SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant /X/
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Check the appropriate box:
/ / Preliminary Proxy Statement
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14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PROMUS HOTEL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
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[LOGO]
PROMUS HOTEL CORPORATION
755 CROSSOVER LANE
MEMPHIS, TN 38117
March 18, 1997
To Our Stockholders:
You are cordially invited to attend the Promus Hotel Corporation Annual
Meeting of Stockholders which will be held on April 23, 1997 at 11:00 a.m. at
the Embassy Hall, Embassy Suites hotel, 1022 South Shady Grove Road, Memphis,
Tennessee. All stockholders of record as of February 28, 1997 are entitled to
vote at the Annual Meeting.
The meeting will be held to elect four Class II directors, approve the
Company's Bonus Replacement Options Plan and ratify the appointment of the
Company's independent public accountants for the 1997 calendar year.
Whether or not you expect to attend the meeting, please complete, sign, date
and return the enclosed proxy card promptly to ensure that your shares will be
represented at the meeting. If you attend the meeting and desire to vote your
shares personally, your form of proxy will be withheld from voting upon your
request prior to the meeting. You may vote in person even if you have sent in
your proxy card.
Sincerely,
[SIG]
Michael D. Rose
Chairman of the Board
PROMUS HOTEL CORPORATION
NOTICE OF MEETING
The Annual Meeting of Stockholders of Promus Hotel Corporation will be held
at Embassy Hall-Embassy Suites hotel, 1022 South Shady Grove Road, Memphis,
Tennessee, on Wednesday, April 23, 1997 at 11:00 a.m., local time, to:
1. elect four Class II directors;
2. approve the Company's Bonus Replacement Options Plan;
3. ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the 1997 calendar year; and
4. transact such other business as may properly be brought before the
meeting or any adjournments thereof.
Stockholders of record at the close of business on February 28, 1997 are
entitled to vote. The list of stockholders will be available for examination for
the ten days prior to the meeting at Promus Hotel Corporation, Corporate
Secretary's Office, 755 Crossover Lane, Memphis, Tennessee 38117.
PLEASE COMPLETE THE ACCOMPANYING PROXY AND RETURN IT IN THE ENCLOSED
ADDRESSED ENVELOPE.
Ralph B. Lake
Secretary
March 18, 1997
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Promus Hotel Corporation ("Promus" or the
"Company") for use at the Annual Meeting of Stockholders to be held on April 23,
1997 at 11:00 a.m., local time, at Embassy Hall-Embassy Suites hotel, 1022 South
Shady Grove Road, Memphis, Tennessee, and at any adjournment thereof (the
"Annual Meeting").
The Company's principal executive offices are located at 755 Crossover Lane,
Memphis, Tennessee 38117. A copy of the Company's 1996 Annual Report to
Stockholders, this Proxy Statement and accompanying proxy card will be first
mailed to stockholders on approximately March 21, 1997.
VOTING PROCEDURES
At the Annual Meeting, you will be asked to consider and vote upon (a) the
election of U. Bertram Ellis, Jr., Michael D. Rose, Michael I. Roth, and Ronald
Terry as Class II directors on the Company's Board of Directors, (b) the
approval of the Company's Bonus Replacement Options Plan ("BRO Plan"), and (c)
the ratification of the appointment of Arthur Andersen LLP as independent
auditors of the Company.
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to sign, date and return the proxy card in the accompanying
envelope, which is postage paid if mailed in the United States.
You have three choices on each of the matters to be voted upon at the Annual
Meeting. As to the election of directors, you may (a) vote for all of the
director nominees as a group; (b) withhold authority to vote for all director
nominees as a group; or (c) vote for all director nominees as a group except
those nominees you identify on the appropriate line. Concerning the approval of
the BRO Plan and the ratification of the Company's independent accountants for
1997, you may, (a) vote "For" the item; (b) vote "Against" the item; or (c)
"Abstain" from voting on the item. As discussed below, if you "Abstain" from
voting, it will have the effect of a vote "Against" the item if a quorum is
present.
Stockholders may vote by either completing and returning the enclosed proxy
card prior to the meeting, voting in person at the meeting, or submitting a
signed proxy card at the meeting.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN AND RETURN THE
ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
You may revoke your proxy at any time before it is actually voted at the
Annual Meeting by delivering a written notice of revocation to the Secretary of
the Company, by submitting a later dated proxy, or by attending the meeting and
voting in person. Attendance at the meeting will not, by itself, constitute
revocation of the proxy. You may also be represented by another person present
at the meeting by executing a form of proxy designating such person to act on
your behalf.
Each unrevoked proxy card properly signed and received prior to the close of
the meeting will be voted as indicated. Unless otherwise specified on the proxy,
the shares represented by a signed proxy card will be voted FOR the election of
all director nominees, FOR the approval of the BRO Plan and FOR the ratification
of Arthur Andersen LLP as the Company's independent public accountants for 1997.
If a proxy card indicates an abstention or a broker non-vote on a particular
matter, then the shares represented by such proxy will be counted for quorum
purposes. If a quorum is present, an abstention will have the effect of a vote
against the matter.
The presence at the Annual Meeting, in person or by proxy, of a majority of
the shares of Promus common stock ("Common Stock") outstanding on February 28,
1997 will constitute a quorum.
For participants in the Company's Employee Stock Ownership Plan, an
appointed Plan Trustee will vote any shares held for a participant's account in
accordance with the confidential voting instructions returned by the
participant. If the instructions are not returned by the participant, the shares
held by the Plan for such participant will not be voted.
The Company's transfer agent, Continental Stock Transfer & Trust Company,
will tabulate the votes. A representative of the transfer agent will be
appointed as inspector at the Annual Meeting to count all votes and ballots and
perform the other duties required of an inspector.
SHARES ENTITLED TO VOTE AND REQUIRED VOTE
Stockholders of record at the close of business on February 28, 1997 are
entitled to vote at the meeting. At that date, 51,425,460 shares of Common Stock
were outstanding. The affirmative vote of the holders of a majority of the
shares of Common Stock that are represented in person or by proxy at the meeting
and entitled to vote is required to approve each matter to be voted on at the
meeting. Each share of Common Stock is entitled to one vote.
BOARD OF DIRECTORS
GENERAL INFORMATION--ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") provides for a Board of Directors of not less
than three nor more than 17 directors and authorizes the Board to determine the
number within that range from time to time by the affirmative vote of a majority
of the directors then in office. The current Board of Directors consists of 11
directors.
In accordance with the Certificate of Incorporation, the Company's Board of
Directors is divided into three classes with staggered three-year terms. Four
Class II directors are to be elected at the 1997 Annual Meeting for a three-year
term ending in 2000. Upon recommendation of the Human Resources Committee of the
Board of Directors, U. Bertram Ellis, Jr., Michael D. Rose, Michael I. Roth, and
Ronald Terry have been nominated by the Board of Directors for election to these
Class II positions.
In the event any nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxy will be voted for any substitute nominee
selected by the current Board of Directors. Management has no reason to believe,
at this time, that the persons named will be unable or will decline to serve if
elected, and each nominee has informed the Company that he will serve if
elected.
2
OWNERSHIP OF THE CAPITAL STOCK OF THE COMPANY
Set forth in the following table is the beneficial ownership of Promus
Common Stock as of March 14, 1997 for all current directors of the Company,
including all nominees to the Board of Directors, the five executive officers of
the Company named on page 16, all directors and executive officers as a group,
and to the best of the Company's knowledge, beneficial owners of 5% or more of
Promus Common Stock.
% OF SHARES
OUTSTANDING (NET OF
TREASURY SHARES)
AS OF MARCH 14,
NAME AMOUNT OF SHARES (A) 1997
- -------------------------------------------------------------------- -------------------- -------------------
Donald H. Dempsey................................................... 51,137 *
U. Bertram Ellis, Jr................................................ 11,850 *
Debra J. Fields..................................................... 1,000 *
Christopher W. Hart................................................. 3,382 *
Thomas L. Keltner................................................... 36,099 *
C. Warren Neel...................................................... 1,600 *
Ben C. Peternell.................................................... 126,144 (b) *
Michael D. Rose..................................................... 1,018,189 (c) 2.0%
Michael I. Roth..................................................... 8,015 *
Raymond E. Schultz.................................................. 239,913 *
Jay Stein........................................................... 411,700 *
David C. Sullivan................................................... 96,650 *
Ronald Terry........................................................ 80,066 (d) *
All directors and executive officers as a group..................... 2,015,057 3.9%
Massachusetts Financial Services Company............................ 6,674,411 (e) 13.0%
500 Boylston Street
Boston, MA 02116
The Prudential Insurance Company of America......................... 5,043,989 (f) 9.8%
751 Broad Street
Newark, NJ 07102-3777
American Express Financial Corporation.............................. 3,335,749 (g) 6.5%
IDS Tower 10
Minneapolis, MN 55440
Putnam Investments, Inc............................................. 2,671,121 (h) 5.2%
One Post Office Square
Boston, MA 02109
- ------------------------
* Indicates less than 1%
3
(a) The amounts shown include the following shares that may be acquired within
60 days pursuant to outstanding stock options: Mr. Dempsey, 27,273; Mr.
Keltner, 29,815; Mr. Rose, 202,762 shares; Mr. Schultz, 140,593 shares; Mr.
Sullivan 79,644 shares; all directors and executive officers as a group,
349,714 shares. Shares listed also include shares allocated to accounts
under the Company's Savings and Retirement Plan as of February 28, 1997.
(b) Included in the shares for Mr. Peternell are 325 shares owned by a member of
his family, in which shares he disclaims any beneficial interest.
(c) Includes 66,850 shares held by a charitable foundation of which Mr. Rose
serves as a director. Mr. Rose has shared voting and investment power over
these shares, but disclaims any other beneficial interest. Also, included in
the shares for Mr. Rose are 8,846 shares owned by members of his family, in
which shares he disclaims any beneficial interest.
(d) Included in the shares for Mr. Terry are 44,135 shares owned by members of
his family, 2,400 shares in which he disclaims any beneficial interest.
(e) Massachusetts Financial Services Company ("MFS") is a registered investment
advisor and has reported beneficial ownership of the shares listed, which
shares are also beneficially owned by certain other non-reporting entities
as well as MFS. MFS has sole voting power as to 6,595,961 shares and has
sole dispositive power as to 6,674,411 shares. The source of this
information is a Schedule 13G filed by MFS with the Securities and Exchange
Commission on February 11, 1997. Ownership is reported as of December 31,
1996.
(f) The Prudential Insurance Company of America ("Prudential") is an insurance
company and registered investment adviser. Of the shares listed, an
aggregate of 5,017,000 shares (99.5%) are beneficially owned by Jennison
Associates Capital Corp., a wholly owned subsidiary of Prudential
("Jennison"). Prudential has sole voting power as to 524,925 shares, shared
voting power as to 4,011,139 shares, sole dispositive power as to 524,925
shares and shared dispositive power as to 4,519,064 shares. The source of
this information is a Schedule 13G filed by Prudential with the Securities
and Exchange Commission on February 5, 1997 and a Schedule 13G filed by
Jennison with the Securities and Exchange Commission on February 3, 1997.
Ownership is reported as of December 31, 1996.
(g) American Express Financial Corporation ("American Express Financial"), is a
wholly owned subsidiary of American Express Company and a registered
investment advisor and has reported beneficial ownership of the shares
listed, in which shares American Express Company disclaims beneficial
ownership. American Express Financial has shared voting power as to
1,823,449 shares and has shared dispositive power as to 3,335,749 shares.
The source of this information is a Schedule 13G jointly filed by American
Express Financial and American Express Company with the Securities and
Exchange Commission on February 3, 1997. Ownership is reported as of
December 31, 1996.
(h) Putnam Investments, Inc. ("PI") is a wholly owned subsidiary of Marsh &
McLennan Companies, Inc. and owns two registered investment advisers: Putnam
Investments Management, Inc., which is the investment adviser to the Putnam
family of mutual funds and The Putnam Advisory Company, Inc., which is the
investment adviser to Putnam's institutional clients. PI has shared voting
power as to 70,200 shares and shared dispositive power as to 2,671,121
shares. The source of this information is a Schedule 13G filed by PI with
the Securities and Exchange Commission on January 31, 1997. Ownership is
reported as of December 31, 1996.
4
NOMINEES: CLASS II, TERM EXPIRES 2000
U. BERTRAM ELLIS, JR.
[PHOTO] Mr. Ellis, 43, has served as Chairman of the Board and Chief Executive
Officer of IXL Holdings, Inc., a multimedia company since 1996. Mr. Ellis
served as President, Chief Executive Officer and Director of Ellis
Communications, Inc., an owner operator of television and radio stations
from 1993 to 1996. During the period from 1992 to 1993, Mr. Ellis was
President and Chief Executive Officer of American Innovations, Inc., a
manufacturer of hairbows which filed a petition under Chapter 11 of the
U.S. Bankruptcy Code in 1993. He was President and Chief Executive Officer
of Act III Broadcasting, a broadcast group of eight stations, from 1986 to
1992. Mr. Ellis is also a director of NOVA Corporation. He has been a
director of Promus since June 1995 and is a member of the Audit Committee
and the Strategic Planning Committee.
MICHAEL D. ROSE
[PHOTO] Mr. Rose, 55, has served as Chairman of the Board of the Company since
April 1995. He served as Chairman of the Board of Harrah's Entertainment
Inc., from June 1995 until his retirement as of December 31, 1996. He also
served as Chairman of the Board of The Promus Companies Incorporated from
November 1989 through June 1995 and Chief Executive Officer from November
1989 to April 1994. Mr. Rose is also a director of Ashland, Inc., First
Tennessee National Corporation, General Mills, Inc., Stein Mart, Inc., and
Darden Restaurants, Inc. He is Chairman of the Executive Committee.
MICHAEL I. ROTH
[PHOTO] Mr. Roth, 51, has served as Chairman of the Board and Chief Executive
Officer of Mutual of New York since 1994 and as a trustee of that company
since 1991. He was President and Chief Operating Officer of Mutual of New
York from 1991 to 1993. Mr. Roth has been a director of Promus since June
1995 and is Chairman of the Audit Committee.
RONALD TERRY
[PHOTO] Mr. Terry, 66, served as Chairman of the Board of First Tennessee National
Corporation from 1973 until his retirement as of December 31, 1995. He was
Chief Executive Officer of that company from 1973 to April 1994 and
President from 1988 to August 1991. He served as a director of First
Tennessee National Corporation until April 16, 1996. He is currently a
director of BellSouth Corporation & AutoZone, Inc. Mr. Terry has been a
director of Promus since June 1995. He is Chairman of the Human Resources
Committee and is a member of the Executive Committee and the Strategic
Planning Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE
FOR DIRECTOR NAMED ABOVE.
5
DIRECTORS: CLASS I, TERM EXPIRES 1999
DEBRA J. FIELDS
[PHOTO] Ms. Fields, 40, is the Co-Chairman of the Board of Mrs. Fields, Inc.,
served as Chairman of the Board from 1992 to 1996, and was President and
Chief Executive Officer of that company from 1991 to 1993. She has been a
director of Outback Steakhouse, Inc. since January 1996. Ms. Fields has
been a director of Promus since June 1995 and serves on the Audit
Committee.
C. WARREN NEEL
[PHOTO] Dr. Neel, 58 has acted as the Dean of the College of Business
Administration at The University of Tennessee, Knoxville since 1977. He
also is a director of Clayton Homes, Inc., O'Charley's, Inc., American
HealthCorp., Inc. and Proffitt's, Inc. He has been a director of Promus
since June 1995 and is a member of the Human Resources Committee and the
Strategic Planning Committee. Dr. Neel served on the Audit Committee until
July 17, 1996.
DAVID C. SULLIVAN
[PHOTO] Mr. Sullivan, 57, has been Director, Executive Vice President and Chief
Operating Officer of Promus since April 1995. From 1993 to 1995, he served
as Executive Vice President and Chief Operating Officer of the Hotel
Division of The Promus Companies Incorporated. He was Senior Vice President
of Development and Operations of Hampton Inn/Homewood Suites Hotel Division
from 1991 to 1993.
6
DIRECTORS: CLASS III, TERM EXPIRES 1998
CHRISTOPHER W. HART
[PHOTO] Dr. Hart, 46, has served as President of Spire Group, Ltd., a management
consulting and executive education firm since March 1990. He has been a
director of Promus since June 1995 and is a member of the Audit Committee.
Dr. Hart served on the Human Resources Committee until July 17, 1996.
BEN C. PETERNELL
[PHOTO] Mr. Peternell, 51, is Senior Vice President of Human Resources and
Communications of Harrah's Entertainment, Inc. and previously served in
that position with The Promus Companies Incorporated beginning in 1989. He
has been a director of Promus since June 1995 and is a member of the
Executive Committee and the Strategic Planning Committee. In February 1997,
Mr. Peternell was elected to the Human Resources Committee.
RAYMOND E. SCHULTZ
[PHOTO] Mr. Schultz, 63, has been President, Chief Executive Officer and Director
of Promus since April 1995. From 1993 to 1995 he served as President and
Chief Executive Officer of the Hotel Division of The Promus Companies
Incorporated. He was the President and Chief Executive Officer of Hampton
Inn/Homewood Suites Hotel Division from 1991 to 1993. He is a member of the
Executive Committee.
JAY STEIN
[PHOTO] Mr. Stein, 51, has served as Chairman of the Board and Chief Executive
Officer of Stein Mart, Inc. since 1990. Mr. Stein is also a director of
Barnett Bank of Jacksonville and American Heritage Life Insurance Company.
He has been a director of Promus since June 1995, is Chairman of the
Strategic Planning Committee, and is a member of the Human Resources
Committee.
7
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid an annual retainer
fee of $25,000 plus $1,500 for each Board meeting and $1,200 for each committee
meeting they attend. Committee chairmen are paid an additional $800 for each
committee meeting attended. Effective May 1, 1996, the Company's 1996
Non-Management Directors Stock Incentive Plan ("Stock Plan") required that
one-half of all amounts received as directors' fees be paid in the form of stock
of the Company. The Stock Plan also provides that directors may elect to have
the other one-half of their directors' fees paid in the form of Company stock
and may elect to defer issuance of all shares under the Stock Plan until
termination of service as a director. The deferred shares may be taken in a lump
sum or in up to ten annual installments.
Non-management directors may elect to receive the balance of their
directors' fees in cash, or may elect to defer receipt of fees pursuant to the
Company's Deferred Compensation Plan. Amounts deferred earn interest at an
annual rate equal to the average daily balance multiplied by the average of the
prime rates announced by Citibank, N.A. on the first business day of each
calendar quarter during the year.
Each non-management director is also provided with travel accident insurance
of $500,000 while traveling on behalf of the Company and the opportunity to
participate in the Company's standard group health, dental and vision care
insurance plans. During 1996, the total cost to the Company for these insurance
benefits was $9,383.33 for three non-management directors who elected to
participate in the plans.
In June 1995 each non-management director was awarded 1,000 shares of
restricted stock under the Company's 1995 Restricted Stock Plan, which shares
will vest in annual 200 share installments over a five year period.
MEETINGS
The Board of Directors met six times during 1996. During the year,
attendance at Board meetings averaged 91% and attendance at Committee meetings
averaged 97%. In 1996, all incumbent directors attended at least 75% of the
meetings of the Board of Directors and the committees thereof on which they
served.
AUDIT COMMITTEE
The Audit Committee, which met four times in 1996, (1) recommends annually
to the Board of Directors the independent public accountants for the Company and
its direct or indirect subsidiaries; (2) meets with the independent public
accountants concerning their audit, their evaluation of the Company's financial
statements, accounting developments that may affect the Company and their
nonaudit services; (3) meets with management and the internal auditors
concerning similar matters; and (4) makes recommendations to all of the
aforesaid groups that it deems appropriate.
HUMAN RESOURCES COMMITTEE
The Human Resources Committee acts as the nominating committee of the Board
of Directors. The Committee, which met five times during 1996, considers and
makes recommendations to the Board of Directors concerning the size and
composition of the Board, the number of non-management directors, the
qualifications of members and potential nominees for membership, the
compensation of directors, membership of committees of the Board and certain
administrative matters. The Human Resources Committee considers nominees
recommended by stockholders. Detailed resumes of business experience and
personal data of potential nominees may be submitted to the Corporate Secretary.
8
The Human Resources Committee also approves the annual compensation of
corporate officers who are members of the Board of Directors and administers the
Company's bonus, restricted stock, stock option and other incentive compensation
plans. The Committee also makes various decisions and policy determinations in
connection with the Company's Savings and Retirement Plans and Employee Stock
Ownership Plan.
EXECUTIVE COMMITTEE
During the intervals between meetings of the Board of Directors, the
Executive Committee, subject to specified limitations, may act on behalf of the
Board. Action taken by the Executive Committee is reported to the Board of
Directors at its first meeting following such action. Without specific delegated
authority, the Executive Committee may not declare dividends, except current
quarterly dividends not in excess of those last declared by the Board of
Directors and may not increase or decrease the number of directors or appoint
new directors. Unless within an overall plan previously approved by the Board of
Directors, action taken by the Executive Committee approving a transaction in
excess of $50,000,000 is subject to revision or rescission by the Board of
Directors at the Board's first meeting following such action. This committee did
not meet during 1996.
STRATEGIC PLANNING COMMITTEE
The Strategic Planning Committee was established in order to evaluate,
review with the Company's management and advise the Board of Directors on any
proposals related to the strategic direction of the Company. This committee did
not meet during 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Terry and Stein, each of whom is a non-employee director, served as
members of the Company's Human Resources Committee, which is the Company's
compensation committee. Dr. Hart served as a member of the Human Resources
Committee until July 17, 1996, at which time Dr. Neel joined the Human Resources
Committee and Dr. Hart resigned from the Human Resources Committee and was
appointed to the Audit Committee. Mr. Peternell joined the Human Resources
Committee in February 1997. Mr. Rose, Chairman of the Board of the Company, is a
director of First Tennessee National Corporation and serves on its human
resources committee. Mr. Terry served as a director of First Tennessee National
Corporation until April 1996. Mr. Rose is also a director of Stein Mart, Inc.
Mr. Stein serves as Chairman of the Board and Chief Executive Officer of Stein
Mart, Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers to file with the
SEC initial reports of ownership and reports of changes in ownership of Company
common stock and to furnish the Company with copies of all forms filed. To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during the past fiscal year all Section 16(a) filing requirements
applicable to its officers and directors were complied with, except that Ralph
B. Lake filed one report covering one transaction late. The transaction was not
subject to short swing profit liability under Section 16(b) of the Act.
9
REPORT OF THE HUMAN RESOURCES COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's Bylaws require the Board of Directors, or a committee of the
Board of Directors, to determine executive compensation. The Board of Directors
has designated the Human Resources Committee (referred to in this section of the
proxy statement as the "Committee") to perform this function in addition to
other duties listed above in the section entitled "Board of Directors". The
Committee is composed entirely of "non-employee directors", as defined by SEC
rules. Acting pursuant to SEC rules, the Committee has set forth below its
report on the Company's compensation policy applicable to executive officers and
the basis for compensation of the Company's Chief Executive Officer ("CEO")
during 1996.
The Company's executive compensation policy is designed to attract and
retain high caliber executives and motivate them to superior performance for the
benefit of the Company's stockholders. Approximately 70% of the executive
officers' target compensation potential, which may be received annually, is at
risk based on Company performance and total shareholder return (as described
below).
When the Company's performance does not meet criteria established by the
Committee, incentive compensation is reduced accordingly. Executive compensation
consists generally of the following components: base salary, annual incentive
bonus, long term incentive awards tied directly to the performance of the
Company's stock, deferral of compensation at above-market rates (in lieu of a
qualified pension plan) and customary employee and other benefits typically
offered to similarly situated executives. Base salaries are linked to
competitive factors and salary increases are based on merit. The annual bonus
program is competitively-based and provides incentive compensation based on the
Company's annual performance. For 1996, the annual bonus for the CEO, the
Chairman and other executives, was based on objectives that include (i) a
targeted level of pretax earnings for the Company, (ii) a targeted level of
development (construction starts) for all of the Company's hotel brands, and
(iii) a targeted percentage of guest satisfaction for all hotel brands of the
Company. The operating income target is the target contained in the Company's
annual plan approved by the Board of Directors. The target is calculated before
interest expense, extraordinary items, property transactions and minority
interests. The annual bonus program also provides stretch bonus opportunities
for performance above aggressive targets. The Company's objective is to provide
cash compensation opportunities for executive officers (salary and annual bonus)
that are targeted at the median range of the competitive market. Data on the
competitive market was provided by an independent consulting firm, and based on
the data, the Committee selected a group of companies (the "comparator group")
representative of those companies against which the Company competes for
executive talent. The comparator group consists of companies that are either in
the hotel or a related service industry, are of similar size to the Company,
have strong brand recognition, or are located near the Company. The comparator
group is different from the peer group included in the performance comparison
graph on page , although some companies in this peer group may be included in
the comparator group, because the Committee believes it competes for executive
talent with a broad range of companies.
Long term incentive awards consist of stock options and restricted stock
specifically approved by the Committee for each executive officer and other Plan
participants and are granted in the sole discretion of the Committee. The amount
of a stock option award is dependent neither on past corporate performance, nor
on the amount of options previously granted to the executive officers. The
amount is generally tied to and a function of salary grade level. The actual
value of the stock compensation vesting each year is dependent on the market
value of the Company's common stock. Based on an assessment of competitive
factors, the Committee determines an award that is suitable for providing an
adequate incentive for both
10
performance and retention purposes. Awards are generally granted with a vesting
period extending four to five years from the initial grant date. In order to
align the interests of senior executives with the interests of stockholders, the
Committee's current policy regarding stock awards is to grant stock options
exclusively. However, the Committee has reserved the right to grant restricted
stock as it deems appropriate. The Company's stock fund within its 401(k) plan
and the proposed Bonus Replacement Options Plan described on page 22 of this
Proxy are also tied to corporate performance. Other benefits provided to the
executive officers are not tied to corporate performance.
Senior executives may defer the receipt of a portion of their cash
compensation pursuant to the Executive Deferred Compensation Plan ("EDCP"),
whereby amounts, while deferred, earn interest at a termination rate or at a
retirement rate, both of which rates are approved annually by the Human
Resources Committee. Prior to 1996, the termination rate for deferrals was 8.5%
and the retirement rate was 15.5%. The termination rate for 1996 deferrals was
8.5% and the retirement rate was 13%. For 1997, the termination rate and
retirement rate will each remain the same. The retirement rate is intended to
encourage long-term service and provide a substantial retirement benefit since
the Company does not have a qualified pension plan. Therefore, only those
participants who meet the service requirements of the EDCP will receive interest
at the retirement rate. A participant generally will receive the retirement rate
when he or she retires. Amounts deferred under the EDCP may be paid in a lump
sum or in installments, as selected by the participant when making the deferral
election.
The Company has purchased company-owned life insurance policies to fund
future payments under the EDCP. In purchasing these life insurance policies,
certain assumptions have been made regarding mortality experience, interest
rates and policy dividends. The Company expects to recover policy premiums and
the net cost of benefits paid under the EDCP through the operation of these
insurance contracts. Participants in the EDCP have no rights in the insurance
policies. The life insurance policies are owned by the Company.
All compensation paid to executive officers during 1996 is fully deductible
by the Company for federal income tax purposes. Section 162(m) of the Internal
Revenue Code generally disallows a tax deduction to public companies such as the
Company for compensation exceeding $1,000,000 paid during the tax year to the
Chief Executive Officer and the four other highest paid executive officers at
year end. Certain performance-based compensation is not subject to the deduction
limit under Section 162(m) of the Internal Revenue Code. In 1995 the Company
adopted a Key Executive Officer Annual Incentive Plan to ensure that bonuses
paid under the Company's annual bonus plan qualify as tax deductible
compensation. It is the Committee's practice to consider ways to maximize the
deductibility of executive compensation while retaining the discretion necessary
to compensate executive officers in a manner commensurate with performance and
the competitive market of executive talent.
CHIEF EXECUTIVE OFFICER'S COMPENSATION.
Base salary: The Chief Executive Officer's ("CEO") base salary is
established by his rights under his employment agreement, approved by the
Committee. The base salary is reviewed each year by the Committee and is subject
to merit increases based primarily on the CEO's achievement of performance
objectives and the current salary of the CEO. In 1996, the Committee selected
the comparator group for compensation purposes for the first time since the
Company was established as a separate publicly traded company. At that time, the
Committee made a one-time adjustment to the salaries of key executive officers
of the Company to bring their compensation closer to the median range of the
competitive market represented by the comparator group. As a result, Mr. Schultz
received a 52% increase in his base salary
11
from the level it was as a group officer prior to the spin-off in June, 1995.
Performance objectives of the CEO are approved annually by the Committee and the
full Board of Directors. These objectives vary from year to year but in general
relate to such matters as insuring an in-depth and skilled organizational
structure to operate the Company's business, positioning the Company for
significant growth and achieving the Company's annual business plan and its
various financial goals. The Committee's assessment of the CEO's performance is
based on a subjective review of his performance against these objectives. The
Committee approved a merit salary increase of 5% for Mr. Schultz in February of
1997 based on the Company's performance and Mr. Schultz's personal objectives.
Although no specific weights are assigned to any particular objective, a greater
emphasis is placed on corporate and personal performance than on competitive
practices within the industry. Base salary is intended to represent
approximately 30% of the CEO's total target compensation potential.
Annual Bonus: As discussed above, the target bonus is established for the
CEO that will result in a payment of up to 60% of the CEO's base salary if the
bonus objectives are achieved. This percentage of salary increases or decreases,
on a matrix (the "bonus matrix"), in relation to the target objectives. The
Company's degree of success in reaching these targets determines a payout of 0%
to 100% of the annual target bonus potential. Additional bonus amounts can be
awarded for performance above 100% of the operating income objective. In 1996
the maximum bonus potential was 120% of the CEO's salary. Consistent with the
Company's desire to provide cash compensation (salary and bonus) at the median
range of the competitive market for 1997, the Committee lowered the maximum
bonus for the CEO to 90% of salary and made commensurate reductions for all
other senior executives. In addition, the Committee set operating income as the
sole bonus objective.
After the end of the fiscal year, the Committee determines the extent to
which the targeted corporate objectives have been achieved. A bonus pool for all
corporate management employees in the bonus plan is then established by
multiplying (i) an amount equal to the specific percentage of salary
hypothetically payable to each individual in the plan, based on the objectives
achieved, by (ii) each individual's salary. These amounts are then combined to
create a corporate bonus pool. If the Committee determines that a minimum
operating income target was not achieved, then no bonus pool is established and
no bonuses are paid unless an exception were to be approved by the Committee
because of unusual circumstances. If an exception were approved, it would be a
subjective decision by the Committee and consistent with any applicable
requirements of the Company's Key Executive Officer Annual Incentive Plan and
Section 162(m) of the Internal Revenue Code (described above). In February 1997,
the Committee approved the Company's operating income and performance objectives
for the 1996 plan year. The bonus payable to the Chief Executive Officer from
the bonus pool is the percentage of salary that is payable based solely on the
result achieved under the bonus matrix. The total bonus pool established for all
corporate employees eligible for the Plan cannot be exceeded. For 1996, the
Committee determined that the Company exceeded each of its performance
objectives and thus the bonus for 1996 performance that was paid to executive
officers was greater than the target bonuses. If the proposed Bonus Replacement
Options Plan is approved by the stockholders, then the CEO and other
participants may elect to receive up to 100% of their 1996 annual bonus in
non-qualified options to purchase shares of Common Stock pursuant to the
Company's Bonus Replacement Options Plan.
Stock Awards: The CEO is granted a stock option award which will give the
CEO an estimated dollar value of stock compensation (the difference between the
option price and an estimated future market price of the stock) vesting each
year which is equal to a specific percentage of the CEO's salary. The CEO's
annual stock compensation value is currently targeted at 200% of salary. Dollar
value of the award is based
12
on estimated annual increases in the market value of the Common Stock in the
future in order to reach the targeted level of compensation. There is no
certainty or assurance that such increases will occur. The applicable percentage
of salary, as a measure of stock compensation, is determined for the CEO after
the Committee reviews the market level equity incentive awards granted to
comparably-ranked executives in the comparator group. The Committee's practice
is to approve awards each year for the CEO. This results in stock options being
granted annually at new option prices each year. The amount of the stock option
award is not dependent on past corporate performance nor on the amount of
options previously granted to the CEO. The actual value of the stock
compensation vesting each year is dependent on the market value of the Company's
Common Stock.
Other benefits: The CEO's compensation reported in the Summary Compensation
Table also includes accrual of above-market rates of interest on compensation
deferred under the EDCP and matching contributions to the Promus Savings and
Retirement Plan, which, except for the Company's stock fund in its Savings and
Retirement Plan, are not directly based on the Company's performance. Generally
the EDCP requires that interest on the amount deferred be paid at the
termination rate of accrual if termination occurs prior to retirement.
OTHER EXECUTIVE OFFICER COMPENSATION.
Base salary: Base salary for executive officers other than the CEO are
reviewed each year and merit increases are based primarily on (i) an executive's
achievement of performance objectives, and (ii) the current salary of the
executive within the salary range for his or her grade level. Greater weight is
normally given to the achievement of objectives rather than the executive's
current salary level within the range of his or her grade level, although
specific weights for each factor have not been established. Salary can be
substantially increased if an executive is promoted to a higher position with
greater responsibilities. The objectives of the executive officers, other than
the CEO, are approved by the CEO. These objectives relate to achieving
functional goals and financial objectives within the executive's assigned area
of responsibility. For example, an objective could relate to completion of a
project assigned to that executive's area of responsibility. The CEO's
assessment of the performance of the Chief Operating Officer and other executive
officers is based on the subjective review of each executive's performance.
Specific weights are not given to each objective in this assessment. The
Committee approves merit salary increases for all management directors. The CEO,
and the Chairman in some cases, approves merit salary increases for the other
executive officers and such increases are reviewed by the Committee. It is the
Company's policy to maintain a competitive salary commensurate with the duties
and responsibilities of the executive officers. Base salary is intended to
represent approximately 30% of an executive's total target compensation
potential.
Annual bonus: Executive officers' annual bonus is based on the same
objectives discussed in the CEO's compensation above. For executive officers,
the target bonus for achieving 100% of the operating income target ranges from
45% to 50% of their base salary. For performance above 100% of the operating
income target in 1996, the annual bonus is increased on a graduated scale to a
maximum of 90% to 100% of their base salary. The annual bonus payable to the
Chairman from the bonus pool is the percentage of salary that is payable based
solely on the result achieved under the bonus matrix, discussed above. The
annual bonuses of the other executive officers depend on the percentage of
salary payable on the bonus matrix (Company performance) as well as an
assessment of their achievement of personal objectives (personal performance).
Personal objectives for bonuses are the same objectives that are evaluated for
purposes of merit salary increases as discussed above. The assessment of
personal objectives is a subjective evaluation by the CEO. As a result of the
assessment of personal objectives, the annual bonus of an
13
executive officer (other than the Chairman and the CEO) may be higher or lower
than shown on the bonus matrix. However, the total bonus pool established for
all corporate employees eligible for the plan cannot be exceeded. If the
proposed Bonus Replacement Options Plan is approved by the stockholders, then
executive officers may elect to receive up to 100% of their 1996 bonuses in
non-qualified options to purchase shares of Common Stock pursuant to the
Company's Bonus Replacement Options Plan.
Stock awards: The executive officers named in the Summary Compensation Table
and the other executive officers participate in the Company's stock option plan.
The performance criteria and grant of options are described above in the Chief
Executive Officer's compensation. For executive officers, the Company has no
other long-term incentive plans under which future awards will be made, so that
long-term stock performance is the sole determinant of long-term incentive
compensation.
Other benefits: The Company has adopted certain broad based employee
benefits plans in which executive officers participate and certain other
retirement, life, and health insurance plans, and provides customary personal
benefits. Except for the Company's stock fund within its Savings and Retirement
Plan, the benefits under these plans are not tied to corporate performance. The
executive officers named in the Summary Compensation Table participate in the
benefits under the EDCP as described above with respect to the CEO.
HUMAN RESOURCES COMMITTEE
RONALD TERRY (CHAIRMAN)
JAY STEIN
C. WARREN NEEL
14
PERFORMANCE OF PROMUS COMMON STOCK
Set forth below is a line graph comparing the total cumulative return of the
Company's Common Stock to (a) the Standard & Poor's 500 Stock Index (the "S&P
500 Index"), and (b) a group of peer issuers with similar businesses. See Note
(1). The graph assumes the reinvestment of dividends.
COMPARISON OF 19 MONTH CUMULATIVE TOTAL RETURN*
AMONG PROMUS HOTEL CORPORATION, THE S&P 500 INDEX
AND A PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PROMUS HOTEL CORPORATION PEER GROUP S&P 500
Jun-95 100 100 100
Jul-95 112 103 103
Aug-95 97 100 104
Sep-95 103 102 108
Oct-95 100 102 108
Nov-95 101 103 112
Dec-95 101 104 114
Jan-96 114 115 118
Feb-96 118 131 119
Mar-96 118 132 121
Apr-96 129 139 122
May-96 125 140 126
Jun-96 135 150 126
Jul-96 124 139 120
Aug-96 137 148 123
Sep-96 128 153 130
Oct-96 144 160 133
Nov-96 147 156 144
Dec-96 135 153 141
Jan-97 148 157 150
- ------------------------
(1) The Peer Group companies consist of Host Marriott Corporation, Hilton Hotels
Corporation, La Quinta Inns, Inc., Marriott International, Inc. and
Doubletree Corporation.
15
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth certain compensation
information concerning the Company's Chief Executive Officer and the four other
most highly compensated officers of the Company for the year ended December 31,
1996. Compensation reflected in the following table includes compensation to the
listed individuals as employees of The Promus Companies Incorporated from
January 1, 1995 through June 30, 1995 and as employees of the Company from July
1, 1995 through December 31, 1995 except for Mr. Rose, for whom compensation is
included as an employee of the Company from July 1, 1995 through December 31,
1995.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION($) AWARDS-
---------------------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($)(3) OPTIONS(#) COMPENSATION($)(4)
- -------------------- ---- ---------- --------- ------------------- ------------ ------------
Raymond E. 1996 $ 442,254 $458,815
Schultz........... 1995 301,847 345,601
President and
Chief Executive
Officer
90,000 22$5,355
130,945 176,204
Michael D. Rose 1996 259,134 269,754
(1)............... 1995 125,000 150,000
Chairman of the
Board
50,000 234,459
123,648 99,777
David C. Sullivan... 1996 313,615 269,164
Executive Vice 1995 227,692 224,231
President, Chief
Operating Officer
50,000 61,059
78,113 38,009
Thomas L. Keltner... 1996 209,769 180,955
Senior Vice 1995 194,038 186,865
President,
Development
28,000 29,190
61,036 16,050
Donald H. Dempsey... 1996 206,558 177,567
Senior Vice 1995 168,942 154,000
President, Chief
Financial Officer
28,000 28,146
40,527 20,347
- --------------------------
(1) Mr. Rose entered into an employment agreement with the Company effective as
of June 30, 1995, pursuant to which he spent up to 40% of his time in his
capacity as Chairman and such other duties as directed by the Board during
1995 and 1996. Accordingly, his salary reflects compensation for the year
ending December 31, 1996 and the period from June 30, 1995 through December
31, 1995 and his bonus is based on salary during this period. (See "Certain
Employment Arrangements")
(2) If the proposed Bonus Replacement Options Plan is approved by the
stockholders, Mr. Schultz has elected to receive 50% of his 1996 bonus under
the BRO Plan, Mr. Rose 50%, Mr. Sullivan 10%, Mr. Keltner 20% and Mr.
Dempsey 20%.
(3) Amounts of Other Annual Compensation for each individual named above
aggregated less than (a) 10% of the total annual salary and bonus for each
individual or (b) $50,000, whichever is less. Accordingly, no such amounts
are included.
(4) All Other Compensation consists of (a) earnings in excess of market rates on
deferred compensation balances and (b) matching contributions to the Promus
Savings and Retirement Plan and other deferred compensation plans. Such
amounts, respectively, were as follows for 1996: Mr. Schultz, $198,888 and
$26,468; Mr. Rose, $219,614 and $14,845; Mr. Sullivan, $42,281 and $18,778;
Mr. Keltner, $16,594 and $12,596; and Mr. Dempsey, $15,758 and $12,388; for
1995: Mr. Schultz, $166,964 and $9,240; Mr. Rose, $99,777 and $0; Mr.
Sullivan, $28,769 and $9,240; Mr. Keltner, $7,318 and $8,732; and Mr.
Dempsey, $8,066 and $12,281.
The following table sets forth certain information regarding grants of stock
options made to the executive officers named in the Summary Compensation Table
during 1996, including information as to the potential realizable value of such
options at assumed annual rates of stock price appreciation for the ten year
option terms. Additional information is provided concerning this potential
realizable value for all optionees receiving option grants in 1996 and for all
Promus stockholders.
16
OPTIONS GRANTED IN 1996
INDIVIDUAL GRANTS OVER OPTION TERM
--------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR OVER OPTION TERM (1)
OPTIONS IN FISCAL BASE PRICE EXPIRATION -----------------------------------------------
NAME GRANTED(3) YEAR ($/SH) DATE 0% 5% 10%
- ------------------------------ ----------- ----------- ----------- ----------- --------- ----------------- -----------------
Raymond E. Schultz............ 90,000 11.2% $ 32.126 11/14/06 $ - $ 1,818,348 $ 4,608,051
Michael D. Rose............... 50,000 6.2 32.126 11/14/06 - 1,010,193 2,560,029
David C. Sullivan............. 50,000 6.2 32.126 11/14/06 - 1,010,193 2,560,029
Thomas L. Keltner............. 28,000 3.5 32.126 11/14/06 - 565,708 1,433,616
Donald H. Dempsey............. 28,000 3.5 32.126 11/14/06 - 565,708 1,433,616
All Stockholders(2)........... n/a n/a n/a n/a - 1,038,461,015 2,631,664,102
All Optionees................. 803,492 100.0 31.330(4) various - 15,831,340 40,119,724
All Optionees as a % of
All Stockholders Gain....... n/a n/a n/a n/a - 1.52% 1.52%
- ------------------------
(1) The dollar amounts under these columns are the result of calculations at
zero percent, five percent and ten percent rates set by the Securities and
Exchange Commission and therefore are not intended to forecast possible
future appreciation, if any, of the Company's stock price. In the above
table, the Company did not use an alternative formula for a grant valuation,
as the Company is not aware of any formula which will determine with
reasonable accuracy a present value based on future unknown or volatile
factors.
(2) These amounts represent the appreciated value which holders of Common Stock
would receive at the hypothetical zero, five and ten percent rates based on
the market value of Common Stock outstanding at or near the option grant
dates.
(3) Employees vest in the right to exercise these options over a four-year
period. In general, major option awards are granted once a year. Options may
also be granted at other times at the discretion of the Human Resources
Committee based on promotions or similar reasons. See "Report of the Human
Resources Committee on Executive Compensation" in this Proxy Statement for
more information concerning stock option awards.
(4) Represents average exercise price of options granted to all optionees.
The following table sets forth certain information concerning stock option
exercises during 1996 by the executive officers named in the Summary
Compensation Table.
AGGREGATED OPTION EXERCISES IN 1996 AND
DECEMBER 31, 1996 OPTION VALUES
VALUE OF
UNEXERCISED,
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS
UNDERLYING UNEXERCISED AT DECEMBER
OPTIONS HELD 31,
SHARES AT DECEMBER 31, 1996 1996($)(1)
ACQUIRED VALUE --------------------------- -----------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ----------------------------------------------- -------------- ----------- ----------- ------------- -----------
Raymond E. Schultz............................. -- -- 103,513 228,112 $ 2,014,461
Michael D. Rose................................ -- -- 126,048 230,813 2,486,651
David C. Sullivan.............................. -- -- 44,280 147,174 673,958
Thomas L. Keltner.............................. -- -- 11,522 89,660 48,781
Donald H. Dempsey.............................. -- -- 13,035 71,928 201,694
NAME UNEXERCISABLE
- ----------------------------------------------- -------------
Raymond E. Schultz............................. $ 861,230
Michael D. Rose................................ 1,907,328
David C. Sullivan.............................. 720,173
Thomas L. Keltner.............................. 316,281
Donald H. Dempsey.............................. 293,207
- --------------------------
(1) Amount represents the difference between the aggregated option price of
unexercised options and a $29.625 market price on December 31, 1996, which
was the closing price of the Common Stock on the last trading day of 1996.
17
CERTAIN EMPLOYMENT ARRANGEMENTS
The Board of Directors elected Mr. Schultz Chief Executive Officer of the
Company effective July 1, 1995. Mr. Schultz also serves as President. Pursuant
to an employment agreement with Mr. Schultz, the Company has agreed to employ
Mr. Schultz as Chief Executive Officer of the Company from July 1, 1995 until
December 31, 1999 at a current annual salary of $525,000, subject to merit
increases as may be approved by the Human Resources Committee. During the term
of his employment agreement, Mr. Schultz will continue to be eligible for his
current benefits, including eligibility for bonus compensation and long-term
incentive compensation in the form of stock options and restricted stock awards
as may be approved by the Human Resources Committee. The Board reserves the
right to terminate the employment agreement with or without cause and Mr.
Schultz has the right to resign with good reason (as defined). If the agreement
is terminated without cause or if he resigns for good reason, Mr. Schultz will
receive two years' salary continuation and his stock options and any shares of
restricted stock will continue in force during this period of time for vesting
purposes. If the agreement is terminated for cause, or if he resigns without
good reason as such term is defined in the agreement prior to June 30, 1997, his
unvested options and any shares of restricted stock will be canceled and his
salary will end. If Mr. Schultz retires after June 30, 1997, but prior to
December 31, 1999, any stock options and shares of restricted stock scheduled to
vest during the two years after the date of retirement will vest immediately
upon the date of retirement. If he retires after December 31, 1999, all unvested
stock options and shares of restricted stock will vest immediately upon the date
of retirement. He will be entitled to the retirement rate for his account under
the Executive Deferred Compensation Plan if he is terminated without cause or if
he resigns for good reason. If a change in control were to occur during his
employment agreement and his employment terminated voluntarily or involuntarily
within two years after the change in control, Mr. Schultz would be entitled to
receive the severance payments under his severance agreement (if then in force)
in lieu of the salary and rights under his employment agreement.
After the termination of his employment with the Company, Mr. Schultz will
be entitled to receive group insurance benefits at the Company's cost for his
lifetime similar to the benefits provided to any retired management director of
the Company. Mr. Schultz's employment agreement provides for a non-competition
covenant for a period of two years following termination of employment.
The Board of Directors approved an employment agreement with Mr. Rose,
whereby the Company agreed to employ Mr. Rose as Chairman of the Board, subject
to his election to the Board of Directors, from June 30, 1995 until June 30,
2000. Mr. Rose receives an annual salary of $275,630, subject to merit increases
as may be approved by the Human Resources Committee. The agreement can be
extended on a year to year basis after June 30, 2000, pursuant to mutual
agreement. At any time on or after April 30, 1996, Mr. Rose may voluntarily
retire by giving the Company three months prior written notice of the effective
date of such retirement. During the term of his employment agreement, Mr. Rose
will continue to be eligible to participate in incentive compensation programs
in the form of stock options and restricted stock awards as may be approved by
the Human Resources Committee and to receive employee benefits. The Board
reserves the right to terminate the employment agreement at any time with or
without cause and Mr. Rose may resign for good reason (as defined). If the
agreement is terminated by the Board without cause or if he resigns for good
reason, his unvested stock options and any unvested shares of restricted stock
held by him will vest at that time and he will continue to be employed as a
consultant for two years or until June 30, 2000, whichever first occurs. If the
agreement is terminated for cause or if he resigns without good reason, his
unvested stock options and any unvested shares of restricted stock held by him
will be canceled and his salary will end. The agreement further provides that
such options will vest if
18
he retires after April 30, 1996. If a change in control were to occur during the
term of his employment agreement and his employment terminated voluntarily or
involuntarily within two years after the change in control, Mr. Rose would be
entitled to receive the severance payments under his severance agreement (if
then in force) in lieu of the salary and rights under his employment agreement.
In 1996, Mr. Rose was also employed as Chairman of the Board of Harrah's
Entertainment, Inc., and pursuant to his employment agreement with the Company,
he spent 40% of his time in his capacity as Chairman of the Company. Effective
December 31, 1996, Mr. Rose retired as Chairman and a director of Harrah's.
Under the Company's amended employment agreement with Mr. Rose, there is no
limitation in the amount of time he spends on his duties as Chairman. The
Company now provides to Mr. Rose additional employment related benefits similar
to those he received at Harrah's.
The Company has entered into severance agreements with certain corporate
officers including each of the officers named on page 16. Each severance
agreement provides for a compensation payment of 2.99 times the average "annual
compensation" paid to such officer for the five preceding calendar years (the
"Compensation Payment"), as well as accelerated payment or accelerated vesting
of any compensation or awards payable to such officer under any incentive plan
of the Company if the officer is terminated subsequent to a change in control of
the Company, as defined in the severance agreements (the "Accelerated Payments")
(collectively, the "Severance Payments"), with certain exceptions described
below. With respect to restricted stock and stock options, such stock awards
vest automatically upon a change of control. The "annual compensation" for
purposes of determining the Compensation Payment under the severance agreement
excludes restricted stock vesting and compensation or dividends related to
restricted stock or stock options. A change in control is defined to occur
whenever: (1) any person becomes the beneficial owner of 25% or more of the
Company's then outstanding voting securities regardless of comparative voting
power of such securities, (2) within a two-year period, members of the Board of
Directors at the beginning of such period and approved successors no longer
constitute a majority of such Board, or (3) holders of securities entitled to
vote thereon approve a merger or consolidation (with certain exceptions) or a
plan of complete liquidation.
The officers are not entitled to the Compensation Payments subsequent to a
change in control if their termination is (1) by the Company for cause (as
defined), (2) a result of retirement or disability, or, except for Mr. Rose and
Mr. Schultz, (3) voluntary and not for good reason (as defined). In the event
that an executive officer becomes entitled to Severance Payments, which are
subject to taxation under Section 4999 (the "Excise Tax") of the Internal
Revenue Code, the severance payments provide that the Company shall pay the
executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by the officer after deduction of any Excise Tax on the Severance
Payments and all Excise Tax and other taxes on the Gross-Up Payment shall equal
the initial Severance Payments, subject to certain exceptions.
Mr. Rose and Mr. Schultz are entitled to the Compensation Payments if, after
a change in control of the Company, such executive's employment terminates
involuntarily or he resigns. The other executive officers are entitled to the
Compensation Payments subsequent to a change in control of the Company if the
executive's employment is terminated involuntarily without cause or if the
executive resigns with good reason (as defined).
In addition, the severance agreements each provide that in the event of a
potential change in control of the Company (as defined below): (1) the Company
will deposit in escrow a sum of money sufficient to fund the Severance Payments
in the event of a change in control of the Company, and (2) each executive
officer will agree to remain in the employ of the Company for a certain period
of time. A potential change
19
in control of the Company is defined to occur whenever (1) the Company enters
into an agreement which would result in a change in control of the Company, (2)
any person publicly announces an intention to take action that would result in
change of control of the Company, (3) any person, other than the trustee of an
employee benefit plan of the Company, who is or becomes a beneficial owner of
9.5% of the combined voting power of the Company's then outstanding securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage previously owned on the date of the severance agreement, or (4) the
Board adopts a resolution to the effect that a potential change in control of
the Company has occurred.
Each severance agreement has a term of one calendar year and is renewed
automatically each year starting January 1 unless the Company gives notice of
the non-renewal of any such agreement by the preceding September 30. Each
severance agreement provides that if a change in control occurs during the
original or extended term of the agreement, then the agreement will
automatically continue in effect for a period of 24 months beyond the month in
which the change in control occurred.
The Compensation Payments and Accelerated Payments, respectively, that would
have been payable to the officers named on page 16 on January 1, 1997, if a
change in control occurred and if such executives had been terminated as of that
date would have been approximately: Mr. Schultz, $1,725,638 and $2,876,521; Mr.
Rose, $2,361,637 and $4,393,979; Mr. Sullivan, $1,216,381 and $1,394,131; Mr.
Keltner, $890,958 and $370,538; and Mr. Dempsey, $738,837 and $506,958. Such
Accelerated Payments include the value of any unvested restricted stock, valued
as of December 31, 1996, and the value, if any, of unvested stock options, the
vesting of which would accelerate upon a change in control.
The Company's executive officers participate in the Executive Deferred
Compensation Plan which provides for two alternative interest rates, a
termination rate and a retirement rate. See "Report of the Human Resources
Committee" for more information concerning these rates. In the event of a change
in control, as defined in the Executive Deferred Compensation Plan, a
participant who is not yet entitled to the retirement rate will receive such
rate if his employment is terminated within a 24 month period after the change
in control. Consequently, if a change in control as defined in the Plan were to
occur, these executive officers will be entitled to such rate on their Executive
Deferred Compensation Plan account balances if their employment were to
terminate within 24 months after the change in control.
The Company has established an escrow fund and has deposited insurance
policies and cash proceeds received from insurance policies into the escrow
fund. This escrow fund assures the payment of benefits, as they accrue, to,
among others, the executive officers which will be payable under the Executive
Deferred Compensation Plan or other deferred compensation plans. Upon occurrence
of a potential change in control of the Company, the Company also will place
into this escrow fund the severance payments which become payable to the
executive officers and certain other executives only following a change in
control. The Company intends to increase the escrow fund, if necessary, to
assure payment of future deferrals and also has the right to increase the escrow
fund to pay premiums on the insurance policies and interest on policy loans. The
escrow fund is subject to the claims of the Company's creditors in the case of
the Company's insolvency or bankruptcy.
20
CERTAIN TRANSACTIONS
Mr. Rose, Chairman of the Board of the Company during 1996, was also
Chairman of the Board of Harrah's Entertainment, Inc. (formerly known as The
Promus Companies Incorporated), the Company's former parent ("Parent"). Mr. Rose
retired as Chairman and a director of Harrah's Entertainment, Inc. as of
December 31, 1996. The Company and Parent have entered into a series of
agreements that govern certain ongoing relationships between them and provide
mechanisms for an orderly transition of the Company from a wholly owned,
indirect subsidiary of Parent to a stand-alone, publicly-traded company
("Distribution"). The Company believes that the agreements contain terms
generally comparable to those which would have been reached in arm's-length
negotiations with unaffiliated parties (although comparisons are difficult with
respect to certain agreements that relate to the specific circumstances of the
distribution). In some cases (such as the Distribution Agreement and the Tax
Sharing Agreement, each as hereinafter defined) the agreements are comparable to
those used by other companies in similar transactions.
Prior to the Distribution date, the Company and Parent entered into a
Distribution Agreement ("Distribution Agreement"), that provided for, among
other things, (1) the transfer to the Company by the Parent of certain assets,
liabilities and subsidiaries relating principally to the hotel business, and (2)
the division of certain liabilities between Parent and the Company.
Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed to
allocate financial responsibility for the liabilities arising out of or in
connection with the hotel business to the Company and its subsidiaries, and
financial responsibility for the liabilities arising out of or in connection
with the casino business to parent and its retained subsidiaries. The agreements
executed in connection with the Distribution Agreement also limit the Company's
ability to make certain material dispositions of its assets, engage in certain
repurchases of its capital stock or cease the active conduct of its business.
On the Distribution date, Parent and the Company entered into an employee
benefits allocation agreement, pursuant to which the Company generally assumed
or retained, as the case may be, all liabilities under employee benefits plans
of the Parent with respect to employees of the Company or any of its
subsidiaries. The Company and Parent have also entered into a tax sharing
agreement that defines the parties' rights and obligations with respect to
deficiencies and refunds of federal, state and other income or franchise taxes
relating to the Parent's business for tax years prior to the Distribution and
with respect to certain tax attributes of Parent after the Distribution ("Tax
Sharing Agreement"). In addition, the Company and Parent have entered into a
noncompetition agreement and several information technology and other resource
sharing agreements.
Total net payment by the Company to Parent under the above-described
agreements for the year ended December 31, 1996 was approximately $1,567,145.
Mr. Ronald Terry, a director of the Company, retired as Chairman of First
Tennessee National Corporation, the parent company of First Tennessee Bank
National Association ("First Tennessee") on December 31, 1995, but remained a
director of First Tennessee through April 1996. First Tennessee is one of the
lending banks under a loan agreement which the Company has with several banks
(the "Bank Facility"). Pursuant to the Bank Facility, First Tennessee has
committed to loan to the Company's subsidiary, Promus Hotels, Inc., $15,000,000,
representing a 4.28% share of the total commitment covered by the Bank Facility.
As of December 31, 1996, $10,242,856.75 had been funded and $696,783.49 had been
provided in the form of unfunded letters of credit. In connection with this
commitment, First Tennessee
21
received fees of $31,778.73 during the year ending December 31, 1996. The total
discount received by First Tennessee in connection with credit card merchant
processing for the Company and its subsidiaries in 1996 was $5,500,718.44.
Ms. Debra Fields, a director of the Company, is an owner and a director of
the Park City Group, a software consulting firm. During 1996, the Company
entered into a license agreement for software from the Park City Group. Under
the terms of this license agreement, the Company paid $650,000 of a $1,150,000
license fee and $180,564 for consulting services related to the software, for a
total of approximately $830,564 during the year ending December 31, 1996.
APPROVAL OF THE COMPANY'S BONUS REPLACEMENT OPTIONS PLAN
The Board of Directors has adopted, subject to approval of the stockholders
at the 1997 Annual Meeting, the Promus Hotel Corporation Bonus Replacement
Options Plan (the "BRO Plan"). The purpose of the BRO Plan is to facilitate the
ownership of Common Stock by management employees by permitting them to elect to
receive all or a portion of their annual bonus in options to purchase Common
Stock of the Company, thereby further aligning the interests of such employees
with those of the stockholders. The BRO Plan authorizes the issuance of up to
3,000,000 shares of Common Stock, subject to adjustment as provided by the BRO
Plan, from authorized but previously unissued shares. To the extent that an
option under the BRO Plan is canceled, terminates, expires or lapses for any
reason, any shares of Common Stock subject to the option will again be available
for the grant of options under the BRO Plan. The following summary description
of the BRO Plan is qualified in its entirety by reference to the full text of
the BRO Plan, which is attached hereto as Appendix I.
The BRO Plan is to be administered by the Human Resources Committee of the
Board of Directors (referred to in this section of the Proxy Statement as the
"Committee"). Under the BRO Plan, all management employees of the Company in
grades 20 and above, and general managers of Company-managed hotels of Embassy
Suites, Hampton Inn, Homewood Suites, Hampton Inn & Suites, properties of
Embassy Vacation Resort, and management employees of other subsidiaries of the
Company as determined by the Committee from time to time, will be eligible to
participate in the BRO Plan.
An eligible employee who elects to participate in the BRO Plan will have the
opportunity to exchange some or all of the eligible employee's annual bonus (in
whole percentage increments up to 100%) for non-qualified stock options to
purchase shares of common stock ("Options"). In order to participate in the BRO
Plan, eligible employees must submit a bonus deferral election form to the
Committee or its designee prior to the end of the year preceding the year in
which such bonus would otherwise be payable. Bonus deferral elections are
irrevocable and shall be valid only for one year; new deferral elections must be
made for participation in the BRO Plan for subsequent years. In order to
participate in the BRO Plan for calendar year 1997, the Bonus Deferral Election
Form must have been received by the Committee no later than December 27, 1996.
Options will be granted under the BRO Plan on the dates on which the Committee
approves Bonus-Replacement Options to employees. All Options are 100% vested and
exercisable 90 days after the date of grant and have a 20 year term.
The number of Options to be granted to an eligible employee will be
determined on the basis of a conversion factor to be determined annually by the
Committee (for 1997 bonus deferrals, the conversion factor will be 31.7% of the
fair market value of the Common Stock, rounded to the nearest whole share). The
number of shares subject to Option granted equals the amount of a participant's
annual bonus elected to be deferred divided by the conversion factor. The total
price paid by Optionees for shares acquired
22
under this plan shall be equal to the Fair Market Value of the stock on the date
of the option grant. Fifteen (15%) of the price will be paid at the time of and
in the form of foregoing bonus prior to the grant of the option. The remaining
exercise price per Share under each Option granted shall be 85% of the Fair
Market Value per Share on the Option Grant Date.
In the event of the participant's termination of employment for any reason
other than death, total disability or retirement, the Options will expire on the
earlier of (i) the expiration of the 20 year term or (ii) the third anniversary
of the date of the participant's termination of employment. In the event of the
participant's retirement, the Options will expire on the latter of (i) the
expiration of the 20 year term, or (ii) the third anniversary of the date of the
participant's retirement. In the event of the participant's death or permanent
disability, the Options will expire on the third anniversary of the
participant's death or disability.
All Options will be evidenced by a written Option Agreement or certificate
between the Company and the participant. The Option Agreement or certificate
will include such provisions consistent with the BRO Plan as may be specified by
the Committee.
The Committee may terminate, amend or modify the BRO Plan at any time and
for any reason without stockholder approval; provided, however, that the
Committee may condition any amendment on the approval of stockholders of the
Company, if such approval is necessary or deemed advisable with respect to tax,
securities or other applicable laws, policies or regulations. No termination,
amendment or modification of the BRO Plan shall adversely affect any Option
previously granted under the BRO Plan without the written consent of the
participant. The BRO Plan will become effective on the date it is approved by
the shareholders and will expire on the tenth anniversary of its effective date
unless the Plan is terminated earlier by the Board of Directors. Shares of the
Company's Common Stock trade on the New York Stock Exchange and the closing
price on March 14, 1997 was $35. All Options are nontransferable other than by
will, the laws of descent and distribution, and, the Committee may, but need
not, permit other transfers where the Committee concludes that such
transferability (i) does not result in accelerated taxation and (ii) is
otherwise appropriate and desirable, taking into account any state or federal
securities laws applicable to transferable Options. The consideration to be
received by the Company for granting Options consists solely of foregone annual
bonus compensation. Proceeds received by the Company upon the exercise of
Options will be used for general corporate purposes.
The grant of a non-qualified stock option does not result in any taxable
income to the participant or on any tax deduction to the Company at the time of
the grant. However, the Participant will realize ordinary income on the exercise
of such an option in an amount equal to the excess of the fair market value of
the Common Stock acquired upon the exercise of such Option over the exercise
price. The Company will receive a corresponding deduction. The gain, if any,
realized upon the subsequent disposition by the Participant of the Common Stock
will constitute short- or long-term capital gain, depending on the Participant's
holding period. If an Option is granted with an exercise price substantially
less than the fair market value of the Common Stock on the date of grant, it is
possible that the IRS could take the position that the participant will realize
ordinary income on the date of grant in an amount equal to the excess of the
fair market value of the Common Stock on the date of grant over the exercise
price. If so, the Company would receive a corresponding deduction on the date of
grant.
23
The number of options to be received by eligible employees is not
determinable until the stockholders' approval of the BRO Plan is obtained.
However, subject to such stockholder approval at the 1997 Annual Meeting, Mr.
Schultz has elected to receive 50% of his 1996 annual bonus under the BRO Plan,
Mr. Rose 50%, Mr. Sullivan 10%, Mr. Keltner 20% and Mr. Dempsey 20%. Forty of
the approximately 350 employees eligible under the BRO Plan have elected to
participate for 1997 (their 1996 annual bonuses). If stockholder approval is not
obtained, this Plan will be null and void.
Although the employee directors have an interest in the BRO Plan, the Board
of Directors believe that the BRO Plan is fair and in the best interest of the
Company and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPANY'S
BONUS REPLACEMENT OPTIONS PLAN AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS
WILL BE VOTED FOR THE BRO PLAN UNLESS STOCKHOLDERS SPECIFY A DIFFERENT CHOICE.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee and
subject to ratification by the stockholders, has appointed Arthur Andersen LLP
as the Company's independent public accountants for the 1997 calendar year.
Arthur Andersen LLP served as the Company's independent public accountants in
1996. A representative of Arthur Andersen LLP will be present at the meeting and
will be given an opportunity to make a statement and answer questions. If the
appointment is not ratified or if Arthur Andersen LLP becomes incapable of
serving in this capacity, or if their employment is terminated, the Board will
appoint independent public accountants whose continued employment after the
Annual Meeting in 1998 shall be subject to ratification by the stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR 1997 AND PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE
VOTED FOR THEM UNLESS STOCKHOLDERS SPECIFY A DIFFERENT CHOICE.
OTHER INFORMATION
The Board of Directors does not know of any matters to be presented at the
meeting other than those mentioned in this Proxy Statement. If any other matters
are properly brought before the meeting, it is intended that the proxies will be
voted in accordance with the best judgment of the person or persons voting such
proxies.
COST OF SOLICITATION
The expense of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be paid by
the Company. In addition to the use of mails, certain directors, officers or
employees of the Company and its subsidiaries, who receive no compensation for
their services other than their regular salaries, may solicit and tabulate
proxies. The Company has retained Continental Stock Transfer & Trust Company to
assist in the solicitation of proxies with respect to shares of Promus Common
Stock held of record by brokers, nominees and institutions. The estimated cost
of the services of Continental is $5,000 plus expenses.
24
STOCKHOLDER PROPOSALS
Any proposal to be considered for inclusion in the Company's Proxy Statement
and form of proxy for presentation at the 1998 Annual Meeting of Stockholders,
must be received at the Company's principal executive offices on or before
November 14, 1997.
By Direction of the Board of Directors
[SIG]
RALPH B. LAKE
SECRETARY
Memphis, Tennessee
March 18, 1997
25
APPENDIX I
PROMUS HOTEL CORPORATION
BONUS REPLACEMENT OPTIONS PLAN
ARTICLE 1
PURPOSE OF THE PLAN
SECTION 1.1. PURPOSE. The purpose of the Promus Hotel Corporation Bonus
Replacement Options Plan is to facilitate the ownership of Common Stock by
management employees by permitting them to elect to receive all or a portion of
their bonus in options to purchase Common Stock, thereby further aligning the
interests of such employees with those of the stockholders.
ARTICLE 2
DEFINITIONS
SECTION 2.1. Unless the context clearly indicates otherwise, the following
terms shall have the following meanings:
"Acquisition" has the meaning assigned such term in Section 8.3 hereof.
"Acquisition Consideration" has the meaning assigned such term in Section
8.3 hereof.
"Board" means the Board of Directors of the Company.
"Bonus" means the cash bonus payable by the Company to an Eligible Employee
for services to the Company or any of its affiliates, as such amount may be
determined from time to time.
"Committee" means the Human Resources Committee of the Board.
"Company" means Promus Hotel Corporation, a Delaware corporation, or, where
appropriate, its direct or indirect subsidiaries.
"Disability" means disability as determined under the Company's long term
disability program, whether or not the Optionee is covered under such program.
If no such program is in effect, the Disability of a Participant shall be
determined in good faith by the Committee.
"Election Form" means a form, substantially in the form attached hereto as
Exhibit A, pursuant to which an Eligible Employee elects to defer Bonus under
the Plan.
"Election Period" means the period designated by the Committee each year
during which Eligible Employees may elect to receive Options in lieu of some or
all of their Bonus. The Election Period shall end on or before December 31 of
the calendar year immediately preceding the year in which the Eligible
Employee's Bonus will be paid.
"Eligible Employee" means (i) any management employee of the Company in
grades 20 and higher (or comparable grade or employee group as determined by the
Company), (ii) any general manager of Company-managed hotels of Embassy Suites,
Hampton Inns, Homewood Suites, Hampton Inn and Suites, Hampton Vacation Resorts
and Embassy Vacation Resorts, and (iii) any management employee of other
subsidiaries of the Company, as determined by the Committee from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Fair Market Value" means the average of the high and low sales prices of
the Shares of Common Stock on the New York Stock Exchange on the day on which
such value is to be determined or, if no such Shares were traded on such day, on
the next preceding day on which such Shares were traded; provided, however, that
if at any relevant time the Shares are not traded on the New York Stock
Exchange, then "Fair Market Value" shall be determined by reference to the
average of the high and low sales prices of the Shares on another national
securities exchange, if applicable, or if the Shares are not traded on an
exchange but are traded in the over-the-counter market, by reference to the
average of the high and low sale prices or "asked" prices of the Shares in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System (Nasdaq) or other national quotation service.
"Option" means an option to purchase Shares awarded under Article 5. Options
granted under the Plan are not incentive stock options within the meaning of
Section 422 of the Internal Revenue Code.
"Option Grant Date" means the date upon which an Option is granted to an
Eligible Employee pursuant to Article 5.
"Optionee" means an Eligible Employee of the Company to whom an Option has
been granted or, in the event of such Eligible Employee's death prior to the
expiration of an Option, such Eligible Employee's estate or other designated
beneficiary.
"Plan" means the Promus Hotel Corporation Bonus Replacement Options Plan.
"Plan Administrator" means the Committee or its delegee of administrative
duties under the Plan pursuant to Section 3.2.
"Participant" means any Eligible Employee who is participating in the Plan.
"Retirement" means termination of employment with the Company on or after
the earlier of the date the Participant attains age fifty-five (55) with ten
(10) years of vested service or on or after the date the Participant attains age
sixty (60). For purposes of this definition, years of vested service will be
credited in accordance with the provisions of The Promus Hotel Corporation
Savings and Retirement Plan. The Board reserves the right to provide different
retirement requirements for different Participants.
"Shares" means shares of the Common Stock, par value $0.10 per share, of the
Company.
"Stock Option Document" means a written agreement or certificate with an
Eligible Employee from the Company evidencing an Option.
ARTICLE 3
ADMINISTRATION OF THE PLAN
SECTION 3.1. ADMINISTRATOR OF THE PLAN. The Plan shall be administered by
the Committee.
SECTION 3.2. AUTHORITY OF COMMITTEE. The Committee shall have full power and
authority to: (i) interpret and construe the Plan and adopt such rules and
regulations as it shall deem necessary and advisable to implement and administer
the Plan, and (ii) designate persons other than members of the Committee or the
Board to carry out its responsibilities, subject to such limitations,
restrictions and conditions as it may prescribe, such determinations to be made
in accordance with the Committee's best business judgment as to the best
interests of the Company and its stockholders and in accordance with the
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purposes of the Plan. The Committee may delegate administrative duties under the
Plan to one or more agents as it shall deem necessary or advisable.
SECTION 3.3. EFFECT OF COMMITTEE DETERMINATIONS. No member of the Committee
or the Board or the Plan Administrator shall be personally liable for any action
or determination made in good faith with respect to the Plan or any Option or to
any settlement of any dispute between an Eligible Employee and the Company. Any
decision or action taken by the Committee or the Board with respect to an Option
or the administration or interpretation of the Plan shall be conclusive and
binding upon all persons.
ARTICLE 4
PARTICIPATION
SECTION 4.1. DEFERRED BONUS. An Eligible Employee may elect to defer up to
100% (in whole 1% increments) of his or her Bonus by conversion to Options in
accordance with the terms of the Plan.
SECTION 4.2. ELECTION TO PARTICIPATE. An Eligible Employee who wishes to
defer Bonus for a calendar year must irrevocably elect to do so during the
Election Period for such calendar year, by delivering a valid Election Form to
the Plan Administrator. The Election Form shall indicate the percentage of Bonus
to be converted to Options under the Plan. An Eligible Employee's participation
in the Plan will be effective as of the first day of the year beginning after
the Plan Administrator receives the Eligible Employee's Election Form.
SECTION 4.3. IRREVOCABLE, ANNUAL ELECTION. Bonus deferral elections are
irrevocable and shall be valid only for one year. New deferral elections must be
made for participation in the Plan for subsequent years.
SECTION 4.4. NO RIGHT TO CONTINUE AS AN EMPLOYEE. Nothing contained in the
Plan shall be deemed to give any Eligible Employee the right to be retained as
an employee of the Company or any of its affiliates.
SECTION 4.5. NO RIGHTS AS STOCKHOLDER. No Option granted under the Plan will
give the Optionee any of the rights of a stockholder of the Company unless and
until Shares of Common Stock are in fact issued to such person upon exercise of
such Option.
SECTION 4.6. RESPONSIBILITY FOR INVESTMENT CHOICES. Each Participant is
solely responsible for any decision to elect options in lieu of Bonus under the
Plan and accepts all investment risks entailed by such decision, including the
risk of loss and a decrease in the value of the amounts he or she elects to
receive in options.
ARTICLE 5
ELECTIVE OPTIONS
Each Eligible Employee shall be granted Options subject to the following
terms and conditions:
SECTION 5.1. TIME OF GRANT. Options shall be granted to each Eligible
Employee who, during the applicable Election Period, filed with the Committee or
its designee a written irrevocable election to receive Options in lieu of all or
a portion of such Eligible Employee's Bonus payable in the following year. Such
Options will be granted on the later of (i) the effective date of the Plan, or
(ii) the date(s) on which the Committee approves the grant of Options. The
Committee shall meet periodically during each year to approve the grant of
Options under the Plan. Bonus amounts deferred by Eligible Employees that would
otherwise become payable between such Committee meetings will be deferred,
without interest, until the Committee next approves the grant of Options under
the Plan.
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SECTION 5.2. NUMBER OF OPTIONS. The number of Shares subject to an Option
granted pursuant to this Article 5 shall be the number of whole Shares equal to:
A divided by (B times C), where:
A = the dollar amount of the Bonus which the Eligible Employee has elected
pursuant to Section 5.1 shall be payable in Options; and
B = a fraction to be determined by the Committee from time to time (31.7%
for calendar year 1997 and until subsequently changed by the Committee);
and
C = the Fair Market Value per Share on the Option Grant Date.
In determining the number of Shares subject to an Option, any fraction of a
Share will be rounded up to the next whole number of Shares.
For 1997 Bonus deferrals, the conversion factor will be 31.7% of the Fair
Market Value of the Common Stock, rounded to the nearest whole Share, as
illustrated by the following example:
Assume that a Participant has elected to defer $10,000 of his or her Bonus
and that the Fair Market Value on the Option Grant Date is $30. Using a
conversion factor of 31.7%, the Participant would be granted 1,052 Options in
lieu of the $10,000 Bonus. $10,000 divided by (31.7% x $30 FMV) [$9.51] = 1,052
Options granted.
SECTION 5.3. EXERCISE PRICE. The total price paid by Optionees for shares
acquired under this plan shall be equal to the Fair Market Value of the stock on
the date of the option grant. Fifteen (15%) of the price will be paid at the
time of and in the form of foregoing bonus prior to the grant of the option. The
remaining exercise price per Share under each Option granted pursuant to this
Article 5 shall be 85% of the Fair Market Value per Share on the Option Grant
Date.
SECTION 5.4. EXERCISE OF OPTIONS. Each Option shall be fully exercisable on
and after that date which is 90 days after the Option Grant Date and shall not
be exercisable prior to such date. Exercisable Options will remain exercisable
for 20 years from the Option Grant Date unless sooner terminated as described
below:
(i) in the event of the Participant's termination of employment for any
reason other than death, Disability or Retirement, the Options will expire
on the earlier of (i) the expiration of the 20-year term, or (ii) the third
anniversary of the date of the Participant's termination of employment;
(ii) in the event of the Participant's Retirement, the Options will
expire on the later of (i) the expiration of the 20-year term, or (ii) the
third anniversary of the date of the Participant's Retirement; and
(iii) in the event of the Participant's death or Disability, the Options
will expire on the third anniversary of the date of the Participant's death
or Disability.
If a Participant exercises an Option after termination of employment, the
Option may be exercised only with respect to the Shares that were exercisable on
the date of the Participant's termination of employment. An Option, or portion
thereof, may be exercised in whole or in part only with respect to whole Shares.
SECTION 5.5. PAYMENT OF EXERCISE PRICE. Shares shall be issued to the
Optionee pursuant to the exercise of an Option only upon receipt by the Company
from the Optionee of payment in full of the exercise price.
A-4
The exercise price shall be payable in United States dollars upon the exercise
of the Option and may be paid in cash, by check, or in Shares having a total
Fair Market Value on the date of exercise equal to the exercise price; provided
such Shares surrendered in payment of the exercise price have been held by the
Optionee for at least six months. The Company may also permit the exercise price
of an Option to be paid by withholding Shares (that would otherwise be obtained
upon such exercise) having a Fair Market Value equal to the aggregate exercise
price of the exercised Option. The Company may permit Optionees to use cashless
exercise methods that are permitted by law and in connection therewith the
Company may establish a cashless exercise program including a program where the
commissions on the sale of stock subject to an exercised Option are paid by the
Company.
SECTION 5.6. STOCK OPTION DOCUMENT. Each Option granted under the Plan shall
be evidenced by a Stock Option Document which shall be executed by an authorized
officer of the Company. Such Stock Option Document shall contain provisions
regarding (a) the number of Shares that may be issued upon exercise of the
Option, (b) the exercise price per Share of the Option and the means of payment
therefor, (c) the term of the Option, and (d) such other terms and conditions
not inconsistent with the Plan as may be determined from time to time by the
Committee.
SECTION 5.7. TRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable by the Optionee other than by will or the laws of descent and
distribution; provided, however, that the Committee may (but need not) permit
other transfers where the Committee concludes that such transferability (i) does
not result in accelerated taxation, and (ii) is otherwise appropriate and
desirable, taking into account any state or federal securities laws applicable
to transferable Options.
ARTICLE 6
SHARES SUBJECT TO THE PLAN
SECTION 6.1. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided
in Article 8, the aggregate number of Shares which may be issued upon the
exercise of Options shall not exceed 3,000,000 Shares, and there are hereby
reserved for issuance under the Plan 3,000,000 Shares. To the extent that Shares
subject to an outstanding Option are not issued or delivered by reason of the
expiration, termination, cancellation or forfeiture of such Option or by reason
of the delivery of Shares (either actually or by attestation) to pay all or a
portion of the exercise price of such Option, then such Shares shall again be
available under the Plan. The maximum number of Options that may be granted
during any one calendar year under the Plan to any one Eligible Employee shall
be 1,000,000.
ARTICLE 7
AMENDMENT AND TERMINATION
SECTION 7.1. TERMINATION, SUSPENSION AND AMENDMENT. The Committee may
terminate or suspend the Plan at any time, without stockholder approval. The
Committee may amend the Plan at any time and for any reason without stockholder
approval; provided, however, that the Committee may condition any amendment on
the approval of stockholders of the Company if such approval is necessary or
deemed advisable with respect to tax, securities or other applicable laws,
policies or regulations. No amendment or termination of the Plan shall adversely
affect any Option previously granted under the Plan, without the written consent
of the Optionee. No action authorized by this Article shall adversely change the
terms and conditions of an outstanding Option without the Optionee's consent.
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SECTION 7.2. EXPIRATION. Unless earlier terminated by the Board, the Plan
shall expire on the tenth anniversary of its effective date. No Options may be
granted under the Plan thereafter, but Options granted prior thereto shall
continue to be exercisable and may be exercised according to their terms.
ARTICLE 8
ADJUSTMENT PROVISIONS
SECTION 8.1. CHANGE IN CORPORATE STRUCTURE AFFECTING SHARES. If the Company
shall at any time change the number of issued Shares without new consideration
to the Company (such as by stock dividend, stock split, recapitalization,
reorganization, exchange of shares, liquidation, combination or other change in
corporate structure affecting the Shares) or make a distribution of cash or
property which has a substantial impact on the value of issued Shares, the total
number of Shares reserved for issuance under the Plan shall be appropriately
adjusted and the number of Shares covered by each outstanding Option and the
purchase price per Share under each outstanding Option and the number of Shares
underlying Options to be issued annually pursuant to Section 5.1 shall be
adjusted so that the aggregate consideration payable to the Company and the
value of each such Option shall not be changed.
SECTION 8.2. CERTAIN REORGANIZATIONS. Notwithstanding any other provision of
the Plan, and without affecting the number of Shares reserved or available
hereunder, the Committee shall authorize the issuance, continuation or
assumption of outstanding Options or provide for other equitable adjustments
after changes in the Shares resulting from any merger, consolidation, sale of
assets, acquisition of property or stock, recapitalization, reorganization or
similar occurrence in which the Company is the continuing or surviving
corporation, upon such terms and conditions as it may deem necessary to preserve
Optionees' rights under the Plan.
SECTION 8.3. ACQUISITIONS. In the case of any sale of assets, merger,
consolidation or combination of the Company with or into another corporation
other than a transaction in which the Company is the continuing or surviving
corporation and which does not result in the outstanding Shares being converted
into or exchanged for different securities, cash or other property, or any
combination thereof (an "Acquisition"), any Optionee who holds an outstanding
Option shall have the right (subject to the provisions of the Plan and any
limitation applicable to the Option) thereafter and during the term of the
Option, to receive upon exercise thereof the Acquisition Consideration (as
defined below) receivable upon the Acquisition by a holder of the number of
Shares which would have been obtained upon exercise of the Option or portion
thereof, as the case may be, immediately prior to the Acquisition. The term
"Acquisition Consideration" shall mean the kind and amount of shares of the
surviving or new corporation, cash, securities, evidence of indebtedness, other
property or any combination thereof receivable in respect of one Share of the
Company upon consummation of an Acquisition.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. EFFECTIVE DATE. The Plan shall be submitted to the stockholders
of the Company for approval and, if approved by the affirmative vote of the
holders of a majority of the Shares represented and entitled to vote at the 1997
annual meeting of stockholders, shall become effective as of the date of
approval by the stockholders. If stockholder approval is not obtained at the
1997 annual meeting of stockholders, the Plan shall be null and void.
A-6
SECTION 9.2. WITHHOLDING. The Committee has the authority to deduct or
withhold, or require a Participant to remit to the Company, an amount sufficient
to satisfy federal, state, and local taxes (including the Participant's FICA
obligation) required by law to be withheld with respect to any taxable event
arising as a result of the Plan.
SECTION 9.3. COMPLIANCE WITH SEC REGULATIONS. All grants and exercises of
Options under the Plan shall be executed in accordance with the requirements of
Section 16 of the Exchange Act, as amended and any regulations promulgated
thereunder, to the extent applicable. To the extent that any of the provisions
contained herein do not conform with Rule 16b-3 of the Exchange Act or any
amendments thereto or any successor regulation, then the Committee may make such
modifications so as to conform the Plan and any Options granted thereunder to
the Rule's requirements.
SECTION 9.4. VALIDITY. In the event that any provision of the Plan or any
related Stock Option Document is held to be invalid, void or unenforceable, the
same shall not affect, in any respect whatsoever, the validity of any other
provision of the Plan or any related Stock Option Document.
SECTION 9.5. INUREMENT OF RIGHTS AND OBLIGATIONS. The rights and obligations
under the Plan and any related agreements shall inure to the benefit of, and
shall be binding upon the Company, its successors and assigns, and the Eligible
Employees and their beneficiaries.
SECTION 9.6. TITLES. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of the Plan.
SECTION 9.7. GOVERNING LAW. The Plan shall be construed, governed and
enforced in accordance with the law of Delaware, except as such laws are
preempted by applicable federal law.
A-7
LOCATION OF EMBASSY SUITES HOTEL--MEMPHIS, TENNESSEE
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The following trademarks used in this document are owned by Promus Hotel
Corporation, its direct or indirect
subsidiaries, or affiliates: Promus-Registered Trademark-, Embassy
Suites-Registered Trademark-, Embassy Vacation Resort-Registered Trademark-,
Hampton Inn-Registered Trademark-, Hampton Inn & Suites-Registered Trademark-,
and Homewood Suites-Registered Trademark-.
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[PHOTO] [PHOTO] [PHOTO] [PHOTO] [PHOTO]
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PROMUS HOTEL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Promus Hotel Corporation hereby appoints
Michael D. Rose, Raymond E. Schultz and Ralph B. Lake or any one of them, true
and lawful proxies and attorneys, with full power of substitution to each, for,
and in the name, place and stead of the undersigned, and with all the powers the
undersigned would possess if present, to vote all stock of the undersigned in
the Company at the Annual Meeting of Stockholders to be held on April 23, 1997,
and any adjournment thereof. This Proxy also constitutes confidential voting
instructions for the use of participants in the Company's Employee Stock
Ownership Plan.
The shares represented by this signed Proxy will be voted in accordance with
the choices specified on the reverse side and such authority is hereby granted.
If a choice is not specified, such shares will be voted FOR proposals 1, 2 and 3
and in accordance with the proxy's discretion on any other matter that may
properly come before the meeting, and authority is hereby granted to do so.
MANAGEMENT RECOMMENDS A VOTE FOR THE DIRECTOR NOMINEES, FOR APPROVAL OF THE
BONUS REPLACEMENT OPTIONS PLAN AND FOR APPROVAL OF RATIFICATION OF ARTHUR
ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
The undersigned hereby acknowledges receipt of the notice for the Annual
Meeting, Proxy Statement and Annual Report to Stockholders.
(CONTINUED AND TO BE SIGNED AND DATED ON OTHER SIDE)
/ / Please mark votes as in this example in blue or black ink.
The Board of Directors unanimously recommends a vote FOR all items.
1. Election of four Class II Directors to serve until the 2000 Annual Meeting of
Shareholders.
Nominees: U. Bertram Ellis, Jr. Michael D. Rose Michael I. Roth Ronald
Terry
1.
/ / FOR all nominees / / WITHHELD from all nominees
/ / FOR, except vote withheld from the following
nominee(s):_____________________________________________
2. Approval of the Bonus Replacement Options Plan.
2.
/ / FOR / / AGAINST / / ABSTAIN
3. Ratification of appointment of Arthur Andersen LLP as auditors.
3.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, to act upon such other matters as may properly come before the
meeting and any adjournment thereof.
4.
Mark here for address change
and note at left / /. The
undersigned hereby
acknowledges receipt of notice
of said meeting and the
related proxy statement.
______________________________
(Signature) (Date)
______________________________
(Signature) (Date)
Please sign the Proxy as your
name appears hereon. When
signing as Attorney, Executor,
Administrator, Trustee or
Guardian, please give title.
All Joint Owners should sign.