<PAGE> 1
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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
BRISTOL HOTEL COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
BRISTOL HOTEL COMPANY
14285 MIDWAY ROAD
DALLAS, TEXAS 75244
April 7, 1997
Dear Stockholder:
You are invited to attend Bristol's 1997 annual meeting of stockholders
to be held at 9:00 a.m., local time, on April 28, 1997 at the Company's Harvey
Hotel - Addison, located at 14315 Midway Road, Dallas, Texas.
In addition to the election of Directors and other matters normally
presented, at the 1997 annual meeting, stockholders will vote on the adoption
of the previously announced agreement under which the Company would acquire
Holiday Inns, Inc. The Board of Directors of the Company believes that the
Holiday Inns acquisition substantially enhances the Company's leadership
position in the United States lodging industry and positions the Company for
further growth. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY DETERMINED THAT THE
ACQUISITION IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ADOPTION OF THE AGREEMENT, AS WELL AS
THE OTHER MATTERS EXPECTED TO BE VOTED UPON AT THE MEETING.
The adoption of the Holiday Inns acquisition agreement requires the
affirmative vote of the holders of a majority of the shares of Common Stock
outstanding on March 14, 1997, the record date for the annual meeting. The
holder of a majority of such shares has agreed to vote in favor of the adoption
of the acquisition agreement and the other matters expected to be voted upon at
the meeting. Accordingly, such actions are expected to be approved
irrespective of whether or the manner in which other stockholders vote.
We hope that you are able to attend the annual meeting. Whether or not
you are able to attend the meeting, please sign, date and return your proxy
card in the enclosed postage paid envelope as soon as possible. If you later
decide to attend the meeting and vote in person, or if you wish to revoke your
proxy for any reason prior to the vote at the meeting, you may do so and your
proxy will have no further effect. If you attend the meeting, you may vote in
person, if you wish, even though you previously mailed your proxy.
The matters to be considered at the annual meeting are described in the
enclosed proxy materials, which all stockholders are urged to review carefully.
Very truly yours,
J. Peter Kline
President and Chief Executive Officer
<PAGE> 3
BRISTOL HOTEL COMPANY
14285 MIDWAY ROAD
DALLAS, TEXAS 75244
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Bristol Hotel Company:
Notice is hereby given that the 1997 annual meeting of stockholders
(including any adjournments or postponements thereof, the "Annual Meeting") of
Bristol Hotel Company ("Bristol") will be held at 9:00 a.m., local time, on
April 28, 1997 at the Harvey Hotel - Addison, located at 14315 Midway Road,
Dallas, Texas for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger (the "Merger Agreement") providing for the
acquisition of Holiday Inns, Inc. ("Holiday Inns") by Bristol.
Pursuant to the Merger Agreement, among other things, (i) Holiday
Inns will merge with and into Bristol (the "Merger"), (ii) the
shares of Holiday Inns Common Stock outstanding immediately prior
to the Merger will be converted into the right to receive an
aggregate of 2,391,286 shares of Bristol Common Stock, and (iii)
Bristol's Board of Directors (the "Board") will be reconstituted
so as to consist of the current members thereof and three
persons designated for election thereto by Holiday Corporation,
Holiday Inns' parent company, and Bass America Inc., an affiliate
of Holiday Inns and Holiday Corporation ("BAI" and, together with
Holiday Corporation, the "Holiday Entities"). In addition,
immediately following the Merger, Bristol will issue an
additional 6,981,832 shares of Bristol Common Stock to BAI in
satisfaction of a portion of the Holiday Inns debt assumed by
Bristol in the Merger;
2. To consider and vote upon a proposal to amend Bristol's
certificate of incorporation (the "Bristol Charter") to
increase the number of authorized shares of Bristol Common
Stock from 75,000,000 to 150,000,000 and to remove the provisions
in the Bristol Charter relating to the classification of the
Board (the "Charter Amendment");
3. To elect two directors;
4. To ratify the appointment of Arthur Andersen LLP as Bristol's
independent accountants; and
5. To transact such other business as may properly come before the
Annual Meeting.
Information regarding the matters to be acted upon at the Annual Meeting is
contained in the Proxy Statement accompanying this notice. A copy of the
Merger Agreement is attached as Annex A thereto. Stockholders are urged to
review these materials carefully.
A list of stockholders entitled to vote at the Annual Meeting will be
available for inspection during ordinary business hours for the ten days prior
to the Annual Meeting at Bristol's offices located at 14285 Midway Road, Suite
300, Dallas, Texas 75244.
The adoption of the Merger Agreement requires the affirmative vote of
the holders of record of a majority of the shares of Bristol Common Stock
outstanding on March 14, 1997, the record date for the Annual Meeting (the
"Record Date"). The holder of a majority of such shares has agreed to vote
such shares in favor of the adoption of the Merger Agreement and the matters
referred to in Paragraphs 2, 3 and 4 above. Accordingly, the adoption of the
Merger Agreement and the approval of such other matters are expected to occur
irrespective of whether or the manner in which other Bristol stockholders vote.
By Order of the Board of Directors,
Joel M. Eastman
Secretary
Dallas, Texas
April 7, 1997
<PAGE> 4
PROXY STATEMENT OF
BRISTOL HOTEL COMPANY
1997 ANNUAL MEETING OF STOCKHOLDERS
--------------------
This Proxy Statement is being furnished to all holders of Bristol Common
Stock in connection with the solicitation of proxies by the Board for use at
the Annual Meeting to be held on April 28, 1997.
This Proxy Statement relates, among other things, to the Merger
Agreement, a copy of which is attached hereto as Annex A, among Bristol,
Holiday Corporation and Holiday Inns, pursuant to which, among other things,
(i) Holiday Inns will merge with and into Bristol, (ii) the shares of Holiday
Inns Common Stock outstanding immediately prior to the Merger will be converted
into the right to receive an aggregate of 2,391,286 shares of Bristol Common
Stock (the "Merger Shares"), and (iii) the Board will be reconstituted so as to
consist of the current members thereof and three persons designated for
election by the Holiday Entities. In addition, immediately following the
Merger, Bristol will issue an additional 6,981,832 shares of Bristol Common
Stock (the "Debt Exchange Shares") to BAI in satisfaction of a portion of the
Holiday Inns debt assumed by Bristol in the Merger (the "Debt Exchange") and
use $300 million cash provided by a new credit facility to satisfy the
remainder of Holiday Inns' intercompany debt. This Proxy Statement also
relates to a proposal to amend the Bristol Charter to increase the number of
authorized shares of Bristol Common Stock and to remove the provisions therein
relating to the classification of the Board, the election of two members of the
Board and the ratification of the appointment of Arthur Andersen LLP as
Bristol's independent accountants.
The Merger Shares and the Debt Exchange Shares are expected to represent
9.2% and 26.9%, respectively, of the shares of Bristol Common Stock outstanding
after the Merger and the Debt Exchange. Based on the closing sale price of the
Bristol Common Stock on April 4, 1997, the Merger Shares had an aggregate
market value of $97.4 million and the Debt Exchange Shares had an aggregate
market value of $284.5 million. The Merger Shares and the Debt Exchange Shares
constitute all of the shares of Bristol Common Stock that will be issued to the
Holiday Entities in connection with the Merger, the Debt Exchange and the
related transactions. Such shares are expected to represent 36.1% of the
Bristol Common Stock outstanding immediately after such transactions.
Bristol's largest stockholder has agreed to vote the shares of Bristol
Common Stock which it owns or has the power to vote or direct the vote, which
shares constitute 51.2% of the outstanding Bristol Common Stock as of the
Record Date, in favor of the adoption of the Merger Agreement and the other
proposals discussed in this Proxy Statement, and the executive officers and
directors of Bristol, who together beneficially own and have the power to vote
or direct the vote of shares constituting an additional 13.3% of the Bristol
Common Stock outstanding on the Record Date, have informed Bristol that they
also intend so to vote such shares. Accordingly, adoption of the Merger
Agreement and the approval of such other matters are assured irrespective of
whether or the manner in which other stockholders vote at the Annual Meeting.
This Proxy Statement, the accompanying form of proxy and Bristol's 1996
annual report to stockholders are first being mailed to stockholders of Bristol
on or about April 7, 1997.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY ................................................................... 1
The Annual Meeting ................................................. 1
The Acquisition .................................................... 2
The Merger Agreement ............................................... 5
CERTAIN FINANCIAL DATA .................................................... 8
Historical Financial Data .......................................... 8
Selected Pro Forma Financial Data .................................. 8
THE ANNUAL MEETING ........................................................ 10
Date, Time and Place ............................................... 10
Matters to be Considered at the Annual Meeting ..................... 10
Record Date; Stock Entitled to Vote; Quorum ........................ 10
Votes Required ..................................................... 10
Voting of Proxies .................................................. 11
Revocability of Proxies ............................................ 11
Solicitation of Proxies ............................................ 11
THE ACQUISITION ........................................................... 12
General ............................................................ 12
The Combined Company ............................................... 12
Background of the Acquisition ...................................... 12
Reasons for the Acquisition; Recommendations of the Board .......... 13
Opinion of Financial Advisor ....................................... 15
Anticipated Accounting Treatment ................................... 19
Interests of Certain Persons in the Acquisition .................... 19
THE MERGER AGREEMENT ...................................................... 22
General ............................................................ 22
The Parties ........................................................ 22
Structure of the Merger ............................................ 22
Effective Time ..................................................... 22
Merger Consideration; Debt Exchange ................................ 22
Working Capital .................................................... 23
Capital Expenditures ............................................... 23
New Credit Facility ................................................ 23
Certain Federal Income Tax Consequences ............................ 24
Representations and Warranties ..................................... 24
Conduct of Business Pending the Merger ............................. 24
Employee Benefits .................................................. 26
Conditions to the Consummation of the Merger ....................... 26
Indemnification .................................................... 28
Termination ........................................................ 28
Amendment and Waiver ............................................... 29
Expenses ........................................................... 29
Appraisal Rights ................................................... 29
Required Regulatory Approvals ...................................... 29
Amendment of Bristol Bylaws ........................................ 29
Other Agreements ................................................... 29
</TABLE>
(i)
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMENDMENT OF BRISTOL CHARTER .............................................. 33
THE ACQUIRED BUSINESS ..................................................... 34
BOARD OF DIRECTORS ........................................................ 39
Election of Directors .............................................. 39
Board Committees ................................................... 39
Director Nomination Procedures ..................................... 40
Director Compensation .............................................. 40
Executive Compensation ............................................. 40
Stock Option Grants ................................................ 42
Compensation Plans and Arrangements ................................ 43
REPORT ON EXECUTIVE COMPENSATION .......................................... 43
Base Salary ........................................................ 43
Bonus Program ...................................................... 44
Stock Options ...................................................... 44
Employment Agreements .............................................. 44
Tax Effects ........................................................ 44
MARKET PRICES FOR BRISTOL COMMON STOCK .................................... 45
PERFORMANCE GRAPH ......................................................... 45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............ 46
CERTAIN RELATIONSHIPS AND TRANSACTIONS .................................... 48
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS .................... 48
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE ............................. 49
MISCELLANEOUS ............................................................. 49
Stockholder Proposals for 1998 Annual Meeting ...................... 49
Other Business ..................................................... 49
CERTAIN FORWARD-LOOKING STATEMENTS ........................................ 49
ADDITIONAL INFORMATION .................................................... 50
INDEX TO FINANCIAL DATA ................................................... F-1
ANNEXES
Agreement and Plan of Merger ....................................... A-1
Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated ...... B-1
</TABLE>
(ii)
<PAGE> 7
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement. Reference is made to, and
this Summary is qualified in its entirety by, the more detailed information
contained or incorporated by reference in this Proxy Statement and the Annexes
hereto. Stockholders are urged to read this Proxy Statement and the Annexes
hereto in their entireties.
THE ANNUAL MEETING
Date, Time and Place ................ The Annual Meeting will be held at
9:00 a.m., local time, on April 28,
1997 at the Harvey Hotel - Addison,
located at 14315 Midway Road, Dallas,
Texas.
Matters to be Considered at the
Annual Meeting ...................... At the Annual Meeting, holders of
Bristol Common Stock are being asked
to adopt the Merger Agreement and the
Charter Amendment, elect directors and
ratify the appointment of Bristol's
independent accountants. See "The
Annual Meeting -- Matters to be
Considered at the Annual Meeting."
Record Date ......................... Only holders of record of Bristol
Common Stock at the close of business
on March 14, 1997 are entitled to
receive notice of and to vote at the
Annual Meeting. See "The Annual
Meeting -- Record Date; Stock Entitled
to Vote; Quorum."
Votes Required ...................... Holders of Bristol Common Stock as of
the Record Date are entitled to one
vote per share on each matter to be
voted on at the Annual Meeting. The
adoption of the Merger Agreement and
the Charter Amendment requires the
affirmative vote of the holders of a
majority of the shares of Bristol
Common Stock outstanding on the Record
Date (a "Majority Vote"). The
affirmative vote of the holders of a
majority of the shares of Bristol
Common Stock represented at the Annual
Meeting and actually voted (a
"Plurality Vote") is required for the
election of directors and the
ratification of the appointment of
independent accountants and the
approval of any other matter brought
to a vote at the Annual Meeting. See
"The Annual Meeting -- Votes
Required."
Security Ownership of Management
and Others .......................... On the Record Date, directors and
executive officers of Bristol and
their affiliates beneficially owned
and had the right to vote or direct
the vote of, in the aggregate, shares
of Bristol Common Stock representing
approximately 13.3% of the shares of
Bristol Common Stock then outstanding,
and United/Harvey Holdings, L.P.
("Holdings"), Bristol's largest
stockholder, beneficially owned and
had the right to vote or direct the
vote of shares of Bristol Common Stock
representing approximately 51.2% of
such shares. Holdings has agreed to
vote such shares in favor of the
adoption of the Merger Agreement and
the Charter Amendment, the election of
directors and the ratification of the
appointment of independent accountants
as contemplated herein, and the
executive officers and directors of
Bristol have informed Bristol that
they also intend so
<PAGE> 8
to vote their shares. Accordingly, each
such matter is expected to be approved
irrespective of whether or the manner
in which other stockholders vote. See
"The Annual Meeting -- Share Ownership
of Management and Others" and
"Security Ownership of Certain
Beneficial Owners and Management."
THE ACQUISITION
The Merger .......................... In the Merger, (i) Holiday Inns will
be merged with and into Bristol, (ii)
the shares of Holiday Inns Common
Stock outstanding immediately prior to
the Merger will be converted into the
right to receive an aggregate of
2,391,286 shares of Bristol Common
Stock, and (iii) the Board will be
reconstituted so as to consist of the
current members thereof and three
persons designated for election by
Holiday Corporation. Immediately
following the Merger, Bristol will
issue an additional 6,981,832 shares
of Bristol Common Stock to BAI in
satisfaction of a portion of the
Holiday Inns debt assumed by Bristol
in the Merger. The Merger Shares and
the Debt Exchange Shares are expected
to represent 9.2% and 26.9%,
respectively, of the Bristol Common
Stock outstanding after the Merger and
the Debt Exchange.
Asset Purchases ..................... In connection with the Merger, Holiday
Inns B.V. and Holiday Inns of Canada,
Ltd., affiliates of Holiday Inns and
Holiday Corporation, will enter into
agreements of purchase and sale (the
"Asset Purchase Agreements") with
Bristol pursuant to which Bristol will
acquire at the effective time of the
Merger (the "Effective Time") seven
hotels owned by such entities for an
aggregate of $91 million in cash. See
"The Merger Agreement -- Other
Agreements -- Asset Purchase
Agreements." The Merger and the
acquisition of such hotels are
collectively referred to herein as the
"Acquisition." The combined business
conducted by Holiday Inns and such
hotels immediately prior to the
Effective Time is referred to herein
as the "Acquired Business."
Bristol ........................... Bristol is a leading owner/operator of
hotels in the southern United States,
with 39 hotels containing a total of
approximately 10,000 rooms. Bristol's
properties are primarily full-service
hotels in the upscale and mid-priced
segments of the lodging industry that
presently operate under Bristol's own
brand names, including Bristol
Suites(TM), Harvey Hotel(TM) and
Harvey Suites(TM), and under franchise
agreements with national hotel chains,
including Holiday Inn(TM), Hampton
Inn(TM) and Marriott(TM). Bristol's
hotels are located in eight states,
with 28 hotels concentrated in the
Dallas, Houston and Atlanta markets.
Bristol owns all but one of the 39
hotels it manages.
2
<PAGE> 9
Holiday Inns ...................... Holiday Inns is a leading
owner/operator of hotels in the mid-
priced segment of the lodging industry
under the Holiday Inn(TM) and Holiday
Inn Select(TM) brand names. At the
Effective Time, it is anticipated that
the Acquired Business will own, lease
and/or manage 61 hotels containing a
total of over 18,000 rooms (the
"Acquired Hotel Assets"). Of these
properties, 45 hotels are owned or
leased by the Acquired Business, 13
hotels are managed (but not owned) by
the Acquired Business and three hotels
are managed by the Acquired Business
and owned by partnerships in which the
Acquired Business owns an equity
interest. The 61 hotels are located
in 19 states, the District of Columbia
and Canada, with concentrations in the
southern and southwestern United
States and California, and operate
under Holiday Inns' brands.
Holiday Inns was organized as a
Tennessee corporation in 1953. In
addition to owning, leasing or
managing certain of the Acquired Hotel
Assets, Holiday Inns presently
conducts certain franchise and other
business activities. These other
businesses, and the related assets and
liabilities, will be transferred out
of Holiday Inns immediately prior to
the Acquisition. Holiday Corporation
will indemnify Bristol and certain
related persons in respect of
liabilities and obligations unrelated
to the business to be acquired by
Bristol in the Acquisition (the
"Contributed Liabilities"). Because
Holiday Inns is not a publicly traded
company, no solicitation of its
stockholders will be made in
connection with the Acquisition; such
stockholders have already voted in
favor of adoption of the Merger
Agreement.
The Combined Company ................ Following the Acquisition, Bristol
will be the largest Holiday Inn
franchisee in the world and one of the
largest owner/operators of full-
service hotels in the United States.
Bristol's portfolio will consist of 82
owned hotels containing approximately
24,000 rooms, 14 hotel management
contracts and three Bristol-managed
hotels owned by joint ventures.
Bristol plans to spend at least $150
million over the next three years to
redevelop a substantial number of the
Acquired Hotel Assets. In connection
with the Acquisition, Bristol and
Holiday Corporation entered into
various agreements under which,
subject to certain limitations,
Bristol will have the right to pursue
certain hotel acquisition and
development opportunities presented to
Holiday Corporation and affiliated
entities, and an affiliate of Holiday
Corporation will have the right, with
certain limitations, to franchise each
hotel owned or managed by Bristol.
See "The Merger Agreement -- Other
Agreements -- Hotel Properties
Agreement." Following the Acquisition,
Bristol intends to reflag a number of
its hotels with a Holiday Inn, Holiday
Inn Select or Crowne Plaza brand, to
continue to pursue additional
acquisitions of properties or hotel
management contracts and to pursue
possible capital markets and other
transactions designed to enhance
further Bristol's financial
flexibility and stockholder value.
Such transactions could include, among
others, the issuance of additional
debt or equity securities by Bristol
or the securitization of certain
assets, including Acquired Hotel
Assets.
3
<PAGE> 10
Recommendations of the
Board ............................... The Board has unanimously determined
that the Acquisition is in the best
interests of Bristol and its
stockholders and recommends that
Bristol's stockholders vote "for"
adoption of the Merger Agreement. See
"The Acquisition -- Reasons for the
Acquisition; Recommendations of the
Board." The Board also recommends that
stockholders vote in favor of the
adoption of the Charter Amendment, the
election of directors and the
ratification of the appointment of
independent accountants as
contemplated herein.
Opinion of Financial Advisor ........ On December 14, 1996, Merrill Lynch,
Pierce, Fenner & Smith Incorporated
("Merrill Lynch") delivered its
opinion to the Board that, as of such
date, the proposed consideration to be
paid by Bristol pursuant to the
Acquisition was fair to Bristol from a
financial point of view. Such opinion
was subsequently reconfirmed as of the
date of this Proxy Statement by
Merrill Lynch. A copy of Merrill
Lynch's opinion, which sets forth the
assumptions and qualifications made,
matters considered and limitations on
the review by Merrill Lynch in
rendering its opinion, is attached as
Annex B to this Proxy Statement, is
incorporated herein by reference and
should be carefully read in its
entirety. Bristol has agreed to pay
certain fees to Merrill Lynch for its
services in connection with the
Acquisition, a substantial portion of
which are contingent upon consummation
of the Acquisition. See "The
Acquisition -- Opinion of Financial
Advisor."
Anticipated Accounting Treatment ... The Acquisition will be accounted for
by Bristol using the purchase method
of accounting. See "The Acquisition
-- Anticipated Accounting Treatment."
Interests of Certain Persons
in the Acquisition .................. Certain directors and executive
officers of Bristol, Holiday
Corporation, BAI and Holdings have
certain interests in the Acquisition
that are different from, or in
addition to, the interests of
stockholders of Bristol generally.
Such interests relate to or arise from
the terms of the Merger Agreement and
related agreements providing for (i)
certain employment agreements for
Bristol's chief executive officer and
chief operating officer (which, among
other things, provide for an increase
in the annual base pay of each of such
officers of approximately $200,000),
(ii) the Board to consist of nine
members, initially consisting of
Bristol's chief executive officer and
chief operating officer, three
directors to be designated by Holdings
(who currently serve on the Board),
three directors to be designated by
the Holiday Entitiesand one director
to be designated by Bristol's chief
executive officer and chief operating
officer and certain other provisions
relating to the governance of Bristol
after the Merger, (iii) the election
of Donald J. McNamara, a principal of
an affiliate of Holdings, as Chairman
of the Board, so long as he is a
director of Bristol, (iv) the grant to
each of Holdings and the Holiday
Entities of preemptive rights in the
event of certain issuances of Bristol
Common Stock for cash,
4
<PAGE> 11
(v) the grant to an affiliate of
Holiday Corporation of the right,
subject to certain limitations, to
franchise each hotel owned or managed
by Bristol, and (vi) the Acquired
Hotel Assets to be operated under
Holiday Inns' brands with franchise
fees payable to affiliates of the
Holiday Entities. In addition, in
connection with the Acquisition,
Bristol and Holiday Hospitality Corp.
("HHC"), a subsidiary of Holiday Inns,
will enter into an agreement pursuant
to which certain services will be
provided to Bristol for a transitional
period following the Acquisition. See
"The Acquisition -- Interests of
Certain Persons in the Acquisition"
and "The Merger Agreement -- Other
Agreements -- Stockholders' Agreement"
and "-- Hotel Properties Agreement."
THE MERGER AGREEMENT
The Merger .......................... At the Effective Time, Holiday Inns
will merge with and into Bristol, with
Bristol being the surviving
corporation.
Conversion of Shares ................ At the Effective Time, the outstanding
shares of Holiday Inns Common Stock
will be converted into the right to
receive an aggregate of 2,391,286
shares of Bristol Common Stock. See
"The Merger Agreement -- Merger
Consideration; Debt Exchange." The
Merger Shares are expected to
represent 9.2% of the Bristol Common
Stock outstanding after the
Acquisition. Based on the closing
sale price of the Bristol Common Stock
on April 4, 1997, the aggregate value
of the Merger Shares is $97.4 million.
Debt Exchange ....................... In connection with the Merger, Bristol
will assume $500 million of
indebtedness owed by Holiday Inns to
BAI (the "Holiday Inns Intercompany
Debt"). Immediately following the
Effective Time, Bristol will issue an
additional 6,981,832 shares of Bristol
Common Stock to BAI in satisfaction of
$199,854,939 of the Holiday Inns
Intercompany Debt and will repay
$300,145,061 of the debt with cash
expected to be provided to Bristol
pursuant to a new $560 million bank
credit facility. See "The Merger
Agreement -- Merger Consideration;
Debt Exchange" and "-- New Credit
Facility." The Debt Exchange Shares
are expected to represent 26.9% of the
Bristol Common Stock outstanding after
the Acquisition. Based on the closing
sale price of the Bristol Common Stock
on April 4, 1997, the aggregate value
of the Debt Exchange Shares is $284.5
million.
Fixed Acquisition Pricing ........... There is no provision in the Merger
Agreement to adjust the number of
Merger Shares or Debt Exchange Shares
for changes in market prices for
Bristol Common Stock. Since the
announcement of the Merger Agreement
on December 15, 1996, market prices
for Bristol Common Stock have
increased substantially. See "Market
Prices for Bristol Common Stock."
Working Capital ................... Within 90 days after the Effective
Time, Holiday Corporation and Bristol
will agree upon the amount of final
working capital of Holiday Inns. If
the Working Capital amount exceeds $0,
Bristol
5
<PAGE> 12
will pay to HHC such excess. If the
working capital is less then $0,
Holiday Corporation will pay Bristol
such deficiency. See "The Merger
Agreement -- Working Capital."
Capital Expenditures ................ Within 90 days after the Effective
Time, Holiday Corporation and Bristol
will agree upon the amount of capital
expenditures made from October 1, 1996
to the Effective Time with respect to
the Acquired Hotel Assets. If the
amount exceeds the sum of $15.0
million and 4% of Holiday Inns' hotel
revenues during such period, then
Holiday Inns will borrow the excess
from BAI, and Bristol will assume such
debt. If the amount is less than the
sum of $15.0 million and 4% of such
revenues, then Holiday Corporation
will pay Bristol such deficiency. See
"The Merger Agreement -- Capital
Expenditures."
Certain Federal Income Tax
Consequences ........................ The Merger is intended to be a tax-
free reorganization as a result of
which no gain or loss will be
recognized by Bristol or Holiday Inns
and no gain or loss will be recognized
by Bristol's stockholders. It is a
condition to the consummation of the
Merger that Holiday Inns receive (i)
an advance letter ruling (the "Tax
Ruling") from the Internal Revenue
Service to the effect that certain
transactions in connection with the
Merger will qualify as tax-free
transactions under the Internal
Revenue Code of 1986, as amended (the
"Code"), and (ii) an opinion (the "Tax
Opinion" and, together with the Tax
Ruling, the "Tax Assurances") of its
counsel, Davis Polk & Wardwell, to the
effect that, among other things, the
Merger will constitute a tax-free
reorganization under the Code. On
February 28, 1997, Holiday Inns
received the Tax Ruling. See "The
Merger Agreement -- Certain Federal
Income Tax Consequences" and "--
Conditions to the Consummation of the
Merger."
Conditions to the Merger ............ The obligations of Bristol and Holiday
Inns to consummate the Merger are
subject to various conditions,
including adoption of the Merger
Agreement by Bristol's stockholders;
financing being available to Bristol
under a new credit facility (as
described in "The Merger Agreement --
New Credit Facility"); the absence of
legal restraints or prohibitions
preventing the consummation of the
Merger; the consummation of certain
transactions in connection with, and
the execution of certain agreements
related to, the Merger, including the
execution of, and the consummation of
the transactions contemplated by, the
Asset Purchase Agreements; receipt by
Holiday Inns of the Tax Assurances;
the execution of employment agreements
with Bristol's chief executive officer
and chief operating officer; and the
absence of material adverse
6
<PAGE> 13
changes with respect to Bristol and
Holiday Inns. See "The Merger
Agreement -- Conditions to the
Consummation of the Merger."
Termination of the
Merger Agreement .................... Subject to certain limitations, the
Merger Agreement is subject to
termination at the option of Bristol,
Holiday Corporation or Holiday Inns if
the Merger is not consummated on or
before June 30, 1997, and prior to
such time upon the occurrence of
certain events. See "The Merger
Agreement -- Termination."
Appraisal Rights .................... The holders of Bristol Common Stock
are not entitled to appraisal rights
in connection with the adoption of the
Merger Agreement. See "The Merger
Agreement -- Appraisal Rights."
7
<PAGE> 14
CERTAIN FINANCIAL DATA
HISTORICAL FINANCIAL DATA
Certain selected consolidated historical financial data of Bristol are
included elsewhere in, or incorporated by reference into, this Proxy Statement
and are based on consolidated financial statements of Bristol that may be
obtained as described in "Additional Information." Certain historical financial
data for the Acquired Business are also included elsewhere in this Proxy
Statement. See "Index to Financial Data."
Bristol was formed pursuant to the combination (the "Combination") of
United Inns, Inc. ("United Inns") and Harvey Hotel Company, Ltd. ("Harvey Hotel
Company"), which was completed on January 31, 1995. On December 18, 1995,
Bristol completed its initial public offering of Common Stock (the "IPO"), the
net proceeds of which, together with the proceeds of related debt financings
(consisting of $70 million aggregate principal amount of Senior Notes Due 2000
(the "Senior Notes") and a $120 million bank credit facility (the "1995 Senior
Credit Facility")), were used to refinance certain of Bristol's then-existing
indebtedness and for general corporate purposes. In light of the foregoing,
the historical financial data of Bristol incorporated or included elsewhere in
this Proxy Statement are not necessarily comparable period-to-period or
indicative of their respective future results of operations. The financial
data for the Acquired Business included elsewhere in this Proxy Statement
(referred to in the historical financial statements elsewhere herein as the
"Holiday Inn CMH Business") are carve-out financial data and, as such, give
effect to the transactions contemplated by (i) the agreement entered into in
connection with the Merger Agreement pursuant to which the Acquired Business
conducted by Holiday Inns (the "Retained Business") will be separated from the
businesses, assets and liabilities that Bristol is not to acquire pursuant to
the Merger Agreement (the "Contribution Agreement") and (ii) the transactions
contemplated by the Asset Purchase Agreements.
SELECTED PRO FORMA FINANCIAL DATA
The following table sets forth certain unaudited pro forma financial
data for Bristol after giving effect to (i) the Merger and related
transactions, including the consummation of the transactions contemplated by
the Asset Purchase Agreements, the Contribution Agreement and the Debt
Exchange, (ii) the refinancing of the indebtedness outstanding under the 1995
Senior Credit Facility pursuant to borrowings under the new credit facility
described in "The Merger Agreement -- New Credit Facility," and (iii) certain
other transactions described in "Pro Forma Financial Data" as if the
transactions referred to in (i) through (iii) (collectively, the "Pro Forma
Transactions") had occurred on December 31, 1996, in the case of the pro forma
balance sheet data, and on January 1, 1996, in the case of the pro forma income
statement data. The pro forma financial data below have been prepared based on
various assumptions set forth in "Pro Forma Financial Data" included elsewhere
in this Proxy Statement. The Acquisition will be accounted for under the
purchase method of accounting. In connection therewith, the purchase price
will be allocated to the assets and liabilities acquired as of the Effective
Time, including joint venture interests, and the results of operations of the
Acquired Business will be included within Bristol's results of operations from
and after the Effective Time. The purchase price has been allocated in the pro
forma financial data that follow to identifiable assets and liabilities based
on management's best estimates available as of the date of this Proxy
Statement. Following the Acquisition, such allocation will be in accordance
with appraisals and other information then available to Bristol, which could be
materially different from the estimates reflected herein. For purposes of
purchase price determination, the value of Bristol Common Stock to be issued in
the Merger and the Debt Exchange is $28-5/8 per share. The Merger Agreement
was entered into and publicly announced on December 15, 1996. On December 13,
1996, the last trading day before the announcement of the Merger Agreement, the
closing sale price per share for Bristol Common Stock as reported in the New
York Stock Exchange ("NYSE") Composite Transactions Report was $28-5/8.
The pro forma income statement data do not give effect to severance and
other one-time costs relating to such transactions, inasmuch as such costs are
nonrecurring, or synergies and other benefits expected to be achieved in
connection with the Acquisition. The pro forma financial data set forth below
should be read in conjunction with
8
<PAGE> 15
the historical financial statements of Bristol, including the notes thereto,
incorporated by reference in this Proxy Statement and the historical financial
statements for the Acquired Business, selected historical financial data of
Bristol and the Acquired Business and the other pro forma financial
information, including the notes thereto, appearing elsewhere in this Proxy
Statement. See "Pro Forma Financial Data," "Additional Information" and
"Index to Financial Data." The pro forma financial data are not necessarily
indicative of the results that actually would have occurred had the Pro Forma
Transactions been consummated on the dates indicated or that may occur in the
future.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------
<S> <C>
INCOME STATEMENT DATA
Revenue ........................................... $571,866
Operating income .................................. 103,708
Income before extraordinary item .................. 31,064
Income per common share ........................... 1.18
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1996
-----------------
<S> <C>
BALANCE SHEET DATA
Cash and cash equivalents ......................... $ 12,944
Working capital ................................... (6,032)
Total assets ...................................... 1,512,268
Long-term debt, including current portion ......... 659,837
Total equity ...................................... 517,573
</TABLE>
See "Pro Forma Financial Data" and the Notes thereto.
9
<PAGE> 16
THE ANNUAL MEETING
DATE, TIME AND PLACE
The Annual Meeting will be held at 9:00 a.m., local time, on April 28,
1997 at the Harvey Hotel - Addison, located at 14315 Midway Road, Dallas,
Texas.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, holders of Bristol Common Stock are being asked
to adopt the Merger Agreement and the Charter Amendment, elect directors and
ratify the appointment of Bristol's independent accountants. THE BOARD HAS
UNANIMOUSLY DETERMINED THAT THE ACQUISITION IS IN THE BEST INTERESTS OF BRISTOL
AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" ADOPTION OF THE MERGER
AGREEMENT. ALTHOUGH IT IS PRESENTLY EXPECTED THAT THE ACQUISITION WILL BE
CONSUMMATED SHORTLY AFTER THE ANNUAL MEETING, AND THEREUPON THE BOARD WILL BE
RECONSTITUTED AS DESCRIBED IN "THE ACQUISITION -- INTERESTS OF CERTAIN PERSONS
IN THE ACQUISITION," THE BOARD NEVERTHELESS RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" ELECTION OF EACH OF THE DIRECTOR NOMINEES IDENTIFIED HEREIN, WHO WOULD
CONTINUE TO SERVE ON THE BOARD FOR A THREE-YEAR TERM IF THE ACQUISITION IS NOT
CONSUMMATED, THE ADOPTION OF THE CHARTER AMENDMENT AND THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS BRISTOL'S INDEPENDENT ACCOUNTANTS.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Bristol Common Stock at the close of business
on the Record Date are entitled to notice of and to vote at the Annual Meeting.
On the Record Date, 16,565,840 shares of Bristol Common Stock were issued and
outstanding. A majority of the shares of Bristol Common Stock outstanding on
the Record Date must be represented in person or by proxy at the Annual Meeting
in order for a quorum to be present for purposes of voting on the matters
presented at the meeting. Holdings has informed Bristol that it intends to be
represented in person or by proxy at the Annual Meeting, in which event a
quorum would be assured. In the event that a quorum is not present at the
Annual Meeting, it is expected that such meeting will be adjourned or
postponed.
VOTES REQUIRED
Holders of record of Bristol Common Stock as of the Record Date are each
entitled to one vote per share on each matter to be considered at the Annual
Meeting. The adoption of the Merger Agreement and the Charter Amendment
requires a Majority Vote. The election of directors and the ratification of
the appointment of independent accountants require a Plurality Vote.
On the Record Date, executive officers and directors of Bristol and
their affiliates beneficially owned and had the right to vote or direct the
vote of 2,199,986 shares of Bristol Common Stock, which represented
approximately 13.3% of the shares of Bristol Common Stock then outstanding, and
Holdings beneficially owned and had the right to vote or direct the vote of
8,477,924 shares of Bristol Common Stock, which represented approximately 51.2%
of such shares. (Holdings and certain directors beneficially own other shares
pursuant to presently exercisable options and otherwise which shares are not
included in the foregoing computation. See "Security Ownership of Certain
Beneficial Owners and Management.") Holdings has agreed to vote such shares in
favor of the adoption of the Merger Agreement and the Charter Amendment, the
election of directors and the ratification of the appointment of independent
accountants as contemplated herein, and the executive officers and directors of
Bristol have informed Bristol that they also intend so to vote their shares.
Accordingly, each of such matters is expected to be approved irrespective of
whether or the manner in which other stockholders vote.
VOTING OF PROXIES
Shares represented by properly executed proxies received in time for the
Annual Meeting will be voted at such Annual Meeting in the manner specified by
the holders thereof. Properly executed proxies that do not contain voting
instructions will be voted in favor of adoption of the Merger Agreement and the
Charter Amendment, the
10
<PAGE> 17
election of the director nominees identified herein and the ratification of the
appointment of Arthur Andersen LLP as Bristol's independent accountants.
Shares of Bristol Common Stock represented at the Annual Meeting but not
voting, including shares for which proxies have been received, but with respect
to which holders of shares have abstained on any matter, will be treated as
present at the Annual Meeting for purposes of determining the presence or
absence of a quorum for the transaction of all business. For voting purposes
at the Annual Meeting, only shares affirmatively voted in favor of a proposal
(including properly executed proxies not containing voting instructions) will
be counted as favorable votes for such proposal. The failure to submit a proxy
(or to vote in person) or the abstention from voting with respect to the
adoption of the Merger Agreement or the Charter Amendment will have the same
effect as a vote against such proposal. With respect to all other proposals,
abstentions will be treated as shares not voted for purposes of determining
whether the requisite vote has been obtained and therefore will have no effect
on the outcome of the vote on such matters. In addition, under the applicable
rules of the NYSE, brokers who hold shares in street name for customers who are
the beneficial owners of such shares are prohibited from giving a proxy to vote
such customers' shares with respect to a proposal in the absence of specific
instructions from such customers ("broker nonvotes"). Accordingly, broker
nonvotes will have the same effect as abstentions.
The persons named as proxies by a Bristol stockholder may propose and
vote for one or more adjournments or postponements of the Annual Meeting,
including adjournments or postponements to permit further solicitations of
proxies in favor of any proposal; however, no proxy that is voted against the
proposal to adopt the Merger Agreement will be voted in favor of any such
adjournment or postponement.
Bristol is not aware of any matter to be considered at the Annual
Meeting that is not described herein. If any such matter is properly presented
for such consideration, the proxies will vote any shares represented by a duly
executed proxy in such manner as they see fit in their sole discretion.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
stockholder from voting in person. A stockholder may revoke a proxy at any
time prior to its exercise by filing with the Secretary of Bristol a duly
executed revocation of proxy, by submitting a duly executed proxy bearing a
later date or by appearing at the Annual Meeting and voting in person at the
Annual Meeting. Attendance at the Annual Meeting will not, in and of itself,
constitute revocation of a proxy.
SOLICITATION OF PROXIES
Bristol will bear the cost of the solicitation of proxies from its
stockholders, the cost of printing this Proxy Statement and the fees associated
with the filing of this Proxy Statement with the Securities and Exchange
Commission (the "Commission"). In addition to solicitation by mail, directors,
officers and employees of Bristol may solicit proxies from Bristol's
stockholders by telephone, in person or otherwise. Arrangements will be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of Bristol Common
Stock held of record by such persons, and Bristol will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses in connection therewith.
11
<PAGE> 18
THE ACQUISITION
GENERAL
At the Effective Time, it is anticipated that the Acquired Business will
own, lease or manage 61 hotels containing a total of over 18,000 rooms. Of
these properties, 45 hotels are owned or leased by the Acquired Business, 13
hotels are managed (but not owned) by the Acquired Business and three hotels
are managed by the Acquired Business and owned by partnerships in which the
Acquired Business owns an equity interest. The 61 hotels are located in 19
states, the District of Columbia and Canada, with concentrations in the
southern and southwestern United States and California, and operate under
Holiday Inns' brands.
THE COMBINED COMPANY
Following the Acquisition, Bristol will be the largest Holiday Inn
franchisee in the world and one of the largest owner/operators of full-service
hotels in the United States. Bristol's portfolio will consist of 82 owned
hotels containing approximately 24,000 rooms, 14 hotel management contracts and
three Bristol-managed hotels owned by joint ventures. Bristol plans to spend
at least $150 million over the next three years to redevelop a substantial
number of the Acquired Hotel Assets. In connection with the Acquisition,
Bristol and Holiday Corporation entered into various agreements under which,
subject to certain limitations, Bristol will have the right to pursue certain
hotel acquisition and development opportunities presented to Holiday
Corporation and affiliated entities, and an affiliate of Holiday Corporation
will have the right to franchise the Acquired Hotel Assets. See "The Merger
Agreement -- Other Agreements -- Hotel Properties Agreement." Following the
Acquisition, Bristol intends to reflag a number of its hotels with a Holiday
Inn, Holiday Inn Select or Crowne Plaza brand, to continue to pursue additional
acquisitions of properties or hotel management contracts and to pursue possible
capital markets and other transactions designed to enhance further Bristol's
financial flexibility and stockholder value. Such transactions could include,
among others, the issuance of additional debt or equity securities by Bristol
or the securitization of certain assets, including Acquired Hotel Assets.
BACKGROUND OF THE ACQUISITION
Bristol was formed on January 31, 1995 pursuant to the Combination and
completed its IPO in December 1995. Following the Combination, Bristol
undertook a substantial program to redevelop 20 of its hotels involving the
expenditure of approximately $130 million in the aggregate over a two-year
period. From time to time following the IPO, Bristol's management considered
possible acquisition and business combination transactions and in connection
therewith engaged in preliminary discussions with representatives of other
hotel companies. However, these discussions did not give rise to any
agreements providing for any material transaction. In addition, during this
period, Bristol acquired two hotels and the number of its management contracts
decreased by one as a result of the sale of the underlying hotel by the third-
party owner.
In the summer of 1996, representatives of Bristol contacted
representatives of Holiday Corporation to determine whether Holiday Corporation
would be interested in pursuing a possible sale of Holiday Corporation's North
American hotel assets. Bristol and Holiday Corporation entered into a
confidentiality agreement providing for the exchange of information relating to
their respective businesses, and the parties exchanged information and from
time to time engaged in discussions relating to a possible business combination
transaction. In connection therewith, Bristol retained Merrill Lynch to
provide financial advisory services to Bristol and Jones, Day, Reavis & Pogue
("Jones Day") to be Bristol's legal counsel. Merrill Lynch was the managing
underwriter in connection with Bristol's IPO and Jones Day was Bristol's
counsel in connection with its IPO and other matters.
The primary focus of the parties' contacts during the period through
October 1996 was the due diligence investigation that each party conducted in
respect of the other, as well as preliminary discussions of the possible
structure of a business combination and various of the terms thereof. In a
series of discussions and other communications during November 1996,
representatives of the parties discussed the key structural, financial,
governance and related terms of a possible transaction, and toward the end of
November 1996 exchanged and discussed various drafts of definitive
documentation relating thereto. During the approximately
12
<PAGE> 19
two-week period ending December 15, 1996, financial, legal, accounting and
management representatives of Bristol, Holiday Corporation and Bass plc
("Bass"), an English public limited company and ultimate parent of Holiday Inns
and the Holiday Entities, and their respective legal and financial advisors met
or otherwise communicated on a substantially continuous basis in respect of the
financial, structural, legal and other terms of a possible acquisition
transaction and the definitive documentation relating thereto. These
discussions culminated in an agreement on the definitive terms of the
Acquisition during the weekend of December 14-15, 1996. None of such meetings
or communications is believed by Bristol to have been individually
determinative in respect of the process of reaching a definitive agreement
providing for the Acquisition.
A special meeting of the Board was held on November 20, 1996 to review
the possible transaction with Holiday Corporation. At that meeting, management
described the discussions that had been conducted to date and the terms of a
possible transaction. In addition, representatives of Jones Day made a
detailed presentation relating to the legal considerations relating to a
possible transaction, and representatives of Bristol's management and Merrill
Lynch reviewed the Acquired Hotel Assets with the Board and discussed certain
financial and strategic considerations.
A special meeting of the Board was held on December 14, 1996, at which
the possible transaction with Holiday Corporation was reviewed with the Board
by Bristol's senior management with the assistance of Jones Day and Merrill
Lynch. The presentations to and discussions by the Board were wide-ranging and
detailed and included, among other things, (i) a presentation by management
regarding events since the November 20, 1996 Board meeting, including the
negotiations of the terms of definitive documentationand a description of the
material terms of the Merger Agreement, the Asset Purchase Agreements and
related documents, including the Stockholders' Agreement described in "The
Merger Agreement -- Other Agreements -- Stockholders' Agreement," (ii) a
presentation by Jones Day regarding the duties of the directors, (iii) a
presentation by Merrill Lynch regarding its analysis of the possible
transaction, including the terms thereof, and (iv) a detailed presentation by
Jones Day regarding the provisions of the documentation in which management or
Holdings had interests that were different from or in addition to the interests
of Bristol's stockholders generally. Thereafter, Merrill Lynch orally advised
the Board, which advice was subsequently confirmed in writing (see "-- Opinion
of Financial Advisor") that, as of December 14, 1996, the proposed
consideration to be paid by Bristol pursuant to the Acquisition was fair to
Bristol from a financial point of view. Management then reviewed the terms of
the financing commitment that had been arranged in connection with the
transaction, and the capital and human resources required to carry out the
redevelopment of certain of the Holiday Inns properties to be acquired in the
Acquisition and the effect thereof on other opportunities that may become
available to Bristol. Thereafter, the Board, by unanimous vote, approved the
Merger Agreement, the Asset Purchase Agreements and related documents (with the
members of the Board unaffiliated with Holdings or management separately
approving the Stockholders' Agreement, the Management Stockholders' Agreement
and the proposed employment agreements with Messrs. Kline and Beckert, each as
described herein).
On December 15, 1996, the parties executed the Merger Agreement and
certain related documents and publicly announced the Acquisition.
REASONS FOR THE ACQUISITION; RECOMMENDATIONS OF THE BOARD
THE BOARD HAS UNANIMOUSLY DETERMINED THAT THE ACQUISITION IS IN THE BEST
INTERESTS OF BRISTOL AND ITS STOCKHOLDERS AND RECOMMENDS THAT BRISTOL
STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. The decision of the
Board to approve the Merger Agreement and recommend the adoption thereof by
holders of Bristol Common Stock was based upon various factors. In addition to
the factors mentioned in "-- Background of the Acquisition," the material
factors considered by the Board were as follows:
(i) the Board's knowledge of the conditions of the North
American lodging industry and the likelihood of the future consolidation
in the industry;
(ii) the Board's consideration of the business, operations,
financial position, prospects and personnel of Bristol and the Acquired
Hotel Assets;
13
<PAGE> 20
(iii) the expectation that Bristol would spend at least $150
million over a three-year period to redevelop certain of the Acquired
Hotel Assets, the management time and focus that would be required in
connection therewith and the integration of Bristol's existing operation
with those of the Acquired Hotel Assets;
(iv) the potential effect of the Acquisition on other
acquisition or other opportunities that might otherwise become available
to Bristol in the future, particularly in light of the high level of
merger and acquisition activity in the domestic hotel industry (although
Bristol was not considering any specific transaction that management
regarded as comparable or an alternative to the Acquisition during the
period of its consideration of the Acquisition beginning in the summer
of 1996);
(v) the terms of the Merger, the Asset Purchase Agreements and
the Debt Exchange in relation to the Acquired Hotel Assets, historical
market prices for Bristol Common Stock and other factors;
(vi) the fact that the numbers of Merger Shares and Debt
Exchange Shares issuable in the Acquisition were not subject to
adjustment based on changes in market prices for Bristol Common Stock;
(vii) the other terms of the proposed transaction, including the
terms relating to the relationship of Bristol and Holiday Corporation
following the Acquisition, the composition of the Board and preemptive
rights and other terms of the Stockholders' Agreement and Management
Stockholders' Agreement and each of the other matters described in "--
Interests of Certain Persons in the Acquisition," including the
interests of Board members in such matters;
(viii) the availability and terms of the financing contemplated
under the New Credit Facility described in "The Merger Agreement -- New
Credit Facility";
(ix) the terms of the Merger Agreement relating to the
indemnification of Bristol for the Contributed Liabilities;
(x) the expectation that the transaction would be accomplished
on a tax-free basis to Bristol and Bristol's stockholders and the
contemplated accounting treatment of the transaction under the purchase
method;
(xi) the opinion of Merrill Lynch described below (on which the
Board relied, inasmuch as it did not independently conduct a fairness
evaluation) that, as of December 14, 1996, the proposed consideration to
be paid by Bristol pursuant to the Acquisition was fair to Bristol from
a financial point of view; and
(xii) the willingness of Holdings to pursue the transaction and
its agreement to cause the Bristol Common Stock owned by it to be voted
in favor of adoption of the Merger Agreement.
Consistently throughout the course of the negotiations, representatives
of the Holiday Entities informed Bristol representatives that the Holiday
Entities would consider only a transaction in which the exchange ratio was
fixed, rather than a pricing structure in which the exchange ratio would
fluctuate based on changes in market prices for Bristol Common Stock. The
Board was informed of this position at the November 20, 1996 meeting of the
Bristol Board and as well as of management's expectation that, while there
could be no assurance with respect thereto, market prices for Bristol Common
Stock would increase following the public announcement of the Acquisition.
These considerations were believed to be a necessary aspect of the Acquisition.
In addition, the fact that increases in market prices for Bristol Common Stock
would benefit Bristol's existing stockholders, including Holdings and the
Bristol management stockholders, was believed by the Board to be supportive of
the Acquisition to the extent that any market price increases were attributable
to the Acquisition, particularly in light of the relative contribution by
Bristol and the Acquired Business to the estimated operating results of the
resulting company. See "-- Opinion of Financial Advisor -- Contribution
Analysis." Since the public announcement of the Acquisition on December 15,
1996, market prices
14
<PAGE> 21
for Bristol Common Stock have increased substantially. See "Market Prices for
Bristol Common Stock." Among other things, the Holiday Entities would receive
$300 million of cash and Debt Exchange Shares having a value, based upon the
closing sale price per share for Bristol Common Stock on April 4, 1997, as
reported in the NYSE Composite Transactions Report, of $284.5 million in the
aggregate for $500 million of Holiday Inns Intercompany Debt, and Merger Shares
having a value of $97.4 million in the aggregate, based upon such market price.
In view of the variety of factors considered in connection with its
evaluation of the Acquisition, the Board did not find it practicable to and did
not attempt to rank or assign relative weights to the foregoing factors. In
addition, individual members of the Board may have given different weights to
different factors. However, in general, except for the factors described in
subparagraphs (iii), (vi) and (viii) in the next preceding paragraph and the
factors described in the immediately preceding paragraph, which were believed
by the Board to be an inherent consequence of the transaction or an integral
portion of the negotiated terms thereof, each of the factors referenced above
was regarded as supporting, or being a neutral factor in respect of, the
Board's decision to approve the Acquisition and to recommend that stockholders
vote to adopt the Merger Agreement or, with respect to the terms of the
Acquisition, being such that, when considered with all other terms of the
Acquisition, supported such decision and recommendation.
OPINION OF FINANCIAL ADVISOR
Bristol retained Merrill Lynch as its financial advisor in connection
with the Acquisition. Merrill Lynch orally advised the Board on December 14,
1996 (which opinion was subsequently confirmed in writing) that, in the opinion
of Merrill Lynch, as of such date, the proposed consideration to be paid by
Bristol pursuant to the Acquisition was fair to Bristol from a financial point
of view. At Bristol's request, Merrill Lynch reconfirmed such opinion as of
the date of this Proxy Statement.
A COPY OF MERRILL LYNCH'S WRITTEN OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEWS UNDERTAKEN, IS ATTACHED HERETO AS ANNEX B AND INCORPORATED HEREIN
BY REFERENCE. MERRILL LYNCH'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, TO BRISTOL OF THE PROPOSED CONSIDERATION TO BE PAID BY
BRISTOL PURSUANT TO THE ACQUISITION AND DOES NOT ADDRESS BRISTOL'S UNDERLYING
BUSINESS DECISION TO EFFECT THE ACQUISITION OR CONSTITUTE A RECOMMENDATION TO
ANY BRISTOL STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO
THE ACQUISITION. THE SUMMARY OF MERRILL LYNCH'S OPINION SET FORTH BELOW IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION, WHICH
IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT. WHILE THE DISCLOSURE HEREIN
SUMMARIZES THE MATERIAL ASPECTS OF MERRILL LYNCH'S OPINION, STOCKHOLDERS ARE
NONETHELESS URGED TO READ MERRILL LYNCH'S OPINION IN ITS ENTIRETY.
In arriving at its opinion, Merrill Lynch, among other things, (i)
reviewed Bristol's Annual Report on Form 10-K and related financial information
for the fiscal year ended December 31, 1995, Form 8-K dated June 17, 1996 and
Form 10-Q and the related unaudited financial information for the quarterly
periods ended March 31, 1996, June 30, 1996 and September 30, 1996; (ii)
reviewed certain information, including historical financial statements and
financial forecasts, relating to the business, earnings, cash flow, assets and
prospects of Bristol and the Acquired Business which were based on information
provided to Merrill Lynch by Bristol and Holiday Inns; (iii) conducted
discussions with members of senior management of Bristol and Holiday Inns
concerning their respective business prospects and proposed capital expenditure
programs, and the expected financial impact of such capital expenditure
programs; (iv) reviewed the historical market prices and trading activity for
Bristol Common Stock and compared them with those of certain publicly traded
companies which Merrill Lynch deemed to be reasonably similar to Bristol; (v)
considered the pro forma effect of the Acquisition on the combined entity's
capitalization ratios and earnings, cash flow and book value per share; (vi)
compared the results of operations of Bristol and the Acquired Business with
those of certain companies which Merrill Lynch deemed to be reasonably similar
to Bristol and the Acquired Business, respectively; (vii) compared the proposed
financial terms of the Acquisition with the financial terms of certain other
mergers and acquisitions which Merrill Lynch deemed to be relevant; (viii)
reviewed the Merger Agreement and the other transaction documents referenced
therein; and (ix) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
Merrill Lynch deemed necessary. In connection with its reconfirmation of its
opinion, Merrill Lynch, among other things,
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<PAGE> 22
reviewed Bristol's financial position and results of operations for the year
ended December 31, 1996, Holiday Inns' results of operations for the three
months ended December 31, 1996, market prices and trading activity for Bristol
Common Stock since December 15, 1996 and such other matters as Merrill Lynch
determined to be appropriate. As part of such reconfirmation, Merrill Lynch
considered among other things, the effects of recent changes in the market
prices for Bristol Common Stock. See "-- Reasons for the Acquisition;
Recommendations of the Board " and "Market Prices for Bristol Common Stock."
Merrill Lynch concluded that such changes did not alter its opinion as
described herein.
In preparing its opinion, Merrill Lynch relied, with Bristol's consent,
on the accuracy and completeness of all information supplied or otherwise made
available to it by Bristol and Holiday Inns, and Merrill Lynch did not
independently verify such information or undertake an independent appraisal of
the assets or liabilities of Bristol or the Acquired Business. With respect to
the financial forecasts provided to it, Merrill Lynch assumed that such
forecasts were based on reasonable assumptions and reflected the best currently
available estimates and judgment of Bristol's management as to the expected
future financial performance of Bristol or the Acquired Business, as well as
the expected financial impact of the proposed capital expenditure programs to
be implemented by Bristol. In addition, Merrill Lynch assumed, at Bristol's
direction, that the tax effects to Bristol's stockholders resulting from the
Acquisition would be immaterial. Merrill Lynch's opinion was necessarily based
upon market, economic, financial and other conditions as they existed and could
be evaluated as of the date of such opinion.
The following is a summary of the material analyses performed by Merrill
Lynch in connection with its opinion, which were described by Merrill Lynch in
connection with its presentation to the Board on December 14, 1996.
Comparable Public Company Analysis. Merrill Lynch compared certain
publicly available financial and operating data and projected financial
performance of selected publicly traded companies with similar financial and
operating data and projected financial performance of each of Bristol (based on
estimates provided by Bristol management) and the Acquired Business (based on
estimates provided by Holiday Inns management). The companies chosen by
Merrill Lynch as reasonably similar to both Bristol and the Acquired Business
included: Host Marriott Corporation, Capstar Hotel Company, Interstate Hotels
Company, Prime Hospitality Corporation, Servico, Inc. and John Q. Hammons
Hotels, Inc. (collectively, the "Comparable Companies").
Merrill Lynch determined multiples for the Comparable Companies of
enterprise value (defined as the product of primary shares outstanding and
market price plus total debt plus preferred equity at liquidation value plus
minority interest less cash and marketable securities) to estimated 1996 and
estimated 1997 earnings before interest, taxes, depreciation and amortization
("EBITDA") and multiples for the Comparable Companies of share price to
estimated 1996 and estimated 1997 earnings per share. An analysis of the
multiples for the Comparable Companies, as adjusted to exclude certain
multiples which were deemed not meaningful by Merrill Lynch because they
reflected valuations that were determined to be statistically insignificant or
inapplicable in the circumstances, produced the following results: enterprise
value to estimated 1996 EBITDA yielded a range of 7.8x to 12.7x, with a mean of
9.7x (with Bristol at 10.2x); enterprise value to estimated 1997 EBITDA yielded
a range of 5.5x to 9.1x, with a mean of 7.4x (with Bristol at 8.2x); share
price to estimated 1996 earnings per share yielded a range of 22.1x to 32.3x,
with a mean of 26.6x (with Bristol at 26.7x); and share price to estimated 1997
earnings per share yielded a range of 15.9x to 26.9x, with a mean of 20.4x
(with Bristol at 18.9x). Merrill Lynch observed that Bristol's multiples were
within the range of comparable public companies. Accordingly, these analyses
supported Merrill Lynch's opinion.
Merrill Lynch considered the companies utilized in the above analysis to
be reasonably similar to Bristol and the Acquired Business because each
participates in the lodging industry in a real estate intensive manner;
however, none of these companies is identical to Bristol or the Acquired
Business. Accordingly, an analysis of the results of the foregoing is not
purely mathematical. Rather, it involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of the Comparable Companies and other factors that could affect
the public trading value of the Comparable Companies or Company to which they
are being compared. In addition, the multiples of enterprise value to
estimated EBITDA and share price to estimated earnings per share for the
Comparable Companies were based on projections prepared by research
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<PAGE> 23
analysts using only publicly available information and mean First Call
Corporation estimates, respectively. Accordingly, such estimates may or may
not prove to be accurate.
Analysis of Selected Comparable Acquisition Transactions. Merrill Lynch
reviewed certain publicly available information regarding certain selected
business combinations involving lodging companies announced since July 12, 1990
(collectively, the "Comparable Transactions"). The Comparable Transactions, in
reverse chronological order of public announcement, were the following: the
acquisition of Red Lion Hotels, Inc. by Doubletree Hotel Company; the
acquisition of Forte by Granada; the acquisition of Forte PLC - US Travelodge
by an investor group; the acquisition of Red Roof Inns Inc. by Morgan Stanley &
Co.; the acquisition of Super 8 Motels, Inc. by HFS, Inc.; the acquisition of
Days Inn of America by HFS, Inc. and the acquisition of Motel 6 - L.P. by Accor
SA.
Merrill Lynch then compared certain ratios for the Comparable
Transactions to those of the Acquisition. Merrill Lynch compared the prices
paid in the Comparable Transactions in terms of, among other things, the
transaction value (defined as offer value (defined as offer price per share
multiplied by shares and in-the-money options outstanding) plus preferred
equity at liquidation value plus short-term debt plus long-term debt plus
minority interest less cash and marketable securities less exercisable option
proceeds) as a multiple of last twelve months ("LTM") EBITDA, LTM earnings
before interest and taxes ("EBIT") and LTM revenues. An analysis of the
multiples for the Comparable Transactions produced the following results: (i)
transaction value to LTM EBITDA yielded a range of 6.5x to 14.6x, with a mean
of 10.1x (with the combined consideration in the Acquisition at 7.6x); (ii)
transaction value to LTM EBIT yielded a range of 8.6x to 28.1x, with a mean of
15.7x (with the combined consideration in the Acquisition at 11.9x); and (iii)
transaction value to LTM revenues yielded a range of 1.84x to 5.16x, with a
mean of 2.75x (with the combined consideration in the Acquisition at 1.96x).
Merrill Lynch observed that the implied multiples for the Acquisition were
within the ranges for Comparable Transactions. Accordingly, these analyses
supported Merrill Lynch's opinion.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted
cash flow analysis of Bristol, based upon forecasts prepared by Bristol.
Utilizing these forecasts, Merrill Lynch calculated a range of equity per share
values based upon the sum of the discounted net present value of Bristol's
five-year stream of projected unlevered after-tax free cash flow and the
present value of a terminal value based on a range of multiples of its
projected calendar year 2001 EBITDA. In performing this analysis, Merrill
Lynch utilized discount rates reflecting a weighted average cost of capital
ranging from 10.0% to 13.0% and terminal value multiples of calendar year 2001
EBITDA ranging from 7.5x to 9.5x. Based on this analysis, Merrill Lynch
calculated a range of equity per share values of Bristol Common Stock of $21.79
to $32.87. Merrill Lynch observed that the closing market price at December 6,
1996 (the last date prior to public announcement by the parties of discussions
regarding the Acquisition) of $27.00 per share of Bristol Common Stock was
within such range of values. Accordingly, this analysis supported Merrill
Lynch's opinion.
Merrill Lynch also performed a discounted cash flow analysis of the
Acquired Business, based upon forecasts prepared by Holiday Inns. Utilizing
these forecasts, Merrill Lynch calculated a range of enterprise values based
upon the sum of the discounted net present value of the Acquired Business's
five-year stream of projected unlevered after-tax free cash flow and the
present value of a terminal value based on a range of multiples of its
projected calendar year 2001 EBITDA. In performing this analysis, Merrill
Lynch utilized discount rates reflecting a weighted average cost of capital
ranging from 10.0% to 13.0% and terminal value multiples of calendar year 2001
EBITDA, ranging from 7.5x to 9.5x. Based on this analysis, Merrill Lynch
calculated a range of total enterprise values of $690.2 million to $933.2
million. Because the combined consideration was valued below this range of
calculated total enterprise value, this analysis supported Merrill Lynch's
opinion.
Pro Forma Merger Analysis. Merrill Lynch analyzed certain pro forma
effects resulting from the Acquisition, including the effect on Bristol's
forecasted earnings per share, cash flow per share and EBITDA/net interest
expense. The analysis indicated that the Acquisition would increase both
earnings per share and cash flow per share in each of the years 1997 through
1999, inclusive. Accordingly, this analysis supported Merrill Lynch's opinion.
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<PAGE> 24
Contribution Analysis. Merrill Lynch analyzed the respective
contributions of each of Bristol and the Acquired Business to the estimated
EBITDA and revenues of the resulting company giving effect to the Acquisition
for the years 1996 through 1999, and compared such contributions to the
relative ownership positions of the existing Bristol stockholders and Holiday
Corporation after the Merger. The analysis indicated that Bristol would
contribute to (i) estimated EBITDA, 43.2% in 1996, 45.2% in 1997, 44.2% in 1998
and 42.2% in 1999 and (ii) estimated revenues, 37.8% in 1996, 39.8% in 1997,
39.9% in 1988 and 39.5% in 1999. Merrill Lynch also compared the relative
values contributed to the combined entity based upon the discounted cash flow
analysis. The analysis indicated that Bristol would contribute a minimum of
38.7% and a maximum of 53.2%. On a pro forma basis giving effect to the
Acquisition, existing Bristol stockholders would beneficially own 63.9% of the
Bristol Common Stock as of the Effective Time, which ownership compares
favorably with Bristol's contribution to the total combined entity as detailed
above. Accordingly, this analysis supported Merrill Lynch's opinion.
The foregoing summary does not purport to be a complete description of
the analyses performed by Merrill Lynch or of its presentations to the Board.
The preparation of financial analyses and fairness opinions is a complex
process and is not necessarily susceptible to partial analysis or summary
description. Merrill Lynch believes that its analyses (and the summary set
forth above) must be considered as a whole, and that selecting portions of such
analyses and of the factors considered by it, without considering all such
analyses and factors, could create an incomplete and misleading view of the
processes underlying the analyses conducted by Merrill Lynch and its opinion.
Merrill Lynch has not made any attempt to assign specific weights to particular
analyses in preparing its opinion. In performing its analyses, Merrill Lynch
made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of Bristol, Holiday Inns or Merrill Lynch. Any estimates contained
in Merrill Lynch's analyses are not necessarily indicative of actual past or
future results or values, which may be significantly more or less favorable
than such estimates. Estimates of values of companies do not purport to be
appraisals or to reflect the prices at which such companies may actually be
sold. Because such estimates are inherently subject to uncertainty, none of
Merrill Lynch, Bristol, Holiday Inns or any other person assumes responsibility
in the event that actual results of operations are different from the results
assumed in such estimates. Merrill Lynch did not express any opinion as to the
prices at which Bristol Common Stock will trade following the announcement or
consummation of the Acquisition, which, Merrill Lynch noted, might vary
depending upon, among other factors, changes in interest rates, dividend rates,
market conditions, general economic conditions and other factors that generally
influence the prices of securities. The opinion of Merrill Lynch did not
address the relative merits of the Acquisition and alternative business
combinations with third parties.
As part of its investment banking business, Merrill Lynch is
continuously engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions. The Board retained Merrill Lynch to
act as its financial advisor because Merrill Lynch is an internationally
recognized investment banking firm with substantial experience in transactions
similar to the Acquisition.
Merrill Lynch has, in the past, provided financial advisory and
financing services to Bristol and Bass, including acting as underwriter in
connection with Bristol's IPO, and has received customary fees for the
rendering of such services. In addition, in the ordinary course of business,
Merrill Lynch may actively trade Bristol Common Stock and Bass securities for
Merrill Lynch's own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
For its financial advisory services in connection with the Acquisition,
Bristol will become obligated to pay Merrill Lynch a fee of $3.0 million upon
consummation of the Acquisition ($500,000 of which was earned upon the signing
of the Merger Agreement and is payable upon the earlier of consummation of the
Acquisition or termination of discussions regarding the Acquisition). Bristol
has also agreed to reimburse Merrill Lynch for its reasonable out-of-pocket
expenses, including fees and expenses of its legal counsel, and to indemnify
Merrill Lynch and certain related persons against certain liabilities in
connection with its engagement, including certain liabilities under the federal
securities laws.
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ANTICIPATED ACCOUNTING TREATMENT
The Acquisition is expected to be accounted for by Bristol using the
purchase method of accounting. In accordance with such treatment, the total
purchase price will be allocated to the Acquired Business's identifiable assets
and liabilities based on estimated fair values.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
Certain directors and executive officers of Bristol, Holiday
Corporation, BAI and Holdings have certain interests in the Acquisition that
are different from, or in addition to, the interests of stockholders of Bristol
generally. Such interests relate to or arise from, among other things, the
terms of the Merger Agreement and related agreements providing for (i) certain
employment agreements for Bristol's chief executive officer and chief operating
officer, (ii) the Board to consist of nine members, initially consisting of
Bristol's chief executive officer and chief operating officer, three directors
to be designated by Holdings (who currently serve on the Board), three
directors to be designated by the Holiday Entities, and one director to be
designated by Bristol's chief executive officer and chief operating officer,
(iii) the election of Donald J. McNamara, a principal of an affiliate of
Holdings, as Chairman of the Board, so long as he is a director of Bristol,
(iv) the grant to each of Holdings and the Holiday Entities of preemptive
rights in the event of certain issuances of Bristol Common Stock for cash, (v)
the grant to an affiliate of Holiday Corporation of the right, subject to
certain limitations, to franchise each hotel owned or managed by Bristol, and
(vi) the Acquired Hotel Assets to be operated under Holiday Inn brands with
franchise fees payable to affiliates of the Holiday Entities. In addition, in
connection with the Acquisition, Bristol and HHC will enter into an agreement
pursuant to which certain services will be provided to Bristol for a transition
period following consummation of the Acquisition. The Board was aware of these
interests of the directors and officers and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby, and the members of the Board not affiliated with Holdings or employed
by Bristol separately voted to approve these matters.
Employment Agreements. The Merger Agreement provides that Bristol will
enter into employment agreements with J. Peter Kline, Bristol's chief executive
officer, and John A. Beckert, Bristol's chief operating officer. Under the
employment agreements, for a four-year term commencing at the Effective Time,
each of Messrs. Kline and Beckert will be entitled to such salary and bonus
amounts as may be determined by the compensation committee of the Board (the
"Compensation Committee"), provided that the base salary for each will not be
less than $450,000 per annum (an increase of approximately $200,000 per annum
over their 1996 base compensation levels). Messrs. Kline and Beckert will also
be eligible for future grants of stock-based incentive awards and other
benefits provided to senior executives of Bristol. Bristol has agreed not to
change adversely the titles or responsibilities of Messrs. Kline or Beckert
during the four-year employment term or relocate Bristol's headquarters out of
the Dallas, Texas area without their prior consent. In addition, so long as
they are required to retain at least one-third of their Bristol Common Stock
pursuant to the Management Stockholders' Agreement (see "The Merger Agreement
- -- Other Agreements -- Management Stockholders' Agreement"), Bristol has agreed
to use its reasonable best efforts to cause each of them to be elected to the
Board.
For a discussion of executive compensation generally, see "Board of
Directors -- Executive Compensation."
Board of Directors. Pursuant to the Stockholders' Agreement, as of the
Effective Time, the Board is to be reconstituted such that it will consist of
Messrs. Kline and Beckert and seven other directors, three of whom will be
designated by Holdings, three of whom will be designated by the Holiday
Entities and one of whom will be designated by Messrs. Kline and Beckert. One
of the three directors to be designated by each of Holdings and the Holiday
Entities, and the director designated by Messrs. Kline and Beckert, must be an
Outside Director. For this purpose, an "Outside Director" is a director who is
not an employee, executive officer or affiliate of Bristol, the Holiday
Entities or Holdings and who is not an associate of a business primarily
engaged in operating, managing or developing Mid-Scale Lodging Facilities and
who qualifies as an "independent director" within the meaning of the New York
Stock Exchange Listed Company Manual. A "Mid-Scale Lodging Facility" is a
full-service lodging facility providing a degree of sophistication and full-
service amenities and facilities which (i) are of a type and
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standard generally consistent with hotels operated as Holiday Inn hotels, (ii)
do not primarily offer suites, (iii) are not designed to accommodate extended
stays, and (iv) do not generally compete as upscale or economy hotels.
Pursuant to the Stockholders' Agreement, each of Holdings and the
Holiday Entities will vote its shares of Bristol Common Stock and take all
other necessary actions in order to ensure that the composition of the Board is
as set forth above; provided, however, that (i) if at any time either Holdings
or the Holiday Entities is not one of the two largest beneficial owners of
Bristol Common Stock, it will be entitled to designate (a) only two directors,
neither of whom need be an Outside Director, if it beneficially owns fewer than
3,936,710 shares, but 2,624,473 or more shares, of Bristol Common Stock and (b)
only one director, who need not be an Outside Director, if it beneficially owns
fewer than 2,624,473 shares of Bristol Common Stock (in each case equitably
adjusted to reflect any stock split, stock dividend, reclassification or any
similar event), and (ii) Bristol's chief executive officer and chief operating
officer will be entitled to serve on the Board and elect an Outside Director
pursuant to the above-described provisions only so long as such persons are
entitled to serve on the Board pursuant to the Management Stockholders'
Agreement.
Holdings has indicated its intention to designate Donald J. McNamara,
Kurt C. Read and Robert H. Lutz, Jr. (Outside Director) as its initial
designeesand Messrs. Kline and Beckert have indicated their intention to
designate David A. Dittman as their initial Outside Director designee. The
Holiday Entities have indicated their intention to designate Richard C. North
and Craig H. Hunt as two of their initial designees and to designate their
Outside Director designee after the Effective Time. Upon the expiration of the
term of any of the directors designated by the Holiday Entities or any such
director's resignation, removal, death or inability to serve as a director, the
Holiday Entities will designate one person from each of the following
categories to fill the Holiday Entities' designated director seats: (i) a
member of the executive committee of Bass (other than the member who is the
chief executive officer of Holiday Corporation) and (ii) a senior executive
officer of Holiday Corporation. Pursuant to a separate agreement, Bass has
agreed to cause the directors designated by the Holiday Entities to vote for
Donald J. McNamara to serve as Chairman of the Board so long as he is a
director of Bristol.
The following is certain information relating to the persons expected to
serve as members of the Board as of the Effective Time. If any such person is
unable or unwilling to serve, it is anticipated that the person or entity
having the right to designate such member of the Board as described in the
immediately preceding paragraph will name a substitute designee.
John A. Beckert, 43, has been Chief Operating Officer and Executive Vice
President of Bristol (and its predecessor, Harvey Hotel Company) since 1981 and
a Director of Bristol since February 1995. John A. Beckert is the brother of
Richard N. Beckert, who is Senior Vice President, Administration of Bristol.
David A. Dittman, 50, has been a Director of Bristol since December
1995. Since 1990, Mr. Dittman has been the Dean of the Cornell University
School of Hotel Administration and an E.M. Statler Professor.
Craig H. Hunt, 44, will become a Director of Bristol at the Effective
Time. Mr. Hunt has been President - Americas Franchise Division of Holiday
Inns since 1996 and a member of the Holiday Inns board of directors since 1990.
Prior to 1996, he served as Senior Vice President and Chief Operating Officer,
Company Managed Hotels - Americas and Senior Vice President and managing
director for the United States, Caribbean and Latin American Region of Holiday
Inn International.
J. Peter Kline, 49, has been the President and Chief Executive Officer
of Bristol (and its predecessor, Harvey Hotel Company) since 1981 and a
Director of Bristol since February 1995.
Robert H. Lutz, Jr., 47, has been a Director of Bristol since December
1995. Since 1994, Mr. Lutz has been the Chairman and Chief Executive Officer,
and is a member of the executive committee, of Amresco, Inc., a financial
services company. From 1991 to 1994, Mr. Lutz served as President and Chief
Operating Officer of
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Balcor/Allegiance Realty Group, a subsidiary of American Express Company
engaged in real estate ownership and management.
Donald J. McNamara, 43, has been Chairman of the Board since November
1994. Mr. McNamara has been the Chairman and Chief Executive Officer (or Co-
Chief Executive Officer) of The Hampstead Group, L.L.C. ("Hampstead"), a
privately held real estate investment company and an affiliate of Holdings,
since the founding of the firm in 1988. Mr. McNamara also is a director of
FelCor Suite Hotels, Inc.
Richard C. North, 47, will become a Director of Bristol at the Effective
Time. Mr. North has been the Finance Director of Bass since 1994. Prior
thereto, Mr. North served as the Finance Director of The Burton Group plc.
Kurt C. Read, 34, has been a Director of Bristol since April 1997 and
has been a Senior Vice President of Hampstead since 1989.
Currently, the Bristol Charter and the Bylaws of Bristol (the "Bristol
Bylaws") provide for the Board to be divided into three classes, with the
directors in each class serving for three-year terms. At the Effective Time,
the Bristol Charter and the Bristol Bylaws will be amended and restated so as
to remove all provisions relating to the classification of the Board. See
"Amendment of Bristol Charter" and "The Merger Agreement -- Amendment of
Bristol Bylaws."
At the Annual Meeting, Bristol's stockholders will be asked to elect two
members of the Board to serve as such during the period between the Annual
Meeting and the Effective Time and for a three-year term if the Merger is not
consummated. See "Board of Directors -- Election of Directors."
Certain Preemptive Rights. Pursuant to the Stockholders' Agreement, in
the event of a proposed issuance of equity securities of Bristol or any
securities convertible into or exchangeable for, or any rights or warrants to
acquire, any equity securities of Bristol for cash, each of Holdings and the
Holiday Entities will have the right to maintain its relative percentage
ownership of the Bristol Common Stock outstanding immediately prior to such
issuance. Such right will not apply, however, with respect to Bristol's first
underwritten public offering of equity securities following the consummation of
the Acquisition, unless the offering would result in either such stockholder's
ownership being reduced to less than 30% of the Bristol Common Stock
outstanding after the offering, in which case such stockholder will be
permitted to purchase a sufficient number of shares in the offering to maintain
its ownership interest at 30% of the Bristol Common Stock then outstanding.
Franchise Arrangements and Acquisition Opportunities. For a description
of the agreements between Bristol and Holiday Corporation relating to the
franchise of hotels owned or managed by Bristol and the Acquired Hotel Assets,
as well as certain hotel acquisition and development opportunities, see "The
Merger Agreement -- Other Agreements -- Hotel Properties Agreement."
Interim Services. Pursuant to an agreement to be executed by Bristol
and Holiday Corporation in connection with the Acquisition, Holiday Corporation
will provide certain accounting, payroll, employee benefit, training, treasury,
management information and construction and design services to Bristol for a
transition period following the Acquisition. In consideration for such
services, Bristol will reimburse Holiday Corporation for the actual cost
incurred by it in connection with providing the services, including salaries
and related benefits, supplies and postage, overhead and all third-party out-
of-pocket expenses incurred by Holiday Corporation in connection with providing
the services. Bristol believes that the terms of such agreement are as
favorable to Bristol as those it could have obtained from unaffiliated
providers of such services.
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THE MERGER AGREEMENT
GENERAL
This section of the Proxy Statement describes the material aspects of
the Merger and the Merger Agreement. The description of the Merger and the
Merger Agreement contained in this Proxy Statement does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement,
a copy of which is attached hereto as Annex A. All stockholders of Bristol are
urged to read carefully the Merger Agreement.
THE PARTIES
Bristol is a leading owner/operator of hotels in the southern United
States, with 39 hotels containing a total of approximately 10,000 rooms.
Bristol's properties are primarily full-service hotels in the upscale and mid-
priced segments of the lodging industry that presently operate under Bristol's
own brand names, including Bristol Suites(TM), Harvey Hotel(TM) and Harvey
Suites(TM), and under franchise agreements with national hotel chains,
including Holiday Inn(TM), Hampton Inn(TM) and Marriott(TM). Bristol's hotels
are located in eight states, with 28 hotels concentrated in the Dallas, Houston
and Atlanta markets. Bristol owns all but one of the 39 hotels it manages.
Holiday Inns is a leading owner/operator of hotels in the mid-priced
segment of the lodging industry under the Holiday Inn(TM) and Holiday Inn
Select(TM) brand names. Holiday Inns was organized as a Tennessee corporation
in 1953. In addition to owning, leasing or managing certain of the Acquired
Hotel Assets, Holiday Inns presently conducts certain franchise and other
business activities. These other businesses, and the related assets and
liabilities, will be transferred out of Holiday Inns immediately prior to the
Merger. Holiday Corporation will indemnify Bristol and certain related persons
in respect of the Contributed Liabilities.
STRUCTURE OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL") and the
Tennessee Business Corporation Act, at the Effective Time, Holiday Inns will
merge with and into Bristol, with Bristol continuing as the surviving
corporation. The Bristol Charter, as amended and restated as described herein
(see "Amendment of Bristol Charter"), will be the certificate of incorporation
of the surviving company, and the Bristol Bylaws as amended and restated as
described herein (see "-- Amendment of Bristol Bylaws"), will be the bylaws of
the surviving company.
EFFECTIVE TIME
The Effective Time will be the time of the filing of a Certificate of
Merger with the Secretaries of State of the States of Delaware and Tennessee or
such later time as is specified in such Certificate of Merger. The filing of
the Certificate of Merger will occur as soon as practicable after satisfaction
or waiver of the conditions to consummation of the Merger set forth in the
Merger Agreement. See "-- Conditions to the Consummation of the Merger."
MERGER CONSIDERATION; DEBT EXCHANGE
Upon consummation of the Merger, the outstanding shares of Holiday Inns
Common Stock will be converted into the right to receive an aggregate of
2,391,286 shares of Bristol Common Stock.
Pursuant to the Merger Agreement, at the Effective Time, the amount of
indebtedness owed by Holiday Inns to BAI will be $500 million. Immediately
following the Effective Time, Bristol will (i) effect the Debt Exchange,
pursuant to which Bristol will satisfy $199,854,939 of the Holiday Inns
Intercompany Debt through the issuance to BAI of 6,981,832 shares of Bristol
Common Stock, and (ii) repay the remaining portion of the Holiday Inns
Intercompany Debt with cash (the "Cash Payment"). If the amount of Holiday
Inns Intercompany Debt assumed by Bristol in the Merger is reduced as a result
of the decision of the parties to remove any hotels from the Acquired Hotel
Assets, the number of shares and cash exchanged for the Holiday Inns
Intercompany Debt will be reduced such that the total number of shares and cash
received by Holiday Corporation and BAI, collectively, pursuant to the Merger
and the Debt Exchange is reduced pro rata. Bristol expects to finance the Cash
Payment through borrowings under its new credit facility. See "-- New Credit
Facility."
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<PAGE> 29
There is no provision in the Merger Agreement to adjust the number of
Merger Shares or Debt Exchange Shares for changes in market prices for Bristol
Common Stock.
Bristol Common Stock is listed for trading on the NYSE. On December 13,
1996, the last trading day prior to the announcement by Bristol and Holiday
Inns of the execution of the Merger Agreement, the high and low sale prices of
Bristol Common Stock as reported in the NYSE Composite Transactions Report were
$28 -3/4 and $28-5/8 per share, respectively. On April 4, 1997, the last
trading day prior to the date of this Proxy Statement, the closing sale price
per share of Bristol Common Stock as reported in the NYSE Composite
Transactions Report was $40-3/4 per share. See "Market Prices for Bristol
Common Stock."
WORKING CAPITAL
The Merger Agreement provides that, within 90 days after the Effective
Time, Holiday Corporation and Bristol will agree upon the amount of final
working capital of Holiday Inns immediately prior to the Effective Time and
after giving effect to the Merger and the related transactions. If the final
working capital of Holiday Inns exceeds $0, Holiday Inns will issue a note to
HHC in an amount equal to such excess and Bristol will assume such note in the
Merger and will repay the amount of such note, plus interest from the Effective
Time, within ten days after Holiday Corporation and Bristol agree upon the
final working capital amount. If the final working capital of Holiday Inns is
less than $0, Holiday Corporation will pay to Bristol the amount of such
deficiency, plus interest from the Effective Time, within 10 days after Holiday
Corporation and Bristol agree upon the final working capital amount. For
purposes of determining the final working capital of Holiday Inns, a deemed
value of $7 million will be added to Holiday Inns' assets as a result of the
addition of a hotel to the Acquired Hotel Assets. The working capital of the
Acquired Business (including the deemed value of $7 million noted above) on
December 27, 1996 was $12.3 million. It is currently anticipated that the
Working Capital amount will be either equal to or less than $0. Accordingly,
it is expected that any payment made pursuant to the above will run from
Holiday Corporation to Bristol.
CAPITAL EXPENDITURES
The Merger Agreement also provides that, within 90 days after the
Effective Time, Holiday Corporation and Bristol will agree upon the amount of
capital expenditures (the "Capital Expenditures") made from October 1, 1996 to
the Effective Time (the "Capital Expenditure Period") with respect to the
Acquired Hotel Assets. If the amount of the Capital Expenditures exceeds the
sum of $15.0 million and 4% of Holiday Inns' hotel revenues during the Capital
Expenditure Period, then Holiday Inns will borrow an amount equal to that
excess from BAI, and Bristol will assume that indebtedness pursuant to the
Merger and repay that indebtedness with accrued interest within ten days after
the amount of the Capital Expenditures is agreed upon by Holiday Corporation
and Bristol. If the amount of the Capital Expenditures is less than the sum of
$15.0 million and 4% of Holiday Inns' hotel revenues during the Capital
Expenditure Period, then Holiday Corporation will pay Bristol the amount of
such deficiency plus interest from the Effective Time within such ten-day
period.
NEW CREDIT FACILITY
The consummation of the Merger is subject to, among other conditions
(see "-- Conditions to the Consummation of the Merger"), Bristol's obtaining a
new senior credit facility that would provide for up to $560 million aggregate
amount of term loan borrowings (the "New Credit Facility"), the material terms
of which are described herein. The ability to borrow funds and maintain
outstanding loans under the New Credit Facility will be subject to a borrowing
base calculated as the aggregate of various multiples of EBITDA for the hotel
properties that will constitute collateral for the New Credit Facility. For a
period of 30 months following the initial closing of the New Credit Facility,
up to $100 million in aggregate principal amount of term loans under the New
Credit Facility may be repaid from the proceeds of sales of hotel properties
(including the Acquired Hotel Assets) serving as collateral for the New Credit
Facility and an unlimited principal amount of term loans under the New Credit
Facility may be repaid from the net proceeds of the issuance of equity
securities by Bristol; such repaid amounts may be reborrowed to acquire and
renovate hotel properties, including the Acquired Hotel Assets. Additionally,
during such 30-month period, up to $25 million in aggregate principal amount of
term loans will be available on a revolving
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basis for any general corporate purpose, including renovations and other
capital improvements. The New Credit Facility will mature in three years,
subject to Bristol's option to extend the maturity for up to two additional
years, upon satisfaction of certain conditions. Bristol's obligations under
the New Credit Facility will be secured principally by a pledge of the
outstanding capital stock of Bristol's subsidiaries, mortgages on the Acquired
Hotel Assets and certain other hotel properties and will be guaranteed by
Bristol and its subsidiaries. Outstanding principal amounts under the New
Credit Facility will bear interest at a rate equal to, at Bristol's election,
one-, two-, three-, six- or, if available, nine- or twelve- month LIBOR plus
2.0%, subject to adjustment downward to 1.5% if certain ratings and financial
tests are satisfied. Bristol will pay customary fees in connection with the
New Credit Facility, including a commitment fee equal to 0.25% per annum of the
unused portion of the commitments under the New Credit Facility, payable
quarterly in arrears.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following describes the material federal income tax consequences of
the Merger under the Code, assuming that the Merger is consummated as
contemplated herein. This discussion is based on current laws and
interpretations thereof, which are subject to change. The discussion assumes
that the Holiday Inns Common Stock to be converted in the Merger is held as a
capital asset by Holiday Corporation and does not take account certain rules
that may apply to Holiday Corporation. Also, the discussion does not address
state, local or foreign tax consequences.
It is expected that (i) the Merger will be treated for federal income
tax purposes as a "reorganization" within the meaning of Section 368(a) of the
Code, (ii) Bristol and Holiday Inns will each be a party to the reorganization
within the meaning of Section 368(b) of the Code, and (iii) no income, gain or
loss will be recognized for federal income tax purposes by either Bristol or
Holiday Inns or any stockholder of Bristol as a result of the consummation of
the Merger. Consummation of the Merger is conditioned upon the receipt by
Holiday Inns of the Tax Assurances. See "-- Conditions to the Consummation of
the Merger."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
the parties thereto. Holiday Inns made certain representations and warranties
with respect to corporate organization and qualification, corporate authority,
authorization, capitalization, interests in the Acquired Hotel Assets,
information supplied in connection with this Proxy Statement, operating
statements, the absence of certain changes or events, compliance with
applicable laws, real property, litigation, taxes, employee benefit plans,
environmental matters, brokerage commissions and finders' fees, employees and
contractual obligations. Bristol made certain representations and warranties
with respect to corporate organization and qualification, corporate authority,
authorization, capitalization, subsidiaries, information supplied in connection
with this Proxy Statement, filings with the Commission and financial statements
included therein, the absence of certain changes or events, compliance with
applicable laws, real property, litigation, taxes, environmental matters,
brokerage commissions and finders' fees, employees, the New Credit Facility and
its capital expenditure plan.
CONDUCT OF BUSINESS PENDING THE MERGER
Holiday Inns. Pursuant to the Merger Agreement, each of Holiday
Corporation and Holiday Inns agreed that, except as contemplated by the Merger
Agreement and the related agreements, Holiday Inns would, and would cause each
of its subsidiaries that own interests in the Acquired Hotel Assets
(collectively, the "Retained Companies") to, conduct the Retained Business in
the ordinary course consistent with past practice and in compliance in all
material respects with all applicable laws and permits and to use its
reasonable efforts to (i) preserve intact the Acquired Hotel Assets, (ii) keep
available the services of their current officers and other key employees, and
(iii) preserve their relationships with those persons having business dealings
with them to the end that their goodwill and ongoing businesses will be
unimpaired at the Effective Time. Holiday Inns further agreed not to (a)
issue, transfer, sell dispose of or pledge any shares of capital stock or any
voting securities of any of the Retained Companies, or any options or other
securities convertible into or exchangeable for any such shares or securities,
or amend any of the terms of any such securities or agreements relating to such
capital stock outstanding on the date of the Merger
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Agreement, other than the issuance, transfer, sale or disposition by a wholly
owned subsidiary of its capital stock to its parent, (b) amend Holiday Inns'
charter or bylaws or the comparable organizational documents of any Retained
Company, (c) acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or substantial portion of the assets of, or by
any other manner, any property or business or make any other investment in any
person that would be part of the Retained Business, except for acquisitions or
investments by Holiday Inns pursuant to the existing contractual obligations
specified in the Merger Agreement or investments in any entity that was a
Retained Company before giving effect to such investment, (d) sell, lease,
license, encumber or otherwise dispose of any of the assets of the Retained
Business other than in the ordinary course of business consistent with past
practice or pursuant to existing contractual commitments and other arrangements
specified in the Merger Agreement, (e) except as required by law, (1) adopt any
plan, arrangement or policy which would become an employee benefit plan (as
defined in the Employee Retirement Income Security Act of 1974, as amended) or
amend an employee benefit plan to the extent such adoption or amendment would
create or increase any liability or obligation on the part of the Retained
Business that would not either be fully performed or satisfied prior to the
Effective Time or assumed by HHC pursuant to the Contribution Agreement or (2)
adopt any increase in or establishment of any bonus, insurance, welfare,
severance, deferred compensation, pension, retirement, profit sharing, stock
option or stock purchase rights or plans, (f) other than in the ordinary course
of the Retained Business consistent with past practice, (1) grant any increases
in the base compensation of any Retained Company's employees except for
increases previously scheduled to go into effect on January 1, 1997 or (2) pay
or agree to pay any pension, retirement allowance or other employee benefit not
required by any of the employee benefit plans as in effect on the date of the
Merger Agreement to any Retained Company's employees, (g) create, incur, suffer
to exist or assume any lien on the Acquired Hotel Assets (other than the seven
hotels to be acquired by Bristol pursuant to the Asset Purchase Agreements) or
the capital stock of the Retained Companies (collectively, the "Retained
Assets"), except for certain permitted liens, (h) take prior to the Effective
Time any action that would disqualify the Contribution (as defined in "-- Other
Agreements -- Contribution Agreement") and the Exchange (as defined in "--
Other Agreements -- Contribution Agreement") from being treated as a
"reorganization" under the Code, the Exchange from being treated as tax-free
under the Code or the Merger from being treated as a "reorganization" under the
Code, (i) take any action that would make any representation or warranty of
Holiday Corporation or Holiday Inns under the Merger Agreement inaccurate in
any material respect at, or as of any time prior to, the Effective Time, (j)
terminate, amend, modify or waive compliance with any of the terms or
conditions of the Contribution Agreement affecting the Retained Assets or the
liabilities to be assumed by Bristol in connection with the Merger (the
"Retained Liabilities") or affecting the rights or obligations of Holiday Inns
thereunder from and after the Effective Time, (k) adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Holiday Inns or any of the Retained
Companies, (l) enter into any contract providing for acceleration of payment of
any liability or performance of any benefit or payment or other consequence as
a result of a change of control of Holiday Inns or any of the Retained
Companies or enter into any contract, arrangement or understanding requiring
the lease or purchase of equipment, materials, supplies or services over a
period greater than 12 months, which is not cancelable without penalty on 30
days' or less notice or involves the payment by Holiday Inns or any of the
Retained Companies of more than $100,000 unless such purchase or lease is
necessary to correct, on an emergency basis, any condition that could be
reasonably expected to affect adversely the life, safety or health of the
customers and employees of the Retained Business, or (m) enter into any
contract, agreement, commitment or arrangement, or take any corporate or other
action, to do any of the foregoing.
Bristol. Pursuant to the Merger Agreement, Bristol agreed that, prior
to the Effective Time, except as otherwise contemplated by the Merger Agreement
or the agreements related thereto or agreed by Holiday Corporation and Bristol,
it would, and would cause each of its subsidiaries to, conduct its business in
the ordinary course consistent with past practice and in compliance in all
material respects with all applicable laws and permits and use its reasonable
efforts to (i) preserve intact its business, (ii) keep available the services
of its current officers and other key employees, and (iii) preserve its
relationships with those persons having business dealings with it to the end
that its goodwill and ongoing business would be unimpaired at the Effective
Time. Bristol further agreed that, prior to the Effective Time, it would not
(a) issue, transfer, sell, dispose of or pledge or authorize any shares of its
capital stock or voting securities, or any options or other securities
convertible into or exchangeable for any such shares of capital stock or voting
securities, or amend any of the terms of any such securities or agreements
relating to such capital stock outstanding on the date of the Merger Agreement,
other than pursuant to employee or director plans filed as exhibits to
documents filed by Bristol with the Commission, (b) amend the Bristol Charter
or Bristol Bylaws,
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(c) permit its indebtedness to be in excess of the indebtedness permitted to be
incurred by it pursuant to Bristol's existing credit agreement plus $25 million
aggregate principal amount of additional indebtedness at any time outstanding,
(d) sell, lease, license, encumber or otherwise dispose of any of Bristol's
hotels other than pursuant to existing contractual commitments or other
arrangements specified in the Merger Agreement unless the proceeds of the
hotels to be disposed of would in the aggregate be less than $25 million, (e)
take any action that would make any representation or warranty of Bristol under
the Merger Agreement inaccurate in any material respect at, or as of any time
prior to, the Effective Time, (f) change any of its accounting principles,
except as may be required by generally accepted accounting principles, or (g)
enter into any contract, agreement, commitment or arrangement, or take any
corporate or other action, to do any of the foregoing. Notwithstanding the
foregoing, Bristol is permitted to take any action (1) if such action could not
reasonably be expected to involve the expenditure or incurrence of obligations
of more than $25 million or (2) with the prior written consent of Holiday
Corporation.
EMPLOYEE BENEFITS
The Merger Agreement provides that, for 12 months following the
Effective Time, Bristol will provide the Retained Companies' employees with the
same base pay levels and bonus opportunities as they received immediately prior
to the Merger. In addition, Bristol is required to establish plans comparable
to the nonqualified plans, group health plan and vacation and sick leave
policies covering the Retained Companies' employees immediately prior to the
Merger. Bristol will be responsible for 50% of all severance payments to
former Holiday Inns employees terminated in connection with the Merger (up to a
maximum of $625,000 to be paid by Bristol) and for all bonuses paid to certain
employees designated by Holiday Corporation and Bristol equal to 25% of the
base salary of each such employee between the date of the Merger Agreement and
six months after the Effective Time or, if earlier, the date such employee's
employment is terminated.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligations to Consummate the Merger. Each
party's obligation to consummate the Merger is subject to the satisfaction or
waiver of various conditions which include, in addition to other customary
closing conditions, the following:
(i) the Merger Agreement shall have been adopted and the Debt
Exchange shall have been approved by the affirmative vote of the holders
of a majority of the shares of Bristol Common Stock outstanding on the
Record Date;
(ii) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation of
the Acquisition;
(iii) the Contribution and the Exchange shall have been
consummated; and
(iv) the parties shall have entered into the Stockholders'
Agreement, Hotel Properties Agreement, Registration Rights Agreement and
Asset Purchase Agreements (each as described herein), and the closings
under the Asset Purchase Agreements shall have taken place
simultaneously with the closing of the Merger. In addition, Bristol
shall have entered into standard Holiday Inn franchise agreements for
the Acquired Hotel Assets and certain of the hotels currently owned by
Bristol.
Conditions to Obligation of Bristol to Consummate the Merger. The
obligation of Bristol to consummate the Merger is subject to the following
additional conditions:
(i) each of Holiday Inns and HHC shall have performed in all
material respects all obligations required to be performed by it under
the Merger Agreement and related agreements;
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(ii) the representations and warranties of Holiday Inns set
forth in the Merger Agreement that are qualified as to materiality shall
be true, and the representations and warranties of Holiday Inns set
forth in the Merger Agreement that are not so qualified shall be true in
all material respects, in each case at and as of the Effective Time as
though made at and as of such time;
(iii) certain third party consents required to have been
obtained by Bristol in connection with the execution, delivery and
performance of the Merger Agreement, the failure of which to obtain
could reasonably be expected to have a material adverse effect on
Bristol, shall have been obtained;
(iv) there shall not have occurred any event resulting in a
material adverse effect on the Retained Business;
(v) Bristol shall have obtained the financing described in "--
New Credit Facility";
(vi) there shall not be pending or threatened any litigation,
proceeding or claim brought by any governmental authority seeking to
enjoin the Acquisition seeking any hold-separate, divestiture or other
order relating thereto or to any other business or asset of Bristol or
any subsidiary thereof or seeking any other relief that Bristol
reasonably determines would be materially adverse; and
(vii) Bass International Holdings N.V. shall have entered into a
guarantee of the indemnity obligations of Holiday Corporation and HHC
under the Merger Agreement and the Contribution Agreement reasonably
satisfactory to Bristol.
Conditions to the Obligation of Holiday Inns to Consummate the Merger.
The obligation of Holiday Inns to consummate the Merger is subject to the
following additional conditions:
(i) Bristol shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement
and related agreements;
(ii) the representations and warranties of Bristol set forth in
the Merger Agreement that are qualified as to materiality shall be true,
and the representations and warranties of Bristol set forth in the
Merger Agreement that are not so qualified shall be true in all material
respects, in each case at and as of the Effective Time as though made at
and as of such time;
(iii) Holiday Inns shall have determined in good faith, after
considering the advice of Davis Polk & Wardwell, legal counsel to the
Holiday Entities, that there has not occurred after the date of the
Merger Agreement any adverse tax development that has a reasonable
possibility of or will result in the imposition of a material amount of
federal income tax to Holiday Inns, HHC or any of their affiliates,
subsidiaries or stockholders by reason of the Contribution, Exchange or
Merger;
(iv) Holiday Inns shall have received the Tax Assurances;
(v) there shall not have occurred any event resulting in a
material adverse effect on Bristol; and
(vi) Bristol shall have entered into the employment agreements
with J. Peter Kline and John A. Beckert described in "The Acquisition --
Interests of Certain Person in the Acquisition."
Waiver and Amendment. Each party may waive any condition that runs to
its benefit, and the parties may amend any provision of the Merger Agreement,
subject to certain exceptions. See "-- Amendment and Waiver."
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INDEMNIFICATION
Survival. The covenants, agreements, representations and warranties
contained in the Merger Agreement generally will survive until June 1, 1998
except that (i) the representations and warranties relating to litigation,
certain matters regarding taxes and environmental matters and the condition of
the Acquired Hotel Assets will not survive after the Effective Time, (ii) the
representations and warranties relating to the environmental liability of
Holiday Inns and Bristol will survive until 40 months after the Effective Time,
(iii) the representations and warranties, covenants and agreements relating to
certain tax matters will survive all applicable statutes of limitations
relating thereto, and (iv) the indemnification provisions relating to
environmental matters will survive until 40 months after the Effective Time.
Environmental Damages Suffered by Bristol. With respect to damages,
losses, liabilities, costs and expenses arising out of violations or
requirements of environmental laws relating to the Acquired Hotel Assets,
Holiday Corporation or its affiliates will, subject to certain limitations,
indemnify and hold harmless Bristol to the extent of 70% of the damages
suffered by Bristol up to a maximum of $4 million.
Other Damages Suffered by Bristol. With respect to damages, losses,
liabilities, costs and expenses suffered by Bristol, Holiday Inns or any of
their respective subsidiaries as a result of any misrepresentation or breach of
covenant made or to be performed by Holiday Inns (prior to the Effective Time)
or Holiday Corporation pursuant to the Merger Agreement, Holiday Corporation
and HHC jointly and severally will indemnify and hold harmless Bristol, Holiday
Inns and their respective subsidiaries from any and all such damages, provided
that the total amount of such damages suffered by Bristol exceeds $1 million.
Damages Suffered by Holiday Corporation. With respect to damages
suffered by Holiday Corporation, HHC and their respective affiliates
(collectively, the "Holiday Indemnities") as a result of any misrepresentation
or breach of covenant made or to be performed by Bristol pursuant to the Merger
Agreement, Bristol will indemnify and hold harmless the Holiday Indemnities
from any and all such damages, provided that the total amount of such damages
suffered by the Holiday Indemnities exceeds $1 million.
TERMINATION
The Merger Agreement may be terminated at any time prior to the
Effective Time (i) by mutual written consent of Bristol, Holiday Corporation
and Holiday Inns, (ii) by Holiday Corporation or Holiday Inns if the requisite
approval by Bristol's stockholders is not obtained at the Annual Meeting, (iii)
by Holiday Corporation or Holiday Inns if (a) Bristol shall have failed to
perform any covenant in the Merger Agreement and such failure to perform has
not been remedied within 20 business days after Holiday Corporation or Holiday
Inns delivers written notice thereof or (b) any condition to Holiday Inns'
obligation to consummate the Merger as set forth in the Merger Agreement has
not been satisfied and is not capable of being satisfied prior to June 30,
1997, (iv) by Bristol if (a) Holiday Corporation or Holiday Inns shall have
failed to perform any covenant in the Merger Agreement and such failure to
perform has not been remedied within 20 business days after Bristol delivers
written notice thereof or (b) any condition to Bristol's obligation to
consummate the Merger as set forth in the Merger Agreement has not been
satisfied and is not capable of being satisfied prior to June 30, 1997, and (v)
by any party if the Merger has not been consummated by June 30, 1997, so long
as the terminating party is not then in breach of any of its obligations under
the Merger Agreement. In the event of termination of the Merger Agreement,
except for the provisions of the Merger Agreement relating to expenses and the
confidentiality of information exchanged in connection with the Merger, the
Merger Agreement will become null and void and have no further effect, without
any liability on the part of any party thereto or its directors, officers or
stockholders except that no party will be relieved of any liability for its
breach of the Merger Agreement.
AMENDMENT AND WAIVER
Any provisions of the Merger Agreement may be amended or waived by an
instrument in writing and signed, in the case of an amendment, by each party
or, in the case of a waiver, by the party against whom the waiver is to be
effective, except that, after the adoption of the Merger Agreement by the
Bristol stockholders, no such amendment or waiver shall, without the further
approval of such stockholders, alter or change (i) the amount or kind of
consideration to be received in exchange for shares of Holiday Inns Common
Stock, (ii) any term of the Bristol
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Charter or (iii) any of the terms or conditions of the Merger Agreement if such
alteration or change would adversely affect the holders of the Bristol Common
Stock.
EXPENSES
Except as otherwise provided in the Merger Agreement, all costs and
expenses incurred in connection with the Merger Agreement will be paid by the
party incurring such costs or expenses.
APPRAISAL RIGHTS
Under the DGCL, holders of Bristol Common Stock are not entitled to
appraisal rights in connection with the Merger.
REQUIRED REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the
"HSR Act"), and the rules and regulations promulgated thereunder provide that
certain transactions (including the Merger) may not be consummated until
certain information has been submitted to the Antitrust Division of the
Department of Justice and the Federal Trade Commission and specified HSR Act
waiting period requirements have been satisfied. On March 21, 1997, the
waiting period under the HSR Act was terminated. Neither Bristol nor Holiday
Inns believes that the Merger will violate federal antitrust laws.
AMENDMENT OF BRISTOL BYLAWS
Pursuant to the Merger Agreement, as of the Effective Time, the Bristol
Bylaws will be amended and restated to (i) remove the provisions therein
relating to the classification of the Board, (ii) remove the requirement that
the Chairman of the Board serve on the executive committee of the Board (the
"Executive Committee"), and (iii) amend certain provisions regarding the
constitution of certain committees of the Board so that such provisions are
consistent with the terms of the Merger Agreement and related agreements. The
Board approved the amendment of the Bristol Bylaws in connection with its
approval of the Merger Agreement. Accordingly, approval or ratification of the
amendment by Bristol's stockholders is not necessary and is not being sought in
this Proxy Statement. Bristol believes that the foregoing amendments to the
Bristol Bylaws do not result in a material risk, or have a material impact on,
holders of Bristol Common Stock.
For the text of the proposed Amended and Restated Bylaws of Bristol, see
Exhibit "J" to the Merger Agreement, which is attached as Annex A to this Proxy
Statement and incorporated herein by reference. The Bristol Bylaws will not be
amended as described herein if the Merger is not consummated.
OTHER AGREEMENTS
The following is a discussion of the material terms of agreements to be
executed in connection with the Acquisition.
Contribution Agreement
Prior to the consummation of the Merger, Holiday Corporation, Holiday
Inns, HHC and Bristol will execute the Contribution Agreement pursuant to which
Holiday Inns will contribute to HHC (the "Contribution") all its assets (the
"Contributed Assets") other than the Retained Assets and HHC will assume all
the Contributed Liabilities. In particular, Holiday Inns will contribute to
HHC its Crowne Plaza hotels, its partnership interests in and asset management
agreements for five Holiday Inn hotels, Holiday Inns' franchise business, all
computer software licensed for use by Holiday Inns or its affiliates, all
Holidex reservation terminals and all computer hardware related to Holiday
Inns' Encore property management system. Following the Contribution, Holiday
Inns will, in a partial liquidation, exchange with Holiday Corporation all of
the outstanding common stock of HHC for shares of Holiday Inns Common Stock
(the "Exchange").
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Pursuant to the Contribution Agreement, (i) Bristol will indemnify
Holiday Corporation and HHC against any damages, losses, liabilities, costs and
expenses arising out of or in connection with (a) the Retained Liabilities, (b)
the operation and ownership of the Retained Assets from and after the Effective
Time, and (c) any breach of the Contribution Agreement by Bristol or Holiday
Inns (after the Effective Time) and (ii) Holiday Corporation and HHC jointly
and severally will indemnify Bristol and Holiday Inns against any damages
arising out of or in connection with (a) the Exchange, the Contribution, the
Contributed Liabilities or the Contributed Assets, (b) the operation or
ownership of any of the businesses contributed by Holiday Inns to HHC, and (c)
any breach of the Contribution Agreement by HHC or Holiday Corporation. Bass
International Holdings, N.V. will also guarantee HHC's and Holiday
Corporation's indemnity obligations under the Contribution Agreement.
Asset Purchase Agreements
In connection with the Merger Agreement, Holiday Inns B.V. and Holiday
Inns of Canada Ltd., affiliates of Holiday Inns and Holiday Corporation, will
enter into the Asset Purchase Agreements with Bristol pursuant to which Bristol
will acquire at the Effective Time seven hotels owned by such entities for an
aggregate of $91 million in cash. Except where the difference in structure
renders it inappropriate, the Asset Purchase Agreements incorporate
representations, covenants, capital expenditure and indemnification provisions
substantially similar to those in the Merger Agreement.
Hotel Properties Agreement
At the Effective Time, Bristol and Holiday Corporation will execute a
hotel properties agreement (the "Hotel Properties Agreement"). Except as
otherwise described below, the Hotel Properties Agreement will expire on the
earlier of (i) six months after Holiday Corporation has delivered to Bristol
the Holiday Notice (as defined below) and (ii) the mutual agreement of Bristol
and Holiday Corporation.
Right of First Offer to Franchise. Pursuant to the Hotel Properties
Agreement, Bristol will offer to Holiday Corporation the opportunity to enter
into a standard Holiday Corporation franchise agreement in effect at such time
with respect to each Mid-Scale Lodging Facility located in the United States
and Canada that Bristol manages, develops or acquires and that is reasonably
appropriate to be franchised as a Holiday Inn or Holiday Inn Select, unless
such hotel is subject to another franchise arrangement that cannot be
terminated without any material cost or expense to Bristol or unless such hotel
is subject to an existing franchise agreement for a Holiday Inn Hotel Brand (as
defined below) until, in either case, such franchise arrangement is terminated
or expires. The franchise fees to be paid to Holiday Corporation by Bristol
pursuant to such franchise agreements will be at market rates.
Bristol will not be permitted to own, lease, acquire, develop or manage
a hotel if the total number of rooms in all hotels, including such hoteland the
hotels owned, leased or managed by Bristol prior to the Effective Time, then
owned, leased or managed by Bristol under a brand other than a Holiday Inn
Hotel Brand would exceed 15% of the aggregate number of rooms in all of the
hotels leased, owned or managed by Bristol. Certain exceptions to this
limitation exist for hotels to be converted within 12 months and hotels
acquired in portfolio acquisitions. "Holiday Inn Hotel Brands" are Holiday
Inn, Holiday Inn Select, Holiday Inn Express, Crowne Plaza and any other hotel
brand controlled by Holiday Corporation or its affiliates.
The above provisions of the Hotel Properties Agreement will expire on
the earlier to occur of (i) the effectiveness of the Holiday Notice and (ii)
Holiday Corporation no longer holding a controlling equity interest in the
person that franchises the Holiday Inn Hotel Brands or in the person that
directly or indirectly holds the intellectual property rights related to the
Holiday Inn Hotel Brands.
Right of First Offer on Future Opportunities. Pursuant to the Hotel
Properties Agreement, if Holiday Corporation wishes to acquire an equity or
similar interest in, or the right to develop, a Mid-Scale Lodging Facility
located in the United States or Canada, Holiday Corporation must first offer
such opportunity to Bristol, subject to certain limitations. Holiday
Corporation will be permitted, however, to (i) terminate its obligations under
this provision at any time following 24 months from the Effective Time upon six
months' advance notice to Bristol (the "Holiday Notice") and (ii) acquire up to
five hotels, and develop an unlimited number of hotels, in the United States
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and Canada for research and training (each, a "Research & Training Hotel")so
long as (a) Holiday Corporation provides advance notice to Bristol of its
intention to acquire or develop any such hotel and (b) none of such hotels is
located in the same geographic markets as Bristol's hotels. If Holiday
Corporation proposes to sell any Research & Training Hotel that it owns, it
will be required to first offer to sell such hotel to Bristol.
Conversion of Existing Bristol Hotels. After execution of the Hotel
Properties Agreement, Bristol and Holiday Corporation will enter into franchise
agreements pursuant to which certain Bristol properties will be reflagged to
Holiday Inn Hotel Brands, subject to the normal franchising procedures of
Holiday Inns Franchising Inc. Franchise fees payable to an affiliate of
Holiday Corporation for the converted hotels will equal 0% of room revenues for
the remainder of 1997, increasing to 1% in 1998, 3% in 1999 and 5% in 2000.
The particular hotels to be reflagged and the particular Holiday Inn Hotel
Brand under which certain hotels will operate following the Effective Time have
not been conclusively determined as of the date hereof.
Stockholders' Agreement
At the Effective Time, Bristol, Holdings, Holiday Corporation, BAI and
Bass will enter into a stockholders' agreement (the "Stockholders' Agreement").
The Stockholders' Agreement will expire on the earliest of: (i) the
dissolution or liquidation of Bristol, (ii) the mutual agreement of the parties
thereto, (iii) the date on which either Holdings or the Holiday Entities ceases
to beneficially own any shares of Bristol Common Stock, and (iv) a merger,
consolidation or other business combination in which Bristol is not the
surviving entity, except that the standstill provisions discussed below will
terminate on the third anniversary of the date of the Stockholders' Agreement
if such provisions are not terminated earlier as a result of one of the
foregoing events.
Board Representation and Voting. Upon execution of the Stockholders'
Agreement, the Board will be reconstituted as described in "The Acquisition --
Interests of Certain Persons in the Acquisition."
Executive Committee and Management Committee. Pursuant to the
Stockholders' Agreement, Bristol, Holdings and the Holiday Entities will agree
to take all actions necessary to cause the Executive Committee to consist of at
least (i) either the chief executive officer or the chief operating officer of
Bristol (so long as such persons are entitled to serve on the Board pursuant to
the Management Stockholders' Agreement), (ii) a director designated by the
Holiday Entities, and (iii) a director designated by Holdings. Bristol will
also agree to create a management committee (the "Management Committee") to
consist of at least three persons among Bristol's chief executive officer,
chief financial officer, chief operating officer and general counsel. Any
proposed acquisition, improvement, disposition or financing transaction must be
approved by (a) the Management Committee if it involves $25 million or less,
(b) the Executive Committee if it involves an amount over $25 million and up to
$50 million, and (c) the full Board if it involves an amount over $50 million.
Restrictions on Transfer. Pursuant to the Stockholders' Agreement,
neither Holdings nor the Holiday Entities will be permitted to transfer any of
its shares of Bristol Common Stock to a third party (a "Third-Party Sale"),
except (i) to certain permitted transferees, (ii) in a public offering pursuant
to the Registration Rights Agreement (as described in "-- Registration Rights
Agreement"), (iii) pursuant to a tender offer or other transaction that has
been approved by the Board and is made to all holders of the Bristol securities
that are the subject of the tender offer or other transaction, and (iv) for any
pledge made in connection with a bona fide loan to such stockholder or any
foreclosure thereof, without first complying with a right of first refusal
procedure in favor of such other stockholder (the "Non-Selling Stockholder")
pursuant to which the Non-Selling Stockholder will have the first right to
purchase such shares of Bristol Common Stock at the price and on the other
terms of such proposed Third-Party Sale. If the Non-Selling Stockholder does
not exercise its right to purchase such shares of Bristol Common Stock, the
stockholder (the "Selling Stockholder") desiring to sell the shares in such
Third-Party Sale will be free to do so for a period of 60 days.
The Non-Selling Stockholder will also have the right to participate in
the Third-Party Sale at the same price and on the same terms as the Selling
Stockholder and sell a specified number of its shares of Bristol Common Stock
based upon the number of shares of Bristol Common Stock owned by the Non-
Selling Stockholder compared to the
31
<PAGE> 38
aggregate number of shares of Bristol Common Stock owned by the Selling
Stockholder and the Non-Selling Stockholder and the aggregate number of shares
proposed to be sold by each stockholder.
Certain Preemptive Rights. For a description of certain preemptive
rights to be granted to Holdings and the Holiday Entities pursuant to the
Stockholders' Agreement, see "The Acquisition -- Interests of Certain Persons
in the Acquisition -- Certain Preemptive Rights."
Standstill Obligations. Pursuant to the Stockholders' Agreement,
neither Holdings nor the Holiday Entities will acquire any shares of Bristol
Common Stock or other voting securities of Bristol without the prior written
approval of (i) the other such stockholder if such acquisition would increase
the purchasing stockholder's ownership of Bristol Common Stock and other voting
securities to greater than 36.5% but less than 45% of the Bristol voting
securities then outstanding or (ii) the other such stockholder and a majority
of the members of the Board if such acquisition would increase the purchasing
stockholder's total ownership of Bristol voting securities to greater than 45%
of the voting securities then outstanding.
Management Stockholders' Agreement
At the Effective Time, Bristol, Holdings, J. Peter Kline and John A.
Beckert will execute a management stockholders' agreement (the "Management
Stockholders' Agreement") pursuant to which (i) the parties will agree to take
all actions necessary to cause (a) each of Messrs. Kline and Beckert
(collectively, the "Management Stockholders") to be nominated as a director of
Bristol so long as he is an officer and employee of Bristol and permit them,
collectively, or either of them, as the case may be, to designate an Outside
Director so long as at least one of the Management Stockholders is an officer
and employee of Bristol, (b) the Executive Committee to include either
Management Stockholder, and (c) the Management Committee to include each
Management Stockholder and (ii) certain limitations will be placed on the
Management Stockholders' ability to transfer their shares of Bristol Common
Stock. Pursuant to the Management Stockholders' Agreement, for a period of
five years from the Effective Time, neither Management Stockholder may transfer
any of his shares of Bristol Common Stock owned as of the Effective Time or
acquired pursuant to options held by them at such time except (1) pursuant to a
tender offer or other transaction that has been approved by the Board and is
made to all holders of the Bristol securities that are the subject of the
tender offer or other transaction, (2) any involuntary transfer resulting from
a lender's foreclosing on any pledge of Bristol Common Stock, which pledge
existed on the date of the Management Stockholders' Agreement, (3) one-third of
such shares may be sold after compliance with certain rights of first refusal
held by Holdings and Holiday Corporation, (4) sales of such number of such
shares as are proportionate to the dispositions of Bristol Common Stock held by
Holdings and Holiday Corporation (on a combined basis), or (5) any transfer
made with the prior written consent of Holdings.
Registration Rights Agreement
At the Effective Time, Bristol, BAI, Holiday Corporation and Holdings
will execute a registration rights agreement (the "Registration Rights
Agreement") pursuant to which Bristol will agree, subject to certain
limitations and under certain circumstances, to register for sale shares of
Bristol Common Stock that are held by Holdings or the Holiday Entities and
requested by any such stockholder to be so registered (a "Demand
Registration"), but not fewer shares than would result in the Bristol Common
Stock being registered having an aggregate value of less than $25 million;
provided that (i) the number of Demand Registrations in which only one party
participates may not exceed three on behalf of Holdings and three on behalf of
the Holiday Entities and (ii) no stockholder may demand a registration until
(a) 120 days after the effective date of the previous Demand Registration and
(b) the earlier of (1) 180 days after Bristol's first underwritten public
offering of equity securities after the Effective Time or (2) 12 months after
the Effective Time.
The Registration Rights Agreement will also provide that, subject to
certain exceptions, in the event that Bristol files a registration statement
with respect to an offering of any class of equity securities, Bristol will
offer Holdings and the Holiday Entities the opportunity to include their shares
of Bristol Common Stock in such registration.
32
<PAGE> 39
AMENDMENT OF BRISTOL CHARTER
Pursuant to the Merger Agreement, as of the Effective Time the Bristol
Charter will be amended and restated to increase the number of authorized
shares of Bristol Common Stock from 75,000,000 to 150,000,000 and to remove all
provisions relating to the classification of the Board.
The Bristol Charter currently authorizes the issuance of 75,000,000
shares of Bristol Common Stock and 25,000,000 shares of Bristol preferred
stock. On the Record Date, an aggregate of 17,965,840 shares of Bristol Common
Stock were issued and outstanding or reserved for issuance. Bristol expects to
issue 9,373,118 shares of Bristol Common Stock to the Holiday Entities in the
Merger. After taking into account the shares of Bristol Common Stock issued or
reserved for issuance on the Record Date and the shares of Bristol Common Stock
to be issued in the Merger, Bristol would have 47,661,042 remaining shares
authorized for issuance if the Bristol Charter were not amended. The Board
believes it is desirable to authorize additional shares of Bristol Common Stock
so that there will be sufficient shares available for issuance after the
Acquisition for purposes that the Board may hereafter determine to be in the
best interests of Bristol and its stockholders. Such purposes could include
the offer of shares for cash, acquisitions or employee benefit programs and
other general corporate purposes. In many situations, prompt action may be
required which would not permit seeking stockholder approval to authorize
additional shares for the specific transaction on a timely basis. The Board
believes that it should have the flexibility to act promptly in the best
interests of stockholders. The terms of any future issuance of shares of
Bristol Common Stock will be dependent largely on market and financial
conditions and other factors existing at the time of issuance. For the
foregoing reasons, the Merger Agreement provides that the authorized shares of
Bristol Common Stock will be increased to 150,000,000 in order to have
additional shares available for issuance from time to time after the
Acquisition.
Bristol currently has no plans, understandings, agreements or
arrangements concerning the issuance of additional shares of Bristol Common
Stock, except for the shares to be issued in the Merger and under its existing
employee option plans. Following the Acquisition, Bristol intends, among other
things, to pursue possible capital markets and other transactions designed to
enhance further Bristol's financial flexibility and stockholder value. Such
transactions could include, among others, the issuance of additional debt or
equity securities by Bristol or the securitization of certain assets, including
Acquired Hotel Assets. If any plans, understandings, arrangements or
agreements are made concerning the issuance of any such shares, holders of the
then outstanding shares of Bristol's capital stock may or may not be given the
opportunity to vote thereon, depending upon the nature of any such transaction,
the law applicable thereto, the policy of the NYSE and the judgment of the
Board regarding the submission thereof to Bristol's stockholders. The current
rules of the NYSE, however, would require stockholder approval if the number of
shares of Bristol Common Stock to be issued in certain transactions (excluding,
among others, public offerings) would equal or exceed 20% of the number of such
shares of Bristol Common Stock outstanding immediately prior to such issuance.
The issuance of the Merger Shares and the Debt Exchange Shares in the
Acquisition will decrease the relative percentage equity ownership interest of
existing stockholders in Bristol. Future issuances of Bristol Common Stock
could also dilute the relative equity ownership interest of Bristol
stockholders and future issuances of Bristol Common Stock at prices below then-
prevailing market prices could result in the dilution of the value, as
determined by such market prices, of Bristol Common Stock.
It is not presently contemplated that such additional shares of Bristol
Common Stock would be issued for the purpose of making the acquisition by an
unwanted suitor of a controlling interest in Bristol more difficult, time-
consuming or costly. However, it should be noted that shares of Bristol Common
Stock could be issued for that purpose and to that effect, and the Board
reserves its right (if consistent with its fiduciary responsibilities) to issue
Bristol Common Stock for such purpose.
The Charter Amendment is an integral part of the Merger and, pursuant to
the Merger Agreement, will be effected automatically at the Effective Time.
Accordingly, a vote by a stockholder "against" the Charter Amendment will be
counted also as a vote by such stockholder "against" adoption of the Merger
Agreement and a vote by a stockholder "against" adoption of the Merger
Agreement will be counted also as
33
<PAGE> 40
a vote by a stockholder "against" the Charter Amendment, irrespective of
whether or the manner in which such stockholder votes with respect to such
other proposal. The Bristol Charter will not be amended as described herein if
the Merger is not consummated.
For the text of the proposed Amended and Restated Bristol Charter, see
Exhibit "I" to the Merger Agreement, which is attached as Annex A to this Proxy
Statement and incorporated herein by reference.
THE ACQUIRED BUSINESS
At the Effective Time, it is expected that the Acquired Business will
own, lease and/or manage 61 hotels containing a total of over 18,000 rooms. Of
these properties, 45 hotels are owned or leased by the Acquired Business, 13
hotels are managed (but not owned) by the Acquired Business and three hotels
are managed by the Acquired Business and owned by partnerships in which the
Acquired Business owns an equity interest. The 61 hotels are located in 19
states, the District of Columbia and Canada, with concentrations in the
southern and southwestern United States and California, and operate under
Holiday Inns' brands.
The following table sets forth certain information with respect to the
61 hotels currently owned, leased or managed by the Acquired Business. In
connection with the Acquisition, Bristol will acquire the Acquired Business's
interest in each of these properties.
34
<PAGE> 41
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 27, 1996
----------------------------
NUMBER YEAR DATE
HOTEL METROPOLITAN AREA OF ROOMS BUILT ACQUIRED OCCUPANCY ADR(1) REVPAR(2)
- ---------------------------------------- ------------------ -------- ----- -------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OWNED AND LEASED HOTELS
Holiday Inn - East Montgomery, AL 213 1964 1988 66.1% $ 59.61 $39.37
Holiday Inn - Texarkana (I-30) (3) Texarkana, AR 210 1970 1990 56.3 55.89 31.45
Holiday Inn Select - Orange County
Airport Irvine, CA 334 1986 1990 69.9 62.40 43.60
Holiday Inn Select - Pleasanton Pleasanton, CA 244 1986 1990 73.1 77.52 56.65
Holiday Inn - San Diego on the Bay (3) San Diego, CA 600 1965 1990 80.7 77.23 62.33
Holiday Inn - San Francisco Financial
District (3) San Francisco, CA 566 1970 1990 80.0 89.23 71.41
Holiday Inn - San Francisco Fisherman's
Wharf (3) San Francisco, CA 584 1970 1990 87.5 100.51 87.98
Holiday Inn Select - San Francisco Union
Square San Francisco, CA 400 1970 1992 87.4 114.30 99.91
Holiday Inn - Hartford Downtown Hartford, CT 342 1973 1991 69.7 56.94 39.69
Holiday Inn Select - Stamford Stamford, CT 385 1984 1996 35.6 69.85 24.85
Holiday Inn - Cocoa Beach Cocoa Beach, FL 501 1960 1988 68.1 61.31 41.77
Holiday Inn Select - Miami Airport (3) Miami, FL 304 1983 1988 79.1 70.0 55.39
Holiday Inn - Orlando Disney Main
Gate (3) Orlando, FL 529 1974 1988 87.2 48.42 42.24
Holiday Inn - Orlando International Drive Orlando, FL 652 1972 1988 85.5 59.95 51.24
Holiday Inn - Orlando Winter Park Orlando, FL 200 1974 1988 75.6 46.74 35.35
Holiday Inn Select - Orlando International
Airport Orlando, FL 289 1984 1988 86.2 68.40 58.97
Holiday Inn - Tampa Busch Gardens (3) Tampa, FL 399 1966 1989 77.0 54.34 41.82
Holiday Inn - Columbus Airport (I-185) Columbus, GA 223 1969 1990 68.0 53.62 36.45
</TABLE>
35
<PAGE> 42
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 27, 1996
----------------------------
NUMBER YEAR DATE
HOTEL METROPOLITAN AREA OF ROOMS BUILT ACQUIRED OCCUPANCY ADR(1) REVPAR(2)
- ---------------------------------------- ------------------ -------- ----- -------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn - New Orleans French
Quarter (3) New Orleans, LA 276 1969 1990 72.0 $114.76 $ 82.65
Holiday Inn Select - Boston Government
Center Boston, MA 305 1968 1990 80.3 135.68 109.02
Olive Branch, MS
Holiday Inn Executive Conference Center (Memphis) 177 1972 1990 62.0 81.41 50.48
Holiday Inn - Kansas City Northeast
(I-435 North) Kansas City, MO 167 1975 1990 77.9 68.70 53.49
Holiday Inn - Albuquerque Mountainview
(Midtown) Albuquerque, NM 363 1968 1990 63.1 58.93 37.21
Holiday Inn Select - Philadelphia City
Center Philadelphia, PA 457 1970 1992 74.7 97.61 72.96
Holiday Inn - Charleston Mills House Charleston, SC 214 1982 1995 74.4 114.94 85.47
Holiday Inn - Columbia Airport Columbia, SC 148 1966 1988 70.8 53.86 38.15
Holiday Inn Select - Greenville Greenville, SC 208 1984 1988 69.4 75.44 52.34
Holiday Inn - Spartanburg, SC Spartanburg, SC 224 1962 1988 58.7 56.55 33.17
Holiday Inn - Chatanooga Southeast (I-75) Chatanooga, TN 231 1964 1988 61.4 46.91 28.81
Holiday Inn - Knoxville West Knoxville, TN 242 1966 1988 61.1 66.22 40.43
Holiday Inn Select - Briley Parkway (3) Nashville, TN 385 1981 1988 70.5 86.11 60.72
Holiday Inn - Amarillo (I-40) (3) Amarillo, TX 248 1970 1990 59.6 54.62 32.55
Holiday Inn - Austin Town Lake Austin, TX 321 1967 1990 73.5 72.35 53.21
Holiday Inn - Beaumont Midtown (I-10) Beaumont, TX 191 1967 1990 70.8 54.56 38.61
Holiday Inn Select - Houston West Houston, TX 345 1984 1990 71.4 72.64 51.90
Holiday Inn - San Antonio Downtown (3) San Antonio, TX 316 1968 1990 73.1 67.25 49.17
Holiday Inn Select - San Antonio Airport San Antonio, TX 397 1981 1990 65.8 71.73 47.20
Holiday Inn - Waco (I-35) Waco, TX 172 1970 1990 68.7 57.03 39.18
Holiday Inn - Salt Lake City Airport Salt Lake City, UT 191 1963 1990 76.8 67.08 52.88
</TABLE>
36
<PAGE> 43
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 27, 1996
----------------------------
NUMBER YEAR DATE
HOTEL METROPOLITAN AREA OF ROOMS BUILT ACQUIRED OCCUPANCY ADR(1) REVPAR(2)
- ---------------------------------------- ------------------ -------- ----- -------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn - Cambridge Ontario, Canada 139 1969 1989 84.8 $47.73 $40.48
Holiday Inn - Kitchener Kitchener, Canada 182 1965 1989 74.6 54.33 40.54
Holiday Inn - Peterborough Peterborough, Canada 155 1965 1989 77.8 45.55 35.45
Holiday Inn - Sarnia Sarnia, Canada 151 1970 1989 79.7 48.68 38.79
Holiday Inn - Toronto Airport Toronto, Canada 444 1970 1989 87.9 54.36 47.79
Holiday Inn - Yorkdale Toronto, Canada 370 1970 1989 91.5 55.41 50.71
JOINT VENTURE HOTELS (4)
Holiday Inn - Milpitas San Jose, CA 305 1987 1990
Holiday Inn - New Orleans Chateau
LeMoyne (3) New Orleans, LA 171 1971 1990
Holiday Inn - Washington Franklin Square Washington, DC 208 1972 1990
MANAGED HOTELS (5)
Holiday Inn - Hollywood Hollywood, CA 471 1970 1990
Holiday Inn - Los Angeles City Center Los Angeles, CA 195 1967 1990
Holiday Inn - Los Angeles Woodland Hills Los Angeles, CA 124 1966 1994
Holiday Inn - San Francisco Civic Center San Francisco, CA 391 1970 1990
Holiday Inn - Harbor Gateway Torrance, CA 329 1987 1996
Holiday Inn - South Bend University (6) South Bend, IN 228 1960 1990
Holiday Inn - Lexington North (6) Lexington, KY 303 1966 1990
Holiday Inn - New Orleans Metairie New Orleans, LA 195 1969 1993
Holiday Inn - Cincinnati North (6) Cincinnati, OH 409 1961 1990
Holiday Inn - Pittsburgh University Center Pittsburgh, PA 253 1988 1990
Holiday Inn - Memphis East (6) Memphis, TN 243 1986 1990
</TABLE>
37
<PAGE> 44
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 27, 1996
----------------------------
NUMBER YEAR DATE
HOTEL METROPOLITAN AREA OF ROOMS BUILT ACQUIRED OCCUPANCY ADR(1) REVPAR(2)
- ---------------------------------------- ------------------ -------- ----- -------- --------- ------ ---------
<S> <C> <C> <C> <C>
Holiday Inn - Nashville Vanderbilt Nashville, TN 300 1969 1990
Holiday Inn - San Antonio Riverwalk (6) San Antonio, TX 313 1987 1990
</TABLE>
- ---------------
(1) "ADR" means average daily rate and is calculated by dividing room
revenues by occupied rooms.
(2) "REVPAR" means room revenues per available room and is calculated by
dividing room revenues by average available rooms.
(3) This hotel is subject to a ground lease. The Holiday Inn - San
Francisco Financial District and the Holiday Inn - San Francisco
Fisherman's Wharf hotels are also subject to building leases.
(4) The Acquired Business owns a 50% equity interest in the owner of each of
these hotels and manages each of them pursuant to management agreements.
Occupancy, ADR and REVPAR are not included for these hotels because the
Acquired Business receives only a fee for management services provided
to the hotels which is not determined by such performance measures.
(5) The Acquired Business manages but, unless otherwise noted, does not own
an equity interest in these hotels. The management contracts covering
these hotels expire on dates generally ranging from 1997 (in the case of
Holiday Inns - New Orleans Metairie and Holiday Inns - San Francisco
Civic Center) to 2008 (in the case of Holiday Inns Select - Pittsburgh
University Center), generally with one or more options to extend five or
ten years. Occupancy, ADR and REVPAR are not included for these hotels
because the Acquired Business receives only a fee for management
services provided to the hotels which is not determined by such
performance measures.
(6) Holiday Inns is the general partner of and owns a 12.7% equity interest
in the owner of this hotel. This equity interest is not being acquired
by Bristol pursuant to the Acquisition.
38
<PAGE> 45
BOARD OF DIRECTORS
ELECTION OF DIRECTORS
The management of Bristol is under the direction of the Board. The
Board held a total of five meetings during 1996. No director failed to attend
at least 75% of the meetings of the Board held while he was a director.
Additionally, each director appointed to serve on one or more committees of the
Board attended at least 75% of the meetings of such committee or committees
held while he was a member thereof.
The Bristol Charter and Bylaws currently provide that the Board is to be
classified into three classes, with the directors in each class serving for
three-year terms and until their successors are elected. The terms of the
persons presently serving on the Board expire at the annual meeting of
stockholders for the years indicated: J. Peter Kline and Kurt C. Read: 1997;
Robert H. Lutz, Jr.: 1998; and John A. Beckert, David A. Dittman and Donald J.
McNamara: 1999.
Although it is expected that the Acquisition will be consummated shortly
after the close of the Annual Meeting, and thereupon the Board will be
reconstituted as described herein, the Board has nominated Messrs. Kline and
Read for election as directors at the Annual Meeting (each of whom will serve
for a three-year term to expire at the annual meeting of stockholders to be
held in 2000 if the Acquisition is not consummated).
A Plurality Vote is required to elect each of Messrs. Kline and Read as
a director. Each of Messrs. Kline and Read has consented to being named in
this Proxy Statement and to serve if elected. If either of them should for any
reason become unavailable for election, proxies may be voted with discretionary
authority by the persons named therein as proxies for a substitute designated
by the Board.
For information with respect to Messrs. Kline and Read, the other
members of the Board and the designees to serve as such after the Effective
Time, see "The Acquisition -- Interests of Certain Persons in the Acquisition."
BOARD COMMITTEES
The Board has established five committees: the Executive Committee, a
finance committee (the "Finance Committee"), an audit review committee (the
"Audit Review Committee"), the Compensation Committeeand a director plan
committee (the "Director Plan Committee").
Except as to certain matters for which action of the full Board is
required by law, the Executive Committee has the authority to exercise all of
the powers of the Board in the oversight of the management of the business and
affairs of Bristol. The Executive Committee also is responsible for
considering and making recommendations to the Board regarding nominees for
election to the Board and Board committee assignments. During 1996, the
Executive Committee did not meet. The current members of the Executive
Committee are Donald J. McNamara (Chairman), John A. Beckert and J. Peter
Kline. Following consummation of the Acquisition, it is expected that the
Executive Committee will be reconstituted to consist of Donald J. McNamara
(Chairman), J. Peter Kline and Richard C. North.
The Finance Committee has the authority to exercise all of the powers of
the Board in the oversight of the financial affairs of Bristol. The current
sole member of the Finance Committee is J. Peter Kline. Following consummation
of the Acquisition, it is expected that the Finance Committee will be
reconstituted to consist of Donald J. McNamara (Chairman) and J. Peter Kline.
The Audit Review Committee reviews the professional services provided by
Bristol's independent accountants and the independence of such accountants from
management. The Audit Review Committee also reviews the scope of the audit by
Bristol's independent accountants, the annual financial statements of Bristol,
Bristol's system of internal accounting controls and such other matters with
respect to the accounting, auditing and financial reporting practices and
procedures of Bristol as it finds appropriate or as are brought to its
attention, and meets from time to time with members of Bristol's internal audit
staff. The Audit Review Committee met four times during 1996. At least two
members of the Audit Review Committee must be directors who are not employed by
Bristol,
39
<PAGE> 46
Holdings, the Holiday Entities or any of their respective affiliates
("Unaffiliated Directors"). The current members of the Audit Review Committee
are David A. Dittman (Chairman) and Robert H. Lutz, Jr. Following consummation
of the Acquisition, it is expected that the Audit Review Committee will be
reconstituted to consist of David A. Dittman (Chairman), Craig H. Huntand Kurt
C. Read.
The Compensation Committee reviews executive salaries, administers the
bonus, incentive compensation and stock option plans of Bristol and approves
the salaries and other benefits of the executive officers of Bristol. In
addition, the Compensation Committee consults with Bristol's management
regarding pension and other benefit plans and compensation policies and
practices of Bristol. This committee met twice during 1996. Members of the
Compensation Committee must be persons who are not full time employees of
Bristol and are not eligible to receive options or other rights under any
employee stock or other benefit plan (other than plans in which only directors
may participate) and include at least two Unaffiliated Directors. The current
members of the Compensation Committee are Donald J. McNamara (Chairman), David
A. Dittman and Robert H. Lutz, Jr. Following consummation of the Acquisition,
it is expected that the Compensation Committee will be reconstituted to consist
of Donald J. McNamara (Chairman), Robert H. Lutz, Jr. and Richard C. North.
The sole function of the Director Plan Committee is to administer
Bristol's Stock Option Plan for Non-Employee Directors. The current members of
the Director Plan Committee are Donald J. McNamara (Chairman) and Robert H.
Lutz, Jr. Following consummation of the Acquisition, it is expected that the
Director Plan Committee will be reconstituted to consist of Donald J. McNamara
(Chairman) and Richard C. North.
DIRECTOR NOMINATION PROCEDURES
Nomination for election of directors of Bristol may be made by the Board
or by any stockholder entitled to vote in the election of directors generally.
The Bristol Bylaws require that stockholders intending to nominate candidates
for election as directors deliver written notice thereof to the Secretary of
Bristol not later than 60 days in advance of the meeting of stockholders,
except that in the event that the date of the meeting is not publicly announced
by Bristol by inclusion in a report filed with the Commission or furnished to
stockholders, or by mail, press release or otherwise more than 75 days prior to
the meeting, notice by the stockholders to be timely must be delivered to the
Secretary of Bristol not later than the close of business on the tenth day
following the day on which such announcement of the date of the meeting was so
communicated. The Bristol Bylaws further require that the notice by the
stockholder set forth certain information concerning such stockholder and the
stockholder's nominees, including their names and addresses, a representation
that the stockholder is entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons
specified in the notice, the class and number of shares of Bristol's stock
owned of record or beneficially owned by such stockholder, a description of all
arrangements or understandings between the stockholder and each nominee, such
other information as would be required to be included in a proxy statement
soliciting proxies for the election of the nominees of such stockholder and the
consent of each nominee to serve as a director of Bristol if so elected. The
chairman of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with these requirements.
DIRECTOR COMPENSATION
For his or her services as a member of the Board and of any committee
thereof, each director who is not a full-time employee of Bristol or an
employee of a 10% beneficial owner or an affiliate thereof automatically is
granted annually a non-qualified option to purchase 5,000 shares of Bristol
Common Stock at an exercise price equal to the then-current market price of the
Bristol Common Stock. In addition, all directors are reimbursed for their out-
of-pocket expenses incurred in connection with attendance at meetings of the
Board and Board committees and other activities relating thereto.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid to Bristol's chief executive officer and each of the four
other most highly compensated executive officers of Bristol who earned at least
$100,000 in total salary and bonus in 1996 (collectively, the "Named Executive
Officers").
40
<PAGE> 47
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) COMPENSATION(2)
- --------------------------- ---- -------- ------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
J. Peter Kline ............................ 1996 $250,502 $ 69,350 -- $ 852
President and Chief 1995 231,353 87,183 150,000 2,073
Executive Officer 1994 146,400 130,254 -- 3,429
John A. Beckert ........................... 1996 250,502 69,350 -- 852
Chief Operating Officer and 1995 231,353 79,724 150,000 2,072
Executive Vice President 1994 146,400 121,571 -- 3,310
Jeffrey P. Mayer (3) ...................... 1996 186,033 56,448 130,000 46,633
Senior Vice President and 1995 -- -- -- --
Chief Financial Officer 1994 -- -- -- --
Edward J. Rohling ......................... 1996 199,541 55,480 20,000 948
Senior Vice President, 1995 163,576 82,922 144,000 2,088
Corporate Development 1994 120,000 130,254 -- 2,711
Robert L. Miars (4) ....................... 1996 144,000 120,515 10,000 --
Vice President, 1995 125,866 74,282 33,000 --
Design & Construction 1994 -- -- -- --
</TABLE>
---------------
(1) Reflects options to acquire shares of Bristol Common Stock
granted pursuant to Bristol's 1995 Equity Incentive Plan.
(2) Consists entirely of contributions by Bristol to Bristol's 401(k)
plan except for Mr. Mayer, whose other compensation consists of
reimbursements for relocation expenses.
(3) Mr. Mayer joined Bristol in January 1996.
(4) Mr. Miars joined Bristol in February 1995.
41
<PAGE> 48
STOCK OPTION GRANTS
The following table sets forth certain information with respect to
options granted to the Named Executive Officers during 1996.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES PRICE APPRECIATION FOR
UNDERLYING % OF TOTAL OPTIONS EXERCISE OPTION TERM (1)
OPTIONS GRANTED TO OR EXPIRATION -----------------------------
NAME GRANTED EMPLOYEES IN 1996 BASE PRICE DATE 5% 10%
---- ------- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Peter Kline ........ -- -- -- -- -- --
John A. Beckert ....... -- -- -- -- -- --
Jeffrey P. Mayer ...... 100,000 35.7% $20.50 2006 $2,083,334 $4,531,514
30,000 10.7 26.60 2006 600,818 1,429,340
Edward J. Rohling ..... 20,000 7.1 26.60 2006 400,545 952,893
Robert L. Miars ....... 10,000 3.6 26.60 2006 200,273 476,447
</TABLE>
---------------
(1) The potential realizable value portion of the foregoing table
illustrates value that might be realized upon exercise of the
options immediately prior to the expiration of their term,
assuming the specified compounded rates of appreciation on
Bristol Common Stock over the term of the options. These numbers
do not take into account provisions of certain options providing
for termination of the option following termination of
employment, nontransferability or vesting over periods. The use
of the assumed 5% and 10% returns is established by the
Commission and is not intended by Bristol to forecast possible
future appreciation of the price of Bristol Common Stock.
The following table sets forth certain information with respect to
options held at December 31, 1996 by the Named Executive Officers.
OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME DECEMBER 31, 1996 (1) DECEMBER 31, 1996 (2)
---- ---------------------- -----------------------
<S> <C> <C>
J. Peter Kline .................. 150,000 $2,887,500
John A. Beckert ................. 150,000 2,887,500
Jeffrey P. Mayer ................ 130,000 1,279,500
Edward J. Rohling ............... 164,000 2,875,000
Robert L. Miars ................. 43,000 686,750
</TABLE>
---------------
(1) All options held by the Named Executive Officers at December 31,
1996 were unexercisable.
(2) The closing price per share of Bristol Common Stock as reported
in the NYSE Composite Transactions Report on December 31, 1996
was $31.75. Value is calculated on the basis of the difference
between
42
<PAGE> 49
the option exercise price and $31.75 multiplied by the number of
shares of Bristol Common Stock covered by the option.
COMPENSATION PLANS AND ARRANGEMENTS
Management Bonus Plan. Bristol has established a Management Bonus Plan,
pursuant to which key management employees of Bristol are eligible to receive
cash bonuses based upon the achievement of specified targets and goals for
Bristol and for the particular employees. Each officer of Bristol is eligible
to receive annual bonus awards based on the achievement of performance
criteria, as well as personal criteria, established by the Compensation
Committee.
401(k) Plan. Bristol maintains and offers to its employees, including
its executive officers, a profit sharing plan with a 401(k) feature (the
"401(k) Plan"). Eligible employees may contribute to the 401(k) Plan through
salary deferral elections of not less than 1% nor more than 16% of the
employee's salary. Contributions of up to 6% of a participant's salary are
eligible for matching contributions from Bristol. Such matching contributions
are discretionary with Bristol and are subject to change as authorized by the
Board, provided that aggregate matching contributions by Bristol do not exceed
certain statutory limitations. Contributions by participants are always 100%
vested and contributions by Bristol vest over a period of years, becoming fully
vested after seven years of continuous employment. The 401(k) Plan is intended
to qualify under Section 401 of the Code so that contributions by participants
or by Bristol to the 401(k) Plan, and income earned on such contributions, are
not taxable to the participants until withdrawn from the 401(k) Plan.
Incentive Plan. Bristol's 1995 Equity Incentive Plan (the "Incentive
Plan") is designed to attract and retain qualified officers and other key
employees of Bristol. The Incentive Plan authorizes the grant of options to
purchase shares of Bristol Common Stock, stock appreciation rights, restricted
shares, deferred shares, performance shares and performance units. The
Compensation Committee administers the Incentive Plan and determines to whom
award thereunder are to be granted and the terms and conditions, including the
number of shares and the period of exercisability, thereof.
Bristol has granted options to purchase an aggregate of 1,103,456 shares
of Bristol Common Stock pursuant to the Incentive Plan. Of these options,
923,456 options, which were granted at various dates since February 1995, have
a term of ten years and become exercisable over a period of three to five years
from the date of grant, and 180,000 options, which were granted in December
1996, have a term of ten years and currently become exercisable as to 100% of
the shares covered thereby on the ninth anniversary of the date of grant but,
at the Effective Time, will become exercisable as to 20% of the shares covered
thereby on each of the first five anniversaries of the date of grant. In
addition, all of the options granted to Bristol's executive officers will
become exercisable as to 100% of the shares covered thereby upon a change in
control of Bristol (as defined in the option agreements).
REPORT ON EXECUTIVE COMPENSATION
The overall compensation and benefit levels of Bristol's executive
officers were established at the time of the Combination following negotiations
between representatives of Holdings and representatives of senior management
and in the context of the substantial equity stakes in Bristol held by those
parties. Since the IPO, Bristol's compensation program has had three principal
components: base salary, incentive bonus and long-term compensation in the
form of stock options. The Compensation Committee believes this mix of
compensation provides executive officers with a base salary that is competitive
and an incentive portion which is performance based.
BASE SALARY
Each of Bristol's executive officers receives an annual performance
review. In connection with this review, each executive officer's base salary
is evaluated and adjusted as deemed appropriate by the Compensation Committee.
In determining appropriate salary levels, the Compensation Committee considers
the existing compensation levels,
43
<PAGE> 50
the level and scope of responsibility, experience and individual performance
over the past year, as well as the pay practices of other lodging industry
companies.
Base salaries for 1996 for the Chief Executive Officer and other Named
Executive Officers were established at the time of the IPO. In connection with
the Acquisition and in recognition of the increased size and scope of Bristol's
business resulting therefrom, it is anticipated that the annual base salary of
each of Messrs. Kline and Beckert will be increased from $250,502 to $450,000.
See "-- Employment Agreements."
BONUS PROGRAM
During 1996, Bristol maintained an incentive compensation program which
provided for the payment of cash bonuses to its executive officers and other
key employees based upon the achievement of Bristol's performance criteria, as
well as personal performance criteria, established by the Compensation
Committee. Under the 1996 program, each of the executive officers, including
Mr. Kline, was eligible for an incentive award of up to 50% of his base salary.
It is anticipated that this basic philosophy will be continued following the
Acquisition.
STOCK OPTIONS
Bristol has employed the award of stock options to senior management,
including Mr. Kline and the other Named Executive Officers, further to
incentivize management and, accordingly, awarded stock options to senior
management personnel at the time of the IPO. In addition, in connection with
the proposed Acquisition, in December 1996, the Compensation Committee
determined it appropriate to grant stock options to certain executive officers
and key employees other than Messrs. Kline and Beckert, who are to become
parties to the employment agreements described below and who had requested that
no additional options be granted to them so that additional options would be
available for other employees. The number of options granted to each executive
officer was based on that individual's evolving role at Bristol. The options
currently are not exercisable until the ninth anniversary of the date of grant.
Upon consummation of the Acquisition, however, the options will automatically
become exercisable at the rate of 20% on each of the first five anniversaries
of the date of grant.
The Compensation Committee has no formal policy as to the timing of
granting of stock options and may grant further options in the future.
EMPLOYMENT AGREEMENTS
The Merger Agreement provides that Bristol will enter into employment
agreements with Messrs. Kline and Beckert. Under the employment agreements,
for a four-year term commencing at the Effective Time, each of Messrs. Kline
and Beckert will be entitled to such salary and bonus amounts as may be
determined by the Compensation Committee, provided that the base salary for
each will not be less than $450,000 per annum. Messrs. Kline and Beckert will
also be eligible for future grants of stock-based incentive awards and other
benefits provided to senior executives at Bristol, including bonus
opportunities of up to 50% of base pay. For a discussion of certain other
provisions of the employment agreements, see "The Acquisition -- Interests of
Certain Persons in the Acquisition -- Employment Agreements."
TAX EFFECTS
The Company believes that the compensation paid to its executive
officers during 1996 is deductible for federal income tax purposes. In
connection with future executive compensation determinations, the Compensation
Committee presently intends to consider, together with such other factors as
may be deemed pertinent under the circumstances, whether such compensation will
be deductible for federal income tax purposes.
Respectfully submitted,
David A. Dittman
Robert H. Lutz, Jr.
Donald J. McNamara, Chairman
44
<PAGE> 51
MARKET PRICES FOR BRISTOL COMMON STOCK
Bristol Common Stock has been listed on the NYSE since December 13, 1995
under the symbol "BH." The following table sets forth the high and low sale
prices for the periods indicated as reported in the NYSE Composite Transactions
Report. Holiday Inns Common Stock is not traded on any securities exchange.
<TABLE>
<CAPTION>
1995 HIGH LOW
- ---- -------- -------
<S> <C> <C>
December 13 to December 31, 1995 ...................... $24.500 $22.500
1996
- ----
First Quarter ......................................... 28.625 24.375
Second Quarter ........................................ 32.500 27.375
Third Quarter ......................................... 32.125 26.250
Fourth Quarter ........................................ 31.750 25.000
1997
- ----
First Quarter ......................................... 44.500 31.625
April 1 to April 4, 1997 .............................. 43.375 40.625
</TABLE>
On December 6, 1996, the last trading day prior to Bristol's
announcement that it was engaged in discussions with Holiday Inns relating to
the Acquisition, the closing sales price per share of Bristol Common Stock as
reported in the NYSE Composite Transactions Report was $27.00; on December 13,
1996, the last trading day prior to the announcement of the Merger Agreement,
the closing sales price per share of Bristol Common Stock as so reported was
$28-5/8; on the last trading day immediately preceding the date of this Proxy
Statement, the closing sales price per share of Bristol Common Stock as so
reported was $40-3/4. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT STOCK PRICE
QUOTATIONS.
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Bristol Common Stock with the Standard & Poor's 500 Stock Index and the BT
Lodging Owner/Operator Index from the date trading of the Bristol Common Stock
on the NYSE commenced through December 31, 1996, assuming an initial investment
of $100 and the reinvestment of all dividends.
45
<PAGE> 52
[GRAPH]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
12/13/95 12/31/95 12/31/96
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Bristol Hotel Company 100.00 105.98 138.04
BT Lodging Owner/Operator Index 100.00 106.67 132.48
S&P 500 Index 100.00 99.07 119.15
- -------------------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Bristol Common Stock, both prior to and after giving
effect to the Acquisition, as of the close of business on the Record Date by
(i) each person known to Bristol to own beneficially more than 5% of the
Bristol Common Stock, (ii) each director and Named Executive Officer of
Bristol, and (iii) all directors and executive officers of Bristol as a group.
Except as otherwise indicated, the address for each of the individuals named in
the table is 14285 Midway Road, Suite 300, Dallas, Texas 75244. For purposes
of the table, a person or group of persons is deemed to have "beneficial
ownership" of any shares as of a given date which such person has the right to
acquire within 60 days after such date. See "Board of Directors -- Executive
Compensation" for information pertaining to options held by executive officers.
46
<PAGE> 53
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE ACQUISITION AFTER THE ACQUISITION
------------------------ ---------------------
NUMBER PERCENT NUMBER PERCENT
NAME OF BENEFICIAL OWNER OF SHARES OF CLASS OF SHARES OF CLASS
- ------------------------ --------- -------- --------- --------
<S> <C> <C> <C> <C>
Donald J. McNamara (1) ...................................... -- -- -- --
J. Peter Kline (2) .......................................... 795,634 4.8% 795,634 3.1%
John A. Beckert (2) ......................................... 465,736 2.8 465,736 1.8
Jeffrey P. Mayer ............................................ -- -- -- --
Edward J. Rohling ........................................... 150,840 * 150,840 *
Robert L. Miars (2) ......................................... 649,436 3.9 649,436 2.5
David A. Dittman (3) ........................................ 8,350 * 8,350 *
Robert H. Lutz, Jr. (4) ..................................... 9,350 * 9,350 *
Kurt C. Read ................................................ -- -- -- --
H.K. Huie, Jr. (5) .......................................... 963,768 5.8 963,768 3.7
13279 Meadowside Drive
Dallas, Texas 75204
Cohen & Steers Capital Management, Inc (6)................... 1,378,000 8.32 1,378,000 5.3
757 Third Avenue
New York, New York 10017
United/Harvey Holdings, L.P. (7) ............................ 9,373,118 56.6 9,373,118 36.1
4200 Texas Commerce Tower West
2200 Ross Avenue
Dallas, Texas 75201
All directors and executives officers
as a group (nine persons) (1)(8) .......................... 2,216,686 13.4 2,216,686 8.5
Holiday Corporation ......................................... -- -- 2,391,286 9.2
Three Ravina Drive, Suite 2900
Atlanta, Georgia 30346
Bass America Inc. ........................................... -- -- 6,981,832 26.9
Three Ravina Drive, Suite 2900
Atlanta, Georgia 30346
</TABLE>
---------------
* Less than 1%
(1) Mr. McNamara is the founder and Co-Chief Executive Officer of
Hampstead. Holdings and its general partner were formed by
Hampstead. The limited partners of Holdings include entities
affiliated with Hampstead and certain unaffiliated institutional
investors, none of which has the right to direct the management
of the business of Holdings. However, by virtue of the foregoing
relationships, Mr. McNamara may be deemed to beneficially own the
shares of Bristol Common Stock owned by Holdings. Mr. McNamara
disclaims beneficial ownership of all shares owned by
Holdingsand, accordingly, such shares are not shown in the table
as being beneficially owned by him.
47
<PAGE> 54
(2) At the time of execution of the Merger Agreement, it was
contemplated that the Named Executive Officers would be entitled
to sell up to one-third of the Bristol Common Stock owned by him
as of the Record Date. Such transactions may be completed prior
to the Annual Meeting.
(3) Mr. Dittman has the right to acquire (through the exercise of
options) all of these shares within 60 days of the Record Date,
including 6,650 shares which Mr. Dittman will have the right to
acquire following the Annual Meeting.
(4) Includes 8,350 shares which Mr. Lutz has the right to acquire
(through the exercise of options) within 60 days of the Record
Date, including 6,650 shares which Mr. Lutz will have the right
to acquire following the Annual Meeting.
(5) All but 68,574 shares beneficially owned by Mr. Huie are subject
to a call option pursuant to which Holdings has an immediately
exercisable right to purchase such shares.
(6) Based on a Schedule 13G filed with the Commission on February 3,
1997.
(7) Based on a Schedule 13G filed with the Commission on February 13,
1996. Includes 895,194 shares which may be purchased from H.K.
Huie, Jr. upon exercise of a call option on such shares.
(8) Includes 16,700 shares which Messrs. Dittman and Lutz have the
right to acquire (through the exercise of options) within 60 days
of the Record Date.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Until September 30, 1996, Bristol leased space for its principal
executive offices from Huie-Miars Midway Atriums J.V. (which is owned 75% by
H.K. Huie, Jr., who owns approximately 5.8% of the outstanding Bristol Common
Stock, and 25% by Robert L. Miars, who is Vice President, Design & Construction
of Bristol). Rental payments under the lease totaled $347,000 in 1996. Each
of the parcels of real property on which the Harvey Hotel - Dallas, Bristol
Suites and the Harvey Hotel - DFW Airport are located is owned by a separate
joint venture (collectively, the "Huie Land Ventures") in which Mr. Huie owns a
significant interest. Bristol has entered into a ground lease with each of the
Huie Land Ventures. Total ground rents paid to the Huie Land Ventures were
$2,317,000 in 1996. In addition, Bristol has agreed to manage a hotel owned by
Mr. Huie for a three-year period commencing upon completion of construction of
the hotel, which is expected to occur in the fall of 1997. The management
contract provides for a management fee of 4% of gross revenues, an accounting
fee of 1% of gross revenues and an incentive fee of 30% of operating profit.
Bristol believes that the terms of the management agreement, as well as the
office lease and the ground leases, were at least as favorable to Bristol as
those it could have obtained from unaffiliated persons at the time it entered
into these arrangements. See Note 14 to the financial statements contained in
Bristol's Annual Report on Form 10-K for the year ended December 31, 1996 for a
discussion of certain transactions prior to 1996.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
On June 17, 1996, Bristol appointed Arthur Andersen LLP as independent
accountants to replace Price Waterhouse LLP effective with such appointment.
The change in independent accountants was approved by the Audit Review
Committee.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and will have an opportunity to make a statement if they wish to
do so and will be available to respond to appropriate questions.
48
<PAGE> 55
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Based solely on a review of the copies of reports furnished to Bristol
and written representations of directors and executive officers that no other
reports were required with respect to their beneficial ownership of Bristol
Common Stock during 1996, Bristol believes that directors and executive
officers and all beneficial owners of more than 10% of the Bristol Common Stock
outstanding complied with all applicable filing requirements under Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
with respect to their beneficial ownership of Bristol Common Stock during 1996.
MISCELLANEOUS
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
If any stockholder of Bristol intends to present a proposal for
consideration at the 1998 Annual Meeting of Stockholders and wishes to have
such proposal in the proxy statement and form of proxy distributed by the Board
with respect to such meeting, such proposal must be received at Bristol's
principle executive offices, 14285 Midway Road, Suite 300, Dallas, Texas 75244,
Attention: Joel M. Eastman, Secretary, no later than December 5, 1997. In
addition, any stockholder intending to present a proposal for consideration at
the 1998 Annual Meeting of Stockholders must also comply with certain
provisions of the Bristol Bylaws. See "Board of Directors -- Director
Nomination Procedures."
OTHER BUSINESS
The Board does not know of any matter to be considered at the Annual
Meeting or any adjournment or postponement thereof other than as stated in the
Notice of Annual Meeting. If any such matter is properly presented for such
consideration, the proxies will vote any shares represented by a duly executed
proxy in such manner as they see fit in their sole discretion.
CERTAIN FORWARD-LOOKING STATEMENTS
This Proxy Statement (including the documents incorporated by reference
herein) contains certain forward-looking statements (as such term is defined in
the Private Securities Litigation Reform Act of 1995) and information relating
to Bristol and Holiday Inns that are based on the beliefs of the management of
Bristol or Holiday Inns, as applicable, as well as assumptions made by and
information currently available to the management of Bristol or Holiday Inns,
as applicable, as well as assumptions made by and information relating to
Bristol or Holiday Inns, as applicable. When used in this Proxy Statement, the
words "anticipate," "believe," "estimate," "expect," "intend" and similar
expressions, as they relate to Bristol or Holiday Inns or the management of
either of them, identify forward-looking statements. Such statements reflect
the current views of Bristol or Holiday Inns, as applicable, with respect to
future events and are subject to certain risks, uncertainties and assumptions
relating to the operations and results of operations of Bristol following the
Acquisition, including as a result of competitive factors and pricing
pressures; shifts in market demand and general economic conditions; assumed
cost savings and other synergistic benefits resulting from the Acquisition;
competition from other lodging properties; changes in property tax rates;
availability, cost and terms of financing; impact of present and future laws;
ongoing need for capital improvements; changes in operating expenses; changes
in travel patterns due to changes in technologies and costs; earthquakes and
other natural disasters; adverse changes in governmental rules and policies and
other factors. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results or outcomes
may vary materially from those described herein as anticipated, believed,
estimated, expected or intended. Accordingly, stockholders are cautioned not
to place undue reliance on such forward-looking statements.
49
<PAGE> 56
ADDITIONAL INFORMATION
The following documents filed with the Commission by Bristol (File No.
1-14062) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement:
1. Bristol's Annual Report on Form 10-K for the year ended December
31, 1996;
2. Bristol's Current Report on Form 8-K dated March 14, 1997; and
3. The description of Bristol Common Stock set forth in Bristol's
Registration Statement on Form 8-A, dated November 7, 1995, filed
pursuant to Section 12 of the Exchange Act, and any amendment or
report filed for the purpose of updating any such description.
All documents and reports filed by Bristol pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement
and prior to the date of the Annual Meeting will be deemed to be incorporated
by reference in this Proxy Statement and to be a part hereof from the dates of
filing of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein will be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. Copies of such documents (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information incorporated herein) are available, without
charge, to any person, including any beneficial owner of capital stock of
Bristol, to whom this Proxy Statement is delivered on written or oral request
to Bristol Hotel Company, 14285 Midway Road, Suite 300, Dallas, Texas 75244,
Attention: Secretary (telephone number (972) 391-3052). In order to ensure
delivery of the documents prior to the Annual Meeting, requests should be
received by April 14, 1997.
50
<PAGE> 57
INDEX TO FINANCIAL DATA
<TABLE>
<S> <C>
PRO FORMA FINANCIAL DATA
Unaudited Pro Forma Consolidated Balance Sheet at December 31, 1996 ..... F-3
Notes to Unaudited Pro Forma Consolidated Balance Sheet ................. F-4
Unaudited Pro Forma Consolidated Statements of Income for the year
ended December 31, 1996 ............................................... F-5
Notes to Unaudited Pro Forma Consolidated Statements of Income .......... F-6
SELECTED FINANCIAL DATA
Selected Financial Data of Bristol ...................................... F-8
Selected Financial Data of Harvey Hotel Companies and United Inns, Inc... F-9
Selected Financial Data of the Acquired Business ........................ F-10
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Acquired Business .................... F-11
CARVE-OUT FINANCIAL STATEMENTS FOR THE ACQUIRED BUSINESS
Independent Auditors' Report ............................................ F-15
Combined Statements of Net Assets as of September 27, 1996 and
September 29, 1995 .................................................... F-16
Combined Statements of Operations for the years ended September 27, 1996,
September 29, 1995 and September 30, 1994 ............................. F-17
Combined Statements of Cash Flows for the years ended
September 27, 1996, September 29, 1995 and September 30, 1994 ......... F-18
Notes to Combined Financial Statements .................................. F-19
Combined Statements of Net Assets as of December 27, 1996
(unaudited) and September 27, 1996 .................................... F-31
Combined Statements of Operations for the 13 weeks ended
December 27, 1996 and December 29, 1995 (unaudited) ................... F-32
Combined Statements of Cash Flows for the 13 weeks ended
December 27, 1996 and December 29, 1995 (unaudited) ................... F-33
Notes to Combined Financial Statements .................................. F-34
</TABLE>
F-1
<PAGE> 58
PRO FORMA FINANCIAL DATA
The following pro forma financial data are certain unaudited pro
forma financial data for Bristol after giving effect to (i) the Merger and
related transactions, including the consummation of the transactions
contemplated by the Asset Purchase Agreements, the Contribution Agreement and
the Debt Exchange, (ii) the refinancing of the indebtedness outstanding under
the 1995 Senior Credit Facility pursuant to borrowings under the New Credit
Facility and (iii) certain other transactions described in "Pro Forma Financial
Data" as if the transactions referred to in (i) through (iii) (collectively,
the "Pro Forma Transactions") had occurred on December 31, 1996, in the case of
the pro forma balance sheet data, and on January 1, 1996, in the case of the
pro forma income statement data. The pro forma financial statements below have
been prepared based on various assumptions set forth in notes thereto. The
Acquisition will be accounted for under the purchase method of accounting. In
connection therewith, the purchase price will be allocated to the assets and
liabilities acquired as of the Effective Time, including joint venture
interests, and the results of operations of the Acquired Business will be
included within Bristol's results of operations from and after the Effective
Time. The purchase price has been allocated in the pro forma financial
statements that follow to identifiable assets and liabilities based on
management's best estimates available as of the date of this Proxy Statement.
Following the Acquisition, such allocation will be in accordance with
appraisals and other information then available to Bristol, which could be
materially different from the estimates reflected herein. For purposes of
purchase price determination, the value of Bristol Common Stock to be issued in
the Merger and the Debt Exchange is $28-5/8 per share. The Merger Agreement
was entered into and publicly announced on December 15, 1996. On December 13,
1996, the last trading day before the announcement of the Merger Agreement, the
closing sales price per share for Bristol Common Stock as reported in the NYSE
Composite Transactions Report was $28-5/8.
The pro forma income statement data do not give effect to
severance and other one-time costs relating to such transactions, inasmuch as
such costs are nonrecurring, or synergies and other benefits expected to be
achieved in connection with the Acquisition.
The pro forma financial data set forth below should be read in
conjunction with the historical financial statements of Bristol, including the
notes thereto, incorporated by reference in this Proxy Statement and the
historical financial statements for the Acquired Business, selected historical
financial data of Bristol and the Acquired Business and the other pro forma
financial information, including the notes thereto, appearing elsewhere in this
Proxy Statement. The pro forma financial data are not necessarily indicative
of the results that actually would have occurred had the Pro Forma Transactions
been consummated on the dates indicated or that may occur in the future.
F-2
<PAGE> 59
BRISTOL HOTEL COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUIRED
BUSINESS
BRISTOL HISTORICAL PRO FORMA BRISTOL
HISTORICAL (AT DECEMBER 27, 1996) ADJUSTMENT PRO FORMA
---------- --------------------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 4,666 $ 3,544 $ 4,734 (A) $ 12,944
Marketable securities ........................... 116 -- -- 116
Accounts receivable (net) ....................... 10,501 18,125 -- 28,626
Inventory ....................................... 3,320 1,809 -- 5,129
Deposits and other current assets ............... 6,354 330 -- 6,684
-------- -------- -------- ----------
Total current assets ........................ 24,957 23,808 4,734 53,499
Property and equipment ............................ 552,564 643,176 868,072 (A) 1,420,636
(643,176) (B)
Investments in joint ventures ..................... -- 443 11,955 (A) 11,955
(443) (B)
Other assets:
Restricted cash ................................. 3,069 -- -- 3,069
Deferred charges and other noncurrent assets .... 12,198 4,065 4,432 (A) 23,109
8,469 (A)
(4,065) (B)
(1,990) (C)
-------- -------- -------- ----------
Total assets ................................ $592,788 $671,492 $247,988 $1,512,268
======== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............... $ 15,769 $ 75 $ (9,945) (D) $ 5,899
Accounts payable ................................ 10,626 10,488 5,252 (B) 26,366
Accrued property, sales and use tax ............. 7,346 7,925 -- 15,271
Accrued insurance ............................... 6,920 -- -- 6,920
Other accrued expenses .......................... 5,075 -- -- 5,075
-------- -------- -------- ----------
Total current liabilities ..................... 45,736 18,488 (4,693) 59,531
Long-term debt, excluding current portion ........ 216,925 68 436,945 (D) 653,938
Deferred income taxes ............................ 75,619 107,934 203,256 (A) 278,875
(107,934) (B)
Other liabilities ................................ 2,351 1,412 (1,412) (B) 2,351
-------- -------- -------- ----------
Total liabilities ............................. 340,631 127,902 526,162 994,695
-------- -------- -------- ----------
Common stock ...................................... 166 -- 94 (E) 260
Additional paid-in-capital ........................ 231,181 -- 268,212 (E) 499,393
Retained earnings (deficit) ....................... 20,810 -- (2,890) (F) 17,920
Net assets ........................................ -- 543,590 (543,590) (B) --
-------- -------- -------- ----------
Total equity ............................. 252,157 543,590 (278,174) 517,573
-------- -------- -------- ----------
Total liabilities and equity ............. $592,788 $671,492 $247,988 $1,512,268
======== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the
unaudited pro forma consolidated balance sheet.
F-3
<PAGE> 60
BRISTOL HOTEL COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(A) Reflects the allocation of the purchase price to the assets and
liabilities acquired in the Acquisition and the deferred financing costs
related to the New Credit Facility, as follows:
<TABLE>
<S> <C>
Assets:
Cash ............................................. $ 4,734
Property and equipment ........................... 868,072
Investment in joint ventures ..................... 11,955
Deferred charges and other noncurrent assets:
Management contracts ........................ 4,432
Deferred financing costs .................... 8,469
Liabilities:
Deferred income taxes ............................ 203,256
</TABLE>
Cash represents the amount of deferred financing costs incurred prior to
December 31, 1995.
(B) The following reflects the removal of the Acquired Business's basis in
the non-current assets being acquired and the liabilities being assumed.
Bristol's allocation of the purchase price attributable to these assets
and liabilities is reflected in Note (A). In addition, the $5,252
adjustment in accounts payable reflects the recording of the payable to
HHC for the positive working capital assumed pursuant to the Merger
Agreement. See "The Merger Agreement -- Working Capital."
<TABLE>
<S> <C>
Property and equipment .............................. $(643,176)
Investment in joint ventures ........................ (443)
Deferred charges and other noncurrent assets ....... (4,065)
Accounts payable .................................... (5,252)
Deferred income taxes ............................... 107,934
Other liabilities ................................... 1,412
---------
Net assets .......................................... $(543,590)
---------
</TABLE>
(C) Reflects a write-off of $1,990 of deferred financing costs related to
the 1995 Senior Credit Facility.
(D) Reflects borrowings under the New Credit Facility to pay the portion of
the Holiday Inns Intercompany Debt not satisfied by the Debt Exchange,
transaction costs and decrease in current portion of refinanced mortgage
debt as follows:
<TABLE>
<S> <C>
Cash at closing ..................................... 398,000
Acquisition costs ................................... 29,000
Decrease in current portion of long-term debt
for refinanced mortgage debt ..................... 9,945
--------
$436,945
========
</TABLE>
For a discussion of the material terms of the New Credit Facility, see
"The Merger Agreement -- New Credit Facility."
(E) Reflects the issuance of 9,373,118 shares of Common Stock related to
the Acquisition.
(F) Reflects the write-off of $1,990 in deferred financing costs related to
the 1995 Senior Credit Facility and $900 in indirect costs related to
the Acquisition, the principal components of which are travel expense
($500) and certain accounting expenses ($385).
F-4
<PAGE> 61
BRISTOL HOTEL COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BRISTOL ACQUIRED BUSINESS
----------------- --------------------
YEAR ENDED TWELVE MONTHS ENDED PRO FORMA BRISTOL
DECEMBER 31, 1996 DECEMBER 27, 1996(A) ADJUSTMENTS PRO FORMA
----------------- -------------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rooms ......................................... 149,794 269,264 $ 2,220 (B) $421,278
Food and beverage ............................. 44,344 57,739 483 (B) 102,566
Other ......................................... 15,689 25,213 251 (B) 41,153
Management fees ............................... 2,013 4,866 -- 6,879
------- ------- ------- --------
Total revenue ............................... 211,840 357,082 2,954 571,876
Operating costs and expenses:
Departmental expenses:
Rooms ....................................... 37,706 70,675 728 (B) 119,655
10,546 (C)
Food and beverage ........................... 31,282 47,767 497 (B) 79,546
Other operating departments ................. 4,528 11,584 121 (B) 16,233
Undistributed operating expenses:
Administrative and general .................. 18,266 36,939 512 (B) 55,717
Marketing ................................... 15,555 22,949 236 (B) 40,278
1,538 (D)
Property occupancy costs .................... 17,499 33,948 353 (B) 51,800
Property taxes, rent and insurance .......... 10,903 22,172 240 (B) 33,315
Depreciation and amortization ............... 18,377 40,495 (8,660) (E) 50,212
Corporate expense ........................... 10,958 10,454 -- 21,412
------- ------- ------- --------
Operating income .......................... 46,766 60,099 (3,157) 103,708
Other (income) expense:
Interest expense .............................. 18,616 916 34,783 (F) 54,315
Equity in income of joint ventures ............ -- (1,469) 218 (G) (1,251)
------- ------- ------- --------
Income before income taxes and
extraordinary item ............................ 28,150 60,652 (38,158) 50,644
Income taxes .................................... 10,401 24,226 (15,047) (H) 19,580
------- ------- ------- --------
Income before extraordinary item ................ $17,749 $36,426 $(23,111) $ 31,064
======= ======= ======== ========
Income per common share ......................... $ 1.18
========
Common shares (I) ............................... 26,397,123
==========
</TABLE>
The accompanying notes are an integral part of the
unaudited pro forma consolidated statement of income.
F-5
<PAGE> 62
BRISTOL HOTEL COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(A) Derived from the historical combined statement of operations for the
Acquired Business for the twelve months ended September 27, 1996 and
from the unaudited statements of operations for the three months ended
December 27, 1996 and December 29, 1995. Certain reclassifications to
the historical financial statements for the Acquired Business presented
elsewhere herein have been made to conform to the Bristol presentation.
(B) Gives effect to the results of operations (unaudited) for the Acquired
Business Additions (Holiday Inns' acquisition of the Stamford,
Connecticut hotel) as of January 1, 1996:
<TABLE>
<CAPTION>
ACQUIRED BUSINESS
ADDITIONS
-----------------
<S> <C>
Revenue:
Rooms ............................................... $ 2,200
Food and beverage ................................... 483
Other operating departments ......................... 251
Departmental expenses:
Rooms ............................................... 728
Food and beverage ................................... 497
Other operating departments ......................... 121
Administrative and general ............................ 512
Marketing ............................................. 236
Property operating .................................... 353
Property taxes, rent and
insurance ........................................... 240
</TABLE>
(C) Reflects the franchise fee payments to Holiday Corporation with respect
to the Acquired Hotel Assets (based on 5% of historical room revenues)
and the Bristol hotels assumed to be converted to Holiday flags (the
"Conversion Properties") (based on 1% of room revenues), reduced by the
reversal of franchise fees on 21 of the 44 Acquired Hotel Assets:
<TABLE>
<S> <C>
Pro forma franchise fee payments .......................... $ 14,505
Actual franchise fee payments ............................. (3,959)
--------
$ 10,546
========
</TABLE>
Franchise fees (calculated as a percentage of room revenues) due to
Holiday Corporation for the Bristol conversion properties are scheduled
to be 0% from closing to December 31, 1997, 1% in 1998, 3% in 1999 and
5% in 2000.
(D) Reflects the pro forma advertising fee payments (based on 2% of room
revenues) to Holiday Corporation with respect to the Conversion
Properties of $1.5 million.
(E) Pro forma depreciation and amortization expense has been adjusted to
reflect the impact of purchase accounting as a result of the Acquisition
(net increase in depreciable assets of $786,994 million in property and
equipment and $4,432 intangible assets-management contracts) offset by
adjustments to depreciation expense resulting from the reversal of the
Acquired Business' depreciation expense.
Depreciation for the Acquired Business Additions is calculated based on
a 35-year useful life for buildings and useful lives ranging from five
to 15 years for furniture, fixtures and equipment ("FF&E").
F-6
<PAGE> 63
The weighted average useful life for FF&E is eight years as a result of
the majority of the FF&E assets being longer term assets such as kitchen
equipment and walk-in coolers. In addition, the total value assigned to
FF&E in the Acquisition was significantly less than that recorded by
Holiday Inns. Bristol assigned FF&E values based on the age and
condition of the property and the anticipated renovations. As a result,
pro forma depreciation is less than combined historical depreciation.
The capitalized value of management contracts is being amortized over
the respective estimated remaining lives of the management contracts,
which range from two months to 23 years.
The adjustment for pro forma depreciation and amortization expense
consists of the following:
<TABLE>
<S> <C>
Net decrease in property and equipment
depreciation resulting from purchase
accounting related to the Acquisition ............................... $(8,857)
Net increase in amortization resulting
from the purchase accounting adjustments
to management contracts ............................................. 197
-------
Total pro forma depreciation and amortization
adjustment .................................................. $(8,660)
=======
</TABLE>
(F) Pro forma interest expense is calculated as follows:
<TABLE>
<S> <C>
Pro forma interest expense is:
Interest expense on New Credit Facility .......................... $ 39,305
Amortization of financing costs on New
Credit Facility ................................................ 2,641
Interest expense on Senior Notes, including
amortization of discount and deferred
financing costs ................................................ 9,321
Interest expense on debt not retired ............................. 3,048
--------
Total pro forma interest expense ............................ $ 54,315
========
Pro forma adjustments consists of:
Pro forma interest expense ....................................... $ 54,315
Less historical total combined interest .......................... (19,532)
--------
Net increase .................................................. $ 34,783
========
</TABLE>
Pro forma interest on the New Credit Facility is calculated using the
one-month LIBOR as of the beginning of each month plus 2.0%. One-month
LIBOR averaged 5.4% in 1996. Financing costs of $13,203, which are
expected to be incurred in connection with the New Credit Facility, have
been amortized to interest expense over five years.
(G) Reflects an increase in amortization of investments in joint ventures
resulting from purchase accounting. The value attributed to joint
ventures has been assigned to specific fixed asset categories based on
estimated market values. The difference between the assigned value and
the book value per joint venture is amortized over the useful life of
the fixed asset (buildings-35 years; FF&E-8 years).
(H) Reflects an effective tax rate of 38.7%.
(I) Includes 25,938,958 shares expected to be outstanding after the Merger
plus an additional number of shares to reflect the dilutive effect of
outstanding options.
F-7
<PAGE> 64
SELECTED FINANCIAL DATA OF BRISTOL
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated historical financial data of Bristol
have been derived from consolidated financial statements of Bristol
incorporated by reference in this Proxy Statement and that may be obtained as
described in "Additional Information."
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATING DATA:
Revenue:
Rooms ..................................... 149,794 115,771
Food and beverage ......................... 44,344 36,070
Other ..................................... 17,702 13,354
------------ ------------
Total revenue ......................... 211,840 165,195
------------ ------------
Operating costs and expenses:
Departmental expenses:
Rooms .................................... 37,706 32,692
Food and beverage ........................ 31,282 27,118
Other operating departments .............. 4,528 4,258
Undistributed operating expenses:
Administrative and general, marketing .... 33,821 28,254
Property operating costs ................. 28,402 24,738
Depreciation and amortization ............ 18,377 13,505
Corporate expense ........................ 10,958 8,035
------------ ------------
Operating income ...................... 46,766 26,595
Other expenses:
Interest expense ......................... 18,616 18,374
Other non-operating expenses (income)
and minority interest .................. -- 430
------------ ------------
Income before income taxes .................. 28,150 7,791
Income taxes ................................ 10,401 2,822
------------ ------------
Income before extraordinary item ............ 17,749 4,969
Extraordinary loss on early extinguishment
of debt, net of income taxes ............. -- 1,908
------------ ------------
Net income .................................. $ 17,749 $ 3,061
============ ============
Earnings per common share and
common equivalent share:
Income before extraordinary item ......... $ 1.04 $ 0.42
Extraordinary item, net of income taxes .. -- (0.16)
------------ ------------
Net income ............................... $ 1.04 $ 0.26
============ ============
Weighted average number of common and
common equivalent shares outstanding .. 17,017,608 11,939,304
============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................... $ 4,666 $ 7,906
Property and equipment, net ............................. 552,564 470,705
Total assets ............................................ 592,788 512,901
Long-term debt including current portion ................ 232,694 170,544
Equity .................................................. 252,157 236,122
</TABLE>
F-8
<PAGE> 65
SELECTED COMBINED FINANCIAL DATA OF HARVEY HOTEL COMPANIES
AND UNITED INNS, INC.
(IN THOUSANDS, EXCEPT SHARE DATA)
The following selected historical combined financial data* for Harvey
Hotel Companies and United Inns have been derived from combined financial
statements of Harvey Hotel Companies and United Inns incorporated by reference
in this Proxy Statement and should be read in conjunction with such financial
statements and the notes thereto. See "Additional Information." The selected
historical financial data at and for the three years ended December 31, 1994
and the month ended January 31, 1995 have been derived from audited combined
financial statements of Harvey Hotels Companies and United Inns filed with the
Commission. The selected historical financial data at and for the year ended
December 31, 1992 have been derived from unaudited combined financial
statements of Harvey Hotel Companies and United Inns filed with the Commission.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
Month Ended --------------------------------------
JANUARY 31, 1995 1994 1993 1992
---------------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rooms ..................................... $ 9,596 117,673 110,542 108,140
Food, beverage and other .................. 3,546 45,296 44,192 44,288
------- ------- ------- -------
Total revenue ........................... 13,142 162,969 154,734 152,428
------- ------- ------- -------
Operating costs and expenses:
Departmental expenses:
Rooms ..................................... 2,854 33,805 32,418 32,761
Food, beverage and other .................. 2,239 28,643 29,303 30,650
Undistributed operating expenses:
Administrative and general, marketing ..... 1,795 25,831 24,435 25,002
Property operating costs .................. 1,950 27,233 27,618 27,767
Depreciation .............................. 981 12,917 12,929 13,791
Corporate expense ......................... 900 9,305 6,810 6,615
------ ------- ------- -------
Operating income ....................... 2,423 25,235 21,221 15,842
Other (income) expenses:
Interest expense, net ..................... 1,389 17,563 17,648 18,032
Other non-operating income ................ (6) 9,352 (1,521) 238
------- ------- ------- -------
Income (loss) before extraordinary item .... $ 1,040 $(1,680) $ 5,094 (2,428)
======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ................... $ 9,212 $ 2,612 $ 3,694
Property and equipment, net ................. 169,886 188,028 194,365
Total assets ................................ 233,491 242,749 251,225
Long-term debt, including current portion ... 207,580 217,130 225,646
Equity ...................................... (1,980) (929) (4,364)
</TABLE>
- ------------
* Certain historical financial data for Harvey Hotel Companies and United
Inns has been reclassified to conform to the presentation of the
financial statements of Bristol.
F-9
<PAGE> 66
SELECTED FINANCIAL DATA OF THE ACQUIRED BUSINESS
(IN THOUSANDS, EXCEPT SHARE DATA)
The following selected historical combined financial data are carve-out
financial data pertaining to the Acquired Business and, as such, give effect to
the transactions contemplated by the Contribution Agreement. The selected
financial data as of September 27, 1996 and September 29, 1995 and for the
three years ended September 27, 1996 have been derived from audited
consolidated financial statements for the Acquired Business, which are included
elsewhere in this Proxy Statement. The selected historical data as of September
30, 1994, September 24, 1993 and September 25, 1992 and for the two years ended
September 24, 1993 have been derived from unaudited consolidated financial
statements for the Acquired Business. The selected historical data as of and
for the three months ended December 27, 1996 have been derived from unaudited
financial statements and, in the opinion of management of the Acquired
Business, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. Results for the
three months ended December 31, 1996 are not necessarily indicative of results
which may be expected for any other interim period or for the year as a whole.
The financial data set forth below are qualified in their entirety by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Acquired Business" and the
financial statements for the Acquired Business and the notes thereto included
elsewhere in this Proxy Statement. See "Index to Financial Data."
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 27, DECEMBER 29, SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 24, SEPTEMBER 25,
1996 1995 1996 1995 1994 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rooms ...................... 63,516 56,492 262,240 240,004 228,378 216,180 208,668
Food, beverage and other ... 22,739 20,972 86,052 82,947 81,572 77,268 77,684
--------- --------- --------- --------- --------- --------- ---------
Total revenue (1) ........ 86,255 77,464 348,291 322,951 309,950 293,448 286,352
--------- --------- --------- --------- --------- --------- ---------
Operating costs and
expenses:
Departmental expenses:
Rooms ...................... 16,802 15,015 64,929 62,234 59,770 58,254 56,211
Food, beverage and other ... 15,360 14,525 58,516 58,755 61,510 61,469 62,827
Undistributed operating
expenses:
Administrative and
general, marketing ........... 14,805 13,442 57,472 53,689 50,965 50,558 49,408
Property operating costs ... 14,071 12,601 53,898 51,319 50,829 51,656 50,845
Depreciation ............... 10,259 9,698 39,363 36,562 33,438 31,535 29,353
Corporate expenses and
other ...................... 4,389 4,130 16,530 17,697 16,604 18,232 17,737
--------- --------- --------- --------- --------- --------- ---------
Operating income ......... 10,569 8,053 57,583 42,695 36,834 21,744 19,971
Other expenses (income):
Interest expense, net ...... 57 277 1,136 1,097 1,853 3,161 2,343
Equity in income of joint
ventures ................. (368) (342) (1,443) (758) (397) (121) 345
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes ... 10,880 8,118 57,890 42,356 35,378 18,704 17,283
Income taxes ................. 4,345 3,239 23,120 17,075 16,147 7,337 6,982
--------- --------- --------- --------- --------- --------- ---------
Net income ................... $ 6,535 $ 4,879 $ 34,770 $ 25,281 $ 19,231 $ 11,367 $ 10,301
========= ========= ========= ========= ========= ========= =========
<CAPTION>
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
DECEMBER 27, 27, 29, 30, 24, 25,
1996 1996 1995 1994 1993 1992
------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents . 3,544 3,489 6,773 3,388 5,948 4,573
Property and equipment, net 643,176 646,319 647,223 630,644 616,072 587,594
Total assets .............. 671,492 678,882 683,699 661,526 648,430 619,788
Long-term obligations,
including
current portion ......... 703 704 9,002 8,527 23,098 18,230
Net assets ................ 543,590 542,406 542,339 525,429 502,494 484,277
</TABLE>
- ---------------------
(1) Revenue of $6.5 million relating to a 450-room hotel acquired in October
1992 is included for the year ended September 24, 1993.
F-10
<PAGE> 67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE ACQUIRED BUSINESS
RESULTS OF OPERATIONS
The results of operations of the Acquired Business include 52 weeks of
operations for the fiscal year ended September 27, 1996 ("fiscal 1996") and the
fiscal year ended September 29, 1995 ("fiscal 1995") and include 53 weeks of
operations for the fiscal year ended September 30, 1994 ("fiscal 1994").
Results of 1996 include the results of operations for Stamford subsequent to
its acquisition in July 1996 and a full year's results of operations for
Charleston Mills House. Fiscal 1995 reflects the results of operations for
Charleston Mills House subsequent to its acquisition in May 1995.
Three Months Ended December 27, 1996 Compared with Three Months Ended
December 29, 1995
The Stamford hotel acquired in July 1996 was closed from October 13,
1996 to January 5, 1997 while being renovated. As a result the impact on the
first quarter of 1997's results of operations is minimal when compared to the
corresponding 1996 quarter.
Revenues increased by $8.8 million (11.3%) to $86.3 million in the first
quarter of 1997 from $77.5 million in the corresponding 1996 quarter while
income before income taxes rose by $2.8 million (34.6%) to $10.9 million in the
first quarter of 1997 from $8.1 million in the corresponding 1996 quarter. The
increase in revenues resulted from both increases in ADR and occupancy due to
increasing demand for hotel accommodations in the United States and Canada.
Departmental expenses increased $2.6 million (8.9%) to $32.2 million in
the first quarter of 1997 compared to $29.6 million in the corresponding 1996
quarter.
Nondepartmental operating expenses increased $3.7 million (9.3%) to
$43.5 million in the first quarter of 1997 from $39.8 million in the
corresponding 1996 quarter. The increase in expenses resulted from higher
depreciation ($0.6 million) as a result of the significant refurbishment
activity over recent years and a general increase in operating expenses as a
result of the higher revenues and inflation.
Operating income rose by $2.5 million (30.9%) to $10.6 million in the
first quarter of 1997 from $8.1 million in the corresponding 1996 quarter. A
significant portion of the room revenue increase flowed through to operating
income due to the relatively low incremental cost of the increase in revenue
earned in the first quarter of 1997 compared to the first quarter of 1996.
At the end of the first quarter of 1997, the Acquired Business was
comprised of 61 hotels and 18,000 rooms. Of these properties, 45 hotels were
owned or leased, 13 hotels were managed by the Acquired Business and three
hotels were managed by the Acquired Business and owned by partnerships in which
the Acquired Business owned an equity interest.
Revenue per available room ("revpar") increased by 11.5% in the first
quarter of 1997 compared to the corresponding 1996 quarter, with average room
rates being 5.2% higher, while occupancy rates improved by 3.9 percentage
points. These improvements in rates were due primarily to generally favorable
economic conditions.
The total interest expense for the first quarter of 1997 was marginally
lower than the corresponding 1996 quarter due to the repayment of a loan on one
hotel property during fiscal 1996.
The effective income tax rate of 39.9% for the first quarter of 1997 was
unchanged from the corresponding 1996 quarter.
Net income increased by $1.6 million (32.7%) to $6.5 million in the
first quarter of 1997 from $4.9 million in the corresponding 1996 quarter.
F-11
<PAGE> 68
Fiscal 1996 Compared with Fiscal 1995
Revenues increased by $25.3 million, or 7.8%, from $323.0 million in
fiscal 1995 to $348.3 million in fiscal 1996 while income before income taxes
rose by $15.5 million (36.6%), from $42.4 million in fiscal 1995 to $57.9
million in fiscal 1996. The increase in revenues resulted both from the impact
of two hotel acquisitions ($7.9 million) and growth in the existing business
due to increasing demand for hotel accommodations in United States and Canada.
Although room revenues increased by 9.3% in fiscal 1996 compared to fiscal
1995, food and beverage revenue experienced only nominal growth in fiscal 1996
primarily because the Acquired Business leased out restaurants at 13 of the 45
hotels it owned or leased during fiscal 1996 compared to 10 of the 44 hotels it
owned or leased during fiscal 1995. Rent from these leased restaurants is
recognized as other operating revenue rather than food and beverage revenue.
Departmental expenses increased by $2.4 million, or 2.0%, from $121.0
million in fiscal 1995 to $123.4 million in fiscal 1996. This increase resulted
primarily from the impact of hotel acquisitions ($3.0 million) offset by a
reduction in food and beverage expenses as a result of the leasing of
restaurants described above.
Nondepartmental operating expenses increased $8.0 million, or 5.0%, from
$159.3 million in fiscal 1995 to $167.3 million in fiscal 1996. The increase in
expenses resulted primarily from the impact of hotel acquisitions ($2.7
million), higher depreciation ($2.5 million) as a result of the significant
refurbishment activity and a general increase in operating expenses as a result
of higher revenues and normal price increases.
Operating income rose by $14.9 million, or 34.9%, from $42.7 million in
fiscal 1995 to $57.6 million in fiscal 1996. Operating income increased
primarily due to relatively low incremental expenses associated with the
increase in room revenue earned in fiscal 1996 compared to fiscal 1995.
During July 1996, a 388-room hotel was acquired. At the end of fiscal
1996, the Acquired Business was comprised of 61 hotels containing 18,000 rooms.
Of these properties, 45 hotels were owned or leased, 13 hotels were managed by
the Acquired Business and three hotels were managed by the Acquired Business
and owned by partnerships in which the Acquired Business owned an equity
interest.
Revpar increased by 7.0% during fiscal 1996 with average room rates 5.2%
higher than in fiscal 1995, while occupancy rates improved by 1.3 percentage
points. These improvements in rates were due primarily to generally favorable
economic conditions.
Total interest expense for fiscal 1996 remained relatively unchanged
from fiscal 1995 due to the prepayment of a loan on one hotel property in
fiscal 1996.
The effective income tax rate of 40.0% for fiscal 1996 was essentially
unchanged from 40.3% in fiscal 1995.
Net income increased by $9.5 million from $25.3 million in fiscal 1995
to $34.8 million in fiscal 1996.
Fiscal 1995 Compared with Fiscal 1994
Revenues increased by $13.0 million, or 4.2%, from $310.0 million in
fiscal 1994 to $323.0 million in fiscal 1995 while income before income taxes
rose by $7.0 million, or 19.8%, from $35.4 million in fiscal 1994 to $42.4
million in fiscal 1995. The increase in revenues resulted both from the impact
of one hotel acquisition ($2.4 million) and from growth in the existing
business due to increasing demand for hotel accommodations in the United States
and Canada. Although room revenue increased by 5.1% in fiscal 1995 compared to
fiscal 1994, food and beverage revenue decreased $1.4 million primarily because
the Acquired Business had leased out restaurants at 10 of the 44 owned or
leased hotels during fiscal 1995 compared to 7 of the 44 owned or leased hotels
during fiscal 1994. Rent from these leased restaurants is recognized as other
operating revenue rather than food and beverage revenue.
Departmental expenses decreased $0.3 million, or 0.2%, from $121.3
million in fiscal 1994 to $121.0 million in fiscal 1995. This decrease resulted
from the reduction in food and beverage expenses as a result of the leasing of
restaurants described above but was substantially offset by the increase in
room operating costs due to higher occupancy levels and a hotel acquisition.
F-12
<PAGE> 69
Nondepartmental operating expenses increased $7.5 million, or 4.9%, from
$151.8 million in fiscal 1994 to $159.3 million in fiscal 1995. The increase in
expenses resulted from the impact of hotel acquisitions ($0.8 million), higher
depreciation ($3.0 million) as a result of major refurbishment activity and a
general increase in operating expenses as a result of higher revenues and
normal price increases.
Operating income rose by $5.9 million, or 16.0%, from $36.8 million in
fiscal 1994 to $42.7 million in fiscal 1995. Operating income increased
primarily due to relatively low incremental expenses associated with the
increase in room revenue earned in fiscal 1995 compared to fiscal 1994.
During May 1995, a 214-room hotel was acquired. At the end of fiscal
1995, the Acquired Business was comprised of 60 hotels containing 17,800 rooms.
Of these properties, 44 hotels were owned or leased, 13 hotels were managed by
the Acquired Business and three hotels were managed by the Acquired Business
and owned by partnerships in which the Acquired Business owned an equity
interest.
Revpar increased by 6.8% during fiscal 1995 with average room rates 4.2%
higher than in fiscal 1994, while occupancy rates improved by 1.7 percentage
points. These improvements in rates were due primarily to generally favorable
lodging industry conditions.
Total interest expense for fiscal 1995 decreased by $0.8 million to $1.1
million as the average outstanding long-term debt was 46% lower in fiscal 1995
as compared to fiscal 1994 due to the repayment of a loan.
The effective income tax rate of 40.3% for fiscal 1995 was lower than
the effective income tax rate of 45.6% for fiscal 1994. This decrease was
primarily due to the effect of the federal tax rate increase on deferred taxes
in 1994. The 1994 rate increase was associated with the Omnibus Budget
Reconciliation Act of 1993.
Net income increased by $6.1 million from $19.2 million in fiscal 1994
to $25.3 million in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Acquired Business's United States and Canadian operations
participate in centralized cash management systems wherein cash receipts are
transferred to the corporate accounts of Holiday Inns and Holiday Inns of
Canada Limited ("HICL") in the United States and Canada, respectively, and cash
disbursements are funded by HII's and HICL's corporate accounts.
The principal sources of liquidity for the Acquired Business are cash on
hand, cash generated from operations and transfers from the owners of the
Acquired Business ("Owners"). Management believes that these cash sources
should be adequate to support the ongoing operational liquidity needs of the
Acquired Business as currently operated by the Owners.
Net cash provided by operating activities decreased by $0.5 million to
$12.3 million for the first quarter of 1997 compared to the first quarter of
1996 and increased by $13.0 million in fiscal 1996 to $77.3 million compared to
fiscal 1995. The increase in fiscal 1996 resulted from increased net income and
higher depreciation and amortization expense reflecting a major refurbishment
program over the prior several years.
Net cash used in investing activities decreased by $1.1 million to $6.9
million for the first quarter of 1997 compared to the first quarter of 1996 and
by $7.6 million in fiscal 1996 to $27.8 million compared to fiscal 1995. The
decreases were primarily due to the substantial completion of the refurbishment
program that had taken place over the prior four years.
Net cash used in financing activities increased by $1.0 million to $5.4
million for the first quarter of 1997 compared to the first quarter of 1996 and
by $27.2 million in fiscal 1996 to $52.8 million compared to fiscal 1995. The
Acquired Business transferred surplus cash of $5.4 million to Owners for the
first quarter of 1997 and $44.6 million to Owners in fiscal 1996. The long-term
debt of the Acquired Business decreased by $8.2 million in fiscal 1996 as a
result of the repayment of a loan on one hotel.
F-13
<PAGE> 70
SEASONALITY
Demand at many of the Acquired Hotel Assets is affected by recurring
seasonal patterns. Demand is lower in the winter months due to decreased travel
and higher in the spring, summer and fall months during the peak travel season.
Accordingly, the operations of the Acquired Business are seasonal in nature,
with lower revenue, operating profit and cash flow in the quarters ending in
December and March and higher revenue, operating profit and cash flow in the
quarters ending in June and September.
F-14
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
To the Boards of Directors and Shareholders of Holiday Inns, Inc., Holiday Inns
of Canada Limited and Holiday Inns BV:
We have audited the accompanying combined statements of net assets at September
27, 1996 and September 29, 1995 of the Holiday Inn CMH Business (or "CMH"), as
defined in Note 1, consisting of certain owned and leased hotel properties and
management contracts held by Holiday Inns, Inc. ("HII") and certain affiliates,
to be acquired by Bristol Hotel Company (or "Bristol"), and the related
combined statements of operations and cash flows for the years ended September
27, 1996, September 29, 1995 and September 30, 1994. These combined financial
statements are the responsibility of CMH's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying financial statements were prepared to present the net assets
and related results of operations and cash flows of CMH, which is to be
acquired by Bristol, and may not necessarily reflect the financial position,
results of operations and cash flows of CMH that might have resulted had they
operated as a stand-alone company.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined net assets of CMH as of
September 27, 1996 and September 29, 1995 and its results of operations and
cash flows for the years ended September 27, 1996, September 29, 1995 and
September 30, 1994 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
January 10, 1997
F-15
<PAGE> 72
HOLIDAY INN CMH BUSINESS
(BUSINESS TO BE ACQUIRED BY BRISTOL HOTEL COMPANY)
COMBINED STATEMENTS OF NET ASSETS
SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
-------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and temporary investments $ 3,489 $ 6,773
Accounts receivable, less allowance for doubtful
accounts of $313 in 1996 and $249 in 1995 21,537 20,888
Inventories 1,746 1,636
Other current assets 1,166 1,755
-------- ---------
Total current assets 27,938 31,052
PROPERTY AND EQUIPMENT - Net 646,319 647,223
INVESTMENTS IN JOINT VENTURES 450 (18)
INTANGIBLE ASSETS - Net 3,523 4,295
OTHER ASSETS 652 1,147
-------- ---------
TOTAL ASSETS 678,882 683,699
-------- ---------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable 4,560 6,372
Other current liabilities 21,944 19,048
Deferred income taxes 560 593
Long-term debt due within one year 75 149
-------- ---------
Total current liabilities 27,139 26,162
LONG-TERM DEBT 69 8,190
DEFERRED REVENUE 930 1,240
OTHER LONG-TERM LIABILITIES 560 663
DEFERRED INCOME TAXES 107,778 105,105
-------- ---------
TOTAL LIABILITIES 136,476 141,360
-------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 16)
NET ASSETS $542,406 $ 542,339
======== =========
</TABLE>
See notes to combined financial statements.
F-16
<PAGE> 73
HOLIDAY INN CMH BUSINESS
(BUSINESS TO BE ACQUIRED BY BRISTOL HOTEL COMPANY)
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 27, 1996,
SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Room revenues $ 262,240 $ 240,004 $ 228,378
Food and beverage 56,621 56,462 57,818
Other operating departments 24,577 21,783 18,923
Management fees 4,853 4,702 4,831
--------- --------- ---------
Total revenues 348,291 322,951 309,950
--------- --------- ---------
OPERATING EXPENSES:
Departmental expenses:
Room operating costs 64,929 62,234 59,770
Food and beverage 47,064 48,221 50,867
Other operating departments 11,452 10,534 10,643
Nondepartmental operating expenses:
Depreciation and amortization 39,363 36,562 33,438
General and administrative 35,107 32,264 29,331
Sales and marketing 22,365 21,425 21,634
Utilities 17,421 16,913 16,870
Maintenance and repairs 16,011 15,341 14,676
Property taxes 10,931 10,164 10,613
Corporate expenses 10,454 10,696 10,378
Rent 9,535 8,901 8,670
Other 6,076 7,001 6,226
--------- --------- ---------
Total operating expenses 290,708 280,256 273,116
--------- --------- ---------
OPERATING INCOME 57,583 42,695 36,834
OTHER INCOME (EXPENSE):
Interest expense (1,136) (1,097) (1,853)
Equity in income of joint ventures 1,443 758 397
--------- --------- ---------
INCOME BEFORE INCOME TAXES 57,890 42,356 35,378
INCOME TAX PROVISION 23,120 17,075 16,147
--------- --------- ---------
NET INCOME $ 34,770 $ 25,281 $ 19,231
========= ========= =========
</TABLE>
See notes to combined financial statements.
F-17
<PAGE> 74
HOLIDAY INN CMH BUSINESS
(BUSINESS TO BE ACQUIRED BY BRISTOL HOTEL COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 27, 1996,
SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 34,770 $ 25,281 $ 19,231
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 39,363 36,562 33,438
Net change in long-term accounts 2,287 4,653 4,680
Net change in other working capital accounts 881 (2,185) (1,802)
-------- -------- --------
Total adjustments 42,531 39,030 36,316
-------- -------- --------
Net cash provided by operating activities 77,301 64,311 55,547
-------- -------- --------
INVESTING ACTIVITIES:
Property and equipment additions (27,787) (35,369) (47,238)
-------- -------- --------
Net cash used in investing activities (27,787) (35,369) (47,238)
-------- -------- --------
FINANCING ACTIVITIES:
Net transfers (to) from Owners (44,603) (25,368) 3,702
Repayments of debt (8,195) (189) (14,571)
-------- -------- --------
Net cash used in financing activities (52,798) (25,557) (10,869)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND
TEMPORARY CASH INVESTMENTS (3,284) 3,385 (2,560)
CASH AND TEMPORARY CASH INVESTMENTS,
BEGINNING OF YEAR
6,773 3,388 5,948
-------- -------- --------
CASH AND TEMPORARY CASH INVESTMENTS,
END OF YEAR $ 3,489 $ 6,773 $ 3,388
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-18
<PAGE> 75
HOLIDAY INN CMH BUSINESS
(BUSINESS TO BE ACQUIRED BY BRISTOL HOTEL COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 27, 1996, SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Bass PLC ("Bass") acquired the Holiday Inn CMH business through a number
of acquisitions. In May 1988 subsidiaries of Bass acquired 13 hotels in
the southeastern United States from Holiday Corporation. In May 1989 a
subsidiary of Bass acquired Commonwealth Hospitality Ltd, an owner and
operator of hotels in Canada, and in 1991 eight of its owned hotels were
contributed to a new company, Holiday Inns of Canada Limited ("HICL").
In February 1990 a subsidiary of Bass acquired Holiday Corporation and
its direct and indirect subsidiaries in a tax-free business combination.
The principal assets acquired by Bass were certain trademarks, owned and
leased Holiday Inn hotels, management contracts, joint venture
agreements, franchise contracts and ancillary support businesses.
Holiday Inns, Inc. ("HII") is the principal subsidiary of Holiday
Corporation ("HC"). In 1992 Holiday Inns BV ("HIBV"), a subsidiary of
Bass, acquired two hotels in the United States. The acquired assets and
liabilities in all of the above acquisitions were recorded at their fair
values based on appraisals, net realizable values, and other analyses
with appropriate recognition given to the effects of market conditions
for hotels and current interest rates.
On December 15, 1996, Holiday Inns, Inc. and Holiday Corporation entered
into an Agreement and Plan of Merger to merge a substantial portion of
their owned and leased, joint ventured and managed Holiday Inn full
service hotels into Bristol Hotel Company ("Bristol"). HICL and HIBV are
also entering into Sale and Purchase Agreements to sell six owned
properties in Canada and one owned property in the United States,
respectively, to Bristol. HII, HC, HICL and HIBV are collectively
referred to in these financials statements as the Owners. In total,
Bristol will acquire ownership of 45 full service company-managed
Holiday Inn hotels (17 of which are leased properties), joint venture
interests in three full service Holiday Inns and the related management
contracts and the management contracts for 13 full service Holiday Inn
hotels. The operations to be merged and sold are referred to
collectively as the Holiday Inn CMH Business ("CMH"). The hotels are
located in 19 states, the District of Columbia and Canada. The majority
of CMH's revenues are derived from owned and leased hotels. The
geographical markets individually representing more than 10% of CMH's
total revenues are California 25%, Florida 18%, Texas 12% and Ontario,
Canada 10%.
Immediately prior to the merger, HII will transfer all of its non CMH
assets and liabilities into a newly formed wholly-owned subsidiary, New
SpinCo., and transfer all of the outstanding shares of New SpinCo. to
HC, HII's parent company. HII, consisting solely of its CMH assets and
liabilities and certain debt to an affiliate, will merge into Bristol.
This debt will immediately be repaid by Bristol for a combination of
cash and Bristol common stock. These transactions are subject to, among
other things, the approval of the shareholders of Bristol and the
receipt of an IRS ruling acceptable to the parties.
While the assets, liabilities and results of operations and cash flows
relating to the operations to be sold by HICL and HIBV were not included
in the historical financial statements of HII, such amounts have been
included in the accompanying combined financial statements of CMH for
all periods presented. During the year ended September 27, 1996 fourteen
subsidiary companies each containing an owned or leased property were
contributed to HII by an intermediate parent company, Bass (U.S.A)
Incorporated ("Bass USA"). The assets, liabilities and results of
operations and cash flows relating to these fourteen properties have
also been included in the accompanying combined financial statements of
CMH for all periods presented.
The combined financial statements present the net assets and results of
operations and cash flows of CMH as if it were a separate company, but
may not necessarily reflect the financial position, results of
operations and cash flows of CMH that might have resulted had they
actually operated as a stand-alone company.
CMH utilizes certain services which are provided to all of Bass' hotel
businesses on a centralized basis including information technology,
financial, legal, tax, treasury, employee benefits and human resource
administration. These costs have been allocated to CMH using a variety
of factors, including estimates of actual usage, revenues and
F-19
<PAGE> 76
number of properties. Management believes the foregoing allocations were
made on a reasonable basis. CMH's allocation of these costs are shown as
corporate expenses in the attached combined statement of operations. The
cost of providing these services on a stand-alone basis has not been
estimated.
CMH's United States and Canadian operations participate in centralized
cash management systems wherein cash receipts are transferred to HII's
and HICL's corporate accounts in the United States and Canada,
respectively, and cash disbursements are funded by HII and HICL's
corporate accounts. Accordingly the accompanying financial statements
exclude all cash and cash equivalents related to CMH's United States and
Canadian operations, except for cash on hand and in local hotel bank
accounts. The net effect of such transfers is included in net transfers
(to) from Owners in the combined statements of cash flows.
Franchise royalty fee expenses of approximately $3,959,000, $3,521,000
and $3,365,000 for the years ended September 27, 1996, September 29,
1995 and September 30, 1994, on 21 of the 45 owned and leased properties
are included in the accompanying financial statements as these
properties have contractual franchise agreements in place with HII. The
franchise royalty fee is a monthly fee based on a percentage of gross
room revenues. No franchise fee expenses are reflected for the remaining
properties in CMH.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination - The combined financial statements include the
accounts of CMH as defined in Note 1. All significant intercompany
balances and transactions have been eliminated.
Cash and Temporary Investments - Cash includes cash on hand, cash in
banks and time deposits with original maturities of 90 days or less.
Accounting for Investments in Joint Ventures - Investments in joint
ventures are accounted for using the equity method.
Fiscal Year - CMH's fiscal year ends on the last Friday in September.
Property and Equipment - Property and equipment is stated at cost.
Expenditures for replacements and major improvements are capitalized and
depreciated. Depreciation is recognized using the straight line method
over the estimated useful lives of the assets: buildings 30 to 40 years,
furniture and equipment 4 to 10 years. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the
remaining lease term. Expenditures for normal maintenance and repairs
are charged to expense as incurred. Upon the sale or retirement of
property or equipment, the asset cost and related accumulated
depreciation are removed from the respective accounts and any gain or
loss is included in the results of operations.
Management periodically assesses the recoverability of the carrying
value of property and equipment based on estimated nondiscounted cash
flows on an individual property basis. If the estimated nondiscounted
cash flows are less than the carrying value, an impairment loss is
charged to operations based on the difference between the carrying value
and the estimated fair value.
Although adoption is not required until its fiscal year 1997, management
has assessed the impact of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of". Based on current conditions,
management does not believe that adoption will have an adverse impact on
the financial position or results of operations of CMH.
Inventories - Inventories are stated at the lower of cost or market.
Advertising Costs - Advertising and marketing costs are expensed as
incurred.
Management Fee Revenue - Management fee revenue consists of fees based
on the operating performance of individual managed properties. Such
fees are recognized in income when earned.
F-20
<PAGE> 77
Income Taxes - CMH accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." This statement requires the calculation of deferred
income taxes using the asset and liability method. Under the asset and
liability method, deferred income taxes are recorded based on the
differences between the financial statement and tax bases of assets and
liabilities and the tax rates in effect when these differences are
expected to reverse.
Foreign Currency Translation - Assets and liabilities relating to
activities outside the United States are translated into U.S. dollars at
the exchange rate prevailing at fiscal year-end. The results of
operations are translated into U.S. dollars at the weighted average
exchange rate for the year. The resulting gains or losses are reflected
in net assets. At September 27, 1996, the cumulative loss included in
net assets was $10.3 million. Gains or losses for each of the three
fiscal years ended September 27, 1996 were not material.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 27, 1996
and September 29, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land $ 65,585 $ 64,122
Buildings and improvements 566,815 557,500
Furniture, fixtures, and equipment 203,107 182,858
--------- ---------
835,507 804,480
Accumulated depreciation (189,188) (157,257)
--------- ---------
$ 646,319 $ 647,223
========= =========
</TABLE>
Depreciation expense for the years ended September 27, 1996, September
29, 1995 and September 30, 1994 was $38,593,000, $35,873,000 and
$32,696,000, respectively.
4. JOINT VENTURES
The investment in joint ventures at September 27, 1996 and September 29,
1995 included a 50% interest in the Milpitas Joint Venture ("Milpitas"),
the owner of a Holiday Inn located in Milpitas, CA, a 50% interest in
the HI-Thomas Circle Venture, the owner of a Holiday Inn located in
Washington, DC and a 50% interest in HI Chateau LeMoyne, the owner of a
Holiday Inn located in New Orleans, LA.
Combined, unaudited summarized net asset and statement of operations
data of the joint ventures, as of September 27, 1996 and September 29,
1995 and for the three fiscal years ended September 27, 1996, was as
follows (in thousands):
F-21
<PAGE> 78
<TABLE>
<CAPTION>
Summarized net asset data: 1996 1995
------------ -------------
<S> <C> <C>
Current assets $ 4,979 $ 3,320
Property and equipment, net 27,414 27,707
Other assets 1,282 1,325
------------ ------------
33,675 32,352
------------ ------------
Current liabilities (including $435 and $437
in 1996 and 1995 owed to HII) 1,346 1,484
Long-term debt 31,966 31,415
------------ ------------
33,312 32,899
------------ ------------
Net assets (liabilities) $ 363 $ (547)
============ ============
</TABLE>
<TABLE>
<CAPTION>
Summarized statement of operations data: 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues $20,729 $19,056 $18,474
======= ======== =======
Net income $ 2,882 $ 1,334 $ 857
======= ======= =======
</TABLE>
Following is a reconciliation of CMH's investment in joint ventures with
the underlying joint venture net assets as of September 27, 1996 and
September 29, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Fifty percent of the net assets of joint ventures $ 181 $ (273)
Acquisition adjustments (799) (799)
Accumulated amortization (82) (96)
Partner loan included in investment 1,150 1,150
----------- -----------
Investment in joint ventures $ 450 $ (18)
=========== ===========
</TABLE>
The acquisition adjustments are being amortized over the lives of the
ventures (up to 38 years).
5. INTANGIBLE ASSETS
Intangible assets consisted of the following at September 27, 1996 and
September 29, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Management agreements - at cost $ 8,668 $ 8,668
Accumulated amortization (5,145) (4,373)
---------- ----------
Intangible assets - net $ 3,523 $ 4,295
========== ==========
</TABLE>
F-22
<PAGE> 79
In general, management agreements have initial terms that range from 2
years to 20 years (subject to extension or renewal), and are generally
cancelable under certain conditions. The management agreements specify
base fees, which are generally based on percentages of gross revenues
and, in certain cases, also provide for incentive fees. The cost of
purchased management agreements is being amortized on a straight-line
basis over the lives of the agreements (on average 13 years).
6. ACQUIRED PROPERTIES
The hotel properties shown below were acquired by the Owners in
nonmonetary transactions during the periods presented in the
accompanying combined financial statements and their operations have
been included from the dates of acquisition. The cost of these
acquisitions is reflected as contributions from Owners (see Note 13).
<TABLE>
<CAPTION>
DESCRIPTION DATE ACQUIRED COST TYPE
- ----------- ------------- ---- ----
<S> <C> <C> <C>
Stamford, CT July 1996 $9.9 million Owned hotel (subject
to a ground lease)
Charleston Mills House, SC May 1995 $17 million Owned hotel
</TABLE>
The following unaudited pro forma information has been prepared assuming
that the above properties had been acquired as of the beginning of the
earliest year presented. The pro forma information is presented for
information purposes and is not necessarily indicative of what would
have occurred if the acquisitions had been made as of those earlier
dates.
<TABLE>
<CAPTION>
Year Ended September
---------------------------------------------
1996 1995 1994
------------- --------------- -------------
Pro forma Information (unaudited) (in thousands)
<S> <C> <C> <C>
Revenues $351,613 $333,921 $323,252
Net Income $ 34,667 $ 26,337 $ 20,227
</TABLE>
7. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at September 27,
1996 and September 29, 1995 (in thousands):
F-23
<PAGE> 80
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Accrued compensation $ 10,227 $ 9,019
Property tax 4,889 4,686
Sales and usage taxes 3,054 2,773
Utilities 1,287 1,235
Rent 1,143 414
Other 1,344 921
------------ ------------
Other current liabilities $ 21,944 $ 19,048
============ ============
</TABLE>
8. LONG-TERM DEBT
Long-term debt consisted of the following at September 27, 1996 and
September 29, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Mortgages $ $ 8,097
Other $ 144 242
---------- ----------
144 8,339
Due within one year (75) (149)
----------- -----------
Long-term debt $ 69 $ 8,190
========== ==========
</TABLE>
As of September 27, 1996, annual principal requirements under long-term
debt arrangements for each of the succeeding fiscal years were as
follows (in thousands): 1997 - $75 and 1998 - $69.
9. LEASES
CMH leases 17 hotel properties, 15 subject to ground leases and 2
subject to both ground and building leases. In addition to a specified
minimum rental, many leases provide for contingent rentals based on
percentages of revenue. The average remaining term for those leases,
excluding consideration of renewal options, is approximately 36 years.
Rental expense included in the accompanying statements of operations for
the years ended September 27, 1996, September 29, 1995 and September 30,
1994 was as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ------------
<S> <C> <C> <C>
Minimum $ 4,309 $ 4,256 $ 4,232
Contingent 5,226 4,645 4,438
---------- ---------- ------------
Total rental expense $ 9,535 $ 8,901 $ 8,670
========== ========== ============
</TABLE>
F-24
<PAGE> 81
The future minimum rental commitments under noncancelable operating
leases at September 27, 1996 were as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 4,529
1998 4,529
1999 4,557
2000 4,555
2001 4,569
Thereafter 86,631
-----------
Total minimum lease payments $ 109,370
===========
</TABLE>
Minimum rental commitments exclude contingent rentals which are payable
pursuant to certain leases if related revenues exceed specified amounts.
10. EMPLOYEE BENEFIT PLAN
United States employees of CMH participate in HII's defined
contribution savings plan. Under the plan, participating employees may
elect to make pretax contributions to the plan of up to 16% of their
eligible earnings. Subject to certain limitations, the employer will
match the first 6% of each employee's contribution to the plan. Matching
contributions for CMH to the Plan were approximately $1,155,000,
$1,134,000 and $1,127,000 for the years ended September 27, 1996,
September 29, 1995 and September 30, 1994, respectively.
Plan participants become fully vested in matching contributions after
five years of credited service.
11. INCOME TAXES
CMH's HII operations are included in the consolidated federal income tax
returns of Bass USA. HIBV and HICL file separate returns in the United
States and Canada, respectively. CMH's current federal and state tax
asset or liability is included in Owners' net assets. The income tax
provisions included in the accompanying combined financial statements
have been determined as if CMH were a separate taxpayer.
Pursuant to the Merger Agreement and other agreements to be entered into
in connection with the merger, a subsidiary of Bass will indemnify
Bristol for all income taxes payable with respect to all periods prior
to the merger, and will also retain rights to all tax refunds and tax
benefits attributable to carry forwards relating to operations prior to
the merger date, even though certain tax attributes will follow the
legal entity of HII as a result of the merger.
The tax effect of each type of temporary difference and carryforward
that gives rise to a significant portion of deferred tax assets and
(liabilities) at September 27, 1996 and September 29, 1995 were as
follows (in thousands -- no valuation allowances have been recorded):
F-25
<PAGE> 82
<TABLE>
<CAPTION>
Deferred
Deferred Tax Net
Tax Assets Liabilities Total
----------- ----------- ------------
<S> <C> <C> <C>
1996
- ----
Classification:
Current
Property taxes $ (1,164) $ (1,164)
Vacation accrual $ 397 397
Deferred revenue 122 122
Allowance for doubtful accounts 85 85
----------- ----------- -----------
Total 604 (1,164) (560)
Noncurrent
Property and equipment (105,496) (105,496)
Joint ventures (1,206) (1,206)
Intangible assets (1,391) (1,391)
Other 315 315
----------- ----------- -----------
Total 315 (108,093) (107,778)
Total $ 919 $ (109,257) $ (108,338)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DEFERRED
DEFERRED TAX NET
TAX ASSETS LIABILITIES TOTAL
--------------- ------------- -------------
<S> <C> <C> <C>
1995
- ----
Classification:
Current
Property taxes $ (1,164) $ (1,164)
Vacation accrual $ 382 382
Deferred revenue 122 122
Allowance for doubtful accounts 67 67
--------------- ------------- -------------
Total 571 (1,164) (593)
Noncurrent
Property and equipment (102,741) (102,741)
Joint ventures (1,115) (1,115)
Intangible assets (1,696) (1,696)
Other 447 447
--------------- ------------- -------------
Total 447 (105,552) (105,105)
--------------- ------------- -------------
Total $ 1,018 $ (106,716) $ (105,698)
=============== ============= =============
</TABLE>
F-26
<PAGE> 83
At September 27, 1996 Bass USA and subsidiaries, in their consolidated
federal tax return have $14.2 million of alternative minimum tax credit
carryforwards and $3.0 million of targeted jobs tax credit
carryforwards. These legal entities also have state net operating loss
carryforwards with a potential aggregate tax benefit of $6.4 million.
Bass USA may be able to utilize a portion of such loss carryforwards and
credits in their consolidated 1997 tax returns. Accordingly, it cannot
presently be determined what portion, if any, of these loss
carryforwards or credits may be allocable to the legal entities which
will be transferred to Bristol. As stated above, the merger agreement
provides for Bristol to reimburse the Owners for any such benefits
realized.
Significant components of the provision for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
U.S. Federal $ 17,792 $ 12,065 $ 9,930
U.S. State 3,001 2,186 1,899
Canadian 1,698 1,083 824
-------- -------- --------
Total current 22,491 15,334 12,653
Deferred:
U.S. Federal 208 966 2,826
U.S. State 27 124 44
Canadian 394 651 624
-------- -------- --------
Total deferred 629 1,741 3,494
-------- -------- --------
Provision for income taxes $ 23,120 $ 17,075 $ 16,147
======== ======== ========
</TABLE>
The income tax provisions were calculated based upon the following
components of income before income taxes (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
U.S. income $ 53,292 $ 38,533 $ 32,151
Canadian 4,598 3,823 3,227
-------- -------- --------
Total $ 57,890 $ 42,356 $ 35,378
======== ======== ========
</TABLE>
The provision for income taxes was different from that obtained by
applying the United States statutory rate for the reasons set forth
below:
F-27
<PAGE> 84
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Tax computed at the federal statutory rate $ 20,262 $ 14,825 $ 12,382
State tax expense less federal effect 2,398 1,734 1,447
Meals and Entertainment 452 544 225
Canadian rate difference 429 357 301
Tax credits (173) (441)
Change in federal rate 2,458
Other (421) (212) (225)
-------- -------- --------
Provision for income taxes $ 23,120 $ 17,075 $ 16,147
======== ======== ========
</TABLE>
12. SUPPLEMENTAL CASH FLOW INFORMATION
The increase (decrease) in cash due to the changes in long-term and
working capital accounts for the years ended September 27, 1996,
September 29, 1995 and September 30, 1994 was as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Equity in earnings of joint ventures less
distributions received $ (468) $ 42 $ 753
Other assets 495 286 (103)
Other liabilities (413) 353 1,550
Deferred income taxes 2,673 3,972 2,480
-------- -------- --------
Net change in long-term accounts $ 2,287 $ 4,653 $ 4,680
======== ======== ========
Accounts receivable - net (649) (3,352) (3,463)
Inventories (110) 99 116
Other current assets 589 (58) 462
Accounts payable (1,812) (83) 70
Deferred income taxes (33) (40) 1,014
Other current liabilities 2,896 1,249 (1)
-------- -------- --------
Net change in working capital accounts $ 881 $ (2,185) $ (1,802)
======== ======== ========
Supplemental disclosure of cash flow
information: Cash paid during the year
for:
Interest $ 1,136 $ 1,097 $ 1,853
======== ======== ========
Income taxes $ 22,491 $ 15,334 $ 12,653
======== ======== ========
</TABLE>
F-28
<PAGE> 85
13. CHANGES IN NET ASSETS
Changes in net assets consisted of the following (in thousands):
<TABLE>
<S> <C>
Net assets at September 25, 1993 $ 502,493
Net income 19,231
Net transfers from Owners 3,702
------------
Net assets at September 30, 1994 525,426
Net income 25,281
Contribution of property from Owners (see Note 6) 17,000
Other net transfers (to) Owners (25,368)
------------
Net assets at September 29, 1995 542,339
Net income 34,770
Contribution of property from Owners (see Note 6) 9,900
Other net transfers (to) Owners (44,603)
------------
Net assets at September 27, 1996 $ 542,406
============
</TABLE>
14. RELATED PARTY TRANSACTIONS
Holiday Pacific Partners LP ("Japan Fund") is a limited partnership
which owns 5 hotels. HII owns a 12.7% equity interest in the Japan
Fund, is the general partner and manages the hotels in the fund. Only
the management contracts are part of the CMH business to be merged with
Bristol and are included in these financial statements. Management fee
income recognized in the accompanying financial statements from the
Japan Fund amounted to $1,633,000, $1,595,000 and $1,570,000 for the
years ended September 27, 1996, September 29, 1995 and September 30,
1994, respectively. Additionally, the joint ventures were charged
management fees of $744,000, $687,000 and $659,000 in the years ended
September 27, 1996, September 29, 1995 and September 30, 1994,
respectively.
HII and an affiliate provided general liability, property insurance and
workers' compensation services to CMH. The amounts charged for these
services were approximately $6,511,000, $8,485,000 and $7,637,000 for
the years ended September 27, 1996, September 29, 1995 and September 30,
1994, respectively. The amounts charged are after reflecting CMH's
share of the favorable results of the self insurance programs operated
by HII and an affiliated company of $3,305,000, $1,073,000 and $762,000
for the years ended September 27, 1996, September 29, 1995 and September
30, 1994, respectively. Additionally, the joint ventures were charged
$509,000, $468,000 and $431,000 for the years ended September 27, 1996,
September 29, 1995 and September 30, 1994, respectively.
CMH is required to pay HII for marketing and reservation assessments,
Priority Club assessments and fees, and Holidex fees. The amounts
charged for these assessments and fees were approximately $10,513,000,
$9,389,000 and $9,006,000 for the years ended September 27, 1996,
September 29, 1995 and September 30, 1994, respectively. Additionally,
joint ventures were charged $598,000, $642,000 and $590,000 for the
years ended September 27, 1996, September 29, 1995 and September 30,
1994, respectively.
F-29
<PAGE> 86
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash, temporary cash investments, accounts
receivable, accounts payable, accrued expenses, and long-term debt
approximate fair values.
16. CONTINGENCIES
Under the terms of the Merger Agreement a subsidiary of Bass will
indemnify Bristol for all of CMH's contingent liabilities and all actual
and contingent liabilities of HII which are not part of the CMH
business. Such indemnities include the following contingent
liabilities:
i) HII is contingently liable for $73 million in bond and mortgage
obligations of two of New SpinCo's nonconsolidated affiliates. The bond
and mortgage obligations are collateralized by assets of the
nonconsolidated affiliates and, in management's opinion, the value of
the collateral is sufficient to satisfy the obligations in all material
respects.
ii) HII is contingently liable for approximately $101 million in rent
and other payments through the year 2084 in the event of defaults by
current assignees under certain long-term leases of hotels and other
properties. HC and HII have provided for their best estimate of any
liability that may ultimately result in respect of these leases in their
separate financial statements.
iii) Various claims and legal proceedings arising in the ordinary course
of business seeking monetary damages and other relief are pending
against HII. The amount of liability, if any, from claims and actions
cannot be determined with certainty, however, management does not
believe that an adverse outcome of these matters would have a material
adverse effect on the accompanying financial statements.
F-30
<PAGE> 87
HOLIDAY INN CMH BUSINESS
(BUSINESS TO BE ACQUIRED BY BRISTOL HOTEL COMPANY)
COMBINED STATEMENTS OF NET ASSETS
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 27, SEPTEMBER 27,
1996 1996
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary investments $ 3,544 $ 3,489
Accounts receivable, less allowance
for doubtful accounts 18,125 21,537
Inventories 1,809 1,746
Other current assets 330 1,166
------------ ------------
Total current assets 23,808 27,938
PROPERTY AND EQUIPMENT - Net 643,176 646,319
INVESTMENTS IN JOINT VENTURES 443 450
INTANGIBLE ASSETS - Net 3,330 3,523
OTHER ASSETS 735 652
------------ ------------
TOTAL ASSETS 671,492 678,882
------------ ------------
LIABILITIES
CURRENT LIABILITIES:
Accounts payable 3,770 4,560
Other current liabilities 14,091 21,944
Deferred income taxes 552 560
Long-term debt due within one year 75 75
------------ ------------
Total current liabilities 18,488 27,139
LONG-TERM DEBT 68 69
DEFERRED REVENUE 852 930
OTHER LONG-TERM LIABILITIES 560 560
DEFERRED INCOME TAXES 107,934 107,778
------------ ------------
TOTAL LIABILITIES 127,902 136,476
------------ ------------
COMMITMENTS AND CONTINGENCIES
NET ASSETS $ 543,590 $ 542,406
============ ============
</TABLE>
See notes to combined financial statements.
F-31
<PAGE> 88
HOLIDAY INN CMH BUSINESS
(BUSINESS TO BE ACQUIRED BY BRISTOL HOTEL COMPANY)
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
DECEMBER 27, DECEMBER 29,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Room revenues $ 63,516 $ 56,492
Food and beverage 15,564 14,446
Other operating departments 5,947 5,311
Management fees 1,228 1,215
------------ ------------
Total revenues 86,255 77,464
------------ ------------
OPERATING EXPENSES:
Departmental expenses:
Room operating costs 16,802 15,015
Food and beverage 12,495 11,792
Other operating departments 2,865 2,733
Nondepartmental operating expenses:
Depreciation and amortization 10,259 9,698
General and administrative 9,042 8,263
Sales and marketing 5,763 5,179
Utilities 4,405 4,213
Maintenance and repairs 3,958 3,634
Property taxes 2,934 2,810
Corporate expenses 2,614 2,614
Rent 2,774 1,944
Other 1,775 1,516
------------ ------------
Total operating expenses 75,686 69,411
------------ ------------
OPERATING INCOME 10,569 8,053
OTHER INCOME (EXPENSE):
Interest expense (57) (277)
Equity in income of joint ventures 368 342
------------ ------------
INCOME BEFORE INCOME TAXES 10,880 8,118
INCOME TAX PROVISION 4,345 3,239
------------ ------------
NET INCOME $ 6,535 $ 4,879
============ ============
</TABLE>
See notes to combined financial statements.
F-32
<PAGE> 89
HOLIDAY INN CMH BUSINESS
(BUSINESS TO BE ACQUIRED BY BRISTOL HOTEL COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
DECEMBER 27, DECEMBER 29,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,535 $ 4,879
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,259 9,698
Net change in long-term accounts 2 79
Net change in other working capital accounts (4,467) (1,789)
------------ ------------
Total adjustments 5,794 7,988
------------ ------------
Net cash provided by operating activities 12,329 12,867
------------ ------------
INVESTING ACTIVITIES:
Property and equipment additions (6,923) (7,978)
------------ ------------
Net cash used in investing activities (6,923) (7,978)
------------ ------------
FINANCING ACTIVITIES:
Net transfers to Owners (5,350) (4,335)
Repayments of debt (1) (38)
------------ ------------
Net cash used in financing activities (5,351) (4,373)
------------ ------------
NET INCREASE IN CASH AND TEMPORARY
CASH INVESTMENTS 55 516
CASH AND TEMPORARY CASH INVESTMENTS, 3,489 6,773
------------ ------------
BEGINNING OF YEAR
CASH AND TEMPORARY CASH INVESTMENTS,
END OF YEAR $ 3,544 $ 7,289
============ ============
</TABLE>
See notes to combined financial statements.
F-33
<PAGE> 90
HOLIDAY INN CMH BUSINESS
(BUSINESS TO BE ACQUIRED BY BRISTOL HOTEL COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED DECEMBER 27, 1996 AND DECEMBER 29, 1995
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Bass PLC ("Bass") acquired the Holiday Inn CMH business through a number
of acquisitions. In May 1988 subsidiaries of Bass acquired 13 hotels in
the southeastern United States from Holiday Corporation. In May 1989 a
subsidiary of Bass acquired Commonwealth Hospitality Ltd, an owner and
operator of hotels in Canada, and in 1991 eight of its owned hotels were
contributed to a new company, Holiday Inns of Canada Limited ("HICL").
In February 1990 a subsidiary of Bass acquired Holiday Corporation and
its direct and indirect subsidiaries in a tax-free business combination.
The principal assets acquired by Bass were certain trademarks, owned and
leased Holiday Inn hotels, management contracts, joint venture
agreements, franchise contracts and ancillary support businesses.
Holiday Inns, Inc. ("HII") is the principal subsidiary of Holiday
Corporation ("HC"). In 1992 Holiday Inns BV ("HIBV"), a subsidiary of
Bass, acquired two hotels in the United States. The acquired assets and
liabilities in all of the above acquisitions were recorded at their fair
values based on appraisals, net realizable values, and other analyses
with appropriate recognition given to the effects of market conditions
for hotels and current interest rates.
On December 15, 1996, Holiday Inns, Inc. and Holiday Corporation,
entered into an Agreement and Plan of Merger to merge a substantial
portion of their owned and leased, joint ventured and managed Holiday
Inn full service hotels into Bristol Hotel Company ("Bristol"). HICL
and HIBV are also entering into Sale and Purchase Agreements to sell six
owned properties in Canada and one owned property in the United States,
respectively, to Bristol, HII, HC, HICL and HIBV are collectively
referred to in these financials statements as the Owners. In total,
Bristol will acquire ownership of 45 full service company-managed
Holiday Inn hotels (17 of which are leased properties), joint venture
interests in three full service Holiday Inns and the related management
contracts and the management contracts for 13 full service Holiday Inn
hotels. The operations to be merged and sold are referred to
collectively as the Holiday Inn CMH Business ("CMH").
Immediately prior to the merger, HII will transfer all of its non CMH
assets and liabilities into a newly formed wholly-owned subsidiary, New
SpinCo., and transfer all of the outstanding shares of New SpinCo. to
HC, HII's parent company. HII, consisting solely of its CMH assets and
liabilities and certain debt to an affiliate, will merge into Bristol.
This debt will immediately be repaid by Bristol for a combination of
cash and Bristol common stock. These transactions are subject to, among
other things, the approval of the shareholders of Bristol and the
receipt of an IRS ruling acceptable to the parties.
While the assets, liabilities and results of operations and cash flows
relating to the operations to be sold by HICL and HIBV were not included
in the historical financial statements of HII, such amounts have been
included in the accompanying unaudited combined financial statements of
CMH for all periods presented. During the year ended September 27, 1996
fourteen subsidiary companies each containing an owned or leased
property were contributed to HII by an intermediate parent company, Bass
(U.S.A) Incorporated. The assets, liabilities and results of operations
and cash flows relating to these fourteen properties have also been
included in the accompanying unaudited combined financial statements of
CMH for all periods presented.
The unaudited combined financial statements present the net assets and
results of operations and cash flows of CMH as if it were a separate
company, but may not necessarily reflect the financial position, results
of operations and cash flows of CMH that might have resulted had they
actually operated as a stand-alone company.
These unaudited combined financial statements of CMH have been prepared
pursuant to the Securities and Exchange Commission rules and regulations
and should be read in conjunction with the financial statements
F-34
<PAGE> 91
and notes thereto of CMH's 1996 financial statements included at pages
F-15 through F-30. Capitalized terms not otherwise defined herein have
the meanings specified in CMH's 1996 financial statements.
In the opinion of management, the accompanying unaudited combined
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the net assets of CMH
as of December 27, 1996 and September 29, 1996, and the results of
operations and cash flows for the thirteen weeks ended December 27, 1996
and December 29, 1995. Interim results are not necessarily indicative
of fiscal year performance because of the impact of seasonal and short-
term variations. All significant intercompany balances and transactions
have been eliminated.
2. NEW ACCOUNTING STANDARD
The Company adopted SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" during the
first quarter of fiscal 1997. Adoption of SFAS No. 121 did not have a
material effect on the Company's combined financial statements.
F-35
<PAGE> 92
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
DECEMBER 15, 1996,
AS AMENDED AS OF APRIL 1, 1997,
AMONG
HOLIDAY CORPORATION,
HOLIDAY INNS, INC.
AND
BRISTOL HOTEL COMPANY
A-1
<PAGE> 93
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
ARTICLE 2
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
SECTION 2.01. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
SECTION 2.02. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
SECTION 2.03. Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
SECTION 2.04. Surrender and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
SECTION 2.05. HII Intercompany Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
SECTION 2.06. Debt Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
SECTION 2.07. Working Capital Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
SECTION 2.08. Working Capital Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
SECTION 2.09. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
ARTICLE 3
THE SURVIVING CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
SECTION 3.01. Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
SECTION 3.02. Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
SECTION 3.03. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
ARTICLE 4
CERTAIN PRE-MERGER TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
SECTION 4.01. Contribution of Assets and Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . A-21
SECTION 4.02. Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF HII AND HC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
SECTION 5.01. Corporate Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
SECTION 5.02. Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
SECTION 5.03. No Violations; Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
SECTION 5.04. Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
SECTION 5.05. Retained Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
SECTION 5.06. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
SECTION 5.07. HII Operating Statements, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
SECTION 5.08. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
SECTION 5.09. Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
SECTION 5.10. Retained Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
SECTION 5.11. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
SECTION 5.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
SECTION 5.13. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-28
SECTION 5.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
SECTION 5.15. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
</TABLE>
A-2
<PAGE> 94
<TABLE>
<S> <C>
SECTION 5.16. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
SECTION 5.17. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
SECTION 5.18. No Representations or Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF ACQUIROR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
SECTION 6.01. Corporate Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
SECTION 6.02. Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
SECTION 6.03. No Violations; Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . A-31
SECTION 6.04. Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-32
SECTION 6.05. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-32
SECTION 6.06. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33
SECTION 6.07. SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-34
SECTION 6.08. Absence of Certain Events and Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . A-34
SECTION 6.09. Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-34
SECTION 6.10. Acquiror Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-34
SECTION 6.11. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
SECTION 6.12. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
SECTION 6.13. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
SECTION 6.14. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
SECTION 6.15. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
SECTION 6.16. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
SECTION 6.17. Capital Expenditure Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
SECTION 6.18. No Representations or Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
ARTICLE 7
COVENANTS OF HII AND HC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
SECTION 7.01. Conduct of HII and HC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
SECTION 7.02. Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
SECTION 7.03. Liquor and Other Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
SECTION 7.04. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-42
ARTICLE 8
COVENANTS OF ACQUIROR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-42
SECTION 8.01. Conduct of Acquiror . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-42
SECTION 8.02. Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-43
SECTION 8.03. Tax-Free Contribution, Exchange and Merger . . . . . . . . . . . . . . . . . . . . . . . . . A-44
SECTION 8.04. HII Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-45
SECTION 8.05. Employee Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-45
ARTICLE 9
COVENANTS OF ACQUIROR, HC AND HII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-46
SECTION 9.01. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-46
SECTION 9.02. Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-46
SECTION 9.03. Certain Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-47
SECTION 9.04. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-47
SECTION 9.05. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-47
</TABLE>
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SECTION 9.06. Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-47
SECTION 9.07. Franchise Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-48
SECTION 9.08. Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-48
SECTION 9.09. Environmental and Structural Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-48
ARTICLE 10
EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-49
SECTION 10.01. Maintenance of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-49
SECTION 10.02. Severance Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-50
SECTION 10.03. Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-50
SECTION 10.04. Nonqualified Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-51
SECTION 10.05. Group Health Plans; Workers' Compensation . . . . . . . . . . . . . . . . . . . . . . . . . A-51
SECTION 10.06. Executive Medical and Dental Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-52
SECTION 10.07. Severance Pay Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-52
SECTION 10.08. COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-52
SECTION 10.09. Collective Bargaining Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-52
SECTION 10.10. Relocation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-53
SECTION 10.11. Vacation and Sick Leave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-53
SECTION 10.12. Loyalty Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-53
SECTION 10.13. WARN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-54
SECTION 10.14. Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-54
ARTICLE 11
CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-54
SECTION 11.01. Conditions to the Obligations of Each Party . . . . . . . . . . . . . . . . . . . . . . . . A-54
SECTION 11.02. Conditions to the Obligations of HII . . . . . . . . . . . . . . . . . . . . . . . . . . . A-55
SECTION 11.03. Conditions to the Obligations of Acquiror . . . . . . . . . . . . . . . . . . . . . . . . . A-56
ARTICLE 12
SURVIVAL; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-56
SECTION 12.01. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-56
SECTION 12.02. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-57
SECTION 12.03. Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-58
ARTICLE 13
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-60
SECTION 13.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-60
SECTION 13.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-61
ARTICLE 14
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-61
SECTION 14.01. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-61
SECTION 14.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-61
SECTION 14.03. Amendments; No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-62
SECTION 14.04. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-63
SECTION 14.05. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-63
SECTION 14.06. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-63
</TABLE>
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SECTION 14.07. Counterparts; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-63
SECTION 14.08. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-63
SECTION 14.09. Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-63
SECTION 14.10. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-63
SECTION 14.11. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-63
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") dated as of December
15, 1996, as amended as of April 1, 1997, among Holiday Corporation, a Delaware
corporation ("HC"), Holiday Inns, Inc., a Tennessee corporation and wholly
owned subsidiary of HC ("HII"), and Bristol Hotel Company, a Delaware
corporation ("ACQUIROR").
W I T N E S S E T H:
WHEREAS, HC and HII have (i) determined to enter into this Agreement
which, among other things, provides for HII to merge with and into Acquiror,
with Acquiror as the surviving corporation (the "MERGER"), as a result of which
HC will become a stockholder of Acquiror, and (ii) approved a contribution and
assumption agreement substantially in the form of Exhibit A attached hereto
(the "CONTRIBUTION AGREEMENT"), pursuant to which and subject to the terms of
which HII will contribute all of its assets and liabilities other than the
Retained Business (as defined herein) to New Spinco, a Delaware corporation to
be formed in connection with the Contribution (as defined herein) ("NEW
SPINCO");
WHEREAS, Acquiror has informed HC that it is unwilling to acquire in
the Merger any assets or liabilities of HII other than those relating solely to
the Retained Business as provided herein and in the Contribution Agreement and
the purpose of the Contribution Agreement is to make possible the Merger by
divesting HII of the businesses, operations and liabilities to be conducted by
New Spinco.
WHEREAS, following the time of the Contribution and prior to the
Effective Time, HII shall, in a partial liquidation, exchange with HC all
outstanding shares of common stock, par value $0.01 per share, of New Spinco
("NEW SPINCO COMMON STOCK") for 900 shares of HII Common Stock (as defined
herein) owned by HC (the "EXCHANGE");
WHEREAS, the respective Boards of Directors of HC, HII and Acquiror
have determined that, following the Contribution and the Exchange, the Merger
and the other transactions contemplated under this Agreement would be in the
best interest of their respective corporations and stockholders and are
consistent with, and in furtherance of, their respective businesses, strategies
and goals;
WHEREAS, in a related transaction immediately after the Merger,
Acquiror shall (i) subject to the adjustments described herein, exchange a
portion of the amount of HII Intercompany Debt (as defined herein) assumed by
Acquiror pursuant to the Merger for 6,981,832 shares of Acquiror Stock
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(as defined herein) and (ii) repay the portion of HII Intercompany Debt
remaining after such exchange in cash;
WHEREAS, it is the intention of the parties to this Agreement that for
federal income tax purposes (a) the Contribution and the Exchange shall qualify
as a "reorganization" within the meaning of Section 368(a)(1)(D) of the
Internal Revenue Code of 1986, as amended (the "CODE"), and that the Exchange
shall constitute a tax-free distribution under Section 355 of the Code and (b)
the Merger shall qualify as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Code in which no gain or loss is recognized; and
WHEREAS, in connection with this Agreement, the parties hereto, or, if
applicable, their respective Affiliates, have, subject to certain conditions,
agreed to enter into, a stockholders agreement, a hotel properties agreement, a
registration rights agreement and franchise agreements, substantially in the
form of Exhibits B through E, respectively, attached hereto and have agreed to
enter into asset purchase agreements, in accordance with the descriptions in
Exhibits F and G attached hereto.
NOW, THEREFORE, in consideration of the promises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms used herein shall
have the following meanings:
"ACQUIROR MATERIAL ADVERSE EFFECT" means a Material Adverse Effect on
Acquiror and its Subsidiaries, taken as a whole.
"ACQUIROR SEC DOCUMENTS" means all reports, schedules, forms,
statements and other documents required to be filed by Acquiror with the SEC
under the Securities Act and the Exchange Act since December 12, 1995.
"ACQUIROR STOCK" means the common stock, par value $0.01 per share, of
Acquiror.
"AFFILIATE" means, with respect to any Person, any other Person who is
directly or indirectly controlling, controlled by or under the common control
with such Person; provided that no shareholder of Acquiror shall be deemed an
Affiliate of any other stockholder of Acquiror solely by reason of any
investment in Acquiror. For the purposes of this definition, the term
"control", when used with respect to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the
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management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"ASSET PURCHASE AGREEMENTS" means the Canadian Agreement of Purchase
and Sale and of the San Francisco Agreement of Purchase and Sale.
"BASE RATE" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"BENEFIT ARRANGEMENT" means any employment, severance or similar
contract or arrangement whether or not written or any plan, policy, fund,
program or contract or arrangement (whether or not written) providing for
compensation, bonus, profit-sharing, stock option or other stock related rights
or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance or other
benefits) that is not an Employee Plan.
"BUILDING CODES" means, with respect to any Retained Real Property,
all applicable requirements of all building, construction, fire, life-safety
and similar Laws relating to the construction, use and occupancy of such
Retained Real Property as in effect and applicable as of the relevant time;
provided that Building Codes shall not include (i) requirements thereof that
first become effective after the Effective Time and (ii) the Americans with
Disabilities Act or other applicable handicap access laws.
"CANADIAN AGREEMENT OF PURCHASE AND SALE" means the Agreement of
Purchase and Sale between Holiday Inns of Canada Ltd. and Bristol Hotel Asset
Co., the terms of which shall be substantially in accordance with the
description thereof on Exhibit G.
"CANADIAN HOTELS" means the Hotels (as defined in the Canadian
Agreement of Purchase and Sale).
"CARVE-OUT BUSINESS" means the Retained Business, the business
conducted by the San Francisco Hotel and the business conducted by the Canadian
Hotels.
"COBRA COVERAGE" means the continuation coverage required by Section
4980B(f) of the Code.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreements dated
as of June 14, 1996 and September 14, 1996 among Bass plc, HII and Acquiror.
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"CONTINGENCY AGREEMENT" means the Contingency Agreement among HC, HII
and Acquiror the terms of which shall be substantially in accordance with the
description thereof on Exhibit H.
"CONTRACT" means any note, bond, mortgage, indenture, lease, contract,
obligation, commitment or agreement (whether written or oral).
"CONTRIBUTED ASSETS" means all Assets (as defined in the Contribution
Agreement) of HII and its Subsidiaries, other than the Retained Assets,
including but not limited to the interests in the Hotels listed on Schedule
1.01(a)(i) and the franchise business.
"CONTRIBUTED LIABILITIES" means all Liabilities (as defined in the
Contribution Agreement) of HII and its Subsidiaries other than the Retained
Liabilities including without limitation any costs, expenses or liabilities
incurred by the Retained Companies in connection with the Transactions prior to
the Effective Time and, without limiting the generality or effect of the
foregoing, all liabilities or obligations, whether arising by contract or
otherwise to any Person relating to, resulting from or arising out of any
franchise or similar agreement or any of HII's franchising business, whether
such liability arises or is first asserted prior to or after the Effective
Time.
"CONTRIBUTION" means the contribution of the Contributed Assets to New
Spinco and the assumption of the Contributed Liabilities by New Spinco
contemplated by Article 2 of the Contribution Agreement.
"CORE EMPLOYEES" shall mean those 145 employees listed on Schedule
1.01(a)(2) hereto.
"DAMAGES" means any damage (including without limitation punitive
damages if assessed or amended in a third- party action), loss (including
without limitation lost profits), liability, cost or expense (including without
limitation reasonable expenses of investigation and reasonable attorneys' fees
and expenses).
"DGCL" means the General Corporation Law of the State of Delaware.
"EMPLOYEE PLAN" means any "employee benefit plan," as defined in
Section 3(3) of ERISA.
"ENVIRONMENTAL LAWS" means any applicable federal, state, local or
foreign law, regulation or rule, each as in effect as of the date hereof and as
of the Effective Time, relating to the environment or to pollutants,
contaminants or wastes or any toxic, radioactive, ignitable, corrosive,
reactive or otherwise hazardous substance, material or waste.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of
the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"ENVIRONMENTAL LIABILITIES" means Liabilities, whether accrued,
contingent, absolute, determined, determinable or otherwise, which arise out of
or in connection with (i) the Hotels, (ii) any Environmental Law and (iii)
actions occurring or conditions existing on or prior to the Closing Date
(including without limitation those matters identified pursuant to Section 9
hereof).
"FRANCHISE AGREEMENTS" means the franchise agreements, each
substantially in one of the forms attached as Exhibit E, to be entered into,
pursuant to Section 9.07, by HIFI and Acquiror or the Subsidiaries of Acquiror
reasonably approved by HIFI.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"GOVERNMENTAL ENTITY" means any government or any court, arbitral
tribunal, administrative agency or commission or other governmental or other
regulatory authority or agency, federal, state, local or foreign.
"GROUP HEALTH PLANS" means the Holiday Inns, Inc. Life Insurance and
Health Care Benefit Plan.
"HIFI" means Holiday Inns Franchising, Inc., a Delaware corporation.
"HII BY-LAWS" means the by-laws of HII, as amended.
"HII CHARTER" means the articles of incorporation of HII, as amended.
"HII COMMON STOCK" means the common stock, par value $1.50, of HII.
"HII INTERCOMPANY DEBT" means the debt in the principal amount of $500
million owed by HII to BAI, unless adjusted in accordance with this Agreement.
"HOLIDAY PARTIES" means HC and HII.
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"HOTEL" means each of the hotels listed on Schedule 5.10(a)(i) through
(a)(iv), which may be amended at the option of HC prior to February 1, 1997 to
add the Holiday Inn Salt Lake City Airport Hotel, including the Retained Real
Property used in connection with the operations of such hotel and all
furniture, fixtures, furnishings, equipment, attachments, inventory and other
tangible and intangible personal property located in or about, or used
exclusively in connection with, such Retained Real Property, to the extent the
same constitute Retained Assets.
"HOTEL PROPERTIES AGREEMENT" means the Hotel Properties Agreement to
be dated the date of the Effective Time between HC and Acquiror, substantially
in the form of Exhibit C hereto.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"HSR FILINGS" means any filings required under the HSR Act.
"INTELLECTUAL PROPERTY" means domestic and foreign patents, patent
applications, invention disclosures to be filed or awaiting filing
determinations, trademark and service mark applications, registered trademarks,
registered service marks, registered copyrights, trademarks, service marks and
trade names.
"LAWS" means all applicable statutes, laws, regulations, rules,
judgments, orders and decrees of Governmental Entities.
"LIEN" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, restriction on voting or transfer,
encumbrance, adverse claim or defect in title of any kind whatsoever in respect
of such property. For the purposes hereof, a Person shall be deemed to own
subject to a Lien any property or asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such property or
asset.
"MATERIAL ADVERSE EFFECT" means, with respect to any entity (or group
of entities taken as a whole), such state of facts, event, change or effect as
has had, or could reasonably be expected to have, a material adverse effect on
the business, results of operations, financial condition or prospects of such
entity (or, if with respect thereto, of such group of entities taken as a
whole) other than events, changes or developments relating to the economy in
general or resulting from industry-wide developments affecting companies in
similar businesses, or on the ability of such entity (or group of entities) to
consummate the transactions contemplated hereby, including the Contribution,
the Exchange and the Merger, or to perform in all material respects its
obligations under any of the Transaction Documents to which it is or will be a
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party; provided that any determination of whether any state of facts, event,
change or effect would have a Material Adverse Effect on the Retained Companies
shall be made giving effect to the transactions contemplated by the
Contribution Agreement.
"MULTIEMPLOYER PLAN" means each Employee Plan that is a Multiemployer
Plan, as defined in Section 3(37) of ERISA.
"NONQUALIFIED PLANS" means the Holiday Inns, Inc. Nonqualified Savings
Plan, the Executive Deferred Compensation Plan, the Deferred Compensation Plan
and the Supplemental Executive Retirement Plan.
"NYSE" means the New York Stock Exchange, Inc.
"PERMIT" means any license, franchise, permit, concession, order,
approval or registration from, of or with a Governmental Entity.
"PERMITTED LIENS" means those Liens (i) listed on Schedule
1.01(a)(3)(A), with respect to the Retained Companies, (ii) listed on Schedule
1.01(a)(3)(B), with respect to Acquiror, (iii) for Taxes not yet due or payable
or being contested in good faith and for which appropriate reserves have been
taken, (iv) that constitute mechanics', carriers', workers' or like liens with
respect to obligations that are not overdue or are being contested in good
faith and for which appropriate reserves have been taken, (v) that constitute
leases or tenancies of parts or areas of the property in question, (vi) that
individually or in the aggregate would not and could not reasonably be expected
to have a material adverse effect on the use or value of the property to which
the Lien relates or (vii) that are created, suffered or assumed by Acquiror.
"PERSON" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PRE-EFFECTIVE RETURNS" means all Tax Returns and reports required to
be filed prior to the Effective Time which include any of the Retained
Companies.
"PROXY STATEMENT" means the proxy statement and form of proxies
relating to the issuance of Acquiror Stock in the Merger and the adoption of
this Agreement as filed with the SEC and delivered to the stockholders of
Acquiror.
"QUALIFYING EVENT" shall have the meaning set forth in Section
4980(f)(3) of the Code.
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"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights among
HC, Bass America Inc., United/Harvey Holdings, L.P. and Acquiror, which shall
be substantially in the form attached hereto as Exhibit D .
"RETAINED ASSETS" shall have the meaning set forth in the Contribution
Agreement.
"RETAINED BUSINESS" means the business conducted using the Retained
Assets and the Retained Liabilities but excluding without limitation the
Contributed Assets and the Contributed Liabilities to be transferred to or
assumed by New Spinco pursuant to the Contribution Agreement.
"RETAINED COMPANIES" means HII and its direct and indirect
Subsidiaries in which any of HII and its direct and indirect Subsidiaries has
an interest, each such Person being listed on Schedule 1.01(a)(4), but
excluding those companies to be transferred to New Spinco pursuant to the
Contribution Agreement.
"RETAINED COMPANIES' EMPLOYEES" means the employees of the Retained
Companies at the Hotels and the San Francisco Hotel as of the Effective Time.
"RETAINED COMPANIES MATERIAL ADVERSE EFFECT" means a Material Adverse
Effect on the Retained Companies, taken as a whole.
"RETAINED LIABILITIES" shall have the meaning set forth in the
Contribution Agreement.
"SAN FRANCISCO AGREEMENT OF PURCHASE AND SALE" means the Agreement of
Purchase and Sale between Holiday Inns B.V. and Acquiror, the terms of which
shall be substantially in accordance with the description thereof on Exhibit F.
"SAN FRANCISCO HOTEL" means the Hotel (as defined in the San Francisco
Agreement of Purchase and Sale).
"SAVINGS PLAN" means the Holiday Inns, Inc. Savings and Retirement
Plan.
"SEC" means the Securities Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCKHOLDERS' AGREEMENT" means the Amended and Restated Stockholders'
Agreement to be dated the date of the Effective Time among Acquiror,
United/Harvey Holdings, L.P., HC, Bass plc and Bass America, Inc.,
substantially in the form of Exhibit B hereto.
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"STRUCTURAL DEFICIENCY" or "STRUCTURAL DEFECTS" means, with respect to
any Retained Real Property, any failure or imminent failure of any major
structural (such as, without limitation, foundation, load-bearing walls and
columns and roof), mechanical (such as, without limitation, HVAC), electrical
and plumbing components of such Retained Real Property (or any part thereof) to
perform the function for which it was designed, or any failure of such Retained
Real Property (or any part thereof) to be in compliance with applicable
Building Codes.
"SUBSIDIARY" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"TAX" (including with correlative meaning, the terms "TAXES" and
"TAXABLE") means (A) all forms of taxation, whenever created or imposed, and
whether imposed by a local, municipal, governmental, state, foreign, federal or
other body (the "TAXING AUTHORITY") and, without limiting the generality of the
foregoing, shall include any income, gross receipts, ad valorem, excise,
value-added, sales, use, transfer, franchise, license, stamp, occupation,
withholding (on amounts paid to or by a Person), employment, payroll, property,
environmental tax, real estate tax or assessment, premium or charge of any kind
whatsoever, together with any interest, penalty, addition to tax or additional
amount imposed by any Taxing Authority responsible for the imposition of any
such tax, (B) any liability for the payment of any amounts of the type
described in (A) as a result of being a member of an affiliated, consolidated,
combined or unitary group, or being a party to any agreement or arrangement
whereby the liability for payments of such amounts was determined or taken into
account with reference to the liability of any other Person, and (C) liability
for the payment of any amounts as a result of being party or subject to any tax
sharing agreement or with respect to the payment of any amounts of the type
described in (A) or (B) as a result of any express or implied obligations to
indemnify any other Person.
"TAX RETURN" means any return, report, statement, information
statement and the like required to be filed with any authority with respect to
Taxes.
"TBCA" means the Tennessee Business Corporation Act.
"TITLE IV PLAN" means an Employee Plan subject to Title IV of ERISA
other than any Multiemployer Plan.
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"TRANSACTION DOCUMENTS" means this Agreement, the Contribution
Agreement, the Stockholders' Agreement, the Hotel Properties Agreement, the
Asset Purchase Agreements, the Franchise Agreements, the Registration Rights
Agreement and any other documents relating to each of the foregoing agreements.
"TRANSACTIONS" means all transactions contemplated by the Transaction
Documents.
(b) The following terms shall have the meanings assigned to such terms
in the following sections:
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Acquiror Consents 6.03(a)
Acquiror Permits 6.02
Acquiror Real Property 6.10
Acquiror Securities 6.04(b)
Acquiror Subsidiary Securities 6.05(b)
Adverse Tax Development 11.02(c)
Affected Employee 10.02
Articles of Merger 2.01(a)
BAI 2.06
Capex Notes 2.09(b)
Capital Expenditure 2.09(a)
Capital Expenditure Period 2.09(a)
Capital Expenditure Statement 2.09(a)
Certificate of Merger 2.01(a)
Closing 2.02
Commitment 6.16
Contingency Date 13.01(b)
Effective Time 2.01(a)
Executive Medical Plan 10.06
Existing Acquiror Credit Agreement 8.01(A)(c)
Final Estimated Cost 9.09(b)
Final Working Capital 2.08
Financial Statements 7.04
HC Report 9.09(b)
HII Affiliated Group 5.12(a)
HII Shares 5.04(a)
Holiday Indemnitees 12.02(c)
indemnified party 12.03(a)
indemnifying party 12.03(a)
Individual Item 12.02(a)
Initial Report 9.09(a)
IRS 7.01(B)(d)
IRS Ruling 7.01(B)(d)
</TABLE>
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<TABLE>
<S> <C>
Joint Venture 5.10(a)
Management Agreement 5.10(a)
Merger Consideration 2.03(b)
1993 - 1995 Operating Statements 5.07
1996 Operating Statements 5.07
Retained Company Plan 5.13(a)
Retained Companies' Consents 5.03(a)
Retained Companies' Permits 5.03(a)
Retained Companies' Savings Plan 10.03(b)
Retained Company Securities 5.05(b)
Retained Real Property 5.10(a)
Severance Payments 10.02
Surviving Corporation 2.01(b)
Total Revenues 2.09(b)
Working Capital 2.07(a)
Working Capital Statement 2.07(a)
</TABLE>
ARTICLE 2
THE MERGER
SECTION 2.01. The Merger. (a) As soon as practicable after
satisfaction or, to the extent permitted hereunder, waiver of all conditions to
the Merger set forth in this Agreement, HII and Acquiror will file a
certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary of State
of the State of Delaware and an Articles of Merger (the "ARTICLES OF MERGER")
with the Secretary of State of the State of Tennessee and make all other
filings or recordings required by the DGCL and the TBCA in connection with the
Merger. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware or at
such later time as is specified in the Certificate of Merger (the "EFFECTIVE
TIME").
(b) At the Effective Time, HII shall be merged with and into
Acquiror in accordance with the DGCL and the TBCA whereupon the separate
existence of HII shall cease, and Acquiror shall be the surviving corporation
(as such, the "SURVIVING CORPORATION").
(c) From and after the Effective Time, Acquiror shall possess all
the rights, privileges and powers and be subject to all of the restrictions,
disabilities and duties of HII and Acquiror, all as provided under the DGCL and
the TBCA.
SECTION 2.02. Closing. Unless this Agreement has terminated and the
transactions contemplated under this Agreement have been abandoned pursuant to
Section 13.01 and subject to the fulfillment or, if permitted, waiver of the
conditions set forth in Article 11, the closing of the Merger (the "CLOSING")
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will take place at a location in New York City to be mutually agreed upon prior
to the Closing as promptly as practicable (and in any event within two business
days) following the fulfillment or, if permissible, waiver of the conditions of
Article 11, unless another date or time is agreed to in writing by Acquiror and
the Holiday Parties.
SECTION 2.03. Conversion of Shares. At the Effective Time:
(a) each outstanding share of HII Common Stock held by HII as
treasury stock immediately prior to the Effective Time shall be canceled, and
no payment shall be made with respect thereto;
(b) except as otherwise provided in Section 2.03(a) above, the 100
shares of HII Common Stock outstanding immediately prior to the Effective Time
will be converted into the right to receive in the aggregate 2,391,286 shares
(the "MERGER CONSIDERATION") of duly authorized, validly issued, fully paid and
nonassessable shares of Acquiror Stock.
SECTION 2.04. Surrender and Payment. Upon surrender to Acquiror of a
certificate or certificates representing the 100 shares of HII Common Stock
outstanding immediately prior to the Effective Time, HC will be entitled to
receive Acquiror Stock issuable in respect of such shares. Until so
surrendered, each such certificate shall, as of and after the Effective Time,
represent for all purposes, only the right to receive such Acquiror Stock.
SECTION 2.05. HII Intercompany Debt. At the Effective Time, the
amount of HII Intercompany Debt outstanding shall be $500 million; provided
that if, upon the mutual agreement of the parties hereto, any of the Hotels
listed on Schedule 2.05(a) shall cease to be a Retained Asset, the amount of
the HII Intercompany Debt shall be reduced by the amount listed opposite such
Hotel's name on Schedule 2.05(a) and the Contributed Liabilities shall be
increased by a like amount.
SECTION 2.06. Debt Exchange. Immediately following the Effective
Time, Acquiror shall (i) exchange principal amount $199,854,939 of the HII
Intercompany Debt assumed by Acquiror pursuant to the Merger for 6,981,832
shares of Acquiror Stock and (ii) repay the portion of the HII Intercompany
Debt remaining after such exchange in a certified or official bank check
payable in immediately available funds to Bass America Inc. ("BAI"); provided
that if the amount of HII Intercompany Debt is reduced pursuant to Section
2.05, the number of shares and cash exchanged for HII Intercompany Debt
pursuant to this Section 2.06 shall be reduced such that the total number of
shares and cash received by HC and BAI collectively pursuant to the Merger and
the debt exchange is reduced pro rata.
SECTION 2.07. Working Capital Statement. (a) As promptly as
practicable and in any event within 90 days after the Effective Time, HC will
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cause to be prepared and delivered to Acquiror a working capital statement,
together with an unqualified report of Deloitte & Touche LLP thereon, and a
certificate based on such working capital statement setting forth HC's
calculation of Working Capital. The working capital statement contemplated
hereby (the "WORKING CAPITAL STATEMENT") shall, in accordance with Schedule
2.07(a), fairly present the Working Capital position of HII immediately prior
to the Effective Time and after giving effect to the Contribution and the
Exchange. HC will afford Acquiror the opportunity to participate in and review
HC's preparation of the Working Capital Statement, including without limitation
the opportunity to observe any physical inventory count and other accounting
procedures and a reasonable opportunity to review HC's final draft of the
Working Capital Statement prior to the delivery thereof to Acquiror as
hereafter provided. If Acquiror and HC agree upon such computation within the
90-day period referred to above, the remaining provisions of this Section 2.07
will not apply; if Acquiror and HC do not so agree, then the Working Capital
Statement prepared by HC will be delivered by HC to Acquiror and the remaining
provisions of this Section 2.07 will apply. "WORKING CAPITAL" shall be
calculated as set forth in Schedule 2.07(a).
(b) If Acquiror disagrees with HC's calculation of Working Capital
delivered pursuant to Section 2.07(a), Acquiror may, within 90 days after
delivery of the documents referred to in Section 2.07(a) deliver a notice to HC
disagreeing with such calculation and setting forth Acquiror's calculation of
such amount. Any such notice of disagreement shall specify in reasonable
detail those items or amounts as to which Acquiror disagrees, and Acquiror
shall be deemed to have agreed with all other items and amounts contained in
the Working Capital Statement and the calculation of Working Capital delivered
pursuant to Section 2.07(a).
(c) If a notice of disagreement shall be delivered pursuant to
Section 2.07(b), Acquiror and HC shall cause Coopers & Lybrand LLP or another
firm of independent accountants of nationally recognized standing reasonably
satisfactory to Acquiror and HC (who shall not have any material relationship
with Acquiror or HC) promptly to review this Agreement and the disputed items
or amounts for the purpose of calculating Working Capital. In making such
calculation, such independent accountants shall consider only those items or
amounts in the Working Capital Statement or HC's calculation of Working Capital
as to which Acquiror has disagreed and such other issues as may be impacted by
the issues as to which Acquiror has disagreed. Such independent accountants
shall deliver to Acquiror and HC, as promptly as practicable, a report setting
forth such calculation. Such report shall be final and binding upon Acquiror
and HC. The cost of such review and report shall be borne by HC if the
difference between Final Working Capital and HC's calculation of Working
Capital delivered pursuant to Section 2.07(a) is greater than the difference
between Final Working Capital and Acquiror's calculation of Working Capital
delivered pursuant to Section 2.07(b) and by Acquiror if the
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first such difference is less than the second such difference and otherwise
equally by Acquiror and HC.
(d) Acquiror and HC agree that they will, and agree to cause their
respective independent accountants and HII to, cooperate and assist in the
preparation of the Working Capital Statement and the calculation of Working
Capital and in the conduct of the audits and reviews referred to in this
Section, including without limitation the making available to the extent
necessary of books, records, work papers and personnel.
SECTION 2.08. Working Capital Adjustment. (a) If Final Working Capital
exceeds $0, Acquiror shall pay to New Spinco, in the manner and with interest
as provided in Section 2.08(b), the amount of such excess. If Final Working
Capital is less than $0, HC shall pay to Acquiror, in the manner and with
interest as provided in Section 2.08(b), the amount of such deficiency. "FINAL
WORKING CAPITAL" means the Working Capital as agreed by Acquiror and HC
pursuant to Section 2.07(a), or (ii) if a notice of disagreement is delivered
pursuant to Section 2.07(b), as shown in the independent accountant's
calculation delivered pursuant to Section 2.07(c); provided that, in no event
shall Final Working Capital be more than HC's calculation of Working Capital
delivered pursuant to Section 2.07(a) or less than Acquiror's calculation of
Working Capital delivered pursuant to Section 2.07(b).
(b) Any payment by Acquiror pursuant to Section 2.08(a) shall be
made under a contingent note from HII to New Spinco (such contingent note
having been delivered to New Spinco prior to the Effective Time and being in
form reasonably acceptable to Acquiror) and any such payment or other payment
contemplated by Section 2.08(a) shall be made within 10 days after the Working
Capital has been determined by delivery by Acquiror in payment of the
contingent note of a certified or official bank check payable in immediately
available funds to New Spinco or by causing such payments to be credited to the
account of New Spinco as may be designated by it. Any payment due Acquiror
pursuant to Section 2.08(a) shall be made within 10 days after Working Capital
has been determined by delivery by HC of a certified or official bank check in
immediately available funds to Acquiror or by causing such payment to be
credited to the account of Acquiror designated by it. The amount of any
payment to be made pursuant to this Section shall bear interest from and
including the Effective Time to but excluding the date of payment at a rate per
annum equal to the Base Rate in effect from time to time during the period from
the Effective Time to the date of payment. Such interest shall be payable at
the same time as the payment to which it relates and shall be calculated daily
on the basis of a year of 365 days and the actual number of days elapsed.
SECTION 2.09. Capital Expenditures. (a) As promptly as practicable
and in any event within 90 days after the Effective Time, HC shall deliver to
Acquiror a statement of capital expenditures setting forth the Capital
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Expenditures made on the Hotels from and including October 1, 1996 to and
including the date of the Effective Time (the "CAPITAL EXPENDITURE PERIOD")
together with an unqualified opinion of Deloitte & Touche thereon. The
statement of capital expenditures contemplated hereby (the "CAPITAL EXPENDITURE
STATEMENT") shall fairly present the Capital Expenditures during the Capital
Expenditure Period. HC will afford Acquiror the opportunity to participate in
and review HC's preparation of the Capital Expenditure Statement. "CAPITAL
EXPENDITURES" means the cost incurred in making additions to, improvements to
and replacements of Hotels owned or leased by any Retained Company, that in
accordance with Holiday Inn Worldwide's normal accounting practice, provided
that such practice is in accordance with the Uniform System of Accounts for
Hotels and GAAP, are to be capitalized rather than expensed.
(b) HII shall borrow from BAI under a revolving credit facility
(the "CAPEX NOTES") the amounts spent on Capital Expenditures it believes in
good faith to be in excess of the sum of $15,000,000 and 4% of Total Revenues
during the Capital Expenditure Period for the portion of the Capital
Expenditure Period then elapsed as such amounts become due and payable. Upon
determination of the amount of Capital Expenditures pursuant to Section
2.09(a), the amount outstanding under the Capex Notes shall be automatically
adjusted so that the principal amount thereof shall be equal to the excess of
the amount spent on Capital Expenditures during the Capital Expenditure Period
over the sum of $15,000,000 and 4% of Total Revenues for the Capital
Expenditure Period and the amount of the Capex Notes outstanding shall be
deemed to be such adjusted amount for all purposes hereunder. Acquiror shall
assume the Capex Notes pursuant to the Merger and repay the Capex Notes within
10 days after Capital Expenditures has been determined according to Section
2.09(a) by delivery by Acquiror of a certified or official bank check in
immediately available funds to BAI or by causing such payment to be credited to
the account of BAI designated by it. If Capital Expenditures, determined
according to Section 2.09(a), are less than the sum of $15,000,000 and 4% of
Total Revenues for the Capital Expenditure Period, HC shall pay to Acquiror
within 10 days after Capital Expenditures have been determined the amount of
such deficiency by delivery by HC of a certified or official bank check in
immediately available funds to Acquiror or by causing such payment to be
credited to the account of Acquiror designated by it. The amount of any
payment to be made pursuant to this Section shall bear interest from and
including the Effective Time to but excluding the date of payment at a rate per
annum equal to the Base Rate in effect from time to time during the period from
the Effective Time to the date of payment. Such interest shall be payable at
the same time as the payment to which it relates and shall be calculated daily
on the basis of a year of 365 days and the actual number of days elapsed.
"TOTAL REVENUES" means, with respect to any period all revenues and income
derived directly or indirectly from the use or operation of any Hotel owned or
leased by any Retained Company (including, without limitation, total room
sales, food and beverage sales, telephone, telegraph and telex revenues, rental
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or other payments from lessees, sublessees and concessionaires (but not the
gross receipts of such lessees, sublessees or concessionaires), and the actual
cash proceeds of business interruption, use, occupancy or similar insurance).
ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. Certificate of Incorporation. The certificate of
incorporation of the Surviving Corporation shall be substantially in the form
of Exhibit I hereto until amended in accordance with DGCL and other applicable
laws.
SECTION 3.02. Bylaws. The bylaws of the Surviving Corporation shall
be substantially in the form of Exhibit J hereto until amended in accordance
with DGCL and other applicable laws.
SECTION 3.03. Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in
accordance with applicable law, (a) the directors of the Surviving Corporation
shall be as provided for in Section 2.01 of the Stockholders' Agreement, and
(b) the officers of Acquiror at the Effective Time shall be the officers of the
Surviving Corporation.
ARTICLE 4
CERTAIN PRE-MERGER TRANSACTIONS
SECTION 4.01. Contribution of Assets and Assumption of Liabilities.
HII and New Spinco will consummate the Contribution pursuant to the terms of,
and subject to the conditions to, the Contribution Agreement, prior to the
Effective Time.
SECTION 4.02. Exchange. Following the Contribution and prior to the
Effective Time, HII shall, in a partial liquidation, exchange with HC all
outstanding shares of New Spinco Common Stock for 900 shares of HII Common
Stock.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF HII AND HC
Except as otherwise indicated herein, each of HII and HC hereby
represents and warrants to Acquiror as follows:
SECTION 5.01. Corporate Organization and Qualification. Each of the
Holiday Parties and the other Retained Companies is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction in which it is organized. Each of the Holiday Parties and the
other Retained Companies is duly qualified, or licensed to do business and in
good
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standing as a foreign corporation, in each jurisdiction in which the properties
owned, leased or operated, or the business conducted, by it require such
qualification, except for any such failure so to qualify, or be licensed or be
in good standing which would not, individually or in the aggregate, have a
Retained Companies Material Adverse Effect. Each of the Holiday Parties and
the other Retained Companies has the requisite corporate power and authority to
own and operate its properties and carry on its businesses as they are now
being or will be (immediately after the Contribution) conducted. Each of the
Holiday Parties and the other Retained Companies have heretofore made available
to Acquiror complete and correct copies of the charter and by-laws of such
Person, each as amended to date and currently in full force-and effect.
SECTION 5.02. Corporate Authority. Each Holiday Party has the
requisite corporate power and authority to execute, deliver and perform each
Transaction Document to which it is a party and to consummate the transactions
contemplated thereby. The execution, delivery and performance of each
Transaction Document by each Holiday Party that is a party thereto and the
consummation by HII of the Contribution, the Exchange, the Merger and of the
other transactions contemplated to be performed by it under the Transaction
Documents have been duly authorized by all necessary corporate actions,
including without limitation, the approval of this Agreement by HII's Board of
Directors and HC as the sole shareholder of HII, and no other corporate
proceedings on the part of any Holiday Party are necessary to authorize any
Transaction Document or to consummate the transactions so contemplated. Each
Transaction Document to which a Holiday Party is a party is, or when executed
and delivered will be, a valid and binding agreement of such party, enforceable
against such party in accordance with the terms thereof except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally,
and except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of the court before which any
proceeding therefore may be brought.
SECTION 5.03. No Violations; Consents and Approvals. (a) None of the
execution, delivery or performance by any Holiday Party of each Transaction
Document to which it is a party or the consummation by any Holiday Party of the
transactions contemplated thereby will conflict with, or result in a violation
or breach of, or constitute a default (with or without notice or lapse of time
or both) under, or give rise to any right of termination, amendment,
cancellation or acceleration of any material obligation or loss of a material
benefit under, or result in the creation of a Lien (other than a Permitted
Lien) upon, any of the properties or assets (including without limitation the
Retained Assets) of the Retained Companies under (i) the charter or bylaws of
the Retained Companies, (ii) subject to obtaining the third-party consents set
forth in Schedule 5.03 (the "RETAINED COMPANIES' CONSENTS"), any loan or credit
agreement, note, bond, mortgage, indenture, lease (other than tenant leases),
Management Agreement or Joint Venture agreement applicable to any Retained
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Company, or any of their respective properties or assets, (iii) other
agreements, instruments, or any permits, concessions, franchises, licenses,
variances, exemptions, orders and approvals of all Governmental Entities
applicable to any Retained Company, or any of their respective properties or
assets ("RETAINED COMPANIES' PERMITS"), or (iv) subject to the governmental
filings and other matters referred to in Section 5.03(b), any Law applicable to
the Retained Companies or any of their respective properties or assets
(including without limitation the Retained Assets), other than, in the case of
clauses (iii) and (iv), any such conflicts, violations, defaults, rights,
losses or Liens that, individually or in the aggregate, could not reasonably be
expected to have a Retained Companies Material Adverse Effect.
(b) Except for the filing of the Certificate of Merger, the
Articles of Merger, applicable HSR Filings and other consents, approvals,
orders, authorizations, registrations, declarations, filings and agreements
expressly provided for in the Transaction Documents, no consent, approval,
order, authorization of, or registration, declaration or filing with, any
Governmental Entity is required with respect to HC, HII or any of the other
Retained Companies in connection with the execution, delivery or performance by
each of HC and HII of each Transaction Document to which it is or will be a
party or the consummation by HC or HII, as the case may be, of the transactions
contemplated thereby, except for consents, approvals, orders, authorizations,
registrations, declarations or filings the failure of which to obtain or to
make would not, individually or in the aggregate, have a Retained Companies
Material Adverse Effect.
SECTION 5.04. Capital Stock. (a) The authorized capital stock of HII
consists of 120,000,000 shares of HII Common Stock. As of the date hereof and
immediately prior to the Contribution, there are and will be issued and
outstanding 1,000 shares of HII Common Stock, all of which are, as of the date
hereof, owned by HC and no shares are, as of the date hereof, held as treasury
stock. After the Contribution and the Exchange there will be outstanding 100
shares of HII common stock (the "HII SHARES"), all of which are and will be
owned by HC.
(b) The HII Shares have been duly authorized and validly issued
and are fully paid and non-assessable. Except for the HII Shares, there are no
outstanding (i) shares of capital stock or other voting securities of HII, (ii)
securities of HII convertible into or exchangeable for shares of capital stock
or other voting securities of HII, (iii) options or other rights to acquire
from HII, or other obligations of HII to issue, any capital stock, other voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of HII, or (iv) bonds, debentures, notes or other obligations
or securities other than HII Shares the holders of which have the right to vote
with the stockholders on any matter (the items in clauses (i), (ii), (iii) and
(iv) being referred to collectively as the "HII SECURITIES"). There will be,
immediately after the Exchange, no outstanding obligations of any Retained
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Company to repurchase, redeem or otherwise acquire any HII Securities. No
class of capital stock of HII is entitled to preemptive rights.
(c) HC is and as of immediately prior to the Effective Time will
be, the sole record and beneficial owner of all of the HII Shares, free and
clear of any Lien and any other limitation or restriction (including without
limitation any restriction on the right to vote, sell or otherwise dispose of
such HII Shares), and will transfer and deliver to Acquiror at the Effective
Time valid title to such HII Shares free or clear of any Lien or any such
limitation or restriction.
SECTION 5.05. Retained Companies. (a) Schedule 5.05 completely and
correctly (i) lists each Hotel and the identity of the Retained Company, Joint
Venture or other Person that owns or holds an interest in the Hotel and the
nature of that ownership or other interest in the Hotel; and (ii) sets forth
the name and jurisdiction of incorporation or organization of each Retained
Company identified in (i).
(b) Except as disclosed in Schedule 5.05, all of the outstanding
capital stock of, or other voting securities or ownership interests in, each
Retained Company has been duly authorized and validly issued and are fully paid
and non-assessable and are owned solely by HII, directly or indirectly, free
and clear of any Lien and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other voting securities or ownership interests). Except
as listed on Schedule 5.05, there are no outstanding (i) shares of capital
stock or other voting securities of, or ownership interest in, any Retained
Company, (ii) securities of any Retained Company convertible into or
exchangeable for shares of capital stock or other voting securities or
ownership interests in any Retained Company, or (iii) options or other rights
to acquire from any Retained Company, or other obligation of any Retained
Company to issue, any capital stock or other voting securities of, or ownership
interests in, or any securities convertible into or exchangeable for any
capital stock or other voting securities of, or ownership interests in, any
Retained Company (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "RETAINED COMPANY SECURITIES"). There will be, immediately
after the Exchange and immediately prior to the Effective Time, no outstanding
obligations of any Retained Company to repurchase, redeem or otherwise acquire
any outstanding Retained Company Securities.
(c) Upon completion of the Contribution and the Exchange, except
for interests in the Retained Companies and Joint Ventures identified in
Schedule 5.05, none of the Retained Companies will own, directly or indirectly,
any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust or entity.
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SECTION 5.06. Information. (a) None of the information supplied or to
be supplied by any Holiday Party or any Affiliate thereof or any of their
respective representatives for inclusion or incorporation by reference in the
Proxy Statement will at the time such Proxy Statement is filed with the SEC and
at the time of the mailing of the Proxy Statement to the stockholders of
Acquiror contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. No representation is made by any Holiday Party with respect to
statements made in the Proxy Statement based on information supplied by
Acquiror or any of its Subsidiaries for inclusion therein, or with respect to
information concerning Acquiror or any of its Subsidiaries incorporated by
reference therein.
SECTION 5.07. HII Operating Statements, Etc. (a) Except as set forth
on Schedule 5.07(a)(i), the 1996 HII Operating Statements fairly present the
results of operations of each Hotel for the periods set forth therein. The
1993-1995 Operating Statements fairly present the results of operations of each
Hotel for the periods set forth therein, except for the corporate allocations
of costs and revenues actually made by HII for those years in a manner
consistent with those allocations set forth in Schedule 5.07(a)(i). As used
herein, the "1996 HII OPERATING STATEMENTS" and the "1993-1995 OPERATING
STATEMENTS" means the operating statements for the years ended September 30,
1996, and 1995, 1994 and 1993, respectively. Each of the 1993-1995 and 1996
Operating Statements has been prepared in accordance with GAAP, except as
identified on Schedule 5.07(a)(ii), and is based on the books and records
maintained for each Hotel.
(b) For each Hotel, Schedule 5.07(b) lists both the year in which
such hotel opened and the total number of rooms available in such Hotel.
(c) As of the Effective Time, the Retained Companies will have no
liabilities, actual or contingent, except (i) for the Retained Liabilities,
(ii) for those Liabilities as to which Acquiror is indemnified under Article 12
and (iii) as reflected in the Working Capital Statement.
SECTION 5.08. Absence of Certain Changes or Events. Except as
disclosed in Schedule 5.08, or as otherwise contemplated by the Transaction
Documents, since September 30, 1996, HII and the other Retained Companies have
conducted the Retained Business in the ordinary course, consistent with past
practices, and there have not been (i) any events, changes or developments
which would have, individually or in the aggregate, a Retained Companies
Material Adverse Effect, (ii) any change by the Holiday Parties in their
accounting methods, principles or practices, (iii) any entering into,
establishment or amendment of, any Holiday Employee Plan or any other increase
in the compensation payable or to become payable to any Retained Companies'
Employee, except for annual plan renewals and as otherwise noted
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on the Schedules or (iv) any revaluation for financial statement purposes by
HII or any of the other Retained Companies of any asset (including without
limitation any writing down of the value of any property, investment or asset
or writing off of notes or accounts receivable).
SECTION 5.09. Compliance with Applicable Laws. Except as listed in
Schedule 5.09, the Retained Companies are in compliance with the Retained
Companies' Permits and all Laws applicable to them, except where the failure to
be in compliance would not, individually or in the aggregate, have a Retained
Companies Material Adverse Effect. The Retained Companies have not received
any written notice of any administrative, civil or criminal investigation or
audit (other than Tax audits) by any Governmental Entity relating to the
Retained Business that, individually or in the aggregate, would have a Retained
Companies Material Adverse Effect. The Retained Business has all Permits that
are required in order to permit it to carry on its business as it is presently
conducted, except those Permits which the failure to have would not,
individually or in the aggregate, have a Retained Companies Material Adverse
Effect. All such Permits relating to the Retained Business are in full force
and effect, except for any such Permit as to which the failure so to be in full
force and effect would not, individually or in the aggregate, have a Retained
Companies Material Adverse Effect. This Section 5.09 does not relate to real
property matters (for which Section 5.10 is applicable), Tax matters (for which
Section 5.12 is applicable), employee benefits matters (for which Section 5.13
is applicable) or environmental matters (for which Section 5.14 is applicable).
SECTION 5.10. Retained Real Property. (a) Schedules 5.10(a)(i)
through (a)(iv) describes all real properties owned, held or used by the
Retained Companies (each a "RETAINED REAL PROPERTY"), (i) Schedule 5.10(a)(i)
lists the Retained Real Properties owned by the Retained Companies, (ii)
Schedule 5.10(a)(ii) lists the Retained Real Properties held by the Retained
Companies under leases and the leases under which the same are held, (iii)
Schedule 5.10(a)(iii) lists the Retained Real Properties held by the Retained
Companies under joint ventures or partnerships (each a "JOINT VENTURE") and the
joint venture or partnership agreements under which the same are held, and (iv)
Schedule 5.10(a)(iv) lists each management agreement (each a "MANAGEMENT
AGREEMENT") to which a Retained Company is a party and the hotels that are the
subject of such Management Agreements and the owners and lessors of those
properties.
(b) Each lease, Joint Venture agreement and Management Agreement
described in Schedules 5.10(a)(i) through (a)(iv) is valid, binding and
enforceable in accordance with its material terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of rights generally and to general principles of equity, neither
the applicable Retained Company nor, to the knowledge of HII, any other party
thereto is in default under any material provision of such lease or agreement,
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and to the knowledge of HII no event or circumstance has occurred which, with
notice or lapse of time or both, would constitute a default under any material
provision of such lease or agreement.
(c) Except as set forth on Schedule 5.10(c), the facilities and
equipment owned by the Retained Companies and each Joint Venture and the
facilities under Management Agreements are in good operating condition and
repair and have been reasonably maintained except for such condition and repair
as would not have a Material Adverse Effect on the operations of such facility.
(d) Each Retained Company listed on Schedules 5.10(a)(i) through
(a)(iv) as being the owner or lessee of a Retained Real Property has insurable
fee simple title to, or an insurable leasehold interest in, such Retained Real
Property. No such Retained Real Property (i) is subject to any Liens other
than Permitted Liens or (ii) is subject to any encumbrances, easements,
exceptions, encroachments, protrusions, options, rights of first refusal,
rights of first offer, other purchase rights or any other title matters that
are generally objectionable to purchasers of similar assets or their secured
lenders, except for such matters that do not, individually or in the aggregate,
have a material adverse effect on the use or value of such Retained Real
Property.
SECTION 5.11. Litigation. Except as disclosed in Schedule 5.11, there
are no civil, criminal or administrative actions, suits, claims, hearings,
investigations or proceedings pending or, to the knowledge of HII, threatened
against any of the Retained Companies that, individually or in the aggregate,
would if decided adversely have a Retained Companies Material Adverse Effect.
Except as disclosed in Schedule 5.11, there are no outstanding judgments,
orders, decrees, stipulations or awards against any of the Retained Companies
or their respective properties or businesses that would, individually or in the
aggregate, have a Retained Companies Material Adverse Effect. This Section 5.11
does not relate to environmental matters (for which Section 5.14 is
applicable).
SECTION 5.12. Taxes. (a) HII and each other entity with which HII is
included as a member of a consolidated group for tax purposes (collectively,
the "HII AFFILIATED GROUP") has filed, or will file or cause to be filed, with
the appropriate United States, state, local and foreign Governmental Entities,
all material Tax Returns required to be filed by it on or prior to the
Effective Time (taking into account all extensions of due dates) and such Tax
Returns were true, complete and correct in all material respects (as to Tax
Returns not filed as of the date of this Agreement but filed at or prior to the
Effective Time, will be true, complete and correct in all material respects)
and reflected (or will so reflect) the liability for taxes of HII and each of
its Subsidiaries, and each member of the HII Affiliated Group has paid or
adequately reserved or provided for all Taxes shown thereon as owing.
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(b) Except as set forth on Schedule 5.12(b), the Retained
Companies have not waived or extended any applicable statute of limitations
relating to the assessment of any federal, state or local Taxes relating to the
Retained Business.
(c) There is no Tax sharing or allocation agreement under which
any Retained Company will have any obligations after the Effective Time.
(d) HII is not, and immediately prior to the Effective Time will
not be, an investment company within the meaning of Section 368(a)(2)(F)(iii)
or (iv) of the Code.
(e) The representations and covenants of HC in Schedule 5.12(e)
are incorporated herein by reference.
SECTION 5.13. Employee Benefit Plans. (a) Schedule 5.13(a) identifies
each Employee Plan that is entered into, maintained, administered or
contributed to, as the case may be, by HII or any of its ERISA Affiliates, and
under which any such Person has any liability or obligation, or which covers
any Retained Companies' Employee or any former employee of the Retained
Companies ("RETAINED COMPANY PLAN"). HII has furnished or made available to
Acquiror copies of such Employee Plans (and, if applicable, related trust
agreements) and all amendments thereto and summary plan descriptions thereof
together with the annual reports (Form 5500 including, if applicable, Schedule
B thereto) and the most recent actuarial valuation reports prepared in
connection with any such Employee Plan during the past three years. No
Retained Company Plan is a Multiemployer Plan or a Title IV Plan.
(b) Neither HII nor any of its ERISA Affiliates has engaged in, or
is a successor or parent corporation to an entity that has engaged in, a
transaction described in Section 4069 of ERISA.
(c) Each Retained Company Plan that is intended to be qualified
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service and, to the knowledge of HII, no event has
occurred since the date of such determination letter to adversely affect the
qualified status of such Employee Plan. There are no matters for which a
filing has to be made under the IRS' Voluntary Compliance Resolution Program
and each such Employee Plan has been maintained in substantial compliance with
its terms and with the requirements prescribed by any and all applicable Laws.
(d) Schedule 5.13(d) identifies each Benefit Arrangement that is
entered into, maintained, administered or contributed to, as the case may be,
by HII or any of its ERISA Affiliates, or under which any such Person has any
liability or obligation, or which covers any Retained Companies'
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Employee or any former employee of the Retained Companies. HII has furnished
or made available to Acquiror copies or descriptions of each such Benefit
Arrangement (and, if applicable, related trust agreements) and all amendments
thereto and summary plan and descriptions thereof. Each such Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all applicable Laws.
SECTION 5.14. Environmental Matters. Except as set forth in Schedule
5.14:
(a) No notice, notification, demand, request for information,
citation, summons, complaint or order has been received by or is pending, or to
the knowledge of the Holiday Parties, is threatened by any Person against the
Retained Business, other than where such notice, notification, demand, request
for information, citation, summons, complaint or order has been fully resolved,
or where such resolution, individually or in the aggregate, would not result in
a Retained Companies Material Adverse Effect;
(b) Since January 1, 1994, there has been no environmental
investigation conducted in relation to any Hotel with respect to any matter
which would, individually or in the aggregate, have a Retained Companies
Material Adverse Effect; and
(c) To the knowledge of HII, no Retained Company has any liability
or obligation, fixed or contingent, under, or is in violation of, any
Environmental Law, which, individually or in the aggregate, would have a
Retained Companies Material Adverse Effect.
SECTION 5.15. Brokers and Finders. None of HII or any of its
directors, officers or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders fees in connection
with the transactions contemplated hereby, except that Bass plc has retained
Lazard Freres & Co. LLC as its financial advisor, the fees and expenses of
which shall be paid by HC.
SECTION 5.16. Employees. There is no labor strike or work stoppage
pending or, to the knowledge of the Holiday Parties, threatened against any of
the Retained Companies. Except as set forth on Schedule 5.16, none of the
Retained Companies is on the date hereof a party to any collective bargaining
agreement relating to its employees.
SECTION 5.17. Contracts. Except as disclosed in Schedule 5.17,
neither HII nor any of the other Retained Companies is in breach or default
under any Contract, except where such breach or default would not, individually
or in the aggregate, have a Retained Companies Material Adverse Effect. To the
knowledge of HII, as of the date of this Agreement, none of the other parties
to any Contract that is material to the operation or value of
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the Retained Business is (with or without the lapse of time or the giving of
notice, or both) in breach or default, except for those breaches or defaults
which would not, individually or in the aggregate, have a Retained Companies
Material Adverse Effect.
SECTION 5.18. No Representations or Warranties. The Holiday Parties
acknowledge that none of Acquiror or its Subsidiaries, any of their Affiliates
or any other Person has made any representation or warranty, expressed or
implied, as to the accuracy or completeness of any information regarding any of
Acquiror or its Subsidiaries not included in the Transaction Documents, and
none of Acquiror or its Subsidiaries or Affiliates or any other Person will
have or be subject to any liability to the Holiday Parties or any of their
respective Subsidiaries, any of their Affiliates or any other Person resulting
from the distribution to the Holiday Parties or any Subsidiary's use of, any
such information. The Holiday Parties further acknowledge that, except as
expressly set forth in the Transaction Documents, there are no representations
or warranties of any kind, expressed or implied, with respect to any of
Acquiror or any of its Subsidiaries.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants that, except as disclosed in Acquiror
SEC Reports filed prior to the date hereof:
SECTION 6.01. Corporate Organization and Qualification. Each of
Acquiror and its Subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized and is duly qualified or licensed to do business and in good standing
as a foreign corporation in each jurisdiction in which the properties owned,
leased or operated, or the businesses conducted, by it require such
qualification or license, except for any such failure so to qualify, or be
licensed or be in good standing which would not, individually or in the
aggregate, have an Acquiror Material Adverse Effect. Acquiror and its
Subsidiaries have the requisite corporate power and authority to carry on its
businesses as they are now being conducted. Acquiror has heretofore made
available to HC complete and correct copies of the certificate of incorporation
and by-laws of Acquiror, each as amended to date and currently in full force
and effect.
SECTION 6.02. Corporate Authority. Acquiror has the requisite
corporate power and authority to execute, deliver and, subject to the approval
of the Merger and the authorization of the issuance of shares of Acquiror Stock
in the Merger by the stockholders of Acquiror, perform each Transaction
Document to which it is a party and to consummate the transactions contemplated
thereby. The execution, delivery and performance by Acquiror of each
Transaction Document to which it is a party and the
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consummation by it of the transactions contemplated thereby have been duly
authorized by its Board of Directors, and no other corporate proceedings on its
part are or will be necessary to authorize each Transaction Document to which
it is a party or to consummate the transactions contemplated thereby, subject
to the approval of the adoption of this Agreement and the authorization of the
issuance of shares of Acquiror Stock in connection with the Merger by the
stockholders of Acquiror. Each Transaction Document to which Acquiror is a
party is, or when executed and delivered will be, a valid and binding agreement
of Acquiror, enforceable against Acquiror in accordance with the terms thereof
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally, and except that the availability of equitable remedies,
including specific performance, may be subject to the discretion of the court
before which any proceeding therefore may be brought.
SECTION 6.03. No Violations; Consents and Approvals. (a) None of the
execution, delivery or performance by any of Acquiror or its Subsidiaries of
each Transaction Document to which it is a party or the consummation by any of
Acquiror and its Subsidiaries of the transactions contemplated thereby will
conflict with, or result in a violation or breach of, or constitute a default
(with or without notice or lapse of time or both) under, or give rise to any
right of termination, amendment, cancellation or acceleration of any material
obligation or loss of a material benefit under, or result in the creation of a
Lien upon, any of the properties or assets of Acquiror and its Subsidiaries
under (i) the charters or bylaws, or comparable documents of Acquiror and its
Subsidiaries, (ii) subject to obtaining the third-party consents set forth in
Schedule 6.03 (the "ACQUIROR CONSENTS"), any loan or credit agreement, note,
bond, mortgage, indenture, lease, management or joint venture agreement, (iii)
other agreements, instruments, or any permits, concessions, franchises,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities applicable to Acquiror and its Subsidiaries, or any of their
respective properties or assets (the "ACQUIROR'S PERMITS"), or (iv) subject to
the governmental filings and other matters referred to in Section 6.03(b), any
Law applicable to Acquiror or its Subsidiaries or any of their respective
properties or assets other than, in the case of clauses (iii) and (iv), any
such conflicts, violations, defaults, rights, losses or Liens that,
individually or in the aggregate, could not reasonably be expected to have an
Acquiror Material Adverse Effect.
(b) Except for the filing of the Certificate of Merger, the
Articles of Merger, applicable HSR Filings and other consents, approvals,
orders, authorizations, registrations, declarations, filings and agreements
expressly provided for in the Transaction Documents, and except for filings
under the Exchange Act, no consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required
with respect to Acquiror or any of its Subsidiaries, in connection with the
execution, delivery or performance by Acquiror of each Transaction Document to
which it is or
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will be a party or the consummation by it of the transactions contemplated
thereby except for consents, approvals, orders, authorizations, registrations,
declarations or filings the failure of which to obtain or to make would not,
individually or in the aggregate, have an Acquiror Material Adverse
SECTION 6.04. Capital Stock. (a) The authorized capital stock of
Acquiror consists solely of (i) 75,000,000 shares of Acquiror Stock, of which
an aggregate of 16,565,840 shares of Acquiror Stock were issued and outstanding
as of the close of business on December 12, 1996 and no shares were held in the
treasury of Acquiror as of the close of business on December 12, 1996; and (ii)
25,000,000 shares of preferred stock, par value $0.01 per share, of Acquiror,
of which no shares were issued and outstanding on December 12, 1996. As of the
close of business on December 12, 1996, there were outstanding under Acquiror
Option Plans options to purchase an aggregate of 883,843 shares of Acquiror
Stock (subject to adjustment on the terms set forth in Acquiror Option Plans).
As of December 12, 1996, Acquiror had no shares of its capital stock reserved
for issuance other than shares of Acquiror Stock reserved for issuance pursuant
to Acquiror Option Plans. Except as set forth above, as of the date of this
Agreement, there are no securities convertible into or exchangeable for, or
options, warrants, calls, subscriptions, rights or Contracts of any kind to
which Acquiror or any of its Subsidiaries is a party to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of Acquiror or of any of its Subsidiaries.
(b) All of the outstanding shares of capital stock of Acquiror
have been duly authorized and validly issued and are fully paid and
non-assessable. All of the shares of Acquiror Stock to be issued in the Merger
are duly authorized and, when issued in accordance with the terms of this
Agreement (including the approval by the stockholders of Acquiror of the
issuance thereof), will be duly and validly issued, fully paid, non-assessable
and free of preemptive rights. Except as listed in Schedule 6.04, there are no
outstanding (i) shares of capital stock or other voting securities of Acquiror,
(ii) securities of Acquiror convertible into or exchangeable for shares of
capital stock or other voting securities of Acquiror, (iii) options or other
rights to acquire from Acquiror, or other obligations of Acquiror to issue, any
capital stock, other voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Acquiror or (iv) bonds,
debentures, notes or other obligations or securities other than Acquiror Common
Stock the holders of which have the right to vote with the stockholders on any
matter (the items in clauses (i), (ii), (iii) and (iv) being referred to
collectively as the "ACQUIROR SECURITIES"). There are no outstanding
obligations of Acquiror to repurchase, redeem or otherwise acquire any Acquiror
Securities. No class of capital stock of Acquiror is entitled to preemptive
rights.
SECTION 6.05. Subsidiaries. (a) Schedule 6.05 lists the name and
jurisdiction of incorporation or organization of each Subsidiary of Acquiror.
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(b) Except as disclosed in Schedule 6.05, all of the outstanding
capital stock of, or other voting securities or ownership interests in, each
Subsidiary of Acquiror, has been duly authorized and validly issued and is
fully paid and non-assessable and is owned by Acquiror, directly or indirectly,
free and clear of any Lien and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other voting securities or ownership interests). Except
as listed on Schedule 6.05(b)(2), there are no outstanding (i) shares of
capital stock or other voting securities of, or ownership interest in, any
Subsidiary of Acquiror, (ii) securities of any Subsidiary of Acquiror
convertible into or exchangeable for shares of capital stock or other voting
securities or ownership interests in any such Subsidiary, (iii) options or
other rights to acquire from Acquiror or its Subsidiaries, or other obligation
of Acquiror or any of its Subsidiary to issue, any capital stock or other
voting securities of, or ownership interests in, or any securities convertible
into or exchangeable for any capital stock or other voting securities of, or
ownership interests in, any Subsidiary of Acquiror, or (iv) bonds, debentures,
notes or other obligations or securities of any subsidiary of Acquiror, the
holders of which have the right to vote with the stockholders of such
Subsidiary on any matter (the items in clauses (i), (ii), (iii) and (iv) being
referred to collectively as the "ACQUIROR SUBSIDIARY SECURITIES"). There are
no outstanding obligations of Acquiror or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any outstanding Acquiror Subsidiary
Securities.
SECTION 6.06. Information. (a) The financial statements of Acquiror
included in Acquiror SEC Documents have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, with respect to any unaudited financial
statement, the absence of footnote disclosures and subject to normal year-end
adjustments and other adjustments described therein). Each of the consolidated
balance sheets of Acquiror and its Subsidiaries fairly presents in all material
respects the consolidated financial position of Acquiror and its Subsidiaries
as of its date and each of the consolidated statements of income, cash flows
and stockholders' equity of Acquiror and its Subsidiaries fairly presents in
all material respects the consolidated results of operations, cash flows and
retained earnings, as the case may be, of Acquiror and its Subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to
normal year-end adjustments and other adjustments described therein), in each
case in accordance with GAAP.
(b) None of the information supplied or to be supplied by Acquiror
or its representatives for inclusion or incorporation by reference in the Proxy
Statement will at the time such Proxy Statement is filed with the SEC and at
the time of the mailing of the Proxy Statement to the stockholders of Acquiror
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. No
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representation is made by Acquiror with respect to statements made in the Proxy
Statement based on information supplied by the Holiday Parties or any of their
respective Subsidiaries for inclusion therein or with respect to information
concerning the Holiday Parties or any of their respective Subsidiaries
incorporated by reference therein.
SECTION 6.07. SEC Filings. (a) Acquiror has filed the Acquiror SEC
Documents. As of its filing date, each Acquiror SEC Document filed, as amended
or supplemented, if applicable, (i) complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act, as
applicable and the rules and regulations thereunder and (ii) did not, at the
time it was filed (and at the effective date thereof, in the case of a
registration statement), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
SECTION 6.08. Absence of Certain Events and Changes. Except as
disclosed in Schedule 6.08 or as otherwise contemplated by the Transaction
Documents, since September 30, 1996 Acquiror and its Subsidiaries have
conducted their respective businesses in the ordinary course, consistent with
past practices, and there have not been any events, changes or developments
which would have, individually or in the aggregate, an Acquiror Material
Adverse Effect.
SECTION 6.09. Compliance with Applicable Laws. Except as disclosed in
Schedule 6.09, Acquiror and its Subsidiaries are in compliance with all
Acquiror Permits and Laws applicable to them, except where the failure to be in
compliance would not individually or in the aggregate, have an Acquiror
Material Adverse Effect. None of Acquiror or any of its Subsidiaries has
received any written notice of any administrative, civil or criminal
investigation or audit (other than Tax audits) by any Governmental Entity that,
individually or in the aggregate, would have an Acquiror Material Adverse
Effect. Each of Acquiror and its Subsidiaries has all Permits that are
required in order to permit it to carry on its business as it is presently
conducted, except those Permits which the failure to have would not,
individually or in the aggregate, have an Acquiror Material Adverse Effect.
All Permits are in full force and effect, except for any such Permit as to
which the failure so to be in full force and effect would not, individually or
in the aggregate, have an Acquiror Material Adverse Effect. This Section 6.09
does not relate to Tax matters (for which Section 6.12 is applicable) or
environmental matters (for which Section 6.13 is applicable).
SECTION 6.10. Acquiror Real Property. (a) Schedules 6.10(a)(i)
through (a)(iv) describes all real properties owned, held or used by Acquiror
and its Subsidiaries as of the date hereof (each an "ACQUIROR REAL PROPERTY"),
(i) Schedule 6.10(a)(i) describes Acquiror Real Properties owned
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by Acquiror and its Subsidiaries as of the date hereof, (ii) Schedule
6.10(a)(ii) describes Acquiror Real Properties held by Acquiror and its
Subsidiaries under leases as of the date hereof and the leases under which the
same are held, and (iii) Schedule 6.10(a)(iii) describes Acquiror Real
Properties held by Acquiror and its Subsidiaries as of the date hereof under
joint ventures or partnerships and the joint venture or partnership agreements
under which the same are held.
(b) Each lease, joint venture agreement and partnership agreement
described in Schedules 6.10(a)(i) through (a)(iv) is, to the knowledge of
Acquiror, valid, binding and enforceable in accordance with its material terms,
subject to bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of rights generally and to general principles of
equity, neither Acquiror or its Subsidiary (as applicable) nor, to the
knowledge of Acquiror, any other party thereto is in default under any material
provision of such lease or agreement, and to the knowledge of Acquiror, no
event or circumstance has occurred which, with notice or lapse of time or both,
would constitute a default under any material provision of such lease or
agreement, except in each case to the extent that any invalidity,
unenforceability or default, individually or in the aggregate, would not have
an Acquiror Material Adverse Effect.
SECTION 6.11. Litigation. Except as disclosed in Schedule 6.11, there
are no civil, criminal or administrative actions, suits, claims, hearings,
investigations or proceedings pending or, to the knowledge of Acquiror,
threatened, against Acquiror or any of its Subsidiaries that, individually or
in the aggregate, would, if decided adversely, have an Acquiror Material
Adverse Effect. Except as disclosed in Schedule 6.11, there are no outstanding
judgments, orders, decrees, stipulations or awards against Acquiror or any of
its Subsidiaries or their respective properties or businesses that would,
individually or in the aggregate, have an Acquiror Material Adverse Effect.
This Section 6.11 does not relate to environmental matters (for which Section
6.13 is applicable).
SECTION 6.12. Taxes. (a) The representations and covenants of
Acquiror in Schedule 6.12(a) are incorporated herein by reference.
(b) Absent a final determination to the contrary by the competent
Tax Authority, Acquiror shall treat the Merger as a tax-free "reorganization",
within the meaning of Section 368(a)(1)(A), in which no gain or loss is
recognized, for all Tax purposes.
(c) All Tax Returns required to be filed by Acquiror before the
date hereof have been filed, and all Taxes shown as due and payable on such
Returns have been timely paid, except to the extent that the failure to file or
to file timely, individually or in the aggregate, could not be reasonably
expected to have an Acquiror Material Adverse Effect.
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(d) There are no claims or investigations pending or, to the
knowledge of Acquiror, threatened relating to Taxes that individually or in the
aggregate, could be reasonably expected to have an Acquiror Material Effect on
Acquiror and its Subsidiaries, and none of Acquiror or any of its Subsidiaries
have waived or extended any applicable statute of limitations in connection
with the assessment of federal, state or local Taxes relating to Acquiror and
its Subsidiaries.
(e) There is no Tax sharing or allocation agreement under which
Acquiror or any of its Subsidiaries will have any obligations after the
Effective Time.
SECTION 6.13. Environmental Matters. Except as set forth in Schedule
6.13:
(a) No notice, notification, demand, request for information,
citation, summons, complaint or order has been received by, or is pending or,
to the knowledge of Acquiror, is threatened by any Person against, Acquiror or
any of its Subsidiaries, other than where such notice, notification, demand,
request for information, citation, summons, complaint or order has been fully
resolved, or where such resolution would not, individually or in the aggregate,
result in an Acquiror Material Adverse Effect;
(b) Since January 1, 1994, there has been no environmental
investigation conducted of which Acquiror has knowledge in relation to Acquiror
or any of its Subsidiaries or any property or facility owned, leased or
operated by Acquiror or any of its Subsidiaries with respect to any matter
which would, individually or in the aggregate, have an Acquiror Material
Adverse Effect, which has not been delivered to HC at least five days prior to
the date hereof; and
(c) To the knowledge of Acquiror, none of Acquiror or any of its
Subsidiaries has any liability or obligation, fixed or contingent, under, or is
in violation of, any Environmental Law, which, individually or in the
aggregate, could reasonably be expected to have an Acquiror Material Adverse
Effect.
SECTION 6.14. Brokers and Finders. None of Acquiror or any of its
directors, officers or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders fees in connection
with the transactions contemplated hereby, except that Acquiror has retained
Merrill Lynch & Co. as its financial advisor, the fees and expenses of which
shall be paid by Acquiror.
SECTION 6.15. Employees. There is no labor strike or work stoppage
pending or, to the knowledge of Acquiror, threatened against Acquiror or any of
its Subsidiaries. Except as set forth in Schedule 6.15, none of Acquiror or its
Subsidiaries is on the date hereof a party to any collective bargaining
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agreement relating to its employees, that individually or in the aggregate,
would have an Acquiror Material Adverse Effect.
SECTION 6.16. Financing. Acquiror has entered into the Commitment
(the "COMMITMENT") as previously delivered to HC.
SECTION 6.17. Capital Expenditure Plan. Acquiror has adopted a
capital expenditure plan, pursuant to which it plans to spend an additional
$150 million to further upgrade the hotels acquired pursuant to the Merger and
Asset Purchase Agreements.
SECTION 6.18. No Representations or Warranties. Acquiror acknowledges
that none of the Holiday Parties, any of their Affiliates or any other Person
has made any representation or warranty, expressed or implied, as to the
accuracy or completeness of any information regarding any of HII, HC, New
Spinco or the Retained Business not included in the Transaction Documents, and
none of the Holiday Parties or any of their Affiliates or any other Person will
have or be subject to any liability to Acquiror or any of its Subsidiaries, any
of their Affiliates or any other Person resulting from the distribution to
Acquiror or Acquiror's or any of Acquiror's Subsidiaries' use of, any such
information. Acquiror further acknowledges that, except as expressly set forth
in the Transaction Documents, there are no representations or warranties of any
kind, expressed or implied, with respect to any of HII, HC, New Spinco or the
Retained Companies.
ARTICLE 7
COVENANTS OF HII AND HC
SECTION 7.01. Conduct of HII and HC. (A) During the period from the
date of this Agreement and continuing until the Effective Time, each of the
Holiday Parties as to itself and the Retained Companies (with respect to the
conduct of the Retained Business) agrees that, except for the Contribution, the
Exchange and as otherwise contemplated by the Transaction Documents, HII will,
and will cause each of the other Retained Companies to, conduct the Retained
Business in the ordinary course thereof consistent with past practice and in
compliance in all material respects with all applicable Laws and Permits and,
to the extent consistent therewith, use reasonable efforts to (a) preserve
intact the Hotels, (b) keep available the services of their current officers
and other key employees, and (c) preserve their relationships with those
Persons having business dealings with them to the end that their goodwill and
ongoing businesses will be unimpaired at the Effective Time. Without limiting
the generality or effect of the foregoing, and except as otherwise expressly
provided in this Agreement or the Contribution Agreement, prior to the
Effective Time, HII will not, and will not permit any of the other Retained
Companies to:
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(a) Issuance of Securities. Issue, transfer, sell, dispose of or
pledge, or authorize or agree to the issuance, transfer, sale or disposition or
pledge by any of the Retained Companies (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase
or otherwise) of, any shares of capital stock or any voting securities of any
of the Retained Companies, or any options or other securities convertible into
or exchangeable for any such shares of capital stock or any voting securities
of any of the Retained Companies or amend any of the terms of any such
securities or agreements relating to such capital stock outstanding on the date
hereof, other than the issuance, transfer, sale or disposition by a
wholly-owned Subsidiary of its capital stock to its parent.
(b) Governing Documents. Amend the HII Charter or HII By-laws or
the certificate of incorporation or by- laws or comparable organizational
documents of any Retained Company.
(c) No Acquisitions. (i) Acquire or agree to acquire, by merging
or consolidating with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any other manner, any property or
business or (ii) make or agree to make any other investment in any person
(whether by means of loan, capital contribution, purchase of capital stock or
other securities or otherwise) that would be part of the Retained Business,
except for acquisitions or investments by HII pursuant to the existing
contractual obligations listed in Schedule 7.01(c) or investments in any entity
that was a Retained Business before giving effect to such investment.
(d) No Dispositions. Sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or otherwise dispose of,
any of the assets of the Retained Business other than in the ordinary course of
business consistent with past practice or pursuant to the existing contractual
commitments and other arrangements, each as listed in Schedule 7.01(d).
(e) Benefit Plans. Except as required by Law, (i) adopt any plan,
arrangement or policy which would become an Employee Plan or amend an Employee
Plan to the extent such adoption or amendment would create or increase any
liability or obligation on the part of the Retained Business that will not
either (A) be fully performed or satisfied prior to the Effective Time or (B)
be assumed by New Spinco or one of its Subsidiaries pursuant to the
Contribution Agreement or (ii) adopt any increase in or establishment of any
bonus, insurance, welfare, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including without limitation the
granting of stock options, stock appreciation rights performance awards or
restricted stock awards) or stock purchase rights or plans.
(f) Pay Increases. Other than in the ordinary course of the
Retained Business consistent with past practices, (i) grant any increases in
the base compensation of any Retained Companies' Employee except for increases
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in the base compensation of any Retained Companies' Employees scheduled to go
into effect on January 1, 1997 as previously provided to Acquiror or (ii) pay
or agree to pay any pension, retirement allowance or other employee benefit not
required by any of the Employee Plans as in effect on the date hereof to any
Retained Companies' Employee.
(g) Liens. Create, incur, suffer to exist or assume any Lien on
the Retained Assets, except for Permitted Liens.
(h) Tax-Free Contribution, Exchange and Merger. Take or cause to
be taken prior to the Effective Time any action that would disqualify the
Contribution and the Exchange from being treated as a "reorganization" within
the meaning of Section 368(a)(1)(D) of the Code or the Exchange from being
treated as tax-free under Section 355 of the Code or the Merger from being
treated as a "reorganization" within the meaning of Section 368(a)(1)(A) of the
Code.
(i) Representation and Warranties. Take or agree or commit to
take any action that would make any representation and warranty of HII or HC
hereunder inaccurate in any material respect at, or as of any time prior to,
the Effective Time.
(j) The Contribution Agreement. Terminate, amend, modify or waive
compliance with any of the terms or conditions of the Contribution Agreement
directly or indirectly affecting the Retained Assets or the Retained
Liabilities or affecting the rights or obligations of HII thereunder from and
after the Effective Time.
(k) Certain Transactions. Adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of HII or any of the other Retained
Companies (other than the Contribution, the Exchange and the Merger).
(l) Certain Contracts. Enter into any contract providing for
acceleration of payment of any liability or performance of any benefit or
payment or other consequence as a result of a change of control of HII or any
of the Retained Companies or enter into any contract, arrangement or
understanding requiring the lease or purchase of equipment, materials, supplies
or services over a period greater than 12 months, which is not cancelable
without penalty on 30 days' or less notice or involves the payment by HII or
any of the Retained Companies of more than $100,000 unless such purchase or
lease is necessary to correct, on an emergency basis, any condition that could
be reasonably expected to affect adversely the life, safety or health of the
customers and employees of the Retained Business.
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(m) Other Actions. Enter into any contract, agreement, commitment
or arrangement, or take any corporate or other action, to do any of the
foregoing.
(B) Without limiting the generality or effect of the above, and
except as otherwise expressly provided in this Agreement or the Contribution
Agreement, prior to the Effective Time, HII will, and will cause the other
Retained Companies to:
(a) Further Covenants. (i) Prepare and timely file with the
relevant Taxing Authority all material Pre- Effective Returns; (ii) promptly
notify Acquiror of any action, suit, proceeding, claim or audit pending against
or with respect to the Retained Companies in respect of any Taxes where there
is a reasonable possibility of a determination or decision which would
materially increase the Tax liabilities of any of the Retained Companies (other
than Taxes for which New Spinco has assumed liability under the Contribution
Agreement); and (iii) not, without the prior written consent of Acquiror,
change any of the Tax elections, accounting methods, conventions or principles
which relate to the Retained Business that has the effect of increasing the
Retained Liabilities of the Retained Companies.
(b) Maintenance of Properties. Continue to maintain and repair
all property material to the operation of the Retained Business in a manner
consistent with past practice.
(c) Asset Purchase Agreements. Use its reasonable efforts to
cause the Asset Purchase Agreements to become effective and to cause the
closing of each Asset Purchase Agreement to take place simultaneously with the
closing of this Agreement.
(d) IRS Ruling. To obtain as promptly as possible (i) an advance
letter ruling from the Internal Revenue Service (the "IRS") in response to the
HII ruling request submitted to the IRS on November 12, 1996, to the effect
that the Contribution and Exchange will be a "reorganization" within the
meaning of Section 368(a)(1)(D) of the Code and will be tax-free under Section
355 of the Code (the "IRS RULING") and (ii) an opinion of Davis Polk & Wardwell
to the effect that the Merger constitutes a tax-free reorganization under
Section 368(a)(1)(A) of the Code in which no gain or loss is recognized.
(e) Representation Letter. To deliver to Acquiror a
representation letter substantially in the form of the HC representation letter
attached hereto as Schedule 5.12(e).
(f) Drop-down; Consents. Use its reasonable efforts to cooperate
with Acquiror to (i) contribute certain of the Retained Assets to one or more
wholly owned Subsidiaries of HII and (ii) obtain certain consents,
subordination and/or estoppel agreements with respect to ground leases, Joint
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Venture agreements, Management Agreements and other material contracts as
required by Acquiror's lenders in connection with the Transactions; provided
that HII will not be required to incur any expense, obligation or liability in
connection with such efforts.
SECTION 7.02. Notices of Certain Events. HII and HC shall promptly
notify Acquiror of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with the
Transactions, other than consents, the failure of which to obtain would not
have a Retained Companies Material Adverse Effect;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by the Transaction Documents;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or involving or
otherwise affecting the Retained Business which, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
5.11 or which relate to the consummation of the transactions contemplated by
this Agreement; and
(d) any fact, event or circumstance which makes any representation
or warranty of the Holiday Parties herein untrue or incorrect in any material
respect or involves a breach of any covenant herein of the Holiday Parties.
SECTION 7.03. Liquor and Other Licenses. (a) The Holiday Parties
shall cooperate, and prior to the Effective Time shall cause the Retained
Business to cooperate, with Acquiror in connection with obtaining the
regulatory approvals of the transactions contemplated by this Agreement as may
be required by any Governmental Entities administering laws regulating the sale
of alcoholic beverages, including but not limited to Acquiror obtaining, by
transfer or otherwise, such approvals for, and/or the issuance of all liquor,
cabaret and other federal, state and local licenses necessary to maintain the
continuity of service of alcoholic beverages. If any such regulatory approval
or license issuances shall not be obtained by Acquiror prior to the Effective
Time, HC shall, after the Effective Time, cooperate with Acquiror, at
Acquiror's sole expense, to maintain continuity of the liquor service as well
as the continuity of the same forms of business operations conducted at, in or
upon each property by the Retained Companies or Acquiror and its Subsidiaries
immediately before the Effective Time. Nothing herein shall require any holder
of any liquor, cabaret or other federal, state or local license to permit any
unlicensed person to unlawfully exercise any privilege under such license or to
have any unlawful interest in liquor inventory or in revenues from any business
operated under such license.
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(b) After the Effective Time, the Holiday Parties and Acquiror
shall communicate and cooperate regarding the application of alcoholic beverage
laws to Acquiror's business and the businesses of the Holiday Parties and their
Affiliates.
SECTION 7.04. Financial Statements. HC will cause to be
delivered to Acquiror as promptly as practicable the financial statements of
the Carve-out Business required to be filed in the Proxy Statement together
with an unqualified opinion of Deloitte & Touche thereon (the "FINANCIAL
STATEMENTS"). The Financial Statements will be prepared in accordance with
GAAP, consistently applied, and present fairly, in all material respects, the
financial position and results of operations for the Carve-out Business as of
and for the periods set forth therein.
ARTICLE 8
COVENANTS OF ACQUIROR
SECTION 8.01. Conduct of Acquiror. (A) During the period from the
date of this Agreement and continuing until the Effective Time, Acquiror agrees
as to itself and its Subsidiaries that, except as otherwise contemplated by the
Transaction Documents or agreed by HC and Acquiror, Acquiror will, and will
cause each of its Subsidiaries to, conduct the business of Acquiror in the
ordinary course thereof consistent with past practice and in compliance in all
material respects with all applicable Laws and Permits and, to the extent
consistent therewith, use reasonable efforts to (a) preserve intact the
business of Acquiror and each of its Subsidiaries, (b) to keep available the
services of their current officers and other key employees, and (c) preserve
their relationships with those Persons having business dealings with them to
the end that their goodwill and ongoing businesses will be unimpaired at the
Effective Time (as used hereafter in this Article 8, "Acquiror" means "Acquiror
and its Subsidiaries"). Without limiting the generality or effect of the
foregoing, and except as aforesaid or as otherwise expressly provided in this
Agreement or the Contribution Agreement, prior to the Effective Time, Acquiror
will not:
(a) Issuance of Securities. Issue, transfer, sell, dispose of, or
pledge, or authorize or agree to the issuance, transfer, sale or disposition or
pledge by Acquiror (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) of , any
shares of capital stock or any voting securities of Acquiror, or any options or
other securities convertible into or exchangeable for any such shares of
capital stock or any voting securities of Acquiror or amend any of the terms of
any such securities or agreements relating to such capital stock outstanding on
the date hereof, other than pursuant to employee or director plans filed as
exhibits to Acquiror SEC Documents or the issuance, transfer, sale or
disposition by a wholly-owned Subsidiary of its capital stock to its parent.
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(b) Governing Documents. Amend Acquiror's charter or by-laws or
comparable organizational documents.
(c) Debt. Debt of Acquiror, determined on a consolidated basis,
shall not prior to the Effective Time be in excess of the indebtedness
permitted to be incurred by Acquiror pursuant to the Term Credit Agreement,
dated December 12, 1995, among Bristol Hotel Asset Company, Bankers Trust
Company, as agent, and the lenders party thereto (the "EXISTING ACQUIROR CREDIT
AGREEMENT"), without giving effect to any amendment, modification or waiver
thereof or thereunder, plus $25 million aggregate principal amount of
additional indebtedness at any time outstanding.
(d) No Dispositions. Sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or otherwise dispose of,
any of Acquiror's hotels other than pursuant to the existing contractual
commitments or other arrangements, each as listed in Schedule 8.01(d).
(e) Representation and Warranties. Take or agree or commit to
take any action that would make any representation and warranty of Acquiror
hereunder inaccurate in any material respect at, or as of any time prior to,
the Effective Time.
(f) Accounting Principles. Change any of its accounting
principles, except as may be required by GAAP.
(g) Other Actions. Enter into any contract, agreement, commitment
or arrangement, or take any corporate or other action, to do any of the
foregoing.
Notwithstanding the foregoing, Acquiror may take any action that
otherwise would be prohibited under this Section 8.01(A), (i) if such action
could not reasonably be expected to involve the expenditure or incurrence of
obligations of more than $25 million, (ii) if, in the case of any action
referred to in subsection 8.01(d) above, the proceeds for the hotel to be
disposed of, which when added to the proceeds received for hotels the
disposition of which would be prohibited by subsection 8.01(d), is less than
$25 million, or (iii) with the prior written consent of HC.
SECTION 8.02. Notices of Certain Events. Acquiror shall promptly
notify HC and HII of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with the
Transactions, other than consents, the failure of which to obtain would not
have an Acquiror Material Adverse Effect;
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(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by the Transaction Documents;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or involving or
otherwise affecting the Retained Business which, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
6.11 or which relate to the consummation of the transactions contemplated by
this Agreement; and
(d) any fact, event or circumstance which makes any representation
or warranty of Acquiror herein untrue or incorrect in any material respect or
involves a breach of any covenant herein of Acquiror.
SECTION 8.03. Tax-Free Contribution, Exchange and Merger. (a) (i)
Prior to the Effective Time, each of HC, HII and Acquiror will not, and will
not permit any of its respective Affiliates to, and (ii) thereafter Acquiror
(to the extent of actual knowledge of likely disqualification), will not, and
will not permit any of its respective Affiliates (other than HC and its
Affiliates, which shall not be considered Affiliates of Acquiror for purposes
of this Section 8.03) to take or cause or permit to be taken, any action that
would disqualify the Contribution and the Exchange from being treated as a
"reorganization" within the meaning of Section 368(a)(1)(D) of the Code or the
Exchange from being treated as tax-free under Section 355 of the Code or the
Merger from being treated as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Code. During the one-year period after the Effective Time:
(i) Acquiror shall continue or cause to be continued the
historic business of HII within the meaning of Treasury Regulations
Section 1.368-1(d) and not sell, transfer, distribute or otherwise
dispose of a significant portion (within the meaning of Treasury
Regulations Section 1.3681-(d)) of the Hotels, except that Acquiror
may contribute some of or all of the Hotels to one or more a wholly
owned subsidiaries if such contributions do not give rise to the
recognition of gain under Section 351 of the Code and otherwise
qualifies under Section 368(a)(2)(C) of the Code; and
(ii) Acquiror shall not adopt a plan of liquidation or
initiate and enter into an agreement of merger, a redemption or other
transaction pursuant to which the corporate legal existence of
Acquiror would terminate or the outstanding stock of Acquiror would,
in a taxable transaction, be converted into cash, other property or
the stock or securities of any other issuer,
unless Acquiror first obtains an opinion, in form and substance satisfactory to
HC, of Jones, Day, Reavis & Pogue or other nationally recognized tax counsel
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satisfactory to HC, to the effect that the proposed action will not result in
the Exchange or the Merger failing to qualify for tax-free treatment under
Sections 368(a)(1)(D) and 355 of the Code and Section 368(a)(1)(A) of the Code,
respectively.
(b) Acquiror shall reasonably cooperate with, as and to the extent
reasonably requested by HII, in connection with the obtaining of (i) the
advance letter ruling from the IRS in response to the ruling request submitted
to the IRS on November 12, 1996 to the effect that the Contribution and
Exchange will be a "reorganization" within the meaning of Section 368(a)(1)(D)
of the Code and will be tax-free under Section 355 of the Code, and (ii) an
opinion of Davis Polk & Wardwell to the effect that the Merger constitutes a
tax-free reorganization under Section 368(a)(1)(A) of the Code.
(c) Acquiror shall provide to HII a representation letter
substantially in the form of Acquiror representation letter attached hereto as
Schedule 6.12(a).
SECTION 8.04. HII Names. Acquiror understands that the names "Holiday
Inn" and "Crowne Plaza" are the names applied to the international system of
hotels operated or licensed by HII and/or its affiliates and defined as the
"System" in the Franchise Agreements. Acquiror recognizes the exclusive right
of HII and, following the Effective Time, New Spinco and its permitted assigns
to the System, including the names "Holiday Inn" and "Crowne Plaza" and all
service marks, trademarks, copyrights, trade names, patents or other trade
registrations now or hereafter held or applied for in connection therewith, and
hereby disclaims any right, title or interest therein, regardless of the legal
protection afforded the service marks, trademarks, patents, trade names,
copyrighted items or other trade registrations of HII and, following the
Effective Time, New Spinco and its permitted assigns. Acquiror agrees not to
use the names "Holiday Inn" and "Crowne Plaza", the words "Holiday" or "Bass"
or any combination or any variation of such names or words, or any other
trademarks, trade names, service marks, patents, copyrighted items or other
trade registrations of HII, HC or any parent, Subsidiary (direct or indirect)
or related entity, or any of their permitted assigns, in connection with the
operation of any Hotel or any hotel listed on Schedule 9.07(2) except in
accordance with and subject to the terms and conditions of the Franchise
Agreement relating to such Hotel or hotel. Accordingly, and notwithstanding any
other provisions hereof, prior to the Effective Time, HC will change the name
of each Retained Company the name of which includes the word "Holiday," "Crowne
Plaza" or "Bass", so that the name of such Retained Company no longer includes
such word.
SECTION 8.05. Employee Communications. Prior to the Effective Time,
HII and Acquiror shall each use their reasonable efforts to cooperate in making
any required communications with Transferred Employees with respect
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to employee benefit plans maintained by HII or Acquiror and with respect to
other matters arising in connection with the Merger.
ARTICLE 9
COVENANTS OF ACQUIROR, HC AND HII
The parties hereto agree that:
SECTION 9.01. Access to Information. From the date hereof until the
Effective Time, each of the parties hereto will give the other party, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to its and its Subsidiaries'
offices, properties, books and records, will furnish to the other party such
financial and operating data and other information as such Persons may
reasonably request and as is reasonably related to the Transactions and will
instruct their respective employees, counsel and financial advisors to
cooperate with the other party in its investigation of the business of HII and
the other Retained Companies or Acquiror and its Subsidiaries, as applicable.
Any information exchanged among the parties pursuant to this Section 9.01 shall
be subject to the terms of the Confidentiality Agreement. As this Section 9.01
applies to HC and HII, such parties need not provide any information relating
to their respective franchising businesses unless (i) access to such
information is reasonable under the circumstances (as determined by HC or HII,
as the case may be, in good faith), and (ii) such information relates directly
to the Retained Business. Acquiror agrees that in no event shall the
above-described access to information include the right to perform any soil,
groundwater or other physical sampling or testing without the prior written
consent of HC, which consent shall not be unreasonably withheld or delayed.
SECTION 9.02. Reasonable Efforts. Subject to the terms and conditions
of this Agreement, each party will use its reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
Transactions, including without limitation all actions necessary, proper and
advisable to ensure that each Management Agreement or interest in a Joint
Venture to which any Retained Company is a party is, if required, assigned to
Acquiror; provided, however, that in connection with the foregoing neither
Acquiror nor any of its Subsidiaries will be required to commit to any
divestiture or hold separate or similar transaction and otherwise take or
commit to take any action, in each case, that materially limits its freedom of
action with respect to, or its ability to retain, HII or any of the other
Retained Companies or any material portion of the assets (including without
limitation the Hotels) of the Retained Companies existing and material
businesses or assets (as of the date hereof) of Acquiror or any of Acquiror's
Subsidiaries.
(B) Without limiting the generality or effect of the above, and
except as otherwise expressly provided in this Agreement, prior to February 7,
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1997, HC and Acquiror shall negotiate in good faith and use their reasonable
efforts to agree upon the forms of (i) the Asset Purchase Agreements and (ii)
the Contingency Agreement.
SECTION 9.03. Certain Filings. (a) Acquiror shall use reasonable
efforts to prepare and file promptly with the SEC a preliminary proxy
statement.
(b) HII, HC and Acquiror shall cooperate with each other and
provide to each other all information necessary in order to prepare the Proxy
Statement and any other required filings. The information provided by HII, HC
and Acquiror for use in the Proxy Statement and such other filings shall at all
times prior to the Effective Time be true and correct in all material respects
and shall not omit to state any material fact required to be stated therein or
necessary in order to make such information not false or misleading. Each such
filing shall, when filed with the SEC or any other Governmental Entity, comply
in all material respects with all applicable requirements of law.
SECTION 9.04. Public Announcements. Acquiror, HC and HII will consult
and agree, such agreement not to be unreasonably withheld, with each other
before (i) with respect to any date between the Effective Time and the first
anniversary of the Effective Time, issuing any press release relating to the
Transactions or (ii) with respect to any date between the date hereof and the
Effective Time, issuing any press release or making any public statement
relating to the Transactions and, except as may be required by applicable law,
Governmental Entity or any securities exchange, will not issue any such press
release or make any such public statement prior to such consultation and
agreement.
SECTION 9.05. Further Assurances. At and after the Effective Time,
the officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of HII, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf
of HII, any other actions and things reasonably necessary to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets of
HII acquired or to be acquired by the Surviving Corporation as a result of, or
in connection with, the Merger.
SECTION 9.06. Meetings of Stockholders. Acquiror shall take all
action necessary, in accordance with applicable law and its charter and bylaws,
to duly call, give notice of, convene and hold a meeting of its stockholders to
consider and vote upon the adoption of this Agreement and the issuance of
Acquiror Stock in the Merger. The stockholder vote required for the adoption
and approval of such transactions shall be the vote required by the DGCL and
Acquiror's certificate of incorporation.
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SECTION 9.07. Franchise Agreements. At the Effective Time, HIFI and
Acquiror, or a Subsidiary of Acquiror reasonably acceptable to HIFI, shall
enter into Franchise Agreements with respect to the Hotels identified on
Schedule 9.07(1). At the Effective Time, HIFI and Acquiror, or a Subsidiary of
Acquiror reasonably acceptable to HIFI, shall also have entered into Franchise
Agreements with respect to the conversion of the properties identified on
Schedule 9.07(2) to the brands listed on Schedule 9.07(2).
SECTION 9.08. Certain Contracts. HC and Acquiror shall use their
reasonable good faith efforts to negotiate with the parties to each of the
contracts listed on Schedule 9.08 with a view toward securing and equitably
allocating the benefits originally contemplated by HII to be derived from such
contracts.
SECTION 9.09. Environmental and Structural Matters. (a) HC agrees
that, during the 80 calendar days following the date hereof, Acquiror may, at
its own cost and expense, perform Phase I environmental audits and/or
engineering audits of the Hotels owned by the Joint Ventures and of the Hotels
which are owned or leased by the Retained Companies. Such audits shall be
performed by an independent third party consultant reasonably satisfactory to
HC, and shall be provided to HC in the form of a written report or reports
(each an "INITIAL REPORT") within 5 days after Acquiror's receipt thereof. To
the extent recommended in such Phase I environmental audits or structural
audits and with the prior written consent of HC, which consent will not be
unreasonably withheld or delayed, Acquiror may conduct Phase II environmental
audits and other follow-up testing and investigations prior to the Effective
Time and Acquiror agrees to provide to HC, promptly after Acquiror's receipt
thereof, but in no event later than five days after the receipt thereof, the
results of such audits, testing or investigation.
(b) If HC determines in good faith that any recommendation or cost
estimate in any Initial Report is erroneous, HC may, at its own cost and
expense, retain an independent third party consultant, which consultant is
listed on Bankers Trust Company's list of approved consultants, to review such
Initial Reports and, if applicable, any Phase II or other reports prepared as
permitted in clause (a) above. If HC delivers to Acquiror, within 10 days
following the date HC received the Initial Report or, if applicable, any
subsequent Acquiror Reports, a report or reports (each an "HC REPORT") setting
forth such consultant's maximum estimated cost of repairing or remediating any
violation of an Environmental Law, any violation of a Building Code, or any
other Structural Deficiency, then the "FINAL ESTIMATED COST" with respect to
each such matter shall be deemed to be such consultant's maximum estimated cost
set forth in the HC Report. With respect to any matter for which a cost
estimate is identified in the Initial Report and with respect to which HC does
not object as provided above, then the maximum estimated cost set forth in the
Initial Report shall be deemed to be the Final Estimated Cost for such matter.
Acquiror and HC agree to cooperate in
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preparing any such reports and to provide each other with reasonably available
information relating to such reports.
ARTICLE 10
EMPLOYEE BENEFITS
SECTION 10.01. Maintenance of Benefits. (a) For a period of 12 months
following the Effective Time, Acquiror shall, subject to the following
provisions of this paragraph, (i) provide Retained Companies' Employees with
the same base pay levels and comparable long-term and short-term incentive
compensation bonus opportunities as were in place immediately prior (x) to the
date hereof, to the extent such pay levels and bonus opportunities were
modified between the date hereof and the Effective Time other than in
accordance with this Agreement and (y) to the Effective Time, to the extent
such pay levels and bonus plans were not modified after the date hereof or were
modified after the date hereof in accordance with this Agreement and (ii)
provide the Retained Companies' Employees with compensation and benefits
comparable to the Savings Plan, the Group Health Plans, the Nonqualified Plans
and the Additional Welfare Plans for the benefit of those Retained Companies'
Employees who participated in such plans immediately prior to the Effective
Time. Not less than 30 days after the date hereof, Acquiror shall deliver to
the Finance Director of Bass plc a written analysis of the comparability of the
various benefits noted in subsection (ii) above, together with a proposal for
Acquiror to provide to Retained Companies' Employees additional compensation
and/or benefits if required to ensure comparability. If the comparability of
the various benefits referred to in the preceding sentence is approved by the
Finance Director of Bass plc, such benefits will be deemed to be comparable
with those provided to Retained Companies' Employees prior to the Effective
Time. If such benefits are not so approved, Acquiror may provide such benefits
to Retained Companies' Employees as it shall determine; provided, however, that
such benefits shall be comparable in the aggregate to those provided to
Retained Companies' Employees prior to the Effective Time. It is understood
that in providing such comparable benefits Acquiror shall utilize additional
cash compensation if it determines not to amend or otherwise revise benefits
under an Acquiror Benefit Arrangement or Employee Plan. Notwithstanding any
other provision hereof, (x) nothing herein will confer third-party beneficiary
rights on any individual Retained Companies' Employee or group of Retained
Companies' Employees, (y) nothing herein will prohibit Acquiror from
substituting any compensation or benefit plan, program, arrangement or
structure for Retained Companies' Employees so long as such Retained Companies'
Employees are treated on substantially the same basis as similarly situated
employees of Acquiror and its Subsidiaries prior to the Merger, provided that
comparability of the various benefits noted in subsection (ii) above is
maintained and (z) nothing herein will limit Acquiror's or its Subsidiaries'
rights to terminate the employment of any Retained Companies' Employee as of or
following the Effective Time.
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(b) Acquiror will give the Retained Companies' Employees full
credit for purposes of eligibility and vesting under any plans or arrangements
maintained by Acquiror for such employees' service recognized for such purposes
under the Employee Plans and Benefit Arrangements listed on Schedule 10.01(b).
All Acquiror Employee Plans and Benefit Arrangements shall (i) recognize all
service with HII for eligibility purposes, (ii) waive all pre-existing
condition exclusions for all eligible Retained Companies' Employees and (iii)
credit each such Retained Companies' Employee for purposes of deductible limits
with amounts so credited with respect to that portion of the calendar year
preceding the Effective Time.
SECTION 10.02. Severance Obligations. New Spinco shall be responsible
for making all severance payments and making all required filings and
withholdings relating thereto, pursuant to the current Holiday Inns, Inc. Human
Resource severance policy ("SEVERANCE PAYMENTS") due those Core Employees who
(i) are not employees of New Spinco or any Affiliate thereof six months after
the Effective Time and (ii) who have not accepted employment with Acquiror or
any Affiliate thereof after the Effective Time (an "AFFECTED EMPLOYEE") at
substantially the same compensation rate as noted in Section 10.01(a)(i) above;
provided that Acquiror shall, not later than 10 days following the date
Severance Payments are made by New Spinco, (i) reimburse New Spinco for 50% of
the actual severance paid to severed Core Employees; provided that the total
amount of reimbursements pursuant to this clause (i) shall not exceed $625,000
and (ii) reimburse New Spinco for 100% of any payments in respect of accrued
and unused vacation paid to Affected Employees and not reflected in the Working
Capital Statement. Acquiror and New Spinco agree to treat any payment made to
New Spinco pursuant to the preceding sentence as a reimbursement for severance
payments made by New Spinco on behalf of Acquiror.
SECTION 10.03. Savings Plan. (a) Effective as of the Effective Time,
HC shall cause New Spinco to take all action required or deemed appropriate to
cause New Spinco to adopt and become the sponsor of and the employer under, and
to assume the obligations with respect to the New Spinco Employees under, the
Savings Plan and to amend the Savings Plan to cause the active participation of
the Retained Companies' Employees therein to cease as of the Effective Time.
(b) Effective as of the Effective Time, Acquiror shall establish
or designate a defined contribution retirement plan, which shall be qualified
under Section 401(a) and 401(k) of the Code (the "RETAINED COMPANIES' SAVINGS
PLAN") covering the Retained Companies' Employees.
(c) As soon as practicable after the Effective Time, following
receipt by Acquiror of a favorable determination letter, or Acquiror's
certification to New Spinco in a manner reasonably acceptable to New Spinco,
that the Retained Companies' Savings Plan is qualified under the applicable
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provisions of the Code, HC shall cause the trustee of the Savings Plan to
transfer in respect of the account balances of the Retained Companies'
Employees assets in cash or in kind, as the trustee shall determine, valued as
of the date of transfer, to the trustee of the Retained Companies' Savings
Plan. Following such transfer of accounts, (i) New Spinco shall have no
further liability whatsoever (either under this Agreement or otherwise) with
respect to participants in the Retained Companies' Savings Plan and (ii)
Acquiror shall have no further liability whatsoever (either under this
Agreement or otherwise) with respect to participants in the Savings Plan. HC
and Acquiror shall each use reasonable efforts to effect the account transfers
contemplated in this Section 10.03 as soon as practicable after the Effective
Time.
(d) Notwithstanding the foregoing, if Acquiror cannot reasonably
implement the Retained Companies' Savings Plan prior to the Effective Time, New
Spinco shall allow Acquiror to adopt the Savings Plan as a participating
employer for up to a 90 day period. During that period thereafter, Acquiror
will make contributions thereto for or on behalf of Retained Companies'
Employees in accordance with the terms thereof and pay its share of expenses
related thereto based on the ratio that the number of Retained Companies'
Employees participating therein bear to the total number of participants in the
Savings Plan during such period in accordance with the terms thereof.
SECTION 10.04. Nonqualified Plans. Effective as of the Effective
Time, HC shall cause New Spinco to take all actions required or deemed
appropriate to cause New Spinco to become the sponsor of and the employer
under, and to assume the obligations with respect to the New Spinco Employees
under, the Nonqualified Plans. All liabilities of HII with respect to the New
Spinco Employees under the Nonqualified Plans shall be Contributed Liabilities
and not Retained Liabilities and all rights of HII with respect to New Spinco
Employees under the Nonqualified Plans and all insurance policies, contracts
and agreements and all contracts, arrangements and agreements with other
providers and service organizations pursuant to the Nonqualified Plans shall be
Contributed Assets and not Retained Assets. The assumption of the sponsorship
and liabilities and rights under the Nonqualified Plan by New Spinco shall not
constitute a termination of employment for the New Spinco Employees pursuant to
the provisions of the plan. All obligations and liabilities under the
Nonqualified Plans other than those liabilities and obligations described in
this Section 10.04 shall be Retained Liabilities. All participants in the
Nonqualified Plans shall be vested in their accrued benefits thereunder,
effective as of the Effective Time.
SECTION 10.05. Group Health Plans; Workers' Compensation. Effective
as of the Effective Time, HC shall cause New Spinco to take all actions
required or deemed appropriate to cause New Spinco to become the sponsor of and
the employer under, and to assume the obligations of HII with respect to the
New Spinco Employees under the Group Health Plans. All such Group Health Plans
and all rights of HII thereunder shall be Contributed
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Assets and not Retained Assets. With respect to the Retained Companies'
Employees, HC shall cause New Spinco to assume responsibility for and continue
to pay all expenses and benefits with respect to (i) claims incurred prior to
the Effective Time under the Group Health Plans and (ii) workers compensation
claims with respect to events occurring prior to the Effective Time.
Notwithstanding the foregoing, with respect to any Retained Companies' Employee
or his or her covered dependents who enters a hospital or is on long-term
disability under any Group Health Plan on or prior to the Effective Time and
continues in a hospital or on long-term disability after the Effective Time, HC
shall cause New Spinco to assume responsibility for claims and expenses
incurred both before and after the Effective Time in connection with such
person, to the extent that such claims and expenses are covered by the Group
Health Plan, until such time (if any) that such employee assumes full-time
employment with Acquiror and, in the case of any covered dependent, such
person's hospitalization has terminated; provided that, with respect to
maternity leave and any extraordinary expenses relating to a newborn child,
Acquiror shall reimburse HC for such claims incurred after the Effective Time.
For purposes of this paragraph, a medical, dental, workers' compensation or
similar claim is deemed incurred when the services that are the subject of the
claim are performed.
SECTION 10.06. Executive Medical and Dental Plan. Effective as of the
Effective Time, HC shall cause New Spinco to take all actions required or
deemed appropriate to cause New Spinco to become the sponsor of and the
employer under, and to assume the obligations of HII with respect to the
Executive Medical and Dental Plan (the "EXECUTIVE MEDICAL PLAN"). Such
Executive Medical Plan and all rights of HII thereunder shall be Contributed
Assets and not Retained Assets.
SECTION 10.07. Severance Pay Plan. Effective as of the Effective
Time, HC shall cause New Spinco to take all actions required, or deemed
appropriate to cause New Spinco to become the sponsor of and the employer
under, and to assume the obligations of HII with respect to the New Spinco
Employees under the Severance Pay Plan.
SECTION 10.08. COBRA. New Spinco will be responsible for COBRA
Coverage for all Qualifying Events with respect to all employees (and their
covered beneficiaries) of HII and its Subsidiaries that occur prior to the
Effective Time and HII will be responsible for COBRA Coverage for all
Qualifying Events that occur with respect to Retained Companies' Employees (and
their covered beneficiaries) following the Effective Time.
SECTION 10.09. Collective Bargaining Agreements. (a) Acquiror shall,
and HC shall cause New Spinco to, take such action as may be required to cause
Acquiror to assume any and all union contracts then existing for any and all
Retained Companies' Employees who are union employees of HII. HII's obligations
under any collective bargaining agreements covering any New
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Spinco Employee shall be Contributed Liabilities, HII's rights under any such
agreement shall be Contributed Assets and New Spinco shall be the successor
employer under such collective bargaining agreements. HII's obligations under
any collective bargaining agreements covering any Retained Companies' Employee
shall be Retained Liabilities, and HII's rights under any such agreement shall
be Retained Assets.
(b) Acquiror agrees to take whatever actions are necessary to
ensure that the transactions contemplated pursuant to this agreement will not
be treated as a withdrawal resulting in any withdrawal liability of HII from
any Multiemployer Plan.
SECTION 10.10. Relocation Expenses. Acquiror shall provide relocation
benefits to each of the Retained Companies' Employees listed on Schedule 10.10,
which such list shall be finalized no later than the Effective Time, who are to
be relocated, which such benefits shall be at least equal to those benefits
provided to Acquiror's employees immediately prior to the date hereof in
accordance with Acquiror's policies.
SECTION 10.11. Vacation and Sick Leave. (a) Acquiror will adopt
vacation and sick leave policies substantially comparable to those maintained
by HII immediately prior to the Effective Time, and, to the extent fully
accrued in the Working Capital Statement, will credit all service earned by the
Retained Companies' Employees prior to the Effective Time and will accept all
liability for vacation and sick leave days accrued by the Retained Companies'
Employees as of the Effective Time; to the extent not so accrued, HC will be
liable in respect of all of the foregoing and will indemnify Acquiror and its
Affiliates in respect thereof.
(b) HC will cause New Spinco to adopt vacation and sick leave
policies comparable to those maintained by HII immediately prior to the
Effective Time, will credit all service earned by New Spinco Employees prior to
the Effective Time and will accept all liability for vacation and sick leave
days accrued by the New Spinco Employees as of the Effective Time.
SECTION 10.12. Loyalty Bonuses. New Spinco shall pay to each of the
Core Employees designated by HC and agreed to by Acquiror, a loyalty bonus
equal to 25% of the base annual salary for such employee for the period between
the date hereof and either (b) the date of such employees' date of severance or
(c) six months after the Effective Time, whichever such period is shorter.
Acquiror shall reimburse New Spinco for any loyalty bonus paid pursuant to this
Section 10.12 within 20 days from the date New Spinco makes such payment.
Acquiror and New Spinco agree to treat any payment made to New Spinco pursuant
to the preceding sentence as a reimbursement for loyalty payments made by New
Spinco on behalf of Acquiror.
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SECTION 10.13. WARN. (a) Acquiror shall not, at any time prior to 90
days after the Effective Time, effectuate a "plant closing" or "mass layoff" as
those terms are defined in the Worker Adjustment and Retraining Notification
Act of 1988 ("WARN") affecting in whole or in part any facility, site of
employment, operating unit or employee of HII without complying fully with the
requirements of WARN.
(b) HC shall not, at any time prior to 90 days after the Effective
Time, effectuate a "plant closing" or "mass layoff" as those terms are defined
in WARN affecting in whole or in part any facility, site of employment,
operating unit or employee of HII without complying fully with the requirements
of WARN.
SECTION 10.14. Cooperation. Without limiting the generality of
Articles 7 and 8 hereof, HII, Acquiror and New Spinco agree to furnish each
other promptly with such information concerning employees and employee benefit
plans, arrangements or policies as is reasonably necessary and appropriate to
effect the transactions contemplated by this Article 10.
ARTICLE 11
CONDITIONS TO THE MERGER
SECTION 11.01. Conditions to the Obligations of Each Party. The
obligations of each of HII and Acquiror to consummate the Merger are subject to
the satisfaction of the following conditions:
(a) the adoption of this Agreement and issuance of Acquiror Stock
in the Merger shall have been approved by the requisite vote of the
stockholders of Acquiror in accordance with the DGCL;
(b) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation of the
Merger or the Transactions;
(c) the transactions contemplated by Article 4, including, without
limitation, the Contribution and the Exchange, shall have been consummated in
accordance with the terms of this Agreement and the Contribution Agreement;
(d) the parties or their respective Affiliates shall have entered
into the Stockholders Agreement, the Hotel Properties Agreement and the
Registration Rights Agreement and shall also enter into the Asset Purchase
Agreements, the form of such agreements to be agreed upon by the parties prior
to February 7, 1997 and the closings under the Asset Purchase Agreements shall
have taken place simultaneously with the Closing;
(e) the parties shall have entered into the Franchise Agreements
substantially in the form attached hereto as Exhibit E; and
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(f) the waiting period under the HSR Act relating to the
Transactions shall have expired or been terminated.
SECTION 11.02. Conditions to the Obligations of HII. The obligation
of HII to consummate the Merger is subject to the satisfaction of each of the
following further conditions:
(a) Acquiror shall have performed in all material respects all
obligations required to be performed by it under the Transaction Documents at
or prior to the Effective Time, and HII shall have received a certificate
signed on behalf of Acquiror by an executive officer of Acquiror to such
effect;
(b) The representations and warranties of Acquiror contained in
this Agreement and in any certificate or other writing (including Acquiror
Representation Letter) delivered by Acquiror pursuant hereto shall be true in
all material respects at and as of the Effective Time as if made at and as of
such time (it being understood that where any such representation or warranty
already includes a Material Adverse Effect or materiality exception, no further
materiality exception is to be permitted by this Section) and HII shall have
received a certificate signed by an executive officer of Acquiror to the
foregoing effect;
(c) HII shall have determined in good faith, after considering the
advice of Davis Polk & Wardwell, that there has not occurred after the date of
this Agreement any Adverse Tax Development (as defined below) after the date
hereof that has a reasonable possibility of or will result in the imposition of
a material amount of federal income Tax to HII, New Spinco or any of their
respective Affiliates, Subsidiaries or stockholders by reason of the
Contribution, the Exchange or the Merger. "ADVERSE TAX DEVELOPMENT" means the
enactment or proposal of any legislation or any regulation or notice that would
cause the Contribution, Exchange or Merger to become taxable for federal income
tax purposes;
(d) HII shall have received (i) an advance letter ruling from the
IRS as contemplated by Section 7.01(B)(d)(i) to the effect that the
Contribution and Exchange qualify as a "reorganization" within the meaning of
Section 368(a)(1)(D) of the Code and as a tax free distribution under Section
355 of the Code and (ii) an opinion of Davis Polk & Wardwell to the effect that
the Merger constitutes a tax-free reorganization under Section 368(a)(1)(A) of
the Code in which no gain is recognized by HC or HII;
(e) No event resulting in an Acquiror Material Adverse Effect
shall have occurred; and
(f) Acquiror shall have entered into employment agreements with
Peter Kline and John Beckert previously described.
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SECTION 11.03. Conditions to the Obligations of Acquiror. The
obligation of Acquiror to consummate the Merger is subject to the satisfaction
of each of the following further conditions:
(a) Each of HII and New Spinco shall have performed in all
material respects all obligations required to be performed by it under the
Transaction Documents at or prior to the Effective Time, and Acquiror shall
have received a certificate signed on behalf of HII by an executive officer of
HII to such effect;
(b) The representations and warranties of HII contained in this
Agreement and in any certificate or other writing delivered by HII pursuant
hereto shall be true in all material respects at and as of the Effective Time
as if made at and as of such time (it being understood that where any such
representation or warranty already includes a Material Adverse Effect or
materiality exception, no further materiality exception is to be permitted by
this Section) and Acquiror shall have received a certificate signed by an
executive officer of HII to the foregoing effect;
(c) The Acquiror Required Consents listed on Schedule 11.03(c),
the failure of which to obtain could reasonably be expected to have an Acquiror
Material Adverse Effect, shall have been obtained;
(d) No event resulting in a Retained Companies Material Adverse
Effect shall have occurred;
(e) Acquiror shall have obtained the financing contemplated to be
provided to Acquiror pursuant to the Commitment Letter previously delivered to
HC;
(f) There shall not be pending or threatened any litigation,
proceeding or claim brought by any Governmental Authority seeking to enjoin the
Merger or any transaction contemplated by this Agreement seeking any hold-
separate, divestiture or other order relating thereto or to any other business
or asset of Acquiror or any Subsidiary thereof or seeking any other relief that
Acquiror reasonably determines would be materially adverse; and
(g) Bass International Holdings N.V. shall have entered into a
guarantee of the indemnity obligations of HC and New Spinco under this
Agreement and the Contribution Agreement reasonably satisfactory to Acquiror.
ARTICLE 12
SURVIVAL; INDEMNIFICATION
SECTION 12.01. Survival. The covenants, agreements, representations
and warranties of the parties hereto contained in this Agreement or in any
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certificate or other writing delivered pursuant hereto or in connection
herewith shall survive until June 1, 1998; provided that (i) except as set
forth below, the covenants and agreements contained in this Agreement shall
survive for the period set forth therein, or, if no specific period is set
forth therein, indefinitely, (ii) the representations and warranties contained
in Sections 5.10(c), 5.11, 5.12(a), (b) and (c), 5.14(a) and (b), 6.11,
6.12(c), (d) and (e) and 6.13(a) and (b) shall not survive after the Effective
Time, (iii) the representations and warranties contained in Section 5.14(c) and
6.13(c) shall survive until 40 months from the Effective Time, (v) the
representations and warranties, covenants and agreements, as the case may be,
set forth in Sections 5.12(e), 6.12(a) and 8.03(a) shall survive all applicable
statutes of limitations (including applicable extensions) and (v) the
indemnifications set forth in Section 12.02(b) shall survive until 40 months
from the Effective Time, and thereafter each HII and the Acquiror and any of
their respective Affiliates hereby waives any contribution or similar rights it
may have against HC, whether in law or in equity, with respect to Environmental
Liabilities. Notwithstanding the preceding sentence, any covenant, agreement,
representation or warranty in respect of which indemnity may be sought under
this Agreement shall survive the time at which it would otherwise terminate
pursuant to the preceding sentence, if notice of the claim for indemnity shall
have been given to the party against whom such indemnity may be sought prior to
such time.
SECTION 12.02. Indemnification. (a) HC hereby indemnifies Acquiror,
and will cause New Spinco to indemnify Acquiror jointly and severally, and,
effective at the Effective Time, without duplication, HII or any of their
respective Affiliates against and agrees to hold them harmless from any and all
Damages incurred or suffered by Acquiror, HII or any of their respective
Affiliates arising out of any misrepresentation or breach of covenant made or
to be performed by HII (prior to the Effective Time) or HC pursuant to this
Agreement; provided that (i) HC shall not be liable under this Section 12.02(a)
for any Damages relating to Taxes which are governed by Article 5 of the
Contribution Agreement, (ii) notwithstanding anything else in this Agreement or
the Contribution Agreement to the contrary, HC shall not be liable for any
Damages relating to (A) any violation of any Building Code or other Structural
Deficiency, (B) any matter identified in any Initial Report (delivered pursuant
to Section 9.09(a)) which does not relate to a violation or requirement of any
Environmental Law or Environmental Liability or (C) Structural Deficiencies or
violations of Building Codes which resulted from a breach of any covenant of
this Agreement by the Holiday Parties at any time prior to the inspection of
the Retained Real Properties pursuant to the Initial Report and (iii) no claim
may be made against HC for indemnification pursuant to this Section 12.02(a)
with respect to any Individual Item of liability or damage for breach of any
representation or warranty, unless such item exceeds $5,000 and unless the
aggregate of all such liabilities and damages of Acquiror with respect to this
Section 12.02(a), plus all liabilities and damages incurred under
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comparable provisions of the Asset Purchase Agreements, shall exceed
$1,000,000, after which HC shall be liable for the full amount of all Damages
(without regard to the foregoing threshold). "INDIVIDUAL ITEM" means an item
or series of items relating to a single event or arising out of the same
misrepresentation. Notwithstanding anything to the contrary in this Section
12.02(a) or elsewhere in this Agreement, after the Effective Time, the
representations and warranties contained in Section 5.10(d) with respect to
each Retained Real Property referred to in Section 5.10(d) shall be deemed to
exclude (and HC shall not be liable for any Damages relating to) all Liens and
other matters referred to in Section 5.10(d) with respect to such Retained Real
Property disclosed in any title commitment, report, abstract or opinion or
survey or other written notice relating to such Retained Real Property received
prior to the Effective Time by Acquiror unless Acquiror gives HC notice of such
matter promptly within a reasonable time after receiving such disclosure and
gives HC the opportunity to attempt to cure, remove or insure over the matter.
(b) HC hereby indemnifies Acquiror and, effective at the Effective
Time, without duplication, HII and any of their respective Subsidiaries against
and agrees to hold them harmless from 70% of any and all Damages incurred or
suffered by Acquiror, HII or any of their Subsidiaries arising out of events
occurring on or prior to the Effective Time at the Hotels which arise directly
and solely as a result of any violation or requirement of any Environmental Law
or Environmental Liability or obligation thereunder which was identified in
either an Initial Report or an HC Report pursuant to the terms of Section 9.09;
provided that (x) no items covered by this Section 12.02(b) may be asserted
under Section 12.02(a) and (y) HC's maximum liability under this Section
12.02(b) and the maximum Liability of certain Affiliates of HC under the
comparable indemnification provisions of the Asset Purchase Agreements shall
not in the aggregate exceed $4 million. HC shall pay any amount owed by it
under this Section 12.02(b) within 20 days of the date such amount is due.
(c) Acquiror hereby indemnifies HC, New Spinco and their
respective Affiliates (the "HOLIDAY INDEMNITEES") against and agrees to hold
them harmless from any and all Damages incurred or suffered by the Holiday
Indemnities arising out of any misrepresentation or breach of covenant made or
to be performed by Acquiror pursuant to this Agreement; provided, that no claim
may be made against Acquiror for indemnification pursuant to this Section
12.02(c) with respect to any Individual Item of liability or damage, unless
such item exceeds $5,000 and unless the aggregate of all such liabilities and
damages of the Holiday Indemnitees with respect to this Section 12.02(c), plus
all liabilities and damages incurred under comparable provisions of the Asset
Purchase Agreements, shall exceed $1,000,000 after which Acquiror shall be
liable for the full amount of the Damages (without regard to the foregoing
threshold).
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SECTION 12.03. Indemnification Procedures. (a) In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to Sections
12.02(a), (b) and (c) hereof, such Person (the "INDEMNIFIED PARTY") shall
promptly notify the Person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of
the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding; provided that the
failure of any indemnified party so to notify the indemnifying party shall not
relieve the indemnifying party of its obligations hereunder except to the
extent that the indemnifying party is actually prejudiced by such failure to
notify. In any such proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel
or (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. It is understood that
the indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all indemnified parties
and that all such fees and expenses shall be reimbursed as they are incurred.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed
the indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
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(b) In addition to and without limiting the terms of Section
12.03(a) above, with respect to any claim for indemnification made pursuant to
Section 12.02(b) hereof, the parties agree that any investigative, monitoring,
removal, remedial or other action required to address a failure to comply with
Environmental Laws shall be performed in a reasonable and cost-effective manner
and, with respect to a violation of an Environmental Law, shall be limited to
those actions required by regulatory authorities to comply with such
Environmental Law given the use of the site as of the Effective Time. Acquiror
agrees, prior to initiating any activity relating to any environmental matter
allegedly covered by Section 12.02(b), to provide HC with a reasonably detailed
description of the proposed activity and a reasonable period of time, given the
specific circumstances, to permit HC to comment on such proposed activity and
agrees to consider any such comments in good faith. Acquiror agrees to use
reasonable efforts to perform any such activities in a manner that will permit
the maximum available recovery of funds under any applicable insurance policy
or any applicable state reimbursement or similar fund, and the amount of
Damages for which indemnification would otherwise be provided under this
Agreement shall be decreased to take account of any such recovery.
ARTICLE 13
TERMINATION
SECTION 13.01. Termination. (a) This Agreement may be terminated and
the transactions contemplated hereby may be abandoned at any time prior to the
Effective Time:
(i) by mutual written consent of HC, HII and Acquiror;
(ii) by HC or HII if, at the stockholders' meetings referred to in
Section 9 (including any postponement or adjournment thereof), the Transactions
contemplated hereby that require such approval shall fail to be approved and
adopted by the affirmative vote specified therein;
(iii) by HC, HII or Acquiror, so long as the terminating party is
not then in breach of any of its obligations hereunder, after June 30, 1997 if
the Merger shall not have been consummated on or before such date;
(iv) by HC or HII, provided neither HC or HII is then in breach of
any of its obligations hereunder, if either (i) Acquiror fails to perform any
covenant in this Agreement when performance thereof is due and does not cure
the failure within twenty business days after HC or HII delivers written notice
thereof, or (ii) any condition in Section 11.02 has not been satisfied and is
not capable of being satisfied prior to June 30, 1997; and
(v) by Acquiror, provided it is not then in breach of any of its
obligations hereunder, if either (i) HII or HC fails to perform any covenant in
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this Agreement when performance thereof is due and does not cure the failure
within twenty business days after Acquiror delivers written notice thereof or
(ii) any condition in Section 11.03 has not been satisfied and is not capable
of being satisfied prior to June 30, 1997.
(b) If (i) the transactions contemplated by Article 4 have not
been consummated by virtue of the failure or non-waiver of the conditions set
forth in Section 7.01(b) of the Contribution Agreement or (ii) either of the
conditions set forth in Section 11.02(c) and (d) have not been satisfied (other
than by reason of a breach of a covenant by the relevant party) or waived by
April 30, 1997 (the "CONTINGENCY DATE"), or such earlier date if the parties
mutually determine in good faith that certain conditions cannot be met, then
the Contingency Agreement shall, without further action, become automatically
effective.
SECTION 13.02. Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 13.01 hereof, this Agreement, except for
the provisions of Section 14.04, and the confidentiality provisions of Section
9.01, shall forthwith become null and void and have no effect, without any
liability on the part of any party or its directors, officers or stockholders.
Nothing in this Section 13.02 shall, however, relieve any party to this
Agreement of liability for breach of this Agreement.
ARTICLE 14
MISCELLANEOUS
SECTION 14.01. Entire Agreement. This Agreement and the Transaction
Documents constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and supersede all prior agreements and undertakings,
both written and oral, other than the Confidentiality Agreement with respect to
the subject matter hereof and except as otherwise expressly provided herein and
therein.
SECTION 14.02. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including telecopy
or similar writing) and shall be given,
if to HC, HII (prior to the Merger) or New Spinco, to:
Holiday Corporation
Three Ravinia Drive
Suite 2900
Atlanta, Georgia 30346
Telecopy: (770) 604-5403
Attention: Senior Vice President, General Counsel
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with a copy to:
Bass plc
20 North Audley Street
London W1Y 1WE
England
Attention: Spencer Wigley
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: William Rosoff
Telecopy: (212) 450-4800
if to Acquiror, or HII (following the Merger), to:
Bristol Hotel Company
14285 Midway Road
Suite 340
Dallas, Texas 75244
Attention: Joel M. Eastman
Telecopy: (972) 687-0326
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Robert A. Profusek
Telecopy: (212) 755-7306
or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified in this
Section and the appropriate telecopy confirmation is received or (b) if given
by any other means, when delivered at the address specified in this Section.
SECTION 14.03. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by HC and HII and Acquiror or in the case of a waiver, by the party against
whom the waiver is to be effective; provided that after the adoption of this
Agreement by the stockholders of Acquiror, no such amendment or waiver shall,
without the further approval of such stockholders, alter or change (i) the
amount or kind of consideration to be received in exchange for any shares of
capital stock of HII, (ii) any term of the certificate
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of incorporation of the Surviving Corporation or (iii) any of the terms or
conditions of this Agreement if such alteration or change would adversely
affect the holders of any shares of capital stock of Acquiror.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 14.04. Expenses. Except as otherwise provided herein, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
SECTION 14.05. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto.
SECTION 14.06. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware regardless of
the laws that might otherwise govern under principles of conflict of laws
applicable thereto.
SECTION 14.07. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
SECTION 14.08. Defined Terms. Capitalized terms used but not defined
herein shall have the meanings assigned to such terms in the Contribution
Agreement.
SECTION 14.09. Schedules. Notwithstanding anything herein to the
contrary, on or prior to the Effective Time, HII and Acquiror may supplement or
amend the Schedules applicable to such party with respect to any matter arising
after the date hereof which, if existing or occurring on the date hereof would
have been required to be set forth or described in such Schedule; but no
supplement or amendment will affect the supplementing or amending party's
liabilities or obligations for any prior breach of this Agreement whether or
not the Effective Time occurs.
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SECTION 14.10. Knowledge. (a) For purposes of this Agreement, "to the
knowledge" of HII or HC shall mean actual knowledge, after reasonable inquiry
of those persons listed on Schedule 14.10(a).
(b) For purposes of this Agreement, "to the knowledge" of Acquiror
shall mean actual knowledge, after reasonable inquiry, of those persons listed
on Schedule 14.10(b).
SECTION 14.11 Consent to Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or
in connection with, this Agreement or the transactions contemplated hereby may
be brought in the Court of Chancery in the State of Delaware, and each of the
parties hereby consents to the non-exclusive jurisdiction of such court (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 14.02 shall
be deemed effective service of process on such party.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
HOLIDAY CORPORATION
By: /s/ Michael L. Goodson
------------------------
Name: Michael L. Goodson
Title: Vice President
HOLIDAY INNS, INC.
By: /s/ James L. Kacena
-----------------------
Name: James L. Kacena
Title: Vice President
BRISTOL HOTEL COMPANY
By: /s/ Joel M. Eastman
-----------------------
Name: Joel M. Eastman
Title: Vice President
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EXHIBIT I
TO MERGER AGREEMENT
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
FIRST. The name of the corporation is Bristol Hotel Company (the
"Company").
SECOND. The address of the Company's registered office in the State
of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of the Company's registered agent at such address is
The Corporation Trust Company.
THIRD. The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "DGCL").
FOURTH. Section 1. Authorized Capital Stock. The Company is
authorized to issue two classes of capital stock, designated Common Stock and
Preferred Stock. The total number of shares of capital stock that the Company
is authorized to issue is 200,000,000 shares, consisting of 150,000,000 shares
of Common Stock, par value $0.01 per share, and 50,000,000 shares of Preferred
Stock, par value $0.01 per share.
Section 2. Preferred Stock. The Preferred Stock may be issued in one
or more series. The Board of Directors of the Company (the "Board") is hereby
authorized to authorize the issuance of shares of Preferred Stock in such
series and to fix from time to time before issuance the number of shares to be
included in any such series and the designation, relative powers, preferences,
and rights and qualifications, limitations, or restrictions of all shares of
such series. The authority of the Board with respect to each such series will
include, without limiting the generality of the foregoing, the determination of
any or all of the following:
(a) the number of shares of any series and the
designation to distinguish the shares of such series from the shares
of all other series;
(b) the voting powers, if any, and whether such voting
powers are full or limited in such series;
(c) the redemption provisions, if any, applicable to such
series, including the redemption price or prices to be paid;
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(d) whether dividends, if any, will be cumulative or
noncumulative, the dividend rate of such series, and the dates and
preferences of dividends on such series;
(e) the rights of such series upon the voluntary or
involuntary dissolution of, or upon any distribution of the assets of,
the Company;
(f) the provisions, if any, pursuant to which the shares
of such series are convertible into, or exchangeable for, shares of
any other class or classes or of any other series of the same or any
other class or classes of stock, or any other security, of the Company
or any other corporation or other entity, and the price or prices or
the rates of exchange applicable thereto;
(g) the right, if any, to subscribe for or to purchase
any securities of the Company or any other corporation or other
entity;
(h) the provisions, if any, of a sinking fund applicable
to such series; and
(i) any other relative, participating, optional, or other
special powers, preferences, rights, qualifications, limitations, or
restrictions thereof;
all as may be determined from time to time by the Board and stated in the
resolution or resolutions providing for the issuance of such Preferred Stock
(collectively, a "Preferred Stock Designation").
Section 3. Common Stock. Except as may otherwise be provided in a
Preferred Stock Designation, the holders of Common Stock will be entitled to
one vote on each matter submitted to a vote at a meeting of stockholders for
each share of Common Stock held of record by such holder as of the record date
for such meeting.
FIFTH. The Board may make, amend, and repeal the By-Laws of the
Company. Any By-Law made by the Board under the powers conferred hereby may be
amended or repealed by the Board (except as specified in any such By-Law so
made or amended) or by the stockholders in the manner provided in the By-Laws
of the Company. Notwithstanding the foregoing and anything contained in this
Certificate of Incorporation to the contrary, By-Laws 1, 3, 8, 10, 11, 12, 13,
34, and 40 may not be amended or repealed by the stockholders, and no provision
inconsistent therewith may be adopted by the stockholders, without the
affirmative vote of the holders of at least 80% of the Voting Stock, voting
together as a single class. For the purposes of this Certificate of
Incorporation, "Voting Stock" means stock of the Company of any class or series
entitled to vote generally in the election of Directors.
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Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 80% of the Voting
Stock, voting together as a single class, is required to amend or repeal, or to
adopt any provision inconsistent with, this Article Fifth.
SIXTH. Subject to the rights of the holders of any series of
Preferred Stock:
(a) any action required or permitted to be taken by the
stockholders of the Company must be effected at a duly called annual
or special meeting of stockholders of the Company and may not be
effected by any consent in writing of such stockholders; and
(b) special meetings of stockholders of the Company may
be called only by (i) the Chairman of the Board (the "Chairman") or a
Vice Chairman of the Board (the "Vice Chairman"), (ii) the Secretary
of the Company (the "Secretary") within 10 calendar days after receipt
of the written request of a majority of the total number of Directors
then in office (the "Whole Board"), and (iii) as provided in By-Law 3.
At any annual meeting or special meeting of stockholders of the Company, only
such business will be conducted or considered as has been brought before such
meeting in the manner provided in the By-Laws of the Company. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of at least 80% of the Voting Stock, voting together as a
single class, is required to amend or repeal, or to adopt any provision
inconsistent with, this Article Sixth; provided, however, that if any proposed
amendment or repeal of, or adoption of provision inconsistent with, clause (b)
of the first sentence of this Article Sixth is approved by the affirmative vote
of the holders of a majority, but less than 80%, of the Voting Stock, voting
together as a single class, such proposed amendment, repeal, or adoption of an
inconsistent provision will become effective 15 months after such approval.
SEVENTH. Section 1. Number, Election, and Terms of Directors.
Subject to the rights, if any, of the holders of any series of Preferred Stock
to elect additional Directors under circumstances specified in a Preferred
Stock Designation, the number of the Directors of the Company will not be less
than three nor more than 15 and will be fixed from time to time in the manner
described in the By-Laws of the Company. Subject to the rights, if any, of the
holders of any series of Preferred Stock to elect additional Directors under
circumstances specified in a Preferred Stock Designation, Directors may be
elected by the stockholders only at an annual meeting of stockholders.
Election of Directors of the Company need not be by written ballot unless
requested by the Chairman or by the holders of a majority of the Voting Stock
present in person or represented by proxy at a meeting of the stockholders at
which Directors are to be elected. Each Director will be elected to serve
until
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his or her successor is elected and qualified.
Section 2. Nomination of Director Candidates. Advance notice of
stockholder nominations for the election of Directors must be given in the
manner provided in the By-Laws of the Company.
Section 3. Newly Created Directorships and Vacancies. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board resulting from death,
resignation, disqualification, removal, or other cause will be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board, by a sole remaining Director, or,
if there is no remaining Director, by the stockholders. Any Director elected
in accordance with the preceding sentence will hold office for the remainder of
the full term of the directorship for which such Director was so elected and
until such Director's successor has been elected and qualified. No decrease in
the number of Directors constituting the Board may shorten the term of any
incumbent Director.
Section 4. Removal. Subject to the rights, if any, of the holders of
any series of Preferred Stock in respect of the election additional Directors
under circumstances specified in a Preferred Stock Designation, any Director
may be removed from office (a) by the Board as provided in the Bylaws and (b)
by the stockholders only for cause and only in the manner provided in this
Section 4. At any annual meeting or special meeting of the stockholders, the
notice of which states that the removal of a Director or Directors is among the
purposes of the meeting, the affirmative vote of the holders of at least 80% of
the Voting Stock, voting together as a single class, may remove such Director
or Directors for cause.
Section 5. Amendment, Repeal, Etc. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of at least 80% of the Voting Stock, voting together as a single class, is
required to amend or repeal, or to adopt any provision inconsistent with, this
Article Seventh; provided, however, that if any such proposed amendment or
repeal or adoption of an inconsistent provision is approved by the affirmative
vote of the holders of a majority, but less than 80%, of the Voting Stock,
voting together as a single class, such proposed amendment, repeal, or adoption
of an inconsistent provision will become effective 15 months after such
approval.
EIGHTH. To the full extent permitted by the DGCL or any other
applicable law currently or hereafter in effect, no Director of the Company
will be personally liable to the Company or its stockholders for or with
respect to any acts or omissions in the performance of his or her duties as a
Director
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of the Company. Any repeal or modification of this Article Eighth will not
adversely affect any right or protection of a Director of the Company in
respect of any act or omission occurring in whole or in part prior to such
repeal or modification.
NINTH. Each person who is or was or had agreed to become a Director
or officer of the Company, and each such person who is or was serving or who
had agreed to serve at the request of the Board or an officer of the Company as
an employee or agent of the Company or as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
entity, whether for profit or not for profit (including the heirs, executors,
administrators, or estate of such person), will be indemnified by the Company
to the full extent permitted by the DGCL or any other applicable law as
currently or hereafter in effect. The right of indemnification provided in
this Article Ninth (a) will not be exclusive of any other rights to which any
person seeking indemnification may otherwise be entitled, including without
limitation pursuant to any contract approved by a majority of the Whole Board
(whether or not the Directors approving such contract are or are to be parties
to such contract or similar contracts) and (b) will be applicable to matters
otherwise within its scope whether or not such matters arose or arise before or
after the adoption of this Article Ninth. Without limiting the generality or
the effect of the foregoing, the Company may adopt By-Laws, or enter into one
or more agreements with any person, which provide for indemnification greater
or otherwise different than that provided in this Article Ninth or the DGCL,
and any such agreement approved by the Whole Board will be a valid and binding
obligation of the Company regardless of whether one or more members of the
Board, or all members of the Board, are parties thereto or to similar
agreements. Notwithstanding anything to the contrary in this Article Ninth, in
the event that the Company enters into a contract with any person providing for
indemnification of such person, the provisions of such contract will
exclusively govern the Company's obligations in respect of indemnification for
or advancement of fees or disbursements of such person's counsel or any other
professional engaged by such person. Any amendment or repeal of, or adoption
of any provision inconsistent with, this Article Ninth will not adversely
affect any right or protection existing hereunder, or arising out of events
occurring or circumstances existing, in whole or in part, prior to such
amendment, repeal, or adoption and no such amendment, repeal, or adoption, will
affect the legality, validity, or enforceability of any contract entered into
or right granted prior to the effective date of such amendment, repeal, or
adoption.
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EXHIBIT J
TO MERGER AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BRISTOL HOTEL COMPANY
AMENDED AND RESTATED
BYLAWS
As Adopted and in Effect
as of ___________ __, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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BRISTOL HOTEL COMPANY
AMENDED AND RESTATED
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-74
1. Time and Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-74
2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-74
3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-74
4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-74
5. Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-75
6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-75
7. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-75
8. Order of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-75
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-77
9. Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-77
10. Number and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-77
11. Vacancies and New Directorships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-77
12. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-78
13. Nominations of Directors; Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-78
14. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-79
15. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-79
16. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-79
17. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-79
18. Written Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-79
19. Participation in Meetings by Telephone Conference . . . . . . . . . . . . . . . . . . . . . . . . A-79
20. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-80
21. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-81
22. Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-81
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-81
23. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-81
24. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-82
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-82
25. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-82
26. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-82
27. Succession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-82
28. Authority and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-82
</TABLE>
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<TABLE>
<S> <C> <C>
STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-83
29. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-83
30. Classes of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-83
31. Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-83
32. Lost, Stolen, or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-83
33. Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-83
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-84
34. Damages and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-84
35. Insurance, Contracts, and Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-88
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-89
36. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-89
37. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-89
38. Reliance upon Books, Reports, and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-89
39. Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-89
40. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-89
41. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-89
</TABLE>
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STOCKHOLDERS' MEETINGS
1. Time and Place of Meetings. All meetings of the stockholders
for the election of Directors or for any other purpose will be held at such
time and place, within or without the State of Delaware, as may be designated
by the Board or, in the absence of a designation by the Board, the Chairman, or
a Vice Chairman and stated in the notice of meeting. The Board, the Chairman,
or a Vice Chairman may postpone any previously scheduled annual or special
meeting of the stockholders.
2. Annual Meeting. An annual meeting of the stockholders will be
held at such date and time as may be designated from time to time by the Board,
at which meeting the stockholders will elect by a plurality vote the Directors
to succeed those whose terms expire and will transact such other business as
may properly be brought before the meeting in accordance with Bylaw 8.
3. Special Meetings. (a) Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by law or by the
Certificate of Incorporation, may be called only by (i) the Chairman or a Vice
Chairman and (ii) the Secretary within 10 calendar days after receipt of the
written request of a majority of the Whole Board. Any such request by a
majority of the Whole Board must be sent to the Chairman and the Secretary and
must state the purpose or purposes of the proposed meeting. Special meetings
of holders of the outstanding Preferred Stock, if any, may be called in the
manner and for the purposes provided in the applicable Preferred Stock
Designation.
(b) Upon the receipt by the Company of a written request executed
by the holders of not less than a majority of the outstanding Voting Stock (a
"Meeting Request"), the Board will (i) call a special meeting of the
stockholders for any lawful purpose (which may not, however, include the
election of Directors) and (ii) fix a record date for the determination of
stockholders entitled to notice of and to vote at such meeting, which record
date will not be later than 60 calendar days after the date of receipt by the
Company of the Meeting Notice; provided, however, that no separate special
meeting of stockholders requested pursuant to a Meeting Request will be
required to be convened if (A) the Board calls an annual or special meeting of
stockholders to be held not later than 90 calendar days after receipt of such
Meeting Request and (B) the purposes of such annual or special meeting include
(among any other matters properly brought before the meeting) the purposes
specified in such Meeting Request. Notwithstanding any provision of the
Certificate of Incorporation or these Bylaws to the contrary, this Bylaw 3(b)
may not be amended or repealed by the Board, and no provision inconsistent
therewith may be adopted by the Board, without the affirmative vote of the
holders of at least a majority of the Common Stock present or represented by
proxy and entitled to vote at any annual or special meeting of stockholders at
which such vote is to be taken.
4. Notice of Meetings. Written notice of every meeting of the
stockholders, stating the place, date, and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
will be given not less than 10 nor more than 60 calendar days before the date
of the meeting to each stockholder of record entitled to vote at such meeting,
except as otherwise provided herein or by law. When a meeting is adjourned to
another place, date, or
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time, written notice need not be given of the adjourned meeting if the place,
date, and time thereof are announced at the meeting at which the adjournment is
taken; provided, however, that if the adjournment is for more than 30 calendar
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, written notice of the place, date, and time of the adjourned meeting
must be given in conformity herewith. At any adjourned meeting, any business
may be transacted which might have been transacted at the original meeting.
5. Inspectors. The Board may appoint one or more inspectors of
election to act as judges of the voting and to determine those entitled to vote
at any meeting of the stockholders, or any adjournment thereof, in advance of
such meeting. The Board may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the presiding officer of
the meeting may appoint one or more substitute inspectors.
6. Quorum. Except as otherwise provided by law or in a Preferred
Stock Designation, the holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, will constitute a quorum at all meetings of the stockholders for the
transaction of business thereat. If, however, such quorum is not present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, will have the power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present or represented.
7. Voting. Except as otherwise provided by law or in a Preferred
Stock Designation, each stockholder will be entitled at every meeting of the
stockholders to one vote for each share of stock having voting power standing
in the name of such stockholder on the books of the Company on the record date
for the meeting and such votes may be cast either in person or by written
proxy. Every proxy must be duly executed and filed with the Secretary. A
stockholder may revoke any proxy that is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary.
The vote upon any question brought before a meeting of the stockholders may be
by voice vote, unless otherwise required by these Bylaws or unless the Chairman
or the holders of a majority of the outstanding shares of all classes of stock
entitled to vote thereon present in person or by proxy at such meeting
otherwise determine. Every vote taken by written ballot will be counted by the
inspectors of election. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock which has voting power present in person
or represented by proxy and which has actually voted will decide any question
properly brought before such meeting, unless the question is one upon which by
express provision of law, the Certificate of Incorporation, a Preferred Stock
Designation, or these Bylaws, a different vote is required, in which case such
express provision will govern and control the decision of such question.
8. Order of Business. (a) The Chairman, or such other officer
of the Company designated by a majority of the Whole Board, will call meetings
of the stockholders to order and will act as presiding officer thereof. Unless
otherwise determined by the Board prior to the meeting, the presiding officer
of the meeting of
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the stockholders will also determine the order of business and have the
authority in his or her sole discretion to regulate the conduct of any such
meeting, including without limitation by imposing restrictions on the persons
(other than stockholders of the Company or their duly appointed proxies) who
may attend any such stockholders' meeting, by ascertaining whether any
stockholder or his proxy may be excluded from any meeting of the stockholders
based upon any determination by the presiding officer, in his or her sole
discretion, that any such person has unduly disrupted or is likely to disrupt
the proceedings thereat, and by determining the circumstances in which any
person may make a statement or ask questions at any meeting of the
stockholders.
(b) At an annual meeting of the stockholders, only such business
will be conducted or considered as is properly brought before the meeting. To
be properly brought before an annual meeting, business must be (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board in accordance with Bylaw 4, (ii) otherwise properly brought before
the meeting by the presiding officer or by or at the direction of a majority of
the Whole Board, or (iii) otherwise properly requested to be brought before the
meeting by a stockholder of the Company in accordance with Bylaw 8(c).
(c) For business to be properly requested by a stockholder to be
brought before an annual meeting, the stockholder must (i) be a stockholder of
the Company of record at the time of the giving of the notice for such annual
meeting provided for in these Bylaws, (ii) be entitled to vote at such meeting,
and (iii) have given timely notice thereof in writing to the Secretary. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company not less than 60 calendar days
prior to the annual meeting; provided, however, that in the event public
announcement of the date of the annual meeting is not made at least 75 calendar
days prior to the date of the annual meeting, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
calendar day following the day on which public announcement is first made of
the date of the annual meeting. A stockholder's notice to the Secretary must
set forth as to each matter the stockholder proposes to bring before the annual
meeting (A) a description in reasonable detail of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (B) the name and address, as they appear on the
Company's books, of the stockholder proposing such business and the beneficial
owner, if any, on whose behalf the proposal is made, (C) the class and number
of shares of the Company that are owned beneficially and of record by the
stockholder proposing such business and by the beneficial owner, if any, on
whose behalf the proposal is made, and (D) any material interest of such
stockholder proposing such business and the beneficial owner, if any, on whose
behalf the proposal is made in such business. Notwithstanding the foregoing
provisions of this Bylaw 8(c), a stockholder must also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Bylaw 8(c). For purposes of this Bylaw 8(c) and Bylaw 13, "public
announcement" means disclosure in a press release reported by the Dow Jones
News Service, Associated Press, or comparable national news service or in a
document publicly filed by the Company with the Securities and Exchange
Commission pursuant to Section 13, 14, or 15(d) of the Securities Exchange Act
of 1934, as amended, or furnished to stockholders. Nothing in this Bylaw 8(c)
will be deemed to affect any rights of
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stockholders to request inclusion of proposals in the Company's proxy statement
pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(d) At a special meeting of stockholders, only such business may
be conducted or considered as is properly brought before the meeting. To be
properly brought before a special meeting, business must be (i) specified in
the notice of the meeting (or any supplement thereto) given by or at the
direction of the Chairman or a Vice Chairman or a majority of the Whole Board
in accordance with Bylaw 4 or (ii) otherwise properly brought before the
meeting by the presiding officer or by or at the direction of a majority of the
Whole Board.
(e) The determination of whether any business sought to be brought
before any annual or special meeting of the stockholders is properly brought
before such meeting in accordance with this Bylaw 8 will be made by the
presiding officer of such meeting. If the presiding officer determines that
any business is not properly brought before such meeting, he or she will so
declare to the meeting and any such business will not be conducted or
considered.
DIRECTORS
9. Function. The business and affairs of the Company will be
managed under the direction of the Board.
10. Number and Term of Office. (a) Subject to the rights, if any,
of any series of Preferred Stock to elect additional Directors under
circumstances specified in a Preferred Stock Designation and to the minimum and
maximum number of authorized Directors provided in the Certificate of
Incorporation, the authorized number of Directors may be determined from time
to time by (i) a vote of a majority of the Whole Board or (ii) by the
affirmative vote of the holders of at least 80% of the Voting Stock, voting
together as a single class. Each Director will be elected to serve until his
or her successor is elected and qualified.
(b) Notwithstanding anything contained in the Certificate of
Incorporation or these Bylaws to the contrary, the term of any Director who is
also an officer of the Company will terminate automatically, without any
further action on the part of the Board or such Director, upon the termination
for any reason of such Director in his or her capacity as an officer of the
Company. Notwithstanding anything contained in the Certificate of
Incorporation or these Bylaws to the contrary, the affirmative vote of at least
80% of the Directors then in office will be required to amend, repeal, or adopt
any provision inconsistent with this Bylaw 10(b).
11. Vacancies and New Directorships. Subject to the rights, if
any, of the holders of any series of Preferred Stock to elect additional
Directors under circumstances specified in a Preferred Stock Designation,
vacancies and newly created directorships resulting from any increase in the
authorized number of Directors will be filled solely by the affirmative vote of
a majority of the remaining Directors then in office, even though less than a
quorum of the Board, or by a sole remaining Director. Any Director elected in
accordance with the preceding sentence will hold office for the remainder of
the full term of the directorship for which such Director
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was so elected and until such Director's successor is elected and qualified.
No decrease in the number of Directors constituting the Board will shorten the
term of an incumbent Director.
12. Removal. Subject to the rights, if any, of the holders of any
series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation, any Director may be removed from
office (a) by the Board with or without cause and upon the vote of a majority
of the Whole Board and (b) by the stockholders only for cause and only in the
manner provided in the Certificate of Incorporation.
13. Nominations of Directors; Election. (a) Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, only persons who are nominated in accordance with the following
procedures will be eligible for election at a meeting of stockholders as
Directors of the Company.
(b) Nominations of persons for election as Directors of the
Company may be made only at an annual meeting of stockholders (i) by or at the
direction of the Board or (ii) by any stockholder who is a stockholder of
record at the time of giving of notice provided for in this Bylaw 13, who is
entitled to vote for the election of Directors at such meeting, and who
complies with the procedures set forth in this Bylaw 13. All nominations by
stockholders must be made pursuant to timely notice in proper written form to
the Secretary.
(c) To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company not less
than 60 calendar days prior to the annual meeting of stockholders; provided,
however, that in the event that public announcement of the date of the annual
meeting is not made by the Company by inclusion in a report filed with the
Securities and Exchange Commission or furnished to stockholders, or by mail,
press release or otherwise more than 75 calendar days prior to the date of the
annual meeting, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th calendar day following the day on
which public announcement is first made of the date of the annual meeting. To
be in proper written form, such stockholder's notice must set forth or include
(i) the name and address, as they appear on the Company's books, of the
stockholder giving the notice and of the beneficial owner, if any, on whose
behalf the nomination is made; (ii) a representation that the stockholder
giving the notice is a holder of record of stock of the Company entitled to
vote at such annual meeting and intends to appear in person or by proxy at the
annual meeting to nominate the person or persons specified in the notice; (iii)
the class and number of shares of stock of the Company owned beneficially and
of record by the stockholder giving the notice and by the beneficial owner, if
any, on whose behalf the nomination is made; (iv) a description of all
arrangements or understandings between or among any of (A) the stockholder
giving the notice, (B) the beneficial owner on whose behalf the notice is
given, (C) each nominee, and (D) any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder giving the notice; (v) such other information regarding
each nominee proposed by the stockholder giving the notice as would be required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission under the Exchange Act had the
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nominee been nominated, or intended to be nominated, by the Board; and (vi) the
signed consent of each nominee to serve as a director of the Company if so
elected. At the request of the Board, any person nominated by the Board for
election as a Director must furnish to the Secretary that information required
to be set forth in a stockholder's notice of nomination which pertains to the
nominee. The presiding officer of any annual meeting will, if the facts
warrant, determine that a nomination was not made in accordance with the
procedures prescribed by this Bylaw 13, and if he or she should so determine,
he or she will so declare to the meeting and the defective nomination will be
disregarded. Notwithstanding the foregoing provisions of this Bylaw 13, a
stockholder must also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw 13.
14. Resignation. Any Director may resign at any time by giving
written notice of his resignation to the Chairman or the Secretary. Any
resignation will be effective upon actual receipt by any such person or, if
later, as of the date and time specified in such written notice.
15. Regular Meetings. Regular meetings of the Board may be held
immediately after the annual meeting of the stockholders and at such other time
and place as may from time to time be determined by the Board. Notice of
regular meetings of the Board need not be given.
16. Special Meetings. Special meetings of the Board may be called
by the Chairman or a Vice Chairman on one day's notice to each Director by whom
such notice is not waived, given either personally or by mail, telephone,
telegram, telex, facsimile, or similar medium of communication, and will be
called by the Chairman or the Vice Chairman in like manner and on like notice
on the written request of five or more Directors. Special meetings of the
Board may be held at such time and place either within or without the State of
Delaware as is determined by the Board or specified in the notice of any such
meeting.
17. Quorum. At all meetings of the Board, a majority of the total
number of Directors then in office will constitute a quorum for the transaction
of business. Except for the designation of committees as hereinafter provided
and except for actions required by these Bylaws or the Certificate of
Incorporation to be taken by a majority of the Whole Board, the act of a
majority of the Directors present at any meeting at which there is a quorum
will be the act of the Board. If a quorum is not present at any meeting of the
Board, the Directors present thereat may adjourn the meeting from time to time
to another place, time, or date, without notice other than announcement at the
meeting, until a quorum is present.
18. Written Action. Any action required or permitted to be taken
at any meeting of the Board or of any committee thereof may be taken without a
meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes or
proceedings of the Board or committee.
19. Participation in Meetings by Telephone Conference. Members of
the Board, or any committee designated by the Board, may participate in a
meeting of the Board, or any such committee, by means of telephone conference
or similar means
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by which all persons participating in the meeting can hear each other, and such
participation in a meeting will constitute presence in person at the meeting.
20. Committees. (a) The Board, by resolution passed by a majority
of the Whole Board, will designate an executive committee (the "Executive
Committee") of not less than two and not more than four members of the Board.
The Executive Committee will have and may exercise the powers of the Board,
except the power to amend these Bylaws or the Certificate of Incorporation
(except, to the extent authorized by a resolution of the Board, to fix the
designation, preferences, and other terms of any series of Preferred Stock),
adopt an agreement of merger or consolidation, authorize the issuance of stock,
declare a dividend, or recommend to the stockholders the sale, lease, or
exchange of all or substantially all of the Company's property and assets, a
dissolution of the Company, or a revocation of a dissolution, and except as
otherwise provided by law. Unless otherwise provided in the resolution
designating the Executive Committee, two-thirds of the members of the Executive
Committee will constitute a quorum for the transaction of business, and the act
of two-thirds of the members of the Executive Committee will constitute the act
of such committee.
(b) The Board, by resolution passed by a majority of the Whole
Board, will designate a finance committee (the "Finance Committee") of not less
than one nor more than four members of the Board, one of whom will be a Vice
Chairman. In the event of the inability of a Vice Chairman to attend any
meeting thereof, the Chairman may take the place at such meeting of a Vice
Chairman. The Finance Committee will have and may exercise the powers of the
Board in the oversight of the financial affairs of the Company, except the
power to amend these Bylaws or the Certificate of Incorporation (except, to the
extent authorized by a resolution of the Board, to fix the designations,
preferences and other terms of any series of Preferred Stock), adopt an
agreement of merger or consolidation, authorize the issuance of stock, declare
a dividend, or recommend to the stockholders the sale, lease, or exchange of
all or substantially all of the Company's property and assets, a dissolution of
the Company, or a revocation of a dissolution, or rescind or modify any prior
action of the Whole Board, and except as otherwise provided by law. Two-thirds
of the members of the Finance Committee will constitute a quorum for the
transaction of business, and the act of two-thirds of the members of the
Finance Committee (which must include the affirmative vote of a Vice Chairman
or, in the absence of a Vice Chairman, the Chairman) will constitute the act of
such committee.
(c) The Board, by resolution passed by a majority of the Board,
may designate one or more additional committees, each such committee to consist
of one or more Directors (which, unless otherwise prescribed by the Board, in
each case must include either the Chairman or the Vice Chairman, or both) and
each to have such lawfully delegable powers and duties as the Board may confer.
(d) The Executive Committee, the Finance Committee and each other
committee of the Board will serve at the pleasure of the Board or as may be
specified in any resolution from time to time adopted by the Board. The Board
may designate one or more Directors as alternate members of any such committee,
who may replace any absent or disqualified member at any meeting of such
committee. In lieu of such action by the Board, in the absence or
disqualification of any member of a committee of the Board, the members thereof
present at any such meeting of such committee and
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not disqualified from voting, whether or not they constitute a quorum, may, by
unanimous action, appoint another member of the Board to act at the meeting in
the place of any such absent or disqualified member.
(e) Except as otherwise provided in these Bylaws or by law, any
committee of the Board, to the extent provided in Paragraph (a) or (b) of this
Bylaw or, if applicable, in the resolution of the Board designating such
committee, will have and may exercise all the powers and authority of the Board
in the direction of the management of the business and affairs of the Company.
Any such committee designated by the Board will have such name as may be
determined from time to time by resolution adopted by the Board. Except as
provided in Paragraph (a) or (b) of this Bylaw 20 or as otherwise prescribed by
the Board, a majority of the members of any committee of the Board will
constitute a quorum for the transaction of business, and the act of a majority
of the members (which, unless otherwise prescribed by the Board, must include
the affirmative vote of the Chairman or Vice Chairman or, in the absence of the
Chairman or Vice Chairman, the person designated by the Board to take the place
of the Chairman or Vice Chairman) will be the act of such committee. Each
committee of the Board may prescribe its own rules for calling and holding
meetings and its method of procedure, subject to any rules prescribed by the
Board, and will keep a written record of all actions taken by it.
(f) A majority of the members of the Finance Committee, and all of
the members of any committee the primary responsibilities of which include (i)
reviewing the professional services to be provided by the Company's independent
auditors and the independence of such firm from the Company's management,
reviewing financial statements with management or independent auditors, and/or
reviewing internal accounting controls or (ii) reviewing and approving salaries
and other compensation, whether cash or non-cash, and benefits of the Company's
executive officers, will be directors who are not employees of the Company,
United/Harvey Holdings, L.P., Holiday Corporation, Bass America, Inc. or any
affiliate thereof. Notwithstanding any provision of the Certificate of
Incorporation or these Bylaws to the contrary, this Bylaw 20(f) may not be
amended or repealed by the Board, and no provision inconsistent therewith may
be adopted by the Board, without the affirmative vote of the holders of at
least a majority of the Common Stock present or represented by proxy and
entitled to vote at any annual or special meeting of stockholders at which such
vote is to be taken.
21. Compensation. The Board may establish such compensation for,
and reimbursement of the expenses of, Directors for membership on the Board and
on committees of the Board, attendance at meetings of the Board or committees
of the Board, or for other services by Directors to the Company or any of its
majority-owned subsidiaries, as the Board may determine.
22. Rules. The Board may adopt rules and regulations for the
conduct of its meetings and the management of the affairs of the Company.
NOTICES
23. Generally. Whenever by law or under the provisions of the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any
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Director or stockholder, it will not be construed to require personal notice,
but such notice may be given in writing, by mail, addressed to such Director or
stockholder, at his, her, or its address as it appears on the records of the
Company, with postage thereon prepaid, and such notice will be deemed to be
given at the time when the same is deposited in the United States mail. Notice
to Directors may also be given by telephone, telegram, telex, facsimile, or
similar medium of communication or as may otherwise be permitted by these
Bylaws.
24. Waivers. Whenever any notice is required to be given by law
or under the provisions of the Certificate of Incorporation or these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time of the event for which notice is to be
given, will be deemed equivalent to such notice. Attendance of a person at a
meeting will constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
OFFICERS
25. Generally. The officers of the Company will be elected by the
Board and will consist of a Chairman, a Chief Executive Officer, a President, a
Secretary, and a Treasurer. The Board may also choose any one or more Vice
Chairmen or Vice Presidents and such other officers as the Board may from time
to time determine. Notwithstanding the foregoing, by specific action the Board
may authorize the Chairman or a Vice Chairman to appoint any person to any
office other than Chairman, Vice Chairman, President, Secretary, or Treasurer.
Any number of offices may be held by the same person. Any of the offices may
be left vacant from time to time as the Board may determine. In the case of
the absence or disability of any officer of the Company or for any other reason
deemed sufficient by a majority of the Board, the Board may delegate the absent
or disabled officer's powers or duties to any other officer or to any Director.
26. Compensation. The compensation of all officers and agents of
the Company who are also Directors of the Company will be fixed by the Board or
by a committee of the Board. The Board may fix, or delegate the power to fix,
the compensation of other officers and agents of the Company to an officer of
the Company.
27. Succession. The officers of the Company will hold office
until their successors are elected and qualified. Any officer may be removed
at any time by the affirmative vote of a majority of the Whole Board. Any
vacancy occurring in any office of the Company may be filled by the Board as
provided in Bylaw 24.
28. Authority and Duties. Each of the officers of the Company
will have such authority and will perform such duties as are customarily
incident to their respective offices or as may be specified from time to time
by the Board or by the Chairman or the Vice Chairman as provided in Bylaw 24.
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STOCK
29. Certificates. Certificates representing shares of stock of
the Company will be in such form as is determined by the Board or an authorized
committee thereof, subject to applicable legal requirements. Each such
certificate will be numbered and its issuance recorded in the books of the
Company, and such certificate will exhibit the holder's name and the number of
shares and will be signed by, or in the name of, the Company by the Chairman or
a Vice Chairman and the Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer, and will also be signed by, or bear the facsimile
signature of, any properly designated transfer agent of the Company. Any or
all of the signatures and the seal of the Company, if any, upon such
certificates may be facsimiles, engraved, or printed. Such certificates may be
issued and delivered notwithstanding that the person whose facsimile signature
appears thereon may have ceased to be such officer at the time certificates are
issued and delivered.
30. Classes of Stock. The designations, preferences, and relative
participating, optional, or other special rights of the various classes of
stock or series thereof, and the qualifications, limitations, or restrictions
thereof, will be set forth in full or summarized on the face or back of the
certificates which the Company issues to represent its stock or, in lieu
thereof, such certificates will set forth the office of the Company from which
the holders of certificates may obtain a copy of such information.
31. Transfers. Upon surrender to the Company or the transfer
agent of the Company of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignment, or authority to transfer, it will
be the duty of the Company to issue, or cause its transfer agent to issue, a
new certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon its books.
32. Lost, Stolen, or Destroyed Certificates. The Secretary may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Company alleged to have
been lost, stolen, or destroyed upon the making of an affidavit of that fact,
satisfactory to the Secretary, by the person claiming the certificate of stock
to be lost, stolen, or destroyed. As a condition precedent to the issuance of
a new certificate or certificates, the Secretary may require the owners of such
lost, stolen, or destroyed certificate or certificates to give the Company a
bond in such sum and with such surety or sureties as the Secretary may direct
as indemnity against any claims that may be made against the Company with
respect to the certificate alleged to have been lost, stolen, or destroyed or
the issuance of the new certificate.
33. Record Dates. (a) In order that the Company may determine
the stockholders entitled to notice of or to vote at any meeting of stockholder
or any adjournment thereof, the Board may fix a record date, which will not be
more than 60 nor less than 10 calendar days before the date of such meeting.
If no record date is fixed by the Board, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders will
be at the close of business on the calendar day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the
calendar next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting
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of the stockholders will apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
(b) In order that the Company may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date will not be
more than 60 calendar days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose will be at
the close of business on the calendar day on which the Board adopts the
resolution relating thereto.
(c) The Company will be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes, and
will not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the Company has
notice thereof, except as expressly provided by applicable law.
INDEMNIFICATION
34. Damages and Expenses. (a) Without limiting the generality or
effect of Article Ninth of the Certificate of Incorporation, the Company will
to the fullest extent permitted by applicable law as then in effect indemnify
any person (an "Indemnitee") who is or was involved in any manner (including
without limitation as a party or a witness) or is threatened to be made so
involved in any threatened, pending, or completed investigation, claim, action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(including without limitation any action, suit, or proceeding by or in the
right of the Company to procure a judgment in its favor) (a "Proceeding") by
reason of the fact that such person is or was or had agreed to be a Director,
officer, employee, or agent of the Company, or is or was serving at the request
of the Board or an officer of the Company as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
entity, whether or not for profit (including the heirs, executors,
administrators, or estate of such person), or anything done or not done by such
person in any such capacity, against all expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by such person in connection with such Proceeding. Such
indemnification will be a contract right and will include the right to receive
payment in advance of any expenses incurred by an Indemnitee in connection with
such Proceeding, consistent with the provisions of applicable law as then in
effect.
(b) The right of indemnification provided in this Bylaw 34 will
not be exclusive of any other rights to which any person seeking
indemnification may otherwise be entitled, and will be applicable to
Proceedings commenced or continuing after the adoption of this Bylaw 34,
whether arising from acts or omissions occurring before or after such adoption.
(c) In furtherance, but not in limitation of the foregoing
provisions, the following procedures, presumptions, and remedies will apply
with respect to advancement of expenses and the right to indemnification under
this Bylaw 34:
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(i) All reasonable expenses incurred by or on behalf of an
Indemnitee in connection with any Proceeding will be advanced to the
Indemnitee by the Company within 30 calendar days after the receipt by
the Company of a statement or statements from the Indemnitee requesting
such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements will
reasonably evidence the expenses incurred by the Indemnitee and, if and
to the extent required by law at the time of such advance, will include
or be accompanied by an undertaking by or on behalf of the Indemnitee to
repay such amounts advanced as to which it may ultimately be determined
that the Indemnitee is not entitled. If such an undertaking is required
by law at the time of an advance, no security will be required for such
undertaking and such undertaking will be accepted without reference to
the recipient's financial ability to make repayment.
(ii) To obtain indemnification under this Bylaw 34, the
Indemnitee will submit to the Secretary a written request, including
such documentation supporting the claim as is reasonably available to
the Indemnitee and is reasonably necessary to determine whether and to
what extent the Indemnitee is entitled to indemnification (the
"Supporting Documentation"). The determination of the Indemnitee's
entitlement to indemnification will be made not less than 60 calendar
days after receipt by the Company of the written request for
indemnification together with the Supporting Documentation. The
Secretary will promptly upon receipt of such a request for
indemnification advise the Board in writing that the Indemnitee has
requested indemnification. The Indemnitee's entitlement to
indemnification under this Bylaw 34 will be determined in one of the
following ways: (A) by a majority vote of the Disinterested Directors
(as hereinafter defined), if they constitute a quorum of the Board, or,
in the case of an Indemnitee that is not a present or former officer of
the Company, by any committee of the Board or committee of officers or
agents of the Company designated for such purpose by a majority of the
Board of Directors; (B) by a written opinion of Independent Counsel (as
hereinafter defined) if (1) a Change of Control (as hereinafter defined)
has occurred and the Indemnitee so requests or (2) in the case of an
Indemnitee that is a present or former officer of the Company, a quorum
of the Board consisting of Disinterested Directors is not obtainable or,
even if obtainable, a majority of such Disinterested Directors so
directs; (C) by the stockholders (but only if a majority of the
Disinterested Directors, if they constitute a quorum of the Board,
presents the issue of entitlement to indemnification to the stockholders
for their determination); or (D) as provided in subparagraph (iii)
below. In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to clause (B) above, a
majority of the Disinterested Directors will select the Independent
Counsel, but only an Independent Counsel to which the Indemnitee does
not reasonably object; provided, however, that if a Change of Control
has occurred, the Indemnitee will select such Independent Counsel, but
only an Independent Counsel to which the Board does not reasonably
object.
(iii) Except as otherwise expressly provided in this Bylaw
34, the Indemnitee will be presumed to be entitled to indemnification
under this Bylaw 34 upon submission of a request for indemnification
together with the
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Supporting Documentation in accordance with subparagraph (c)(ii) above,
and thereafter the Company will have the burden of proof to overcome
that presumption in reaching a contrary determination. In any event, if
the person or persons empowered under subparagraph (c)(ii) to determine
entitlement to indemnification has not been appointed or has not made a
determination within 60 calendar days after receipt by the Company of
the request therefor together with the Supporting Documentation, the
Indemnitee will be deemed to be entitled to indemnification and the
Indemnitee will be entitled to such indemnification unless (A) the
Indemnitee misrepresented or failed to disclose a material fact in
making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. The
termination of any Proceeding described in paragraph (a) of this Bylaw
34, or of any claim, issue, or matter therein, by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, will not, of itself, adversely affect the right of the
Indemnitee to indemnification or create a presumption that the
Indemnitee did not act in good faith and in a manner which the
Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company or, with respect to any criminal Proceeding,
that the Indemnitee had reasonable cause to believe that his or her
conduct was unlawful.
(iv) (A) In the event that a determination is made
pursuant to subparagraph (c)(ii) that the Indemnitee is not entitled to
indemnification under this Bylaw 34, (1) the Indemnitee will be entitled
to seek an adjudication of his entitlement to such indemnification
either, at the Indemnitee's sole option, in (x) an appropriate court of
the State of Delaware or any other court of competent jurisdiction or
(y) an arbitration to be conducted by a single arbitrator pursuant to
the rules of the American Arbitration Association, (2) any such judicial
proceeding or arbitration will be de novo and the Indemnitee will not be
prejudiced by reason of such adverse determination, and (3) in any such
judicial proceeding or arbitration the Company will have the burden of
proving that the Indemnitee is not entitled to indemnification under
this Bylaw 34.
(B) If a determination is made or deemed to have been made,
pursuant to subparagraph (c)(ii) or (iii) of this Bylaw 34 that the
Indemnitee is entitled to indemnification, the Company will be obligated
to pay the amounts constituting such indemnification within five
business days after such determination has been made or deemed to have
been made and will be conclusively bound by such determination unless
(1) the Indemnitee misrepresented or failed to disclose a material fact
in making the request for indemnification or in the Supporting
Documentation or (2) such indemnification is prohibited by law. In the
event that advancement of expenses is not timely made pursuant to
subparagraph (c)(i) of this Bylaw 34 or payment of indemnification is
not made within five business days after a determination of entitlement
to indemnification has been made or deemed to have been made pursuant to
subparagraph (c)(ii) or (iii) of this Bylaw 34, the Indemnitee will be
entitled to seek judicial enforcement of the Company's obligation to pay
to the Indemnitee such advancement of expenses or indemnification.
Notwithstanding the foregoing, the Company may bring an action, in an
appropriate court in the State of Delaware or any other court of
competent jurisdiction, contesting the right of the Indemnitee to
receive indemnification hereunder due to the
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occurrence of any event described in subclause (1) or (2) of this clause
(A) (a "Disqualifying Event"); provided, however, that in any such
action the Company will have the burden of proving the occurrence of
such Disqualifying Event.
(B) The Company will be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to the provisions
of this subparagraph (c)(iv) that the procedures and presumptions of
this Bylaw 34 are not valid, binding, and enforceable and will stipulate
in any such court or before any such arbitrator that the Company is
bound by all the provisions of this Bylaw 34.
(C) In the event that the Indemnitee, pursuant to the
provisions of this subparagraph (c)(iv), seeks a judicial adjudication
of, or an award in arbitration to, enforce his or her rights under, or
to recover damages for breach of, this Bylaw 34, the Indemnitee will be
entitled to recover from the Company, and will be indemnified by the
Company against, any expenses actually and reasonably incurred by the
Indemnitee if the Indemnitee prevails in such judicial adjudication or
arbitration. If it is determined in such judicial adjudication or
arbitration that the Indemnitee is entitled to receive part but not all
of the indemnification or advancement of expenses sought, the expenses
incurred by the Indemnitee in connection with such judicial adjudication
or arbitration will be prorated accordingly.
(v) For purposes of this paragraph (c):
(A) "Change in Control" means the occurrence of any of
the following events:
(1) The Company is merged, consolidated,
or reorganized into or with another corporation or
other legal entity, and as a result of such merger,
consolidation, or reorganization less than a majority
of the combined voting power of the then-outstanding
securities of such corporation or entity immediately
after such transaction are held in the aggregate by the
holders of the then-outstanding securities entitled to
vote generally in the election of directors ("Voting
Stock") of the Company immediately prior to such
transaction;
(2) The Company sells or otherwise
transfers all or substantially all of its assets to
another corporation or other legal entity and, as a
result of such sale or transfer, less than a majority
of the combined voting power of the then-outstanding
securities of such other corporation or entity
immediately after such sale or transfer is held in the
aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer;
(3) If, during any period of two
consecutive years, individuals who at the beginning of
any such period constitute the Directors cease for any
reason to constitute at least a
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majority thereof; provided, however, that for purposes
of this clause (3) each Director who is first elected,
or first nominated for election by the Company's
stockholders by a vote of at least two-thirds of the
Directors (or a committee of the Directors), then still
in office who were Directors at the beginning of any
such period will be deemed to have been a Director at
the beginning of such period.
(B) "Disinterested Director" means a Director of the Company
who is not or was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
(C) "Independent Counsel" means a law firm or a member of a law
firm that neither presently is, nor in the past five years has been,
retained to represent (1) the Company or the Indemnitee in any matter
material to either such party or (2) any other party to the Proceeding
giving rise to a claim for indemnification under this Bylaw 34.
Notwithstanding the foregoing, the term "Independent Counsel" will not
include any person who, under the applicable standards of professional
conduct then prevailing under the law of the State of Delaware, would be
precluded from representing either the Company or the Indemnitee in an
action to determine the Indemnitee's rights under this Bylaw 34.
(d) If any provision or provisions of this Bylaw 34 are held to be
invalid, illegal, or unenforceable for any reason whatsoever: (i) the validity,
legality, and enforceability of the remaining provisions of this Bylaw 34
(including without limitation all portions of any paragraph of this Bylaw 34
containing any such provision held to be invalid, illegal, or unenforceable,
that are not themselves invalid, illegal, or unenforceable) will not in any way
be affected or impaired thereby and (ii) to the fullest extent possible, the
provisions of this Bylaw 34 (including without limitation all portions of any
paragraph of this Bylaw 34 containing any such provision held to be invalid,
illegal, or unenforceable, that are not themselves invalid, illegal, or
unenforceable) will be construed so as to give effect to the intent manifested
by the provision held invalid, illegal, or unenforceable.
35. Insurance, Contracts, and Funding. The Company may purchase and
maintain insurance to protect itself and any Indemnitee against any expenses,
judgments, fines, and amounts paid in settlement or incurred by any Indemnitee
in connection with any Proceeding referred to in Bylaw 34 or otherwise, to the
fullest extent permitted by applicable law as then in effect. The Company may
enter into contracts with any person entitled to indemnification under Bylaw 34
or otherwise, and may create a trust fund, grant a security interest, or use
other means (including without limitation a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in Bylaw 34. Notwithstanding anything to the contrary contained in
Bylaw 34, in the event that the Company enters into a contract with any person
providing for indemnification of such person, the provisions of such contract
will exclusively govern the Company's obligations in respect of indemnification
for or advancement of fees or disbursements of such person's counsel or any
other professional engaged by such person.
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GENERAL
36. Fiscal Year. The fiscal year of the Company will be fixed from
time to time by the Board.
37. Seal. The Board may adopt a corporate seal and use the same by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
38. Reliance upon Books, Reports, and Records. Each Director, each
member of a committee designated by the Board, and each officer of the Company
will, in the performance of his or her duties, be fully protected in relying in
good faith upon the records of the Company and upon such information, opinions,
reports, or statements presented to the Company by any of the Company's
officers or employees, or committees of the Board, or by any other person or
entity as to matters the Director, committee member, or officer believes are
within such other person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the Company.
39. Time Periods. In applying any provision of these Bylaws that
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days will be used unless otherwise specified, the
day of the doing of the act will be excluded and the day of the event will be
included.
40. Amendments. Except as otherwise provided by law or by the
Certificate of Incorporation or these Bylaws, these Bylaws or any of them may
be amended in any respect or repealed at any time, either (a) at any meeting of
stockholders, provided that any amendment or supplement proposed to be acted
upon at any such meeting has been described or referred to in the notice of
such meeting, or (b) at any meeting of the Board, provided that no amendment
adopted by the Board may vary or conflict with any amendment adopted by the
stockholders.
41. Certain Defined Terms. Terms used herein with initial capital
letters that are defined in the Certificate of Incorporation are used herein as
so defined.
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ANNEX B
[MERRILL LYNCH LETTERHEAD]
April 7, 1997
Board of Directors
Bristol Hotel Company
14285 Midway Road
Suite 300
Dallas, Texas 75244
Gentlemen:
Bristol Hotel Company (the "Company"), a Delaware corporation, Holiday
Corporation, a Delaware Corporation ("HC"), and Holiday Inns, Inc., a Tennessee
corporation and a wholly owned subsidiary of HC ("HII"), propose to enter into
an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which,
among other things, HII will be merged with and into the Company in a series of
transactions (collectively, the "Acquisition", which term shall also include
the debt exchange contemplated by Section 2.06 of the Merger Agreement and the
transactions contemplated by the Asset Purchase Agreements referenced in
Section 11.01(f) of the Merger Agreement) in which the outstanding stock of HII
will be converted into, and certain indebtedness assumed by the Company in the
Acquisition will be satisfied for, an aggregate of 9,373,118 shares of the
common stock of the Company (the "Company Shares"), par value $.01 per share.
Prior to the effective time of the Acquisition, HII will divest certain assets
and liabilities as contemplated by a Contribution Agreement (as defined in and
annexed to the Merger Agreement). The assets and liabilities remaining in HII
following such divestiture, together with the assets to be acquired by the
Company pursuant to the Asset Purchase Agreements, shall be referred to herein
as the "Acquired Business." The Company will also assume or incur certain
indebtedness pursuant to the Merger Agreement, and the parties will enter into
certain other agreements as specified in the Merger Agreement.
You have asked us whether, in our opinion, the proposed consideration to
be paid by the Company pursuant to the Acquisition is fair to the Company from
a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Report on Form 10-K and related
financial information for the fiscal year ended December 31,
1995, the Company's Current Report on Form 8-K, dated June 17,
1996, and the Company's Reports on Form 10-Q and the related
unaudited financial information for the quarterly periods ended
March 31, 1996, June 30, 1996 and September 30, 1996;
(2) Reviewed certain information, including historical financial
statements and financial forecasts, relating to the business,
earnings, cash flow, assets and prospects of the Company and the
Acquired Business, which were based on information provided to us
by the Company and HII;
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(3) Conducted discussions with members of senior management of the
Company and HII concerning their respective business prospects
and proposed capital expenditure programs, and the expected
financial impact of such capital expenditure programs;
(4) Reviewed the historical market prices and trading activity for
the Company Shares and compared them with those of certain
publicly traded companies which we deemed to be reasonably
similar to the Company;
(5) Considered the pro forma effect of the Acquisition on the
combined entity's capitalization ratios and earnings, cash flow
and book value per share;
(6) Compared the results of operations of the Company and the
Acquired Business with those of certain companies which we deemed
to be reasonably similar to the Company and the Acquired
Business, respectively;
(7) Compared the proposed financial terms of the Acquisition with the
financial terms of certain other mergers and acquisitions which
we deemed to be relevant;
(8) Reviewed the Merger Agreement and the other transaction documents
referenced therein; and
(9) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other
matters as we deemed to be relevant.
In preparing our opinion, we have relied with your consent on the
accuracy and completeness of all information supplied or otherwise made
available to us by the Company and HII, and we have not independently verified
such information or undertaken an independent appraisal of the assets or
liabilities of the Company or the Acquired Business. With respect to the
financial forecasts provided to us, we have assumed that they are based on
reasonable assumptions and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company or the Acquired Business as well as the financial
impact of the proposed capital expenditure programs to be implemented by the
Company. We have assumed, at the Company's direction, that the tax effects to
the holders of the Company Shares resulting from the Acquisition will be
immaterial. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date hereof.
We express no opinion as to the prices at which the Company Shares will
trade following the consummation of the Acquisition or the prices at which the
Company Shares will trade between the announcement and consummation of the
Acquisition. In addition, our opinion does not address the relative merits of
the Acquisition and alternative business combinations with third parties.
Finally, this opinion is addressed to the Board of Directors of the Company and
does not constitute a recommendation to any holder of the Company Shares as to
how such holder should vote on the Acquisition.
We have, in the past, provided financial advisory and financing services
to the Company and Bass plc and acted as an underwriter to the Company on
unrelated matters and have received customary fees for the rendering of such
services. We will also receive a fee for services in connection with the
Acquisition. In the ordinary course of our business, we may actively trade in
the Company Shares or securities of Bass plc for our own account and for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities.
B-2
<PAGE> 183
On the basis of, and subject to the foregoing, we are of the opinion
that the proposed consideration to be paid by the Company pursuant to the
Acquisition is fair to the Company from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By: /s/ MARTIN J. CICCO
----------------------------------
Managing Director
Investment Banking Group
B-3
<PAGE> 184
BRISTOL HOTEL COMPANY
1997 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of shares of Bristol Hotel Company ("Bristol")
hereby appoints Joel M. Eastman, J. Peter Kline and Jeffrey P. Mayer, and each
of them, jointly and severally and with full power of substitution and
resubstitution, as proxies of the undersigned, to represent and to vote, as
designated below and in accordance with their judgment, all of the shares of
Bristol Common Stock held of record by the undersigned on March 14, 1997 at the
Annual Meeting of Stockholders of Bristol to be held on April 28, 1997 and at
any and all postponements and adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL
BE VOTED "FOR" THE PROPOSALS TO ADOPT THE MERGER AGREEMENT, TO ADOPT THE
CHARTER AMENDMENT, TO ELECT THE TWO LISTED NOMINEES AS DIRECTORS, TO RATIFY THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS BRISTOL'S INDEPENDENT ACCOUNTANTS AND IN
ACCORDANCE WITH THE JUDGMENT OF THE PERSON OR PERSONS VOTING THE PROXY WITH
RESPECT TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING.
(Continued, and to be dated and signed, on the other side)
<PAGE> 185
<TABLE>
<S> <C> <C>
1. Adoption of the Agreement and Plan of Merger among Bristol Hotel Company,
Holiday Corporation and Holiday Inns, Inc. (the "Merger Agreement").
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Adoption of an amendment to Bristol's certificate of incorporation to
increase the number of authorized shares of Bristol Common Stock from
75,000,000 to 150,000,000 and to remove the provisions therein relating to
the classification of Bristol's Board of Directors (the "Charter
Amendment").
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The Charter Amendment is an integral part of the merger contemplated by
the Merger Agreement and will be effected only upon consummation of such
merger. Accordingly, a vote "against" the Charter Amendment (Proposal 2)
will be counted also as a vote "against" adoption of the Merger Agreement
(Proposal 1) and a vote "against" adoption of the Merger Agreement
(Proposal 1) will be counted also as a vote "against" the Charter
Amendment (Proposal 2), irrespective of whether or the manner in which you
vote with respect to such other proposal.
3. Election of Directors.
FOR both nominees listed below WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) [ ] for both nominees listed below [ ]
J. PETER KLINE and KURT C. READ
(INSTRUCTION: To withhold authority to vote for either nominee write that
nominee's name on the space provided below.)
_____________________________________
4. Ratification of Arthur Andersen LLP as Bristol's independent accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Annual Meeting.
</TABLE>
This proxy should be dated, signed by
the stockholder as his, her or its name
appears below, and returned promptly in
the enclosed envelope. Joint owners
should each sign personally, and
trustees and others signing in a
representative capacity should indicate
the capacity in which they sign.
Dated:___________________________, 1997
_______________________________________
Signature of Stockholder
_______________________________________
Signature of Stockholder
USING BLUE OR BLACK INK, PLEASE MARK, SIGN AND PROMPTLY RETURN
THIS PROXY CARD IN THE ENVELOPE PROVIDED
