SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 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 September 30, 1994, there were outstanding 102,391,415
shares of the Company's Common Stock.
Page 1 of 103
Exhibit Index Page 38
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)
Sept. 30, Dec. 31,
(In thousands, except share amounts) 1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 61,607 $ 61,962
Receivables, including notes receivable of
$2,264 and $2,197, less allowance for
doubtful accounts of $11,258 and $10,864 46,352 47,448
Deferred income taxes 23,961 21,024
Supplies 12,282 12,996
Prepayments and other 25,141 20,128
---------- ----------
Total current assets 169,343 163,558
---------- ----------
Land, buildings, riverboats and equipment 1,981,820 1,824,433
Less: accumulated depreciation (539,631) (486,231)
---------- ----------
1,442,189 1,338,202
Investments in and advances to
nonconsolidated affiliates 86,330 70,050
Deferred costs and other 215,219 221,308
---------- ----------
$1,913,081 $1,793,118
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 45,586 $ 60,530
Construction payables 6,976 26,345
Accrued expenses 175,043 162,969
Current portion of long-term debt 2,441 2,160
---------- ----------
Total current liabilities 230,046 252,004
Long-term debt 853,535 839,804
Deferred credits and other 116,086 86,829
Deferred income taxes 48,529 63,460
---------- ----------
1,248,196 1,242,097
---------- ----------
Minority interests 18,045 14,984
---------- ----------
Commitments and contingencies (Notes 6 and 7)
Stockholders' equity
Common stock, $0.10 par value,
authorized - 360,000,000 shares,
outstanding - 102,391,415 and 102,258,442
shares (net of 33,477 and 25,251 shares
held in treasury) 10,239 10,226
Capital surplus 348,775 344,197
Retained earnings 291,546 187,203
Deferred compensation related to
restricted stock (3,720) (5,589)
---------- ----------
646,840 536,037
---------- ----------
$1,913,081 $1,793,118
========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
-3-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Third Quarter Ended Nine Months Ended
(In thousands, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
except per share amounts) 1994 1993 1994 1993
Revenues
Casino $304,892 $229,707 $ 831,376 $596,507
Rooms 58,561 57,287 164,618 175,171
Food and beverage 46,739 40,845 127,144 111,386
Franchise and
management fees 22,695 16,084 58,296 44,246
Other 33,445 31,009 92,898 78,890
Less: casino promotional
allowances (34,015) (28,222) (93,883) (74,036)
-------- -------- ---------- --------
Total revenues 432,317 346,710 1,180,449 932,164
-------- -------- ---------- --------
Operating expenses
Direct
Casino 139,808 94,384 368,217 265,875
Rooms 23,540 24,635 68,140 77,799
Food and beverage 22,982 24,769 68,822 66,888
Depreciation of
buildings, riverboats
and equipment 24,464 18,673 68,965 56,326
Other 98,935 85,597 283,600 236,273
-------- -------- ---------- --------
Total operating
expenses 309,729 248,058 857,744 703,161
-------- -------- ---------- --------
122,588 98,652 322,705 229,003
Preopening costs (10,172) - (15,313) -
Property transactions 2,321 2,019 1,924 1,769
-------- -------- ---------- --------
Operating income 114,737 100,671 309,316 230,772
Corporate expense (8,551) (5,456) (21,582) (19,636)
Interest expense, net of
interest capitalized (26,287) (25,361) (78,859) (81,688)
Interest and other
income 401 353 1,295 1,129
-------- -------- ---------- --------
Income before income
taxes and minority
interests 80,300 70,207 210,170 130,577
Provision for income taxes (34,419) (31,537) (88,216) (56,588)
Minority interests (1,698) (1,613) (9,679) (2,152)
-------- -------- ---------- --------
Income before
extraordinary items
and cumulative effect
of change in accounting
policy 44,183 37,057 112,275 71,837
Extraordinary losses on
extinguishments of debt,
net of income tax benefit
of $2,525 and $3,415 - (4,122) - (5,447)
Cumulative effect of change
in accounting policy, net
of tax benefit of $4,317 - - (7,932) -
-------- -------- ---------- --------
Net income $ 44,183 $ 32,935 $ 104,343 $ 66,390
======== ======== ========== ========
Earnings per share before
extraordinary items and
cumulative effect of
change in accounting
policy $ 0.43 $ 0.36 $ 1.09 $ 0.70
Extraordinary items, net - (0.04) - (0.05)
Cumulative effect of change
in accounting policy, net - - (0.08) -
-------- -------- ---------- --------
Earnings per share $ 0.43 $ 0.32 $ 1.01 $ 0.65
======== ======== ========== ========
Average common shares
outstanding 102,818 102,565 102,831 102,335
======== ======== ========== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
-4-
THE PROMUS COMPANIES INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Sept. 30, Sept. 30,
(In thousands) 1994 1993
Cash flows from operating activities
Net income $ 104,343 $ 66,390
Adjustments to reconcile net income
to cash flows from operating activities
Extraordinary items, before income taxes - 8,862
Cumulative effect of change in accounting
policy, before income taxes 12,249 -
Depreciation and amortization 84,064 73,128
Preopening costs charged to expense 15,313 -
Other noncash items 3,788 18,589
Minority interests share of net income 9,679 2,152
Net losses of and distributions from
nonconsolidated affiliates 8,679 1,266
Net gains from property transactions (103) (1,614)
Net change in long-term accounts (25,997) (46)
Net change in working capital accounts 36,026 15,938
Tax indemnification payments to Bass (26,466) (8,084)
--------- ---------
Cash flows provided by operating
activities 221,575 176,581
--------- ---------
Cash flows from investing activities
Land, buildings, riverboats and equipment
additions (184,694) (120,084)
Investments in and advances to
nonconsolidated affiliates (26,382) (5,398)
Decrease in construction payables (19,369) -
Proceeds from property transactions 25,568 25,445
Other (23,590) (15,049)
--------- ---------
Cash flows used in investing activities (228,467) (115,086)
--------- ---------
Cash flows from financing activities
Net borrowings under revolving credit
facilities, net of issue costs of $12,500 in 1993 54,250 91,500
Proceeds from issuance
of senior subordinated
notes, net of issue costs of $4,000 - 196,000
Debt retirements (41,609) (357,741)
Minority interests (distributions) contributions (6,104) 2,867
--------- ---------
Cash flows provided by (used in)
financing activities 6,537 (67,374)
--------- ---------
Net change in cash and cash equivalents (355) (5,879)
Cash and cash equivalents, beginning
of period 61,962 43,756
--------- ---------
Cash and cash equivalents, end of period $ 61,607 $ 37,877
========= =========
See accompanying Notes to Consolidated Condensed Financial Statements.
-5-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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; Tunica and Vicksburg, Mississippi; and North Kansas
City, Missouri. 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 8.)
Certain amounts for the third quarter and nine months ended
September 30, 1993, have been reclassified to conform with the
presentation for the third quarter and nine months ended
September 30, 1994.
Note 2 - Change in Accounting Policy
------------------------------------
On October 3, 1994, Promus changed its accounting policy
effective January 1, 1994, relating to preopening costs incurred
during development of new casino entertainment and hotel
projects. Promus' new policy is to capitalize preopening costs
as incurred prior to opening and to expense them upon opening of
each project. Previously, Promus had capitalized such costs and
amortized them to expense over 36 months from the date of
opening. As a result of this change, operating results for the
nine months ended September 30, 1994, reflect the cumulative
charge against earnings, net of income taxes, of $7.9 million, or
$0.08 per share, to write off the unamortized preopening costs
balances related to projects opened in prior years. Operating
results for the third quarter and the first nine months of 1994
also include preopening costs charged to expense of $10.2 million
and $15.3 million, respectively, primarily related to projects
opened during 1994.
Note 3 - Long-Term Debt
-----------------------
Interest Rate Agreements
------------------------
In order to benefit from favorable interest rates in recent
years, Promus entered into several interest rate swap agreements
on certain fixed rate debt, as summarized in the following table:
-6-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
Note 3 - Long-Term Debt (Continued)
----------------------------------
Effective Next Semi-
Swap Rate at Annual Rate
Rate Sept. 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% 8.71% January 15 July 15, 1998
In accordance with the terms of the interest rate swap
agreements, the effective interest rate on $200 million of the
10 7/8% Notes was adjusted on October 15, 1994, to 10.68%. This
rate will remain in effect until April 15, 1995.
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. As a result of achieving certain
financial covenant requirements during third quarter 1994, the
interest rate collar was adjusted on October 21, 1994 from a range
between 8.8% and 12.0% to a range of 8.7% to 11.9%. The interest
rate protection expires in June 1995.
The differences to be paid or received under the terms of the
interest rate swap agreements and the rate collar transaction
described above are included in interest expense as payments are
made or received. These agreements contain an element of risk
that the counterparties may be unable to meet the terms of the
agreements. Promus minimizes such risk exposure by limiting the
counterparties to major international banks and financial
institutions.
As a component of a transaction whereby Promus effectively
secured an option to a site for a potential casino, Promus has
guaranteed third party debt of $25 million and has entered into
an interest rate swap with the third party in which Promus
exchanged a fixed interest rate of 7% for the variable interest
rate of the subject debt (LIBOR plus 1.75%). The negative value
of the swap, which is marked to market by Promus, was
approximately $500,000 at September 30, 1994. The swap agreement
expires December 1, 1996 and is also subject to earlier
termination upon the occurrence of certain events.
Note 4 - 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.
-7-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 4 - Stockholders' Equity (Continued)
----------------------------------------
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
Note 5 - 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:
Nine Months Ended
Sept. 30, Sept. 30,
(In thousands) 1994 1993
Interest expense, net of interest capitalized $78,859 $81,688
Adjustments to reconcile to cash paid for
interest
Promus' share of interest expense of
nonconsolidated affiliates (9,454) (9,693)
Net change in accruals (1,123) (6,019)
Amortization of deferred finance charges (2,721) (4,148)
Net amortization of discounts and premiums (164) (1,194)
------- -------
Cash paid for interest, net of amount
capitalized $65,397 $60,634
======= =======
Cash payments for income taxes, net of refunds $74,545 $34,636
======= =======
Note 6 - Commitments and Contingent Liabilities
-----------------------------------------------
Harrah's New Orleans
--------------------
A Promus subsidiary is a one-third partner in a partnership (the
Partnership) developing the sole land-based casino permitted by law
to operate in Orleans Parish, Louisiana. The estimated cost of the
project is $815 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 to be
operated by the Partnership during construction of the permanent
casino. The Partnership has executed an underwriting agreement for
the sale of $435 million of first mortgage notes and a credit
agreement for a $175 million bank facility. Closing of these
agreements is expected to occur on or about November 16, 1994.
-8-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 6 - Commitments and Contingent Liabilities (Continued)
-----------------------------------------------------------
Promus has committed to provide a total capital contribution to
the Partnership at closing ranging from $56.7 million (Promus'
proportionate share of total expected capital contributions of $170
million) to $123.3 million, depending on the amount of capital
contributions made by the other partners in the Partnership. Promus
has also 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.
Contractual Commitments
-----------------------
Promus is pursuing many additional 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 September 30, 1994, Promus has
guaranteed third party debts of $67 million and has contractual
agreements, primarily related to riverboat casino facilities
construction, of $39 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.
Promus has guaranteed the value of a guaranteed investment
contract with an insurance company held by Promus' defined
contribution savings plan. Promus has also 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
September 30, 1994, is approximately $8.1 million.
Self-Insurance
--------------
Promus is self-insured for various levels of general
liability, workers' compensation and employee medical coverage.
Insurance claims and reserves include the accrual of estimated
settlements for known and anticipated claims.
Severance Agreements
--------------------
As of September 30, 1994, Promus has severance agreements
with eleven 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
-9-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 6 - Commitments and Contingent Liabilities (Continued)
-----------------------------------------------------------
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 September 30, 1994, that
would have been payable under the agreements to these executives
based on earnings and stock options aggregated approximately
$29.3 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 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 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 those issues
continue. 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.
-10-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 7 - 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.
-11-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 8 - Nonconsolidated Affiliates
-----------------------------------
Combined summarized income statements of nonconsolidated
affiliates which Promus accounted for on the equity basis for the
third quarter and nine months ended September 30, 1994 and 1993
were as follows:
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1994 1993 1994 1993
Revenues $280,595 $273,068 $766,937 $746,982
======== ======== ======== ========
Operating income $ 24,862 $ 29,302 $ 38,779 $ 57,891
======== ======== ======== ========
Net income (loss) $ 434 $ 11,837 $(19,095) $ 4,709
======== ======== ======== ========
Promus' share of nonconsolidated affiliates' combined net
operating results is reflected in the accompanying consolidated
condensed statements of income as follows:
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1994 1993 1994 1993
Pre-interest operating
income (included in
Revenues-other) $ 2,579 $ 4,642 $ 5,922 $ 12,563
======== ======== ======== ========
Interest expense
(included in Interest
expense) $ (3,302) $ (3,293) $ (9,454) $ (9,693)
======== ======== ======== ========
Sept. 30, Dec. 31,
(In thousands) 1994 1993
Promus' investments in and advances to
nonconsolidated affiliates
At equity $51,706 $35,893
At cost 34,624 34,157
------- -------
$86,330 $70,050
======= =======
The September 30, 1994 balance includes a total investment in and
advances to the partnership developing Harrah's New Orleans of
approximately $24.1 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
$4.5 million and $5.1 million at September 30, 1994, and
December 31, 1993, respectively.
-12-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 9 - 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 September 30, 1994 and December 31,
1993, and for the third quarter and nine months September 30,
1994 and 1993, prepared on the same basis as Promus, was as
follows:
Sept. 30, Dec. 31,
(In thousands) 1994 1993
Current assets $ 170,644 $ 165,753
Land, buildings, riverboats and
equipment, net 1,442,189 1,338,202
Other assets 301,218 290,454
---------- ----------
1,914,051 1,794,409
---------- ----------
Current liabilities 217,112 240,438
Long-term debt 853,535 839,804
Other liabilities 164,973 150,646
Minority interest 18,045 14,984
---------- ----------
1,253,665 1,245,872
---------- ----------
Net assets $ 660,386 $ 548,537
========== ==========
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1994 1993 1994 1993
Revenues $431,624 $346,211 $1,178,641 $930,836
======== ======== ========== ========
Operating income $115,128 $100,423 $ 308,401 $229,361
======== ======== ========== ========
Income before income taxes
and minority interests $ 80,691 $ 70,065 $ 209,255 $129,480
======== ======== ========== ========
Income before
extraordinary items and
cumulative effect of
change in accounting
policy $ 44,437 $ 37,131 $ 111,680 $ 71,281
======== ======== ========== ========
Net income $ 44,437 $ 33,009 $ 103,748 $ 65,834
======== ======== ========== ========
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 $651.3 million of Embassy's net assets were not
available for payment of dividends to Promus as of September 30,
1994.
-13-
THE PROMUS COMPANIES INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
(UNAUDITED)
Note 10 - Operating Segment Information
- ---------------------------------------
Operating results for Promus' operating segments for the third quarter and
nine months ended September 30, 1994 and 1993, were as follows:
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1994 1993 1994 1993
Casino Entertainment Segment
Operating Data
Revenues
Casino $304,892 $229,707 $831,376 $596,507
Food and beverage 44,948 39,185 121,236 105,438
Rooms 30,291 29,417 80,451 78,060
Management fees 257 - 702 -
Other 19,007 18,304 51,578 43,007
Less: casino promotional
allowances (34,015) (28,222) (93,883) (74,036)
-------- -------- -------- --------
Total revenues 365,380 288,391 991,460 748,976
-------- -------- -------- --------
Operating expenses
Departmental direct costs
Casino 139,808 94,384 368,217 265,875
Food and beverage 21,192 22,948 62,999 60,682
Rooms 8,942 9,365 25,420 26,043
Other 100,554 81,469 284,260 219,001
-------- -------- -------- --------
Total operating
expenses 270,496 208,166 740,896 571,601
-------- -------- -------- --------
94,884 80,225 250,564 177,375
Preopening costs (10,172) - (15,313) -
-------- -------- -------- --------
Operating income $ 84,712 $ 80,225 $235,251 $177,375
======== ======== ======== ========
Hotel Segment Operating Data
Revenues
Rooms $ 28,270 $ 27,870 $ 84,167 $ 97,111
Franchise and
management fees 22,438 16,084 57,594 44,246
Food and beverage 1,791 1,660 5,908 5,948
Other 12,754 11,170 36,197 31,364
-------- -------- -------- --------
Total revenues 65,253 56,784 183,866 178,669
-------- -------- -------- --------
Operating expenses
Departmental direct costs
Rooms 14,598 15,270 42,720 51,756
Food and beverage 1,790 1,821 5,823 6,206
Other 20,360 21,594 62,857 70,762
-------- -------- -------- --------
Total operating
expenses 36,748 38,685 111,400 128,724
-------- -------- -------- --------
28,505 18,099 72,466 49,945
Property transactions 2,321 2,019 1,924 1,769
-------- -------- -------- --------
Operating income $ 30,826 $ 20,118 $ 74,390 $ 51,714
======== ======== ======== ========
Other Operations Segment
Operating Data
Revenues $ 1,684 $ 1,535 $ 5,123 $ 4,519
Operating expenses 2,485 1,207 5,448 2,836
-------- -------- -------- --------
Operating income (loss) $ (801) $ 328 $ (325) $ 1,683
======== ======== ======== ========
-14-
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 third quarter and the first nine 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 product, Hampton Inn & Suites, was
introduced in late 1993 and is designed to target a new
development segment not addressed by the existing brands.
Promus' casino entertainment segment has grown significantly
within the past 12 months. 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 third
quarter 1993, the segment has grown to include 14 properties
located in seven states as of the end of third quarter 1994. The
latest addition, Harrah's North Kansas City, opened on September
22. The hotel segment has continued its steady growth during
1994, surpassing the 550 unit milestone during the third quarter.
As a result of the growth of the Riverboat Casino Entertainment
Division and the hotel segment, Promus' consolidated revenues and
cash flows for the nine months ended September 30, 1994,
increased 27% and 25%, respectively, over the corresponding prior
year period. Increasing competition in several gaming markets,
higher casino entertainment project development costs and the
writeoff during third quarter 1994 of certain preopening costs
reflecting a change in accounting policy (see discussion below)
resulted in a decrease of 2.5 percentage points in Promus'
overall operating margin for third quarter 1994 as compared with
the comparable prior year period; for the first nine months of
1994, however, overall operating margins increased 1.4 percentage
points over the prior year period.
-15-
RESULTS OF OPERATIONS
---------------------
Overall
-------
Third Quarter Percent First Nine Months Percent
(in millions, except -------------- Increase/ ----------------- Increase/
earnings per share) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- --------- ------- ----------
Revenues $432.3 $346.7 24.7 % $1,180.4 $932.2 26.6 %
Operating income 114.7 100.7 13.9 % 309.3 230.8 34.0 %
Net income 44.1 32.9 34.0 % 104.3 66.4 57.1 %
Earnings per share 0.43 0.32 34.4 % 1.01 0.65 55.4 %
Operating margin 26.5% 29.0% (2.5)pts 26.2% 24.8% 1.4 pts
Revenues, operating income and earnings per share increased
to record levels in both third quarter 1994 and for the nine
month period ended September 30, 1994. These increases were
primarily the result of an increase in the number of operating
casinos during the respective periods and positive hotel
operating trends. The hotel segment contributed record operating
income due to unit growth and revenue per available room/suite
(RevPAR/S) increases achieved by all three brands. A summary of
Promus' operating segments' performance for the third quarter and
the nine months ended September 30, 1994 and 1993 is presented in
Note 10 to the accompanying consolidated condensed financial
statements.
On October 3, 1994, Promus changed its accounting policy,
effective January 1, 1994, related to preopening costs incurred
during development of new casino entertainment and hotel
projects. Promus' new policy is to capitalize preopening costs
as incurred prior to opening and to expense them upon opening of
each project. Previously, Promus had capitalized such costs and
amortized them to expense over 36 months from the date of
opening. As a result of this change, operating results for the
nine months ended September 30, 1994, reflect the cumulative
charge against earnings, net of income taxes, of $7.9 million, or
$.08 per share, to write off the unamortized preopening costs
balances related to projects opened in prior years. Operating
results for the third quarter and the first nine months of 1994
also include preopening costs charged to expense of $10.2 million
and $15.3 million, respectively, primarily related to projects
opened during 1994.
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 preopening costs and
property transactions for the twelve-month periods ended
September 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:
-16-
Operating Income Contributions for the
Twelve Months Ended September 30,
--------------------------------------------
In Millions of Dollars Percent of Total
---------------------- --------------------
1994 1993 1992 1994 1993 1992
------ ------ ------ ------ ------ ------
Casino Entertainment
Riverboat $114 $ 12 $ - 29 % 4 % - %
Northern Nevada 77 73 67 19 % 27 % 28 %
Southern Nevada 75 77 65 19 % 28 % 27 %
Atlantic City 70 68 66 18 % 25 % 28 %
New Orleans (7) - - (2)% - -
Other, including
project development
costs (21) (17) (8) (5)% (6)% (4)%
---- ---- ---- --- --- ---
Total 308 213 190 78 % 78 % 79 %
Hotel 88 58 50 22 % 21 % 21 %
Other 1 2 - - 1 % -
---- ---- ---- --- --- ---
Total Promus $397 $273 $240 100 % 100 % 100 %
==== ==== ==== === === ===
CASINO ENTERTAINMENT
--------------------
Promus' casino entertainment segment includes the combined
results of Promus' 14 casino entertainment properties located in
Colorado, Illinois, Louisiana, Mississippi, Missouri, Nevada and
New Jersey. During the past twelve months, the Company has added
a second riverboat in Joliet, Illinois, and has begun riverboat
operations in Tunica and Vicksburg, Mississippi; Shreveport,
Louisiana; and North Kansas City, Missouri. In addition, the
Company assumed management of two limited stakes casinos in the
Colorado markets of Black Hawk and Central City. This increase in
the number of casinos, in particular the riverboat casinos, has
resulted in record revenues and operating income for the casino
entertainment division.
Third quarter casino entertainment revenues exceeded
$365 million, an increase of over 26% from third quarter 1993.
Operating income before preopening costs for the casino
entertainment segment increased over 18% to a record $94.9 million
for third quarter 1994. For the nine month period ended
September 30, 1994, total revenues for the casino entertainment
segment increased 32.4% to $991.5 million, while operating income
before preopening costs increased 41.3% to a record $250.5 million.
Both increases are directly related to the increase in the number
of casinos owned and operated by Promus during the respective
periods. The increases in operating income provided by the new
riverboat casinos were partially offset by increased development
costs and the recognition of Promus' pro-rata share of Harrah's
New Orleans preopening related costs.
-17-
Development costs incurred related to Promus' pursuit of
additional casino entertainment projects and charged to casino
entertainment segment other operating expense were as follows:
Third Quarter Ended First Nine Months
------------------- -------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(in millions) 1994 1993 1994 1993
-------- -------- -------- --------
Development costs
charged to expense $7.4 $3.6 $14.5 $7.6
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 Promus continues to pursue additional
casino development opportunities.
Riverboat Division
------------------
Third Quarter Percent First Nine Months Percent
----------------- Increase/ ----------------- Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
-------- ------ --------- -------- ------ ----------
Revenues $ 103.7 $ 28.5 NM* $ 296.7 $ 41.9 NM
Operating income 27.6 9.0 NM 98.0 12.0 NM
Operating margin 26.6% 31.6% (5.0)pts 33.0% 28.6% 4.4 pts
Gaming volume $1,205.9 $246.5 NM $3,138.3 $358.1 NM
--------
* Not Meaningful
As of the end of third quarter 1994, the Riverboat Division
included the operations of six riverboats, as compared to one
riverboat in operation at the end of third quarter 1993. The
latest addition to the Riverboat Division is Harrah's North
Star, which opened in North Kansas City, Missouri on
September 22, 1994. As a result of the additional riverboat
properties, which initially have operated in an environment of
limited competition, revenues and operating income have
increased dramatically for third quarter 1994 and the nine month
period ended September 30, 1994, as compared with the respective
prior year periods.
Third quarter operating margins are lower than those
achieved in the first and second quarters of 1994 primarily as a
result of intense competition in the Mississippi gaming markets
in which Promus has operations. During third quarter 1994, in
reaction to the increased Mississippi competition, 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 was not material. Despite these
measures, operating margins are not expected to return to the
levels achieved during the period of limited competition
experienced in late 1993 and early 1994.
-18-
Southern Nevada
---------------
Third Quarter Percent First Nine Months Percent
-------------- Increase/ ------------------ Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- -------- -------- ----------
Revenues $ 74.5 $ 76.1 (2.1)% $ 220.5 $ 222.4 (0.9)%
Operating income 18.8 20.1 (6.5)% 57.1 61.0 (6.4)%
Operating margin 25.2% 26.4% (1.2)pts 25.9% 27.4% (1.5)pts
Gaming volume $728.2 $763.5 (4.6)% $2,237.8 $2,287.4 (2.2)%
Both revenues and operating income were down slightly for
the third quarter and the nine month period as compared to the
respective prior year periods. This decline is consistent with
those noted in the first and second quarters and is directly
related to a decline in gaming volume due to the large capacity
increases in both the Las Vegas and Laughlin markets within the
past year. The addition of three "mega" properties during the
fourth quarter 1993 added substantial casino space to the Las Vegas
market. The Laughlin market has been impacted not only by a
significant capacity increase in its market, but also by its
traditional customers visiting the new Las Vegas properties.
Northern Nevada
---------------
Third Quarter Percent First Nine Months Percent
----------------- Increase/ ------------------ Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
-------- -------- ---------- -------- -------- ----------
Revenues $ 95.7 $ 95.1 0.6% $ 241.3 $ 243.9 (1.1)%
Operating income 31.7 31.7 - 62.8 62.7 0.2 %
Operating margin 33.1% 33.3% (0.2)pts 26.0% 25.7% 0.3pts
Gaming volume $1,153.2 $1,129.0 2.1% $2,888.7 $2,896.9 (0.3)%
Revenue and operating income for the third quarter 1994 were
consistent with those of third quarter 1993. Year to date
revenues remain slightly behind those of 1993 due to the openings
of new "mega" properties in the Las Vegas market, which continue
to draw some traditional Northern Nevada customers. Despite
slightly lower year to date gaming volume and revenues, the
Northern Nevada casinos have improved their operating margins
and maintained a consistent level of operating income for the
nine month period.
-19-
Atlantic City
-------------
Third Quarter Percent First Nine Months Percent
-------------- Increase/ ------------------ Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- -------- -------- ----------
Revenues $ 92.7 $ 88.4 4.9% $ 236.6 $ 239.0 (1.0)%
Operating income 26.9 25.0 7.6% 55.5 53.8 3.2%
Operating margin 29.0% 28.3% 0.7pts 23.5% 22.5% 1.0pts
Gaming volume $925.3 $840.5 10.1% $2,410.6 $2,249.0 7.2%
Third quarter revenue and operating income increased over
the comparable prior year period as a result of both growth
within the Atlantic City market as a whole and the growth of
Harrah's market share. The first phase of a casino renovation
project was recently completed, contributing to an increase in
gaming volume of 10% during the third quarter. The economies of
scale achieved as a result of the higher gaming volume are
reflected in the property's improved operating margins.
Harrah's New Orleans
--------------------
Revenues and operating income for the casino entertainment
segment include a loss of $2.1 million for third quarter 1994,
and $6.9 million for the first nine months of 1994, representing
Promus' pro-rata share of preoperating losses 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
-----
Third Quarter Percent First Nine Months Percent
(in millions, except -------------- Increase/ ----------------- Increase/
rooms/hotel and 1994 1993 (Decrease) 1994 1993 (Decrease)
RevPAR/S data) ------ ------ ---------- ------ ------ ----------
Revenues $ 65.3 $ 56.8 15.0% $183.9 $178.7 2.9%
Operating income
before property
transactions 28.5 18.1 57.5% 72.5 49.9 45.3%
Operating margin 43.6% 31.9% 11.7pts 39.4% 27.9% 11.5pts
Number of rooms 76,987 71,592 7.5%
Number of hotels 553 487 13.6%
Total System RevPAR/S
Embassy Suites $76.12 $70.29 8.3% $74.82 $69.84 7.1%
Hampton Inn 44.84 42.09 6.5% 40.86 38.23 6.9%
Homewood Suites 65.50 60.08 9.0% 60.88 56.52 7.7%
-20-
Hotel segment revenues and operating income increased to
record levels for both third quarter 1994 and the nine months
ended September 30, 1994. The increase in revenue is due to both
an increase in the number of properties and an increase in
RevPAR/S across all three brands. During the past twelve months,
there has been a shift in the hotel segment's revenue sources
toward additional management and franchise fees. For the nine
month period ended September 30, 1994, management and franchise
fees represent 31.3% of total revenues, compared with 24.8% for
the corresponding 1993 period. Included in 1994 management fee
income is a one time fee of $2.3 million. This was received
during third quarter 1994 due to the termination and replacement
of certain management contracts related to six properties sold by
a franchisee to a real estate investment trust (REIT). Promus
continues to manage the properties purchased by the REIT.
Exclusive of this fee, management fees for the nine month period
ended September 30, 1994 would have represented 30.5% of total
hotel segment revenues. As a result of the increasing proportion
of franchised and managed properties and the resulting cost
efficiencies achieved, operating margins for the nine months
ended September 30, 1994, increased by 11.5 percentage points over
the comparable prior year period.
Other Factors Affecting Income Per Share
----------------------------------------
Third Quarter Percent First Nine Months Percent
(Income)/Expense -------------- Increase/ ----------------- Increase/
(in millions) 1994 1993 (Decrease) 1994 1993 (Decrease)
------ ------ ---------- ------ ------ ----------
Preopening costs $10.2 $ - NM $15.3 $ - NM
Property transaction
gains, net (2.3) (2.0) (15.0)% (1.9) (1.8) (5.6)%
Corporate expense 8.6 5.5 56.4 % 21.6 19.6 10.2 %
Interest expense 26.3 25.4 3.5 % 78.9 81.7 (3.4)%
Interest and other
income (0.4) (0.4) - (1.3) (1.1) 18.2 %
Effective tax rate 42.9% 44.9% (2.0)pts 42.0% 43.3% (1.3)pts
Minority interests $ 1.7 $ 1.6 6.3 % $ 9.7 $ 2.2 NM
Extraordinary loss,
net - 4.1 NM - 5.4 NM
Cumulative effect of
change in accounting
policy, net - - NM 7.9 - NM
Preopening costs for third quarter 1994 primarily represent
those costs charged to expense upon the opening of Harrah's North
Kansas City in September, as well as the writeoff of approximately
$2.0 million of costs related to Promus' St. Louis project (see
CAPITAL SPENDING AND DEVELOPMENT section). Year to date preopening
costs also includes the costs charged to expense upon the opening
-21-
of Harrah's Shreveport in April 1994. Third quarter 1994
property transaction gains include the recognition of previously
deferred income related to prior year sales of certain hotel
assets and a gain from the September 1994 sale of a company-owned
Hampton Inn hotel. Third quarter 1993 included the gain on the
sale of an Embassy Suites property. Interest expense decreased
for the nine months ended September 30, 1994, as compared with
the prior year as a result of the impact of lower interest rates
on Promus' variable rate debt; interest expense in third quarter
1994 was slightly higher than for third quarter 1993 due to
higher levels of debt. The effective tax rate remains 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, and has increased
as additional joint venture casinos open. The extraordinary
losses recorded in the prior year periods represent writeoffs of
unamortized deferred finance charges due to early retirements of
debt. The cumulative effect of a change in accounting policy
recorded in 1994 relates to a change in the Company's accounting
policy for preopening costs. This one-time charge represents the
writeoff of capitalized preopening costs at January 1, 1994, for
properties opened prior to that date (see Note 2 to the
accompanying consolidated condensed financial statements).
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
nine months of 1994 on casino development opportunities.
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. In
March 1994, the
-22-
Partnership reached agreement with the City of New Orleans
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. In October 1994 the Partnership
executed additional agreements with the City concerning such matters.
The estimated cost of the project is $815 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 has
executed an underwriting agreement for the sale of $435 million
of first mortgage notes and a credit agreement for a $175 million
bank facility. Closing of these agreements is expected to occur
on or about November 16, 1994.
The total capital contribution to the Partnership at closing
by Promus' subsidiary is expected to range from $56.7 million
(Promus' proportionate share of total expected partner capital
contributions of $170 million) to $123.3 million, depending on
the amount of capital contributions made by the other partners in
the Partnership. If Promus' subsidiary makes capital
contributions in excess of its proportionate share, then an
additional proportionate ownership interest will be transferred
to such subsidiary from each partner failing to contribute its
proportionate share. Such partner has the option to reacquire
substantially all of its transferred interest by making its
capital contribution after closing within a certain time period.
If Promus' subsidiary contributes at closing a majority of
the total partner capital contributions, and thereby acquires a
majority ownership interest in the Partnership, the debt of the
Partnership will be deemed debt of Promus and its subsidiaries
for purposes of Promus' public debt indentures, unless and until
such ownership interest is reduced to 50% or less pursuant to the
exercise of the options discussed above. However, since Promus'
ownership of a majority interest in the Partnership in such a case
is expected to be temporary and voting control of the Partnership
will in any event continue to be shared equally by each partner
during the option period, the Partnership would not be consolidated
into Promus' financial statements for accounting purposes under such
circumstances.
Promus has also 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
must be satisfied, including, without limitation, completion of
the project financing and satisfying other governmental
requirements, including obtaining requisite preopening approvals.
Assuming the timely satisfaction of the conditions and legal issues
discussed above, the projected opening dates of the temporary casino
and permanent casino are expected to be early second quarter 1995
and early second quarter 1996, respectively.
-23-
A Registration Statement (Amendment No. 8 to Form S-1) of
Harrah's Jazz Company filed with the Securities and Exchange
Commission on November 9, 1994, describes the New Orleans project
in greater detail including risk factors that could affect the
project.
Riverboat Casino Development
----------------------------
During the first nine months of 1994, Promus opened three
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. On September 22, 1994, in North Kansas City,
Missouri, Harrah's began operations of the North Star, a classic
sternwheeler designed riverboat casino featuring approximately
31,000 square feet of casino space and certain types of casino
games and poker machines allowed under Missouri law. The passage
of a statewide referendum in Missouri on November 8 permits the
addition of traditional reel-type slot machines to the casino
entertainment offerings on the North Kansas City riverboat.
As a result of the favorable election results, Promus expects
to reconfigure its casino to include reel-type slot machines
after the vote is certified and appropriate regulatory approvals
are received. When the reconfiguration is completed, the facility
will offer approximately 800 reel-type slot machines, 200 video
gaming devices, and 65 table games.
In addition to the six riverboat casinos now operating,
Promus previously announced a second riverboat casino project in
the state of Missouri to be located in Maryland Heights, a suburb
of St. Louis. Following the failure earlier this year of a
statewide referendum that would have approved games of chance for
proposed casino developments in Missouri, Promus reevaluated its
development plans for this project and postponed construction of
the shoreside facilities at the Maryland Heights site. As a
result of the passage of the November 8, 1994 statewide
referendum in Missouri to approve offering games of chance in
casinos, the Company will move forward to finalize design on the
project, which is now expected to be completed during fourth
quarter 1995 at a cost of $115 million. The timetable for
construction is subject to receipt of pending regulatory approvals
and resolution of related matters. Opening of the casino is subject
to state licensing and satisfying other requirements normal for a
project of this size. $22.7 million had been spent on the project,
primarily to acquire the site for the facility, as of the end of
third quarter 1994.
-24-
Construction of the casino riverboat originally intended for use
at the Maryland Heights site was recently completed at a cost of
$15 million. Promus intends to move this riverboat to Shreveport as
a significantly larger replacement vessel for the current
Shreveport Rose. The exchange will result in approximately 50%
more gaming space at the Shreveport facility, a move which is
expected to increase Harrah's Shreveport's gaming volume and
revenue. The current Shreveport Rose will be maintained and will
be available for use at another as yet undetermined site. Promus
does not believe that the costs associated with exchanging the
boats or with maintaining the current Shreveport Rose will be
material.
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. This 33,000 square foot casino is
expected to open in December 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.
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 1994. Promus
will own a 20% interest in the partnership and will manage the
facility for a fee. Of Promus' total expected capital
contribution of $27.0 million, $1.4 million had been contributed
at September 30, 1994. Construction of the $270 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
-----------------------------
On August 31, 1994, a general partnership in which Promus is
a 75% partner completed its acquisition of Station Square, an
entertainment, business and retail center in Pittsburgh,
Pennsylvania. The approximately 52-acre Station Square site
includes approximately 25 acres of land available for
-25-
development and extends along the Monongahela River, across from
the Golden Triangle of Pittsburgh. At closing, Promus provided
approximately $23.5 million to the partnership in the form of a
capital contribution. 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 begun construction of a $28.6 million company-
owned Hampton Inn hotel on the site of Harrah's Reno. The 408-
room, 26-story hotel is expected to open in January 1996. No
major additions of casino square footage or hotel rooms are
currently planned at Promus' other existing casino entertainment
properties. On-going refurbishment and maintenance of Promus'
casino entertainment facilities continues to maintain the quality
standards set for these properties.
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. Other preopening costs are capitalized as
incurred and expensed at the respective property's opening.
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.
-26-
Hotel
-----
The hotel segment's three established hotel brands continued
their steady growth during the first nine months of 1994 with the
net addition of 50 franchised properties to the combined system.
An additional 68 franchised properties, comprised of 57 Hampton
Inn and Hampton Inn and Suites hotels, eight Embassy Suites
hotels and three Homewood Suites hotels, were under construction
or conversion to Promus brands at September 30, 1994.
Earlier this year Promus announced plans to expand the
Homewood Suites 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 a three year period
to fund this development. Construction on the first of these
properties commenced in October 1994. The property will be a
company-owned prototype of a downsized Homewood Suites property,
suitable for smaller markets, and is expected to be completed
during third quarter 1995 at an estimated cost of approximately
$6 million.
Construction on the first Hampton Inn and Suites hotel, a
new concept combining rooms and suites within a single property,
began in September 1994. The hotel is being developed by a
franchisee and is expected to open in second quarter 1995.
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 AND LIQUIDITY section), joint venture partners, specific
project financing, guarantees by Promus of third party debt,
sales of existing hotel assets and, if necessary, Promus debt
and/or equity offerings. Including $211 million spent during the
first nine months of 1994, Promus currently estimates $275 million
to $325 million of cash from all sources will be required during
1994, and an additional $250 million to $300 million during 1995,
to fund project development, including the projects discussed in
this CAPITAL SPENDING AND DEVELOPMENT section, refurbishment of
existing facilities and other projects.
-27-
DEBT AND LIQUIDITY
------------------
Bank Facility
-------------
Available Borrowing Capacity
----------------------------
Promus has in place a $650 million reducing revolving and
letter of credit facility (the Bank Facility). At September 30,
1994, $224.3 million in borrowings was outstanding under the Bank
Facility. An additional $223.4 million of the Bank Facility was
committed to back certain letters of credit, including a
$204.7 million letter of credit supporting the existing 9% Notes.
These facility commitments resulted in $202.3 million of the
total facility being available to Promus as of September 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 3/8 of 1% due to Promus' exceeding a defined minimum
financial covenant requirement. 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 order to benefit from favorable interest rates in recent
years, Promus entered into several interest rate swap agreements
on certain fixed rate debt, as summarized in the following table:
Next Semi-
Swap Rate at Annual Rate
Associated Rate Sept. 30, Adjustment Swap Agreement
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% 8.71% January 15 July 15, 1998
In accordance with the terms of the interest rate swap
agreements, the effective interest rate on $200 million of 10
7/8% Notes was adjusted on October 15, 1994 to 10.68%. This rate
will remain in effect until April 15, 1995.
-28-
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. As a result of
achieving certain financial covenant requirements during third
quarter 1994, the interest rate collar was adjusted on
October 21, 1994, from a range between 8.8% and 12.0% to a range
of 8.7% to 11.9%. The interest rate protection expires in June
1995.
The differences to be paid or received under the terms of
the interest rate swap agreements and the rate collar transaction
described above are included in interest expense as payments are
made or received. These agreements contain an element of risk
that the counterparties may be unable to meet the terms of the
agreements. Promus minimizes such risk exposure by limiting the
counterparties to major international banks and financial
institutions.
As a component of a transaction whereby Promus effectively
secured an option to a site for a potential casino, Promus has
guaranteed third party debt of $25 million and has entered into
an interest rate swap with the third party in which Promus
exchanged a fixed interest rate of 7% for the variable interest
rate of the subject debt (LIBOR plus 1.75%). The negative value
of the swap, which is marked to market by the Company, was
approximately $500,000 at September 30, 1994. The swap agreement
expires December 1, 1996, and is also subject to earlier
termination upon the occurrence of certain events.
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. The shelf registration expires in August
1995.
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 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
-29-
unagreed issues for the 1987 through Spin-off periods was filed
with the IRS during third quarter 1993 and negotiations to
resolve disputed issues continue. 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.
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 and plans for
several additional new facilities have been announced. In
Laughlin, expansions by competitors completed in 1993 increased
the number of rooms available in that market by 12%. In Reno,
competitors have begun or 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 October 21,
1994, had resulted in the approval of 110 compacts for the
development of casinos on Native American lands in 20 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
-30-
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 help to 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 $651.3 million at September 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.
-31-
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
continue. 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.
-32-
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 Philip G. Satre
including exhibits thereto.
*EX-10.2 Amendment dated as of August 31, 1994 to The
Promus Companies Incorporated Savings and
Retirement Plan.
*EX-10.3 Consent dated as of October 7, 1994, among The
Promus Companies Incorporated, Embassy Suites,
Inc., the Banks and Agents parties thereto, Marina
Associates and Bankers Trust Company, as
Administrative Agent.
EX-10.4 Form of Amended and Restated Third Amendment to the
Amended and Restated Partnership Agreement of
Harrah's Jazz Company.(1)
EX-10.5 Form of Fourth Amendment to the Amended and Restated
Partnership Agreement of Harrah's Jazz Company.(1)
EX-10.6 Form of Indenture dated , 1994
between Harrah's Jazz Company, Harrah's Jazz
Finance Corp. and First National Bank of Commerce
as Trustee for the First Mortgage Notes including
form of First Mortgage Note.(1)
EX-10.7 Form of Intercreditor Agreement between the Bank
Lenders and the First National Bank of Commerce as
Trustee dated , 1994.(1)
EX-10.8 Form of Notes Completion Guarantee among Embassy
Suites, Inc., The Promus Companies Incorporated and
First National Bank of Commerce as Trustee dated
, 1994.(1)
EX-10.9 Form of Cash Collateral and Disbursement
Agreement.(1)
EX-10.10 Form of Collateral Mortgage Note by Harrah's Jazz
Company.(1)
EX-10.11 Form of Act of Collateral Mortgage and Collateral
Assignment of Proceeds by Harrah's Jazz
Company.(1)
EX-10.12 Form of Collateral Assignment of Leases and Rents
between Harrah's Jazz Company and First National
Bank of Commerce as Collateral Agent dated
, 1994.(1)
-33-
EX-10.13 Form of Act of Security Agreement and Pledge
between Harrah's Jazz Company and First National
Bank of Commerce as Collateral Agent dated
, 1994.(1)
EX-10.14 Form of Pledge Agreement between Harrah's Jazz
Company, Harrah's Jazz Finance Corp. and First
National Bank of Commerce as Collateral Agent
dated , 1994.(1)
EX-10.15 Form of Security Agreement among Harrah's Jazz
Company, Harrah's Jazz Finance Corp. and First
National Bank of Commerce as Collateral Agent
dated , 1994.(1)
EX-10.16 Form of Security Agreement among Harrah's Jazz
Company, Harrah's Jazz Finance Corp. and First
National Bank of Commerce as Trustee
dated , 1994.(1)
EX-10.17 Form of Manager Subordination Agreement (First
Mortgage Notes) among Harrah's Jazz Company,
Harrah's New Orleans Management Company and First
National Bank of Commerce as Trustee dated
, 1994.(3)
EX-10.18 Form of Consultant Subordination Agreement (First
Mortgage Notes) among Harrah's Jazz Company, Grand
Palais Management Company, New Orleans/Louisiana
Development Corporation and First National Bank of
Commerce as Trustee dated , 1994.(2)
EX-10.19 Form of Completion Guarantor Subordination
Agreement (First Mortgage Notes) among Harrah's
Jazz Company, The Promus Companies Incorporated,
Embassy Suites, Inc. and First National Bank of
Commerce as Trustee dated ,
1994.(2)
EX-10.20 Amended Lease Agreement between the Rivergate
Development Corporation, as Landlord and Harrah's
Jazz Company, as Tenant and City of New Orleans,
as Intervenor dated March 15, 1994.(4)
EX-10.21 Amended General Development Agreement between
Rivergate Development Corporation and Harrah's
Jazz Company and City of New Orleans, as
Intervenor.(5)
EX-10.22 Temporary Casino Lease between Rivergate
Development Corporation, as Landlord and Harrah's
Jazz Company, as Tenant and City of New Orleans,
as Intervenor dated March 15, 1994.(5)
EX-10.23 Amendment to Amended Lease Agreement between
Rivergate Development Corporation, as Landlord and
Harrah's Jazz Company, as Tenant and City of New
Orleans, as Intervenor dated October 5, 1994.(4)
-34-
EX-10.24 Agreement between the City of New Orleans and
Harrah's Jazz Company, dated October 5, 1994 (the
"Separate City Agreement").(4)
EX-10.25 Agreement among the Rivergate Development
Corporation, the City of New Orleans and Embassy
Suites, Inc. and Harrah's Jazz Company, as
intervenor, dated October 5, 1994 (the "Embassy
Access Agreement").(4)
EX-10.26 Casino Operating Contract between the Louisiana
Economic Development and Gaming Corporation and
Harrah's Jazz Company dated July 15, 1994.(5)
EX-10.27 First Amendment to Casino Operating Contract
between the Louisiana Economic Development and
Gaming Corporation and Harrah's Jazz Company dated
August 31, 1994.(4)
EX-10.28 Amended and Restated Management Agreement between
Harrah's New Orleans Management Company and
Harrah's Jazz Company dated March 14, 1994.(5)
EX-10.29 Construction Agreement between Harrah's Jazz
Company and Centex Landis Construction Co., Inc.
dated October 10, 1994, for the construction of
the Permanent Casino.(4)
EX-10.30 Construction Agreement between Harrah's Jazz
Company and Harvey Honore Construction Company,
Inc. and Broadmoor dated October 10, 1994, for the
construction of the Temporary Casino.(4)
EX-10.31 Design and Construction Agreement between Harrah's
Jazz Company and Broadmoor dated October 10, 1994,
for the construction of the parking structure.(4)
EX-10.32 Form of Credit Agreement among Harrah's Jazz
Company, Harrah's Jazz Finance Corp., Various
Banks and Bankers Trust Company as Administrative
Agent dated as of , 1994.(1)
EX-10.33 Owner's Policy issued March 16, 1994 by First
American Title Insurance Company to Harrah's Jazz
Company.(4)
EX-10.34 Form of Lender's Title Insurance Commitment issued
, 1994 by First American Title
Insurance Company.(2)
EX-10.35 Completion Loan Agreement among Harrah's Jazz
Company, Embassy Suites, Inc., The Promus
Companies Incorporated, New Orleans/Louisiana
Development Corporation, Grand Palais Casino,
Inc., and Grand Palais Management Company, L.L.C.
dated October 12, 1994.(3)
-35-
EX-10.36 Form of First Amendment to the Completion Loan
Agreement.(1)
EX-10.37 Construction Lien Indemnity Obligation Agreement
between Harrah's Jazz Company and Embassy Suites,
Inc. dated October 12, 1994.(3)
EX-10.38 Form of First Amendment to the Construction Lien
Indemnity Obligation Agreement.(1)
EX-10.39 Form of Option Agreement between Harrah's New
Orleans Investment Company and New Orleans/
Louisiana Development Corporation dated
, 1994.(1)
EX-10.40 Form of Option Agreement between Harrah's New
Orleans Investment Company and Grand Palais
Casino Inc. dated , 1994.(1)
EX-10.41 Form of Put Agreement between Harrah's New
Orleans Investment Company and New Orleans/
Louisiana Development Corporation dated
, 1994.(1)
EX-10.42 Form of Put Agreement between Harrah's New
Orleans Investment Company and Grand Palais
Casino Inc. dated , 1994.(1)
EX-10.43 Form of Underwriting Agreement among
Donaldson, Lufkin and Jenrette Securities
Corporation, Salomon Brothers Inc., BT
Securities, Harrah's Jazz Company, and Harrah's
Jazz Finance Corp. dated , 1994.(1)
*EX-11 Computation of per share earnings.
*EX-18 Letter from independent accountant re change in
accounting principles.
*EX-27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1994.
------------
*Filed herewith.
FOOTNOTES
---------
(1) Incorporated by reference from Amendment No. 7 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed November 8,
1994.
(2) Incorporated by reference from Amendment No. 6 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed November 4,
1994.
(3) Incorporated by reference from Amendment No. 5 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed October 26,
1994.
(4) Incorporated by reference from Amendment No. 4 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed October 12,
1994.
(5) Incorporated by reference from Amendment No. 3 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed August 4, 1994.
-36-
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
November 10, 1994 BY: MICHAEL N. REGAN
------------------------------
Michael N. Regan
Vice President and Controller
(Chief Accounting Officer)
-37-
Exhibit Index
-------------
Exhibit No. Description Sequential Page No.
----------- ------------ ------------------
*EX-10.1 Employment Agreement dated as of 44
February 25, 1994, and effective
April 29, 1994, between The Promus
Companies Incorporated and Philip G.
Satre including exhibits thereto.
*EX-10.2 Amendment dated as of August 31, 1994 85
to The Promus Companies Incorporated
Savings and Retirement Plan.
*EX-10.3 Consent dated as of October 7, 1994, 91
among The Promus Companies
Incorporated, Embassy Suites, Inc.,
the Banks and Agents parties thereto,
Marina Associates and Bankers Trust
Company, as Administrative
Agent.
EX-10.4 Form of Amended and Restated Third
Amendment to the Amended and
Restated Partnership Agreement of
Harrah's Jazz Company.(1)
EX-10.5 Form of Fourth Amendment to the Amended
and Restated Partnership Agreement of
Harrah's Jazz Company.(1)
EX-10.6 Form of Indenture dated ,
1994 between Harrah's Jazz Company,
Harrah's Jazz Finance Corp., and First
National Bank of Commerce as Trustee for
the First Mortgage Notes including form
of First Mortgage Note.(1)
EX-10.7 Form of Intercreditor Agreement between
the Bank Lenders and the First National
Bank of Commerce as Trustee dated
, 1994.(1)
EX-10.8 Form of Notes Completion Guarantee among
Embassy Suites, Inc., The Promus Companies
Incorporated and First National Bank of
Commerce as Trustee dated ,
1994.(1)
EX-10.9 Form of Cash Collateral and Disbursement
Agreement.(1)
EX-10.10 Form of Collateral Mortgage Note by
Harrah's Jazz Company.(1)
-38-
Exhibit No. Description Sequential Page No.
----------- ------------ ------------------
EX-10.11 Form of Act of Collateral Mortgage
and Collateral Assignment of
Proceeds by Harrah's Jazz
Company.(1)
EX-10.12 Form of Collateral Assignment of
Leases and Rents between Harrah's
Jazz Company and First National
Bank of Commerce as Collateral
Agent dated , 1994.(1)
EX-10.13 Form of Act of Security Agreement
and Pledge between Harrah's Jazz
Company and First National Bank of
Commerce as Collateral Agent dated
, 1994.(1)
EX-10.14 Form of Pledge Agreement between
Harrah's Jazz Company, Harrah's
Jazz Finance Corp. and First
National Bank of Commerce as
Collateral Agent dated ,
1994.(1)
EX-10.15 Form of Security Agreement among
Harrah's Jazz Company, Harrah's
Jazz Finance Corp. and First
National Bank of Commerce as
Collateral Agent dated ,
1994.(1)
EX-10.16 Form of Security Agreement among Harrah's
Jazz Company, Harrah's Jazz Finance Corp.
and First National Bank of Commerce as
Trustee dated , 1994.(1)
EX-10.17 Form of Manager Subordination
Agreement (First Mortgage Notes)
among Harrah's Jazz Company,
Harrah's New Orleans Management
Company and First National Bank of
Commerce as Trustee dated
, 1994.(3)
-39-
Exhibit No. Description Sequential Page No.
----------- ------------ ------------------
EX-10.18 Form of Consultant Subordination
Agreement (First Mortgage Notes)
among Harrah's Jazz Company,
Grand Palais Management Company,
New Orleans/Louisiana Development
Corporation and First National
Bank of Commerce as Trustee dated
, 1994.(2)
EX-10.19 Form of Completion Guarantor
Subordination Agreement (First
Mortgage Notes) among Harrah's
Jazz Company, The Promus Companies
Incorporated, Embassy Suites, Inc.
and First National Bank of Commerce
as Trustee dated , 1994.(2)
EX-10.20 Amended Lease Agreement between the
Rivergate Development Corporation,
as Landlord and Harrah's Jazz Company,
as Tenant and City of New Orleans, as
Intervenor dated March 15, 1994.(4)
EX-10.21 Amended General Development Agreement
between Rivergate Development
Corporation and Harrah's Jazz
Company and City of New Orleans, as
Intervenor.(5)
EX-10.22 Temporary Casino Lease between Rivergate
Development Corporation, as Landlord
and Harrah's Jazz Company, as Tenant
and City of New Orleans, as Intervenor
dated March 15, 1994.(5)
EX-10.23 Amendment to Amended Lease Agreement
between Rivergate Development
Corporation, as Landlord and Harrah's
Jazz Company, as Tenant and City of
New Orleans, as Intervenor dated
October 5, 1994.(4)
EX-10.24 Agreement between the City of New
Orleans and Harrah's Jazz Company,
dated October 5, 1994 (the "Separate
City Agreement").(4)
-40-
Exhibit No. Description Sequential Page No.
----------- ------------ ------------------
EX-10.25 Agreement among the Rivergate
Development Corporation, the
City of New Orleans and Embassy
Suites, Inc. and Harrah's Jazz
Company, as intervenor, dated
October 5, 1994 (the "Embassy
Access Agreement").(4)
EX-10.26 Casino Operating Contract between
the Louisiana Economic Development
and Gaming Corporation and Harrah's
Jazz Company dated July 15, 1994.(5)
EX-10.27 First Amendment to Casino Operating
Contract between the Louisiana
Economic Development and Gaming
Corporation and Harrah's Jazz Company
dated August 31, 1994.(4)
EX-10.28 Amended and Restated Management
Agreement between Harrah's New
Orleans Management Company and
Harrah's Jazz Company dated
March 14, 1994.(5)
EX-10.29 Construction Agreement between
Harrah's Jazz Company and Centex
Landis Construction Co., Inc.
dated October 10, 1994, for the
construction of the Permanent
Casino.(4)
EX-10.30 Construction Agreement between
Harrah's Jazz Company and Harvey
Honore Construction Company, Inc.
and Broadmoor dated October 10,
1994, for the construction of
the Temporary Casino.(4)
EX-10.31 Design and Construction Agreement
between Harrah's Jazz Company and
Broadmoor dated October 10, 1994,
for the construction of the
parking structure.(4)
-41-
Exhibit No. Description Sequential Page No.
----------- ------------ ------------------
EX-10.32 Form of Credit Agreement among
Harrah's Jazz Company, Harrah's
Jazz Finance Corp., Various Banks
and Bankers Trust Company as
Administrative Agent dated as of
, 1994.(1)
EX-10.33 Owner's Policy issued March 16, 1994
by First American Title Insurance
Company to Harrah's Jazz Company.(4)
EX-10.34 Form of Lender's Title Insurance
Commitment issued ,
1994 by First American Title
Insurance Company.(2)
EX-10.35 Completion Loan Agreement among
Harrah's Jazz Company, Embassy
Suites, Inc., The Promus Companies
Incorporated, New Orleans/Louisiana
Development Corporation, Grand
Palais Casino, Inc., and Grand
Palais Management Company, L.L.C.
dated October 12, 1994.(3)
EX-10.36 Form of First Amendment to the
Completion Loan Agreement.(1)
EX-10.37 Construction Lien Indemnity
Obligation Agreement between Harrah's
Jazz Company and Embassy Suites,
Inc. dated October 12, 1994.(3)
EX-10.38 Form of First Amendment to the
Construction Lien Indemnity
Obligation Agreement.(1)
EX-10.39 Form of Option Agreement between
Harrah's New Orleans Investment
Company and New Orleans/Louisiana
Development Corporation dated
, 1994.(1)
EX-10.40 Form of Option Agreement between
Harrah's New Orleans Investment
Company and Grand Palais Casino Inc.
dated , 1994.(1)
EX-10.41 Form of Put Agreement between
Harrah's New Orleans Investment
Company and New Orleans/Louisiana
Development Corporation dated
, 1994.(1)
EX-10.42 Form of Put Agreement between
Harrah's New Orleans Investment
Company and Grand Palais Casino Inc.
dated , 1994.(1)
EX-10.43 Form of Underwriting Agreement among
Donaldson, Lufkin and Jenrette Securities
Corporation, Salomon Brothers Inc., BT
Securities, Harrah's Jazz Company, and
Harrah's Jazz Finance Corp.
dated , 1994.(1)
*EX-11 Computation of per share earnings. 101
*EX-18 Letter from independent accountant 102
re change in accounting principles.
*EX-27 Financial Data Schedule. 103
------------
*Filed herewith.
-42-
FOOTNOTES
---------
(1) Incorporated by reference from Amendment No. 7 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed November 8,
1994.
(2) Incorporated by reference from Amendment No. 6 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed November 4,
1994.
(3) Incorporated by reference from Amendment No. 5 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed October 26,
1994.
(4) Incorporated by reference from Amendment No. 4 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed October 12,
1994.
(5) Incorporated by reference from Amendment No. 3 to Form S-1
Registration Statement of Harrah's Jazz Company and Harrah's
Jazz Finance Corp., File No. 33-73370, filed August 4, 1994.
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EX-10.1
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 Philip G. Satre
(the "Executive").
The Company and the Executive agree as follows:
1. Introductory Statement.
The Company desires to secure the services of the
Executive as Chief Executive Officer and the Executive is
willing to execute this Agreement with respect to his
employment. This Agreement is effective on April 29, 1994,
and shall expire December 31, 1998, subject to the terms
and conditions herein.
2. Agreement of Employment.
The Company agrees to, and hereby does, employ the
Executive, and the Executive agrees to, and hereby does
accept, employment by the Company, in a full-time capacity
as Chief Executive Officer, pursuant to the provisions of
this Agreement and of the bylaws of the Company and subject
to the control of the Board of Directors. It is understood
that the Executive's position as Chief Executive Officer is
subject to his yearly re-election as Chief Executive
Officer by the Board. See paragraph 6 herein for
Executive's rights if such re-election does not occur
during the term of this Agreement.
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3. Executive's Obligations.
During the period of his service under this Agreement,
the Executive shall devote substantially all of his time
and energies during business hours to the supervision and
conduct, faithfully and to the best of his ability, of the
business and affairs of the Company and to the furtherance
of its interests, and to such other duties as directed by
the Board.
4. Compensation.
The Company shall pay to Executive a salary at the rate
of $450,000 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, as amended effective April 29, 1994, attached
hereto as Exhibit A (the "Severance Agreement") both of
which will continue in force subject to their terms and
conditions
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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 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). The Company will also provide Executive with
appropriate security arrangements at his residence.
If the Executive dies or resigns pursuant to this
Agreement or pursuant to any other agreement between the
Company and the Executive providing for such resignation
during the period of this Agreement, service for any part
of the month in which any such event occurs shall be
considered service for the entire month.
5. Termination From Employment on December 31, 1998
5.1 Except as otherwise provided in this Agreement,
the date of Executive's termination from employment shall
be December 31, 1998.
5.2 After the date of Executive's termination from
employment at any time (including termination 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
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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).
5.3 After the date of Executive's termination from
employment, his EDCP account and any other deferred
compensation balances will continue to be protected by the
Escrow Agreement if it is then in force subject to the
terms and conditions of the Escrow Agreement including its
termination and amendment provisions.
6. Termination Without Cause or Resignation for Good
Reason
6.1 The Board reserves the right to terminate
Executive from his then current position without cause at
any time upon at least three months prior written notice.
The failure of the Board to elect Executive as Chief
Executive Officer during the annual election of officers
shall also be deemed termination without cause for purposes
of this Agreement unless, before the election, the Board
has sent the written notice initiating termination for
Cause as provided in paragraph 11.1 and Executive is
thereafter terminated for Cause. Executive reserves the
right to resign his position for Good Reason (as defined in
paragraph 11.2 herein) by giving the Company 30 days
written notice which states the reason for his resignation.
For purposes of this Agreement, Good Reason does not
include changes that are expressly permitted by this
Agreement.
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6.2 Upon Executive's termination without cause or
resignation from his position with Good Reason as described
in paragraph 6.1 above:
(a) Executive will continue in employee status as a
consultant-employee for two years beginning on the
date of such termination without cause or
resignation with Good Reason (the "Transition
Period"). His stock options and any restricted
stock will continue in force for vesting purposes
during the Transition Period. Any unvested stock
options and unvested shares of restricted stock
that do not vest during the Transition Period will
be forfeited.
(b) Executive will become vested at the retirement
rate under the Executive Deferred Compensation
Plan ("EDCP") on the date of such termination
without cause or resignation with Good Reason.
(c) Executive will continue to receive his then-
current salary rate and the right to participate
in the Company's benefit plans during the
Transition Period but he will no longer be
eligible for bonus, stock option or restricted
stock grants or any other long term incentive
awards then in effect.
(d) After the expiration of the Transition Period,
Executive will be entitled to the lifetime group
insurance benefits described in paragraph 5.2.
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7. Termination For Cause or Resignation Without Good
Reason
7.1 The Board will have the right to terminate
Executive at any time from his then-current position for
Cause (as defined in paragraph 11.1 herein).
7.2 If Executive is terminated for Cause or if he
resigns his position without Good Reason, then (a) all of
his rights and benefits under this Agreement shall
thereupon terminate and his employment shall be deemed
terminated on the date of such termination or resignation,
(b) he shall be entitled to all accrued rights, payments
and benefits vested or paid on or before such date under
the Company's plans and programs, but unvested stock
options and unvested shares of restricted stock, if any,
will be forfeited, (c) his right to exercise vested stock
options will expire at 12:00 p.m. midnight on the date of
such termination or resignation and all stock options not
so exercised will be forfeited, (d) his indemnification
agreement will continue in force, (e) the Escrow Agreement,
if then in force, will continue in force, unless such
agreement is thereafter amended or terminated pursuant to
its terms, (f) he will be entitled to the lifetime group
insurance benefits described in paragraph 5.2 above except
that any future amendments to such benefits shall apply to
him in the same manner as such amendments apply to other
employees and (g) his Severance Agreement and all rights
thereunder will terminate as of such termination or
resignation date unless a Change in Control or Potential
Change in Control (as such terms are defined in the
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Severance Agreement) has occurred prior to such termination
or resignation date.
If Executive's Severance Agreement is in force upon a
Change in Control (as defined in the Severance Agreement),
the provisions of this paragraph 7.2 will not be applicable
if he resigns (with or without Good Reason) within two (2)
years after the Change in Control, and in the event of such
resignation after a Change in Control he will be entitled
to the payments, rights and benefits as provided in
paragraph 10 below.
8. Death
In the event of Executive's death prior to December 31,
1998, during his employment under this Agreement, his
salary and all rights and benefits under this Agreement
will terminate, and his estate and beneficiary(ies) will
receive the benefits they are entitled to under the terms
of the Company's benefit plans and programs by reason of a
participant's death during active employment including the
death benefits provided by the EDCP and the applicable
rights and benefits under the Company's stock plans. The
Escrow Agreement if then in force will continue in force
(subject to its amendment or termination in accordance with
its terms) for the benefit of Executive's beneficiaries
until his deferred compensation accounts are paid in full,
and Executive's indemnification agreement will continue in
force for the benefit of his estate.
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9. Disability
In the event of Executive's disability prior to
December 31, 1998, during his employment, he will be
entitled to apply at his option for the Company's long term
disability benefits. If he is accepted for such benefits,
then the terms and provisions of the Company's benefit
plans and programs (including the EDCP and the Company's
Stock Option and Restricted Stock Plans) that are
applicable in the event of such disability of an employee
shall apply in lieu of the salary and benefits under this
Agreement, except that (a) the Escrow Agreement (if then in
force) and his indemnification agreement will continue in
force (the Escrow Agreement will be subject to amendment or
termination in accordance with its terms), and (b) he will
be entitled to the lifetime group insurance benefits
described in paragraph 5.2. If Executive is disabled so
that he cannot perform his duties (as determined by the
HRC), and if he does not apply for long term disability
benefits or is not accepted for such benefits, then the
Board may terminate his duties under this Agreement and, in
such event, he will receive two years salary continuation
together with all other benefits, and during such period of
salary continuation any stock options and restricted stock
grants then in existence will continue in force for vesting
purposes. However, during such period of salary
continuation for disability, Executive will not be eligible
to participate in the annual bonus plan nor will he be
eligible to receive stock option or restricted stock grants
or any other long term incentive awards except to the
extent approved by the HRC.
-51-
10. Change in Control
If a Change in Control as defined in Executive's
Severance Agreement occurs prior to Executive's termination
of employment and if the Severance Agreement is in force
when the Change in Control occurs, then, upon his
termination or voluntary or involuntary resignation within
two years after the Change in Control (including
termination on December 31, 1998 due to expiration of this
Agreement), except if his termination of employment is for
"Cause," "Disability" or "Retirement" as set forth in the
Severance Agreement, he will be entitled to all the rights,
payments and benefits provided under his Severance
Agreement including the benefits that the Severance
Agreement provides with respect to the benefit plans and
programs of the Company resulting from his termination or
voluntary resignation, in lieu of the rights and benefits
that would otherwise apply under this Agreement by virtue
of his termination or resignation, provided that (a) the
Escrow Agreement (if then in force) and his indemnification
agreement will continue in force (the Escrow Agreement will
be subject to amendment or termination in accordance with
its terms) and (b) he will be entitled to the lifetime
group insurance benefits described in paragraph 5.2.
11. Definitions of Cause and Good Reason.
11.1 Cause. Termination by the Company of this
Agreement for "Cause" shall mean termination upon the
Executive's engaging in willful and continued misconduct,
or the Executive's willful and
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continued failure to substantially perform his duties with
the Company (other than due to physical or mental illness),
if such failure or misconduct is materially damaging or
materially detrimental to the business and operations of
the Company; provided that Executive shall have received
written notice of such failure or misconduct and shall have
continued to engage in such failure or misconduct after 30
days following receipt of such notice from the Board, which
notice specifically identifies the manner in which the
Board believes that Executive has engaged in such failure
or misconduct. For purposes of this Paragraph, no act, or
failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief
that the Executive's action or omission was in the best
interest of the Company. Notwithstanding the foregoing,
the Executive shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board
called and held for such purposes (after reasonable notice
to the Executive and an opportunity for him, together with
his counsel, to be heard before the Board), finding that in
the good faith opinion of the Board the Executive was
guilty of failure to substantially perform his duties or of
misconduct in accordance with the first sentence of this
paragraph, and of continuing such failure to substantially
perform his duties or
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misconduct as aforesaid after notice from the Board, and
specifying the particulars thereof in detail.
11.2 Good Reason. "Good Reason" shall mean, without
Executive's express written consent, the occurrence of any
of the following circumstances unless, in the case of
paragraphs (a), (e), (f) or (g), such circumstances are
fully corrected prior to the date of termination specified
in the written notice given by Executive notifying the
Company of his resignation for Good Reason:
(a) The assignment to Executive of any duties
inconsistent with his status as Chief Executive Officer
of the Company or a substantial adverse alteration in
the nature or status of his responsibilities;
(b) A reduction by the Company in his annual base
salary of $450,000 or as the same may be increased from
time to time pursuant to paragraph 4 hereof;
(c) The relocation of the Company's principal
executive offices where Executive is working to a
location more than 50 miles from the location of such
offices on the date of this Agreement, or the Company's
requiring Executive to be based anywhere other than the
location of the Company's principal offices where
Executive is working on the date of this Agreement
except for required travel on the Company's business to
an extent substantially consistent with Executive's
present business travel obligations;
-54-
(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
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him under the 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 14 hereof.
Executive's right to terminate his employment pursuant
to this Agreement for Good Reason shall not be affected by
Executive's incapacity due to physical or mental illness.
Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason hereunder.
12. Non-Competition Agreement.
12.1 For a period of two years after Executive's full-
time, active employment (which, for purposes of this
paragraph 12.1, shall not include employee status as a
consultant-employee in paragraph 6.2(a)) with the Company
(or with a direct or indirect subsidiary of the Company)
ends, he will not, directly or indirectly, solicit or
recruit any employee of the Company or of any of its direct
or
-56-
indirect subsidiaries, and he will not engage (as an
employee, consultant, director, investor, contractor, or
otherwise) directly or indirectly in any business in the
United States, Canada or Mexico that is competitive with
any business that the Company or its direct or indirect
subsidiaries are engaged (as owner, manager, consultant,
licensor, partner, or otherwise) in at the time such
employment ends except with the prior specific approval of
the Board.
12.2 If Executive breaches any of the above covenants
in 12.1, then the Board may terminate any of his rights
under this Agreement upon thirty days written notice
whereupon all of the Company's obligations under this
Agreement shall terminate (including, without limitation,
the right to lifetime group insurance) without further
obligation to him except for obligations that have been
paid, accrued or are vested as of or prior to such
termination date. In addition the Company shall be
entitled to enforce any such covenants including obtaining
monetary damages, specific performance and injunctive
relief.
13. Binding Arbitration.
Any and all claims, disputes or controversies arising
out of or related to this Agreement or the breach thereof
shall be resolved by arbitration in accordance with the
rules of the American Arbitration Association (the "AAA")
then in existence, subject to this paragraph 13. Such
arbitration shall be conducted by a panel of three
arbitrators. The Executive shall appoint one arbitrator,
the Company
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shall appoint one arbitrator, and the third shall be
appointed by the two arbitrators appointed by the parties.
The third arbitrator shall serve as chairman of the panel.
The parties shall appoint their arbitrators within 30 days
after the demand for arbitration is served, failing which
the AAA promptly shall appoint a defaulting party's
arbitrator, and the two arbitrators shall select the third
arbitrator within 15 days after their appointment, or if
they cannot agree or fail to so appoint, then the AAA
promptly shall appoint the third arbitrator. The
arbitrators shall render their decision in writing within
60 days after the close of evidence or other termination of
the proceedings by the panel. The determination or award
rendered in such arbitration shall be binding and
conclusive upon the parties and shall not be appealable,
and judgment may be entered thereon in accordance with
applicable law in any court of competent jurisdiction. Any
hearings in the arbitration shall be held in Memphis,
Tennessee, and shall be private and not open to the public.
Each party shall bear the fees and expenses of its
arbitrator, counsel and witnesses, and the fees and
expenses of the third arbitrator shall be shared equally by
the parties. Other costs of the arbitration, including the
fees of AAA, shall be shared equally by the parties.
14. Assumption of Agreement on Merger, Consolidation or
Sale of Assets.
The Company agrees that until the termination of this
Agreement as above provided, it will not enter into any
merger or consolidation
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with another company in which the Company is not the
surviving company, or sell or dispose of all or
substantially all of its assets, unless the company which
is to survive such merger or consolidation or the
prospective purchaser of such assets first makes a written
agreement with the Executive either (1) assuming the
Company's financial obligations to the Executive under this
Agreement, or (2) making such other provision for the
Executive as is satisfactory to the Executive and approved
by him in writing in lieu of assuming the Company's
financial obligations to him under this Agreement.
15. Assurances on Liquidation.
The Company agrees that until the termination of this
Agreement as above provided, it will not voluntarily
liquidate or dissolve without first making a full
settlement or, at the discretion of the Executive, a
written agreement with the Executive satisfactory to and
approved by him in writing, in fulfillment of or in lieu of
its obligations to him under this Agreement.
16. Amendments.
This Agreement may not be amended or modified orally,
and no provision hereof may be waived, except in a writing
signed by the parties hereto.
17. Assignment.
17.1 Except as otherwise provided in paragraph 17.2,
this Agreement cannot be assigned by either party hereto
except with the written consent of the other. Any
assignment of this Agreement by
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either party hereto shall not relieve such party of its or
his obligations hereunder.
17.2 The Company may elect to perform any or all of
its obligations under this Agreement through its wholly-
owned subsidiary, 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.
18. Binding Effect.
This Agreement shall be binding upon and inure to the
benefit of the personal representatives and successors in
interest of the Company.
19. Choice of Law.
This Agreement shall be governed by the law of the
State of Tennessee as to all matters, including but not
limited to matters of validity, construction, effect and
performance.
20. Severability of Provisions.
In case any one or more of the provisions contained in
this Agreement shall be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability
of the remaining provisions contained herein shall not in
any way be affected or impaired thereby and this Agreement
shall be interpreted as if such invalid, illegal or
unenforceable provision was not contained herein.
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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.
PHILIP G. SATRE
------------------------------
Philip G. Satre
(Corporate Seal) THE PROMUS COMPANIES
INCORPORATED
By: E. O. ROBINSON, JR.
------------------------
SENIOR VICE PRESIDENT
ATTEST:
VINCENT G. DE YOUNG
------------------------------
Assistant Secretary
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THE PROMUS COMPANIES INCORPORATED
November 5, 1992
Mr. Philip G. Satre
The Promus Companies Incorporated
1023 Cherry Road
Memphis, TN 38117
Re: Amended and Restated Severance Agreement
Dear Mr. Satre:
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 July 26, 1991, this Agreement amends and
restates, effective January 1, 1992, the agreement
regarding Severance Payments dated
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Mr. Philip G. Satre
November 5, 1992
Page 2
January 31, 1990 (the "Existing Agreement"). The Existing
Agreement will continue in full force and effect through
December 31, 1991. This Agreement shall commence on
January 1, 1992 and shall continue in effect through
December 31, 1992; provided, however, that commencing on
January 1, 1993 and each January 1 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
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Mr. Philip G. Satre
November 5, 1992
Page 3
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 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
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Mr. Philip G. Satre
November 5, 1992
Page 4
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
(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.
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November 5, 1992
Page 5
(c) Good Reason. For purposes of this Agreement,
"Good Reason" shall mean, without your express written
consent, the occurrence after a Change in Control of the
Company of any of the following circumstances unless, in
the case of paragraphs (i), (v), (vi), (vii) or (viii),
such circumstances are fully corrected prior to the Date of
Termination specified in the Notice of Termination, as
defined in Subsections 3(e) and 3(d), respectively, given
in respect thereof:
(i) The assignment to you of any duties
inconsistent with your status as an executive officer
of the Company or a substantial adverse alteration in
the nature or status of your responsibilities from
those in effect immediately prior to the Change in
Control of the Company;
(ii) A reduction by the Company in your annual
base salary as in effect on the date hereof or as the
same may be increased from time to time except for
across-the-board salary reductions similarly affecting
all executives of the Company and all executives of any
person in control of the Company;
(iii) The relocation of the Company's principal
executive offices where you are working immediately
prior to the Change in Control of the Company to a
location more than 50 miles from the location of such
offices immediately prior to the Change in Control of
the Company or the Company's requiring you to be based
anywhere other than the location of the Company's
principal executive offices where you were working
immediately prior to the Change in Control of the
Company except for required travel on the Company's
business to an extent substantially consistent with
your present business travel obligations;
(iv) The failure by the Company, without your
consent, to pay to you any portion of your current
compensation except pursuant to an across-the-board
compensation deferral similarly affecting all
executives of the Company and all executives of any
person in control of the Company, or to pay to you 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;
(v) The failure by the Company to continue in
effect any compensation plan in which you are
participating immediately prior to the Change in
Control of the Company which is material to your
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Mr. Philip G. Satre
November 5, 1992
Page 6
total compensation, including but not limited to, the
Company's Bonus Plan, Executive Deferred Compensation
Plan, Restricted Stock Plan, or any substitute plans
adopted prior to the Change in Control, 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 your 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 your
participation relative to other participants, as
existed immediately prior to the Change in Control of
the Company;
(vi) The failure by the Company to continue to
provide you with benefits substantially similar to
those enjoyed by you under any of the Company's
pension, savings and retirement plan, life insurance,
medical, health and accident, or disability plans in
which you were participating at the time of the Change
in Control of the Company, the taking of any action by
the Company which would directly or indirectly
materially reduce any of such benefits or deprive you
of any material fringe benefit enjoyed by you at the
time of the Change in Control of the Company, or the
failure by the Company to provide you with the number
of paid vacation days to which you are entitled on the
basis of years of service with the Company in
accordance with the Company's normal vacation policy in
effect at the time of the Change in Control of the
Company;
(vii) 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 5 hereof; or
(viii) Any purported termination of your employment
by the Company which is not effected pursuant to a
Notice of Termination satisfying the requirements of
Subsection 3(d) hereof and the requirements of
Subsection 3(b) above; for purposes of this Agreement,
no such purported termination shall be effective.
Your right to terminate your employment pursuant to
this Agreement for Good Reason shall not be affected by
your incapacity due to physical or mental illness. Your
continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.
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Mr. Philip G. Satre
November 5, 1992
Page 7
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 if such termination is (y) by the Company other
than for Cause, Retirement or Disability, or (z) by you for
Good Reason.
(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 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
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Mr. Philip G. Satre
November 5, 1992
Page 8
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, provided
such resignation is by you for Good Reason. 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
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Mr. Philip G. Satre
November 5, 1992
Page 9
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 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.
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Mr. Philip G. Satre
November 5, 1992
Page 10
(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 for Good Reason,
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 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
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 an 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
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Mr. Philip G. Satre
November 5, 1992
Page 11
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 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.
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Mr. Philip G. Satre
November 5, 1992
Page 12
(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
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Mr. Philip G. Satre
November 5, 1992
Page 13
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) 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
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Mr. Philip G. Satre
November 5, 1992
Page 14
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.
(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 for Good Reason, 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.
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Mr. Philip G. Satre
November 5, 1992
Page 15
(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.
(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.
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Mr. Philip G. Satre
November 5, 1992
Page 16
(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.
(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
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Mr. Philip G. Satre
November 5, 1992
Page 17
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 for Good Reason 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
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Mr. Philip G. Satre
November 5, 1992
Page 18
requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this 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.
-79-
Mr. Philip G. Satre
November 5, 1992
Page 19
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.
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.
------------------------
E. O. ROBINSON, JR.
Vice President
Agreed to as of this 8th day
of December, 1992.
PHILIP G. SATRE
----------------------------
Mr. Philip G. Satre
-80-
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.
-81-
Mr. Philip G. Satre
February 25, 1994
Page 2
B. Section 3 shall be further amended by deleting
Subsection 3(c) in its entirety and substituting the
following Subsection 3(c) therefor:
(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.
-82-
Mr. Philip G. Satre
February 25, 1994
Page 3
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
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.
-83-
Mr. Philip G. Satre
February 25, 1994
Page 4
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
-84-
EX-10.2
Administrative Amendment
Dated as of August 31, 1994
to The Promus Companies Incorporated
Savings and Retirement Plan (the "Plan")
Pursuant to authority granted by Section 11.1 of the
Plan, the undersigned, Chairman of the Board of Directors
of The Promus Companies Incorporated, hereby adopts and
approves the following amendments to the Plan:
1. Article IX of the Plan is amended to add the
following Section
9.9:
"9.9 Eligible Rollover Distributions. This
Section 9.9 applies to distributions made on
or after January 1, 1993. Notwithstanding
any provision of the Plan to the contrary
that would otherwise limit a distributee's
election under this Article IX, a distributee
may elect, at the time and in the manner
prescribed by the Plan Administrator, to have
any portion of an eligible rollover
distribution paid directly to an eligible
retirement plan specified by the distributee
in a direct rollover.
Definitions:
(a) Eligible rollover distribution: An
eligible rollover distribution is any
distribution of all or any portion of the
balance to the credit of the distributee,
except that an eligible rollover
distribution does not include: any
distribution that is one of a series of
substantially equal periodic payments
(not less frequently than annually) made
for the life (or life expectancy) of the
distributee or the joint lives (or joint
life expectancies) of the distributee and
the distributee's designated beneficiary,
or for a
-85-
specified period of ten years or more; any
distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not
includible in gross income (determined without
regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(b) Eligible retirement plan: An
eligible retirement plan is an individual
retirement account described in Section
408(a) of the Code, an individual
retirement annuity described in Section
408(b) of the Code, an annuity plan
described in Section 403(a) of the Code,
or a qualified trust described in Section
401(a) of the Code, that accepts the
distributee's eligible rollover
distribution. However, in the case of an
eligible rollover distribution to the
surviving spouse, an eligible retirement
plan is an individual retirement account
or individual retirement annuity.
(c) Distributee: A distributee includes
an employee or former employee. In
addition, the employee's or former
employee's surviving spouse and the
employee's or former employee's spouse or
former spouse who is the alternate payee
under a qualified domestic relations
order, as defined in Section 414(p) of
the Code, are distributees with regard to
the interest of the spouse or former
spouse.
(d) Direct rollover: A direct rollover
is a payment by the plan to the eligible
retirement plan specified by the
distributee."
2. Article II of the Plan is amended by adding the
following
subparagraph (e) to Section 2.13:
"(e) In addition to other applicable limitations
set forth in the Plan, and notwithstanding any
other provision of the Plan to the contrary, for
Plan Years beginning on or after January 1, 1994,
the annual compensation of each Employee taken into
account under the Plan shall not exceed the OBRA
'93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the
Commissioner for increases in the cost of living in
accordance with Section 401(a)(17)(B) of the Code.
The cost-
-86-
of-living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over
which compensation is determined (determination period)
beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of
months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1,
1994, any reference in this Plan to the limitation
under Section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in
this provision.
If compensation for any prior determination period
is taken into account in determining an Employee's
benefits accruing in the current Plan Year, the
compensation for that prior determination period is
subject to the OBRA '93 annual compensation limit
in effect for that prior determination period. For
this purpose, for determination periods beginning
before the first day of the first Plan Year
beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000."
3. Article IX of the Plan is amended to add the
following
paragraphs (e) and f) to Section 9.4:
"(e) The notice required by Section 1.411(a)-11(c)
of the Code Regulations will be provided no less
than 30 days and no more than 90 days before the
annuity starting date.
(f) If a distribution is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do
not apply, such distribution may commence less than
30 days after the notice required under Section
1.411(a)-11(c) of the Code Regulations is given,
provided that:
(1) the Plan Administrator clearly
informs the Participant that the
Participant has a right to a period of at
least 30 days after receiving the notice
to consider the decision of whether or
not to elect a distribution (and, if
applicable, a particular distribution
option), and
(2) the Participant, after receiving the
notice, affirmatively elects a
distribution."
-87-
4. Article IX of the Plan is amended to modify Section
9.1(b)(1)
to read as follows:
"(1) General Rule. Each Member may designate one
or more persons as Beneficiary to receive his
Account balance in the event of such Member's
death. Each such designation shall be made on a
form provided by the Plan Administrator, shall be
effective only when filed in writing with the Plan
Administrator, and shall revoke all prior
designations, subject to the provisions of
paragraph (2) below. Subject to paragraph (2)
below, a trust may be named as a Beneficiary of a
Member, but the trust itself will not be treated as
a "designated beneficiary" under the Code or Code
Regulations including Proposed Code Regulations.
If the requirements of Proposed Code Regulation
1.401(a)(9)-1D-5 are met, the beneficiaries of the
trust will be treated as "designated beneficiaries"
in accordance with and subject to the requirements
of Proposed Code Regulation 1.401(a)(9)-1D and E
and other applicable regulations. If a trust is
named as Beneficiary and the requirements of
Proposed Code Regulation 1.401(a)(9)-1D-5 are not
met, the Member will be treated as not having a
"designated beneficiary" under the Proposed Code
Regulations and accordingly distribution will be
made to the trust in accordance with the five-year
rule in Code Section 401(a)(9)(B)(ii).
5. In order to clarify distribution provisions
concerning beneficiaries, Section 9.3(b) of the Plan is
amended to read as follows:
"(b) Payment to Beneficiary.
Subject to the provisions below, a Beneficiary entitled
to payment under this Article may elect to continue
receiving the benefits under the method of payment in
effect when the Member died or be paid the remaining
Account balance in a single lump sum distribution.
If a Member dies before the time the distribution is
considered to have commenced in accordance with the
Code or Code Regulations or Proposed Code Regulations
(i.e. before April 1 of the year after the year that
the Member reaches age 70 1/2), the method of
distribution shall satisfy the following requirements:
(1) any remaining portion of the Member's interest
that is not payable to a designated beneficiary
(as defined under Code Regulations or Proposed
Code Regulations) will be distributed within five
years after the Participant's death; and
-88-
(2) any portion of the Participant's interest that
is payable to a designated beneficiary (as defined
in Code Regulations or Proposed Code Regulations)
will be distributed either (i) within five years
after the Member's death, or (ii) over the life of
the Beneficiary or over a period certain not
extending beyond the life expectancy of the
Beneficiary, commencing not later than the end of
the calendar year following the calendar year in
which the Member died (or, if the designated
Beneficiary is the Member's surviving spouse,
commencing not later than the end of the calendar
year following the calendar year in which the
Member would have attained age 70 1/2).
Subject to sections 9.4(b) and 9.6 herein and further
subject to the limitations of the Code and Code
Regulations or Proposed Code Regulations, the
distribution options described in section 9.3(a) above
will be offered to a designated beneficiary (as defined
under Code or Proposed Code Regulations) whenever the
Member dies. The distribution options in Section
9.3(a) will also be offered to satisfy subsection
9.3(b)(2)(ii) above, and for this purpose the term
"Member" in section 9.3(a) will refer to the designated
beneficiary (except that if the designated beneficiary
is not the Member's spouse, the words "or the life
expectancy of the Member and his Beneficiary" at the
end of 9.3(a)(2) shall not be applicable).
Distribution options offered to a Beneficiary who is
not an individual shall be those described in the first
sentence of this section 9.3(b) except that if the
Member dies before April 1 of the year following
his/her reaching age 70 1/2, the five-year rule of Code
Section 401(a)(9)(B)(ii) shall apply.
In the event a Beneficiary dies, any remaining balance
payable to such Beneficiary shall be distributed to the
Beneficiary's estate (except where the Beneficiary is
the Member's spouse and such spouse had submitted a
beneficiary form designating an individual as a
Beneficiary prior to the spouse's death). The
distribution options available to a deceased
Beneficiary's estate or to a designated individual
Beneficiary of a deceased spouse-Beneficiary will be a
continuation of the payments being made to the deceased
Beneficiary at the time of his/her death or a lump sum
payment (but any distribution shall in any event be
completed by the end of the normal life expectancy of
the deceased Beneficiary (measured at the time of the
Employee's death) or within five years after the
Member's death if the five-year rule applies), provided
that, in cases where the deceased Beneficiary is the
spouse of a deceased Member, and if such spouse had,
prior to such spouse's death, submitted a beneficiary
form to the Administrator designating an individual as
his/her Beneficiary, then such individual Beneficiary
may (in addition to the option of receiving
-89-
a lump sum or the continuation of existing payments)
elect to receive annual installments or a term certain
annuity (commencing not later than December 31 of the
year following the spouse-Beneficiary's death) over a
period of up to 15 years, but in any event such period
will not exceed the life expectancy of the individual
Beneficiary (measured at the time of the spouse's
death) named by the spouse and further will not exceed
the life expectancy of the spouse (measured at the time
of the Employee's death) if the spouse died after April
1 of the year following the Member's reaching age 70
1/2."
6. In order to clarify a provision concerning pre-
retirement death benefits for a surviving spouse in
connection with Holiday Inn pension funds, the first
sentence of Section 9.6(e)(2) is amended to read as
follows:
"The surviving Spouse shall receive a monthly
benefit equal to the amount that can be provided by
one-half the value of the Member's Employee Account
9."
IN WITNESS WHEREOF, the undersigned has executed this
Administrative Amendment as of the date written above.
MICHAEL D. ROSE
------------------------------
Michael D. Rose, Chairman of the
Board of The Promus Companies
Incorporated
-90-
EX-10.3
CONSENT
-------
CONSENT (this "Consent"), dated as of October 7, 1994,
among THE PROMUS COMPANIES INCORPORATED ("Promus"), EMBASSY
SUITES, INC. ("Embassy"), MARINA ASSOCIATES ("Marina"), the
various lending institutions party to the Credit Agreement
referred to below (the "Banks"), BANKERS TRUST COMPANY, THE BANK
OF NEW YORK, CREDIT LYONNAIS, ATLANTA AGENCY and THE SUMITOMO
BANK, LIMITED, NEW YORK BRANCH, as Agents (the "Agents"), and
BANKERS TRUST COMPANY, as Administrative Agent (the
"Administrative Agent"). Unless otherwise defined herein, all
capitalized terms used herein shall have the respective meanings
provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Promus, Embassy, Marina, the Banks, the Agents
and the Administrative Agent are parties to a Credit Agreement,
dated as of July 22, 1993 (the "Credit Agreement");
WHEREAS, Harrah's New Orleans Investment Company
("Harrah's Investment"), a Wholly-Owned Subsidiary of Harrah's, a
Nevada corporation, is currently a one-third partner in Harrah's
Jazz Company, a Louisiana general partnership ("Harrah's Jazz");
WHEREAS, the other two one-third partners in Harrah's
Jazz are currently New Orleans/Louisiana Development Corporation
("NOLDC") and Grand Palais Casino, Inc. ("GPCI", and together
with NOLDC and Harrah's Investment, the "Partners");
WHEREAS, Harrah's Jazz was formed to operate a
temporary and, thereafter, a permanent land based casino in New
Orleans, Louisiana (the "New Orleans Casino");
WHEREAS, Harrah's New Orleans Management Company, a
Wholly-Owned Subsidiary of Harrah's has been retained by Harrah's
Jazz to manage the New Orleans Casino;
WHEREAS, in connection with the formation of Harrah's
Jazz, Harrah's Investment has made, or will make, an initial
equity investment of approximately $23,333,333 (the "Initial
Equity Contribution");
-91-
WHEREAS, in connection with the completion of the New
Orleans Casino, (i) Promus and/or Embassy will enter into one or
more completion guaranties (the "Completion Guaranties") in favor
of certain lenders to Harrah's Jazz, the City of New Orleans and
one more other governmental agencies of the State of Louisiana,
(ii) Promus and/or Embassy will agree to make directly, or
through one or more of their Subsidiaries, up to an additional
$100,000,000 cash equity investment in Harrah's Jazz (the
"Additional Equity Contribution"), (iii) Promus and/or Embassy
will enter into certain indemnity arrangements with the title
insurance companies providing the title insurance for the New
Orleans Casino (the "Indemnity Arrangements") and (iv) Promus,
Embassy and/or Harrah's Investment will agree to make, either
directly or through one or more of their Subsidiaries, loans to
NOLDC in an aggregate principal amount not to exceed $16,000,000
(the "NOLDC Loans") the proceeds of which will be used by NOLDC
to make its pro rata share of equity contributions to Harrah's
Jazz;
WHEREAS, in the event that Promus and/or Embassy make
any payments under the Completion Guaranties or under the
Indemnity Arrangements, such payments may be characterized as
additional loans or advances made by Promus and/or Embassy to
Harrah's Jazz (the "Completion Obligation Loans"); and
WHEREAS, the parties hereto wish to permit certain
additional Investments by Promus and its Subsidiaries in and to
Harrah's Jazz and/or for the benefit of Harrah's Jazz under the
Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained
in Sections 9.04, 9.05 and 9.06 of the Credit Agreement, Promus
and/or Embassy may enter into the Completion Guaranties and
Indemnity Arrangements and perform their respective obligations
thereunder, and may make (or be deemed to make) Completion
Obligation Loans to Harrah's Jazz as a result of such
performance.
2. Notwithstanding anything to the contrary contained
in Section 9.05 or 9.06 of the Credit Agreement, and in addition
to the Investments made in and to Harrah's Jazz as a result of
the Completion Obligation Loans, Promus and its Subsidiaries may
make additional Investments in or to Harrah's Jazz and/or for the
benefit of Harrah's Jazz in an aggregate amount not to exceed
$150,000,000, with such Investments to include, but not be
limited to, the Initial Equity Contribution, the Additional
Equity Contribution and the NOLDC Loans.
-92-
It is understood and agreed that (i) any Investments made prior
to the date hereof in Harrah's Jazz shall be treated as part of
the $150,000,000 of Investments permitted by this Section 2 and
not as part of the investment basket permitted under Section 9.05
of the Credit Agreement and (ii) no part of the investment basket
permitted under Section 9.05 of the Credit Agreement may be used
to make Investments in, to or for the benefit of Harrah's Jazz
and its Subsidiaries.
3. Notwithstanding anything to the contrary contained
in the Credit Agreement, at no time shall Harrah's Jazz and its
Subsidiaries be treated as Subsidiaries of Promus even though
Harrah's Jazz and its Subsidiaries may at any time otherwise fall
within the definition of "Subsidiary" contained in the Credit
Agreement. In addition, for purposes of Section 13.07(a) of the
Credit Agreement, Harrah's Jazz and its Subsidiaries will not be
treated as Subsidiaries of Promus even though generally accepted
accounting principles would require otherwise but shall instead
be treated as an equity investment by Promus.
4. In order to induce the Banks to enter into this
Consent, Promus and each Borrower hereby represents and warrants
that (x) no Default or Event of Default exists on the Consent
Effective Date (as defined below) both before and after giving
effect to this Consent and (y) all of the representations and
warranties contained in the Credit Agreement shall be true and
correct in all material respects as of the Consent Effective Date
both before and after giving effect to this Consent, with the
same effect as though such representations and warranties had
been made on and as of the Consent Effective Date (it being
understood that any representation or warranty made as of a
specified date shall be required to be true and correct in all
material respects only as of such specific date).
5. This Consent is limited as specified and shall not
constitute a modification, acceptance or waiver of any other
provision of the Credit Agreement or any other Credit Document.
6. This Consent may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts, each of which counterparts when executed and
delivered shall be an original, but all of which shall together
constitute one and the same instrument. A complete set of
counterparts shall be lodged with Promus and the Agent.
7. This Consent and the rights and obligations of the
parties hereunder shall be construed in accordance with and
governed by the law of the State of New York.
-93-
8. This Consent shall become effective on the date
(the "Consent Effective Date") when Promus, the Borrowers and the
Required Banks (i) shall have signed a counterpart hereof
(whether the same or different counterparts) and (ii) shall have
delivered (including by way of telecopier) the same to the
Administrative Agent at the Notice Office.
9. From and after the Consent Effective Date all
references in the Credit Agreement and the other Credit Documents
to the Credit Agreement shall be deemed to be references to such
Credit Agreement as modified hereby.
IN WITNESS WHEREOF, each of the parties hereto has
caused a counterpart of this Consent to be duly executed and
delivered as of the date first above written.
THE PROMUS COMPANIES INCORPORATED
By William S. McCalmont
-------------------------------
Title: Vice President and
Treasurer
EMBASSY SUITES, INC.
By William S. McCalmont
-------------------------------
Title: Vice President
MARINA ASSOCIATES
By: HARRAH'S ATLANTIC CITY, INC.,
a general partner
By William S. McCalmont
-------------------------------
Title: Assistant Secretary
-94-
By: HARRAH'S NEW JERSEY, INC.,
a general partner
By William S. McCalmont
-------------------------------
Title: Assistant Secretary
BANKERS TRUST COMPANY,
Individually and as
Administrative Agent
and as an Agent
By Mary Kay Coyle
-------------------------------
Title: Vice President
THE BANK OF NEW YORK,
Individually and as an
Agent
By Gregory L. Batson
-------------------------------
Title: Assistant Vice
President
CREDIT LYONNAIS, ATLANTA AGENCY,
Individually and as an Agent
By David M. Cawrse
-------------------------------
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By Raymond Whiteman
-------------------------------
Title: Authorized Signature
-95-
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH, Individually
and as an Agent
By Suresh S. Tata
-------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVING ASSOCIATION
By James C. Colegate
-------------------------------
Title: Senior Vice President
CITIBANK, N.A.
By Barbara A. Cohen
-------------------------------
Title: Vice President
NATIONSBANK OF GEORGIA, N.A.
By Ashley M. Crabtree
-------------------------------
Title: Vice President
THE NIPPON CREDIT BANK, LTD.,
LOS ANGELES AGENCY
By Bernardo E. Correa-Henschke
-------------------------------
Title: Vice President &
Manager
-96-
THE BANK OF NOVA SCOTIA
By F. C. H. Ashby
-------------------------------
Title: Senior Manager Loan
Operations
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By John J. Sullivan
-------------------------------
Title: Joint General Manager
SOCIETE GENERALE
By Don Schubert
-------------------------------
Title: Vice President
GIRO CREDIT BANK
By D. Stephens John P.
Redding
-------------------------------
Title: Vice
President
CIBC INC.
By Paul N. Chakmak
-------------------------------
Title: Vice President
THE TOKAI BANK, LIMITED,
NEW YORK BRANCH
By
-------------------------------
Title:
-97-
BANK OF HAWAII
By Peter S. Ho
-------------------------------
Title: Vice President
THE BOATMEN'S NATIONAL BANK
OF ST. LOUIS
By Douglas W. Thornsberry
-------------------------------
Title: Corporate Banking
Officer
THE DAIWA BANK, LIMITED
By Lauren P. Tosti
-------------------------------
Title: Assistant Vice-President
By Teryll L. Herron
-------------------------------
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By David C. May
-------------------------------
Title: Senior Vice President
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By Steven C. Wade
-------------------------------
Title: Vice President
FIRST NATIONAL BANK OF COMMERCE
By Steve Croxton
-------------------------------
Title: Vice President
-98-
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By Junya Fujiwara
-------------------------------
Title: Senior Vice President
MIDLANTIC NATIONAL BANK
By
-------------------------------
Title:
THE SANWA BANK, LIMITED,
ATLANTA AGENCY
By
-------------------------------
Title:
UNITED STATES NATIONAL BANK
OF OREGON
By Jeffrey W. Jones
-------------------------------
Title: Sr. Vice President
FIRST INTERSTATE BANK OF
CALIFORNIA
By Edith Lim
-------------------------------
Title: VP
By Kathleen Barnes
-------------------------------
Title: VP
-99-
DEPOSIT GUARANTY NATIONAL BANK
By Larry C. Ratzliff
-------------------------------
Title: Senior Vice President
BANK OF SCOTLAND
By
-------------------------------
Title:
-100-
EX-11
THE PROMUS COMPANIES INCORPORATED
COMPUTATION OF PER SHARE EARNINGS
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
Income before
extraordinary items
and cumulative effect
of change in accounting
policy $ 44,183,000 $ 37,057,000 $112,275,000 $ 71,837,000
Extraordinary items, net - (4,122,000) - (5,447,000)
Cumulative effect of
change in accounting
policy, net - - (7,932,000) -
------------ ------------ ------------ ------------
Net income $ 44,183,000 $ 32,935,000 $104,343,000 $ 66,390,000
============ ============ ============ ============
Primary earnings per
share
Weighted average number
of common shares
outstanding 101,649,124 100,678,806 101,585,696 100,604,004
Common stock
equivalents
Additional shares
based on average
market price for
period applicable
to:
Restricted
stock 452,743 906,234 456,115 893,061
Stock options 716,129 980,262 789,604 838,379
------------ ------------ ------------ ------------
Average number of
primary common and
common equivalent
shares outstanding 102,817,996 102,565,302 102,831,415 102,335,444
============ ============ ============ ============
Primary earnings per
common and common
equivalent share
Income before
extraordinary items
and cumulative
effect of change in
accounting policy $ 0.43 $ 0.36 $ 1.09 $ 0.70
Extraordinary items,
net - (0.04) - (0.05)
Cumulative effect of
change in accounting
policy, net - - (0.08) -
------ ------ ------ ------
Net income $ 0.43 $ 0.32 $ 1.01 $ 0.65
====== ====== ====== ======
Fully diluted earnings
per share
Average number of
primary common and
common equivalent
shares outstanding 102,817,996 102,565,302 102,831,415 102,335,444
Additional shares
based on period-
end price
applicable to:
Restricted stock 18,177 8,103 39,219 7,009
Stock options 11,282 68,012 - 209,895
------------ ------------ ------------ ------------
Average number of fully
diluted common and
common equivalent
shares outstanding 102,847,455 102,641,417 102,870,634 102,552,348
============ ============ ============ ============
Fully diluted earnings
per common and
common equivalent
share
Income before
extraordinary items
and cumulative
effect of change
in accounting policy $ 0.43 $ 0.36 $ 1.09 $ 0.70
Extraordinary items,
net - (0.04) - (0.05)
Cumulative effect of
change in accounting
policy, net - - (0.08) -
------ ------ ------ ------
Net income $ 0.43 $ 0.32 $ 1.01 $ 0.65
====== ====== ====== ======
-101-
November 9, 1994
The Promus Companies Incorporated
1023 Cherry Road
Memphis, TN 38117
RE: Form 10-Q Report for the Quarter Ended September 30, 1994
Gentlemen:
This letter is written to meet the requirements of Regulation S-K
calling for a letter from a registrant's independent accountants
whenever there has been a change in accounting principle or
practice.
We have been informed that, effective January 1, 1994, the
Company changed its method of accounting for preopening costs
incurred during development of new casino entertainment and hotel
projects. Promus' new policy is to capitalize preopening costs
as incurred prior to opening and to expense them upon opening of
each project. Previously Promus' policy had been to capitalize
such costs and amortize them to expense over thirty-six months
from the date of opening. According to the management of the
Company, this change was made to clearly identify the preopening
costs charged to expense for a particular project and to reflect
the Company's results of operations on a comparable basis with
its primary peer competitors.
A complete coordinated set of financial and reporting standards
for determining the preferability of accounting principles among
acceptable alternative principles has not been established by the
accounting profession. Thus, we cannot make an objective
determination of whether the change in accounting described in
the preceding paragraph is to a preferable method. However, we
have reviewed the pertinent factors, including those related to
financial reporting, in this particular case on a subjective
basis, and our opinion stated below is based on our determination
made in this manner.
We are of the opinion that the Company's change in method of
accounting is to an acceptable alternative method of accounting,
which, based upon the reasons stated for the change and our
discussions with you, is also preferable under the circumstances
in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your
management.
We have not audited the application of this change to the
financial statements of any period subsequent to December 31,
1993. Further, we have not examined and do not express any
opinion with respect to your financial statements for the nine
months ended September 30, 1994.
Very truly yours,
ARTHUR ANDERSEN LLP
5
1,000
9-MOS
DEC-31-1994
SEP-30-1994
61,607
0
57,610
11,258
12,282
169,343
1,981,820
539,631
1,913,081
230,046
853,535
10,239
0
0
636,601
1,913,081
0
1,180,449
0
855,233
13,389
2,511
78,859
210,170
88,216
112,275
0
0
7,932
104,343
1.01
1.01
