-----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, EH8oY1XS5C5pFbLBAn/jixz39pw+5/5P7g8OO/TzTyYHOFIrM534ym/vYDVh4LjC 3Thy3vIFSNkkKv67SQp08Q== 0000950112-96-001330.txt : 19960508 0000950112-96-001330.hdr.sgml : 19960508 ACCESSION NUMBER: 0000950112-96-001330 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960507 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROMUS HOTEL CORP CENTRAL INDEX KEY: 0000944647 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 621596939 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11463 FILM NUMBER: 96557116 BUSINESS ADDRESS: STREET 1: 6800 POPLAR AVENUE STREET 2: STE 200 CITY: MEMPHIS STATE: TN ZIP: 38138 MAIL ADDRESS: STREET 1: 6800 POPLAR AVENUE STREET 2: STE 200 CITY: MEMPHIS STATE: TN ZIP: 38138 10-Q 1 PROMUS HOTEL CORPORATION SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 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)(Zip Code) (901) 374-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 31, 1996. Common Stock ................................ 51,384,859 shares Page 1 of 43 Exhibit Index Page 25 PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements ---------------------------- As discussed in Note 1, on June 30, 1995, The Promus Companies Incorporated (Parent) completed the transfer of the operations, assets and liabilities of its hotel business (the Hotel Business), composed of three brands targeted at specific market segments (Embassy Suites, Hampton Inn and Homewood Suites) to a new publicly traded entity, Promus Hotel Corporation (Promus or the Company). The accompanying consolidated condensed financial statements of Promus include the assets, liabilities, revenues, expenses and cash flows of the Hotel Business on a stand-alone basis for the three months ended March 31, 1995, as well as actual results of the Company as of December 31, 1995 and for the three months ended March 31, 1996. The accompanying unaudited consolidated condensed financial statements of Promus, a Delaware corporation, have been prepared in accordance with the instructions to Form 10-Q, and therefore do not include all information and notes necessary for complete financial statements in conformity with generally accepted accounting principles. The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) which management considers necessary for a fair presentation of operating results. Results of operations for interim periods are not necessarily indicative of a full year of operations. These consolidated condensed financial statements should be read in conjunction with Promus' consolidated financial statements and notes thereto included in the Promus 1995 Annual Report to Stockholders. 2 PROMUS HOTEL CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) March 31, Dec. 31, (in thousands, except share amounts) 1996 1995 --------- --------- ASSETS Current assets Cash and cash equivalents $ 2,622 $ 2,668 Receivables, including notes receivable of $601 and $497, less allowance for doubtful accounts of $1,211 and $1,172 20,324 14,837 Deferred income taxes 3,556 3,492 Prepayments and other 2,263 2,429 --------- --------- Total current assets 28,765 23,426 --------- --------- Land, buildings, furniture and equipment 444,935 436,887 Less: accumulated depreciation (110,510) (104,993) --------- --------- 334,425 331,894 Investments in and advances to nonconsolidated affiliates (Note 6) 134,651 90,506 Investment in franchise system 35,408 31,652 Deferred costs and other 40,938 42,331 --------- --------- $ 574,187 $ 519,809 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 15,921 $ 18,202 Accrued expenses 41,030 36,371 Current portion of long-term debt 275 278 --------- --------- Total current liabilities 57,226 54,851 Long-term debt (Note 3) 257,649 229,479 Deferred credits and other 38,238 36,282 Deferred income taxes 34,836 31,830 --------- --------- 387,949 352,442 --------- --------- Commitments and contingencies (Note 4) Stockholders' equity Common stock, $0.10 par value, 360,000,000 shares authorized, 51,384,859 and 51,371,152 shares outstanding, net of 3,984 and 2,626 shares held in treasury 5,138 5,137 Capital surplus 136,219 136,057 Retained earnings 38,098 25,349 Unrealized gain on marketable equity securities, net of related deferred tax liability of $4,901 and $1,165 7,665 1,822 Deferred compensation related to restricted stock (882) (998) --------- --------- 186,238 167,367 --------- --------- $ 574,187 $ 519,809 ========= ========= The accompanying notes are an integral part of these consolidated condensed balance sheets. 3 PROMUS HOTEL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) First Quarter Ended March 31, March 31, (in thousands) 1996 1995 -------- -------- Revenues Company owned hotels Rooms $31,313 $29,469 Food and beverage 1,525 1,892 Other 1,892 1,692 Franchise and management fees 21,320 17,496 Other 6,112 5,938 ------- ------- Total revenues 62,162 56,487 ------- ------- Operating expenses Company owned hotels Rooms 14,680 13,600 Food and beverage 1,392 1,702 Other 3,244 3,571 Other operating expenses 5,671 5,222 Depreciation of buildings and equipment 5,849 5,120 Corporate expense 3,831 2,332 ------- ------- Total operating expenses 34,667 31,547 ------- ------- Operating income before property transactions 27,495 24,940 Property transactions (265) (295) ------- ------- Operating income 27,230 24,645 Interest expense, net of interest capitalized (Note 3) (7,708) (8,312) Interest and other income 2,124 254 ------- ------- Income before income taxes 21,646 16,587 Provision for income taxes (8,897) (6,983) ------- ------- Net income (Note 8) $12,749 $ 9,604 ======= ======= The accompanying notes are an integral part of these consolidated condensed financial statements. 4 PROMUS HOTEL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) First Quarter Ended March 31, March 31, (in thousands) 1996 1995 -------- -------- Cash flows from operating activities Net income $ 12,749 $ 9,604 Adjustments to reconcile net income to cash flows provided by operating activities Depreciation and amortization 6,655 5,736 Other noncash items 379 260 Equity in earnings of, net of distributions from, nonconsolidated affiliates (583) 152 Net losses from property transactions - 93 Net change in long-term accounts 2,081 (229) Net change in working capital accounts (2,874) (7,391) -------- -------- Cash flows provided by operating activities 18,407 8,225 -------- -------- Cash flows from investing activities Land, buildings, furniture and equipment additions (8,468) (29,019) Investment in and advances to nonconsolidated affiliates (34,114) - Advances under mezzanine loan agreements (1,206) (3,151) Repayments under mezzanine loan agreements 1,000 - Net investments in franchise system (5,626) (2,346) Recovery of investment in franchise system 1,394 817 Other 254 43 -------- -------- Cash flows used in investing activities (46,766) (33,656) -------- -------- Cash flows from financing activities Debt retirements (83) (75) Net borrowings under revolving credit facility 28,250 - Advances from parent - 25,371 Other 146 - -------- -------- Cash flows provided by financing activities 28,313 25,296 -------- -------- Net decrease in cash and cash equivalents (46) (135) Cash and cash equivalents, beginning of period 2,668 2,221 -------- -------- Cash and cash equivalents, end of period $ 2,622 $ 2,086 ======== ======== The accompanying notes are an integral part of these consolidated condensed financial statements. 5 PROMUS HOTEL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION AND ORGANIZATION - ----------------------------------------------- On June 30, 1995, The Promus Companies Incorporated (Parent) completed the transfer of the operations, assets and liabilities of its hotel business (the Hotel Business), composed of three hotel brands targeted at specific market segments (Embassy Suites, Hampton Inn and Homewood Suites) to a new publicly traded entity, Promus Hotel Corporation (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 Parent and its stock was distributed to Parent's stockholders on a one-for-two basis effective June 30, 1995 (the Distribution). Concurrent with the Distribution, Parent changed its name to Harrah's Entertainment, Inc. The accompanying consolidated condensed financial statements include the assets, liabilities, revenues, expenses and cash flows of Parent's Hotel Business on a stand-alone basis for the three months ended March 31, 1995, as well as actual results of the Company as of December 31, 1995 and for the three months ended March 31, 1996. 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 of these nonconsolidated affiliates in revenues - other and its proportionate share of interest expense of such nonconsolidated affiliates is included in interest expense in the consolidated statements of income (see Note 6 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. NOTE 2 - NATURE OF OPERATIONS - ----------------------------- Promus operates the Embassy Suites, Hampton Inn, Homewood Suites and Hampton Inn & 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 offers a limited-facility hotel 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 and combines, in a single hotel, Hampton-style rooms or two-room suites and a common lodge in the center. 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 four foreign countries. Promus charges each franchisee royalty fees of generally four percent of suite or room rentals. Royalty fees for the three months ended March 31, 1996 and 1995, were based on system-wide reported rooms revenues of $426 million and $365 million, respectively. In addition, Promus earns a licensing fee for new licenses granted to franchisees when the franchise is approved. 6 PROMUS HOTEL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1996 (UNAUDITED) Promus operates more than 100 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 hotel brands that can impact profits and enhance its role as franchisor for the respective brands. Management fee income is based on a percentage of gross revenues, profits, or both at the related managed property. NOTE 3 - LONG-TERM DEBT - ----------------------- Parent Debt Allocation ---------------------- The Company's results of operations through March 31, 1995, reflect 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' new $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 $5.0 million for the three months ended March 31, 1995. Interest Rate Agreements ------------------------ As of March 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 Variable (All Associated Effective Rate with the Promus Swap Rate Rate at Adjustment Swap Facility) Paid (Fixed) March 31 Date Maturity - --------------- ----------- --------- ---------- -------- $12.5 million 6.92% 7.47% 6/1996 12/1998 $12.5 million 6.74% 7.29% 4/1996 1/1999 $12.5 million 6.68% 7.23% 6/1996 12/1999 $12.5 million 6.52% 7.07% 4/1996 1/2000 $50.0 million 6.99% 7.54% 6/1996 3/2000 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 interest rates pursuant to the terms of these interest rate agreements will have a corresponding effect on Promus' 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. 7 PROMUS HOTEL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1996 (UNAUDITED) NOTE 4 - 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 and other investments. Promus believes the likelihood is remote that material payments will be required under these agreements. Promus' estimated maximum exposure under such agreements is approximately $64 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 agreed to purchase up to $25 million in FelCor limited partnership interests to help fund the partnership's acquisition of all-suite upscale hotels to be 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 plans to convert up to 16 of the Crown Sterling Suites hotels to the Embassy Suites brand. In consideration, Promus agreed to make up to $50 million available to FelCor for the conversions through investments in FelCor common stock and guaranteed a third party loan to FelCor, not to exceed $25 million. Hotels converted to the Embassy Suites brand under either of these agreements will operate under 20-year license agreements, and 10-year management contracts will be 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 March 31, 1996, FelCor has acquired under both agreements, 21 all- suite hotel properties with three Crown Sterling hotels remaining to close (one closed in early April 1996 and two are scheduled to close in early May 1996). Of the eight non-Crown Sterling hotels acquired by FelCor, five of these properties were Embassy Suites hotels before their acquisition and two of the five were already being managed by Promus. As of March 31, 1996, Promus managed all 21 properties of which 12 remain to be converted to the Embassy Suites brand. Conversion of these remaining properties is expected to be completed by mid-year 1996 and franchise fees will be earned on these properties only after the conversion to the Embassy Suites brand is complete. As of March 31, 1996, Promus had funded approximately $67.9 million of the total $75 million commitment, and had loaned an additional $3.7 million to FelCor, representing one-half of the remaining deposit required for the Crown Sterling Suites acquisition. The total commitment will be reduced by the amount of such loans outstanding. Based on the market value of the FelCor common stock as of March 31, 1996, Promus has recorded an unrealized gain on marketable equity securities of $12.6 million (before tax). However, this amount will fluctuate based on Promus' funding for the remaining three properties and the market value of the FelCor common stock. 8 PROMUS HOTEL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1996 (UNAUDITED) 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 13 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. The agreements also provide for accelerated payment of any compensation or awards payable to such executive under any Promus incentive compensation or stock option plan in the event of termination of an executive's employment, as described in the agreements, 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 March 31, 1996, would be approximately $19.2 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 in the near term. 9 PROMUS HOTEL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1996 (UNAUDITED) NOTE 5 - 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): First Quarter Ended March 31, March 31, 1996 1995 -------- -------- Interest expense, net of amount capitalized (Note 3) $ 7,708 $ 8,312 Adjustments to reconcile to cash paid for interest Promus' share of interest expense of nonconsolidated affiliates (Note 6) (3,007) (3,261) Net change in accruals (334) - Amortization of deferred finance charges (192) (194) Net amortization of discounts and premiums - (6) Other (38) (38) ------- ------- Cash paid for interest, net of amount capitalized $ 4,137 $ 4,813 ======= ======= Cash paid for income taxes $ 4,588 $ - ======= ======= For purposes of this presentation, interest expense allocated to Promus by Parent is assumed to be paid in the quarter allocated. Parent was responsible for the payment of Promus' income taxes for periods prior to the Spin-Off. 10 PROMUS HOTEL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1996 (UNAUDITED) NOTE 6 - NONCONSOLIDATED AFFILIATES - ----------------------------------- Combined summarized statements of income for nonconsolidated affiliates, which Promus accounted for using the equity method, were as follows (in thousands): First Quarter Ended March 31, March 31, 1996 1995 -------- -------- Combined Summarized Statements of Income Revenues $40,941 $37,973 ======= ======= Operating income $ 9,039 $ 7,971 ======= ======= Net income $ 2,586 $ 981 ======= ======= Promus' share of its nonconsolidated affiliates' combined net income is reflected in the accompanying consolidated condensed statements of income as follows (in thousands): First Quarter Ended March 31, March 31, 1996 1995 -------- -------- Pre-interest operating income (included in revenues - other) $ 4,945 $ 4,480 ======= ======= Interest expense (included in interest expense) $(3,007) $(3,261) ======= ======= The components of investments in and advances to nonconsolidated affiliates reflected in the consolidated condensed balance sheet were as follows (in thousands): March 31, Dec. 31, 1996 1995 -------- ------- At equity $ 40,370 $39,868 At cost 14,115 17,622 At market 80,166 33,016 -------- ------- $134,651 $90,506 ======== ======= 11 PROMUS HOTEL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1996 (UNAUDITED) NOTE 7 - 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, is as follows (in thousands): March 31, Dec. 31, 1996 1995 -------- -------- ASSETS Current assets $ 28,536 $ 23,246 Land, buildings and equipment, net 334,425 331,894 Other assets 210,265 163,714 -------- -------- 573,226 518,854 -------- -------- LIABILITIES Current liabilities 57,149 54,851 Long-term debt 257,649 229,479 Other liabilities 73,074 68,112 -------- -------- 387,872 352,442 -------- -------- Net assets $185,354 $166,412 ======== ======== First Quarter Ended March 31, March 31, 1996 1995 -------- -------- Revenues $ 62,162 $ 56,487 ======== ======== Operating income $ 27,358 $ 24,645 ======== ======== Net income $ 12,825 $ 9,604 ======== ======== NOTE 8 - EARNINGS PER SHARE - --------------------------- Promus' common stock was distributed in connection with the Spin-Off on June 30, 1995. In order to present earnings per share on a comparable basis, the weighted average common shares outstanding below for periods prior to the Spin-Off is assumed to be equal to the actual common and common equivalent shares outstanding on June 30, 1995. Historical net income is used for all periods presented (in thousands, except per share amounts). First Quarter Ended March 31, March 31, 1996 1995 -------- -------- Net income $12,749 $ 9,604 ======= ======= Earnings per share $ 0.25 $ 0.19 ======= ======= Weighted average shares outstanding 51,577 51,573 ======= ======= 12 Item 2. Management's Discussion and Analysis --------------------------------------------- of Financial Condition and Results of Operations ------------------------------------------------- On June 30, 1995, The Promus Companies Incorporated (Parent) completed the transfer of the operations, assets and liabilities of its hotel business (the Hotel Business), composed of three hotel brands targeted at specific market segments (Embassy Suites, Hampton Inn and Homewood Suites) to a new publicly traded entity, Promus Hotel Corporation (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 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. RESULTS OF OPERATIONS - --------------------- The principal factors affecting Promus' results are: continued growth in the number of hotels; occupancies 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 disproportionate favorable impact on Promus' operating margin due to lower incremental costs associated with these revenues. As of March 31, 1996, Promus' combined hotel system had grown to include 686 properties, representing a 16.3% increase over first quarter 1995. Total system room revenues for the first quarter 1996 have grown to $426.5 million, which is an annual growth rate of 17.0% since first quarter 1995. Although comparable system (which includes only those hotels open for both quarters) occupancy rates decreased 1.4%, the average daily rate (ADR) increased 6.3%, which contributed to higher RevPAR/S, and the addition of new (primarily franchised) hotels, resulted in significantly improved financial results over prior year first quarter. The continued unit growth of the franchise systems, coupled with a continued focus on rate growth and cost management, were the primary contributors to the Company's higher revenues, margins and operating income. 13 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Actual historical results of operations for the first quarter ended 1996 and 1995 were as follows (in millions, except percentages and per share data): Percentage First Quarter Ended Increase/ 1996 1995 (Decrease) ----- ----- ---------- Revenues $62.2 $56.5 10.1% Income before property transactions 27.5 24.9 10.4 Operating income 27.2 24.6 10.6 Net income 12.7 9.6 32.3 Operating margin 43.7% 43.5% 0.2pts Earnings per share (a) $ 0.25 $ 0.19 31.6% Weighted average shares outstanding (a) 51.6 51.6 - -------- (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. Since Promus began operations as a public company on July 1, 1995, comparison of historical results is difficult. The most notable differences between years relate to the incremental stand alone public company costs incurred in the first three months of 1996, and that prior to the Spin-Off, interest was allocated to Promus from Parent at Parent's higher overall borrowing rate. In order to recompute the Company's results of operations on a pro forma basis to achieve better comparability between quarters ended March 31, the following adjustments were made (in thousands): 1995 ------- Incremental stand alone public company costs $(2,032) Net reduction in interest expense 1,198 Net revenues and expenses related to the purchase of the corporate office complex 8 Decrease in tax provision related to the above adjustments 348 ------- Total adjustments to net income $ (478) ======= Results of operations on a pro forma basis for the first quarter 1995 versus actual results for first quarter 1996 were as follows (in millions, except percentages and per share data): First Quarter Ended Percentage Pro Forma Increase/ 1996 1995 (Decrease) ----- --------- ---------- Revenues $62.2 $56.6 9.9% Income before property transactions 27.5 22.9 20.1 Operating income 27.2 22.6 20.4 Net income 12.7 9.1 39.6 Operating margin 43.7% 39.9% 3.8pts Earnings per share $ 0.25 $ 0.18 38.9% Weighted average shares outstanding 51.6 51.6 14 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The first quarter 1996 increases in operating income and margins are primarily a function of the addition of new franchised hotels, system-wide increases in ADR and cost containment. On a comparable hotel basis, first quarter 1996 RevPAR/S increased 4.8%, 4.8% and 5.5% over 1995 at Embassy Suites, Hampton Inn and Homewood Suites hotels, respectively. Company owned hotel revenues for 1996 increased approximately 5.1% or $1.7 million over 1995, while the related operating expenses increased only 2.3% or $0.4 million. The following comparison of expenses and other items is based on actual historical results (in millions, except percentages): Percentage First Quarter Ended Increase/ 1996 1995 (Decrease) ----- ----- ---------- Corporate expense $ 3.8 $ 2.3 65.2% Property transactions 0.3 0.3 - Interest expense (7.7) (8.3) (7.2) Interest and other income 2.1 0.3 N/M Effective tax rate 41.1% 42.1% (1.0)pts Corporate expense reflects the cost of specific Promus staff functions which support all the hotel brands, as well as stand alone company costs for 1996. Interest expense for the quarter ended March 31, 1995, includes the pro rata allocation of corporate interest by Parent related to the debt that was expected to be retired in connection with the Spin-Off using funds drawn on the Company's new $350 million bank credit facility (the Promus Facility), in addition to Promus' share of interest expense attributable to its nonconsolidated affiliates (including joint ventures) and other specific hotel- related debt. Interest expense for the first quarter 1996 decreased compared to 1995 due primarily to lower actual interest rates obtained under the Promus Facility as compared to Parent's overall borrowing rate used to allocate corporate interest expense before the Spin-Off. Interest and other income for first quarter 1996 increased over 1995 due primarily to interest charged on the investment in franchise system, as well as increased interest income on mezzanine loans to franchisees and dividend income associated with the Company's investments (see Development and Capital Spending). The effective tax rate for all periods is higher than the federal statutory rate primarily due to state income taxes. 15 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) DEVELOPMENT AND CAPITAL SPENDING - -------------------------------- Hotel Development ----------------- There were 17 net franchised additions in the Promus hotel system during first quarter 1996 compared to 20 in first quarter 1995. This continued development growth is particularly impressive when one considers that, per Smith Travel Research as of the latest available information at February 29, 1996, Promus hotel brands had a 2.7% share of the entire United States room supply, but accounted for an industry leading 16.9% share of new rooms added to the market from ground-up construction during the first two months of 1996. This growth occurred primarily in the Hampton Inn brand. As of March 31, 1996, 138 properties were under construction or in the process of being converted to a Promus brand, 135 of which will operate under franchise agreements as Promus brands: 94 Hampton Inn hotels; 22 Embassy Suites hotels; 11 Hampton Inn & Suites; and 11 Homewood Suites hotels. These 138 properties will add over 16,000 rooms or suites to the Promus hotel system. The Company had 84 properties under construction at the same time last year. Promus had an additional 183 hotels approved and in the design phase at March 31, 1996. Promus opened two Hampton Inn & Suites hotels in first quarter 1996. The Hampton Inn & Suites brand is the newest Promus hotel brand and combines, in a single hotel, Hampton-style rooms or two-room suites and a common lodge in the center. Of the 183 hotels in the design phase at March 31, 1996, 30 were Hampton Inn & Suites hotels. To encourage system growth, Promus currently plans to spend approximately $110 million to expand the Homewood Suites brand by developing as many as 14 additional company owned properties over the next three to five years. The Company, however, plans to continue its general strategy of growing its brands primarily through franchise and management contracts. As in the past, company owned hotels and new development projects may be sold to franchisees and the proceeds used to fuel additional system growth, develop new concepts or for other corporate purposes. FelCor Agreements ----------------- In May 1995, Promus entered into a Subscription Agreement with FelCor Suite Hotels, Inc. and FelCor Suites Limited Partnership (FelCor) whereby Promus agreed to purchase up to $25 million in FelCor limited partnership interests to help fund the partnership's acquisition of all-suite upscale hotels to be 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 plans to convert up to 16 of the Crown Sterling Suites hotels (over 4,000 suites) to the Embassy Suites brand. In consideration, Promus agreed to make up to $50 million available to FelCor for the conversions through investments in FelCor common stock and guaranteed a third party loan to FelCor, not to exceed $25 million. Hotels converted to the Embassy Suites brand under either of these agreements will operate under 20-year license agreements, and 10-year management contracts will be 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. 16 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) As of March 31, 1996, FelCor has acquired under both agreements, 21 all- suite hotel properties with three Crown Sterling hotels remaining to close (one closed in early April 1996 and two are scheduled to close in early May 1996). Of the eight non-Crown Sterling hotels acquired by FelCor, five of these properties were Embassy Suites hotels before their acquisition and two of the five were already being managed by Promus. As of March 31, 1996, Promus managed all 21 properties of which 12 remain to be converted to the Embassy Suites brand. Conversion of these remaining properties is expected to be completed by mid-year 1996 and franchise fees will be earned on these properties only after the conversion to the Embassy Suites brand is complete. These 24 properties include 5,765 suites. As of March 31, 1996, Promus had funded approximately $67.9 million of the total $75 million commitment, and had loaned an additional $3.7 million to FelCor, representing one-half of the remaining deposit required for the Crown Sterling Suites acquisition. The total commitment will be reduced by the amount of such loans outstanding. Based on the market value of the FelCor common stock as of March 31, 1996, Promus has recorded an unrealized gain on marketable equity securities of $12.6 million (before tax). However, this amount will fluctuate based on Promus' funding for the remaining three properties and the market value of the FelCor common stock. Strategic Alliance Agreements ----------------------------- In March 1996, Promus announced it would enter into strategic development alliances with Equity Inns, Inc. (Equity Inns), and Winston Hotels, Inc. (Winston Hotels). Equity Inns is the largest owner of Hampton Inn hotels, with 29 properties and Winston Hotels currently owns 13 Promus branded hotels. Under the terms of separate memorandums of understanding, Promus will invest up to $15 million in common stock of both Equity Inns and Winston Hotels as they purchase existing or to be constructed Promus hotels. The agreements contemplate three existing properties at a stated price and seven company approved projects at Promus' cost of construction. Total proceeds to Promus from these sales are estimated at $94.2 million over the next 18 months. Both Equity Inns and Winston Hotels intend to spend $100 million for the development of Promus brand properties over the next few years. In return, Promus will receive 20-year license agreements and 10-year management agreements. Mezzanine Financing Program --------------------------- To encourage growth (primarily in the Hampton Inn & Suites and Homewood Suites brands) in light of the lack of available financing for new hotel construction, Promus 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 mezzanine financing must be consistent with the terms of the first mortgage lender, with whom Promus will enter into an inter-creditor agreement. Promus provided $1.2 million in mezzanine loans during first quarter 1996, and anticipates providing an additional $18.4 million during 1996. Additionally, one loan with a balance of $1.0 million was paid off early during first quarter 1996. Outstanding loans bear interest at rates ranging from 10.0% to 10.5%. 17 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Other ----- Ongoing refurbishment of Promus' existing company owned hotel properties to maintain the quality standards set for those properties will continue in 1996 at an estimated annual cost of approximately $11 million. During the first quarter 1996, $2.5 million in costs had been incurred for hotel refurbishment. As of March 31, 1996, Promus had incurred $1.3 million in costs to renovate its corporate headquarters. An additional $8.6 million is estimated to complete the renovation by year-end 1996. 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 $51.9 million during first quarter 1996. The Company expects to spend between $140 million and $160 million during 1996 to fund project development, including those projects discussed above, as well as to refurbish existing facilities and for other corporate related projects. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The accompanying financial statements represent the portion of Parent's historical revenues, expenses, assets, liabilities and cash flows associated with its hotel operations through March 31, 1995, before becoming a stand alone company on July 1, 1995. The year to date results of operations and cash flows are not necessarily indicative 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 subsequent to the Distribution (Parent historically paid Promus' taxes). Cash flows from operating activities for the quarter ended March 31, 1996, were $18.4 million, compared with $8.2 million for the same period last year. This increase primarily results from improved operations and a $4.5 million increase in income taxes payable. EBITDA, consisting of income before extraordinary items plus interest, taxes, depreciation, amortization and net earnings of, or distributions from, nonconsolidated affiliates, was $32.2 million for first quarter 1996, compared with $27.3 million for the comparable period in 1995, representing a 17.9% increase. EBITDA is a supplemental financial measurement used by management as well as by industry analysts to evaluate operations, but should not be construed as an alternative to operating income (as an indicator of operating performance) or to cash flows from operating activities (as a measure of liquidity) as determined in accordance with generally accepted accounting principles. On March 31, 1996, the Company had a working capital deficit of $28.5 million which is a $2.9 million improvement over the deficit at December 31, 1995. The working capital deficit resulted primarily from Promus' cash management program that calls for all excess cash 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. 18 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Promus Facility, which is secured by the stock of certain of its material subsidiaries, 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 Five-Year LIBOR +35 0.20% of the Revolver $300,000,000 June 30, 2000 basis points total facility Base Rate, as defined, or Extendible LIBOR +40 0.15% of the Revolver $ 50,000,000 June 6, 1996 basis points total facility 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 (Investment Grade ratings by both Moody's Investors Service and Standard & Poor's) or leverage ratio, as defined. They also contain provisions that restrict certain investments, limit the Company's ability to incur additional indebtedness and pay dividends, and require that certain performance ratios be maintained. As of March 31, 1996, Promus was in compliance with all such covenants. The Five-Year Revolver includes a sublimit for letters of credit of $20 million. At March 31, 1996, approximately $11.2 million in letters of credit were outstanding under this agreement (related primarily to the Company's self-insurance reserves). There was approximately $82 million of availability under the Promus Facility as of March 31, 1996. The remaining borrowing capacity available under the Promus Facility is available for working capital, hotel development and other general corporate purposes. As of March 31, 1996, Promus was a party to several interest rate swap agreements that bear a total notional amount of $100 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. The weighted average effective fixed rate pursuant to the agreements, which expire between December 1998 and March 2000, was approximately 7.4% at the end of the quarter. 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). 19 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) First Quarter Ended March 31, March 31, Inc/ PERFORMANCE STATISTICS 1996 1995 (Dec) - ---------------------- -------- ------- ------ COMPARABLE SYSTEM HOTELS* Embassy Suites Occupancy 73.8% 74.1% (0.3)pts ADR $108.30 $102.98 5.2% RevPAS $ 79.90 $ 76.27 4.8% Hampton Inn Occupancy 68.0% 69.3% (1.3)pts ADR $ 58.76 $ 54.97 6.9% RevPAR $ 39.94 $ 38.12 4.8% Hampton Inn & Suites Occupancy - - - ADR - - - RevPAS - - - Homewood Suites Occupancy 74.2% 75.7% (1.5)pts ADR $ 86.12 $ 80.02 7.6% RevPAS $ 63.89 $ 60.54 5.5% TOTAL SYSTEM HOTELS Embassy Suites Occupancy 73.1% 74.0% (0.9)pts ADR $107.99 $102.57 5.3% RevPAS $ 78.91 $ 75.88 4.0% Hampton Inn Occupancy 67.0% 69.0% (2.0)pts ADR $ 58.89 $ 55.02 7.0% RevPAR $ 39.46 $ 37.97 3.9% Hampton Inn & Suites Occupancy 54.4% - N/M ADR $ 66.28 - N/M RevPAS $ 36.07 - N/M Homewood Suites Occupancy 71.6% 74.8% (3.2)pts ADR $ 87.09 $ 79.32 9.8% RevPAS $ 62.39 $ 59.34 5.1% TOTAL SYSTEM REVENUES (in thousands) Hampton Inn $208,643 $172,292 21.1% Embassy Suites 197,737 176,604 12.0% Homewood Suites 18,083 15,698 15.2% Hampton Inn & Suites 2,036 - N/M -------- -------- $426,499 $364,594 17.0% ======== ======== *Includes results for only those hotels open for the entire applicable period for both years. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) TOTAL HOTELS AND ROOMS/SUITES
Number of Hotels Percent Number of Rooms/Suites Percent March 31, March 31, Inc/ March 31, March 31, Inc/ 1996 1995 (Dec) 1996 1995 (Dec) -------- -------- ------- ----------- -------- ------- Embassy Suites Company owned 9 9 - 2,025 2,025 - Joint venture 23 23 - 5,897 5,901 (0.1)% Management contract 30 25 20.0 % 7,251 6,124 18.4 % Franchised 55 52 5.8 % 12,493 11,885 5.1 % --- --- ------ ------ 117 109 7.3 % 27,666 25,935 6.7 % === === ====== ====== Hampton Inn Company owned 14 15 (6.7)% 1,916 2,047 (6.4)% Joint venture 19 19 - 2,376 2,376 - Management contract 4 4 - 464 464 - Franchised 494 416 18.8 % 54,082 46,528 16.2 % --- --- ------ ------ 531 454 17.0 % 58,838 51,415 14.4 % === === ====== ====== Hampton Inn & Suites Company owned - - - - - - Joint venture - - - - - - Management contract 1 - - 127 - - Franchised 6 - - 677 - - --- --- ------ ------ 7 - - 804 - - === === ====== ====== Homewood Suites Company owned 9 8 12.5 % 1,024 932 9.9 % Joint venture - - - - - - Management contract - - - - - - Franchised 22 19 15.8 % 2,217 2,033 9.1 % --- --- ------ ------ 31 27 14.8 % 3,241 2,965 9.3 % === === ====== ====== Total System Company owned 32 32 - 4,965 5,004 (0.8)% Joint venture 42 42 - 8,273 8,277 (0.1)% Management contract 35 29 20.7 % 7,842 6,588 19.0 % Franchised 577 487 18.5 % 69,469 60,446 14.9 % --- --- ------ ------ 686 590 16.3 % 90,549 80,315 12.7 % === === ====== ======
22 PART II - OTHER INFORMATION --------------------------- Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) Exhibits EX-10.1 Form of Interest Swap Confirmations, dated January 22, 1996, between NationsBank, N.A. and Promus Hotels, Inc.(1) EX-10.2 Form of Unwind Interest Swap Confirmation, dated January 22, 1996, between NationsBank, N.A. and Promus Hotels, Inc.(1) EX-10.3 Form of Guarantee Agreement, dated February 6, 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. (1) EX-27 Financial Data Schedule. (1) (b) No reports on Form 8-K were filed during the quarter ended March 31, 1996. - -------- Footnote (1) Filed herewith. 23 Signature --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PROMUS HOTEL CORPORATION May 7, 1996 By: JEFFERY M. JARVIS ----------------------------- Jeffery M. Jarvis Vice President and Controller (Chief Accounting Officer) 24 Exhibit Index ------------- Sequential Exhibit No. Description Page No. - ------------ ---------------------------------------- ---------- (a) EX-10.1 Form of Interest Swap Confirmations, dated January 22, 1996, between NationsBank, N.A. and Promus Hotels, Inc.(1) 26 EX-10.2 Form of Unwind Interest Swap Confirmation, dated January 22, 1996, between NationsBank, N.A. and Promus Hotels, Inc.(1) 32 EX-10.3 Form of Guarantee Agreement, dated February 6, 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. (1) 33 EX-27 Financial Data Schedule. (1) 43 (b) No reports on Form 8-K were filed during the quarter ended March 31, 1996. - -------- Footnote (1) Filed herewith. 25 EX-10.1 2 EX-10.1 CONFIRMATION FOR U.S. DOLLAR RATE SWAP TRANSACTION UNDER EXISTING 1992 MASTER AGREEMENT TO: PROMUS HOTELS, INC. 1023 CHERRY ROAD MEMPHIS, TN 38117 ATTN: CAROL CHAMPION TEL: 901-762-4052 FAX: 901-680-7220 FROM: NationsBank, N.A. 233 S. Wacker Drive Chicago, Illinois 60606 JEFF MCNEIL / JIM O'DONNELL Date: 22JAN96 Our Reference No. 448760 The purpose of this letter agreement is to confirm the terms and conditions of the Swap Transaction entered into between us on the Trade Date specified below (the "Swap Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) ("Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of 30JUN95, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Swap Transaction to which this Confirmation relates are as follows: Notional Amount: USD 12,500,000.00 Trade Date: 18JAN96 Effective Date: 22JAN96 Termination Date: 24JAN00, subject to adjustment in accordance with the Modified Following Business Day Convention. Fixed Amounts: Fixed Rate Payer: PROMUS HOTELS, INC. 26 Fixed Rate Payer Payment Dates: EACH JANUARY 22, APRIL 22, JULY 22, AND OCTOBER 22, COMMENCING APRIL 22, 1996 AND ENDING JANUARY 24, 2000, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. Fixed Rate Payer Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY Fixed Rate Payer Business Days: NEW YORK, LONDON Fixed Rate: 6.52% Fixed Rate Payer Day Count Fraction: ACTUAL/360 Floating Amounts: Floating Rate Payer: NATIONSBANK, N.A. Floating Rate Payer Reset Dates: First Day of Each Calculation Period Floating Rate Payer Payment Dates: EACH JANUARY 22, APRIL 22, JULY 22, AND OCTOBER 22, COMMENCING APRIL 22, 1996 AND ENDING JANUARY 24, 2000, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. Floating Rate Payer Business Days: NEW YORK, LONDON Floating Rate Payer Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY Floating Rate Option: USD-LIBOR-BBA Designated Maturity: 3 MONTH Spread: NONE Floating Rate for Initial Calculation Period: 5.50% Floating Rate Payer Day Count Fraction: ACTUAL/360 Averaging: INAPPLICABLE Rounding Factor: One-Hundred-Thousandth of One Percent 27 Calculation Agent: NationsBank, N.A. Assignment: This Swap Transaction may be assigned only with prior written consent. Legal and Out-of-Pocket Expenses: For each party's own account. Governing Law: The Laws of the State of New York. Recording of Conversations: Each party to this Agreement acknowledges and agrees to the tape or electronic recording of conversations between the parties to this Agreement whether by one or other or both of the parties, and that any such recordings may be submitted in evidence in any action or proceeding relating to the Agreement or any Transaction. Payment Instructions: Payment to NationsBank: Payment to PROMUS HOTELS, INC.: NATIONSBANK, N.A. - CHARLOTTE PLEASE ADVISE ABA 053000196 ACCT: 10852016511 ATTN: DERIVATIVE OPERATIONS Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding with three (3) Business Days by either (i) returning via telecopier an executed copy of this Confirmation to the attention of Marge Szymczak, Fax No. (312) 234-3160; Telephone No. (312) 234-2934, or (ii) sending a telex to Marge Szymczak (Telex No. 4330469, answerback: CRT CGO) substantially to the following effect: "We acknowledge receipt of your fax dated 22JAN96 with respect to a Swap Transaction between PROMUS HOTELS, INC. and NationsBank, N.A. with an initial Notional Amount of USD 12,500,000.00 and a Termination Date of 24JAN00 and confirm that such fax correctly sets forth the term of our agreement relating to the Swap Transaction described therein. Very truly yours , by (specify name and title of authorized officer)." Failure to respond within such period shall not affect the validity or enforceability of this Swap Transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, By: ------------------------ Nick Kolick, Vice President Authorized Signatory Confirmed as of the date first written above: PROMUS HOTELS, INC. By: ------------------------ Authorized Signatory 28 CONFIRMATION FOR U.S. DOLLAR RATE SWAP TRANSACTION UNDER EXISTING 1992 MASTER AGREEMENT TO: PROMUS HOTELS, INC. 1023 CHERRY ROAD MEMPHIS, TN 38117 ATTN: CAROL CHAMPION TEL: 901-762-4052 FAX: 901-680-7220 FROM: NationsBank, N.A. 233 S. Wacker Drive Chicago, Illinois 60606 JEFF MCNEIL / JIM O'DONNELL Date: 22JAN96 Our Reference No. 448770 The purpose of this letter agreement is to confirm the terms and conditions of the Swap Transaction entered into between us on the Trade Date specified below (the "Swap Transaction"). This letter agreement constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) ("Definitions") are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and this Confirmation this Confirmation will govern. 1. This Confirmation supplements, forms part of, and is subject to, the ISDA Master Agreement dated as of 30JUN95, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement shall govern this Confirmation except as expressly modified below. 2. The terms of the Swap Transaction to which this Confirmation relates are as follows: Notional Amount: USD 12,500,000.00 Trade Date: 18JAN96 Effective Date: 22JAN96 Termination Date: 22JAN99, subject to adjustment in accordance with the Modified Following Business Day Convention. Fixed Amounts: Fixed Rate Payer: PROMUS HOTELS, INC. 29 Fixed Rate Payer Payment Dates: EACH JANUARY 22, APRIL 22, JULY 22, AND OCTOBER 22, COMMENCING APRIL 22, 1996 AND ENDING JANUARY 22, 1999, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. Fixed Rate Payer Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY Fixed Rate Payer Business Days: NEW YORK, LONDON Fixed Rate: 6.74% Fixed Rate Payer Day Count Fraction: ACTUAL/360 Floating Amounts: Floating Rate Payer: NATIONSBANK, N.A. Floating Rate Payer Reset Dates: First Day of Each Calculation Period Floating Rate Payer Payment Dates: EACH JANUARY 22, APRIL 22, JULY 22, AND OCTOBER 22, COMMENCING APRIL 22, 1996 AND ENDING JANUARY 22, 1999, SUBJECT TO ADJUSTMENT IN ACCORDANCE WITH THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION. Floating Rate Payer Business Days: NEW YORK, LONDON Floating Rate Payer Business Day Convention: MODIFIED FOLLOWING BUSINESS DAY Floating Rate Option: USD-LIBOR-BBA Designated Maturity: 3 MONTH Spread: NONE Floating Rate for Initial Calculation Period: 5.50% Floating Rate Payer Day Count Fraction: ACTUAL/360 Averaging: INAPPLICABLE Rounding Factor: One-Hundred-Thousandth of One Percent 30 Calculation Agent: NationsBank, N.A. Assignment: This Swap Transaction may be assigned only with prior written consent. Legal and Out-of-Pocket Expenses: For each party's own account. Governing Law: The Laws of the State of New York. Recording of Conversations: Each party to this Agreement acknowledges and agrees to the tape or electronic recording of conversations between the parties to this Agreement whether by one or other or both of the parties, and that any such recordings may be submitted in evidence in any action or proceeding relating to the Agreement or any Transaction. Payment Instructions: Payment to NationsBank: Payment to PROMUS HOTELS, INC.: NATIONSBANK, N.A. - CHARLOTTE PLEASE ADVISE ABA 053000196 ACCT: 10852016511 ATTN: DERIVATIVE OPERATIONS Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding with three (3) Business Days by either (i) returning via telecopier an executed copy of this Confirmation to the attention of Marge Szymczak, Fax No. (312) 234-3160; Telephone No. (312) 234-2934, or (ii) sending a telex to Marge Szymczak (Telex No. 4330469, answerback: CRT CGO) substantially to the following effect: "We acknowledge receipt of your fax dated 22JAN96 with respect to a Swap Transaction between PROMUS HOTELS, INC. and NationsBank, N.A. with an initial Notional Amount of USD 12,500,000.00 and a Termination Date of 22JAN99 and confirm that such fax correctly sets forth the term of our agreement relating to the Swap Transaction described therein. Very truly yours , by (specify name and title of authorized officer)." Failure to respond within such period shall not affect the validity or enforceability of this Swap Transaction, and shall be deemed to be an affirmation of the terms and conditions contained herein, absent manifest error. Yours Sincerely, NationsBank, N.A. By: ------------------------ Nick Kolick, Vice President Authorized Signatory Confirmed as of the date first written above: PROMUS HOTELS, INC. By: ------------------------ Authorized Signatory 31 EX-10.2 3 EX-10.2 UNWIND CONFIRMATION FOR RATE SWAP TRANSACTION January 22, 1996 To: Promus Hotels, Inc. Attn: Carol G. Champion Fax: 901-680-7220 RE: Unwind of Rate Swap Transaction between NationsBank, N.A.("NationsBank") formerly known as NationsBank of North Carolina, N.A. and Promus Hotels, Inc. ("Promus") formerly known as Embassy Suites Inc. Our Ref. #CX291790 Ladies and Gentlemen: This is to confirm our agreement that we are terminating the referenced Rate Swap Transaction. This Rate Swap Transaction had an Amended Notional Amount of USD 25,000,000.00, a Fixed Rate 7.8625% with an Amended Effective Date of December 15, 1995 and an original Termination Date of July 28, 1997. In consideration of the early termination of this Transaction (i) USD 54,097.22 will be paid by Promus to NationsBank on January 22, 1996, (ii) Promus and NationsBank shall enter into a new Swap Transaction with an effective date of January 22, 1996 and a termination date of January 22, 1999 (our Ref No. 448770) and (iii) Promus and NationsBank shall enter into a new Swap Transaction with an effective date of January 22, 1996 and a termination date of January 22, 2000 (our Ref. No. 448760). Upon our receipt of USD 54,097.22 in immediately available funds on January 22, 1996, all future payment obligations of NationsBank and Promus under this Swap Transaction will be terminated. Payments to NationsBank as follows: NationsBank, N.A., Charlotte ABA 053000196 GL# 10852016511 ATTN: Derivative Operations Please confirm that the foregoing correctly sets forth the terms and conditions of our agreement by responding immediately by either (i) returning via telecopier an executed copy of this letter to the attention of Marge Szymczak, Fax No. 312-234-3160; Telephone No. 312-234-2924, or (ii) sending a telex to Marge Szymczak (Telex No. 4330469, answerback; CRT CGO) substantially to the following effect: "We acknowledge receipt of your fax dated January 22, 1996, and confirm that such fax correctly sets forth the terms of our agreement relating to the Swap Transaction described therein. Very Truly yours, , by (specify name and title of authorized officer)." NATIONSBANK, N.A. By: ------------------------------------------- Authorized Signatory Accepted and confirmed as of the date first written: PROMUS HOTELS, INC. By: ------------------------------------------- Authorized Signatory 32 EX-10.3 4 EX-10.3 $25,000,000 CREDIT AGREEMENT DATED AS OF FEBRUARY 6, 1996 AMONG FELCOR SUITES LIMITED PARTNERSHIP, AS THE BORROWER FELCOR/CSS HOLDINGS L.P. AND FELCOR SUITE HOTELS, INC., AS THE GUARANTORS VARIOUS LENDERS AND CANADIAN IMPERIAL BANK OF COMMERCE, AS THE AGENT FOR THE LENDERS CLOSING DOCUMENTS 1. $25,000,000 Credit Agreement 2. Promissory Notes of the Borrower 3. Promus Guarantee 4. Certificate from Secretary of the Borrower responsive to Section 5.1.5 5. Closing Certificate responsive to Section 5.1.1 from General Partner of FelCor/CSS Holdings L.P. 6. Closing Certificate responsive to Section 5.1.1 from FelCor Suite Hotels, Inc. 7. Closing Certificate responsive to Section 5.1.1 from Promus Hotel Corporation 8. Closing Certificate responsive to Section 5.1.1 from Promus Hotels, Inc. 9. Good Standing Certificates for Borrower 10. Good Standing Certificates for Promus Hotel Corporation and Promus Hotels, Inc. 11. Opinion of Counsel from Bracewell and Patterson, L.L.P., counsel to the Borrower and the FelCor Guarantors 12. Opinion of Counsel from Ralph B. Lake, general counsel of the Promus Guarantors 13. Opinion of Counsel of Latham & Watkins, outside counsel to the Promus Guarantors 33 THIS GUARANTEE AGREEMENT, dated as of February 6, 1996 (the "Guarantee") is executed by Promus Hotel Corporation, a Delaware corporation ("Promus Corp.") and Promus Hotels, Inc., a Delaware corporation ("Promus Inc."; Promus Inc. and Promus Corp. are collectively referred to herein as the "Promus Guarantors" and individually referred to herein as a "Promus Guarantor"), in favor of the hereinafter-described Lenders and Canadian Imperial Bank of Commerce ("CIBC"), as agent (the "Agent") for the lenders (the "Lenders") party to that certain Credit Agreement of even date herewith (the "Credit Agreement") among such Lenders, the Agent, FelCor Suites Limited Partnership, a Delaware limited partnership (the "Borrower"), FelCor/CSS Holdings L.P., a Delaware limited partnership ("FelCor/CSS") and FelCor Suite Hotels, Inc., a Maryland corporation ("FelCor Suite"; FelCor/CSS and FelCor Suite are referred to herein individually as a "FelCor Guarantor" and collectively as the "FelCor Guarantors"), W I T N E S S E T H: WHEREAS, pursuant to the terms of the Credit Agreement, the Lenders have agreed, subject to the terms and conditions set forth therein, to make Loans to the Borrower in a maximum aggregate principal amount at any one time outstanding not to exceed $25,000,000; WHEREAS, as a condition precedent to the making of the Loans thereunder, the Promus Guarantors are required to make the guarantees provided for herein; WHEREAS, it is in the best interests of the Promus Guarantors to make the guarantees provided for herein inasmuch as the Promus Guarantors will derive substantial direct and indirect benefits from the Loans made from time to time to the Borrower pursuant to the terms of the Credit Agreement (including, without limitation, the benefits derived from Promus Corp.'s management contracts covering most of the Hotels); and NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 14. DEFINITIONS AND ACCOUNTING TERMS SECTION a. Defined Terms. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Credit Agreement. ARTICLE 15. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Agent to enter into the Credit Agreement and to make Loans thereunder, each Promus Guarantor represents and warrants unto the Agent and each Lender as set forth in this Article II. SECTION a. Organization, etc. Each Promus Guarantor is a corporation validly organized and existing and in good standing under the laws of the State of its formation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of its business requires such qualification, and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its obligations under this Guarantee. 34 SECTION b. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by each Promus Guarantor of this Guarantee is within such Guarantor's corporate powers, has been duly authorized by all necessary corporate action, and does not (1) contravene such Promus Guarantor's Organic Documents; (2) contravene any material contractual restriction, law or governmental regulation or court decree or order binding on or affecting such Promus Guarantor; or (3) result in, or require the creation or imposition of, any material Lien on any of such Promus Guarantor's properties. SECTION c. Government Approval, Regulation, etc. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by any Promus Guarantor of this Guarantee, which has not been made or which will not be made on a timely basis. SECTION d. Validity, etc. This Guarantee constitutes the legal, valid and binding obligation of each Promus Guarantor enforceable in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, reorganization or other similar laws now or hereafter in effect. SECTION e. Financial Information. The unaudited balance sheet of Promus Corp. and its consolidated Subsidiaries, and the related unaudited statements of earnings and cash flows of Promus Corp. and its consolidated Subsidiaries, as of September 30, 1995 have heretofore been furnished to the Agent. Such interim financial statements for such period have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby and (on the basis disclosed in the footnotes to such financial statements) present fairly, in all material respects, the consolidated financial condition, results of operations and cash flows of Promus Corp. and its consolidated Subsidiaries as of such date and such period subject to year-end and audit adjustments. SECTION f. No Material Adverse Change. Since the date of the financial statements described in Section 2.5, there has been no material adverse change in the financial condition, operations, assets, business, properties or prospects of Promus Corp. and its Subsidiaries. SECTION g. Accuracy of Information. All factual information heretofore or contemporaneously furnished by or on behalf of any Promus Guarantor in writing to the Agent or any Lender for purposes of or in connection with this Guarantee or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of any Promus Guarantor to the Agent or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. 35 ARTICLE 16. COVENANTS SECTION a. Affirmative Covenants. Each Promus Guarantor agrees with the Agent and each Lender that, until all Commitments have terminated and all Obligations have been paid and performed in full, such Promus Guarantor will perform the obligations set forth in this Section 3.1. SECTION i. Financial Information, Reports, Notices, etc. The Promus Guarantors will furnish, or will cause to be furnished, to each Lender and the Agent copies of the following financial statements, reports, notices and information: (1) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of Promus Corp., a consolidated balance sheet and income statement of Promus Corp. and its consolidated Subsidiaries, as of the end of such Fiscal Quarter, together with related consolidated statements of operations and retained earnings and of cash flows for such Fiscal Quarter in each case setting forth in comparative form consolidated figures for the corresponding period of the preceding year, all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Agent, and accompanied by a certificate of the chief financial officer, treasurer or controller of Promus Corp. to the effect that such quarterly financial statements fairly present in all material respects the financial condition and results of operations of Promus Corp. and its consolidated Subsidiaries and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments; (2) as soon as available and in any event within 120 days after the close of each Fiscal Year of Promus Corp., a consolidated balance sheet and income statement of Promus Corp. and its consolidated Subsidiaries, as of the end of such Fiscal Year, together with related consolidated statements of operations and retained earnings and of cash flows for such Fiscal Year, setting forth in comparative form consolidated figures for the preceding Fiscal Year, all such financial information described above to be in reasonable form and detail and audited by Arthur Andersen LLP or other independent certified public accountants of recognized national standing reasonably acceptable to the Agent and whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified as to the status of Promus Corp. and its consolidated Subsidiaries as a going concern; (3) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters and within 120 days after the end of each Fiscal Year of Promus Corp., a certificate, executed by the chief financial officer, treasurer or controller of Promus Corp., showing (in reasonable detail and with appropriate calculations and computations in all respects satisfactory to the Agent) compliance with the financial covenants set forth in Section 3.2 hereof and, if not otherwise included therein, the calculation of the Leverage Ratio (as such term is defined in the Tranche A Credit Agreement) as of the end of such Fiscal Quarter or Fiscal Year; 36 (4) promptly upon receipt thereof, copies of any correspondence from Moody's or S&P concerning the senior unsecured long-term debt rating of Promus Corp. (5) promptly after the sending or filing thereof, copies of all reports which Promus Corp. or any of its Subsidiaries sends to any of its holders of its debt or equity securities, and all reports and registration statements which Promus Corp. or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; and (6) such other information respecting the condition or operations, financial or otherwise, of Promus Corp. or any of its Subsidiaries as any Lender through the Agent may from time to time reasonably request. SECTION ii. Books and Records. Promus Corp. will, and will cause each of its Subsidiaries to, keep books and records which accurately reflect in all material respects all of its business affairs and transactions and permit the Agent and each Lender or any of their respective representatives, at reasonable times and intervals, and with reasonable notice, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant (and Promus Corp. hereby authorizes such independent public accountant to discuss Promus Corp.'s financial matters with each Lender or its representatives) and to examine (and photocopy extracts from) any of its books or other corporate records. SECTION b. Negative Covenants. Promus Inc. agrees with the Agent and each Lender that, until all Commitments have terminated and all Obligations have been paid and performed in full, Promus Inc. will perform, comply with and be bound by all of its agreements, covenants and obligations contained in Section 7.11 of the Tranche A Credit Agreement (such Section and all other terms of the Tranche A Credit Agreement to which reference is made herein, together with all related definitions, ancillary provisions and related schedules, being hereby incorporated into this Guarantee by reference as though specifically set forth in this Guarantee). ARTICLE 17. GUARANTY SECTION a. The Guaranty. Each of the Promus Guarantors hereby jointly and severally irrevocably guarantees to each Lender and the Agent as hereinafter provided the prompt payment and performance of the Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in accordance with the terms thereof. The Promus Guarantors hereby further agree that if any of the Obligations are not paid or performed in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise), the Promus Guarantors will, jointly and severally, promptly pay or perform the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or performance or renewal of any of the Obligations, the same will be promptly paid or performed in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration or otherwise) in accordance with the terms of such extension or renewal. This guaranty constitutes a guaranty of payment and performance and not of collection. 37 Notwithstanding any provision to the contrary contained herein or in any other of the Loan Documents, in the event of a bankruptcy or other similar insolvency proceeding of a Promus Guarantor, the obligations of each such Promus Guarantor hereunder shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any applicable state law. SECTION b. Obligations Unconditional. The obligations of the Promus Guarantors under Section 4.1 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Loan Documents, or any other agreement or instrument referred to therein, or any substitution, release or exchange of any other guarantee (other than the guarantee obligations of the FelCor Guarantors) of or security for any of the obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.2 that the obligations of the Promus Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Promus Guarantor hereunder which shall remain absolute and unconditional as described above: (a) at any time or from time to time, without notice to any Promus Guarantor, the time for any performance of or compliance with any of the Obligations shall be extended, or such performance or compliance shall be waived; (b) any of the acts mentioned in any of the provisions of any of the Loan Documents or any other agreement or instrument referred to therein shall be done or omitted; (c) the maturity of any of the Obligations shall be accelerated, or any amendments shall be made to the Credit Agreement with the prior written consent of the Promus Guarantors, or any material right (as determined by the Agent in the exercise of its reasonable discretion) under any of the Loan Documents or any other agreement or instrument referred to therein shall be waived or any other guarantee of any of the Obligations (other than the guarantee obligations of the FelCor Guarantors) or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; (d) any Lien granted to, or in favor of, the Agent or any Lender or Lenders as security for any of the Obligations shall fail to attach or be perfected; or (e) any of the Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Promus Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Promus Guarantor). 38 With respect to its obligations hereunder, each Promus Guarantor hereby expressly waives diligence, presentment, demand of payment, protest, notice of acceptance and all other notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Loan Documents or any other agreement or instrument referred to therein, or against any other Person under any other guarantee of, or security for, any of the Obligations. SECTION c. Reinstatement. The obligations of the Promus Guarantors under this Article IV shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the obligations is rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Promus Guarantor agrees that it will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. SECTION d. Subrogation. Without limiting the generality of the provisions of this Article IV, each of the Promus Guarantors further agrees that it shall not exercise any rights which it may acquire by way of subrogation, reimbursement or indemnity, nor any right of recourse to security, if any, for the Obligations so long as any amounts payable to the Agent or the Lenders in respect of the Obligations shall remain outstanding and until all of the Commitments shall have expired or been terminated. Any amount paid to any Promus Guarantor on account of any such rights prior to the payment in full of all Obligations shall be held in trust for the benefit of the Lenders and shall immediately be paid to the Agent for the benefit of the Lenders and credited and applied against the Obligations. SECTION e. Remedies. The Promus Guarantors agree that, to the fullest extent permitted by law, as between the Promus Guarantors, on the one hand, and the Agent and the Lenders, on the other hand, the Obligations may be declared to be forthwith due and payable as provided in Section 8.3 of the Credit Agreement (and shall be deemed to have become automatically due and payable in the circumstances provided in Section 8.2 of the Credit Agreement) for purposes of Section 4.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing such Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or such Obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Promus Guarantors for purposes of said Section 4.1. SECTION f. Continuing Guarantee. The guarantee in this Article IV is a continuing guarantee, and shall apply to all Obligations whenever arising. 39 ARTICLE 18. MISCELLANEOUS PROVISIONS SECTION a. Notices. All notices and other communications provided to any party hereto under this Guarantee shall be in writing and shall be hand delivered or sent by overnight courier, certified mail (return receipt requested), or telecopy to such party at its address or telecopy number set forth on the signature pages hereof or at such other address or telecopy number as may be designated by such party in a notice to the other parties. Without limiting any other means by which a party may be able to provide that a notice has been received by the other party, a notice shall be deemed to be duly received (a) if sent by hand, on the date when left with a responsible person at the address of the recipient; (b) if sent by overnight courier, on the Business Day following the day on which sent, (c) if sent by certified mail, on the third Business Day following the day on which sent; or (d) if sent by telecopy, on the date of receipt by the sender of an acknowledgment or transmission reports generated by the machine from which the telecopy was sent indicating that the telecopy was sent in its entirety to the recipient's telecopy number. SECTION b. Payment of Costs and Expenses. Each Promus Guarantor agrees to reimburse the Agent and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by the Agent or such Lender in connection with the enforcement of this Guarantee. SECTION c. Indemnification. In consideration of the execution and delivery of the Credit Agreement by each Lender and the extension of the Commitments, each Promus Guarantor hereby indemnifies, exonerates and holds the Agent and each Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to the entering into and performance of this Guarantee. SECTION d. Survival. The obligations of the Promus Guarantors under Sections 5.2 and 5.3 shall survive any termination of this Guarantee, the payment in full of all the Obligations and the termination of all the Commitments. The representations and warranties made by each Promus Guarantor in this Guarantee shall survive the execution and delivery of this Guarantee and each such other Loan Document. SECTION e. Severability. Any provision of this Guarantee or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Guarantee or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION f. Headings. The various headings of this Guarantee and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Guarantee or such other Loan Document or any provisions hereof or thereof. 40 SECTION g. Execution in Counterparts, Effectiveness, etc. This Guarantee may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Guarantee shall become effective when counterparts hereof executed on behalf of the Promus Guarantors and the Agent shall have been received by the Agent and notice thereof shall have been given by the Agent. SECTION h. Governing Law; Entire Agreement. THIS GUARANTEE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Guarantee constitutes the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION i. Successors and Assigns. This Guarantee shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Promus Guarantors may not assign or transfer their rights or obligations hereunder without the prior written consent of the Agent except in connection with a merger or consolidation between one of the Promus Guarantors and a Subsidiary of Promus Corp. so long as (i) the surviving corporation assumes the obligations of the Promus Guarantors hereunder and (ii) such merger or consolidation shall not have a material adverse effect on the financial condition, operations, business or prospects of the Promus Guarantors and their Subsidiaries taken as a whole nor on the ability of the Promus Guarantors to perform their obligations hereunder. SECTION j. Other Transactions. Nothing contained herein shall preclude the Agent or any other Lender from engaging in any transaction, in addition to those contemplated by this Guarantee or any other Loan Document, with the Promus Guarantors or any of their Affiliates in which the Promus Guarantors or such Affiliate is not restricted hereby from engaging with any other Person. SECTION k. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTEE OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS, THE BORROWER OR THE PROMUS GUARANTORS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH OF THE PROMUS GUARANTORS HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. EACH OF THE PROMUS GUARANTORS FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH OF THE PROMUS GUARANTORS HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER OR ANY PROMUS GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER AND EACH OF THE PROMUS GUARANTORS HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS 41 OBLIGATIONS UNDER THIS GUARANTEE AND THE OTHER LOAN DOCUMENTS. SECTION l. Waiver of Jury Trial. THE AGENT AND EACH OF THE PROMUS GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTEE OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS, THE BORROWER OR THE PROMUS GUARANTORS. EACH OF THE PROMUS GUARANTORS ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THE CREDIT AGREEMENT AND EACH OTHER LOAN DOCUMENT. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. PROMUS HOTELS, INC. By: ------------------------------ Title: Address: 850 Ridgelake Boulevard Memphis, Tennessee 38120 Facsimile No.: (901) 680-7220 Attention: Ms. Carol G. Champion Vice President and Treasurer PROMUS HOTEL CORPORATION By: ------------------------------ Title: Address: 850 Ridgelake Boulevard Memphis, Tennessee 38120 Facsimile No.: (901) 680-7220 Attention: Ms. Carol G. Champion Vice President and Treasurer 42 EX-27 5
5 1,000 3-MOS DEC-31-1996 MAR-31-1996 2,622 0 21,535 (1,211) 209 28,765 444,935 (110,510) 574,187 57,226 257,649 0 0 5,138 181,100 574,187 0 62,162 0 34,667 265 0 7,708 21,646 8,897 12,749 0 0 0 12,749 0.25 0.25
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