-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NGPhg2wXTQUxSI8JtKtajqLLpgkgLNwWVqRKDYfrVKrtjrWeAcoDUzRNx2rCNS2p 7DXAWwFYSuZfAdXkFc77Ug== 0000912057-97-009224.txt : 19970319 0000912057-97-009224.hdr.sgml : 19970319 ACCESSION NUMBER: 0000912057-97-009224 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970318 SROS: CSE SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROMUS HOTEL CORP CENTRAL INDEX KEY: 0000944647 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 621596939 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11463 FILM NUMBER: 97558593 BUSINESS ADDRESS: STREET 1: 6800 POPLAR AVENUE STREET 2: STE 200 CITY: MEMPHIS STATE: TN ZIP: 38138 BUSINESS PHONE: 9013745103 MAIL ADDRESS: STREET 1: 6800 POPLAR AVENUE STREET 2: STE 200 CITY: MEMPHIS STATE: TN ZIP: 38138 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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) DELAWARE I.R.S. NO. 62-1596939 (State of Incorporation) (I.R.S. Employer Identification No.)
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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - -------------------------------------------------------------- -------------------------------------------------------------- Common Capital Stock, Par Value $.10 per share* NEW YORK STOCK EXCHANGE CHICAGO STOCK EXCHANGE PACIFIC STOCK EXCHANGE PHILADELPHIA STOCK EXCHANGE
* 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 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 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 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:
MANAGEMENT COMPANY CONTRACTS/ LICENSED OWNED JOINT VENTURES TOTAL ---------------- --------------- ---------------- ---------------- 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 ------ ------- ------ ------ ------ ------- ------ ------- ------ ------- ------ ------ ------ ------- ------ -------
- ------------------------ (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 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:
AVERAGE DAILY OCCUPANCY RATE PER REVENUE PER YEAR RATE OCCUPIED SUITE AVAILABLE SUITE - -------------------------------------------------- ------------- -------------- --------------- 1996.............................................. 73.6% $ 107.36 $ 79.00 1995.............................................. 74.2% $ 101.90 $ 75.61 1994.............................................. 74.9% $ 97.28 $ 72.86
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:
LICENSED WITH LICENSED WITH MANAGEMENT BY LICENSEE MANAGEMENT BY COMPANY ---------------------------------------- ---------------------------------------- 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 ------- ------ --------- --------- ------- ------ --------- --------- ------- ------ --------- --------- ------- ------ --------- ---------
- ------------------------ (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 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:
MANAGEMENT COMPANY CONTRACTS/ LICENSED OWNED JOINT VENTURES TOTAL ---------------- --------------- --------------- ---------------- 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 ------ ------- ------ ------ ------ ------ ------ ------- ------ ------- ------ ------ ------ ------ ------ -------
- ------------------------ (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:
AVERAGE DAILY OCCUPANCY RATE PER REVENUE PER YEAR RATE OCCUPIED ROOM AVAILABLE ROOM - ------------------------------------------------- ------------- --------------- --------------- 1996............................................. 72.1% $ 60.84 $ 43.85 1995............................................. 73.7% $ 56.97 $ 42.01 1994............................................. 74.3% $ 53.46 $ 39.74
6 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:
MANAGEMENT COMPANY CONTRACT/ LICENSED OWNED JOINT VENTURE TOTAL --------------- --------------- --------------- --------------- 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 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
- ------------------------ (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:
AVERAGE DAILY OCCUPANCY RATE PER REVENUE PER YEAR RATE OCCUPIED SUITE AVAILABLE SUITE - -------------------------------------------------- ------------- --------------- --------------- 1996.............................................. 73.2% $ 90.40 $ 66.14 1995.............................................. 76.9% $ 82.42 $ 63.37 1994.............................................. 78.1% $ 76.38 $ 59.67
7 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:
MANAGEMENT CONTRACTS/ LICENSED JOINT VENTURES TOTAL --------------- --------------- --------------- 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 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
- ------------------------ (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:
AVERAGE DAILY OCCUPANCY RATE PER REVENUE PER YEAR RATE OCCUPIED SUITE AVAILABLE SUITE - ---------------------------------------------------------------------- ------------- --------------- --------------- 1996.................................................................. 63.9% $ 73.41 $ 46.89 1995.................................................................. 59.4% $ 70.13 $ 41.65
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 "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 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 EXECUTIVE OFFICERS OF THE REGISTRANT
POSITIONS AND OFFICES HELD AND PRINCIPAL NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS - --------------------------------------- ------------------------------------------------------------------------ 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).
11 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:
1996 HIGH LOW - --------------------------------------------------------------------------- --------- --------- First Quarter.............................................................. $ 28.00 $ 20.88 Second Quarter............................................................. $ 29.63 $ 25.25 Third Quarter.............................................................. $ 32.25 $ 24.75 Fourth Quarter............................................................. $ 34.00 $ 28.25
The approximate number of holders of record of the Company's Common Stock as of February 28, 1997 is as follows:
APPROXIMATE NUMBER OF HOLDERS OF TITLE OF CLASS RECORD - ------------------------------------------------------------------------- ------------------- Common Stock, Par Value $.10 per share................................... 11,960
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 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 (a) 2. Financial Statement Schedules for the years ended December 31, 1996, December 31, 1995, and December 31, 1994, are as follows:
NO. - --------- I Condensed financial information of registrant. II Valuation and qualifying accounts.
Schedules III, IV, and V are not applicable and have therefore been omitted. (a) 3. Exhibits (footnotes appear on pages 17 and 18):
NO. - ---------- 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)
14
NO. - ---------- +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) +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)
15
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) 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.
16
NO. - ---------- * +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.
- ------------------------ * 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 (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 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 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 SCHEDULE I PROMUS HOTEL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS AS OF DECEMBER 31 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1996 1995 ---------- ---------- ASSETS 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 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY 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 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these balance sheets. S-1 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)
1996 1995 --------- --------- 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 --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. S-2 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)
1996 1995 --------- --------- 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.................................................... $ - $ - --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. S-3 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 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 SCHEDULE II PROMUS HOTEL CORPORATION CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
COLUMN COLUMN A B COLUMN C COLUMN D COLUMN E - ------------------------------------------------ ------- ----------------- -------- --------- 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 $ - ------- ------- -------- -------- --------- ------- ------- -------- -------- ---------
- ------------------------ (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 EXHIBIT INDEX
NO. - ---------- 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)
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) 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)
NO. - ---------- 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. * 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.
- ------------------------ * 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. (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. EX-10.44 2 THIRD AMENDMENT TO TRANCHE A CREDIT AGREEMENT 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 (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 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 "(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 (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 INTENTIONALLY LEFT BLANK 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 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__________________________ 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__________________________ U.S. NATIONAL BANK OF OREGON By_____________________________ Title__________________________ SUNTRUST BANK By_____________________________ Title__________________________ WACHOVIA BANK OF GEORGIA, N.A. By_____________________________ Title__________________________ 10 EX-10.45 3 THIRD AMENDMENT TO TRANCHE B CREDIT AGREEMENT 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 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 "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 "(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 (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 INTENTIONALLY LEFT BLANK 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 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 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 U.S. NATIONAL BANK OF OREGON By_____________________________ Title__________________________ SUNTRUST BANK By_____________________________ Title__________________________ WACHOVIA BANK OF GEORGIA, N.A. By_____________________________ Title__________________________ EX-10.46 4 AMENDMENT TO 1995 STOCK OPTION PLAN 11/13/96 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 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 EX-10.47 5 AMENDMENT TO RESTRICTED STOCK PLAN 11/13/96 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 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 EX-10.48 6 AMENDMENT TO NON-MANAGEMENT DIRECTORS STOCK INV PL 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: ; 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 EX-10.49 7 STOCK PURCHASE AGREEMENT 04/24/96 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: 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 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 3 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. 4 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 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 (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 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 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 (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 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 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 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 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. 14 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 EX-10.50 8 AMENDMENT NO 1 TO THE STOCK PURCHASE AGREEMENT 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: (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 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 EX-10.51 9 STOCK PURCHASE AGREEMENT 05/31/96 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 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 2 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 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 (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 (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 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 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 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 (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 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 EX-11.1 10 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 PROMUS HOTEL CORPORATION COMPUTATION OF PER SHARE EARNINGS
1996 1995(1) 1994(1) ------------- ------------- ------------- 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 ------------- ------------- ------------- ------------- ------------- -------------
- ------------------------ (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. EX-12.1 11 COMPUTATION OF RATIOS EXHIBIT 12 PROMUS HOTEL CORPORATION COMPUTATIONS OF RATIOS (IN THOUSANDS, EXCEPT RATIO AMOUNTS)
FISCAL YEAR ---------------------------------------------- 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
EXHIBIT 12 (CONTINUED) PROMUS HOTEL CORPORATION COMPUTATIONS OF RATIOS (IN THOUSANDS, EXCEPT RATIO AMOUNTS)
FISCAL YEAR -------------------------------------------------- 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
EX-13.1 12 PORTIONS OF ANNUAL REPORT TO STOCKHOLDERS
Compound Annual Growth (In thousands, except percentages) 1996 1995 1994 1993 Rate 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 1996 1995 1994 1993 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
14 (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 PERFORMANCE STATISTICS
Compound Compound Number of Hotels Annual Number of Rooms/Suites Annual ------------------------------ Growth --------------------------------- Growth 1996 1995 1994 Rate 1996 1995 1994 Rate - ----------------------------------------------------------------------------------------------------------------------------------- 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 % - ----------------------------------------------------------------------------------------------------------------------------------- Managed Franchised Total --------------------------------------------------------------------------------------------- 1996 1995 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------------------------- Compound Compound Comparable System Hotels(c) Annual Total System Hotels Annual ----------------------------- Growth ------------------------------------- Growth 1996 1995 1994 Rate 1996 1995 1994 Rate - ----------------------------------------------------------------------------------------------------------------------------------- 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 - - - ----------------------------------------------------------------------------------------------------------------------------------- Total System Room Revenues Compound ------------------------------------------------------------- Annual (In thousands) 1996 1995 1994 Growth Rate - ------------------------------------------------------------------------------------------------------------------------- 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% - -------------------------------------------------------------------------------------------------------------------------
(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 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 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):
Percentage Increase - ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 96 vs 95 95 vs 94 - ------------------------------------------------------------------------------------------------------------------------------- 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
(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):
Percentage Increase - ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 96 vs 95 95 vs 94 - ------------------------------------------------------------------------------------------------------------------------------- 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
(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 [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 The following comparison of expenses and other items is based on pro forma results for 1995 and 1994 (in millions, except percentages):
Percentage Increase/(Decrease) - ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 96 vs 95 95 vs 94 - ------------------------------------------------------------------------------------------------------------------------------- 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
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 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 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):
Percentage Increase - ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 96 vs 95 95 vs 94 - ------------------------------------------------------------------------------------------------------------------------------- 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
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 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:
Total Maturity Interest Facility Facility Date Rate Fees - --------------------------------------------------------------------------------------------------------------------------------- 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
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 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 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 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 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years ended December 31 (Note 9)
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 ------ ------ ------- -------- ------------ ---------- ---------- -------- 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 ======= ====== ======== ======== ========== ========== ========== ========
The accompanying notes are an integral part of these consolidated financial statements. 28 Promus Hotel Corporation 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 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 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 ------- ------- 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 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 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 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): 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 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:
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 - ------------------------ -------------- ---------------- ---------------- -------------- ---------------- $ 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 ========= ==== ====== ======= ======
35 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 ======== ======== 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 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. 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 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 QUARTERLY RESULTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year -------------- -------------- ------------- -------------- ----------- 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
(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.
SELECTED FINANCIAL DATA (In thousands) 1996 1995 1994 1993 1992 --------- --------- ------- --------- -------- 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
(a) Includes debt allocated to Promus Hotel Corporation by its Parent for periods prior to the Spin-Off. 39 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 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 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 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 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 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 EX-21.1 13 LIST OF SUBSIDIARIES OF PROMUS HOTEL CORPORATION Exhibit 21.1 SUBSIDIARIES PROMUS HOTEL CORPORATION
Jurisdiction Percentage Date of of of FEIN Name Incorporation Ownership Incorporation Number - ---- ------------- --------- ------------- ------ 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
* In process of being dissolved ** 50% Pacific Hotels, Inc., 50% Promus Hotels, Inc. EX-23.1 14 CONSENT OF ARTHUR ANDERSON LLP 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 EX-27.1 15 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 3,700 0 19,487 (1,180) 217 30,565 439,072 (118,659) 631,965 58,402 243,682 0 0 5,140 242,949 631,965 0 266,625 0 142,751 (4,967) 283 29,016 109,888 45,164 64,724 0 0 0 64,724 1.25 1.25
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