236,513 222,561 214,565
Return......................................................... 24.3% 18.5% 16.3% 7.9%
RETURN ON AVERAGE INVESTED CAPITAL
Net income before extraordinary items............................ $ 64,724 $ 43,760 $ 36,319 $ 16,926
Add interest expense after tax................................... 17,090 18,029 17,686 18,184
---------- ---------- ---------- ----------
$ 81,814 $ 61,789 $ 54,005 $ 35,110
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average invested capital......................................... $ 519,261 $ 424,861 $ 395,365 $ 441,401
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Return......................................................... 15.8% 14.5% 13.7% 8.0%
RETURN ON AVERAGE EQUITY
Net income before extraordinary items............................ $ 64,724 $ 43,760 $ 36,319 $ 16,926
Average equity................................................... 207,728 155,188 161,765 196,376
Return......................................................... 31.2% 28.2% 22.5% 8.6%
RATIO OF EARNINGS TO FIXED CHARGES
Net income before extraordinary items............................ $ 64,724 $ 43,760 $ 36,319 $ 16,926
Add
Provisions for income taxes.................................... 45,164 31,819 26,798 13,869
Interest expense............................................... 29,016 31,138 30,759 33,061
Interest included in rental expense............................ 1,634 1,848 1,310 1,284
Amortization of capitalized interest........................... 459 610 319 469
Dividends received from equity investments..................... 801 877 790 441
Income from equity investments................................. (1,903) (1,452) (1,675) (1,540)
---------- ---------- ---------- ----------
Earnings as defined.............................................. $ 139,895 $ 108,600 $ 94,620 $ 64,510
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fixed charges
Interest expense............................................... $ 29,016 $ 31,138 $ 30,759 $ 33,061
Capitalized interest........................................... 1,614 1,428 - -
Interest included in rental expense............................ 1,634 1,848 1,310 1,284
---------- ---------- ---------- ----------
Total fixed charges.............................................. $ 32,264 $ 34,414 $ 32,069 $ 34,345
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Ratio of earnings to fixed charges............................. 4.3 3.2 3.0 1.9
CURRENT RATIO
Current assets................................................... $ 30,565 $ 23,426 $ 18,772 $ 17,471
Current liabilities.............................................. 58,402 54,851 28,544 32,050
Ratio.......................................................... 0.5 0.4 0.7 0.5
</TABLE>
<PAGE>
EXHIBIT 12 (CONTINUED)
PROMUS HOTEL CORPORATION
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------
<S> <C> <C> <C> <C>
1996 1995 1994 1993
------------ ------------ ---------- ----------
RATIO OF BOOK EQUITY TO DEBT
Book equity as of December 31................................ $ 248,089 $ 167,367 $ 143,008 $ 180,522
Total debt................................................... 243,970 229,757 189,258 173,378
Ratio...................................................... 1.0 0.7 0.8 1.0
RATIO OF MARKET EQUITY TO DEBT
Market equity as of December 31.............................. $ 1,522,699 $ 1,143,008 - -
Total debt................................................... 243,970 229,757 - -
Ratio...................................................... 6.2 5.0 - -
RATIO OF EBITDA TO INTEREST PAID
Net income before extraordinary items........................ $ 64,724 $ 43,760 $ 36,319 $ 16,926
Add/(less)
Income tax provision....................................... 45,164 31,819 26,798 13,869
Interest expense........................................... 29,016 31,138 30,759 33,061
Interest expense of nonconsolidated affiliates............. (11,218) (12,899) (12,749) (12,707)
Depreciation and amortization.............................. 24,942 24,063 21,226 25,203
Deferred finance charge amortization....................... (604) (785) (733) (846)
Amortization of debt discounts and premiums................ - (8) (45) (869)
Net earnings of and distributions from nonconsolidated
affiliates............................................... 807 (61) 2,969 2,819
------------ ------------ ---------- ----------
Earnings before interest, taxes, depreciation and
amortization (EBITDA)...................................... $ 152,831 $ 117,027 $ 104,544 $ 77,456
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Interest expense............................................. $ 29,016 $ 31,138 $ 30,759 $ 33,061
Add/(less)
Interest expense of nonconsolidated affiliates............. (11,218) (12,899) (12,749) (12,707)
Capitalized interest....................................... 1,614 1,428 - -
Net change in accruals..................................... 192 (1,117) - 125
Deferred finance charge amortization....................... (604) (785) (733) (846)
Amortization of debt discounts and premiums................ - (8) (45) (869)
Other...................................................... (154) (246) (143) (128)
------------ ------------ ---------- ----------
Interest paid............................................ $ 18,846 $ 17,511 $ 17,089 $ 18,636
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Ratio of EBITDA to interest paid........................... 8.1 6.7 6.1 4.2
RATIO OF DEBT TO EBITDA
Total debt................................................... $ 243,970 $ 229,757 $ 189,258 $ 173,378
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
EBITDA....................................................... $ 152,831 $ 117,027 $ 104,544 $ 77,456
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Ratio of total debt to EBITDA.............................. 1.6 2.0 1.8 2.2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Compound
Annual
Growth
(In thousands, except percentages) 1996 1995 1994 1993 Rate
<S> <C> <C> <C> <C> <C>
Operating Results
Revenues $266,625 $236,513 $222,561 $214,565 7.5%
Operating income before property transactions 123,874 101,648 91,762 64,758 24.1%
Operating income 128,841 103,590 92,388 66,103 24.9%
Income before income taxes and extraordinary items 109,888 75,579 63,117 30,795 52.8%
Net income 64,724 46,579 36,319 16,926 56.4%
EBITDA (a) 152,831 117,027 104,544 77,456 25.4%
Financial Position
Total assets $631,965 $519,809 $413,308 $438,016 13.0%
Current portion of long-term debt 288 278 533 1,052 (35.1)%
Long-term debt (b) 243,682 229,479 188,725 172,326 12.2%
Total equity 248,089 167,367 143,008 180,522 11.2%
Cash Flows
Provided by (used in)
Operating activities $84,796 $77,835 $58,187 $54,343
Investing activities (98,119) (102,837) 1,571 (895)
Financing activities
Advances from (to) Parent - 14,840 (60,975) (51,367)
Other 14,355 10,609 (219) (667)
Capital expenditures 157,543 115,714 18,379 20,885
<CAPTION>
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Financial Percentages and Ratios
Operating margin before property transactions 46.5% 43.0% 41.2% 30.2%
Operating margin 48.3% 43.8% 41.5% 30.8%
Return on revenues 24.3% 18.5% 16.3% 7.9%
Return on average invested capital 15.8% 14.5% 13.7% 8.0%
Return on average equity 31.2% 28.2% 22.5% 8.6%
Ratio of earnings to fixed charges 4.3 3.2 3.0 1.9
Current ratio 0.5 0.4 0.7 0.5
Ratio of book equity to total debt 1.0 0.7 0.8 1.0
Ratio of market equity to total debt 6.2 5.0 - -
Ratio of EBITDA to interest paid 8.1 6.7 6.1 4.2
Ratio of debt to EBITDA 1.6 2.0 1.8 2.2
</TABLE>
14
<PAGE>
(a) EBITDA, consisting of income before extraordinary items plus interest,
taxes, depreciation, amortization and cash distributions from nonconsolidated
affiliates less earnings from nonconsolidated affiliates, is a supplemental
financial measurement used by management, as well as by industry analysts, to
evaluate Promus Hotel Corporation's operations. However, EBITDA should not be
construed as an alternative to operating income (as an indicator of operating
performance) or to cash flows from operating activities (as a measure of
liquidity) as determined in accordance with generally accepted accounting
principles.
(b) Includes debt allocated to Promus Hotel Corporation by its Parent for
periods prior to the Spin-Off.
15
<PAGE>
PERFORMANCE STATISTICS
<TABLE>
<CAPTION>
Compound Compound
Number of Hotels Annual Number of Rooms/Suites Annual
------------------------------ Growth --------------------------------- Growth
1996 1995 1994 Rate 1996 1995 1994 Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Embassy Suites Company owned 9 9 9 - 2,025 2,025 2,025 -
Joint venture 22 23 23 (2.2)% 5,578 5,901 5,912 (2.9)%
Management
contract (a) 47 27 24 39.9 % 11,461 6,280 6,022 38.0 %
Franchised 58 55 51 6.6 % 13,583 12,529 11,756 7.5 %
- -----------------------------------------------------------------------------------------------------------------------------------
136 114 107 12.7 % 32,647 26,735 25,715 12.7 %
- -----------------------------------------------------------------------------------------------------------------------------------
Hampton Inn Company owned 12 14 15 (10.6)% 1,654 1,916 2,047 (10.1)%
Joint venture 19 19 19 - 2,376 2,376 2,376 -
Management
contract 5 4 4 11.8 % 678 464 464 20.9 %
Franchised 584 483 399 21.0 % 62,830 52,958 45,184 17.9 %
- -----------------------------------------------------------------------------------------------------------------------------------
620 520 437 19.1 % 67,538 57,714 50,071 16.1 %
- ---------------------------------------------------------------------------------------------------------------------------------
Homewood Suites Company owned 7 9 8 (6.5)% 800 1,024 932 (7.4)%
Management
contract 4 - - - 471 - - -
Franchised 26 21 18 20.2 % 2,628 2,071 1,949 16.1 %
- -----------------------------------------------------------------------------------------------------------------------------------
37 30 26 19.3 % 3,899 3,095 2,881 16.3 %
- -----------------------------------------------------------------------------------------------------------------------------------
Hampton Inn & Management
Suites contract 1 - - - 127 - - -
Franchised 15 5 - - 1,719 573 - -
- -----------------------------------------------------------------------------------------------------------------------------------
16 5 - - 1,846 573 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total System Company owned 28 32 32 (6.5)% 4,479 4,965 5,004 (5.4)%
Joint venture 41 42 42 (1.2)% 7,954 8,277 8,288 (2.0)%
Management
contract (a) 57 31 28 42.7 % 12,737 6,744 6,486 40.1 %
Franchised 683 564 468 20.8 % 80,760 68,131 58,889 17.1 %
- -----------------------------------------------------------------------------------------------------------------------------------
809 669 570 19.1 % 105,930 88,117 78,667 16.0 %
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Managed Franchised Total
---------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Embassy Vacation Resort properties 2 1 1 1 3 2
Resort (b) Timeshare units 164 48 207 207 371 255
Timeshare
intervals
available 8,364 2,448 10,557 10,557 18,921 13,005
Timeshare
intervals sold 3,098 1,523 1,426 281 4,524 1,804
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Compound Compound
Comparable System Hotels(c) Annual Total System Hotels Annual
----------------------------- Growth ------------------------------------- Growth
1996 1995 1994 Rate 1996 1995 1994 Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Embassy Suites Occupancy 75.2% 74.6% 75.0% 0.1 % 73.6% 74.2% 74.9% (0.9)%
ADR $108.22 $102.33 $96.66 5.8 % $107.36 $101.90 $97.28 5.1 %
RevPAS 81.41 76.38 72.51 6.0 % 79.00 75.61 72.86 4.1 %
- -----------------------------------------------------------------------------------------------------------------------------------
Hampton Inn Occupancy 73.6% 75.1% 75.0% (0.9)% 72.1% 73.7% 74.3% (1.5)%
ADR $ 60.85 $ 56.90 $53.61 6.5 % $ 60.84 $ 56.97 $53.46 6.7 %
RevPAR 44.78 42.75 40.23 5.5 % 43.85 42.01 39.74 5.0 %
- -----------------------------------------------------------------------------------------------------------------------------------
Homewood Suites Occupancy 77.2% 78.5% 79.2% (1.3)% 73.2% 76.9% 78.1% (3.2)%
ADR $ 88.57 $ 82.20 $76.12 7.9 % $ 90.40 $ 82.42 $76.38 8.8 %
RevPAS 68.41 64.53 60.31 6.5 % 66.14 63.37 59.67 5.3 %
- -----------------------------------------------------------------------------------------------------------------------------------
Hampton Inn & Occupancy - - - - 63.9% 59.4% - -
Suites ADR - - - - $ 73.41 $ 70.13 - -
RevPAS - - - - 46.89 41.65 - -
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Total System Room Revenues Compound
------------------------------------------------------------- Annual
(In thousands) 1996 1995 1994 Growth Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hampton Inn $ 997,422 $ 823,247 $ 677,803 21.3%
Embassy Suites 852,647 719,378 687,670 11.4%
Homewood Suites 84,492 68,353 62,080 16.7%
Hampton Inn & Suites 18,878 2,901 - -
- -------------------------------------------------------------------------------------------------------------------------
$ 1,953,439 $ 1,613,879 $ 1,427,553 17.0%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The December 31, 1995 numbers exclude four Crown Sterling Suites properties
with 1,076 suites being managed by Promus, but not yet converted to the
Embassy Suites brand. All 16 Crown Sterling Suites properties had been
converted to the Embassy Suites brand and included in these numbers as of
December 31, 1996.
(b) 1996 includes a resort under construction in the pre-sales phase.
(c) Excludes those hotels that had room additions or were not open for the
entire three year reporting period.
17
<PAGE>
FINANCIAL REVIEW
HIGHLIGHTS
Promus Hotel Corporation (Promus or the Company) achieved outstanding
financial results in 1996, as net income increased 40.7%, from a pro forma
$46.0 million in 1995 to $64.7 million in 1996. This performance resulted
primarily from strong growth in system room revenues, from $1.6 billion in
1995 to $2.0 billion in 1996, which in turn generated a 27.2% year over year
increase in franchise and management fees. The principal driver of this
earnings growth was unit growth, as Promus added a record 143 new hotels to
its systems in 1996. Another important contributor to financial performance
was a significant increase in the number of hotels under Promus management,
which increased 83.9% from 31 in 1995 to 57 in 1996. Growth in the franchise
and management components of the Company's business led to an increase in the
overall operating margin from 43.8% in 1995 to 48.3% in 1996, a higher margin
than any of our direct competitors. Promus' continued focus on its high margin
franchise business provides excellent results.
During 1996, Promus also improved its financial position and performance
statistics with return on average equity increasing from 28.2% to 31.2%, with
an increase of 30.6% in EBITDA from $117.0 million in 1995 to $152.8 million
in 1996, and EBITDA increasing to 8.1 times interest paid. Promus received an
upgrade in its investment grade rating by Standard & Poor's to BBB+ in 1996.
Since the Spin-Off, Promus has made significant capital investments to enhance
its return to shareholders. Over the past two years, Promus invested
$273.3 million to maintain product quality, foster growth and improve its
expanding operations. Promus' results coupled with continued financial strength
are evidence of the Company's commitment to be a financial performance leader in
our industry and to creating value for our shareholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
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), to a new publicly-traded entity, Promus Hotel Corporation. 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.
Through its wholly-owned subsidiary, Promus Hotels, Inc. (PHI), Promus owns,
operates and franchises the Embassy Suites, Hampton Inn, Hampton Inn & Suites
and Homewood Suites hotel brands primarily through three lines of business:
franchise; hotel operations, including management contracts; and hotel real
estate and joint venture investments. The Embassy Suites brand is an all-suite
hotel brand that management believes comprises the largest all-suite upscale
hotel system in the United States by number of hotel suites and system
revenue. The Hampton Inn brand offers a limited-facility hotel for the value-
conscious consumer and the Homewood Suites brand offers residential-style
accommodations designed for the extended-stay traveler. The Hampton Inn &
Suites brand is the newest Promus hotel brand which combines, in a single
hotel, Hampton style rooms with two-room suites. The Company also operates and
licenses an interval ownership system bearing the name Embassy Vacation Resort
(EVR).
Promus' primary focus is to develop, grow and support its franchise business
for all brands. Promus brand hotels are located in almost every state, the
District of Columbia and five foreign countries. Promus charges each
franchisee royalty fees of generally four percent of suite or room rentals.
System-wide room revenues generated by Company owned hotels and reported by
franchisees in 1996, 1995 and 1994 were $2.0 billion, $1.6 billion and
$1.4 billion, respectively. In addition, Promus earns a licensing fee for new
licenses granted to franchisees when the franchise is approved. Promus also
receives franchise fees on net interval sales and on suite rental revenues
related to EVR properties.
[Description of graph contained in document]
GROWTH IN FRANCHISE & MANAGEMENT FEES (IN THOUSANDS)
1994: $ 76,874
1995: $ 79,935
1996: $101,653
GROWTH IN RETURN ON AVERAGE EQUITY
1994: 22.5%
1995: 28.2%
1996: 31.2%
18 Promus Hotel Corporation
<PAGE>
Promus currently operates 128 Promus-brand hotels (including two EVR
properties). Company operated properties include wholly-owned, partially owned
through joint ventures and hotels managed for third parties. Promus has
followed an asset strategy to own and manage a mix of Promus hotels that can
impact profits and enhance its role as franchisor for its brands. Management
fee income is based on a percentage of gross revenues, profits, or both, at
the related managed property.
The principal factors affecting Promus' results are: continued growth in the
number of hotels; occupancy and room rates achieved by the hotel brands;
number and relative mix of owned, managed and franchised hotels; and Promus'
ability to manage costs. The number of rooms/suites at franchised and managed
properties and revenue per available room/suite (RevPAR/S) significantly
affect Promus' results because franchise royalty and management fees are based
upon a percentage of rooms/suites revenues. Increases in franchise and
management fee revenues have a favorable impact on Promus' operating margin
due to minimal incremental costs associated with these incremental revenues.
[Description of graph contained in document]
GROWTH IN SYSTEM REVENUES (IN BILLIONS)
1994: $1.4
1995: $1.6
1996: $2.0
GROWTH IN NET INCOME (IN THOUSANDS)
1994: $36,319
1995: $46,579
1996: $64,724
Actual historical results of operations for all three years were as follows
(in millions, except percentages and per share data):
<TABLE>
<CAPTION>
Percentage Increase
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 96 vs 95 95 vs 94
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 266.6 $ 236.5 $ 222.6 12.7% 6.2%
Operating income before
property transactions 123.9 101.6 91.8 21.9 10.7
Operating income 128.8 103.6 92.4 24.3 12.1
Net income 64.7 46.6 36.3 38.8 28.4
Earnings per share (a) 1.25 0.90 0.70 38.9% 28.6%
Operating margin 48.3% 43.8% 41.5% 4.5pts 2.3pts
</TABLE>
(a) For purposes of computing earnings per share on a comparable basis, the
weighted average shares outstanding for periods prior to the Spin-Off are
assumed to be equal to the actual common and common equivalent shares
outstanding on June 30, 1995.
Because Promus began operations as a public company on July 1, 1995, year
over year comparison of historical results is difficult. The most notable
differences between years relate to the incremental stand-alone public company
costs (incurred in the last six months of 1995 and all of 1996), and that
prior to the Spin-Off, interest was allocated to Promus from Parent at
Parent's higher overall borrowing rate. Results of operations on a pro forma
basis were as follows (in millions, except percentages and per share data):
<PAGE>
<TABLE>
<CAPTION>
Percentage Increase
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 96 vs 95 95 vs 94
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 266.6 $ 236.6 $ 224.1 12.7% 5.6%
Operating income before
property transactions 123.9 98.4 83.7 25.9 17.6
Operating income 128.8 100.4 84.4 28.3 19.0
Income before property
transactions and
extraordinary items, net
of tax 61.8 42.1 32.0 46.8 31.6
Net income 64.7 46.0 32.4 40.7 42.0
Earnings per share (a) 1.25 0.89 0.63 40.4% 41.3%
Operating margin before
property transactions 46.5% 41.6% 37.3% 4.9pts 4.3pts
Operating margin 48.3% 42.4% 37.7% 5.9pts 4.7pts
</TABLE>
(a) For purposes of computing earnings per share on a comparable basis, the
weighted average shares outstanding for periods prior to the Spin-Off are
assumed to be equal to the actual common and common equivalent shares
outstanding on June 30, 1995.
19
<PAGE>
[Description of graph contained in document]
GROWTH IN PRO FORMA EPS
1994: $0.63
1995: $0.89
1996: $1.25
GROWTH IN PRO FORMA OPERATING MARGIN
1994: 37.7%
1995: 42.4%
1996: 48.3%
The increases in revenues, operating income and operating margins are
primarily a function of the approval and addition of new franchised hotels,
additional management contracts (primarily in 1996 as a result of the FelCor
Agreements--see Hotel Brand Development), system-wide increases in ADR and
cost containment. The 1996 sales of three company owned hotels (a Hampton Inn
and two Homewood Suites) and the 1995 sale of a Hampton Inn hotel impact year
over year comparison. Additionally, a company owned Embassy Suites restaurant
was leased to a third party in 1994 and a restaurant lease was terminated in
1995 which also impacts the year over year comparisons.
Company owned hotel revenues for 1996 increased 3.4% or $4.5 million over
1995, while company owned hotel expenses increased only 1.6% or $1.3 million
over the same period. For 1995, company owned hotel revenues increased
approximately 4.0% or $5.0 million over 1994, while the related operating
expenses actually decreased. Although comparable system occupancy rates
generally decreased slightly overall in 1996, average daily rates (ADR) have
consistently increased, resulting in higher RevPAR/S. On a comparable hotel
basis (which excludes those hotels that had room additions or were not open
for the entire three year reporting period), 1996 RevPAR/S increased 6.6%,
4.7% and 6.0% over 1995 at Embassy Suites, Hampton Inn and Homewood Suites
hotels, respectively. Over the past three years, comparable hotels have posted
two year compound annual growth rates in RevPAR/S of 6.0%, 5.5% and 6.5% for
Embassy Suites, Hampton Inn and Homewood Suites hotels, respectively.
Franchise and management fees increased 27.2% or $21.7 million over 1995. As
of December 31, 1996, Promus' combined hotel system had grown to include 809
properties and 105,930 rooms/suites (not including EVR properties),
representing 20.9% and 20.2% increases over December 31, 1995, respectively.
System expansion plus continued year over year RevPAR/S increases have helped
generate a compound annual growth rate in total system room revenues of 17.0%
from 1994 to 1996. Due in large part to the acquisition and final conversion
of the 16 Crown Sterling Suites hotel properties by FelCor in 1996 (see Hotel
Brand Development), rooms under management contracts as of December 31, 1996
increased 88.9% over prior year. This continued unit growth in the franchise
systems and the expansion of hotels under management contracts, coupled with
the continued focus on rate growth and cost management, were the primary
contributors to the Company's higher revenues, margins and operating income as
compared to prior year.
Property transactions for 1996 include gains on the sale of three company
owned hotels to Equity Inns, Inc. (Equity) and Winston Hotels, Inc. (Winston)
(see Hotel Brand Development), and the gain related to the sale of the
Company's interest in an Embassy Suites joint venture hotel. For 1995,
property transaction gains resulted primarily from the sale of a company owned
Hampton Inn hotel to a franchisee, while in 1994 they were generated by the
sale of a Hampton Inn hotel and the expiration of certain guarantees and
contingencies that had caused a portion of prior years' gains to be deferred.
In all years, these property transaction gains were partially offset by
miscellaneous asset write-offs.
Net income for 1996 and 1995 includes approximately $3.4 million and
$2.1 million, respectively, of nonrecurring pretax operating income before
property transactions from specific transactions related to the restructuring
of two joint venture Embassy Suites hotels. Additionally, net income for 1994
includes approximately $4.2 million of pretax nonrecurring operating income
before property transactions related primarily to franchise terminations and
the release of certain contingencies. Excluding the impact of the nonrecurring
items and property transactions discussed above, and extraordinary items, 1996
net income on a pro forma basis increased 46.4% over 1995, and 38.2% from 1994
to 1995.
20 Promus Hotel Corporation
<PAGE>
The following comparison of expenses and other items is based on pro forma
results for 1995 and 1994 (in millions, except percentages):
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 96 vs 95 95 vs 94
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest expense, net of
interest capitalized $ (29.0) $ (28.9) $ (29.6) 0.3 % (2.4)%
Dividend income 5.7 0.5 - N/M N/M
Interest and other income 4.4 2.6 1.5 69.2 % 73.3 %
Extraordinary items, net of
income tax - 2.8 - N/M N/M
Effective tax rate 41.1% 42.1% 42.5% (1.0)pts (0.4)pts
</TABLE>
Interest expense was relatively flat year over year due primarily to a
decrease in interest expense attributable to the Company's nonconsolidated
subsidiaries, offset by increases in interest related to deferred compensation
balances and the revolving credit facility. Although the interest rates
obtained by the Company during 1996 were favorable to 1995 rates, average
outstanding debt balances were higher. The decrease in nonconsolidated
subsidiaries' interest expense resulted primarily from the joint venture
restructurings described above as the properties' debt was replaced with
additional equity investments. Also contributing to the decrease are the more
favorable terms that have been secured on several other joint ventures' debt
instruments over the past year. The decrease in interest expense from 1994 to
1995 was primarily attributable to lower rates of interest partially offset by
higher average debt balances allocated to Promus from Parent before the Spin-
Off and increases in interest attributable to deferred compensation balances.
Dividend income in 1996 and 1995 relates to Promus' investments in three
Real Estate Investment Trusts (REITs) (see Hotel Brand Development). Interest
and other income has increased due primarily to increased mezzanine loans with
franchisees and interest charged on Promus' investment in the franchise
system.
During 1995, two Embassy Suites hotels in which the Company has a 50 percent
interest realized extraordinary gains related to the early payoff and
forgiveness of a portion of their existing debt. The cash to fund the early
debt payoffs was made available through additional capital contributions to
the joint ventures of approximately $10 million from each of its partners.
Promus' share of these nonconsolidated affiliates' gains, net of applicable
income tax expense, was $2.8 million.
The effective tax rate for all periods is higher than the federal statutory
rate primarily due to state income taxes.
Hotel Brand Development
Overall
There were 140 net hotels (17,813 rooms) added to the Promus hotel systems
during 1996 compared with 99 (9,450 rooms) in 1995. This continued development
growth is impressive considering that, per the latest available information
provided by Smith Travel Research as of December 31, 1996, Promus hotel brands
had a 3.0% share of the entire United States room supply and accounted for
12.7% of new rooms, excluding casino related hotel rooms, added to the market
from ground-up construction during 1996. The acquisition and final conversion
of the Crown Sterling Suites hotels to the Embassy Suites brand was the
primary reason for the brand adding 22 hotels and 5,912 suites in 1996,
representing 19.3% and 22.1% increases over 1995, respectively. The Hampton
Inn, Hampton Inn & Suites and Homewood Suites brands together added a net 118
hotels and 11,901 rooms in 1996, representing 21.3% and 19.4% increases over
1995, respectively.
Promus increased its development pipeline at year end 1996 by 20.2% to 351
properties either in the design or construction phase. As of December 31,
1996, 145 properties were under construction (excluding EVR properties), 141
of which will operate under franchise licenses: 95 Hampton Inn hotels; 12
Embassy Suites hotels; 17 Homewood Suites hotels and 17 Hampton Inn & Suites
hotels. The 145 properties will add nearly 16,000 rooms or suites to the
Promus hotel system. The remaining 206 hotels in the pipeline were approved
and in the design phase at December 31, 1996, although construction had not
yet begun.
Homewood Suites and Hampton Inn & Suites
Brand Development
Promus' internal development plans over the next several years will be
focused on growing the newer and therefore less mature Homewood Suites and
Hampton Inn & Suites hotel brands. During 1996, Promus opened eight Homewood
Suites hotels and eleven Hampton Inn & Suites hotels. Of the 206 hotels in
the design phase at December 31, 1996, 29 were Homewood Suites and another 29
were Hampton Inn & Suites. The Company plans to follow its overall strategy
of growing these brands through franchise and management contracts, but
recognizes some franchisees' difficulty in obtaining conventional financing
for such projects. As a result, the Company has initiated several programs
designed to bridge the gap between the financing that is currently available
and the equity required by the prospective owners.
During 1996, Promus entered into strategic development alliances with Equity
and Winston whereby Promus will invest up to $15.0 million in the common stock
of both the Equity and Winston REITs as they purchase existing or to be
constructed
21
<PAGE>
FINANCIAL REVIEW (Continued)
Promus hotels from the Company. Promus currently plans to build
approximately seven to ten Homewood Suites and/or Hampton Inn & Suites
properties per year at an average cost of $7-10 million per property. Of those
hotels built each year, several are expected to be offered for sale to Equity
and Winston at Promus' cost of construction. Promus will receive 20-year
license agreements and 10-year management contracts for all hotels developed
or purchased pursuant to these alliances.
During 1996, two existing company owned properties were sold to Equity and
one to Winston for cash proceeds of $25.5 million. Additionally, two hotels
were developed for and sold to Equity at Promus' cost of construction. As a
result of these property sales, Promus has invested $7.1 million and
$1.5 million in the common stock of the Equity and Winston REITs, respectively.
Based on the market value of that common stock as of December 31, 1996, Promus
recorded an unrealized gain of $1.1 million (before tax) directly to
stockholders' equity.
Promus has also developed a mezzanine financing program. Under the program,
Promus provides conservatively underwritten secondary financing to
franchisees. A minimum of 20 percent equity is required by the borrower, and
the investment must meet certain defined underwriting criteria. The terms of
the first mortgage and the mezzanine financing must be acceptable to Promus
and the first mortgage lender, with whom Promus will enter into an inter-
creditor agreement. Promus provided $6.9 million in mezzanine loans during
1996, and anticipates providing an additional $16.0 million in mezzanine loans
during 1997. Additionally, $2.8 million was repaid during the year.
Outstanding loans bear interest at rates ranging from 10.0% to 10.25%.
Embassy Suites Brand Development
In May 1995, Promus entered into a Subscription Agreement with FelCor Suite
Hotels, Inc. and FelCor Suites Limited Partnership (FelCor) whereby Promus
purchased $25.0 million in FelCor limited partnership interests to help fund
the partnership's acquisition of all-suite upscale hotels converted to the
Embassy Suites brand. In September 1995, Promus entered into a second
agreement with FelCor in connection with FelCor's agreement to acquire the
Crown Sterling Suites hotel chain. FelCor has converted 16 of the Crown
Sterling Suites hotels acquired (over 4,000 suites) to the Embassy Suites
brand. In consideration, Promus made a $50.0 million investment in FelCor
common stock and has guaranteed repayment of up to $25.0 million of a third
party loan advanced to FelCor. Hotels converted to the Embassy Suites brand
under these agreements operate under 20-year license agreements, and 10-year
management contracts have been awarded to Promus. Subject to some
restrictions, the limited partnership interests may be converted to shares of
FelCor common stock on a one-for-one basis and the common stock may be sold on
the open market.
As of December 31, 1996, FelCor had acquired 24 all-suite hotel properties
(including 16 Crown Sterling Suites hotels) under these agreements. Of the
eight non-Crown Sterling Suites hotels acquired, five had been Embassy Suites
hotels before their acquisition, and two of those five were already being
managed by Promus. Based on the market value of FelCor common stock as of
December 31, 1996, Promus has recorded an unrealized gain of $26.7 million
(before tax) directly to stockholders' equity. This unrealized gain, as well
as the unrealized gain on the Equity and Winston common stock investments,
will change with increases or decreases in the market value of the common
stock; however, no earnings impact will be realized until the stock is
actually sold.
Including the properties acquired pursuant to these agreements, FelCor owned
or had an interest in 40 Embassy Suites hotels as of December 31, 1996, which
represents 4.9% and 9.3% of all Promus brand hotels and hotel rooms,
respectively. Those 40 hotels contributed approximately 10.6% of total system
revenues and 11.4% of the Company's franchise and management fee revenue for
1996. Subsequent to year end, FelCor acquired an ownership interest in an
additional eight Embassy Suites hotels that are already managed by Promus.
Promus has also entered into an agreement with Remington Hotel Corporation
and Nomura Asset Capital Corporation to develop ten Embassy Suites hotels that
will incorporate a new 150-200 suite prototype design. Promus will provide a
portion of the total project capital through a form of mezzanine financing.
Investments pursuant to this agreement are expected to total approximately
$6.0 million in 1997.
The Company has two managed and one franchised EVR properties. The resort at
Poipu Point on the Hawaiian island of Kauai was converted to the EVR brand and
has 207 suites. The resort in Orlando, Florida, which is under construction,
has 102 suites open and will add an additional 268 suites over the next four
years. Construction is underway on the resort in South Lake Tahoe, California,
which will add 210 suites over the next five years. Sales of timeshare
intervals are underway at all three resorts.
Promus has entered into a five-year joint venture development agreement with
Vistana Development, Ltd. (Vistana) to acquire, develop, manage and market
vacation ownership resorts in North America under Promus brand names. Vistana
will serve as managing partner and project developer, and will market the
timeshare units. Promus will serve as franchisor and manager of these joint
venture properties. Promus will own a 50 percent interest in each project.
Capital Spending
Investment in Franchise System
Promus made additional investments in its franchise system infrastructure
during 1996 relating primarily to the addition of new system hotels,
enhancements made to the systems already in place at existing hotels and the
construction of a new reser-
22 Promus Hotel Corporation
<PAGE>
vation call center in Tampa, Florida. During 1996, the Company invested
approximately $15.0 million and plans to spend an additional $7.0 million in
1997 on franchise system expansion and enhancements.
Other
Ongoing refurbishment of Promus' existing company owned hotel properties to
maintain the quality standards set for those properties will continue in 1997
at an estimated annual cost of approximately $12 million. During 1996,
$10.6 million in costs were incurred for hotel refurbishment.
During 1996, Promus incurred $12.7 million in costs to renovate its
corporate headquarters. An additional $3 million is estimated to be spent on
the renovation in 1997.
Cash necessary to finance projects currently under development, as well as
additional projects to be developed by Promus, will be made available from
operating cash flows, the Promus Facility (see Liquidity and Capital
Resources), joint venture partners, specific project financing, sales of
existing hotel assets and, if necessary, Promus debt and equity offerings.
Promus' capital expenditures totaled $157.5 million during 1996. The Company
expects to spend approximately $150 million during 1997 to fund hotel and EVR
development, to refurbish existing facilities, for investments in the common
stock of Equity and Winston, for hotel business systems, to make advances
under mezzanine loan agreements and for other corporate related projects.
However, some of these expenditures are expected to be offset by the receipt
of proceeds from additional hotel sales to Equity and Winston.
Liquidity and Capital Resources
The accompanying financial statements, for periods before the Spin-Off,
represent the portion of Parent's historical revenues, expenses, assets,
liabilities and cash flows associated with the Hotel Business. The 1995 and
1994 year to date results of operations and cash flows do not provide accurate
indications of Promus' future results as a separate corporation. The most
significant items that will affect liquidity and capital resources as a result
of the Spin-Off are incremental costs associated with operating as a stand
alone company, a decrease in the Company's average borrowing rate, and Promus'
payment of state and federal income taxes and interest expense subsequent to
the Distribution (Parent historically paid both).
Cash flows from operating activities were $84.8 million, $77.8 million and
$58.2 million in 1996, 1995 and 1994, respectively. Year over year comparisons
are difficult due primarily to the fact that prior to the Spin-Off, income
taxes and interest expense were assumed to be paid in the period incurred. If
those amounts had also been paid in the year they were incurred subsequent to
the Spin-Off, cash flows from operating activities would have been
$92.8 million, $73.5 million and $58.2 million in 1996, 1995 and 1994,
respectively, resulting in increases over the prior year of 26.3% in both 1996
and 1995, respectively.
[Description of graph contained in document]
GROWTH IN EBITDA (IN THOUSANDS)
1994: $104,544
1995: $117,027
1996: $152,831
Earnings before interest, taxes, depreciation and amortization plus cash
distributions from nonconsolidated affiliates less earnings from
nonconsolidated affiliates (EBITDA) is a supplemental financial measurement
used by management as well as by industry analysts to evaluate operations. It
should not be construed as an alternative to operating income (as an indicator
of operating performance) or to cash flows from operating activities (as a
measure of liquidity) as determined in accordance with generally accepted
accounting principles. A comparison of EBITDA and the related margins is as
follows (dollars in millions):
<TABLE>
<CAPTION>
Percentage Increase
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 96 vs 95 95 vs 94
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EBITDA $ 152.8 $ 117.0 $ 104.5 30.6% 12.0%
EBITDA margin 57.3% 49.5% 47.0% 7.8pts 2.5pts
EBITDA to interest paid 8.1x 6.7x 6.1x 1.4pts 0.6pts
</TABLE>
On December 31, 1996, the Company had a working capital deficit of
$27.8 million, which is a $3.6 million improvement over the deficit at
December 31, 1995. The working capital deficit results primarily from Promus'
cash management program whereby all excess cash is used to pay down amounts
outstanding under the Promus Facility. Therefore, the Company does not believe
that the current ratio is an appropriate measure of its short-term liquidity
without considering availability under the Promus Facility.
23
<PAGE>
FINANCIAL REVIEW (Continued)
During 1995 the Company entered into the Promus Facility which consists of
two agreements, the significant terms of which are as follows:
<TABLE>
<CAPTION>
Total Maturity Interest Facility
Facility Date Rate Fees
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Base Rate, as defined, or 0.10% of the total facility
Five-Year Revolver $300,000,000 November 1, 2001 LIBOR +22.5 basis points
Base Rate, as defined, or 0.08% of the total facility
Extendible Revolver $ 50,000,000 June 4, 1997 LIBOR +24.5 basis points
</TABLE>
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) that is based
on the more favorable of Promus' current credit rating (recently upgraded by
Standard & Poor's to BBB+) or the 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 December 31, 1996 and 1995, Promus was
in compliance with all such covenants.
The Five-Year Revolver includes a sublimit for letters of credit of
$20.0 million. At December 31, 1996, approximately $12.4 million in letters of
credit were outstanding under this agreement (related primarily to the
Company's self-insurance reserves). There was approximately $94.5 million of
availability under the Promus Facility as of December 31, 1996. The remaining
borrowing capacity available under the Promus Facility is available for
working capital, hotel development and other general corporate purposes. Both
the Extendible Revolver and the Five-Year Revolver are unsecured.
As of December 31, 1996, Promus was a party to several interest rate swap
agreements that bear a total notional amount of $100.0 million. The effect of
the swap agreements was to convert a portion of the Company's variable rate
debt under the Promus Facility to a fixed rate of interest. The weighted
average effective fixed rate pursuant to the agreements, which expire between
December 1998 and March 2000, was approximately 7.2% at December 31, 1996.
The Company has filed a shelf registration for up to $300 million in debt
securities with the Securities and Exchange Commission. The securities
issuable under the registration statement may be offered from time to time in
one or more series, in amounts, at prices and on terms to be determined at the
time of the offerings.
Relationship With Parent
For the purpose of governing certain of the ongoing relationships between
Promus and Parent after the Distribution and to provide mechanisms for an
orderly transition, Parent and Promus have entered into various agreements and
adopted policies to govern their future relationship. Management believes that
the agreements are fair to both parties and contain terms 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 the Distribution).
Tax Sharing Agreement
In connection with the Spin-Off, Promus 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 Promus' business for tax years prior to the
Distribution and with respect to certain tax attributes of Promus 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
Parent and Promus 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; Promus will reimburse
Parent for the portion of such adjustments relating to the Hotel Business).
Promus is responsible for filing returns and paying taxes for periods
beginning after the Spin-Off.
Effects of Inflation and Current Economic Condition
Generally, Promus has not experienced any significant negative effect on its
hotels and food and beverage operations because of inflation. To date, Promus
has been able to increase rates and prices and thereby pass on the effects of
inflationary cost increases. Although competitive conditions may limit the
industry's future ability to raise room rates at the rate of inflation,
management believes that each of its hotel brands has rate growth potential in
excess of the inflation rate. Promus will continue to emphasize cost
containment and productivity improvement programs. Inflation tends to increase
the underlying value of Promus' real estate and management and franchise
contracts.
Although significant growth in the general economy is not expected for 1997,
moderate but stable growth is anticipated in the hotel industry, as demand is
increasing at a greater rate than supply. Promus hotel brands lead the
industry in the percentage of guests who intend to make return visits, and in
guest satisfaction, due largely to the 100% Satisfaction Guarantee offered
unconditionally throughout the entire Promus hotel system.
24 Promus Hotel Corporation
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
Promus is responsible for preparing the financial statements and related
information appearing in this report. Management believes that the financial
statements present fairly its financial position, its results of operations
and its cash flows in conformity with generally accepted accounting
principles. In preparing its financial statements, Promus is required to
include amounts based on estimates and judgments which it believes are
reasonable under the circumstances.
Promus maintains accounting and other control systems designed to provide
reasonable assurance that financial records are reliable for purposes of
preparing financial statements and that assets are properly accounted for and
safeguarded. Compliance with these systems and controls is reviewed through a
program of audits by an internal auditing staff. Limitations exist in any
internal control system, recognizing that the system's cost should not exceed
the benefits derived.
The Board of Directors pursues its responsibility for Promus' financial
statements through its Audit Committee, which is composed solely of directors
who are not officers or employees of Promus. The Audit Committee meets from
time to time with the independent public accountants, management and the
internal auditors. Promus' internal auditors report directly to, and the
independent public accountants have access to, the Audit Committee, with and
without the presence of management representatives.
Michael D. Rose
Chairman of the Board
Jeffery M. Jarvis
Vice President, Controller &
Chief Accounting Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Promus Hotel Corporation:
We have audited the accompanying consolidated balance sheets of Promus Hotel
Corporation (a Delaware corporation) and subsidiaries (Promus) as of
December 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years ended
December 31, 1996. These financial statements are the responsibility of Promus'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Promus as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each
of the three years ended December 31, 1996, in conformity with generally
accepted accounting principles.
[Arthur Andersen LLP]
Memphis, Tennessee
February 5, 1997
25
<PAGE>
CONSOLIDATED BALANCE SHEETS
As of December 31
(In thousands, except share amounts) 1996 1995
--------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 3,700 $ 2,668
Receivables, including notes
receivable of $264 and $497, less
allowance for doubtful accounts of
$1,180 and $1,172 18,307 14,837
Deferred income taxes (Note 6) 932 3,492
Prepayments and other (Note 3) 7,626 2,429
--------- ---------
Total current assets 30,565 23,426
--------- ---------
Land, buildings, furniture and
equipment
Land 56,231 60,818
Buildings and improvements 255,495 259,224
Furniture, fixtures and equipment 127,346 107,139
--------- ---------
439,072 427,181
Less: accumulated depreciation (118,659) (101,534)
--------- ---------
320,413 325,647
Investments in and advances to
nonconsolidated affiliates (Note 11) 186,766 90,506
Investment in franchise system 48,750 37,899
Deferred costs and other 45,471 42,331
--------- ---------
$ 631,965 $ 519,809
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 20,753 $ 18,202
Accrued expenses (Note 3) 37,361 36,371
Current portion of long-term debt
(Note 4) 288 278
--------- ---------
Total current liabilities 58,402 54,851
--------- ---------
Long-term debt (Note 4) 243,682 229,479
Deferred credits and other 40,834 36,282
Deferred income taxes (Note 6) 40,958 31,830
--------- ---------
383,876 352,442
--------- ---------
Commitments and contingencies (Notes 5
through 7)
Stockholders' equity (Note 9)
Common stock, $0.10 par value,
360,000,000 shares authorized,
51,399,117 and 51,371,152 shares
outstanding, net of 5,698 and
2,626 shares held in treasury 5,140 5,137
Capital surplus 136,513 136,057
Retained earnings 90,073 25,349
Deferred compensation related to
restricted stock (Note 8) (598) (998)
Unrealized gain on marketable equity
securities, net of related
deferred tax liability of $10,844
and $1,165 16,961 1,822
--------- ---------
248,089 167,367
--------- ---------
$ 631,965 $ 519,809
========= =========
The accompanying notes are an integral part of these consolidated balance
sheets.
26 Promus Hotel Corporation
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31
(In thousands) 1996 1995 1994
-------- -------- --------
Revenues
Company owned hotels
Rooms $121,000 $116,094 $110,205
Food and beverage 6,353 7,180 8,001
Other 7,190 6,805 6,879
Franchise and management fees 101,653 79,935 76,874
Other 30,429 26,499 20,602
-------- -------- --------
Total revenues 266,625 236,513 222,561
-------- -------- --------
Operating expenses
Company owned hotels
Rooms 58,823 56,228 56,952
Food and beverage 5,982 6,832 7,760
Other 12,452 12,946 12,547
Other operating expenses 26,182 24,111 26,764
Depreciation expense 22,246 20,890 18,829
Corporate expense 17,066 13,858 7,947
-------- -------- --------
Total operating expenses 142,751 134,865 130,799
-------- -------- --------
Operating income before property
transactions 123,874 101,648 91,762
Property transactions 4,967 1,942 626
-------- -------- --------
Operating income 128,841 103,590 92,388
Interest expense, net of interest
capitalized (Notes 4 and 11) (29,016) (31,138) (30,759)
Dividend income 5,713 547 -
Interest and other income 4,350 2,580 1,488
-------- -------- --------
Income before income taxes and
extraordinary items 109,888 75,579 63,117
Provision for income taxes (Note
6) (45,164) (31,819) (26,798)
-------- -------- --------
Income before extraordinary items 64,724 43,760 36,319
Extraordinary items, net of income
tax of $1,635 (Note 10) - 2,819 -
-------- -------- --------
Net income $ 64,724 $ 46,579 $ 36,319
======== ======== ========
Earnings per share $1.25 (a) (a)
======== ======== ========
(a) Not applicable; see Note 2 (Earnings Per Share).
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31
(Note 9)
<TABLE>
<CAPTION>
Deferred
Compensation Unrealized
Related to Gain on
Common Stock Restricted Marketable Parent
---------------- Capital Retained Stock Equity Company
(In thousands) Shares Amount Surplus Earnings (Note 8) Securities Investment Total
------ ------ ------- -------- ------------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--December 31,
1993 - $ - $ - $ - $ - $ - $ 180,522 $180,522
Net income - - - - - - 36,319 36,319
Intercompany activity
with Parent - - - - - - (73,833) (73,833)
------- ------ ------- -------- ------------ ---------- ---------- --------
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 - - - - - - (24,656) (24,656)
Spin-Off of the
Company (Note 1) 51,352 5,135 135,801 - (1,354) - (139,582) -
Shares issued under
incentive
compensation plan 8 1 174 - (175) - - -
------- ------ ------- -------- ------------ ---------- --------- --------
Balance--June 30, 1995 51,360 5,136 135,975 - (1,529) - - 139,582
Net income--July 1,
1995 through
December 31, 1995 - - - 25,349 - - - 25,349
Net shares issued
under incentive
compensation plans,
including income tax
benefit of $97 11 1 82 - 531 - - 614
Unrealized gain on
marketable equity
securities, net of
related deferred tax
liability of $1,165 - - - - - 1,822 - 1,822
------- ------ ------- -------- ------------ ---------- --------- --------
Balance--December 31,
1995 51,371 5,137 136,057 25,349 (998) 1,822 - 167,367
Net income - - - 64,724 - - - 64,724
Net shares issued
under incentive
compensation plans,
including income tax
benefit of $130 28 3 456 - 400 - - 859
Unrealized gain on
marketable equity
securities, net of
related deferred tax
liability of $9,679 - - - - - 15,139 - 15,139
------- ------ -------- -------- ---------- ---------- ---------- --------
Balance--December 31,
1996 51,399 $5,140 $136,513 $90,073 $ (598) $16,961 $ - $248,089
======= ====== ======== ======== ========== ========== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28 Promus Hotel Corporation
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
(Note 12)
(In thousands) 1996 1995 1994
-------- --------- --------
Cash flows from operating
activities
Net income $ 64,724 $ 46,579 $ 36,319
Adjustments to reconcile net
income to cash flows from
operating activities
Extraordinary items - (4,454) -
Depreciation and amortization 24,942 24,063 21,226
Other noncash items (4,869) (2,217) (2,762)
Equity in earnings and
distributions from
nonconsolidated affiliates 807 (61) 2,969
Net gains from property
transactions (3,107) (2,159) (280)
Net change in long-term
accounts 4,826 2,089 5,637
Net change in working capital
accounts (2,527) 13,995 (4,922)
-------- --------- --------
Cash flows provided by
operating activities 84,796 77,835 58,187
-------- --------- --------
Cash flows from investing
activities
Land, buildings, furniture and
equipment additions (56,301) (55,872) (13,626)
Proceeds from property
transactions 43,537 7,843 19,164
Investments in and advances to
nonconsolidated affiliates (76,835) (47,832) (1,657)
Advances under Mezzanine loan
agreements (6,887) (7,899) (1,000)
Repayments under Mezzanine loan
agreements 2,750 1,500 -
Proceeds from sale of equity
investments 2,224 - -
Net investment in franchise
system (17,520) (4,111) (2,096)
Recovery of investment in
franchise system 6,703 4,249 3,507
Other 4,210 (715) (2,721)
-------- --------- --------
Cash flows (used in)
provided by investing
activities (98,119) (102,837) 1,571
-------- --------- --------
Cash flows from financing
activities
Net borrowings under revolving
credit facility 14,500 10,600 -
Debt retirements (286) (284) (219)
Advances from (to) Parent - 14,840 (60,975)
Other 141 293 -
-------- --------- --------
Cash flows provided by (used
in) financing activities 14,355 25,449 (61,194)
-------- --------- --------
Net increase (decrease) in cash
and cash equivalents 1,032 447 (1,436)
Cash and cash equivalents,
beginning of year 2,668 2,221 3,657
-------- --------- --------
Cash and cash equivalents, end of
year $ 3,700 $ 2,668 $ 2,221
======== ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
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), to a new publicly-traded entity, Promus Hotel Corporation
(Promus 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.
Through its wholly-owned subsidiary (Promus Hotels, Inc.), Promus owns,
operates and franchises the Embassy Suites, Hampton Inn, Hampton Inn & Suites,
and Homewood Suites hotel brands primarily through three lines of business:
franchise; hotel operations, including management contracts; and hotel real
estate and joint venture investments. The Embassy Suites brand is a full-
service hotel brand that management believes comprises the largest all-suite
upscale hotel system in the United States by number of suites and system
revenue. The Hampton Inn brand is a limited-service hotel for the value-
conscious consumer and the Homewood Suites brand offers residential-style
accommodations designed for the extended stay traveler. The Hampton Inn &
Suites brand is the newest Promus hotel brand that combines, in a single
hotel, Hampton style rooms with two-room suites. The Company also operates and
licenses an interval ownership system bearing the name Embassy Vacation Resort
(EVR).
Promus' primary focus is to develop, grow and support its franchise business
for all brands. Promus hotel brands are located in virtually every state, the
District of Columbia and five foreign countries. Promus charges each
franchisee royalty fees of generally four percent of suite or room rentals.
System-wide room revenues generated by company owned hotels and reported by
franchisees in 1996, 1995 and 1994 were $2.0 billion, $1.6 billion and
$1.4 billion, respectively. In addition, Promus earns a licensing fee for new
licenses granted to franchisees when the franchise is approved. Promus also
receives franchise fees on net interval sales and on suite revenue related to
EVR properties.
Promus currently operates more than 125 Promus-brand hotels. Company
operated properties include wholly-owned, partially owned through joint
ventures and hotels managed for third parties. Promus has followed an asset
strategy to own and manage a mix of Promus hotels that can impact profits and
enhance its role as franchisor. Management fee income is based on a percentage
of gross revenues, profits, or both at the related managed property.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying financial statements for periods before the Spin-Off,
represent the portion of Parent's historical revenues, expenses, assets,
liabilities and cash flows associated with the Hotel Business. The preparation
of these financial statements required the use of certain estimates by
management in determining the Company's assets, liabilities, revenues and
expenses.
All significant intercompany accounts and transactions have been eliminated.
Investments in 50% or less owned companies and joint ventures over which
Promus has the ability to exercise significant influence are accounted for
using the equity method. Promus reflects its share of income before interest
expense and extraordinary gain of these nonconsolidated affiliates in revenues
- -other. Promus' proportionate share of interest expense and extraordinary gain
of such nonconsolidated affiliates is included in interest expense and
extraordinary items, respectively, in the consolidated statements of income
(see Note 11 for combined summarized financial information regarding these
nonconsolidated affiliates). Management believes Promus' inclusion of its
proportionate share of the interest expense of its equity investees in
interest expense is the preferable presentation due to the nature of its
equity investments.
Cash Equivalents
Cash equivalents are highly liquid investments with a maturity of less than
three months and are stated at the lesser of cost or market.
Land, Buildings, Furniture and Equipment
Land, buildings, furniture and equipment are stated at cost. Land includes
land held for future development or disposition which totaled $7.4 million and
$9.6 million at December 31, 1996 and 1995, respectively. Improvements and
extraordinary repairs that extend the life of the asset are capitalized.
Maintenance and repairs are expensed as incurred. Construction in progress,
which is reflected in buildings and improvements in the accompanying
consolidated balance sheets, was $32.2 million and $20.2 million at
December 31, 1996 and 1995, respectively. Interest expense is capitalized on
constructed assets at Promus' overall weighted average borrowing rate. The
Company capitalized interest of $1.6 million and $1.4 million in 1996 and
1995, respectively. No material amounts of capitalized interest were recorded
during 1994.
30 Promus Hotel Corporation
<PAGE>
Depreciation expense is calculated using the straight-line method over the
estimated useful life of the assets or over the related lease term, as
follows:
Buildings and improvements 10 to 40 years
Furniture, fixtures and equipment 2 to 15 years
Investment in Franchise System
Promus' investment in franchise system includes the costs for computer
systems to operate the centralized marketing and reservation center and a
property management system that interacts with several operational software
packages which are available to each Promus franchised hotel. Promus is
reimbursed for these costs by the respective brand system fund over their
estimated useful lives. Generally, the owner of each hotel, including Promus'
company owned hotels, contributes 3.5 to 4.0 percent of suite or room revenues
to its brand's fund.
Revenue Recognition
Room revenue represents revenue derived from the rental of rooms and suites
for hotels majority owned by Promus. Food and beverage revenues represent
revenues from company owned restaurants and lounges.
Amortization
Deferred management and franchise contract costs are amortized on a
straight-line basis over the term of the related contract, generally 10 to 20
years. Deferred finance charges are amortized over the term of the related
debt agreement (see Note 4).
Property Transactions
Property transactions include gains and losses from asset sales, including
sales of joint venture equity interests, write-downs of assets to net
realizable value and the ongoing costs of Promus' asset management staff. The
operations of properties sold are included in the financial statements through
the date of sale.
Treasury Stock
Shares of Promus' common stock held in treasury are reflected in the
consolidated balance sheets and consolidated statements of stockholders'
equity as if they were retired.
Earnings Per Share
Earnings per share is computed by dividing net income by the number of
weighted average common shares outstanding during the year, including common
stock equivalents. Earnings per share for 1996, 1995 and 1994, respectively,
were $1.25, $0.90 and $0.70. For purposes of computing earnings per share on a
comparable basis, the weighted average shares outstanding for periods prior to
the Spin-Off are assumed to be equal to the actual common and common
equivalent shares outstanding on June 30, 1995.
Reclassifications
Certain amounts for prior years have been reclassified to conform with the
presentation for 1996.
Other
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3--DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Prepayments and other consisted of the following (in thousands):
1996 1995
------- -------
Prepayments $ 6,811 $ 1,557
Other current assets 598 666
Supplies 217 206
------- -------
$ 7,626 $ 2,429
------- -------
<PAGE>
Accrued expenses consisted of the following (in thousands):
1996 1995
------- -------
Self-insurance reserves $16,051 $ 8,934
Payroll and other
compensation 9,321 7,424
Taxes, other than income
taxes 4,217 3,658
Deposits and customer funds 2,906 4,794
Income taxes - 4,290
Other 4,866 7,271
------- -------
$37,361 $36,371
======= =======
NOTE 4--LONG-TERM DEBT
Parent Debt Allocation
The Company's financial position, and its results of operations prior to
June 30, 1995, reflects all indebtedness, together with related interest
expense, specifically identified with Promus 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 Promus
from Parent were based on the percentage of Parent's historical corporate debt
that was expected to be retired using proceeds from Promus' $350 million bank
credit facility (the Promus Facility). Parent's corporate interest expense,
including amortization of deferred finance costs allocated to Promus before
the Spin-Off, was $10.5 million (which represents interest through June 30,
1995).
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Promus Facility
The Promus Facility consists of a $300 million revolving credit arrangement
which matures on November 1, 2001 (the Five-Year Revolver) and a $50 million
annually extendible revolving credit facility (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 Promus Facility is, at the option of the Company, equal to either (i)
the Base Rate, as defined, or (ii) LIBOR plus the applicable spread, which was
approximately 6.8% (including the LIBOR spread, facility fees and the impact
of interest rate swaps) on a weighted average basis for 1996. 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, LIBOR spread on the Five-Year
Revolver and the Extendible Revolver is 0.225% and 0.245%, respectively, and
the facility fee required on the total amount of the Five-Year Revolver and
the Extendible Revolver is 0.10% and 0.08%, respectively. Both the Extendible
Revolver and the Five-Year Revolver are unsecured. The Promus Facility
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 December 31, 1996 and 1995,
Promus was in compliance with all such covenants.
The Five-Year Revolver also provides a sublimit for letters of credit of
$20 million. At December 31, 1996, approximately $12.4 million in letters of
credit were outstanding under this agreement. As of December 31, Promus'
indebtedness consisted of the following (in thousands):
1996 1995
-------- --------
Amounts outstanding under
the Promus Facility $243,100 $228,600
Notes payable and other-
unsecured, 13%, maturities
to 1999 564 776
Mortgages, 8.0%-8.75%,
maturities to 2005 243 271
Capital lease obligations,
8.2%-13.4%, maturities to
1999 63 110
-------- --------
243,970 229,757
Current portion of long-term
debt (288) (278)
-------- --------
$243,682 $229,479
======== ========
Aggregate annual maturities of long-term debt subsequent to December 31,
1996 were: 1997, $288,000; 1998, $330,000; 1999, $92,000; 2000, $36,000; 2001,
$243,139,000, and $85,000 thereafter.
Interest Rate Agreements
As of December 31, 1996, Promus was a party to several interest rate swap
agreements that help the Company manage the relative mix of its debt between
fixed and variable rate instruments. These agreements effectively modify the
interest characteristics of its outstanding debt without an exchange of the
underlying principal amount. Pursuant to the agreements, Promus receives a
variable interest rate tied to LIBOR in exchange for its payments at a fixed
interest rate. The fixed rates to be paid by Promus are summarized in the
following table:
Next Quarterly
Notional Amount Swap Rate Variable Rate
(All Associated with Paid Effective Rate Adjustment Swap
Promus Facility) (Fixed) at December 31 Date Maturity
- ------------------------------------------------------------------------------
$50.0 million 6.99% 7.315% 03/20/1997 03/20/2000
$12.5 million 6.92% 7.245% 03/17/1997 12/15/1998
$12.5 million 6.68% 7.005% 03/17/1997 12/15/1999
$12.5 million 6.74% 7.065% 01/22/1997 01/22/1999
$12.5 million 6.52% 6.845% 01/22/1997 01/24/2000
The differences to be paid or received under the terms of the interest rate
swap agreements described above are accrued as an adjustment to interest
expense for the related debt. Changes in the effective interest rates to be
paid by Promus pursuant to the terms of its interest rate agreements will have
a corresponding effect on its future cash flows. These agreements contain a
credit risk that the counterparties may be unable to meet the terms of the
agreements. Promus minimizes that risk by evaluating the creditworthiness of
its counterparties, which are limited to major banks and financial
institutions, and does not anticipate nonperformance by the counterparties.
Fair Market Value
Because the terms of the Promus Facility provide that borrowings outstanding
under those agreements bear interest at current market rates, management
believes that the related liabilities reflected in the accompanying
consolidated balance sheets as of December 31, 1996 and 1995, approximate fair
market value. The fair market value of the Company's other material financial
instruments as of December 31, 1996 and 1995, were as follows (in thousands):
1996 1995
------ ------
Interest rate agreements
(used for hedging
purposes)
Carrying value $ 92 $ 55
Market value 2,123 5,056
The amount reflected as the "carrying value" of the interest rate
agreements represents the accrual balance as of the date reported. The
"market value" of the interest rate agreements represents the estimated
amount, considering the prevailing interest rates, that Promus would pay to
terminate the agreements as of the date reported.
32 Promus Hotel Corporation
<PAGE>
NOTE 5--COMMITMENTS AND CONTINGENCIES
Contractual Commitments
Promus is liable under certain lease agreements pursuant to which it has
assigned the direct obligation to third party interests. Additionally, Promus
manages certain hotels for others under agreements that provide for payments
or loans to the hotel owners if stipulated levels of financial performance are
not maintained. The Company has also provided guarantees for certain loans
related to joint venture investments. Management believes the likelihood is
remote that material payments will be required under these agreements. Promus'
estimated maximum exposure under such agreements is approximately
$38.1 million over the next 30 years.
FelCor Agreements
In May 1995, Promus entered into a Subscription Agreement with FelCor Suite
Hotels, Inc. and FelCor Suites Limited Partnership (FelCor) whereby Promus
purchased $25 million in FelCor limited partnership interests to help fund the
partnership's acquisition of all-suite upscale hotels converted to the Embassy
Suites brand. In September 1995, Promus entered into a second agreement with
FelCor in connection with FelCor's agreement to acquire the Crown Sterling
Suites hotel chain. FelCor has converted 16 of the Crown Sterling Suites
hotels they acquired (over 4,000 suites) to the Embassy Suites brand. In
consideration, Promus made a $50 million investment in FelCor common stock and
has guaranteed repayment of up to $25 million of a third party loan advanced
to FelCor. Hotels converted to the Embassy Suites brand under these agreements
operate under 20-year license agreements, and 10-year management contracts
have been awarded to Promus. Subject to some restrictions, the limited
partnership interests may be converted to shares of FelCor common stock on a
one-for-one basis and the common stock may be sold on the open market.
FelCor owns or had an interest in 40 Embassy Suites hotels as of December 31,
1996, which represents 4.9% and 9.3% of all Promus brand hotels and hotel
rooms, respectively. Those 40 hotels contributed approximately 10.6% of total
system revenues and 11.4% of the Company's franchise and management fee
revenue for 1996. Subsequent to year end, FelCor acquired an ownership interest
in an additional eight Embassy Suites hotels that are already managed by
Promus.
Equity Inns and Winston Agreements
During 1996, Promus entered into strategic development alliances with Equity
Inns, Inc. (Equity) and Winston Hotels, Inc. (Winston) whereby Promus will
invest up to $15 million in the common stock of both Equity and Winston as
they purchase existing or to be constructed Promus hotels from the Company.
Promus will receive 20-year license agreements and 10-year management
contracts for all hotels developed or purchased pursuant to these alliances.
As of December 31, 1996, Promus had invested $7.1 million and $1.5 million in
the common stock of Equity and Winston, respectively.
Litigation
The Company is a party to various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising
in the normal course of business. While any proceeding or litigation has an
element of uncertainty, management believes that the final outcome of these
matters will not have a materially adverse effect upon Promus' consolidated
financial position or its results of operations.
Employment and Severance Agreements
Promus has severance agreements with 15 senior officers of the Company that
provide for a 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 Promus incentive compensation or stock option plan if the executive
is terminated subsequent to a change in control of Promus, 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
December 31, 1996, would be approximately $24.4 million.
Self-Insurance Reserves
Promus self-insures various levels of general liability, workers'
compensation and employee medical coverage. All self-insurance reserves
include accruals of estimated settlements for known claims, as well as
accruals of actuarial estimates of incurred but not reported claims. These
estimates are based on historical information along with certain assumptions
about future events. Changes in assumptions for such things as medical costs
and legal expenses, as well as changes in actual experience, could cause these
estimates to change significantly in the near term.
NOTE 6--INCOME TAXES
Income tax expense attributable to income before income taxes and
extraordinary items consisted of the following (in thousands):
1996 1995 1994
------- ------- -------
Current
Federal $35,553 $22,252 $25,396
State 6,442 2,889 1,154
Deferred
Federal 3,068 3,004 248
State 101 3,674 -
------- ------- -------
$45,164 $31,819 $26,798
======= ======= =======
In addition to taxes provided for income before income taxes and
extraordinary items, Promus provided $1.6 million for extraordinary items
during 1995 and $9.7 million and $1.2 million for unrealized gains on
marketable equity securities in 1996 and 1995, respectively. The differences
between the statutory federal
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
income tax rate and the effective tax rate expressed as a percentage of
income before income taxes were as follows:
1996 1995 1994
----- ----- -----
Statutory tax rate 35.0% 35.0% 35.0%
Increases in tax
resulting from
State taxes, net of
federal tax benefit 3.8 5.6 1.8
Other 2.3 1.5 5.7
----- ----- -----
41.1% 42.1% 42.5%
===== ===== =====
Components of Promus' net deferred tax liability included in the
consolidated balance sheets were as follows (in thousands):
1996 1995
-------- --------
Deferred tax assets
Compensation $ 5,250 $ 4,581
Deferred income 4,300 4,760
Bad debt reserve 848 703
Self-insurance reserves 418 562
Other 601 1,565
-------- --------
11,417 12,171
-------- --------
Deferred tax liabilities
Investments in
nonconsolidated
affiliates (24,649) (14,430)
Property and equipment (24,204) (23,896)
Franchise system fund
prepayments (1,921) (1,333)
Basis difference in other
assets (669) (850)
-------- --------
(51,443) (40,509)
-------- --------
Net deferred tax
liability $(40,026) $(28,338)
======== ========
Tax Sharing Agreement
In connection with the Spin-Off, Promus 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 Promus' business for tax years prior to the
Distribution and with respect to certain tax attributes of Promus 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
Parent and Promus 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; Promus will reimburse Parent
for the portion of such adjustments relating to the Hotel Business). Promus is
responsible for filing returns and paying taxes for periods beginning after
the Spin-Off.
NOTE 7--LEASES
Promus leases both real estate and equipment used in its operations through
operating and capital leases. Leases which transfer substantially all benefits
and risks incidental to ownership of the property are capitalized. In addition
to minimum rentals, many leases provide for contingent rents based on
percentages of revenue. The average remaining term for operating leases, which
generally contain renewal options, extends approximately 11 years. The costs
of leased assets are amortized over periods not in excess of the lease terms.
Rental expense associated with operating leases included in the consolidated
statements of income was as follows (in thousands):
<PAGE>
1996 1995 1994
------ ------ ------
Noncancelable rental
expense
Minimum $1,904 $3,828 $2,400
Contingent 1,987 852 740
Other 1,011 863 790
------ ------ ------
$4,902 $5,543 $3,930
====== ====== ======
The future minimum rental commitments as of December 31, 1996, were as
follows (in thousands):
Noncancelable
Operating Leases
----------------
1997 $ 1,523
1998 1,167
1999 1,010
2000 1,010
2001 1,010
Thereafter 12,050
-------
$17,770
=======
Minimum rental commitments exclude contingent rentals, which may be paid
under certain leases based on a percentage of revenues in excess of specified
amounts.
NOTE 8--EMPLOYEE BENEFIT PLANS
Savings and Retirement Plan
Promus has a defined contribution savings and retirement plan (S&RP) in
which participating employees 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 Promus will match fully. Amounts contributed to the plan are
invested in one or more investment funds, at the participant's option.
Participants become vested in Promus' matching contributions over seven years
of credited service, including any previous credited service under Parent's
plan. In November 1996, Promus reduced the vesting period for the S&RP
participants to two years. Promus recognized contribution expense related to
the Promus S&RP of $1.1 million and $0.4 million in 1996 and 1995,
respectively.
34 Promus Hotel Corporation
<PAGE>
Restricted Stock
Promus has a restricted stock plan (RSP) under which executives and key
employees may be awarded shares of Promus' common stock. Shares granted under
the Promus 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. This
expense totaled $0.3 million and $0.5 million in 1996 and 1995, respectively.
Stock Option Plan
Under the Promus 1995 Stock Option Plan (SOP), the Company may grant options
to its employees not to exceed 3,600,000 shares of common stock. The exercise
price of each option equals the market price of Promus stock on the date of
grant. Options generally vest over a four year period and have an expiration
date ten years after grant. Promus applies Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for the SOP. Accordingly, no compensation cost
has been recognized in the statements of income for this stock option plan.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," Promus has estimated the fair value
of each option grant using the Black-Scholes option-pricing model. Concurrent
with the Spin-Off, options were issued by Promus to replace Parent's options
being held by Promus management. These replacement options were issued with
identical remaining terms and conditions as the Parent options. The following
weighted average assumptions were used for the replacement options and
additional grants in 1995 and 1996, respectively: expected volatility of
30 percent; risk-free interest rates of 5.9%, 6.2% and 6.0%; expected lives of
4.5, 5.3 and 5.0; and no dividends. Had compensation cost for the SOP awards
been determined based on their fair value at the grant dates, Promus' net
income and earnings per share would have been reduced to the pro forma amounts
indicated below (in thousands, except earnings per share):
1996 1995
------- -------
Net income
As reported $64,724 $46,579
Pro forma 60,108 42,425
Earnings per share
As reported $1.25 $0.90
Pro forma 1.16 0.82
A summary of stock option transactions since the Spin-Off is as follows:
Options Outstanding
--------------------------- Common Stock
Weighted Average Available for
Price Number Grant
---------------- ------ ------------
Replacement options--
June 30, 1995 $16.82 1,238,839 2,361,161
Granted 24.47 711,150 (711,150)
Exercised 4.12 (13,763) -
Canceled 24.14 (24,171) 24,171
------ --------- ---------
Balance--December 31, 1995 19.66 1,912,055 1,674,182
Granted 31.33 803,492 (803,492)
Exercised 12.65 (30,223) -
Canceled 23.81 (107,985) 107,985
------ --------- ---------
Balance--December 31, 1996 $23.21 2,577,339 978,675
====== ========= =========
Options exercisable at
December 31,
1995 $ 6.59 262,660
1996 12.11 540,421
The weighted average fair value of options granted based on the Black-
Scholes option-pricing model for the replacement options granted in 1995, all
other 1995 grants and all 1996 option grants were $12.28, $9.39 and $11.59,
respectively. The following table summarizes information about options
outstanding at December 31, 1996:
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ---------------------------------
Number Number
Outstanding at Weighted Average Exercisable at
December 31, Remaining Weighted Average December 31, Weighted Average
Range of Exercise Prices 1996 Contractual Life Exercise Price 1996 Exercise Price
- ------------------------ -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 2.41 to $ 6.76 299,429 4.4 $ 4.85 254,691 $ 4.73
$ 9.62 to $19.45 405,875 7.0 14.61 168,559 12.72
$21.87 to $25.63 982,998 8.6 24.83 71,779 25.63
$27.19 to $32.13 889,037 9.4 31.53 45,392 29.87
--------- ---- ------ ------- ------
2,577,339 8.1 $23.21 540,421 $12.11
========= ==== ====== ======= ======
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred Compensation Plans
Promus has deferred compensation plans under which certain employees may
defer a portion of their compensation. Amounts deposited into these plans are
unsecured and earn interest at rates approved by the Human Resources Committee
of the Board of Directors. In connection with the administration of the
executive deferred compensation plan, company owned life insurance policies
insuring the lives of certain directors, officers and key employees have been
purchased. As of December 31, 1996 and 1995, the total liability under these
plans was $11.2 million and $8.4 million, and the related cash surrender value
of life insurance policies was $12.1 million and $11.3 million, respectively.
Stock Incentive Plan
The Company established the Promus 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
Promus common stock based upon one-half of the meeting and retainer fees
earned and the fair market value of Promus common stock and (ii) may elect to
receive the remaining one-half of compensation due in the form of a cash
payment or as Promus common stock. Shares issued under the plan are restricted
as to transfer for at least six months after the date of grant.
NOTE 9--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--Series A, $1.125 par value, 5,000,000 shares authorized
One special right is attached to each outstanding share of common stock.
These rights entitle the holders to purchase, under certain conditions, units
consisting of fractional shares of Special stock--Series A at a purchase price
of $120 per unit, subject to adjustment. The rights also, under certain
conditions, entitle the holders to purchase $240 worth of common stock for
$120. These rights expire on May 1, 2005, unless Promus decides to redeem them
earlier at $0.01 per right or upon the occurrence of certain other events.
NOTE 10--EXTRAORDINARY ITEMS
During 1995, two Embassy Suites hotels, in which the Company has a
50 percent interest, realized extraordinary gains related to the early payoff
and forgiveness of a portion of their existing debt. Promus' share of these
nonconsolidated affiliates' gains was $2.8 million, net of income tax expense
of $1.6 million. There were no extraordinary items reported in 1996 or 1994.
NOTE 11--NONCONSOLIDATED AFFILIATES
Combined summarized balance sheet information and income statements of
nonconsolidated affiliates which Promus accounted for using the equity method
as of December 31, 1996 and 1995, and for the three fiscal years ended
December 31, 1996, were as follows (in thousands):
1996 1995 1994
-------- -------- --------
Combined Summarized
Balance Sheet Information
Current assets $ 31,236 $ 33,578
Land, buildings and
equipment, net 313,741 366,624
Other assets 24,276 18,435
-------- --------
Total assets 369,253 418,637
-------- --------
Current portion of long-
term debt 25,540 187,339
Other current
liabilities 9,906 13,059
Long-term debt 239,061 86,292
Other liabilities 1,530 1,696
-------- --------
Total liabilities 276,037 288,386
-------- --------
Net assets $ 93,216 $130,251
======== ========
<PAGE>
Combined Summarized Income
Statements
Revenues $158,722 $157,748 $157,686
======== ======== ========
Operating income $ 40,839 $ 35,161 $ 32,240
======== ======== ========
Net income $ 28,165 $ 16,438 $ 5,221
======== ======== ========
Promus' share of its nonconsolidated affiliates' combined net income is
reflected in the accompanying consolidated statements of income as follows (in
thousands):
1996 1995 1994
-------- -------- --------
Pre-interest operating
income (included in
revenues--other) $ 23,059 $ 19,569 $ 18,077
======== ======== ========
Interest expense (included
in interest expense) $(11,218) $(12,899) $(12,749)
======== ======== ========
Extraordinary gain on
forgiveness of debt
(included in
extraordinary items,
net) $ - $ 4,454 $ -
======== ======== ========
36 Promus Hotel Corporation
<PAGE>
The components of investments in and advances to nonconsolidated affiliates
as of December 31 were as follows (in thousands):
1996 1995
-------- -------
At market $111,859 $33,016
At equity 64,217 39,868
At cost 10,690 17,622
-------- -------
$186,766 $90,506
======== =======
Certain Promus joint venture investments have been reduced below zero due to
Promus' intention to fund its share of operating losses in the future, if
needed. The total amount of these negative investments included in deferred
credits and other liabilities in the consolidated balance sheets was
$3.8 million and $5.2 million at December 31, 1996 and 1995, respectively.
NOTE 12--SUPPLEMENTAL CASH FLOW INFORMATION
The increase (decrease) in cash and cash equivalents due to the changes in
long-term and working capital accounts was as follows (in thousands):
1996 1995 1994
------- ------- -------
Long-term accounts
Deferred costs and other
assets $ (649) $(2,508) $(1,155)
Deferred credits and
other long-term
liabilities 5,475 4,597 6,792
------- ------- -------
Net change in long-
term accounts $ 4,826 $ 2,089 $ 5,637
======= ======= =======
Working capital accounts
Accrued expenses $ 4,112 $ 9,725 $ 744
Accounts payable 2,549 7,824 (4,410)
Receivables (3,864) (3,206) (859)
Prepayments and other (5,324) (348) (397)
------- ------- -------
Net change in
working capital
accounts $(2,527) $13,995 $(4,922)
======= ======= =======
Supplemental Disclosure of Noncash Investing and Financing Activities
Concurrent with the Spin-Off, the historical assets and liabilities of the
Hotel Business were transferred to Promus by Parent, and the issuance of
Promus common stock was completed in connection with the Distribution. These
noncash transactions have been excluded from the consolidated statements of
cash flows.
<PAGE>
Supplemental Disclosure of Cash Paid for Interest and Taxes
The following table reconciles Promus' interest expense, net of interest
capitalized, to cash paid for interest (in thousands):
1996 1995 1994
-------- -------- --------
Interest expense, net of
amount capitalized (Note 4) $ 29,016 $ 31,138 $ 30,759
Adjustments to reconcile
to cash paid for
interest:
Promus' share of
interest expense of
nonconsolidated
affiliates (Note 11) (11,218) (12,899) (12,749)
Capitalized interest 1,614 1,428 -
Net change in accruals 192 (1,117) -
Amortization of
deferred finance
charges (605) (785) (733)
Net amortization of
discounts and
premiums - (8) (45)
Other (154) (246) (143)
-------- -------- --------
Cash paid for interest $ 18,845 $ 17,511 $ 17,089
======== ======== ========
Cash paid for income taxes $ 49,842 $ 15,075 $ -
======== ======== ========
For purposes of this presentation, interest expense allocated to Promus by
Parent is assumed to have been paid in the year allocated. Parent was
responsible for the payment of Promus' income taxes for periods prior to the
Spin-Off (Note 6).
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13--SUMMARIZED FINANCIAL INFORMATION
Promus Hotels, Inc. (PHI) is a wholly-owned subsidiary of Promus and the
primary entity through which the operations of Promus are conducted. PHI is
also Promus' principal asset. Summarized financial information for PHI,
prepared on the same basis as Promus, as of and for the years ended
December 31, is as follows (in thousands):
1996 1995 1994
-------- ------- ------
ASSETS
Current assets $ 29,397 $ 23,246
Land, buildings and
equipment, net 320,413 325,647
Other assets 269,626 169,961
-------- --------
619,436 518,854
-------- --------
LIABILITIES
Current liabilities 50,561 54,851
Long-term debt 243,682 229,479
Other liabilities 81,621 68,112
-------- --------
375,864 352,442
-------- --------
Net assets $243,572 $166,412
======== ========
Revenues $266,625 $236,513 $222,561
======== ======== ========
Operating income $129,496 $104,137 $ 92,388
======== ======== ========
Net income $ 65,124 $ 46,895 $ 36,319
======== ======== ========
NOTE 14--RELATIONSHIP BETWEEN PROMUS AND PARENT AFTER THE DISTRIBUTION
To govern certain ongoing relationships after the distribution, Promus and
Parent entered into various agreements and adopted certain policies.
Management believes the agreements are fair to both parties and contain terms
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).
38 Promus Hotel Corporation
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per
share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year
-------------- -------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
1996
Revenues $62,162 $69,393 $72,784 $62,286 $266,625
Operating income 27,230 36,051 37,982 27,578 128,841
Net income 12,749 18,136 19,692 14,147 64,724
Earnings per share (a) 0.25 0.35 0.38 0.27 1.25
Weighted average shares
outstanding 51,577 51,685 51,712 51,779 51,690
1995
Revenues $56,487 $61,524 $61,653 $56,849 $236,513
Operating income 24,645 27,725 31,380 19,840 103,590
Net income 9,604 11,626 15,761 9,588 46,579
Pro forma earnings per
share (a)(b) 0.19 0.23 0.31 0.19 0.90
Weighted average shares
outstanding (b) 51,573 51,573 51,570 51,579 51,569
</TABLE>
(a) The sum of the quarterly per share amounts may not equal the annual amount
reported, as per share amounts are computed independently for each quarter
while the full year is based on the annual weighted average common and
common equivalent shares outstanding.
(b) For purposes of computing pro forma earnings per share on a comparable
basis, the weighted average shares outstanding for periods prior to the
Spin-Off are assumed to be equal to the actual common and common equivalent
shares outstanding on June 30, 1995.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(In thousands) 1996 1995 1994 1993 1992
--------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
Operating results
Revenues $266,625 $236,513 $222,561 $214,565 $206,513
Operating income before
property transactions 123,874 101,648 91,762 64,758 49,610
Operating income 128,841 103,590 92,388 66,103 43,897
Income before income taxes
and extraordinary items 109,888 75,579 63,117 30,795 3,242
Net income 64,724 46,579 36,319 16,926 6,361
Total assets 631,965 519,809 413,308 438,016 506,111
Long-term debt (a) 243,682 229,479 188,725 172,326 216,386
</TABLE>
(a) Includes debt allocated to Promus Hotel Corporation by its Parent for
periods prior to the Spin-Off.
39
<PAGE>
INVESTOR INFORMATION
Stock Listings
Promus Hotel Corporation common stock trades on the New York Stock Exchange
under the ticker symbol PRH. The stock is also listed on the Chicago,
Philadelphia, and Pacific regional stock exchanges.
Annual Meeting Date
Promus Hotel Corporation will conduct its 1997 Annual Meeting of stockholders on
April 23, 1997, 11 a.m. (CDT) at the Embassy Hall,
Embassy Suites Hotel,
1022 South Shady Grove Road,
Memphis, Tennessee.
Shareholder Account Assistance
For address changes, account consolidation, registration changes, lost stock
certificates, and other shareholder services, contact:
Continental Stock Transfer & Trust Company,
2 Broadway, New York, NY 10004,
or call 800-509-5586.
Investor Relations
Financial community information requests should be directed to:
Gregg A. Swearingen,
Director, Investor Relations,
755 Crossover Lane,
Memphis, TN 38117,
or call (901) 374-5468,
or fax (901) 374-5464.
Form 10-K
A shareholder may receive without charge a copy of the Form 10-K Annual
Report filed with the Securities and Exchange Commission by writing to
Investor Relations or by calling (901) 374-5468.
Corporate Communications
All media inquiries or requests for copies of this report should be directed to:
John C. Hawkins,
Director, Corporate Communications,
755 Crossover Lane,
Memphis, TN 38117
or call (901) 374-5529.
Corporate Headquarters
755 Crossover Lane
Memphis, TN 38117
(901)-374-5000
Auditors
Arthur Andersen LLP
165 Madison Avenue
Memphis, TN 38103
<PAGE>
Reservation Information
Guests wishing to make reservations at our properties may do so by calling the
following toll-free numbers:
Embassy Suites Hotels
1-800-EMBASSY
Hampton Inn Hotels
1-800-HAMPTON
Hampton Inn & Suites Hotels
1-800-HAMPTON
Homewood Suites Hotels
1-800-CALL HOME
Embassy Vacation Resort Properties
1-800-EMBASSY
Internet Communications
A company overview, financial highlights, statistical data, operating
philosophy, and reservations information can be found on the World Wide
Web at http://www.promus-hotel.com.
Trademarks
The following trademarks are used in this report to identify products and
services of Promus Hotel Corporation, its subsidiaries, and affiliates:
Promus,-Registered Trademark- Embassy Suites,-Registered Trademark- Embassy
Vacation Resort,-Registered Trademark- Hampton Inn,-Registered Trademark-
Hampton Inn & Suites,-Registered Trademark- Hampton Vacation
Resort,-Registered Trademark- Homewood Suites,-Registered Trademark- and
1-800-CALL HOME.-Registered Trademark-
40
<PAGE>
DIRECTORS AND OFFICERS
Board of Directors
Michael D. Rose(2)
Chairman of the Board
Promus Hotel Corporation
Memphis, Tennessee
Director since April 1995
U. Bertram Ellis, Jr.(1),(4)
Chairman, Chief Executive
Officer & Director
IXL Holdings, Inc.
Atlanta, Georgia
Director since June 1995
Debra J. Fields(1)
Co-Chairman
Mrs. Fields, Inc.
Salt Lake City, Utah
Director since June 1995
Christopher W. Hart(1)
President, Spire Group, Inc.
Brookline, Massachusetts
Director since June 1995
C. Warren Neel(2),(3),(4)
Dean, College of Business Administration
University of Tennessee
Knoxville, Tennessee
Director since June 1995
Ben C. Peternell(2),(3),(4)
Senior Vice President
Human Resources & Communications
Harrah s Entertainment, Inc.
Memphis, Tennessee
Director since April 1995
Michael I. Roth(1)
Chairman of the Board &
Chief Executive Officer
Mutual of New York
New York, New York
Director since June 1995
Raymond E. Schultz(2)
President &
Chief Executive Officer
Promus Hotel Corporation
Memphis, Tennessee
Director since April 1995
Jay Stein(3),(4)
Chairman of the Board &
Chief Executive Officer
Stein Mart, Inc.
Jacksonville, Florida
Director since June 1995
<PAGE>
David C. Sullivan
Executive Vice President &
Chief Operating Officer
Promus Hotel Corporation
Memphis, Tennessee
Director since April 1995
Ronald Terry(2),(3),(4)
Former Chairman of the Board
First Tennessee National Corporation
Memphis, Tennessee
Director since June 1995
(1) Audit Committee
(2) Executive Committee
(3) Human Resources Committee
(4) Strategic Planning Committee
Corporate Executive Officers
Michael D. Rose
Chairman of the Board
Raymond E. Schultz
President & Chief Executive Officer
David C. Sullivan
Executive Vice President &
Chief Operating Officer
Donald H. Dempsey
Senior Vice President &
Chief Financial Officer
Thomas L. Keltner
Senior Vice President, Development
Ralph B. Lake
Senior Vice President,
General Counsel & Secretary
Mark C. Wells
Senior Vice President,
Franchise Services
<PAGE>
Other Corporate Officers
Darryl J. Arbor
Vice President, Internal Audit
Donald A. Balash
Vice President, Corporate Tax
Carol G. Champion
Vice President & Treasurer
Vincent C. Ciaramitaro
Vice President,
Financial Services
Patricia R. Ferguson
Vice President,
Human Resources
M. Ronald Halpern
Vice President &
Deputy General Counsel
James T. Harvey
Vice President,
Information Technology
Jeffery M. Jarvis
Vice President & Corporate Controller
Division Officers
Edwin F. Ansbro
Vice President, Development-West/Mexico/Latin America
Lorna E. Brown-Ray
Vice President,
Training & Communications
<PAGE>
Robert S. Davis
Vice President,
Embassy Vacation Resort
Philip K. Cordell
Vice President,
Hotel Performance Services
H. Nadine Greenwood
Assistant Secretary
Kevin W. Kern
Assistant Secretary
Donald M. Kolodz
Vice President, Reservations
Robert A. Lulloff
Vice President,
Design & Construction
R. Bryan Mulroy
Vice President, Hotels Controller
Else W. O'Malley
Vice President,
Development-Parent Company
Stevan D. Porter
Vice President,
Operations-Embassy Suites
Thomas P. Powell
Vice President,
Development-East/Caribbean
Frederick G. Schultz
Vice President, Operations-
Hampton Inn/Homewood Suites
M. Davis Smith
Vice President,
Development-Central
Jules S. Sowder
Vice President, Marketing
<PAGE>
Exhibit 21.1
SUBSIDIARIES
PROMUS HOTEL CORPORATION
<TABLE>
<CAPTION>
Jurisdiction Percentage Date
of of of FEIN
Name Incorporation Ownership Incorporation Number
- ---- ------------- --------- ------------- ------
<S> <C> <C> <C> <C>
Ziwa Insurance, Inc. Vermont 100% 05/03/96 03-0351750
(Wholly-Owned Insurance Company)
Promus Hotels, Inc. Delaware 100% 05/10/95 62-1602678
Buckleigh, Inc. Delaware 100% 08/24/87 74-2493006
Compass, Inc. Tennessee 100% 11/16/94 62-1590142
EJP Corporation Delaware 100% 10/31/91 62-1489071
Suite Life, Inc. Delaware 100% 07/11/86 75-2123392
Embassy Development Corporation Delaware 100% 08/24/87 74-2479161
Embassy Equity Development Corp. Delaware 100% 08/24/87 74-2479160
Embassy Syracuse Development Delaware 100% 03/06/91 62-1469277
Corporation
Southfield Hotel Management, Inc.* Florida 100% 09/10/91 62-1476762
Embassy Memphis Corporation Tennessee 100% 12/03/92 62-1523545
Embassy Pacific Equity Corporation Delaware 100% 01/24/89 62-1401635
Embassy Suites Club No. 1, Inc. Kansas 100% 01/19/84 75-1947366
Embassy Suites Club No. Two, Inc. Texas 49% 03/13/84 75-1946866
Embassy Suites Club No. Three, Inc. Louisiana 100% 11/03/94 62-1584888
Embassy Suites De Mexico, S.A.DE* Mexico 96% 08/01/90 00-0000000
Embassy Suites (Isla Verde), Inc. Delaware 100% 12/21/93 62-1555786
Embassy Suites (Puerto Rico), Inc. Delaware 100% 05/25/89 62-1395012
Embassy Vacation Resorts, Inc. Delaware 100% 03/03/94 62-1558894
EPAM Corporation Delaware 100% 01/24/89 62-1401630
ESI Mortgage Development Delaware 100% 04/10/89 62-1392204
Corporation
ESI Mortgage Development Delaware 100% 03/24/92 62-1522996
Corporation II
Hampton Inns, Inc. Delaware 100% 03/23/84 62-1194362
GOL (Texas), Inc. Texas 49% 02/28/89 75-2309742
Old Town Hotel Corporation Delaware 100% 08/17/94 62-1577257
Pacific Hotels, Inc. Tennessee 100% 11/03/88 62-1371344
ATM Hotels Pty Limited** Australia 100% 05/25/90 00-0000000
Promus Hotel Services, Inc. Delaware 100% 05/12/95 62-1602738
Promus Hotels Florida, Inc. Delaware 100% 05/12/95 62-1602737
Promus Hotels Minneapolis, Inc. Delaware 100% 10/31/95 62-1619978
</TABLE>
* In process of being dissolved
** 50% Pacific Hotels, Inc., 50% Promus Hotels, Inc.
<PAGE>
EXHIBIT 23(1)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 5, 1997, included or incorporated by reference in
this Form 10-K for the year ended December 31, 1996, into the Company's
previously filed Registration Statements File Nos. 033-59967; 033-59973;
033-59977; 033-59997; 333-17587 and 333-14023-01.
ARTHUR ANDERSEN LLP
Memphis, Tennessee
March 18, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,700
<SECURITIES> 0
<RECEIVABLES> 19,487
<ALLOWANCES> (1,180)
<INVENTORY> 217
<CURRENT-ASSETS> 30,565
<PP&E> 439,072
<DEPRECIATION> (118,659)
<TOTAL-ASSETS> 631,965
<CURRENT-LIABILITIES> 58,402
<BONDS> 243,682
0
0
<COMMON> 5,140
<OTHER-SE> 242,949
<TOTAL-LIABILITY-AND-EQUITY> 631,965
<SALES> 0
<TOTAL-REVENUES> 266,625
<CGS> 0
<TOTAL-COSTS> 142,751
<OTHER-EXPENSES> (4,967)
<LOSS-PROVISION> 283
<INTEREST-EXPENSE> 29,016
<INCOME-PRETAX> 109,888
<INCOME-TAX> 45,164
<INCOME-CONTINUING> 64,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,724
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
