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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 JUNE 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
Commission File No. 1-10410
THE PROMUS COMPANIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 62-1411755
(State of Incorporation) (I.R.S. Employer
Identification No.)
1023 Cherry Road
Memphis, Tennessee 38117
(Address of principal executive offices)
(901) 762-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
At June 30, 1994, there were outstanding 102,398,252 shares of the
Company's Common Stock.
Page 1 of 83
Exhibit Index Page 31
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
----------------------------
The accompanying unaudited consolidated condensed financial statements of
The Promus Companies Incorporated (Promus or the Company), a Delaware
corporation, have been prepared in accordance with the instructions to Form
10-Q, and therefore do not include all information and notes necessary for
complete financial statements in conformity with generally accepted accounting
principles. The results for the periods indicated are unaudited, but reflect
all adjustments (consisting only of normal recurring adjustments) which
management considers necessary for a fair presentation of operating results.
Results of operations for interim periods are not necessarily indicative of a
full year of operations. These consolidated condensed financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in Promus' 1993 Annual Report to Stockholders.
-2-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, Dec. 31,
(In thousands, except share amounts) 1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 57,553 $ 61,962
Receivables, including notes receivable of
$1,845 and $2,197, less allowance for
doubtful accounts of $10,753 and $10,864 44,051 47,448
Deferred income taxes 23,169 21,024
Supplies 12,918 12,996
Prepayments and other 20,466 20,128
---------- ----------
Total current assets 158,157 163,558
---------- ----------
Land, buildings, riverboats and equipment 1,933,706 1,824,433
Less: accumulated depreciation (524,627) (486,231)
---------- ----------
1,409,079 1,338,202
Investments in and advances to
nonconsolidated affiliates 82,348 70,050
Deferred costs and other 239,515 221,308
---------- ----------
$1,889,099 $1,793,118
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 47,995 $ 60,530
Construction payables 16,395 26,345
Accrued expenses 148,891 162,969
Current portion of long-term debt 2,777 2,160
---------- ----------
Total current liabilities 216,058 252,004
Long-term debt 875,026 839,804
Deferred credits and other 103,678 86,829
Deferred income taxes 61,594 63,460
---------- ----------
1,256,356 1,242,097
---------- ----------
Minority interests 19,921 14,984
---------- ----------
Commitments and contingencies (Notes 5 and 6)
Stockholders' equity
Common stock, $0.10 par value,
authorized - 360,000,000 shares,
outstanding - 102,398,252 and 102,258,442
shares (net of 9,784 and 25,251 shares
held in treasury) 10,240 10,226
Capital surplus 351,076 344,197
Retained earnings 256,517 187,203
Deferred compensation related to
restricted stock (5,011) (5,589)
---------- ----------
612,822 536,037
---------- ----------
$1,889,099 $1,793,118
========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
-3-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Second Quarter Ended Six Months Ended
(In thousands, June 30, June 30, June 30, June 30,
except per share amounts) 1994 1993 1994 1993
Revenues
Casino $283,474 $200,620 $526,484 $366,800
Rooms 54,947 60,712 106,057 117,884
Food and beverage 41,999 37,345 80,405 70,541
Franchise and
management fees 19,781 15,242 35,601 28,162
Other 33,014 26,454 59,453 47,881
Less: casino promotional
allowances (30,870) (24,126) (59,868) (45,814)
-------- -------- -------- --------
Total revenues 402,345 316,247 748,132 585,454
-------- -------- -------- --------
Operating expenses
Direct
Casino 115,775 88,854 228,409 171,491
Rooms 22,808 28,117 44,600 53,164
Food and beverage 25,655 25,180 45,840 42,119
Depreciation of
buildings, riverboats
and equipment 23,109 19,445 44,501 37,653
Other 103,694 79,422 188,067 150,676
-------- -------- -------- --------
Total operating
expenses 291,041 241,018 551,417 455,103
-------- -------- -------- --------
111,304 75,229 196,715 130,351
Property transactions (199) 15 (397) (250)
-------- -------- -------- --------
Operating income 111,105 75,244 196,318 130,101
Corporate expense (7,493) (7,471) (13,031) (14,180)
Interest expense, net of
interest capitalized (26,835) (28,382) (52,572) (56,327)
Interest and other
income 463 420 894 776
-------- -------- -------- --------
Income before income
taxes and minority
interest 77,240 39,811 131,609 60,370
Provision for income taxes (32,034) (16,457) (54,461) (25,051)
Minority interests (3,265) (539) (7,835) (539)
-------- -------- -------- --------
Income before
extraordinary items 41,941 22,815 69,313 34,780
Extraordinary losses on
extinguishments of debt,
net of income tax
benefit of $211 and $890 - (316) - (1,325)
-------- -------- -------- --------
Net income $ 41,941 $ 22,499 $ 69,313 $ 33,455
======== ======== ======== ========
Earnings per share before
extraordinary items $ 0.41 $ 0.22 $ 0.67 $ 0.34
Extraordinary items, net - - - (0.01)
-------- -------- -------- --------
Earnings per share $ 0.41 $ 0.22 $ 0.67 $ 0.33
======== ======== ======== ========
Average common shares
outstanding 102,826 102,343 102,858 102,192
======== ======== ======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
-4-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Second Quarter Ended
June 30, June 30,
(In thousands) 1994 1993
Cash flows from operating activities
Net income $ 69,313 $ 33,455
Adjustments to reconcile net income
to cash flows from operating activities
Extraordinary items, before income taxes - 2,215
Depreciation and amortization 56,755 48,589
Other noncash items 3,697 11,723
Minority interests share of net income 7,835 539
Net losses of and distributions from
nonconsolidated affiliates 5,783 744
Net losses from property transactions 320 437
Net change in long-term accounts (6,449) (4,364)
Net change in working capital accounts 11,460 13,044
Tax indemnification payments to Bass (25,469) (2,171)
--------- ---------
Cash flows provided by operating
activities 123,245 104,211
--------- ---------
Cash flows from investing activities
Land, buildings, riverboats and equipment
additions (114,366) (71,437)
Investments in and advances to
nonconsolidated affiliates (18,656) (2,178)
Decrease in construction payables (9,950) -
Proceeds from property transactions 1,085 8,426
Other (17,343) (10,707)
--------- ---------
Cash flows used in investing activities (159,230) (75,896)
--------- ---------
Cash flows from financing activities
Net borrowings under revolving credit
facility 75,350 3,000
Proceeds from issuance of senior subordinated
notes, net of issue costs of $4,000 - 196,000
Debt retirements (40,825) (227,483)
Minority interest (distributions) contributions (2,949) 4,041
--------- ---------
Cash flows provided by (used in)
financing activities 31,576 (24,442)
--------- ---------
Net change in cash and cash equivalents (4,409) 3,873
Cash and cash equivalents, beginning
of period 61,962 43,756
--------- ---------
Cash and cash equivalents, end of period $ 57,553 $ 47,629
========= =========
See accompanying Notes to Consolidated Condensed Financial Statements.
-5-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
Note 1 - Basis of Presentation
- ------------------------------
Promus is a hospitality company with two primary business segments: casino
entertainment and hotels. Promus owns and operates casino entertainment
hotels and riverboats under the brand name Harrah's. Harrah's casino hotels
are in all five major Nevada and New Jersey gaming markets: Reno, Lake Tahoe,
Las Vegas and Laughlin, Nevada; and Atlantic City, New Jersey. Harrah's
riverboat casinos are in Joliet, Illinois; Shreveport, Louisiana; and Tunica
and Vicksburg, Mississippi. Harrah's also has an ownership interest in and
manages two limited stakes casinos in Black Hawk and Central City, Colorado.
The hotel segment is composed of three hotel brands targeted to specific
market segments: Embassy Suites, Hampton Inn and Homewood Suites.
The consolidated condensed financial statements include all the accounts
of Promus and its subsidiaries after elimination of all significant
intercompany accounts and transactions. 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 and operating income. Promus' proportionate share of
the interest expense of such nonconsolidated affiliates is included in
interest expense. (See Note 7.)
Certain amounts for the prior year second quarter and first six months
ended June 30, 1993, have been reclassified to conform with the presentation
for second quarter and first six months ended June 30, 1994.
Note 2 - Long-Term Debt
- -----------------------
Interest Rate Agreements
------------------------
Promus has entered into interest rate swap agreements, as summarized in
the following table:
Effective Next Semi-
Swap Rate at Annual Rate
Rate June 30, Adjustment Swap Agreement
Associated Debt (LIBOR+) 1994 Date Expiration Date
- --------------- ------- --------- ----------- ----------------
10 7/8% Notes
$200 million 4.73% 9.16% October 15 October 15, 1997
8 3/4% Notes
$50 million 3.42% 8.85% November 15 May 15, 1998
$50 million 3.22% 6.67% July 15 July 15, 1998
In accordance with the terms of the interest rate swap agreements, the
effective interest rate on the 8 3/4% Notes was adjusted on July 15, 1994, to
8.71%. This rate will remain in effect until January 15, 1995.
-6-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994
(UNAUDITED)
Note 2 - Long-Term Debt (Continued)
- ----------------------------------
In connection with its guarantee of the debt of a third party, Promus has
entered into an interest rate swap with the third party in which Promus
exchanged a fixed interest rate for the variable interest rate of the subject
debt. Management does not believe that its exposure under this agreement is
material.
Promus maintains interest rate protection, in the form of a rate collar
transaction entered into in June 1990, on $140 million of its variable rate
bank debt. The interest rate protection expires in June 1995 and currently
holds Promus' interest rate in a range between 8.8% and 12.0%.
Note 3 - Stockholders' Equity
- -----------------------------
On April 29, 1994, Promus' stockholders approved an amendment to the
Certificate of Incorporation which increased the number of authorized common
shares from 120 million to 360 million and reduced the par value per common
share from $1.50 to $0.10. As a result, approximately $143.2 million was
transferred as of December 31, 1993, from common stock to capital surplus on
the consolidated condensed balance sheets to retroactively reflect the impact
of the change in par value.
On October 29, 1993, Promus' Board of Directors approved a three-for-two
stock split, in the form of a stock dividend, effected by a distribution on
November 29, 1993, of one additional share for each two shares owned by
stockholders of record on November 8, 1993. All references in these financial
statements to prior year numbers of common shares and earnings per share
amounts have been restated to give retroactive effect to the stock split.
In addition to its common stock, Promus has the following classes of stock
authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, 5,000,000 shares authorized -
Series B, $1.125 par value
-7-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994
(UNAUDITED)
Note 4 - Supplemental Disclosure of Cash Paid for Interest and Taxes
- --------------------------------------------------------------------
The following table reconciles Promus' interest expense, net of interest
capitalized, per the consolidated condensed statements of income, to cash paid
for interest:
Six Months Ended
June 30, June 30,
(In thousands) 1994 1993
Interest expense, net of interest capitalized $52,572 $56,327
Adjustments to reconcile to cash paid for
interest
Promus' share of interest expense of
nonconsolidated affiliates (6,152) (6,400)
Net change in accruals 3,737 (3,003)
Amortization of deferred finance charges (1,767) (2,426)
Net amortization of discounts and premiums (109) (1,020)
------- -------
Cash paid for interest, net of amount
capitalized $48,281 $43,478
======= =======
Cash payments for income taxes, net of refunds $47,289 $10,280
======= =======
Note 5 - Commitments and Contingent Liabilities
- -----------------------------------------------
Contractual Commitments
-----------------------
Promus is pursuing many casino development opportunities that may
require, individually and in the aggregate, significant commitments of
capital, up-front payments to third parties, guarantees by Promus of third
party debt and development completion guarantees. As of June 30, 1994, Promus
had guaranteed third party debts of $65 million and had contractual
agreements, primarily related to riverboat casino facilities construction, of
$46 million, excluding amounts previously recorded.
Promus manages certain hotels for others under agreements which provide
for payments/loans to the hotel owners if stipulated levels of financial
performance are not maintained. In addition, Promus is liable under certain
lease agreements where it has assigned the direct obligation to third party
interests. Promus believes the likelihood is remote that material payments
will be required under these agreements. Promus' estimated maximum exposure
under such agreements is currently less than $41 million over the next
30 years.
-8-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994
(UNAUDITED)
Note 5 - Commitments and Contingent Liabilities (Continued)
- ----------------------------------------------------------
Guarantee of Insurance Contract
-------------------------------
Promus' defined contribution savings plan includes a $12.9 million
guaranteed investment contract with an insurance company. Promus has agreed
to provide non-interest-bearing loans to the plan to fund, on an interim
basis, withdrawals from this contract by retired or terminated employees.
Promus' maximum exposure on this guarantee as of June 30, 1994, is
approximately $7.8 million.
Self-Insurance
--------------
Promus is self-insured for various levels of general liability, workers'
compensation and employee medical coverage. Accrued expenses include an accrual
for estimated settlements for known and anticipated claims.
Severance Agreements
--------------------
As of June 30, 1994, Promus had severance agreements with twelve of its
senior executives which provide for payments to the executives in the event of
their termination after a change in control, as defined, of Promus. These
agreements provide, among other things, for a compensation payment equal to
2.99 times the average annual compensation paid to the executive for the five
preceding calendar years, as well as for accelerated payment or accelerated
vesting of any compensation or awards payable to the executive under any of
Promus' incentive plans. The estimated amount, computed as of June 30, 1994,
that would have been payable under the agreements to these executives based on
earnings and stock options aggregated approximately $28.4 million.
Tax Sharing Agreement
---------------------
In connection with the February 7, 1990 spin-off (the Spin-off) of the
stock of Promus to stockholders of Holiday Corporation (Holiday), Promus is
liable, with certain exceptions, for taxes of Holiday and its subsidiaries for
all pre-Spin-off tax periods. Bass PLC (Bass) is obligated under the terms of
the Tax Sharing Agreements to pay Promus the amount of any tax benefits
realized from pre-Spin-off tax periods of Holiday and its subsidiaries.
Negotiations with the IRS to resolve disputed issues for the 1985 and 1986 tax
years were concluded and settlement reached during fourth quarter 1993. Final
payment of the federal income taxes and related interest due under the
settlement was made during second quarter 1994. The IRS has completed its
examination of Holiday's federal income tax returns for 1987 through the Spin-
off date and has issued its proposed adjustments to those returns. Federal
income taxes and related interest assessed on agreed issues were paid during
first quarter 1994. A protest of all unagreed issues for the 1987 through
Spin-off periods was filed with the IRS during the third quarter of 1993 and
negotiations to resolve disputed issues have begun. Final resolution of the
disputed issues is not expected to have a materially adverse effect on Promus'
consolidated financial position or its results of operations.
-9-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994
(UNAUDITED)
Note 6 - Litigation
- -------------------
In February 1992, Bass and certain affiliates filed suit against Promus
generally alleging breaches of representations and warranties under the Merger
Agreement with respect to the 1990 Spin-off of Promus and acquisition of the
Holiday Inn hotel business by Bass, violation of federal securities laws due
to such alleged breaches, and breaches of the Tax Sharing Agreement between
Bass and Promus entered into at the closing of the Merger Agreement. The
complaint seeks an unspecified amount of damages, unspecified punitive or
exemplary damages, and declaratory relief. Promus believes that it has
complied with all applicable laws and agreements with Bass in connection with
the Merger and is defending its position vigorously. Promus has filed (a) an
answer denying, and asserting affirmative defenses to, the substantive
allegations of the complaint and (b) counterclaims alleging that Bass has
breached the Tax Sharing Agreement, the Merger Agreement and agreements
ancillary to the Merger Agreement. The counterclaims request unspecified
compensatory damages, injunctive and declaratory relief and Promus' costs,
including reasonable attorneys fees and expenses. Discovery has begun, but no
trial date has been set.
In addition to the matter described above, Promus is also involved in
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.
-10-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates
- -----------------------------------
Combined summarized income statements of nonconsolidated affiliates which
Promus accounted for on the equity basis for the second quarter and six months
ended June 30, 1994 and 1993 were as follows:
Second Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
(In thousands) 1994 1993 1994 1993
Revenues $268,462 $267,323 $486,342 $473,914
======== ======== ======== ========
Operating income $ 20,583 $ 22,603 $ 13,917 $ 28,589
======== ======== ======== ========
Net income (loss) $ 891 $ 4,464 $(19,529) $ (7,128)
======== ======== ======== ========
Promus' share of nonconsolidated affiliates' combined net operating
results is reflected in the accompanying consolidated condensed statements of
income as follows:
Second Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
(In thousands) 1994 1993 1994 1993
Pre-interest operating
income (included in
Revenues-other) $ 2,683 $ 4,519 $ 3,343 $ 7,921
======== ======== ======== ========
Interest expense
(included in Interest
expense) $ (3,207) $ (3,210) $ (6,152) $ (6,400)
======== ======== ======== ========
June 30, Dec. 31,
(In thousands) 1994 1993
Promus' investments in and advances to
nonconsolidated affiliates
At equity $47,636 $35,893
At cost 34,712 34,157
------- -------
$82,348 $70,050
======= =======
The June 30, 1994, balance includes a total investment in and advances to the
partnership developing Harrah's New Orleans of approximately $19.3 million.
The values of certain of Promus' joint venture investments have been
reduced below zero due to Promus' intention to fund its share of operating
losses in the future, if needed. The total amount of these negative
investments included in deferred credits and other liabilities on the
consolidated condensed balance sheets was $4.7 million and $5.1 million at
June 30, 1994, and December 31, 1993, respectively.
-11-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994
(UNAUDITED)
Note 8 - Summarized Financial Information
- -----------------------------------------
Embassy Suites, Inc. (Embassy), is a wholly-owned subsidiary and the
principal asset of Promus. Summarized financial information of Embassy as of
June 30, 1994 and December 31, 1993, and for the second quarter and six months
ended June 30, 1994 and 1993, prepared on the same basis as Promus, was as
follows:
June 30, Dec. 31,
(In thousands) 1994 1993
Current assets $ 160,026 $ 165,753
Land, buildings, riverboats and
equipment, net 1,409,079 1,338,202
Other assets 321,465 290,454
---------- ----------
1,890,570 1,794,409
---------- ----------
Current liabilities 204,464 240,438
Long-term debt 875,026 839,804
Other liabilities 165,629 150,646
Minority interests 19,921 14,984
---------- ----------
1,265,040 1,245,872
---------- ----------
Net assets $ 625,530 $ 548,537
========== ==========
Second Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
(In thousands) 1994 1993 1994 1993
Revenues $401,832 $315,858 $747,017 $584,625
======== ======== ======== ========
Operating income $111,506 $ 74,129 $195,012 $128,938
======== ======== ======== ========
Income before income taxes
and minority interest $ 77,641 $ 38,801 $130,303 $ 59,415
======== ======== ======== ========
Income before
extraordinary items $ 42,202 $ 22,149 $ 68,464 $ 34,150
======== ======== ======== ========
Net income $ 42,202 $ 21,833 $ 68,464 $ 32,825
======== ======== ======== ========
The agreements governing the terms of Promus' debt contain certain
covenants which, among other things, place limitations on Embassy's ability to
pay dividends and make other restricted payments, as defined, to Promus.
Pursuant to the terms of the most restricted covenant regarding restricted
payments, approximately $616.4 million of Embassy's net assets were not
available for payment of dividends to Promus as of June 30, 1994.
-12-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1994
(UNAUDITED)
Note 9 - Operating Segment Information
- --------------------------------------
Operating results for Promus' operating segments for the second quarter and
six months ended June 30, 1994 and 1993, were as follows:
Second Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
(In thousands) 1994 1993 1994 1993
Casino Entertainment Segment
Operating Data
Revenues
Casino $283,474 $200,620 $526,484 $366,800
Food and beverage 39,873 35,163 76,288 66,253
Rooms 26,381 25,966 50,160 48,643
Management fees 187 - 445 -
Other 18,321 14,194 32,571 24,703
Less: casino promotional
allowances (30,870) (24,126) (59,868) (45,814)
-------- -------- -------- --------
Total revenues 337,366 251,817 626,080 460,585
-------- -------- -------- --------
Operating expenses
Departmental direct costs
Casino 115,775 88,854 228,409 171,491
Food and beverage 23,483 22,934 41,807 37,734
Rooms 8,415 9,579 16,478 16,678
Other 102,296 71,181 186,885 137,532
-------- -------- -------- --------
Total operating
expenses 249,969 192,548 473,579 363,435
-------- -------- -------- --------
Operating income $ 87,397 $ 59,269 $152,501 $ 97,150
======== ======== ======== ========
Hotel Segment Operating Data
Revenues
Rooms $ 28,566 $ 34,746 $ 55,897 $ 69,241
Franchise and
management fees 19,594 15,242 35,156 28,162
Food and beverage 2,126 2,182 4,117 4,288
Other 12,997 10,773 23,443 20,194
-------- -------- -------- --------
Total revenues 63,283 62,943 118,613 121,885
-------- -------- -------- --------
Operating expenses
Departmental direct costs
Rooms 14,393 18,538 28,122 36,486
Food and beverage 2,172 2,246 4,033 4,385
Other 22,566 27,325 42,720 49,168
-------- -------- -------- --------
Total operating
expenses 39,131 48,109 74,875 90,039
-------- -------- -------- --------
24,152 14,834 43,738 31,846
Property transactions (199) 15 (397) (250)
-------- -------- -------- --------
Operating income $ 23,953 $ 14,849 $ 43,341 $ 31,596
======== ======== ======== ========
Other Operations Segment
Operating Data
Revenues $ 1,696 $ 1,487 $ 3,439 $ 2,984
Operating expenses 1,941 361 2,963 1,629
-------- -------- -------- --------
Operating income (loss) $ (245) $ 1,126 $ 476 $ 1,355
======== ======== ======== ========
-13-
Item 2. Management's Discussion and Analysis
---------------------------------------------
of Financial Condition and Results of Operations
------------------------------------------------
The following discussion and analysis of The Promus Companies
Incorporated's (Promus) financial position and operating results for second
quarter and the first six months of 1994 and 1993 complements and updates the
Management's Discussion and Analysis of Financial Position and Results of
Operations (MD&A) presented in Promus' 1993 Annual Report. The following
information should be read in conjunction with Promus' 1993 Annual Report MD&A
disclosure. References to Promus include its consolidated subsidiaries where
the context requires.
Promus operates four leading hospitality brands comprising two business
segments: a casino entertainment segment consisting of Harrah's, one of the
world's premier names in the casino entertainment industry, and a hotel
segment composed of three established brands, Embassy Suites, Hampton Inn and
Homewood Suites (collectively Promus Hotels), targeted at specific market
segments. A fourth hotel brand, Hampton Inn & Suites, was introduced in late
1993 and is designed to target a new development segment not addressed by the
existing brands.
From six land-based casinos in the traditional markets of Nevada and New
Jersey and one riverboat casino in Joliet, Illinois, in operation at the end
of second quarter 1993, Promus' casino entertainment segment has grown to
include thirteen properties located in six states, including the latest
addition, Harrah's Shreveport. In recognition of the increasingly competitive
environment faced by Promus in most of the casino markets in which it operates
and to maximize performance of its existing operations, Promus' operating
focus has been on improving margins and increasing operating cash flows by
controlling costs and streamlining operations. Due to the performances of the
Riverboat Division and the hotel segment, Promus' overall operating margin
increased 3.8 percentage points for second quarter 1994 and 4.0 percentage
points for the first six months of 1994 over the comparable prior year
periods. Cash flows from operations for the first six months of 1994
increased 18.3% over prior year, to $123.2 million.
RESULTS OF OPERATIONS
- ---------------------
Overall
- -------
Second Quarter Percent First Six Months Percent
(in millions, except -------------- Increase/ ---------------- Increase/
earnings per share) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- ------ ------ ----------
Revenues $402.3 $316.2 27.2 % $748.1 $585.5 27.8 %
Operating income 111.1 75.2 47.7 % 196.3 130.1 50.9 %
Net income 41.9 22.5 86.2 % 69.3 33.5 106.9 %
Earnings per share 0.41 0.22 86.4 % 0.67 0.33 103.0 %
Operating margin 27.6% 23.8% 3.8 pts 26.2% 22.2% 4.0 pts
-14-
Record revenues, operating income and earnings per share for both the
second quarter and first six months of 1994 are due primarily to unit growth
attained in both segments, especially the addition of four riverboat casino
properties over the last nine months, revenue per available room growth by all
three established hotel brands and interest expense savings achieved in part
by a debt refinancing strategy completed in 1993. A summary of Promus'
operating segments' performance for the second quarter and first six months
ended June 30, 1994 and 1993 is presented in Note 9 to the accompanying
consolidated condensed financial statements.
The mix of Promus' operating income among the casino entertainment
divisions, including the contribution now made by the Riverboat Casino
Entertainment Division, and the continuing growth achieved by the hotel
segment have resulted in an increasing diversification of Promus' operations.
The following table summarizes operating income before property transactions
for the twelve-month periods ended June 30, 1994, 1993 and 1992 in millions of
dollars and as a percent of the total for each of Promus' casino entertainment
divisions and primary business segments:
Operating Income Contributions for the
Twelve Months Ended June 30,
-------------------------------------------
In Millions of Dollars Percent of Total
---------------------- --------------------
1994 1993 1992 1994 1993 1992
------ ------ ------ ------ ------ ------
Casino Entertainment
Riverboat $ 92 $ 3 $ - 25 % 1 % - %
Southern Nevada 77 75 59 21 % 29 % 26 %
Northern Nevada 77 71 63 21 % 28 % 28 %
Atlantic City 68 65 69 18 % 25 % 30 %
New Orleans (5) - - (1)% - -
Other, including
project development
costs (19) (15) (7) (5)% (6)% (3)%
---- ---- ---- --- --- ---
Total 290 199 184 79 % 77 % 81 %
Hotel 77 55 43 21 % 22 % 19 %
Other 2 3 (1) - % 1 % -
---- ---- ---- --- --- ---
Total Promus $369 $257 $226 100 % 100 % 100 %
==== ==== ==== === === ===
-15-
Casino Entertainment
- --------------------
Promus' casino entertainment segment includes the combined results of
Promus' casino entertainment properties located in Colorado, Illinois,
Louisiana, Mississippi, Nevada and New Jersey. Overall revenues and operating
income for the segment increased 34.0% and 47.5%, respectively, for second
quarter 1994 and 35.9% and 57.0%, respectively, for the first six months of
1994 over the comparable prior year periods. This growth is a result of the
operating contributions made by the Riverboat Casino Entertainment Division,
partially offset by the recognition of Promus' pro-rata share of Harrah's New
Orleans preopening-related costs, increased project development costs and
declines experienced by the land-based properties reflecting various
competitive and operational issues as discussed below.
Development costs incurred related to Promus' pursuit of additional casino
entertainment projects and charged to casino entertainment segment other
operating expense were as follows:
Second Quarter Ended First Six Months
-------------------- -------------------
June 30, June 30, June 30, June 30,
(in millions) 1994 1993 1994 1993
------- ------- ------- -------
Development costs
charged to expense $3.5 $2.6 $7.1 $4.0
Promus expects the trend of an increasing level of development costs as
compared to the prior year to continue over the remainder of 1994 as it
continues to aggressively pursue additional casino development opportunities.
Riverboat Division
------------------
Second Quarter Percent First Six Months Percent
----------------- Increase/ ----------------- Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
-------- -------- ---------- -------- -------- ----------
Revenues $ 109.8 $ 13.4 NM* $ 193.0 $ 13.4 NM
Operating income 37.0 3.0 NM 67.3 3.0 NM
Operating margin 33.7% 22.4% 11.3 pts 34.9% 22.4% 12.5 pts
Gaming volume $1,147.7 $ 111.7 NM $1,932.4 $ 111.7 NM
- --------
* Not Meaningful
As of the end of second quarter 1994, the Riverboat Division included the
operations of five riverboats, as compared to one riverboat in operation at the
end of second quarter 1993. The higher overall operating margin achieved by
this Division relative to Promus' other casino entertainment segment divisions
reflects operational differences between a riverboat facility and a
conventional land-based property and limited competition initially faced by
facilities opening in new, emerging markets. Second quarter 1994's operating
margin is lower than for the first six months of the year due to increasing
competition in the Mississippi markets in which Promus operates, negatively
impacting operating margins at those properties. Subsequent to the end of the
second quarter, Promus implemented limited work force reductions at both
Mississippi properties in response to the changing operating environment and to
improve operating efficiency. The estimated one-time charge to Promus of these
actions is not material.
-16-
Southern Nevada
---------------
Second Quarter Percent First Six Months Percent
-------------- Increase/ ------------------- Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- -------- -------- ----------
Revenues $ 74.7 $ 76.6 (2.5)% $ 146.0 $ 146.4 (0.3)%
Operating income 20.0 22.1 (9.5)% 38.2 40.9 (6.6)%
Operating margin 26.8% 28.9% (2.1)pts 26.2% 27.9% (1.7)pts
Gaming volume $754.7 $781.6 (3.4)% $1,509.6 $1,523.9 (0.9)%
The Southern Nevada Division's declines in revenues and operating income
for the second quarter and first six months of 1994 as compared to prior year
periods are due to continuing absorption in both the Las Vegas and Laughlin
markets of large capacity increases during the last twelve months. The
Laughlin market has been impacted not only by expansion in its market, but also
by its traditional customers visiting the new Las Vegas properties.
Northern Nevada
---------------
Second Quarter Percent First Six Months Percent
-------------- Increase/ ------------------- Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- -------- -------- ----------
Revenues $ 75.2 $ 81.2 (7.4)% $ 145.6 $ 148.8 (2.2)%
Operating income 18.0 20.2 (10.9)% 30.1 31.0 (2.9)%
Operating margin 23.9% 24.9% (1.0)pts 20.7% 20.8% (0.1)pts
Gaming volume $926.9 $992.4 (6.6)% $1,735.5 $1,767.9 (1.8)%
In Northern Nevada, operations have also been negatively impacted by
patrons from the region's key feeder markets choosing to visit the new "mega"
property offerings in Las Vegas. Second quarter 1994 results were also
impacted by a rare May snowstorm, resulting in a decline from the record
results posted in second quarter 1993. The declines experienced in second
quarter 1994 more than offset operating gains achieved during first quarter,
resulting in an overall decline for this Division for the first six months of
1994 versus the prior year.
Atlantic City
-------------
Second Quarter Percent First Six Months Percent
-------------- Increase/ ------------------- Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- -------- -------- ----------
Revenues $ 78.1 $ 80.1 (2.5)% $ 143.9 $ 150.6 (4.4)%
Operating income 18.2 18.4 (1.1)% 28.6 28.8 (0.7)%
Operating margin 23.3% 23.0% 0.3 pts 19.9% 19.1% 0.8 pts
Gaming volume $800.8 $758.4 5.6 % $1,485.4 $1,408.5 5.5 %
-17-
Despite declines in revenues in this highly competitive market for both
second quarter and the first six months of 1994 versus the prior year, Harrah's
Atlantic City nearly equalled its prior year operating income and achieved
operating margin increases over the comparable prior year periods due to
effective management of costs and lower promotional allowances. Revenue
declines versus the comparable prior year periods are due to lower pit volume
and overall hold percentages, partially offset by increased slot volume,
reflecting the continuing shift of gaming volume from table games to slots.
The lower hold percentage associated with slot play resulted in reduced
revenues, despite the overall gaming volume growth.
Harrah's New Orleans
--------------------
Revenues and operating income for the casino entertainment segment include
a loss of $1.6 million for second quarter 1994, and $4.8 million for the first
six months of 1994, representing Promus' pro-rata share of preopening-related
costs incurred by the joint venture developing Harrah's New Orleans. (See
CAPITAL SPENDING AND DEVELOPMENT section for further discussion of the current
status of this development project.)
Hotel
- -----
Second Quarter Percent First Six Months Percent
(in millions, except --------------- Increase/ ---------------- Increase/
rooms/hotel and 1994 1993 (Decrease) 1994 1993 (Decrease)
RevPAR/S data) ------ ------ ---------- ------ ------ ----------
Revenues $ 63.3 $ 62.9 0.6 % $118.6 $121.9 (2.7)%
Operating income
before property
transactions 24.2 14.8 63.5 % 43.7 31.8 37.4 %
Operating margin 38.2% 23.5% 14.7 pts 36.8% 26.1% 10.7 pts
Number of rooms 75,670 70,792 6.9 %
Number of hotels 535 479 11.7 %
Total System RevPAR/S
Embassy Suites $76.04 $70.64 7.6 % $74.16 $69.62 6.5 %
Hampton Inn 42.13 39.19 7.5 % 38.71 36.19 7.0 %
Homewood Suites 61.54 56.93 8.1 % 58.47 54.70 6.9 %
Hotel segment revenues for second quarter 1994 increased slightly over the
comparable prior year period as increased franchise and management fees,
reflecting unit growth in the combined hotel systems and increased revenue per
available room (suite) (RevPAR/S), offset the revenue impact of a decrease in
the number of company-owned Embassy Suites properties. The number of
rooms/suites at franchised properties and RevPAR/S significantly affects hotel
segment results since franchise royalty fees are based upon rooms/suites
revenue at franchised hotels. For the first six months of 1994, revenues
declined compared to the prior year due to the first quarter 1994 impact on
revenues of the third quarter 1993 sales of six Embassy Suites properties.
-18-
The disproportionate increase in operating income versus revenues is due to
the limited direct costs associated with increases in franchise royalties and
the inclusion in second quarter 1993 of a $3.6 million writedown of a
receivable from an Embassy Suites' franchisee. Excluding this one-time charge
from the comparison, second quarter 1994 operating income increased 31.5% and
operating margin increased 8.9 percentage points versus the comparable prior
year period. Also contributing to the operating income and margin improvements
for the hotel segment are overhead cost savings achieved as a result of
consolidation of hotel brand management into a single organization announced in
third quarter 1993.
Other Factors Affecting Income Per Share
- ----------------------------------------
Second Quarter Percent First Six Months Percent
(Income)/Expense -------------- Increase/ ---------------- Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- ------ ------ ----------
Property transaction
losses, net $ 0.2 $ - NM $ 0.4 $ 0.3 33.3 %
Corporate expense 7.5 7.5 - 13.0 14.2 (8.5)%
Interest expense 26.8 28.4 (5.6)% 52.6 56.3 (6.6)%
Interest and other
income (0.5) (0.4) 25.0 % (0.9) (0.8) 12.5 %
Effective tax rate 41.5% 41.3% 0.2 pts 41.4% 41.5% (0.1)pts
Minority interests $ 3.3 $ 0.5 NM $ 7.8 $ 0.5 NM
Extraordinary loss,
net - 0.3 NM - 1.3 NM
Corporate expense for the first six months of 1994 decreased primarily due
to timing and reimbursement of certain expenses during first quarter 1994. The
decrease in interest expense is due to the impact of lower interest rates on
Promus' variable rate debt and lower overall levels of debt. The effective tax
rate is higher than the federal statutory rate due primarily to state income
taxes. Minority interests reflect joint venture partners' shares of income at
joint venture riverboat casinos. The extraordinary losses recorded in the
prior year periods represent related write-offs of unamortized deferred finance
charges due to early retirements of debt.
CAPITAL SPENDING AND DEVELOPMENT
- --------------------------------
Casino Entertainment
- --------------------
To maintain its leading position in the casino entertainment industry and
to further build the value of Harrah's as a national casino brand, Promus
continues its development of previously announced projects and its
investigation and pursuit of additional development opportunities in emerging
markets throughout the U.S. and, to a lesser extent, abroad. Promus focused
the majority of its capital spending during the first six months of 1994 on
casino development opportunities.
-19-
Harrah's New Orleans
--------------------
A Promus subsidiary is a one-third partner in a partnership (the
Partnership) selected in May 1994 by the Louisiana Economic Development and
Gaming Corporation (LEDGC) to negotiate for the right to own and operate the
sole land-based casino permitted by law to operate in Orleans Parish,
Louisiana. This selection was made pursuant to a public bidding process
involving three public solicitations of proposals by the LEDGC dating back to
May 1993. The negotiations with the LEDGC culminated with the execution in
July 1994 of a casino operating contract with the LEDGC. However, the contract
is generally not effective until additional agreements with the City of New
Orleans (City) satisfactory to the Partnership are obtained and approved by the
LEDGC. The Partnership is seeking to obtain these agreements and approvals by
September 1, 1994.
In March 1994, the Partnership reached agreement with the City to lease
from the City's Rivergate Development Corporation the sites of the Rivergate
Convention Center, the legally mandated site of the permanent casino, and the
Municipal Auditorium, the site of the temporary casino. Notwithstanding these
lease agreements, it will be necessary for the Partnership to reach the
additional agreements discussed above with the City, and have those agreements
approved by the LEDGC, to create an effective casino operating contract and
proceed with the project.
The estimated cost of the project is $790 million, which is expected to be
financed through a combination of partner capital contributions, public debt
securities, bank debt and operating cash flow from the temporary casino. The
Partnership is currently in the process of registering a public offering of
$570 million in debt and arranging $100 million in bank debt. The total
capital contribution of Promus' subsidiary is expected to be $23.3 million.
Promus has agreed to provide completion guarantees for the project, subject to
certain conditions and exceptions, in exchange for a fee to be paid by the
Partnership. Before the Partnership can begin construction of either the
planned 76,000 square foot temporary casino or the proposed 400,000 square foot
permanent casino facility (200,000 square foot casino space), other conditions
and legal issues pertinent to the transaction (in addition to obtaining the
additional agreements with the City and the approval of those agreements by the
LEDGC) must be satisfied, including, without limitation, obtaining financing,
and satisfying other governmental requirements.
Assuming the timely satisfaction of the conditions and legal issues
discussed above, the projected opening dates for the temporary casino and
permanent casino are expected to be March 1995 and first quarter 1996,
respectively.
Litigation concerning title to a portion of the land underlying the
permanent casino site was decided favorably at the trial court level. The
trial court decision was appealed on April 29, 1994. If this appeal were
ultimately decided unfavorably, it might delay or prevent the opening of the
casino facilities or otherwise adversely affect their operations.
-20-
Riverboat Casino Development
----------------------------
During the first six months of 1994, Promus opened two additional riverboat
casinos. In January 1994, Promus' second Joliet, Illinois based riverboat
casino, the Harrah's Southern Star, began operations. The Southern Star shares
shoreside facilities with its sister ship, the Northern Star. On April 18,
1994, Promus began operations of the Shreveport Rose, a dockside Harrah's
riverboat casino located in downtown Shreveport, Louisiana. In addition to the
five riverboat casinos now operating, Promus has announced two riverboat casino
projects in the state of Missouri. Following the failure of a statewide
referendum that would have approved games of chance for proposed casino
developments in Missouri and would have resolved the uncertainty which resulted
earlier this year when a state court ruling cast doubt on the permissibility of
offering certain types of games in casinos, Promus reevaluated its development
plans and opportunities in this state.
In North Kansas City, Promus continues its development of a classic
sternwheeler designed riverboat casino featuring approximately 33,000 square
feet of casino space. Approximately $47.4 million of the total estimated
project cost of $89.2 million had been spent as of the end of second quarter
1994. The project is expected to open during third quarter 1994, subject to
the approval of various regulatory bodies, and will feature certain types of
games determined to be legal under the court ruling.
Construction of the shoreside facilities at the site of Promus' second
Missouri riverboat casino, to be located in Maryland Heights, a suburb of St.
Louis, has been postponed. Construction of the casino riverboat intended for
use at the Maryland Heights site is continuing and, upon its completion, could
be available for use at another site, should Promus decide not to pursue a
development on this site. A final decision concerning the Maryland Heights
development will be made after an anticipated November 1994 statewide
referendum in Missouri to approve offering games of chance in casinos.
$22.2 million had been spent on the project as of the end of second quarter
1994, primarily related to construction of the riverboat casino, which will
feature 27,500 square feet of casino space.
During second quarter 1994, Promus executed its option to acquire an
additional ownership interest in the joint venture which owns and operates the
riverboat casino in Shreveport, Louisiana. As a result of this transaction,
Promus' ownership interest in the joint venture increased from approximately
86% to 96%.
Indian Lands
------------
Promus has entered into management and development agreements with the Ak-
Chin Indian Community of the Maricopa Indian Reservation for a $24.7 million
casino entertainment facility currently under construction near Phoenix,
Arizona. Promus is not funding this development, although it has guaranteed
the related bank financing. The facility is expected to open in late fourth
quarter 1994, subject to the receipt of approvals from various regulatory
agencies, including the National Indian Gaming Commission. Promus will manage
the facility, which is owned by the Ak-Chin Indian Community, for a fee. The
Tribal/State Compact between the Ak-Chin Community and the State of Arizona has
received approval from the U.S. Department of the Interior.
-21-
Promus is in various stages of negotiations or agreements with a number of
other Indian communities to develop and/or manage facilities on Indian lands,
which would require approvals from various government agencies to proceed.
International
-------------
Promus and its local partner began construction of a casino in Auckland,
New Zealand, during second quarter. Promus will own a 20% interest in the
partnership and will manage the facility for a fee. Of Promus' total expected
capital contribution of $23.0 million, $1.4 million had been contributed at
June 30, 1994. Construction of the $230 million project, to be financed
through a combination of partner contributions and non-recourse debt, is
expected to be completed and the facility to be in operation in first quarter
1996.
Acquisition of Station Square
-----------------------------
During June 1994, a general partnership in which Promus is a 75% partner
announced its intention to acquire Station Square, an entertainment, business
and retail center in Pittsburgh, Pennsylvania. The Station Square site
includes approximately 25 acres of land available for development and extends
along the Monongahela River, across from the Golden Triangle of Pittsburgh.
The transaction is expected to close during third quarter 1994, subject to
normal contingencies for transactions of this nature. Subject to satisfaction
of these contingencies, Promus expects to provide all or a portion of the funds
needed to acquire the property, either in the form of capital contributions,
assisting the venture in securing non-recourse debt or a combination of
contributions and debt assistance. If casino gaming is legalized in this
jurisdiction, the partnership plans to pursue development of a casino
entertainment facility at the Station Square site, which would require
additional funding if such development proceeded.
Existing Casino Facilities
--------------------------
Promus has committed $28.6 million to construct a company-owned Hampton Inn
hotel on the site of Harrah's Reno. The 408-room hotel is expected to open
during first quarter 1996. No major additions of casino square footage or
hotel rooms are currently planned at Promus' other casino entertainment
properties. On-going refurbishment and maintenance of Promus' casino
entertainment facilities continues to maintain the quality standards set for
these properties.
-22-
Overall
-------
In addition to the projects discussed above, Promus continues to pursue
additional casino entertainment development opportunities in various new
jurisdictions across the United States and abroad, although no material
definitive development agreements have been completed and no material capital
commitments to construct additional facilities have been made to third parties
at this time. Until all necessary approvals to proceed with development of a
project are obtained from the relevant regulatory bodies, the costs of pursuing
casino entertainment projects are expensed as incurred. Construction-related
costs incurred after the receipt of necessary approvals are capitalized and
depreciated over the estimated useful life of the resulting asset.
A number of these casino entertainment development projects, if they go
forward, may require, individually and in the aggregate, a significant capital
commitment and, if completed, may result in significant additional revenues.
The commitment of capital, the timing of completion and the commencement of
operations of casino entertainment development projects are contingent upon,
among other things, negotiation of final agreements and receipt of approvals
from the appropriate political and regulatory bodies.
Hotel
- -----
Promus' three established hotel brands continued their steady growth during
the first six months of 1994 with the opening of 34 additional franchised
properties. An additional 50 franchised properties, comprised of 43 Hampton
Inn hotels, five Embassy Suites hotels and two Homewood Suites hotels, were
under construction or conversion to Promus brands at June 30, 1994.
Construction of a company-owned prototype of a downsized Homewood Suites
property suitable for smaller markets is expected to begin during third quarter
1994. The prototype is expected to be completed during third quarter 1995 at
an estimated cost of not more than $6 million. Six franchised Hampton Inn &
Suites hotels, a new concept combining rooms and suites in a single property
introduced by Promus hotels in late 1993, have been approved for development.
The first Hampton Inn & Suites property is expected to open in second quarter
1995.
To increase distribution and brand awareness of its Homewood Suites brand,
during second quarter 1994 Promus announced plans to expand the brand by
developing 20 to 25 additional properties over the next three years. A total
of up to $150 million is expected to be required over the three year period to
fund this development.
Summary
- -------
Cash needed to finance projects currently under development as well as
additional projects being pursued by Promus will be made available from
operating cash flows, the Bank Facility (see DEBT REFINANCING ACTIVITIES
section), joint venture partners, specific project financing, guarantees by
-23-
Promus of third party debt, sales of existing hotel assets and, if necessary,
Promus debt and/or equity offerings. Including $133.0 million spent during the
first six months of 1994, Promus currently estimates $325 million to $375
million of cash from all sources will be required during 1994 to fund project
development, including the projects discussed in this CAPITAL SPENDING AND
DEVELOPMENT section, refurbishment of existing facilities and other projects.
DEBT AND LIQUIDITY
- ------------------
Bank Facility
- -------------
Available Borrowing Capacity
----------------------------
At June 30, 1994, $245.4 million in borrowings was outstanding under
Promus' reducing revolving and letter of credit facility (the Bank Facility).
An additional $220.8 million of the Bank Facility was committed to back certain
letters of credit, including a $204.7 million letter of credit supporting the
9% Notes. After consideration of these borrowings, $183.8 million was available
to Promus under the Bank Facility as of June 30, 1994.
Interest Rate Reduction
-----------------------
A primary financial objective was fulfilled during second quarter 1994 with
the announcement by Standard and Poor's that it had upgraded Promus' implied
senior debt rating to investment grade status. As a result of achieving
investment grade status, the interest rate on Promus' Bank Facility has been
reduced by 1/4 of 1%. The interest rate has also been reduced by an additional
1/4 of 1% due to Promus' exceeding a defined minimum financial covenant
requirement. Both rate reductions were effective July 25, 1994. These
interest rate reductions will remain in force so long as the investment grade
status is maintained and the minimum financial covenant is exceeded.
Interest Rate Agreements
------------------------
In prior years, Promus entered into various interest rate swap agreements
as summarized in the following table:
Next Semi-
Swap Rate at Annual Rate
Associated Rate June 30, Adjustment Swap Agreement
Debt (LIBOR+) 1994 Date Expiration Date
- -------------- -------- -------- ----------- ----------------
10 7/8% Notes
$200 million 4.73% 9.16% Oct. 15 October 15, 1997
8 3/4% Notes
$50 million 3.42% 8.85% Nov. 15 May 15, 1998
$50 million 3.22% 6.69% July 15 July 15, 1998
-24-
In accordance with the terms of the interest rate swap agreements, the
effective interest rate on $50 million of 8 3/4% Notes was adjusted on July 15,
1994 to 8.71%. This rate will remain in effect until January 15, 1995.
Promus has guaranteed the debt of a third party and has entered into an
interest rate swap with the third party in which Promus exchanged a fixed
interest rate for the variable interest rate of the subject debt. Promus does
not believe that its exposure under this agreement is material.
Promus maintains interest rate protection, in the form of a rate collar
transaction entered into in June 1990, on $140 million on its variable rate
bank debt. The interest rate protection expires in June 1995 and currently
holds Promus' interest rate in a range between 8.8% and 12.0%.
Shelf Registration
- ------------------
Promus, through its wholly-owned subsidiary Embassy Suites, Inc. (Embassy),
has registered up to $200 million of new debt securities pursuant to a shelf
registration declared effective by the Securities and Exchange Commission. The
terms and conditions of these debt securities, which will be unconditionally
guaranteed by Promus, will be determined by market conditions at the time of
issuance.
INCOME TAX MATTERS
- ------------------
In connection with the spin-off of Promus' stock (the Spin-off) to Holiday
Corporation (Holiday) stockholders on February 7, 1990, Promus is liable, with
certain exceptions, for the taxes of Holiday and subsidiaries for all pre-Spin-
off tax periods. Negotiations with the Internal Revenue Service (IRS) to
resolve disputed issues for the 1985 and 1986 tax years were concluded and a
settlement reached during fourth quarter 1993. Final payment of the federal
income taxes and related interest due under the settlement was made during
second quarter 1994. The IRS has completed its examination of Holiday's
federal income tax returns for 1987 through the Spin-off date and has issued
its proposed adjustments to those returns. Federal income taxes and related
interest assessed on agreed issues were paid during first quarter 1994. A
protest defending the taxpayer's position on all unagreed issues for the 1987
through Spin-off periods was filed with the IRS during third quarter 1993 and
negotiations to resolve disputed issues have begun. Final resolution of the
disputed issues is not expected to have a materially adverse effect on Promus'
consolidated financial position or its results of operations.
EQUITY TRANSACTIONS
- -------------------
On April 29, 1994, Promus' stockholders approved an amendment to the
Certificate of Incorporation which increased the number of authorized shares
from 120 million to 360 million and reduced the par value per share from $1.50
to $0.10. As a result of the change in the par value, approximately $143
million was transferred from the common stock account to capital surplus on
the balance sheet.
-25-
EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS
- ----------------------------------------------------
The casino entertainment industry is experiencing expansion in both
existing markets and new jurisdictions. In the Las Vegas market, three
competitors opened new casino "mega" facilities during fourth quarter 1993
adding more than 350,000 square feet of casino space and 10,000 rooms to the
market. In Laughlin, expansions by competitors completed in 1993 increased the
number of rooms available in that market by 12%. In Reno, competitors have
announced new projects which will add significant additional casino space and
hotel rooms to that market. In addition, the proliferation of casino gaming
activity in many new jurisdictions is continuing due to the widespread growing
acceptance of casino gaming as a form of entertainment and as an alternative
tax revenue source for municipalities and states. Certain jurisdictions have
restrictions on entry into the market, either through limitations on number of
licenses granted or required minimum initial capital investment, which serve to
limit capacity as well as to limit competition within those jurisdictions. In
other jurisdictions, such as Mississippi, there are no constraints on market
entry, creating the potential for over capacity in the market. In such
markets, operating performance may suffer due to oversupply and as competing
casinos engage in high cost marketing and promotional activities that increase
costs for all market participants. The proliferation of casino gaming has also
been furthered by the Indian Gaming Regulatory Act of 1988 which, as of August
9, 1994, had resulted in the approval of 107 compacts for the development of
casinos on Native American lands in 19 states.
Promus is not able to determine the long-term impact, whether favorable or
unfavorable, that these developments will have on the markets in which it
currently operates. However, management believes that the current balance of
its operations among the existing casino entertainment divisions and the hotel
segment as discussed above, combined with the further geographic
diversification and the continuing pursuit of the Harrah's national brand
strategy presently underway in its casino entertainment segment, have well-
positioned Promus to face the challenges presented by these developments and
will reduce the potentially negative impact these new developments may have on
Promus' overall operations.
INTERCOMPANY DIVIDEND RESTRICTION
- ---------------------------------
Agreements governing the terms of its debt require Promus to abide by
covenants which, among other things, limit Embassy's ability to pay dividends
and make other restricted payments, as defined, to Promus. The amount of
Embassy's restricted net assets, as defined, computed in accordance with the
most restrictive of these covenants regarding restricted payments, was
approximately $616.4 million at June 30, 1994. Promus' principal asset is the
stock of Embassy, a wholly-owned subsidiary. Embassy holds, directly and
through subsidiaries, the principal assets of Promus' businesses. Given this
ownership structure, these restrictions should not impair Promus' ability to
conduct its business through its subsidiaries or to pursue its development
plans.
-26-
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
--------------------------
Bass Public Limited Company, Bass International Holdings N.V., Bass
(U.S.A.) Incorporated, Holiday Corporation and Holiday Inns, Inc. (collectively
"Bass") v. The Promus Companies Incorporated ("Promus"). A complaint was filed
in the United States District Court for the Southern District of New York
against Promus on February 6, 1992, under Civil Action No. 92 Civ. 0969(SWK).
The complaint alleges violation of Rule 10b-5 of the federal securities laws,
intentional and negligent misrepresentation, breach of express warranties,
breach of contract, and express and equitable indemnification. The complaint
generally alleges breaches of representations and warranties under the Merger
Agreement with respect to the 1990 spin-off of Promus and acquisition of the
Holiday Inn hotel business by Bass, violation of the federal securities laws
due to such alleged breaches, and breaches of the Tax Sharing Agreement between
Bass and Promus entered into at the closing of the Merger Agreement. The
complaint seeks an unspecified amount of damages, unspecified punitive or
exemplary damages, and declaratory relief. The Company believes that it has
complied with all applicable laws and agreements with Bass in connection with
the Merger and is defending its position vigorously. Promus has filed (a) an
answer denying, and asserting affirmative defenses to, the substantive
allegations of the complaint and (b) counterclaims alleging that Bass has
breached the Tax Sharing Agreement and agreements ancillary to the Merger
Agreement. The counterclaims request unspecified compensatory damages,
injunctive and declaratory relief and Promus' costs, including reasonable
attorneys fees and expenses. On April 17, 1992, Bass filed a motion seeking to
disqualify the Company's outside counsel in the litigation, Latham & Watkins,
on various grounds. That motion was denied by the trial court on January 7,
1994. Discovery has begun, but no trial date has been set.
Certain tax matters. In connection with the Spin-off, Promus is
liable, with certain exceptions, for taxes of Holiday and its subsidiaries for
all pre-merger tax periods. Bass is obligated under the terms of the Tax
Sharing Agreement to pay Promus the amount of any tax benefits realized from
pre-merger tax periods of Holiday and its subsidiaries. The disputed issues
from the Internal Revenue Service audit of the 1985 and 1986 tax years have
been settled and the payment of taxes and interest with respect thereto was
made during second quarter 1994. The IRS has completed its examination of
Holiday's federal income tax returns for 1987 through the Spin-off date and has
issued its proposed adjustments to those returns. Federal income taxes and
related interest assessed on agreed issues were paid in first quarter 1994. A
protest of all unagreed issues for the 1987 through Spin-off periods was filed
with the IRS during the third quarter of 1993 and negotiations to resolve
disputed issues have begun. Final resolution of the disputed issues is not
expected to have a materially adverse effect on Promus' consolidated financial
position or its results of operations.
-27-
Item 4. Submission of Matters To a Vote of Security Holders
----------------------------------------------------
The Company held its annual stockholders meeting on April 29, 1994.
The following matters were voted upon at the meeting:
1. Election of Class I Directors
-----------------------------
Votes Cast
-------------------------------
Against or
Name of Director Elected For Withheld
------------------------ --- --------
Joe M. Henson 89,628,411 284,842
Michael D. Rose 89,618,824 294,429
Ronald Terry 89,625,132 288,121
Eddie N. Williams 89,619,943 293,310
Name of Each Other Director Whose Term of
Office as Director Continued After the Meeting
----------------------------------------------
James L. Barksdale
James B. Farley
Walter J. Salmon
Philip G. Satre
Boake A. Sells
Shirley Young
2. Approval of Amendment to the Against or
Company's Charter as described in For Withheld Abstentions
the Company's Proxy Statement --- -------- -----------
dated March 18, 1994 including 79,847,492 9,824,962 240,799
the resolutions set forth on page
9 of the Proxy Statement.
---------------------------------
3. Approval of Amendments to the Against or
Company's 1990 Stock Option Plan For Withheld Abstentions
as described on page 12 of the --- -------- -----------
Company's Proxy Statement dated 83,449,957 6,149,775 313,521
March 18, 1994.
---------------------------------
4. Ratification of Arthur Andersen Against or
& Co. as the Company's independent For Withheld Abstentions
public accountants for the 1994 --- -------- -----------
calendar year. 89,324,873 329,890 258,490
---------------------------------
There were no broker nonvotes with regard to the matters voted upon at the
meeting.
-28-
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------------------------
(a) Exhibits
EX-10.1 Employment Agreement dated as of February 25, 1994, and
effective April 29, 1994, between The Promus Companies
Incorporated and Michael D. Rose.
EX-10.2 Amendment, dated February 25, 1994 and effective April 29, 1994,
to Amended and Restated Severance Agreement dated November 5,
1992, between The Promus Companies Incorporated and Philip G.
Satre.
EX-10.3 The Promus Companies Incorporated 1990 Stock Option Plan, as
amended July 29, 1994.
EX-10.4 Amendment dated as of May 27, 1994 to The Promus Companies
Incorporated Savings and Retirement Plan.
EX-11 Computation of per share earnings.
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1994.
-29-
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.
THE PROMUS COMPANIES INCORPORATED
August 11, 1994 BY: MICHAEL N. REGAN
------------------------------
Michael N. Regan
Vice President and Controller
(Chief Accounting Officer)
-30-
Exhibit Index
-------------
Exhibit No. Description Sequential Page No.
- ----------- ------------ ------------------
EX-10.1 Employment Agreement dated as of 32
February 25, 1994, and effective
April 29, 1994, between The Promus
Companies Incorporated and Michael
D. Rose.
EX-10.2 Amendment, dated February 25, 1994 66
and effective April 29, 1994, to
Amended and Restated Severance
Agreement dated November 5, 1992,
between The Promus Companies
Incorporated and Philip G. Satre.
EX-10.3 The Promus Companies Incorporated 69
1990 Stock Option Plan, as
amended July 29, 1994.
EX-10.4 Amendment dated as of May 27, 1994 80
to The Promus Companies Incorporated
Savings and Retirement Plan.
EX-11 Computation of per share earnings. 83
-31-
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 25th day of February, 1994, between The
Promus Companies Incorporated, a Delaware corporation with its executive
offices at 1023 Cherry Road, Memphis, Tennessee (the "Company"), and Michael
D. Rose (the "Executive").
The Company and the Executive agree as follows:
1. Introductory Statement.
The Company desires to secure the services of the Executive as Chairman
("Chairman") of the Board of Directors (the "Board") and the Executive is
willing to execute this Agreement with respect to his employment. This
Agreement is effective on April 29, 1994, and shall expire December 31, 1998,
subject to the terms and conditions herein. On the effective date of this
Agreement, the Agreement dated August 1, 1987, as amended January 31, 1990,
between the Company and the Executive shall be cancelled and shall be of no
further force or effect.
2. Agreement of Employment.
The Company agrees to, and hereby does, employ the Executive, and the
Executive agrees to, and hereby does accept, employment by the Company, in a
full-time capacity as Chairman, pursuant to the provisions of this Agreement
and of the bylaws of the Company and subject to the control of the Board of
Directors. It is understood that Executive's position of Chairman is subject
to his election as a director by the Company's stockholders and yearly
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re-election as Chairman by the Board of Directors in the exercise of its
judgment. See paragraph 8 herein for Executive's rights if Executive fails to
be elected a director or is not re-elected as Chairman during the term of this
Agreement.
3. Executive's Obligations.
During the period of his full-time service under this Agreement, the
Executive shall devote substantially all of his time and energies during
business hours, faithfully and to the best of his ability, to his duties as
Chairman and such other duties as directed by the Board. The Executive may
take up to six weeks vacation each year with pay.
4. Compensation.
The Company shall pay to the Executive for his full-time service under
this Agreement a salary at the rate of $550,000 per year, in equal bi-weekly
installments, provided, however, that the Human Resources Committee of the
Board (the "HRC") shall in good faith review the salary of the Executive, on
an annual basis, with a view to consideration of appropriate merit increases
in such salary. In addition, except as otherwise provided in this Agreement,
during the term of this Agreement the Executive shall be entitled to
participate in incentive compensation programs and to receive employee
benefits and perquisites at least as favorable to the Executive as those
presently provided to Executive by the Company, and as may be enhanced for all
senior officers. Such benefits include, but are not limited to, the rabbi
trust (provided pursuant to the escrow agreement dated February 6, 1990 as
amended (the "Escrow Agreement")) and his Severance Agreement dated May 1,
1992, attached hereto as Exhibit A (the "Severance Agreement") both of
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which will continue in force subject to their terms and conditions including
the termination and amendment provisions thereof. There will be no diminution
of the above compensation, perquisites, or benefits except as provided in this
Agreement.
The Executive will continue to use the Company's aircraft for security
purposes for himself and his family (with standard charges for family members
and for non-Company business usage) and the Executive's current household
security arrangements will continue in force.
If the Executive dies, retires pursuant to paragraph 7 hereof or resigns
pursuant to this Agreement or pursuant to any other agreement between the
Company and the Executive providing for such resignation during the period of
this Agreement, service for any part of the month in which any such event
occurs shall be considered service for the entire month.
5. Service After April 30, 1996.
5.1(a) The Board may, at its discretion or following Executive's
request, modify his responsibilities at any time after April 30, 1996, to
(i) remain as Chairman through December 31, 1998 (subject to his election
as a director), with such duties as may be assigned by the Board,
spending 50% of his time in the performance of such duties with a salary
rate equal to 50% of his base salary just prior to the change in duties;
or (ii) assume a more limited role through December 31, 1998, as
determined by the Board, with a commensurate salary as approved by the
HRC.
(b) Should Executive's responsibilities be modified as contemplated
in paragraph 5.1(a) above, he will continue to be an
-34-
employee and to have the perquisites and benefits as described in
paragraph 4 above except he will no longer be eligible for the annual
bonus plan, stock option or restricted stock grants or other long term
incentive awards then in effect and he will be responsible for the cost
of his household security. His usage of Company aircraft for personal
and family travel will be on an "as available" basis.
5.2 Whether or not Executive's responsibilities are modified as
contemplated in paragraph 5.1(a) above, his last day of employment will be
December 31, 1998, unless this Agreement is extended as provided in paragraph
5.3 below and except as otherwise provided herein.
5.3 At the option of the Board and with Executive's consent, this
Agreement may be extended on a year to year basis after December 31, 1998,
with each party having the right to terminate at the end of each renewal year.
6. Termination From Employment on December 31, 1998
6.1 Except as otherwise provided in this Agreement and except if this
Agreement is extended under paragraph 5.3, the date of Executive's termination
from employment shall be December 31, 1998 and, on that date, all of his stock
options and restricted stock awards not yet vested will become 100% vested
(fully exercisable). Such date will be Executive's retirement date for
purposes of the Company's benefit plans including, without limitation, the
Company's Savings and Retirement Plan ("S&RP"), Executive Deferred
Compensation Plan ("EDCP"), Deferred Compensation Plan ("DCP"), Stock Option
Plan and Restricted Stock Plan and all other benefit plans of the Company
(subject to paragraph 7.2, below).
-35-
6.2 Executive's stock options (including options that become vested on
the date of termination) will be exercisable after the date of such
termination of employment in accordance with the terms of the Stock Option
Plan then in effect applicable to retired employees.
6.3 After the date of Executive's termination from employment at any
time (including termination, retirement or resignation prior to December 31,
1998, if that should occur), he will be entitled to participate for his
lifetime in the Company's group health insurance plans applicable to corporate
executives including family coverage as applicable (medical, dental and vision
coverage). His group health insurance benefits after any termination of
employment will not be less than those offered to corporate officers of the
Company and he will be entitled to any later enhancements in such benefits.
His benefits will be the same as normally provided to other retired management
directors pursuant to the policy adopted by the HRC on October 26, 1990
(except to the extent he voluntarily elects not to participate in any plan).
It is understood that if the fundamental value of the benefits provided to
Executive is materially decreased due to tax law changes or plan amendments,
then the benefits provided to him will be appropriately modified to prevent
this material loss of fundamental benefits.
6.4 It is understood that Executive is currently vested at the
retirement rate under the EDCP and this rate applies to Executive's EDCP
account. After the date of Executive's termination, retirement or resignation
from employment, his EDCP account and any other deferred compensation balances
will continue to be protected by the Escrow Agreement if it is then in force
subject to the terms and conditions of the Escrow Agreement including its
termination and amendment provisions.
-36-
7. Retirement
7.1 Executive may voluntarily retire, effective at any time on or after
April 30, 1996, by giving the Company three months prior written notice of the
effective date of such retirement. On the effective date of such retirement
as specified in the aforesaid written notice, all of Executive's unvested
stock options will vest and become fully exercisable and any unvested
restricted stock will also vest. The effective date of such retirement will
be Executive's retirement date for purposes of salary and all benefits
including, without limitation, the EDCP, DCP, S&RP and the Stock Option Plan
(subject to paragraph 7.2, below). Executive's stock options will be
exercisable after the effective date of his retirement in accordance with the
provisions of the Stock Option Plan then in effect applicable to retired
employees and for this purpose Executive will be deemed to have satisfied the
requirements of retirement for age under the Plan. After the effective date
of such retirement, Executive will be entitled to the lifetime group insurance
benefits described in paragraph 6.3.
7.2 If a Change in Control (as defined in the Severance Agreement)
occurs during Executive's employment pursuant to this Agreement, and if
Executive's Severance Agreement is in force upon such Change in Control,
Executive's retirement pursuant to the terms of this Agreement within two (2)
years after the Change in Control will be deemed a voluntary resignation,
rather than "Retirement" as defined under 3(a) of the Severance Agreement, for
purposes of Executive's entitlement to the Severance Payments (as defined in
the Severance Agreement), notwithstanding any provisions of the Severance
Agreement to the contrary and the Severance Agreement is hereby amended for
-37-
this purpose. In the event of such retirement or voluntary resignation after
a Change in Control, paragraph 7.1 will not apply and Executive will be
entitled to the payments, rights and benefits as provided in paragraph 12
below.
8. Termination Without Cause or Resignation for Good Reason
8.1 The Board reserves the right to terminate Executive from his then
current position without cause at any time upon at least three months prior
written notice. The failure of the stockholders to elect Executive as a
director during the annual election of directors or the failure of the Board
to elect Executive as Chairman during the annual election of officers shall
also be deemed termination without cause for purposes of this Agreement
unless, before any such annual election, the Board has sent the written notice
initiating termination for Cause as provided in paragraph 13.1 and Executive
is thereafter terminated for Cause. Executive reserves the right to resign
his position for Good Reason (as defined in paragraph 13.2 herein) by giving
the Company 30 days written notice which states the reason for his
resignation. For purposes of this Agreement, Good Reason does not include
changes in his duties, position, salary, perquisites or benefits that are
expressly permitted by this Agreement.
8.2 Upon the effective date of Executive's termination without cause or
resignation from his position with Good Reason as described in paragraph 8.1
above:
(a) All of his unvested stock options will vest (become fully
exercisable) on the effective date of such termination without cause
or resignation with Good Reason, and any unvested restricted stock
held by Executive will also vest at that time.
-38-
(b) Executive will continue in employee status as a consultant-employee
beginning on the effective date of such termination without cause or
resignation with Good Reason and continuing (a) until the expiration
of two years, or (b) until December 1, 1998, whichever first occurs
(the "Transition Period"). His stock options will be exercisable
after the expiration of the Transition Period in accordance with the
terms of the Stock Option Plan then in effect applicable to
employees who retire for age, and for this purpose Executive will be
deemed to have satisfied the requirements of retirement for age
under the Plan. The expiration of employee status at the end of the
Transition Period shall be deemed Executive's retirement date under
the Stock Option Plan and all other benefit plans (subject to
paragraph 7.2).
(c) During the Transition Period, Executive will continue to receive his
then-current salary rate and benefits but will no longer be eligible
for bonus, stock option or restricted stock grants or any other long
term incentive awards then in effect and will be responsible for the
cost of his household security.
(d) After the expiration of the Transition Period, Executive shall be
entitled to the lifetime group insurance benefits described in
paragraph 6.3.
9. Termination For Cause or Voluntary Resignation Without Good Reason
9.1 The Board will have the right to terminate Executive at any time
from his then-current position for Cause (as defined in paragraph 13.1
herein).
-39-
9.2 If Executive is terminated for Cause or if, prior to April 30, 1996,
he resigns his position without Good Reason, then (a) all of his rights and
benefits under this Agreement shall thereupon terminate and his employment
shall be deemed terminated on the date of such termination or resignation, (b)
he shall be entitled to all accrued rights, payments and benefits vested or
paid on or before such date under the Company's plans and programs, including
his EDCP payments at the retirement rate, but unvested stock options and
unvested shares of restricted stock, if any, will be forfeited, (c) his right
to exercise vested stock options will expire at 12:00 p.m. midnight on the
date of such termination or resignation and all stock options not so exercised
will be forfeited, (d) his indemnification agreement will continue in force,
(e) the Escrow Agreement, if then in force, will continue in force, unless
such Agreement is thereafter amended or terminated pursuant to its terms, (f)
he will be entitled to the lifetime group insurance benefits under paragraph
6.3 above, and (g) his Severance Agreement and all rights thereunder will
terminate as of such termination or resignation date unless a Change in
Control or Potential Change in Control (as such terms are defined in the
Severance Agreement) has occurred prior to such termination or resignation
date.
If Executive's Severance Agreement is in force upon a Change in Control
(as defined in the Severance Agreement), the provisions of this paragraph 9.2
will not be applicable if he retires or resigns (with or without Good Reason)
within two (2) years after the Change in Control, and in the event of such
retirement or resignation after a Change in Control he will be entitled to the
payments, rights and benefits as provided in paragraph 12 below.
-40-
10. Death
In the event of Executive's death during his employment under this
Agreement, his salary and all rights and benefits under this Agreement will
terminate, and his estate and beneficiary(ies) will receive the benefits they
are entitled to under the terms of the Company's benefit plans and programs by
reason of a participant's death during active employment including the death
benefits provided by the EDCP and the applicable rights and benefits of the
Company's stock plans. The Escrow Agreement if then in force will continue in
force (subject to its amendment or termination in accordance with its terms)
for the benefit of Executive's beneficiaries until his deferred compensation
accounts are paid in full, and Executive's indemnification agreement will
continue in force for the benefit of his estate.
11. Disability
In the event of Executive's disability during his employment hereunder,
he will be entitled to apply at his option for the Company's long term
disability benefits. If he is accepted for such benefits, then the terms and
provisions of the Company's benefit plans and programs (including the EDCP and
the Company's Stock Option and Restricted Stock Plans) that are applicable in
the event of such disability of an employee shall apply in lieu of the salary
and benefits under this Agreement, except that (a) the Escrow Agreement (if
then in force) and his indemnification agreement will continue in force (the
Escrow Agreement will be subject to amendment or termination in accordance
with its terms), (b) he will be entitled to the lifetime group insurance
benefits described in paragraph 6.3 and (c) all of his unvested stock options
will vest on the date he is determined to be disabled under the long term
-41-
disability plan, and such options together with options previously vested will
be exercisable after the determination of disability in accordance with the
terms of the Stock Option Plan then in effect applicable to disabled
employees. If Executive is disabled so that he cannot perform his duties (as
determined by the HRC) and if he does not apply for long term disability
benefits or is not accepted for such benefits, then the Board may terminate
his duties under this Agreement and, in such event, the Company will be
obligated to pay Executive his then-current salary thereafter through December
31, 1998 (or to a later date if the Agreement has been extended pursuant to
paragraph 5.3), and to provide the other benefits and rights described herein
including, without limitation, the vesting of all unvested stock options on
December 31, 1998, except that during the period of Executive's salary
continuation due to disability, Executive will not be eligible to participate
in the Company's annual bonus plan or to receive stock option or restricted
stock grants or any other long term incentive awards except to the extent
approved by the HRC. If the Board terminates Executive's duties pursuant to
the preceding sentence, this Agreement will continue in full force and effect
until December 31, 1998 (or its later expiration date if this Agreement has
been extended pursuant to paragraph 5.3), which will be the date of
Executive's termination from employment and shall be considered his retirement
date under the provisions of all the Company's benefit plans including the
Stock Option Plan.
12. Change in Control
12.1 If a Change in Control as defined in Executive's Severance
Agreement occurs prior to Executive's termination of employment, resignation
-42-
or retirement and if the Severance Agreement is in force when the Change in
Control occurs, then, upon his termination of employment including voluntary
or involuntary resignation or retirement within two years after the Change in
Control (including termination on December 31, 1998, due to expiration of this
Agreement), except if his termination of employment is due to "Disability" or
"Cause" as set forth under the Severance Agreement, he will be entitled to all
the rights, payments and benefits provided under his Severance Agreement
including the Severance Payments thereunder and the benefits that the
Severance Agreement provides with respect to the benefit plans and programs of
the Company in lieu of the rights and benefits that would otherwise apply
under this Agreement, provided that (a) the Escrow Agreement (if then in
force) and his indemnification agreement will continue in force (the Escrow
Agreement will be subject to amendment or termination in accordance with its
terms) and (b) he will be entitled to the lifetime group insurance benefits
described in paragraph 6.3.
12.2 If, at any time after Executive's retirement or resignation or the
termination of Executive's employment, there is a Change in Control (as
defined in the Severance Agreement) and if the Severance Agreement is in force
on the day immediately prior to the effective date of his retirement,
resignation or termination of employment, then this Agreement will be deemed a
"retirement agreement" for purposes of subsection 4(e) of the Severance
Agreement, provided that Executive will have a one time right (to be exercised
by written notice given to the Company at least 60 days before the Change in
Control occurs) to elect to be paid his EDCP account in accordance with the
terms and provisions of his EDCP elections (subject to EDCP plan provisions)
-43-
at the retirement rate. If he does not make such election, his EDCP account
(based on the retirement rate) will be accelerated and the then present value
thereof will be paid to Executive in full, as provided by and computed in
accordance with paragraph 4(e) of the Severance Agreement, after the Change in
Control occurs.
13. Definitions of Cause and Good Reason.
13.1 Cause. Termination by the Company of this Agreement for "Cause"
shall mean termination upon the Executive's engaging in willful and continued
misconduct, or the Executive's willful and continued failure to substantially
perform his duties with the Company (other than due to physical or mental
illness), if such failure or misconduct is materially damaging or materially
detrimental to the business and operations of the Company; provided that
Executive shall have received written notice of such failure or misconduct and
shall have continued to engage in such failure or misconduct after 30 days
following receipt of such notice from the Board, which notice specifically
identifies the manner in which the Board believes that Executive has engaged
in such failure or misconduct. For purposes of this paragraph, no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to the Executive a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purposes
-44-
(after reasonable notice to the Executive and an opportunity for him, together
with his counsel, to be heard before the Board), finding that in the good
faith opinion of the Board the Executive was guilty of failure to
substantially perform his duties or of misconduct in accordance with the first
sentence of this paragraph, and of continuing such failure to substantially
perform his duties or misconduct as aforesaid after notice from the Board, and
specifying the particulars thereof in detail.
13.2 Good Reason. "Good Reason" shall mean, without Executive's express
written consent, the occurrence of any of the following circumstances unless,
in the case of paragraphs (a), (e), (f) or (g), such circumstances are fully
corrected prior to the date of termination specified in the written notice
given by Executive notifying the Company of his resignation for Good Reason:
(a) The assignment to Executive of any duties inconsistent with his
status as Chairman or an executive officer of the Company or a
substantial adverse alteration in the nature or status of his
responsibilities except as permitted under this Agreement;
(b) Except as permitted under this Agreement, a reduction by the
Company in his annual base salary of $550,000 or as the same may be
increased from time to time pursuant to paragraph 4 hereof;
(c) The relocation of the Company's principal executive offices
where Executive is working to a location more than 50 miles from the
location of such offices on the date of this Agreement, or the Company's
requiring Executive to be based anywhere other than the location of the
Company's principal offices where Executive is working on the date of
-45-
this Agreement except for required travel on the Company's business to an
extent substantially consistent with Executive's present business travel
obligations;
(d) The failure by the Company, without Executive's consent, to pay
to him any portion of his current compensation except pursuant to a
compensation deferral elected by the Executive, or to pay to Executive
any portion of an installment of deferred compensation under any deferred
compensation program of the Company within thirty days of the date such
compensation is due;
(e) Except as permitted by this Agreement, the failure by the
Company to continue in effect any compensation plan in which Executive is
participating on the date of this Agreement which is material to
Executive's total compensation, including, but not limited to, the
Company's annual bonus plan, the EDCP (which may be modified or
terminated as to further deferrals after 1995), the Restricted Stock
Plan, or the Stock Option Plan or any substitute plans unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable,
both in terms of the amount of benefits provided and the level of
Executive's participation relative to other participants at Executive's
grade level;
(f) The failure by the Company to continue to provide Executive
with benefits substantially similar to those enjoyed by him under the
-46-
S&RP and the life insurance, medical, health and accident, and disability
plans in which Executive is participating on the date of this Agreement,
the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive Executive of
any material fringe benefit enjoyed by Executive on the date of this
Agreement except as permitted by this Agreement, or the failure by the
Company to provide Executive with the number of paid vacation days to
which Executive is entitled; or
(g) The failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 16 hereof.
Executive's right to terminate his employment pursuant to this Agreement
for Good Reason shall not be affected by Executive's incapacity due to
physical or mental illness. Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.
14. Non-Competition Agreement.
14.1 For a period of two years after Executive's employment status with
the Company (or with a direct or indirect subsidiary of the Company) ends or
his consultancy with the Company (or with any such subsidiary) ends, he will
not, directly or indirectly, solicit or recruit any employee of the Company or
of any of its direct or indirect subsidiaries, and he will not engage (as an
employee, consultant, director, investor contractor, or otherwise) directly
or indirectly in any business in the United States, Canada or Mexico that is
competitive with any business that the Company or its direct or indirect
-47-
subsidiaries are engaged in (as owner, manager, consultant, licensor, partner,
or otherwise) at the time his employment or consultancy ends except with the
prior specific approval of the Board.
14.2 If Executive breaches any of the above covenants in 14.1, then the
Board may terminate any of his rights under this Agreement upon thirty days
written notice whereupon all of the Company's obligations under this Agreement
shall terminate (including without limitation the right to lifetime group
insurance) without further obligation to him except for obligations that have
been paid, accrued or are vested as of or prior to such termination date (this
includes his EDCP account which shall be deemed vested and all stock options
which vested on or before his termination, resignation or retirement). In
addition, the Company shall be entitled to enforce any such covenants
including obtaining monetary damages, specific performance and injunctive
relief.
15. Binding Arbitration.
Any and all claims, disputes or controversies arising out of or related
to this Agreement or the breach thereof shall be resolved by arbitration in
accordance with the rules of the American Arbitration Association (the "AAA")
then in existence, subject to this paragraph 15. Such arbitration shall be
conducted by a panel of three arbitrators. The Executive shall appoint one
arbitrator, the Company shall appoint one arbitrator, and the third shall be
appointed by the two arbitrators appointed by the parties. The third
arbitrator shall serve as chairman of the panel. The parties shall appoint
their arbitrators within 30 days after the demand for arbitration is served,
failing which the AAA promptly shall appoint a defaulting party's arbitrator,
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and the two arbitrators shall select the third arbitrator within 15 days after
their appointment, or if they cannot agree or fail to so appoint, then the AAA
promptly shall appoint the third arbitrator. The arbitrators shall render
their decision in writing within 60 days after the close of evidence or other
termination of the proceedings by the panel. The determination or award
rendered in such arbitration shall be binding and conclusive upon the parties
and shall not be appealable, and judgment may be entered thereon in accordance
with applicable law in any court of competent jurisdiction. Any hearings in
the arbitration shall be held in Memphis, Tennessee, and shall be private and
not open to the public. Each party shall bear the fees and expenses of its
arbitrator, counsel and witnesses, and the fees and expenses of the third
arbitrator shall be shared equally by the parties. Other costs of the
arbitration, including the fees of AAA, shall be shared equally by the
parties.
16. Assumption of Agreement on Merger, Consolidation or Sale of Assets.
The Company agrees that until the termination of this Agreement as above
provided, it will not enter into any merger or consolidation with another
company in which the Company is not the surviving company, or sell or dispose
of all or substantially all of its assets, unless the company which is to
survive such merger or consolidation or the prospective purchaser of such
assets first makes a written agreement with the Executive either (1) assuming
the Company's financial obligations to the Executive under this Agreement, or
(2) making such other provision for the Executive as is satisfactory to the
Executive and approved by him in writing in lieu of assuming the Company's
financial obligations to him under this Agreement.
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17. Assurances on Liquidation.
The Company agrees that until the termination of this Agreement as above
provided, it will not voluntarily liquidate or dissolve without first making a
full settlement or, at the discretion of the Executive, a written agreement
with the Executive satisfactory to and approved by him in writing, in
fulfillment of or in lieu of its obligations to him under this Agreement.
18. Amendments.
This Agreement may not be amended or modified orally, and no provision
hereof may be waived, except in a writing signed by the parties hereto.
19. Assignment.
19.1 Except as otherwise provided in paragraph 19.2, this Agreement
cannot be assigned by either party hereto except with the written consent of
the other. Any assignment of this Agreement by either party hereto shall not
relieve such party of its or his obligations hereunder.
19.2 The Company may elect to perform any or all of its obligations
under this Agreement through its wholly-owned subsidiary, Embassy Suites,
Inc., or another subsidiary, and if the Company so elects, Executive will be
an employee of Embassy Suites, Inc. or such other subsidiary. Notwithstanding
any such election, the Company's obligations to Executive under this Agreement
will continue in full force and effect as obligations of the Company, and the
Company shall retain primary liability for their performance.
20. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
personal representatives and successors in interest of the Company.
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21. Choice of Law.
This Agreement shall be governed by the law of the State of Tennessee as
to all matters, including but not limited to matters of validity,
construction, effect and performance.
22. Severability of Provisions.
In case any one or more of the provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby and this Agreement shall be
interpreted as if such invalid, illegal or unenforceable provision was not
contained herein.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name and on its behalf
and its corporate seal to be hereunto affixed and attested by its corporate
officers thereunto duly authorized.
MICHAEL D. ROSE
------------------------------
Michael D. Rose
(Corporate Seal) THE PROMUS COMPANIES
INCORPORATED
By: E. O. ROBINSON, JR.
------------------------
ATTEST:
REBECCA W. BALLOU
- ------------------------------
Asst. Secretary
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EXHIBIT A
THE PROMUS COMPANIES INCORPORATED
May 1, 1992
Mr. Michael D. Rose
The Promus Companies Incorporated
1023 Cherry Road
Memphis, TN 38117
Re: Amended and Restated Severance Agreement
Dear Mr. Rose:
The Promus Companies Incorporated (the "Company") considers it essential
to the best interest of its stockholders to foster the continuous employment
of key management personnel. In this connection, the Board of Directors of
the Company (the "Board") recognizes that, as is the case with many publicly
held corporations, the possibility of a change in control may exist and that
such possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
the Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from
the possibility of a change in control of the Company, although no such change
is now contemplated.
In order to induce you to remain in the employ of the Company and in
consideration of your agreements set forth in Subsection 2(b) hereof, the
Company agrees that you shall receive the severance benefits set forth in this
letter agreement ("this Agreement") in the event your employment with the
Company terminates subsequent to a "Change in Control of the Company" (as
defined in Section 2 hereof) under the circumstances described below.
1. Term of Agreement. Pursuant to resolutions adopted by the Board on
May 1, 1992, this Agreement amends and restates the agreement regarding
Severance Payments dated January 31, 1990. The term of this Agreement shall
commence on May 1, 1992 and shall continue in effect through December 31,
1992; provided, however, that commencing on January 1, 1993 and each January 1
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thereafter, the term of this Agreement shall automatically be extended for one
additional year unless, not later than September 30 of the preceding year, the
Company shall have given notice that it does not wish to extend this
Agreement; provided, further, if a Change in Control of the Company shall have
occurred during the original or extended term of this Agreement, this
Agreement shall automatically continue in effect for a period of twenty-four
months beyond the month in which such Change in Control occurred.
2. Change in Control.
(a) No benefit shall be payable to you hereunder unless there shall have
been a Change in Control of the Company, as set forth below. For purposes of
this Agreement, a "Change in Control of the Company" shall be deemed to have
occurred, subject to subparagraph (iv) hereof, if any of the events in
subparagraphs (i), (ii) or (iii) occur:
(i) Any "person" (as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than an employee benefit plan of the Company, or a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 25% or more of the
Company's then outstanding voting securities carrying the right to vote
in elections of persons to the Board, regardless of comparative voting
power of such voting securities, and regardless of whether or not the
Board shall have approved such Change in Control; or
(ii) During any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board and any new director (other
than a director designated by a person who shall have entered into an
agreement with the Company to effect a transaction described in clauses
(i) or (iii) of this Subsection) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute a majority thereof; or
(iii) The holders of securities of the Company entitled to vote
thereon approve the following:
(A) A merger or consolidation of the Company with any other
corporation regardless of which entity is the surviving company,
other than a merger or consolidation which would result in the
voting securities of the Company carrying the right to vote in
elections of persons to the Board outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving
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entity) at least 80% of the Company's then outstanding voting
securities carrying the right to vote in elections of persons to the
Board, or such securities of such surviving entity outstanding
immediately after such merger or consolidation, or
(B) A plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(iv) Notwithstanding the definition of a "Change in Control" of the
Company as set forth in this Section 2(a), the Human Resources Committee
of the Board (the "Committee") shall have full and final authority, which
shall be exercised in its discretion, to determine conclusively whether a
Change in Control of the Company has occurred, and the date of the
occurrence of such Change in Control and any incidental matters relating
thereto, with respect to a transaction or series of transactions which
have resulted or will result in a substantial portion of the assets or
business of the Company (as determined immediately prior to the
transaction or series of transactions by the Committee in its sole
discretion which determination shall be final and conclusive) being held
by a corporation at least 80% of whose voting securities are held,
immediately following such transaction or series of transactions, by
holders of the voting securities of the Company (determined immediately
prior to such transaction or series of transactions). The Committee may
exercise such discretionary authority without regard to whether one or
more of the transactions in such series of transactions would otherwise
constitute a Change in Control of the Company under the definition set
forth in this Section 2(a).
(b) For purposes of this Agreement, a "Potential Change in Control of
the Company" shall be deemed to have occurred if the following occur:
(i) The Company enters into an agreement or letter of intent, the
consummation of which would result in the occurrence of a Change in
Control of the Company;
(ii) Any person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated
would constitute a Change in Control of the Company;
(iii) Any person, other than an employee benefit plan of the
Company, or a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company representing
9.5% or more of the Company's then outstanding voting securities carrying
the right to vote in elections of persons to the Board increases his
beneficial ownership of such securities by 5% or more over the percentage
so owned by such person on the date hereof; or
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(iv) The Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control of the Company has
occurred.
You agree that, subject to the terms and conditions of this Agreement, in the
event of a Potential Change in Control of the Company, you will remain in the
employ of the Company (or the subsidiary thereof by which you are employed at
the date such Potential Change in Control occurs) until the earliest of (x) a
date which is six months from the occurrence of such Potential Change in
Control of the Company, (y) the termination by you of your employment by
reasons of Disability or Retirement (at your normal retirement age), as
defined in Subsection 3(i), or (z) the occurrence of a Change in Control of
the Company.
3. Termination Following Change in Control. If any of the events
described in Subsection 2(a) hereof constituting a Change in Control of the
Company shall have occurred, you shall be entitled to the benefits provided in
Subsection 4(c) hereof upon the subsequent termination of your employment
(whether or not such termination is voluntary) during the term of this
Agreement unless such termination is (y) because of your death, Disability or
Retirement, or (z) by the Company for Cause.
(a) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six consecutive months, and
within thirty days after written notice of termination is given you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability". Termination by the Company or you of your
employment based on "Retirement" shall mean termination at age 65 (or later)
with ten years of service or retirement in accordance with any retirement
contract between the Company and you.
(b) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon your engaging in willful and continued misconduct,
or your willful and continued failure to substantially perform your duties
with the Company (other than due to physical or mental illness), if such
failure or misconduct is materially damaging or materially detrimental to the
business and operations of the Company, provided that you shall have received
written notice of such failure or misconduct and shall have continued to
engage in such failure or misconduct after 30 days following receipt of such
notice from the Board, which notice specifically identifies the manner in
which the Board believes that you have engaged in such failure or misconduct.
For purposes of this Subsection, no act, or failure to act, on your part shall
be deemed "willful" unless done, or omitted to be done, by you not in good
faith and without reasonable belief that your action or omission was in the
best interest of the Company. Notwithstanding the foregoing, you shall not be
deemed to have been terminated for Cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by the affirmative
vote of not less than three-quarters of the entire membership of the Board at
a meeting of the Board called and held for such purpose (after reasonable
-55-
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the good faith opinion of the Board
you were guilty of failure to substantially perform your duties or of
misconduct in accordance with the first sentence of this Subsection, and of
continuing such failure to substantially perform your duties or misconduct as
aforesaid after notice from the Board, and specifying the particulars thereof
in detail.
(c) Voluntary Resignation. After a Change in Control of the Company and
for purposes of receiving the benefits provided in Subsection 4(c) hereof, you
shall be entitled to terminate your employment by voluntary resignation given
at any time during the two years following the occurrence of a Change in
Control of the Company hereunder. Such resignation shall not be deemed a
breach of any employment contract between you and the Company.
(d) Notice of Termination. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 6 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(e) Date of Termination, Etc. "Date of Termination" shall mean:
(i) If your employment is terminated for Disability, thirty days
after Notice of Termination is given (provided that you shall not have
returned to the full-time performance of your duties during such thirty
day period), and
(ii) If your employment is terminated pursuant to Subsection (b) or
(c) above or for any other reason (other than Disability), the date
specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection (b) above shall not be less than
thirty days, and in the case of a termination pursuant to Subsection (c)
above shall not be less than fifteen nor more than sixty days,
respectively, from the date such Notice of Termination is given);
provided that if within fifteen days after any Notice of Termination is given,
or, if later, prior to the Date of Termination (as determined without regard
to this provision), the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided
further that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
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pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue
you as a participant in all compensation, bonus, benefit and insurance plans
in which you were participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this
Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
4. Compensation Upon Termination or During Disability Following a Change
of Control. Following a Change in Control of the Company, as defined in
Subsection 2(a), upon termination of your employment or during a period of
Disability, you shall be entitled to the following benefits:
(a) During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all compensation payable to you
under the Company's Bonus Plan, Restricted Stock Plan, and other incentive
compensation plans during such period, until this Agreement is terminated
pursuant to Section 3(a) hereof. Thereafter, or in the event your employment
shall be terminated for Retirement, or by reason of your death, your benefits
shall be determined under the Company's retirement, insurance and other
compensation programs then in effect in accordance with the terms of such
programs, subject to Subsection 4(e) hereof.
(b) If your employment shall be terminated by the Company for Cause, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, plus all other
amounts to which you are entitled under any compensation plan of the Company
at the time such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(c) If your employment by the Company shall be terminated (y) by the
Company other than for Cause, Retirement or Disability or (z) by you by
voluntary resignation, then you shall be entitled to the benefits provided
below:
(i) The Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are entitled
under any compensation or benefit plan of the Company, at the time such
payments are due;
(ii) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as severance
pay to you a lump sum severance payment (the "Severance Payment") equal
to 2.99 times the average of the Annual Compensation (as
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defined below) which was payable to you by the Company (including for
periods prior to February 7, 1990, Holiday Corporation or its
affiliates), or any corporation affiliated with the Company within the
meaning of Section 1504 of the Internal Revenue Code of 1986, as amended
(the "Code"), for the five calendar years preceding the calendar year in
which the Change in Control occurred. Such average shall be determined
in accordance with proposed, temporary or final regulations promulgated
under Section 280G(d) of the Code, or, in the absence of such
regulations, if you were not employed by the Company (including for this
purpose Holiday Corporation or its affiliates for the periods prior to
February 7, 1990) or its affiliates during the entire five calendar years
preceding the calendar year in which the Change in Control occurred, then
such average shall be the average of your Annual Compensation for the
complete calendar years (if any) and partial calendar year (if any)
during which you were so employed provided that the amount for any such
partial calendar year shall be an annualized amount based on the amount
of Annual Compensation paid to you during the partial calendar year. If
you were not employed by the Company or its affiliates during such
preceding calendar year, then such average shall be an annualized amount
based on the amount of Annual Compensation paid to you during the
calendar year in which the Change of Control occurred. Annual
Compensation is your base salary and your annual bonus under the Annual
Management Bonus Plan of the Company that was payable to you by the
Company or any of its affiliates (including for this purpose base salary
and bonus payable to you by Holiday Corporation or its affiliates for
periods prior to February 7, 1990) that was payable to you during a
calendar year determined without any reduction for any deferrals of such
salary or such bonus under any deferred compensation plan (qualified or
unqualified) and without any reduction for any salary reductions used for
making contributions to any group insurance plan of the Company
(including for this purpose Holiday Corporation or its affiliates for
periods prior to February 7, 1990) or its affiliates.
(iii) The Company shall also pay to you the amounts of any
compensation or awards payable to you or due to you in respect of any
period preceding the Date of Termination under any incentive compensation
plan of the Company (including, without limitation, the Company's
Restricted Stock Plan and Stock Option Plan (the "Option Plan") and under
any agreements with you in connection therewith, and shall make any other
payments and take any other actions provided for in such plans and
agreements.
(iv) In lieu of shares of common stock of the Company ("Company
Shares") issuable upon exercise of outstanding options, if any
("Options") granted to you under the Option Plan (which Options shall be
cancelled upon the making of the payment referred to below), you shall
receive an amount in cash equal to the product of (y) the excess of, the
higher of the closing price of Company Shares as reported on the New York
Stock Exchange on or nearest the Date of Termination (or, if not listed
on such exchange, on a nationally recognized exchange or
-58-
quotation system on which trading volume in Company Shares is highest) or
the highest per share price for Company Shares actually paid in
connection with any change in control of the Company, over the per share
exercise price of each Option held by you (whether or not then fully
exercisable), times (z) the number of Company Shares covered by each such
option.
(v) The Company shall also pay to you all legal fees and expenses
incurred by you as a result of such termination (including all such fees
and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of section 4999
of the Code to any payment or benefit provided hereunder).
(vi) In the event that you become entitled to the payments (the
"Severance Payments") provided under paragraphs (ii), (iii), and (iv),
above (and Subsections (d) and (e), below), and if any of the Severance
Payments will be subject to the tax (the "Excise Tax") imposed by section
4999 of the Code, the Company shall pay to you at the time specified in
paragraph (vii), below, an additional amount (the "Gross-Up Payment")
such that the net amount retained by you, after deduction of any Excise
Tax on the Severance Payments and any federal (and state and local)
income tax and Excise Tax upon the payment provided for by this
paragraph, shall be equal to the amount of the Severance Payments less
any Excise Tax attributable to Severance Payments in respect of those
shares of restricted stock granted to you in 1990 in connection with the
merger of Holiday Corporation with and into a subsidiary of Bass plc and
which were issued in substitution of shares of Holiday Corporation
restricted stock granted to you on or after November 11, 1986 in
connection with the 1987 recapitalization of Holiday Corporation (the
"Excluded Severance Payments"). For purposes of determining whether any
of the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax the following will apply:
(A) Any other payments or benefits received or to be received
by you in connection with a Change in Control of the Company or your
termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a Change in Control of
the Company or any person affiliated with the Company or such
person) shall be treated as "parachute payments" within the meaning
of section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be treated
as subject to the Excise Tax, unless in the opinion of tax counsel
selected by the Company's independent auditors and acceptable to you
such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in
whole or in part)
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represent reasonable compensation for services actually rendered
within the meaning of section 280G(b)(4) of the Code in excess of
the base amount within the meaning of section 280G(b)(3) of the
Code, or are otherwise not subject to the Excise Tax;
(B) The amount of the Severance Payments which shall be
treated as subject to the Excise Tax shall be equal to the lesser of
(y) the total amount of the Severance Payments or (z) the amount of
excess parachute payments within the meaning of section 280G(b)(1)
(after applying clause (A), above); and
(C) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Company's independent auditors
in accordance with proposed, temporary or final regulations under
Sections 280G(d)(3) and (4) of the Code or, in the absence of such
regulations, in accordance with the principles of Section 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, you shall be deemed to pay Federal income taxes at
the highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the state
and locality of your residence on the Date of Termination, net of
the maximum reduction in Federal income taxes which could be
obtained from deduction of such state and local taxes. In the event
that the amount of Excise Tax attributable to Severance Payments
other than the Excluded Severance Payments is subsequently
determined to be less than the amount taken into account hereunder
at the time of termination of your employment, you shall repay to
the Company at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and Federal (and state and
local) income tax imposed on the Gross-Up Payment being repaid by
you if such repayment results in a reduction in Excise Tax and/or a
Federal (and state and local) income tax deduction) plus interest on
the amount of such repayment at the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax
attributable to Severance Payments other than the Excluded Severance
Payments is determined to exceed the amount taken into account
hereunder at the time of the termination of your employment
(including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such
excess (plus any interest payable with respect to such excess) at
the time that the amount of such excess is finally determined.
-60-
(vii) The payments provided for in paragraphs (ii), (iii), (iv) and
(vi) above, shall be made not later than the fifth day following the Date
of Termination, provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay
to you on such day an estimate, as determined in good faith by the
Company, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided
in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can
be determined but in no event later than the thirtieth day after the Date
of Termination. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to you payable on the fifth day
after demand by the Company (together with interest at the rate provided
in Section 1274(b)(2)(B) of the Code).
(d) If your employment shall be terminated (y) by the Company other than
for Cause, Retirement or Disability or (z) by you voluntarily, then for a
twenty-four month period after such termination, the Company shall arrange to
provide you with life, disability, accident and health insurance benefits
substantially similar to those which you are receiving immediately prior to
the Notice of Termination. Benefits otherwise receivable by you pursuant to
this Subsection 4(d) shall be reduced to the extent comparable benefits are
actually received by you during the twenty-four month period following your
termination, and any such benefits actually received by you shall be reported
to the Company.
(e) In the event a Change in Control of the Company occurs after you and
the Company have entered into any retirement agreement including an agreement
providing for early retirement, then the present value, computed using a
discount rate of 8% per annum, of the total amount of all unpaid deferred
payments as payable to you in accordance with the payment schedule that you
elected when the deferral was agreed to and using the plan interest rate
applicable to your situation, or other payments payable or to become payable
to you or your estate or beneficiary under such retirement agreement (other
than payments payable pursuant to a plan qualified under section 401(a) of the
Internal Revenue Code) including, without limitation, any unpaid deferred
payments under the Company's Executive Deferred Compensation Plan and the
Company's other deferred compensation plans shall be paid to you (or your
estate or beneficiary if applicable) in cash within five business days after
the occurrence of the Change in Control of the Company. If you and the
Company or its affiliates have executed a retirement agreement and if the
Change in Control of the Company occurs before the effective date of your
retirement, then you shall receive the Severance Payment payable under
Subsection 4(c)(ii) herein in addition to the present value of your unpaid
deferred retirement payments and other payments under the retirement agreement
as aforesaid. All other benefits to which you or your estate or any
beneficiary are entitled under such retirement agreement shall continue in
effect notwithstanding the Change in Control of the Company. This Subsection
4(e) shall survive your retirement.
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(f) Notwithstanding that a Change in Control shall not have yet
occurred, if you so elect, by written notice to the Company given at any time
after the date hereof and prior to the time such amounts are otherwise payable
to you:
(i) The Company shall deposit with an escrow agent, pursuant to an
escrow agreement between the Company and such escrow agent, a sum of
money, or other property permitted by such escrow agreement, sufficient
in the opinion of the Company's management to fund payment of the
following amounts to you, as such amounts become payable:
(A) Amounts payable, or to become payable, to you or to your
beneficiaries or your estate under the Company's Executive Deferred
Compensation Plan and under any agreements related thereto in
existence at the time of your election to make the deposit into
escrow.
(B) Amounts payable, or to become payable, to you or to your
beneficiaries or your estate by reason of your deferral of payments
payable to you prior to the date of your election to make the
deposit into escrow under any other deferred compensation agreements
between you and the Company in existence at the time of your
election to make the deposit into escrow, including but not limited
to deferred compensation agreements relating to the deferral of
salary or bonuses.
(C) Amounts payable, or to become payable, to you or to your
beneficiaries or your estate under any agreement relating to your
retirement from the Company (including payments described under
Subsection 4(e) above) which agreement is in existence at the time
of your election to make the deposit into escrow, other than amounts
payable by a plan qualified under Section 401(a) of the Code.
(D) Subject to the approval of the Committee, amounts then due
and payable to you, but not yet paid, under any other benefit plan
or incentive compensation plan of the Company (whether such amounts
are stock or cash) other than amounts payable to you under a plan
qualified under section 401(a) of the Code.
(ii) Upon the occurrence of a Potential Change of Control, the
Company shall deposit with an escrow agent (which shall be the same
escrow agent, if one exists, acting pursuant to clause (i) of this
subsection 4(f)), pursuant to an escrow agreement between the Company and
such escrow agent, a sum of money, or other property permitted by such
escrow agreement, sufficient in the opinion of Company management to fund
the payment to you of the amounts specified in Subsection 4(c) of this
Agreement.
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(iii) It is intended that any amounts deposited in escrow pursuant
to the provisions of clause (i) or (ii) of this Subsection 4(f), be
subject to the claims of the Company's creditors, as set forth in the
form of such escrow agreement.
(g) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by you to the Company, or otherwise (except as specifically
provided in this Section 4).
(h) In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all benefits payable to you under
any benefit plan of the Company in which you participate to the extent such
benefits are not paid under this Agreement.
5. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on
the same terms as you would be entitled to hereunder if you terminate your
employment voluntarily following a Change in Control of the Company, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used
in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devises and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to your devisee, legatee or other designee or, if
there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
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Agreement, provided that all notices to the Company shall be directed to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice
of change of address shall be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by you and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreement or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Delaware. All references to
sections of the Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for hereunder
shall be paid net of any applicable withholding required under federal, state
or local law. The obligations of the Company under Section 4 shall survive
the expiration of the term of this Agreement.
8. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Memphis, Tennessee in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction; provided, however, that you shall be
entitled to seek specific performance of your right to be paid until the Date
of Termination during the pendency of any dispute or controversy arising under
or in connection with this Agreement.
11. Similar Provisions in Other Agreement. The Severance Payment under
this Agreement supersedes and replaces any other severance payment to which
you may be entitled under any previous agreement between you and the Company
(including for this purpose Holiday Corporation or its affiliates) or its
affiliates.
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If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our binding agreement on this subject.
Very truly yours,
THE PROMUS COMPANIES
INCORPORATED
BY: CRAIG H. NORVILLE
----------------------
Craig H. Norville
Senior Vice President
and General Counsel
Agreed to as of this 1st day
of May, 1992.
MICHAEL D. ROSE
- ----------------------------
Mr. Michael D. Rose
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THE PROMUS COMPANIES INCORPORATED
February 25, 1994
Mr. Philip G. Satre
The Promus Companies Incorporated
1023 Cherry Road
Memphis, TN 38117
Re: Amendment to Amended and Restated Severance Agreement
Dear Mr. Satre:
This letter agreement ("this Amendment") will amend that Amended and
Restated Severance Agreement dated November 5, 1992 (the "Agreement") between
yourself and The Promus Companies Incorporated (the "Company").
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, receipt of which is hereby acknowledged, it
is agreed as follows:
1. Effective Date. Pursuant to resolutions adopted by the Board of
Directors of the Company on February 25, 1994, this Amendment will become
effective on April 29, 1994.
2. Amendment of Section 2, "Change in Control." Section 2 of the
Agreement shall be amended by deleting Subsection 2(c) in its entirety.
3. Amendment of Section 3, "Termination Following Change in Control."
A. Section 3 shall be amended by deleting the first sentence of
said Section and substituting the following sentence therefor:
If any of the events described in Subsection 2(a) hereof
constituting a Change in Control of the Company shall have occurred,
you shall be entitled to the benefits provided in Subsection 4(c)
hereof upon the subsequent termination of your employment (whether
or not such termination is voluntary) during the term of this
Agreement unless such termination is (y) because of your death,
Disability or Retirement, or (z) by the Company for Cause.
B. Section 3 shall be further amended by deleting Subsection 3(c)
in its entirety and substituting the following Subsection 3(c) therefor:
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(c) Voluntary Resignation. After a Change in Control of the
Company and for purposes of receiving the benefits provided in
Subsection 4(c) hereof, you shall be entitled to terminate your
employment by voluntary resignation given at any time during the two
years following the occurrence of a Change in Control of the Company
hereunder. Such resignation shall not be deemed a breach of any
employment contract between you and the Company.
4. Amendment of Section 4, "Compensation Upon Termination or During
Disability Following a Change of Control."
A. Section 4 shall be amended by deleting the first sentence of
Subsection 4(c) and substituting the following sentence therefor:
If your employment by the Company shall be terminated (y) by the
Company other than for Cause, Retirement or Disability or (z) by you
by voluntary resignation, then you shall be entitled to the benefits
provided below:
B. Section 4 shall be further amended by deleting Subsection 4(d)
in its entirety and substituting the following Subsection 4(d) therefor:
(d) If your employment shall be terminated (y) by the Company other
than for Cause, Retirement or Disability or (z) by you voluntarily,
then for a twenty-four month period after such termination, the
Company shall arrange to provide you with life, disability, accident
and health insurance benefits substantially similar to those which
you are receiving immediately prior to the Notice of Termination.
Benefits otherwise receivable by you pursuant to this Subsection
4(d) shall be reduced to the extent comparable benefits are actually
received by you during the twenty-four month period following your
termination, and any such benefits actually received by you shall be
reported to the Company.
5. Amendment of Section 5, "Successors; Binding Agreement." Section 5
shall be amended by deleting Subsection 5(a) in its entirety and substituting
the following Subsection 5(a) therefor:
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle you to compensation from the Company in
the same amount and on the same terms as you would be entitled to
hereunder if you terminate your employment
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voluntarily following a Change in Control of the Company, except
that for purposes of implementing the foregoing, the date on which
any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
6. Defined Terms. Unless otherwise defined herein, all terms used in
this Amendment that are defined in the Agreement shall have the meanings
ascribed to such terms in the Agreement.
7. No Other Modifications. Except as specifically modified herein, all
terms and conditions of the Agreement shall remain unchanged and in full force
and effect.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our binding agreement on this subject.
Very truly yours,
THE PROMUS COMPANIES
INCORPORATED
BY: E. O. ROBINSON, JR.
-------------------------
Title: SENIOR VICE PRESIDENT
----------------------
Agreed to as of this 29th day
of June, 1994.
PHILIP G. SATRE
- -------------------------
Philip G. Satre
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THE PROMUS COMPANIES INCORPORATED
1990 STOCK OPTION PLAN
(as amended July 29, 1994)
A. Purpose
The purpose of The Promus Companies Incorporated 1990 Stock Option Plan
(the "Plan") is to attract and retain outstanding key employees and to provide
an incentive to, and encourage stock ownership in The Promus Companies
Incorporated, a Delaware corporation (the "Company"), by those employees
responsible for the policies and operations of the Company or its
Subsidiaries. As used herein, "Subsidiary" means any domestic or foreign
corporation, at least 50% of the outstanding voting stock or voting power of
which is beneficially owned, directly or indirectly, by the Company.
B. Administration
1. This Plan shall be administered by the Human Resources Committee (the
"Committee") of the Board of Directors (the "Board") of the Company. The
Committee shall consist of not less than three members of the Board of
Directors. No person shall be appointed to the Committee (i) who is (or has
been during the one-year period prior to such appointment) eligible to receive
an award under the Plan or any other stock, stock option or stock appreciation
right plan of the Company, a Subsidiary or a Parent Company other than a plan
or provision of a plan specifically developed for, or made available to,
members of the Board who are not employees and which otherwise complies with
subsection (b)(1)(iii) of Rule 16b-3 ("Rule 16b-3") under Section 16 ("Section
16") of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
or any successor provision; or (ii) who has received options under the Plan if
at the time of such appointment, the options have not been exercised. As used
herein, "Parent Company" means any domestic or foreign corporation that
beneficially owns, directly or indirectly, at least 50% of the outstanding
voting stock or voting power of the Company.
2. The Committee shall have full authority and discretion to determine,
consistent with the provisions of this Plan other than with respect to
Replacement Options (as defined below): (1) the employees who should be
granted options; (2) whether the option or options shall be an incentive stock
option or a non-qualified stock option; (3) the times at which options shall
be granted; (4) subject to Section F, the option price of the shares subject
to each option; (5) the number of shares subject to each option; (6) subject
to Section I, the period during which each option becomes exercisable; and (7)
other terms and conditions of each option.
3. The Committee shall further have discretion at any time and from time
to time to accelerate the date or dates when outstanding options become
exercisable and to decrease the option price of outstanding options. The
Committee may in its discretion change any incentive stock option to a non-
qualified stock option without liability to any employee who has received
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options under this Plan (an "Optionee"). The Committee shall also have full
authority and discretion to adopt such rules, regulations and procedures as it
shall deem necessary for the administration of the Plan and to interpret,
amend or revoke any such rules, regulations or procedures.
4. The Committee may in its discretion provide in the terms of any stock
option (other than a Replacement Option) that the number of Shares subject to
such option will be decreased if the participant's grade level is reduced by
the Company, any Subsidiary or any Parent Company, for performance, by reason
of change in job functions or responsibilities, or by reason of transfer to a
different position during the term of the option. Options that become
exercisable prior to the reduction in the option award shall not be affected.
5. The Committee's interpretation and construction of any provisions of
this Plan or any option granted hereunder shall be final, conclusive and
binding upon all Optionees, the Company and all other interested parties.
C. Eligibility
1. The Committee shall from time to time determine the key management
employees of the Company and any of its Subsidiaries who shall be granted
options (other than Replacement Options) under the Plan. No incentive stock
option shall be granted to any director of the Company who is not an employee
of the Company, any of its Subsidiaries or any of its Parent Companies. An
employee who has been granted an option may be granted an additional option or
options under this Plan if the Committee shall so determine. The granting of
an option under this Plan shall not affect any outstanding stock option
previously granted to an Optionee under this Plan or any other plan of the
Company, a Subsidiary or a Parent Company.
2. Each employee of the Company who prior to the merger (the "Merger")
of Bass (U.S.A.) Hotels, Incorporated, a Delaware corporation ("Merger Sub"),
with and into Holiday Corporation ("Holiday") pursuant to that certain
Agreement and Plan of Merger (the "Merger Agreement") among Holiday, Holiday
Inns, Inc., the Company, Bass plc, Merger Sub and Bass (U.S.A.) Hotels,
Incorporated, a Tennessee corporation, dated as of August 24, 1989, as
amended, held options to purchase Holiday common stock issued under Holiday's
1977 Incentive Stock Option Plan or 1989 Stock Option Plan (collectively,
"Holiday Stock Options") and which options were not exercised prior to the
Merger shall, in lieu and upon cancellation of such Holiday Stock Options, be
issued an option (a "Replacement Option") to purchase shares of the $1.50 par
value common stock ("Common Stock") of the Company under the Plan subject to
the following terms:
(1) Upon the consummation of the Merger each such employee shall
hereby be issued, without the requirement of any additional act of the
Committee, a Replacement Option to purchase the number of shares of
Common Stock (rounded upward to the nearest full share) with a per share
exercise price, (rounded downward to the nearest cent) determined to
preserve each such Holiday Stock Option's value as of the time of the
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Merger (such value being the product of (A) the difference between (i)
the sum of (x) the fair market value of a share of Common Stock (as
defined for purposes of this paragraph only, below), (y) the fair market
value of a share of Bass plc stock (as defined for purposes of this
paragraph only, below) multiplied by the number of shares of Bass plc
stock to be issued for each outstanding share of Holiday common stock in
the Merger (assuming all Holiday Stock Options have been exercised) and
(z) the amount of the special cash dividend to be paid with respect to
each share of Common Stock as contemplated in the Merger Agreement and
(ii) such Holiday Stock Option's exercise price per share, and (B) the
number of shares of Holiday common stock subject to such Holiday Stock
Options). For purposes of this paragraph, the fair market value of a
share of Common Stock shall be deemed to be equal to the average of the
closing prices of a share during the ten trading days following the
effective time of the Merger as reported on the New York Stock Exchange.
If the special cash dividend has not been paid on the date of the
effective time of the Merger, the above calculation will be adjusted to
preserve the intended reduction. For purposes of this paragraph only,
the fair market value of a share of Bass plc stock shall be deemed to be
equal to the "Market Value Per Bass Share," as defined in the Merger
Agreement.
(2) Replacement Options granted in exchange for vested Holiday
Stock Options shall be vested, and Replacement Options granted in
exchange for unvested Holiday Stock Options shall be unvested and subject
to the same vesting schedules as the Holiday Stock Options surrendered in
exchange therefor.
(3) Replacement Options shall be subject to the same terms as the
Holiday Stock Options they replace, including dates of expiration and the
inclusion of stock appreciation rights, if applicable, except that the
Replacement Options shall vest based on continued employment with the
Company and all references made to Holiday or any of its subsidiaries
shall be deemed references to the Company and its subsidiaries. The
Replacement Options shall comply in all other respects with the Plan.
(4) The Replacement Options shall be evidenced by option agreements
or certificates.
D. Shares of Stock Subject to this Plan
1. The number of shares which may be issued pursuant to the options
granted by the Committee under this Plan shall not exceed 1,200,000 shares of
Common Stock.* Such shares may be authorized and issued shares or shares
previously acquired or to be acquired by the Company and held in treasury.
Any shares subject to an option which expires for any reason, is forfeited, or
is terminated unexercised as to such shares may again be subject to an option
under this Plan. To the extent that a stock appreciation right shall have
been exercised and paid in cash, the number of shares subject to the related
option, or portion thereof, may again be subject to an option under this Plan.
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- ------------
* The number of shares available for the issuance of options immediately prior
to the March 8, 1993 record date of the 2 for 1 stock split was multiplied
by two pursuant to action taken by the Committee on February 25, 1993. The
number of shares available for the issuance of options immediately prior to
the November 8, 1993 record date of the 3 for 2 stock split was multiplied by
1.5 pursuant to action taken by the Committee on October 29, 1993.
2. If the outstanding shares of Common Stock of the Company are
hereafter changed into or exchanged for a different number or kind of shares
or other securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, stock dividend, combination of shares or otherwise,
appropriate adjustments shall be made by the Committee in the number and kind
of shares for the purchase of which options may be granted, including
adjustments of the limitations in paragraph 1 on the maximum number and kind
of shares which may be issued on exercise of options. Adjustments made by the
Committee shall be final, conclusive and binding upon all Optionees, the
Company and all other interested parties.
3. Effective April 30, 1993, the number of authorized shares which may
be issued pursuant to the options granted by the Committee under the Plan is
increased by an additional 1,500,000 shares.
Effective April 29, 1994, the maximum number of options that can be
granted in any one year period to one employee shall be options for 250,000
shares, provided that this limit shall be appropriately adjusted by the
Committee in accordance with Section D.2 hereof.
E. Issuance and Terms of Option Certificates
Each key management employee to whom an option is granted under this Plan
shall be entitled to receive an appropriate certificate evidencing his option
and referring to the terms and conditions of this Plan.
F. Option Price
1. Each option shall state the number of shares to which it pertains and
shall state the option price. The option price for Replacement Options shall
be as set forth in Section C(2). Subject to the foregoing, the option price
of incentive stock options shall not be less than 100% (110% in the case of an
option granted to an individual owning (within the meaning of Section 425(d)
of the Internal Revenue Code of 1986, as amended (the "Code")) more than 10%
of the total combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Company) of the Fair Market Value of the Common Stock
on the date the option is granted. The option price of any option under the
Plan regardless of the date of the option shall not be less than the par value
per share of the Common Stock as provided in the Company's Certificate of
Incorporation as amended April 29, 1994. Provided, that non-qualified options
shall not be issued under this Plan at less than the average
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of the high and low prices of the Company's Common Stock on the principal
exchange or system where the Common Stock is traded on the date that the
option is granted or, if such date is not a trading day, the preceding trading
day. "Fair Market Value" of a share of Common Stock as of a given date shall
be: (i) the closing price of a share of Common Stock on the principal exchange
on which shares of Common Stock are then trading, if any, on the day previous
to such date, or if shares were not traded on the day previous to such dates,
then on the next preceding trading day during which a sale occurred; or (ii)
if such stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (1) the last sales price (if the stock is then
listed as a National Market Issue under the NASD National Market System) or
(2) the mean between the closing representative bid and asked prices (in all
other cases) for the stock on the day previous to such date as reported by
NASDAQ or such successor quotation system; or (iii) if such stock is not
publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for the
stock, on the day previous to such date, as determined in good faith by the
Committee; or (iv) if Common Stock is not publicly traded, the fair market
value established by the Committee acting in good faith; provided that if
there has been no sale of Common Stock during the 30-day period prior to the
date of the calculation provided for in this sentence, then such stock shall
not be considered to be trading on an exchange or quoted on the NASDAQ or
successor quotation system.
2. The option price shall be payable in United States dollars upon the
exercise of the option and may be paid in cash, by check, or in shares of
Common Stock having a total Fair Market Value on the date of exercise equal to
the option price. The Company may also permit the option price incurred by
reason of the exercise of an option to be satisfied by withholding shares
(that would otherwise be obtained upon such exercise) having a Fair Market
Value equal to the aggregate option price of the exercised option. The
Company may permit Optionees to use cashless exercise methods that are
permitted by law and in connection therewith the Company may establish a
cashless exercise program including a program where the commissions on the
sale of stock subject to an exercised option are paid by the Company.
3. The proceeds received by the Company from the sale of Common Stock
subject to option are to be added to the general funds of the Company and used
for its corporate purposes.
G. Treatment of Certain Options; Certain Limitations on Grant
1. Subject to the provisions of this Section G, the Committee may grant
under this Plan both incentive stock options under Section 422A of the Code
and non-qualified stock options not subject to Section 422A of the Code.
2. To the extent that the aggregate Fair Market Value (determined at the
time the option is granted) of the stock with respect to which incentive stock
options (within the meaning of Section 422A of the Code, but without regard to
Section 422A(d) of the Code) are exercisable for the first time by
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an Optionee during any calendar year (under the Plan and all other incentive
stock option plans of the Company, any Subsidiary and any Parent Company)
shall exceed $100,000, such options shall be taxed as non-qualified options.
The rule set forth in the preceding sentence shall be applied by taking
options into account in the order in which they are granted.
3. Incentive stock options granted hereunder shall at the time of grant
qualify as "incentive stock options" under Section 422A of the Code.
H. Stock Appreciation Rights
1. At the discretion of the Committee (other than with respect to
Replacement Options), any option granted under this Plan may include a stock
appreciation right. The Committee may impose conditions upon the grant or
exercise of the stock appreciation right which conditions may include a
condition that the stock appreciation right may only be exercised in
accordance with rules and regulations adopted by the Committee from time to
time. Such rules and regulations may govern the right to exercise the stock
appreciation right granted prior to the adoption or amendment of such rules
and regulations as well as stock appreciation rights granted thereafter. The
Committee may amend any outstanding option or options to grant stock
appreciation rights with respect to the shares covered by any such option or
options if the original option or options did not contain such rights.
2. A "stock appreciation right" is the right of an Optionee, without
payment to the Company (except for applicable withholding taxes), to receive
the excess of the Fair Market Value over the option price per share as
provided in the related underlying option. A stock appreciation right shall
pertain to, and be granted only in conjunction with, a related underlying
option granted under this Plan and shall be exercisable and exercised only to
the extent that the related option is exercisable. The number of shares of
Common Stock subject to the stock appreciation right shall be all or part of
the shares subject to the related option, as determined by the Committee. The
stock appreciation right shall either become all or partially non-exercisable
and shall be all or partially forfeited if the exercisable portion, or any
part thereof, of the related option is exercised and vice versa. A stock
appreciation right may only be exercised if the Fair Market Value per share of
the Common Stock on the exercise date exceeds the option price per share under
the related underlying option.
3. Subject to any restrictions or conditions imposed by the Committee, a
stock appreciation right may be exercised by the Optionee as to a number of
shares of the Common Stock under its related option only upon the surrender of
exercise rights with respect to a like number of shares of the Common Stock
available to the exercisable portion of the related option. Upon the exercise
of a stock appreciation right and the surrender of the exercisable portion of
the related option, the Optionee shall be awarded cash, shares of the Common
Stock or a combination of shares and cash at the discretion of the Committee.
The award shall have a total value equal to the product obtained by
multiplying (i) the excess of the Fair Market Value per share on the date on
which the stock appreciation right is exercised over the option price per
share by (ii) the number of shares subject to the exercisable portion of the
related option so surrendered.
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4. The portion of the stock appreciation right which may be awarded in
cash shall be determined by the Committee from time to time. The number of
shares awardable to an Optionee with respect to the non-cash portion of a
stock appreciation right shall be determined by dividing such non-cash portion
by the Fair Market Value per share on the exercisable date. No fractional
shares shall be issued.
I. Term and Exercise of Options and Stock Appreciation Rights
Each option and stock appreciation right granted under this Plan shall be
exercisable on the dates and for the number of shares as shall be provided in
the option certificate evidencing the option granted by the Committee and the
terms thereof. An Optionee may exercise his option only by delivering to the
Company written notice of intent to exercise and by complying with all terms
of such option. No stock option shall be exercisable after the expiration of
ten years and one day (ten years in the case of an incentive stock option)
from the date of grant of the option or, in the case of an incentive stock
option granted to an Optionee owning (within the meaning of Section 425(d) of
the Code), at the time the option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company, any Subsidiary
or any Parent Company, the expiration of five years from the date of grant of
the option. Provided, however, that where death, retirement for age or
determination of disability occurs during the one year period ending ten years
and one day from the date of grant of the option, no option that is not an
incentive stock option shall be exercisable after the expiration of eleven
years and one day from the date of grant of the option. With respect to
persons subject to the provisions of Section 16(b): (i) except in the case of
death or disability (within the meaning of Section 22(e)(3) of the Code) of
the Optionee, no stock appreciation right related to any stock option shall be
exercisable earlier than six months from the date of grant of the stock
appreciation right, (ii) where an outstanding option is subsequently amended
to include the grant of a stock appreciation right, no such stock appreciation
right shall be exercisable earlier than six months from the date of grant of
such right and (iii) a stock appreciation right may only be exercised during
the period beginning on the third business day following the date of the
Company's release of its quarterly or annual summary statements of sales and
earnings and ending on the twelfth business day following such date.
J. Nontransferability
No option, stock appreciation right or interest or right therein or part
thereof shall be subject to liability for the debts, contracts or engagements
of the Optionee or his successors in interest or shall be subject to liability
for the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null
and void and of no effect; provided, however, that nothing in this Section J
shall prevent transfers by will or by the applicable laws of descent and
distribution.
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K. Requirements of Law
The granting of options and the issuance of shares of Common Stock upon
the exercise of an option or of a stock appreciation right or the awarding of
cash upon the exercise of a stock appreciation right shall be subject to all
applicable laws, rules and regulations and shares shall not be issued except
upon approval of proper government agencies or stock exchanges as may be
required.
L. Termination of Employment
If an Optionee shall cease to be employed by the Company or its
Subsidiaries as a result of retirement for age or disability, he may (subject
to Section I), but only within a period of ninety days (one year in the case
of options that are not incentive stock options) beginning the day following
the date of such termination of employment (or the date of determination of
disability for options that are not incentive stock options), exercise his
option or his stock appreciation right, to the extent that he was entitled to
exercise it at the date of such termination of employment (or the date of
determination of disability for options that are not incentive stock options).
Termination for any other reason (other than death) shall result in
cancellation of the option or stock appreciation right as of the close of
business on the date of such termination. For purposes of this Plan,
termination of employment means removal from the Company's payroll unless
otherwise agreed by the Company and the Optionee.
M. Death of Optionee
In the event of the death of an Optionee while in the employ of the
Company, its Subsidiaries or its Parent Companies, the option or stock
appreciation right theretofore granted to him shall be exercisable within a
period of one year after the date of death and then only if and to the extent
that he was entitled to exercise it at the date of his death including any
option that may have been accelerated by reason of his death. Such exercise
shall be made only by the executor or administrator of his estate (upon
presenting proper proof of appointment and authority to act) or by the person
or persons to whom his rights under the option shall have passed by his will
or by the applicable laws of descent and distribution subject to the Company
being properly assured and legally advised of the rights of such
beneficiaries.
Notwithstanding the provisions of Sections I, L and M herein or any other
provisions of the Plan, an Optionee with ten years of service shall have a two
year period, and an Optionee with twenty years of service shall have a three
year period, after retirement for age, death or determination of disability to
exercise any option to the extent it was exercisable on the date of such
event, provided that (1) for incentive stock options this two or three year
period will not extend beyond the normal term of the option, and (2) for non-
incentive stock options, the normal term of the option will be extended up to
a maximum term of thirteen years and one day to accommodate the two or three
year extension in cases where retirement, death or determination of disability
occurs within the three years prior to the end of the normal term of the
option.
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N. Adjustments
If the outstanding shares of the Common Stock subject to options are
changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company or any other corporation by reason
of merger, consolidation, recapitalization, reclassification, stock split-up,
stock dividend, combination of shares or otherwise, the Committee may:
(1) in its absolute discretion and on such terms and conditions as
it deems appropriate, make an appropriate and equitable adjustment in the
number and kind of shares as to which all outstanding options, or
portions thereof then unexercised, shall be exercisable; or
(2) in its absolute discretion and on such terms and conditions as
it deems appropriate, provide, coincident with, or after the grant of any
option, that such option cannot be exercised after the merger or
consolidation of the Company with or into another corporation, the
acquisition by another corporation or person of all or substantially all
of the Company's assets or 80% or more of the Company's then outstanding
voting stock or the liquidation or dissolution of the Company; and if the
Committee so provides, it may, in its absolute discretion and on such
terms and conditions as it deems appropriate, also provide, either by the
terms of such option or by a resolution adopted prior to the occurrence
of such merger, consolidation, acquisition, recapitalization,
reclassification, liquidation or dissolution, that, for some period of
time prior to such event, such option shall be exercisable as to all or
any part of the shares subject thereto, notwithstanding anything to the
contrary in this Plan and/or in any installment provisions of such option
and that, upon the occurrence of such event, any option that is not
exercised shall terminate and be of no further force and effect; or
(3) in its absolute discretion, provide that even if the option
shall remain exercisable after any such event, from and after such event,
any such option shall be exercisable only for the kind and amount of
securities and/or other property, or the cash equivalent thereof,
receivable as a result of such event by the holder of the number of
shares of stock for which such option could have been exercised
immediately prior to such event;provided, however, that if the Committee
provides that any option shall not be exercisable after such event, it
shall provide written notice to all holders of vested options of the
occurrence of such event not less than 10 days prior to the occurrence of
such event. Any adjustment or determination made by the Committee
pursuant to this Section N shall be conclusive, final and binding upon
all Optionees, the Company and all other interested parties.
O. Claim to Stock Option, Ownership or Employment Rights
No employee or other person shall have any claim or right to be granted
options or stock appreciation rights under this Plan. No Optionee, prior to
issuance of the stock, shall be entitled to voting rights, dividends or other
rights of stockholders except as otherwise provided in this Plan or except as
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may be approved by the Committee subject to applicable law. Neither this Plan
nor any action taken hereunder shall be construed as giving any employee any
right to be retained in the employ of the Company, a Subsidiary or a Parent
Company, and any such employee may be terminated at any time, with or without
cause.
P. Unsecured Obligation
Optionees under this Plan shall not have any interest in any fund or
specific asset of the Company by reason of this Plan. No trust shall be
created in connection with this Plan or any award thereunder, and there shall
be no required funding of amounts which may become payable to any Optionee.
Q. Tax Withholding
The Company, a Subsidiary or a Parent Company, as appropriate, shall have
the right to deduct or withhold from all payments or distributions amounts
sufficient to cover any federal, state or local taxes required by law to be
withheld or paid with respect to such payments or distributions and, in the
case of stock appreciation rights for which the Optionee receives Common Stock
as payment, the participant or other person receiving such Common Stock may be
required to pay to the Company, a Subsidiary or a Parent Company, as
appropriate, the amount of any such taxes which the Company, Subsidiary or
Parent Company is required to withhold with respect to such Common Stock. In
the event the cash portion of a stock appreciation right is insufficient to
cover the required withholding, the Optionee may be required to pay to the
Company the amount of such taxes. In the case of non-qualified options, the
Company may require that required withholding taxes be paid to the Company at
the time the option is exercised. The Company may also permit any withholding
tax obligations incurred by reason of the exercise of any stock option to be
satisifed by withholding shares (that would otherwise be obtained upon such
exercise) having a Fair Market Value equal to the aggregate amount of taxes
which are to be withheld. In the case of persons subject to Section 16(b),
such withholding shall be on terms consistent with Rule 16b-3.
R. Expenses of Plan
The expenses of administering the Plan shall be borne by the Company, its
Subsidiaries and its Parent Companies.
S. Reliance on Reports
Each member of the Committee and each member of the Board shall be fully
justified in relying or acting in good faith upon any report made by the
independent public accountants of the Company, its Subsidiaries and its Parent
Companies and upon any other information furnished in connection with the Plan
by any person or persons other than himself. In no event shall any person who
is or shall have been a member of the Committee or of the Board be liable for
any determination made or other action taken or any omission to act in
reliance upon any report or information or for any action, including the
furnishing of information taken or failure to act, in good faith.
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T. Indemnification
Each person who is or shall have been a member of the Committee or of the
Board or any other persons involved in the administration of this Plan shall
be indemnified and held harmless by the Company against and from any loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by
him in connection with or resulting from any claim, action, suit or proceeding
to which he may be a party or in which he may be involved by reason of any
such action taken or failure to act under the Plan and against and from any
and all amounts paid by him in settlement thereof, with the Company's
approval, or paid by him in satisfaction of judgment in any such action, suit
or proceeding against him provided he shall give the Company an opportunity,
at its own expense, to handle and defend the same before he undertakes to
handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such person may be entitled under the Company's articles of
incorporation or bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify such person or hold him harmless.
U. Amendment and Termination
Unless this Plan shall theretofore have been terminated as hereinafter
provided, no options or stock appreciation rights may be granted after the
tenth anniversary of the adoption of the Plan by the Board. The Committee may
terminate, modify or amend the Plan in such respect as it shall deem
advisable, without obtaining approval from the Company's stockholders except
as such approval may be required pursuant to Rule 16b-3 or the Code. No
termination, modification or amendment of the Plan may, without the consent of
an Optionee to whom an option shall theretofore have been granted, adversely
affect the rights of such Optionee under such option.
V. Gender
Any masculine terminology used in this Plan shall also include the
feminine gender.
W. Effective Date of the Plan
This Plan was approved by the Board and the stockholders of the Company
on November 5, 1989 and became effective January 1, 1990.
THE PROMUS COMPANIES INCORPORATED
By: NEIL F. BARNHART
-------------------------------
Neil F. Barnhart
Vice President
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Amendment
Dated as of May 27, 1994
to The Promus Companies Incorporated
Savings and Retirement Plan (the "Plan")
The undersigned Trustees pursuant to Section 2.25 of the Plan and the
Chairman of the Board of Directors of The Promus Companies Incorporated
pursuant to Section 11.1 of the Plan hereby adopt and approve the following
amendments to the Plan which shall be effective August 1, 1994, or as soon as
administratively feasible thereafter:
1. Section 2.25 of the Plan is amended by adding the following
subsections (g) and (h):
"(g) Investment Fund VII -- a fund consisting primarily
of common stock or of funds consisting primarily of common
stock.
(h) Investment Fund VIII -- a fund consisting primarily
of bonds and similar investments or of funds consisting
primarily of bonds and similar investments."
2. The first sentence of subsection 6.1(a) of the Plan is amended to
read as follows:
"Upon becoming a Participant, each Member may file with
the Plan Administrator such Member's direction with
respect to what percentage, if any, of the Member's
Account (derived from contributions made pursuant to
sections 4.1, 4.2, 4.4, 4.6, and 4.9) is to be invested in
any one or more of Investment Funds I, II, III, VI, VII or
VIII."
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3. The second sentence of subsection 6.1(b) of the Plan is amended to
read as follows:
"A Participant may elect to transfer amounts allocated to
his Account (except amounts allocated to the ESOP account
identified as Employee Account 10 unless otherwise
permitted by the Plan Administrator in compliance with
applicable law) among Investment Funds I, II, III, VI, VII
or VIII in increments of 10 percent by filing the
appropriate form with the Plan Administrator."
4. The fifth sentence of subsection 6.1(b) of the Plan is amended to read
as follows:
"Transfers of Account balances by a Member from Investment
Fund I to Investment Fund VI (including direct transfers
and simultaneous transfers, i.e. a transfer from Fund I to
Funds II, III, VII or VIII and at the same time a transfer
from Funds II, III, VII or VIII to Fund VI) shall not, in
order to make any such transfer, utilize any funds in the
guaranteed investment contract or group annuity contract
issued by an insurance company (other than funds received
by virtue of the maturity or discontinuance of any such
contract) without the consent or agreement of the insurance
company but instead such transfers shall utilize any other
available funds in Investment Fund I for the transfer of
funds from Investment Fund I to Fund VI."
5. The word "four" in clause (2) of the second sentence of
subsection 6.4(e) of the Plan is amended to read "six."
6. The following Section 16.9 is added to the Plan:
"16.9 Telephonic/Electronic Decisions. Notwithstanding
anything in this Plan to the contrary, pay reduction
agreements and cancellations or amendments thereto,
investment elections, changes and transfers, loans,
withdrawal decisions, and any other decision or election by
a Member or other person under this Plan may be
accomplished by electronic or telephonic means which are
not prohibited by law and which are in accordance with
procedures and/or systems approved or arranged by the Plan
Administrator or its delegees."
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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date written above.
Plan Trustees:
NEIL F. BARNHART MICHAEL D. ROSE
- ------------------------------ ------------------------------
Neil F. Barnhart Michael D. Rose, Chairman of The
Board of The Promus Companies
Incorporated
THOMAS J. CARR, JR.
- ------------------------------
Thomas J. Carr, Jr.
DONALD H. DEMPSEY
- ------------------------------
Donald H. Dempsey
LAURANCE B. LACAFF
- ------------------------------
Laurance B. Lacaff
CHARLES A. LEDSINGER, JR.
- ------------------------------
Charles A. Ledsinger, Jr.
BEN C. PETERNELL
- ------------------------------
Ben C. Peternell
MICHAEL N. REGAN
- ------------------------------
Michael N. Regan
GEORGE M. RINALDI
- ------------------------------
George M. Rinaldi
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THE PROMUS COMPANIES INCORPORATED
COMPUTATION OF PER SHARE EARNINGS (1)
Second Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
Income before
extraordinary items $ 41,941,000 $ 22,815,000 $ 69,313,000 $ 34,780,000
Extraordinary items, net - (316,000) - (1,325,000)
------------ ------------ ------------ ------------
Net income $ 41,941,000 $ 22,499,000 $ 69,313,000 $ 33,455,000
============ ============ ============ ============
Primary earnings per
share
Weighted average number
of common shares
outstanding 101,615,334 100,631,313 101,556,187 100,568,984
Common stock
equivalents
Additional shares
based on average
market price for
period applicable
to:
Restricted
stock 432,838 878,586 448,017 878,700
Stock options 778,039 833,462 853,851 744,767
------------ ------------ ------------ ------------
Average number of
primary common and
common equivalent
shares outstanding 102,826,211 102,343,361 102,858,055 102,192,451
============ ============ ============ ============
Primary earnings per
common and common
equivalent share
Income before
extraordinary items $ 0.41 $ 0.22 $ 0.67 $ 0.34
Extraordinary items - - - (0.01)
------ ------ ------ ------
Net income $ 0.41 $ 0.22 $ 0.67 $ 0.33
====== ====== ====== ======
Fully diluted earnings
per share
Average number of
primary common and
common equivalent
shares outstanding 102,826,211 102,343,361 102,858,055 102,192,451
Additional shares
based on period-
end price
applicable to:
Restricted stock 13,606 4,854 23,952 -
Stock options - 61,433 - 150,128
------------ ------------ ------------ ------------
Average number of fully
diluted common and
common equivalent
shares outstanding 102,839,817 102,409,648 102,882,007 102,342,579
============ ============ ============ ============
Fully diluted earnings
per common and
common equivalent
share
Income before
extraordinary items $ 0.41 $ 0.22 $ 0.67 $ 0.34
Extraordinary items - - - (0.01)
------ ------ ------ ------
Net income $ 0.41 $ 0.22 $ 0.67 $ 0.33
====== ====== ====== ======
(1) June 30, 1993 amounts have been retroactively adjusted for three-for-two
stock split approved by Promus' Board of Directors on October 29, 1993.
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