<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996
REGISTRATION NO. 333-03958
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERSTATE HOTELS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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PENNSYLVANIA 7011 25-1788101
(State of incorporation) (Primary Standard (I.R.S. Employer
Industrial Classification Identification No.)
Code Number)
</TABLE>
------------------------
FOSTER PLAZA 10
680 ANDERSEN DRIVE
PITTSBURGH, PENNSYLVANIA 15220
(412) 937-0600
(Address and telephone number of Registrant's principal executive offices)
------------------------
MARVIN I. DROZ, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
FOSTER PLAZA 10
680 ANDERSEN DRIVE
PITTSBURGH, PENNSYLVANIA 15220
(412) 937-0600
(Name, address and telephone number of agent for service)
------------------------
Copies to:
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ROBERT A. PROFUSEK, ESQ. PATRICK J. FOYE, ESQ.
DAVID J. LOWERY, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM
JONES, DAY, REAVIS & POGUE 919 THIRD AVENUE
599 LEXINGTON AVENUE NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10022 (212) 735-3000
(212) 326-3939
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INTERSTATE HOTELS COMPANY
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K AND RULE 404
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<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS BY CAPTION
----------------------------------------- -----------------------------------------
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1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus............................. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.......................... Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and
Ratio
of Earnings to Fixed Charges........... Prospectus Summary; Risk Factors
4. Use of Proceeds.......................... Prospectus Summary; Use of Proceeds;
Capitalization
5. Determination of Offering Price.......... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution................................. Dilution
7. Selling Security Holders................. *
8. Plan of Distribution..................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered............................. Prospectus Summary; Description of
Capital Stock
10. Interests of Named Experts and Counsel... *
11. Information with Respect to the
Registrant............................. Outside Front Cover Page of Prospectus;
Inside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors;
Business and Properties; Prior S
Corporation Status; Dividend Policy;
Dilution; Capitalization; Pro Forma
Financial Data; Selected Financial and
Other Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Management; The
Organization, Acquisition and Financing
Plan; Principal Shareholders; Certain
Relationships and Related Transactions;
Description of Capital Stock; Shares
Eligible for Future Sale; Underwriting
12. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities........................ *
</TABLE>
- - ------------------
* Such item is inapplicable, or the answer thereto is in the negative, and is
omitted from the Prospectus.
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement covers the registration of 9,350,000 shares of
Common Stock to be offered in a public offering in the United States and Canada
(the "U.S. Offering") and 1,650,000 shares of Common Stock to be offered in a
concurrent public offering outside the United States and Canada (the
"International Offering"). The complete form of prospectus relating to the U.S.
Offering (the "U.S. Prospectus") follows immediately after this explanatory
note. The form of prospectus relating to the International Offering (the
"International Prospectus") will be identical in all respects to the U.S.
Prospectus, except that the International Prospectus contains different front
and back cover pages and the section titled "Underwriting." The form of the U.S.
Prospectus included herein is followed by those pages to be used in the
International Prospectus which differ from those in the U.S. Prospectus. Each of
such pages included herein is labeled "Alternate Page for International
Prospectus."
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION OF THESE SECURITIES UNDER
THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 19, 1996
PROSPECTUS
11,000,000 SHARES
INTERSTATE HOTELS COMPANY
COMMON STOCK
------------------------
All of the shares of Common Stock of Interstate Hotels Company (the
"Company") are being offered by the Company. Of the 11,000,000 shares of Common
Stock offered, 9,350,000 shares are being offered hereby in the United States
and Canada by the U.S. Underwriters and 1,650,000 shares are being offered in a
concurrent offering outside the United States and Canada by the International
Underwriters. The initial public offering price and aggregate underwriting
discount per share will be identical for both offerings (the "Offering"). It is
currently estimated that the initial public offering price will be between $19
and $21 per share. For factors to be considered in determining the initial
public offering price, see "Underwriting."
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "IHC," subject to official notice of issuance.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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===========================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
- - -----------------------------------------------------------------------------------------------------------
Per Share................................... $ $ $
- - -----------------------------------------------------------------------------------------------------------
Total(3).................................... $ $ $
===========================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the several U.S. Underwriters and the several
International Underwriters 30-day options to purchase up to an additional
1,402,500 and 247,500 shares of Common Stock, respectively, to cover over-
allotments. If all such shares of Common Stock are purchased, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel to the Underwriters. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that delivery of the shares of Common Stock
will be made in New York City on or about , 1996.
------------------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
CREDIT LYONNAIS SECURITIES (USA) INC.
------------------------
The date of this Prospectus is , 1996
LOGO
<PAGE> 5
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 6
PHOTO
THE CHARLES HOTEL
CAMBRIDGE, MASSACHUSETTS
(MANAGED)
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PHOTO PHOTO
WARNER CENTER MARRIOTT HOTEL TVERSKAYA, MOSCOW, RUSSIA (MANAGED)
LOS ANGELES, CALIFORNIA
(OWNED)
</TABLE>
PHOTO
THE DON CESAR BEACH RESORT
ST. PETERSBURG BEACH, FLORIDA
(MANAGED, WITH A MINORITY
INTEREST)
<PAGE> 7
PHOTO
COLORADO SPRINGS MARRIOTT, COLORADO SPRINGS,
COLORADO (OWNED)
PHOTO
THE WESTIN BONAVENTURE, LOS ANGELES, CALIFORNIA
(MANAGED)
PHOTO
THE HAY-ADAMS HOTEL,
WASHINGTON, D.C. (MANAGED)
PHOTO
MARRIOTT AT SAWGRASS,
PONTE VEDRA BEACH, FLORIDA (MANAGED)
PHOTO
THE BELLEVUE HOTEL, PHILADELPHIA, PA
(MANAGED)
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. In this Prospectus, (i) the term the "Company" refers to
Interstate Hotels Company, a Pennsylvania corporation, its subsidiaries and its
predecessors and certain of their affiliates, (ii) all information gives effect
to the transactions described under the caption "The Organization, Acquisition
and Financing Plan," including the contribution of Interstate Hotels Corporation
and certain of its affiliates to the Company to be effected immediately prior to
the Offering and the acquisition of controlling interests in the Owned Hotels
(as defined below), (iii) except as otherwise specified herein, all information
assumes that the initial public offering price will be $20 per share and that
the Underwriters' over-allotment options will not be exercised, and (iv) except
as otherwise specified herein, all Company hotel statistics are as of May 1,
1996 and all lodging industry statistics (other than Company statistics) are
from, or derived from, information published or provided by Smith Travel
Research, an independent industry research organization. Smith Travel Research
has not provided any form of consultation, advice or counsel regarding the
Offering contemplated hereby, and Smith Travel Research is in no way associated
with the Offering.
THE COMPANY
The Company is the largest independent hotel management company in the
United States based on total portfolio hotel revenues and number of guestrooms
and properties managed. The Company manages or performs related services for 154
hotels, with 35,730 rooms, located in 28 states in the United States and in the
District of Columbia, Canada, Mexico, Israel, the Caribbean, Thailand and
Russia. Following consummation of the Offering, the Company will own or have a
controlling interest in 15 of these properties (the "Owned Hotels"), all of
which are upscale hotels currently managed by the Company. In 1995, the Owned
Hotels contributed 81.8% of the pro forma 1995 total revenues of the Company.
In 1995, 84.1% of the Company's net management revenues were derived from
upscale or luxury hotels and resorts. The Company is the largest franchisee of
upscale hotels in the Marriott(R) system, providing services to 36 hotels, with
12,649 rooms, bearing the Marriott(R) flag. Consistent with the Company's
multiple branding strategy, the Company also manages hotels under many other
major full-service brand names, including Doubletree(R), Embassy Suites(R),
Hilton(R), Radisson(R), Sheraton(R) and Westin(R), as well as under the
Company's own Colony(R) trade name. Among the well-known hotels managed by the
Company are: The Charles Hotel at Harvard Square in Cambridge, Massachusetts;
the Don CeSar Beach Resort in St. Petersburg Beach, Florida; The Hay-Adams Hotel
in Washington, D.C.; The Bellevue Hotel in Philadelphia, Pennsylvania; the
Westin Bonaventure in Los Angeles, California; Marriott's Casa Marina Resort in
Key West, Florida; and the Marriott at Sawgrass Resort in Ponte Vedra Beach,
Florida. The Company also operates in the mid-priced, economy and budget
segments of the lodging industry.
Since its founding in 1961 to own and operate a single motor lodge in
northwestern Pennsylvania, the Company has achieved consistent annual growth,
even through industry downturns. The total revenues of the hotels to which the
Company provided management or related services increased from $514 million in
1991 to almost $1.1 billion in 1995, an average annual compound growth rate of
19.7%. During the same period, the Company's portfolio of hotels increased from
49 to 150. The Company's total revenues grew from $17.6 million in 1991 to $45.0
million in 1995, an average annual compound growth rate of 26.5%. The Company's
net income increased at an average annual compound growth rate of 69.8% over the
same period, from $1.9 million in 1991 to $15.8 million in 1995. The Company
attributes its steady growth to the disciplined pursuit of four core strategies:
(i) providing superior, innovative hotel management services, resulting in
increased investment value for the hotel owner; (ii) adding new management
contracts and selectively acquiring hotel management businesses; (iii) adding
new hotels to the Company's portfolio of upscale and luxury properties through
acquisitions; and (iv) maximizing the profitability of the Company's acquired
hotels by repositioning them within their local markets and applying to them the
Company's proven management techniques.
The Company believes that its prospects for continuing sustainable growth
are enhanced by a number of competitive advantages, including: (i) a proven
ability to source management contract and property
1
<PAGE> 9
acquisition opportunities resulting from the Company's large and geographically
diverse hotel portfolio; (ii) excellent relationships with hotel investors and
owners due to the Company's disciplined management techniques and its track
record of improving the profitability of the hotels it manages; (iii) the
Company's flexible branding strategy, which permits the Company to own and
operate multiple hotels under different brands within the same geographic market
and to operate more opportunistically within existing and new markets than hotel
companies committed to particular flags; (iv) the Company's corporate
infrastructure and the operational synergies resulting therefrom, which permit
the Company to lower the unit costs of its services and assure the
implementation of quality management systems on a Company-wide basis; (v) the
strength and depth of its management team, the senior members of which have an
average tenure of 22 years in the lodging industry and 13 years with the
Company; (vi) the stability of the Company's cash flow resulting from the
Company's large portfolio of hotel contracts and the Owned Hotels; and (vii) the
Company's conservative capitalization and ability to access additional equity
and debt capital to finance future growth on a cost-effective basis.
Commencing in 1994, affiliates of the Company's predecessor, Interstate
Hotels Corporation ("IHC"), formed a series of partnerships with affiliates of
Blackstone Real Estate Advisors L.P. (collectively, "Blackstone") to acquire
hotel properties. These partnerships acquired fee title or controlling interests
in eight of the Owned Hotels. Thereafter, IHC and its affiliates formed a second
series of partnerships with Blackstone to acquire a controlling interest in an
additional six of the Owned Hotels. IHC and its affiliates acquired a 25%
interest in the partnerships with Blackstone, and IHC manages all of the hotel
properties. In connection with the formation of the second series of
partnerships, Blackstone acquired an option to purchase a 20% equity interest in
the Company (the "Blackstone Option"). In March 1996, IHC and an affiliate
agreed to acquire all of Blackstone's interests in the 14 Owned Hotels (the
"Acquisition") for an aggregate purchase price consisting of $124.4 million in
cash and $8.3 million of the Company's Common Stock. Blackstone also exercised
its option to acquire $44.8 million of the Company's Common Stock, conditioned
upon consummation of the Offering. In April 1996, IHC executed a contract to
acquire the Boston Marriott Westborough Hotel, an Owned Hotel which IHC manages,
from an unrelated third party. A substantial portion of the net proceeds from
the Offering will be used to finance the acquisition of Blackstone's interests
in the 14 Owned Hotels as well as the Boston Marriott Westborough Hotel. The
Company believes that it will acquire the Owned Hotels at prices reflecting
substantial discounts to replacement cost. Prior to consummation of the
Offering, all of the interests in the Owned Hotels owned by affiliates of IHC
will be contributed to the Company, and all of the capital stock of IHC will be
contributed to the Company, resulting in IHC becoming a wholly owned subsidiary
of the Company (the "Organization"). See "The Organization, Acquisition and
Financing Plan."
The Owned Hotels consist of 15 geographically diverse upscale hotels,
containing an aggregate of 4,621 rooms and operating under the Embassy
Suites(R), Hilton(R), Marriott(R) and Radisson(R) trade names principally in
major metropolitan markets such as Atlanta, Boston, Chicago, Los Angeles,
Philadelphia, Houston, Fort Lauderdale and Washington, D.C. The Owned Hotels
produced superior operating results in 1995, achieving an average occupancy rate
of 73.0%, an average daily rate ("ADR") of $88.03 and room revenue per available
room ("REVPAR") of $64.29, compared to 1995 industry averages for upscale hotels
of a 68.5% occupancy rate, ADR of $80.38 and REVPAR of $55.06. The Company
expects further improvement in the results of operations of the Owned Hotels as
the effects of the repositioning of certain of them, and the application of the
Company's management practices to all of them, are realized. The Company intends
to pursue additional acquisitions following the Offering, under certain
circumstances as a co-investor with Blackstone through a third series of
partnerships formed with the Company. Upon consummation of the Offering, the
Company expects to have in place a $100 million acquisition facility (the
"Acquisition Facility") to provide greater financial flexibility to pursue
acquisitions. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The Company believes that it has excellent opportunities for continued
growth, which are enhanced by the favorable industry environment. From 1994 to
1995, room demand in the United States increased at an average annual rate of
approximately 3.0%, nearly twice the average annual increase in supply of new
rooms of 1.6% over the same period. This excess of demand growth over supply
growth raised industry occupancy and ADR for upscale hotels to 68.5% and $80.38,
respectively, in 1995 from 68.1% and $77.19, respectively, in
2
<PAGE> 10
1994. With consistent demand growth and limited new supply, particularly in the
upscale and luxury segments, management expects that industry-wide occupancy and
ADR will continue to improve in 1996 and beyond.
The Company's principal executive offices are located at Foster Plaza 10,
680 Andersen Drive, Pittsburgh, Pennsylvania 15220, and its telephone number is
(412) 937-0600.
THE OFFERING
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Common Stock Offered by the Company
U.S. Offering........................... 9,350,000 shares
International Offering.................. 1,650,000 shares
Total.............................. 11,000,000 shares (1)
Common Stock to be Outstanding after the
Offering................................... 27,220,000 shares (1)(2)
Use of Proceeds.............................. The net proceeds of the Offering, together
with the net proceeds of new debt financings,
will be used to finance the purchase of
controlling interests in the Owned Hotels, to
repay existing indebtedness and for general
corporate purposes.
New York Stock Exchange symbol............... IHC
</TABLE>
- - ------------------
(1) Does not include up to 1,650,000 shares of Common Stock subject to
over-allotment options granted to the Underwriters. See "Underwriting."
(2) Assumes the issuance of 415,000 shares of Common Stock to purchase the Fort
Magruder Inn and Conference Center. See "The Organization, Acquisition and
Financing Plan--Acquisition of Owned Hotels." Does not include 2,400,000
shares of Common Stock reserved for issuance under the Company's equity
incentive plans and 850,000 shares reserved for issuance under other
compensation plans. See "Management--Director Compensation," "--Stock Option
Grants" and "--Compensation Plans and Arrangements."
3
<PAGE> 11
SUMMARY FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND HOTEL DATA)
The following table sets forth summary historical financial data of the
Company as of and for each of the years ended December 31, 1991, 1992, 1993,
1994 and 1995 and for the three months ended March 31, 1995 and 1996, summary
pro forma financial data for the Company for the year ended December 31, 1995
and as of and for the three months ended March 31, 1996, and certain other data.
The summary financial data of the Company as of December 31, 1994 and 1995 and
for each of the years ended December 31, 1993, 1994 and 1995 have been derived
from audited combined financial statements of the Company included elsewhere in
this Prospectus. The summary financial data of the Company as of December 31,
1991, 1992 and 1993 and for each of the years ended December 31, 1991 and 1992
have been derived from audited combined financial statements of the Company
which are not required to be included in this Prospectus. The summary historical
financial data of the Company as of and for the three months ended March 31,
1995 and 1996 have been derived from unaudited financial statements of the
Company and, in the opinion of the Company, reflect all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
information set forth therein. The interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short term variations. The pro forma financial data give effect to the Offering
and the transactions described in "Business and Properties--Host Funding
Transaction" and "The Organization, Acquisition and Financing Plan" (excluding
the possible acquisition of the Trumbull Hotel) as if all such transactions had
occurred as of January 1, 1995, except that the pro forma balance sheet data
give effect to such transactions as if each had occurred on March 31, 1996. The
pro forma information presented is not necessarily indicative of what the actual
financial position and results of operations of the Company would have been as
of and for the periods indicated, nor does it purport to represent the Company's
future financial position and results of operations. The summary financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the combined financial
statements and notes thereto included elsewhere in this Prospectus. See "Index
to Financial Statements."
<TABLE>
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------- ------------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995 (1) 1995 1996 1996 (1)
------- ------- ------- ------- -------- ---------- ------- ------- ----------
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STATEMENT OF INCOME DATA:
Revenues:
Hotel revenues............... $ -- $ -- $ -- $ -- $ -- $ 183,842 $ -- $ -- $ 45,991
Management and related
revenues (2)............... $17,645 19,873 25,564 36,726 45,018 41,035 10,249 12,296 10,807
------- ------- ------- ------- -------- ---------- ------- ------- ----------
Total revenues............. 17,645 19,873 25,564 36,726 45,018 224,877 10,249 12,296 56,798
Expenses:
Operating expenses and other... 12,350 12,999 15,384 20,708 25,077 164,952 5,914 6,470 40,125
Depreciation and
amortization................. 3,286 3,352 3,282 3,659 4,201 21,010 1,042 1,101 5,360
Interest, net.................. 101 (98) (12) (30) (99) 18,288 (52) 488 4,340
------- ------- ------- ------- -------- ---------- ------- ------- ----------
Income before income taxes....... 1,908 3,620 6,910 12,389 15,839 20,627 3,345 4,237 6,973
Income tax expense (3)........... -- -- -- -- -- 7,838 -- -- 2,650
------- ------- ------- ------- -------- ---------- ------- ------- ----------
Net income....................... $ 1,908 $ 3,620 $ 6,910 $12,389 $ 15,839 $ 12,789 $ 3,345 $ 4,237 $ 4,323
======= ======= ======= ======= ======== ========= ======= ======= =========
Pro forma net income per common
share (4)...................... $ 0.47 $ .16
Pro forma common shares
outstanding.................... 27,220,000 27,220,000
BALANCE SHEET DATA (AT YEAR END):
Cash and cash equivalents...... $ 2,997 $ 4,461 $ 4,520 $ 6,702 $ 14,035 $ 7,303 $12,074 $ 21,112
Total assets................... 25,146 24,270 24,436 30,741 61,401 34,239 70,025 482,856
Total debt..................... 2,168 2,076 1,809 3,890 36,270 3,640 36,058 225,870
Total equity (deficit)......... 18,360 16,685 16,627 18,858 9,256 18,851 (16,740) 205,703
OTHER FINANCIAL DATA:
EBITDA (5)..................... $ 5,338 $ 7,109 $10,474 $16,668 $ 20,481 $ 60,465 $ 4,466 $ 5,860 $ 16,707
Net cash provided by operating
activities................... 3,668 7,332 10,389 15,318 25,328 52,422 4,868 4,945 4,940
Net cash (used in) investing
activities................... (726) (481) (3,088) (3,852) (22,858) (361,935 ) (644) (6,279) (148,427 )
Net cash (used in) provided by
financing activities......... (2,571) (5,387) (7,242) (9,285) 4,863 312,379 (3,603) (627) 134,779
</TABLE>
4
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<TABLE>
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------- -------- --------
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TOTAL PORTFOLIO HOTEL DATA: (6)
Total portfolio hotel revenues....... $513,907 $584,344 $760,766 $858,986 $1,056,279 $246,072 $301,401
Number of hotels (7)................. 49 53 82 136 150 138 149
Number of rooms (7).................. 17,386 18,985 24,202 31,502 35,044 31,738 35,357
COMPARABLE HOTEL OPERATING DATA: (8)
Occupancy percentage (9)............... 74.9% 75.4% 76.6% 75.3% 77.3%
ADR (10)............................... $83.73 $86.96 $91.78 $95.38 $100.29
REVPAR (11)............................ $62.74 $65.60 $70.31 $71.79 $77.51
Gross operating profit margin (12)..... 28.2% 30.0% 31.5% 32.6% 34.0%
</TABLE>
- - ------------------
(1) Reflects the Offering, the transactions described in "Business and
Properties--Host Funding Transaction" and "The Organization, Acquisition
and Financing Plan" (excluding the possible acquisition of the Trumbull
Hotel) and the other adjustments described in "Pro Forma Financial Data."
(2) Pro forma management and related revenues declined due to the assumed
consolidation of the Owned Hotels and the resultant pro forma elimination
of $4.0 million and $1.5 million of management and related fees actually
derived from the Owned Hotels in 1995 and the three months ended March 31,
1996, respectively.
(3) Until immediately prior to the consummation of the Offering, the Company
operated as an S corporation and, accordingly, was not subject to federal
and certain state income taxes. The pro forma statement of income data have
been computed as if the Company had been subject to federal and state
income taxes, based on the applicable statutory tax rates then in effect.
(4) Based on 27,220,000 shares of Common Stock outstanding after the Offering.
(5) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. Management believes that EBITDA is a useful measure of
operating performance because it is industry practice to evaluate hotel
properties based on operating income before interest, depreciation and
amortization, which is generally equivalent to EBITDA, and EBITDA is
unaffected by the debt and equity structure of the property owner. EBITDA
does not represent cash flow from operations as defined by generally
accepted accounting principles ("GAAP"), is not necessarily indicative of
cash available to fund all cash flow needs and should not be considered as
an alternative to net income under GAAP for purposes of evaluating the
Company's results of operations.
(6) Represents all hotels to which the Company provides management or related
services.
(7) As of the end of the periods presented.
(8) The comparable hotel data set consists of all of the hotels (consisting of
35 hotels containing a total of 12,771 rooms) managed continually by the
Company from January 1, 1993 through March 31, 1996.
(9) Represents total rooms occupied by hotel guests on a paid basis divided by
total available rooms. Total available rooms represents the number of rooms
available for rent multiplied by the number of days in the reported period.
(10) Represents total room revenues divided by the total number of rooms
occupied by hotel guests on a paid basis.
(11) Represents room revenues divided by total available rooms.
(12) Represents gross operating profit divided by total revenues. "Gross
operating profit" represents total revenues less departmental expenses and
undistributed operating expenses, excluding management fees.
5
<PAGE> 13
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risks and investment considerations should be carefully considered
before purchasing shares of Common Stock offered hereby. Each of the following
factors may have a material adverse effect on the Company's operations,
financial results, financial condition, liquidity, market valuation or market
liquidity in future periods.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
The Company is subject to the risks inherent in the lodging industry. In
addition to the specific risks discussed below, these risks include changes in
general, regional and local economic conditions, overbuilding, varying levels of
demand for rooms and related services, changes in travel patterns, the recurring
need for renovation, refurbishment and improvement of hotel properties, changes
in governmental regulations that influence or determine wages, prices and
construction and maintenance costs, changes in interest rates, the availability
of financing and changes in real estate taxes and operating expenses.
COMPETITION FOR GUESTS
The lodging industry is highly competitive, and the Company's hotels
generally are located in areas that contain numerous competitive properties.
Competitive factors in the lodging industry include room rates, quality of
accommodations, name recognition, service levels and convenience of location
and, to a lesser extent, the quality and scope of other amenities, including
food and beverage facilities. Many of the properties with which the Company's
hotels compete for guests are part of or owned by entities that have
substantially greater financial or other resources than the Company.
RISKS ASSOCIATED WITH OWNING OR LEASING REAL ESTATE
Following consummation of the transactions described in "The Organization,
Acquisition and Financing Plan" (excluding the possible acquisition of the
Trumbull Hotel), the Company will own fee title or controlling partnership
interests in 15 of the 154 hotels it manages and will operate 13 hotels under
leases, six of which are long-term leases. In addition, the Company's business
strategy contemplates the acquisition of ownership interests in additional
hotels. Accordingly, the Company will be subject to varying degrees of risk
generally related to owning or leasing real estate. These risks include, among
others, changes in national, regional and local economic conditions, local real
estate market conditions, changes in interest rates and in the availability,
costs and terms of financing, liability for long-term lease obligations, the
potential for uninsured casualty and other losses, the impact of present or
future environmental legislation and compliance with environmental laws and
adverse changes in zoning laws and other regulations, many of which are beyond
the control of the Company. In addition, real estate investments are relatively
illiquid; therefore, the ability of the Company to vary its portfolio of owned
hotels in response to changes in economic and other conditions may be limited.
TERMS OF MANAGEMENT AGREEMENTS
On a pro forma basis, net management revenues represented 10.8% of the
Company's 1995 total revenues. Hotel management agreements expire or are
acquired, terminated or renegotiated in the ordinary course of the Company's
business. Typically, the Company's hotel management agreements may be terminated
for various reasons, including default by the Company or sale of or foreclosure
on the underlying property. In addition, approximately one-third of the
Company's management agreements allow for termination without cause upon 30 to
90 days notice. An additional 20 management agreements allow for termination
without cause upon 30 to 90 days notice with the payment of a termination fee.
As of December 31, 1995, the Company had management agreements with remaining
terms of less than five years for 111 of its 150 managed hotels. These 111
management agreements accounted for $14.5 million, or 6.4%, of the Company's
total pro forma revenues in 1995. Sixty-three of these management agreements
(which generated $6.7 million, or 3.0%, of the Company's 1995 total pro forma
revenues) are subject to termination in 1996. Although the net number of hotel
management agreements to which the Company is a party has increased every year
since 1987, there can be no assurance that the Company will continue to obtain
new management agreements or that it will be able to renew or replace terminated
or expired management agreements, or that
6
<PAGE> 14
the terms of new or renegotiated management agreements will be as favorable to
the Company as the terms of prior agreements.
In addition to the services called for under its management agreements, the
Company often provides purchasing services, equipment leasing services,
insurance and risk management services and other ancillary services to
third-party hotel owners. On a pro forma basis, 7.4% of the Company's total
revenues in 1995 were comprised of such services. The costs for these management
services are typically subject to prospective approval by the hotel owners on an
annual basis. Although the Company believes that its charges for these services
are generally competitive with those provided by unrelated third parties, there
can be no assurance that third-party hotel owners will not choose to obtain such
services from other providers.
COMPETITION FOR MANAGEMENT AGREEMENTS
The Company competes in the lodging industry with international, national,
regional and local hotel management companies, some of which have greater
financial or other resources than the Company. Competitive factors include
relationships with hotel owners and investors, the availability of capital,
financial performance, contract terms, brand name recognition, marketing
support, reservation system capacity and the willingness to provide funds in
connection with new management arrangements. In order for the Company to expand
its business by acquiring additional management agreements, the Company may be
required to offer more attractive terms to hotel owners than it has had to make
in the past or to make equity investments in hotel properties. Hotel owners in
many cases have been requesting lower base fees coupled with greater incentive
fees or seeking capital contributions from independent hotel management
companies in the form of loans or equity investments.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The lodging industry is seasonal in nature, with the second and third
calendar quarters generally accounting for a greater portion of annual revenues
than the first and fourth calendar quarters. Quarterly earnings may be adversely
affected by events beyond the Company's control, such as poor weather
conditions, economic factors and other considerations affecting travel. In
addition, the loss of one or several management agreements (which could involve
the write-off of capitalized acquisition costs in addition to the loss of future
revenues), the timing of achieving incremental revenues from additional hotels
and the realization of a gain or loss upon the sale of a hotel also may
adversely impact earnings comparisons.
RISKS ASSOCIATED WITH EXPANSION
Growth Risks. The Company's revenues and net income have grown
substantially during the past several years and the Company intends to continue
to pursue a growth-oriented strategy. The Company's ability to successfully
pursue new growth opportunities will depend on a number of factors, including,
among others, the Company's ability to identify suitable growth opportunities,
finance acquisitions and integrate new hotels into its operations, competition
and the availability and the cost of capital. In addition, there can be no
assurance that the Company will be able successfully to integrate new hotels
into its operations or that new hotels will achieve revenue and profitability
levels comparable to the Company's existing portfolio hotels. Furthermore, the
Company's expansion within its existing markets could adversely affect the
financial performance of its existing portfolio hotels and expansion into new
markets may present operating and marketing challenges that are different from
those currently encountered by the Company in its existing markets.
Acquisition and Development Risks. The Company expects to acquire
additional hotels in the future. Acquisitions entail the risk that investments
will fail to perform in accordance with expectations. In addition, the Company
may develop new hotels in the future, depending on market conditions. New
project development is subject to a number of risks, including market or site
deterioration after acquisition and the possibility of construction delays or
cost overruns due to regulatory approvals, inclement weather, labor or material
shortages, work stoppages and the continued availability of construction and
permanent financing.
RISK OF INCREASING LEVERAGE; RESTRICTIVE COVENANTS
It is likely that acquisitions made by the Company in the future will be
financed largely with indebtedness obtained pursuant to the Acquisition Facility
or other credit facilities obtained by the Company in the future.
7
<PAGE> 15
The definitive credit agreement with respect to the Acquisition Facility will
contain restrictive covenants, including covenants limiting capital
expenditures, incurrence of debt and sales of assets and requiring the Company
to achieve certain financial ratios, some of which will become more restrictive
over time. The Company's pro forma indebtedness as well as the indebtedness to
be incurred under the Acquisition Facility will be secured by mortgages on the
Company's hotel properties as well as other assets of the Company. Among other
consequences, the leverage of the Company and such restrictive covenants and
other terms of the Company's debt instruments could impair the Company's ability
to obtain additional financing in the future, to make acquisitions and to take
advantage of significant business opportunities that may arise. In addition, the
Company's leverage may increase its vulnerability to adverse general economic
and lodging industry conditions and to increased competitive pressures.
DIVIDEND POLICIES; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company does not anticipate that it will pay any dividends on the
Common Stock in the foreseeable future. The Acquisition Facility will restrict
the Company's ability to pay dividends or make certain other distributions to
shareholders. See "Dividend Policy."
CONFLICTS OF INTEREST
Milton Fine, the co-founder of the Company and its Chairman of the Board,
and individuals and entities affiliated with Mr. Fine (collectively, the "Fine
Family Shareholders") will beneficially own approximately 47.0% of the
outstanding Common Stock following consummation of the Offering. See "Principal
Shareholders." Certain of the Fine Family Shareholders also have ownership
interests in 12 hotels that are managed or leased but not owned by the Company.
Each of the Fine Family Shareholders has agreed not to transfer any of its
interests in any of these hotels (subject to certain permitted transfers)
without first complying with a right of first offer and a right of first refusal
procedure in favor of the Company. See "Certain Relationships and Related
Transactions--Transactions with the Fine Family Shareholders." Except for one
management agreement pursuant to which the Company waived its management fee for
a period ending no later than November 30, 1998, the Company believes that its
management agreements and leases for these hotels are on terms no less favorable
to the Company than those that could have been obtained from unaffiliated third
parties. These relationships, however, coupled with the ownership of Common
Stock by the Fine Family Shareholders and representation on the Company's Board
of Directors (the "Board") by certain of the Fine Family Shareholders, could
give rise to potential conflicts of interest. The Company has implemented a
policy requiring transactions between the Company and related parties to be
approved by a majority of disinterested directors upon such disinterested
directors' determination that the terms of the transaction are no less favorable
to the Company than those that could have been obtained from unrelated third
parties. There can be no assurance, however, that this policy will always be
successful in eliminating the influence of such potential conflicts of interest.
See "Management--Directors and Executive Officers."
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon consummation of the Offering, the Fine Family Shareholders will be
able to exert substantial influence over the election of directors and the
management and affairs of the Company and over the outcome of any corporate
transactions or other matters submitted to the shareholders for approval,
including mergers, consolidations and the sale of all or substantially all of
the Company's assets. Blackstone may also be able to exert influence over these
matters. Pursuant to a stockholders agreement with the Company and Blackstone,
so long as Blackstone owns 25% or more of the shares of Common Stock issued to
it on the date of such stockholders agreement, the Fine Family Shareholders have
agreed that they will vote all of their shares of Common Stock for the election
of a director candidate nominated by Blackstone, and Blackstone has agreed to
vote all of its shares of Common Stock for the election of the director
candidates nominated by the Board. See "The Organization, Acquisition and
Financing Plan--Acquisition of Owned Hotels."
SUBSTANTIAL RELIANCE ON SENIOR MANAGEMENT
The Company will place substantial reliance on the lodging industry
knowledge and experience and the continued services of its senior management.
The Company's future success and its ability to manage future growth depends in
large part upon the efforts of these persons and on the Company's ability to
attract and
8
<PAGE> 16
retain these key executives and other highly qualified personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel.
BENEFITS TO EXISTING SHAREHOLDERS
The Fine Family Shareholders, Blackstone and the officers and current and
former employees of IHC that own interests in IHC and its subsidiaries and the
Owned Hotels will receive certain benefits as a result of the Organization and
Acquisition, including the following: (i) the Fine Family Shareholders will
receive repayment of notes in the amount of $30 million issued to them in
payment of an S corporation dividend in March 1996, (ii) Blackstone will receive
in connection with the Company's acquisition of its interests in the 14 Owned
Hotels $8.3 million of Common Stock at the initial public offering price and
$124.4 million cash, (iii) the payments to Blackstone described in clause (ii)
will result in a substantial profit to Blackstone since the cost of its
interests in the Owned Hotels is approximately $82.9 million, (iv) Blackstone
will receive $44.8 million of Common Stock at the initial public offering price
for a purchase price of $23.3 million cash in connection with the exercise of
the Blackstone Option, and (v) the Fine Family Shareholders and the officers and
current and former employees of IHC that own interests in IHC and its
subsidiaries and the Owned Hotels will receive 13,565,000 shares of Common Stock
having a value of $271.3 million (based upon an assumed initial public offering
price of $20 per share). See "The Organization, Acquisition and Financing Plan."
GOVERNMENT REGULATION
The Company is subject to numerous foreign and U.S. federal, state and
local government laws, including those relating to the preparation and sale of
food and beverages (such as health and liquor license laws), accessibility for
disabled persons and general building and zoning requirements. Managers of
hotels are also subject to laws governing their relationship with hotel
employees, including minimum wage requirements, overtime, working conditions and
work permit requirements. Compliance with, or changes in, these laws, including
liquor license laws or increases in minimum wage rate requirements, reduces
revenues and profits of hotels owned, leased and managed by the Company and
could otherwise adversely affect the Company's operations. Although third-party
hotel owners are generally responsible for all costs, expenses and liabilities
incurred in connection with operating the hotels under the Company's management
agreements, including compliance with government laws, the Company may be
contingently liable for certain liabilities for which it does not maintain
insurance, including certain employment liabilities, environmental liabilities
and, in respect of properties in the United States, claims arising under the
Americans with Disabilities Act. The Company also is subject to various foreign
and U.S. federal, state and local environmental laws and regulations relating to
the environment and the handling of hazardous substances which may impose or
create significant potential environmental liabilities. Under the Company's
hotel management agreements, third-party hotel owners are generally responsible
for any environmental liabilities. However, under certain countries' laws,
including those of the United States, the Company also may be exposed to
environmental liabilities whether or not the third-party hotel owner is able to
satisfy such liabilities. In addition, the Company will be subject to any
environmental liabilities arising with respect to its owned hotels.
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation and By-Laws, and Pennsylvania law,
include various provisions that could have the effect of making it more
difficult for a third party to acquire control of the Company. See "Description
of Capital Stock--Certain Corporate Governance Matters." In addition, the
Company's Articles of Incorporation grant the Board authority to issue up to
25,000,000 shares of preferred stock having such rights, preferences and
privileges as designated by the Board without shareholder approval. See
"Description of Capital Stock--Preferred Stock." The rights of holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any shares of such preferred stock that may be issued in the future.
NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY IN STOCK PRICE;
DILUTION
The initial public offering price will be determined by negotiations among
the Company and the Underwriters and may not be indicative of the market price
of the Common Stock after the Offering. See
9
<PAGE> 17
"Underwriting." Prior to the Offering, there has been no public market for the
Common Stock. Accordingly, there can be no assurance that an active trading
market for the Common Stock will develop and continue upon consummation of the
Offering or that the market price of the Common Stock will not decline below the
initial public offering price. Following consummation of the Offering, the
market price of the Common Stock could be subject to significant fluctuations in
response to variations in the Company's results of operations, general economic
and market conditions and other factors. Purchasers of the Common Stock offered
hereby will experience dilution of $12.88 per share in pro forma net tangible
book value per share of Common Stock from the initial public offering price. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock (including shares issuable upon the exercise of stock
options), or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. Upon consummation of the
Offering, the Company will have outstanding 27,220,000 shares of Common Stock.
Except for the 11,000,000 shares sold in the Offering, all of these shares will
be "restricted securities" under Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"). All of the existing shareholders have
registration rights with respect to future registrations of the Common Stock
beneficially owned by them. The Company and its directors, executive officers
and existing shareholders, including Blackstone, have agreed, subject to certain
exceptions, not to offer, sell, contract to sell or otherwise dispose of any
such shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"). See "Principal Shareholders," "Shares
Eligible for Future Sale" and "Underwriting."
10
<PAGE> 18
DILUTION
The pro forma net tangible book value of the Company prior to the Offering
at March 31, 1996 was $(9.5) million, or $(0.59) per share of Common Stock. Pro
forma net tangible book value per share represents the amount of tangible assets
of the Company, less total liabilities, divided by the number of shares of
Common Stock outstanding. Without taking into account any other changes in pro
forma net tangible book value after March 31, 1996, other than to give effect to
the sale of 11,000,000 shares of Common Stock offered hereby (after deduction of
the underwriting discounts and commissions and other estimated offering expenses
and the application of the estimated net proceeds therefrom), the pro forma net
tangible book value of the Company at March 31, 1996 would have been $193.7
million, or $7.12 per share. This represents an immediate increase in pro forma
net tangible book value of $7.71 per share of Common Stock to existing
shareholders and an immediate dilution of approximately $12.88 per share to new
investors purchasing shares in the Offering. The following table illustrates the
per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $20.00
Pro forma net tangible book value per share
as of March 31, 1996.......................................... (0.59)
Increase per share attributable to new investors................ 7.71
------
Pro forma net tangible book value per share after the
Offering...................................................... 7.12
------
Dilution per share to new investors............................. $12.88
------
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1996
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing shareholders, including Blackstone, and by the new investors
(before deduction of underwriting discounts and commissions and estimated
offering expenses):
<TABLE>
<CAPTION>
AVERAGE
TOTAL CASH PRICE PER
SHARES PURCHASED CONSIDERATION SHARE
-------------------- --------------------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 16,220,000 59.6% $ 23,300,000 9.6% $ 1.44
New investors................ 11,000,000 40.4 220,000,000 90.4 20.00
---------- ----- ------------ -----
Total................... 27,220,000 100.0% $243,300,000 100.0%
========== ===== ============ =====
</TABLE>
11
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $203.2 million (approximately $234.1 million if the over-allotment
options are exercised in full), assuming an initial public offering price of $20
per share and after giving effect to estimated underwriting discounts and
commissions and offering expenses payable by the Company. The net proceeds from
the Offering, together with the net proceeds of a new secured term loan in the
amount of approximately $191.7 million (the "Term Loan"), and the proceeds of
the exercise of the Blackstone Option in the amount of $23.3 million will be
used to fund the purchase of controlling interests in the Owned Hotels, to repay
or refinance approximately $239.4 million of indebtedness having maturities
ranging from June 1998 to December 2002, with a weighted average maturity date
of September 2000, and bearing interest at fixed and variable rates ranging from
8.00% to 9.41%, with a weighted average interest rate at March 31, 1996 of
approximately 8.5%. Of the indebtedness to be repaid or refinanced, $223.1
million of the indebtedness was incurred within the last year for the following
purposes: $188.1 million of indebtedness was incurred to finance or refinance
certain of the Owned Hotels, $12.8 million of indebtedness was incurred in
connection with the 1995 Reorganization (as defined in "The Organization,
Acquisition and Financing Plan--1995 Reorganization"), $12.9 million of
indebtedness was incurred in connection with the acquisition of equity interests
in certain of the Owned Hotels and $9.3 million of indebtedness was incurred in
connection with the refinancing of existing indebtedness. See "The Organization,
Acquisition and Financing Plan." Any remaining proceeds from the Offering and
the Term Loan, together with capital available under the Acquisition Facility,
will be used for general corporate purposes, including acquisitions.
PRIOR S CORPORATION STATUS
Until immediately prior to the consummation of the Offering, the Company
will have been subject to taxation under Subchapter S of the Internal Revenue
Code of 1986, as amended (the "Code"), and other provisions of the Code
providing for pass-through taxation. As a result, for federal and certain state
income tax purposes, the taxable income of the Company has been reported by and
taxed directly to the Company's shareholders rather than to the Company. The
Company paid S corporation dividends and distributions aggregating $6.0 million
in 1993, $10.9 million in 1994, $14.8 million in 1995 and $30.0 million (in the
form of promissory notes) as of March 31, 1996. In connection with the
consummation of the Offering, the Company will pay a final dividend to its
shareholders in an amount equal to its undistributed taxable income from April
1, 1996 to the date of consummation of the Offering. Such final S corporation
dividend is estimated to be $9.7 million. The Company's status as an S
corporation will terminate upon consummation of the Offering. Thereafter, the
Company will be fully subject to federal and state income taxes at the corporate
level. See "Pro Forma Financial Data."
DIVIDEND POLICY
The Company does not anticipate paying any dividends on the Common Stock
following consummation of the Offering. The Company intends to retain earnings
to provide funds for the continued growth and development of the Company's
business. Further, the terms of the Term Loan and Acquisition Facility will
restrict the payment of dividends on the Common Stock. Any determination to pay
cash dividends in the future will be at the discretion of the Board and will be
dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant by the Board.
12
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 and as adjusted to give effect to, among other things, the
Offering and the transactions described in "The Organization, Acquisition and
Financing Plan" (excluding the possible acquisition of the Trumbull Hotel). The
information below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the pro forma
financial information and the financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total short-term borrowings and current portion of long-term debt.... $ 371 $ 6,121
Total long-term debt, excluding current portion...................... 35,687 219,749
Notes payable to shareholders........................................ 30,000 --
Minority interests................................................... 880 6,619
Shareholders' (deficit) equity:
Preferred Stock ($.01 par value, no shares authorized, issued or
outstanding at March 31, 1996; 25,000,000 shares authorized, no
shares issued and outstanding, as adjusted..................... -- --
Common Stock ($.01 par value, 75,000,000 shares authorized,
27,220,000 shares issued and outstanding, as adjusted) (1)..... 3 272
Paid-in capital................................................. -- 207,321
Unearned compensation........................................... (3,216) --
Retained deficit................................................ (11,637) --
Receivable from shareholders.................................... (1,890) (1,890)
---------- -----------
Total shareholders' (deficit) equity....................... (16,740) 205,703
---------- -----------
Total capitalization.................................. $ 50,198 $ 438,192
========= =========
</TABLE>
- - ------------------
(1) See Note 8 of Notes to Combined Financial Statements with respect to the
Company's historical capitalization.
13
<PAGE> 21
PRO FORMA FINANCIAL DATA
The following unaudited Pro Forma Balance Sheet of the Company as of March
31, 1996 presents, in the "The Company Pro Forma" column, the financial position
of the Company as if the Offering and the transactions described in "Business
and Properties--Host Funding Transaction" and "The Organization, Acquisition and
Financing Plan," but excluding the possible acquisition of the Trumbull Hotel,
had occurred on March 31, 1996. The unaudited Pro Forma Statements of Income of
the Company for the year ended December 31, 1995 and the three months ended
March 31, 1996 present, in the "The Company Pro Forma" column, the results of
operations of the Company as if the Offering and the transactions described in
"Business and Properties--Host Funding Transaction" and "The Organization,
Acquisition and Financing Plan," but excluding the possible acquisition of the
Trumbull Hotel, had occurred on January 1, 1995. The adjustments required to
reflect such transactions are set forth in the "Pro Forma Adjustments" columns
and are discussed in the accompanying notes.
The unaudited Pro Forma Balance Sheet and Statements of Income of the
Company are presented for informational purposes only and may not reflect the
future results of operations and financial position or what the results of
operations and financial position of the Company would have been had such
transactions occurred as of the dates indicated. The unaudited pro forma
financial data and notes thereto should be read in conjunction with the
financial statements and notes thereto contained elsewhere in this Prospectus.
See "Index to Financial Statements."
14
<PAGE> 22
INTERSTATE HOTELS COMPANY
PRO FORMA BALANCE SHEET (2)
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------
ACQUISITION FINANCING PLAN
AND AND OTHER THE
THE COMPANY INTERSTONE I INTERSTONE/CGL ORGANIZATION PRO FORMA COMPANY
HISTORICAL HISTORICAL HISTORICAL PLAN ADJUSTMENTS PRO FORMA
----------- ------------- --------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents....... $ 12,074 $ 5,682 $ 5,711 $(140,464)(a) $138,109(k) $ 21,112
Restricted cash..... -- 891 -- -- -- 891
Accounts
receivable........ 15,652 7,203 5,475 (33)(b) (674)(l) 27,623
Net investment in
direct financing
leases............ 369 -- -- -- -- 369
Deferred income
taxes............. -- -- -- -- 4,500(m) 4,500
Prepaid expenses and
other assets...... 432 1,848 1,119 -- -- 3,399
--------- --------- --------- --------- --------- ---------
Total current
assets.......... 28,527 15,624 12,305 (140,497) 141,935 57,894
Restricted cash,
long-term........... 1,936 4,497 3,414 1,200(c) -- 11,047
Property and
equipment, net...... 1,883 150,277 164,228 79,833(d) -- 396,221
Investments in
contracts, net...... 5,048 -- -- -- -- 5,048
Equity investment in
hotel real estate... 13,009 -- -- (13,009)(e) -- --
Officer and employee
notes receivable.... 1,865 -- -- -- -- 1,865
Affiliate notes
receivable.......... 8,718 -- -- (7,380)(f) (1,298)(n) 40
Net investment in
direct financing
leases.............. 882 -- -- -- -- 882
Deposits and other
assets.............. 8,157 2,907 2,803 (5,103)(g) 1,095(o) 9,859
--------- --------- --------- --------- -------- --------
Total assets...... $ 70,025 $ 173,305 $ 182,750 $ (84,956) $141,732 $482,856
========= ========= ========= ========= ======== ========
LIABILITIES AND (DEFICIT) EQUITY
Current liabilities:
Accounts payable.... $ 654 $ 4,100 $ 2,059 $ -- $ -- $ 6,813
Accounts
payable--health
trust............. 7,481 -- -- -- -- 7,481
Accrued payroll and
related benefits.. 2,052 1,992 2,082 -- -- 6,126
Other accrued
liabilities....... 9,640 7,427 3,820 -- (1,456)(p) 19,431
Current portion of
long-term debt.... 371 1,417 3,000 -- 1,333(q) 6,121
--------- --------- --------- --------- -------- --------
Total current
liabilities..... 20,198 14,936 10,961 -- (123) 45,972
Long-term debt........ 35,687 113,506 116,250 -- (45,694)(r) 219,749
Deferred income
taxes............... -- -- -- -- 3,600(m) 3,600
Notes payable to
shareholders........ 30,000 -- -- -- (30,000)(s) --
Other liabilities..... -- -- 1,213 -- -- 1,213
--------- ---------- --------- ---------- --------- --------
Total
liabilities..... 85,885 128,442 128,424 -- (72,217) 270,534
Minority interests.... 880 -- -- 5,739(h) -- 6,619
(Deficit) equity:
Partners' capital... -- 44,863 54,326 (99,189)(i) -- --
Common Stock........ 3 -- -- -- 269(t) 272
Paid-in capital..... -- -- -- 8,494(j) 198,827(u) 207,321
Unearned
compensation...... (3,216) -- -- -- 3,216(v) --
Retained deficit.... (11,637) -- -- -- 11,637(w) --
Receivable from
shareholders...... (1,890) -- -- -- -- (1,890)
--------- ---------- ----------- ---------- ---------- --------
Total (deficit)
equity.......... (16,740) 44,863 54,326 (90,695) 213,949 205,703
--------- ---------- ----------- ---------- ---------- --------
Total liabilities
and (deficit)
equity.......... $ 70,025 $ 173,305 $ 182,750 $ (84,956) $141,732 $482,856
========= ========= ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of this Pro Forma Balance Sheet.
15
<PAGE> 23
INTERSTATE HOTELS COMPANY
PRO FORMA STATEMENT OF INCOME (3)
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
FINANCING
ACQUISITION PLAN
AND AND OTHER THE
THE COMPANY INTERSTONE I INTERSTONE/CGL ORGANIZATION PRO FORMA COMPANY
HISTORICAL HISTORICAL HISTORICAL PLAN ADJUSTMENTS PRO FORMA
----------- ------------- --------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Hotel revenues.......... $ -- $ 95,944 $77,087 $ 10,811(a) $ -- $183,842
Net management fees..... 27,022 -- -- -- (2,716)(d) 24,306
Purchasing fees......... 2,508 -- -- -- (421)(e) 2,087
Other fees.............. 7,816 -- -- -- -- 7,816
Insurance income........ 7,672 -- -- -- (846)(f) 6,826
------- --------- ------- -------- -------- --------
45,018 95,944 77,087 10,811 (3,983) 224,877
------- --------- ------- -------- -------- --------
Operating expenses:
Hotel expenses.......... -- 75,822 60,255 8,515(b) (7,356)(g) 137,236
General and
administrative........ 9,271 -- -- -- 1,000(h) 10,271
Payroll and related
benefits.............. 15,469 -- -- -- -- 15,469
State and local taxes... 540 -- -- -- -- 540
Depreciation and
amortization.......... 4,201 10,251 7,455 858(c) (1,755)(i) 21,010
------- --------- ------- -------- -------- --------
29,481 86,073 67,710 9,373 (8,111) 184,526
------- --------- ------- -------- -------- --------
Operating income.......... 15,537 9,871 9,377 1,438 4,128 40,351
------- --------- ------- -------- -------- --------
Other income (expense):
Interest, net........... 99 (9,605) (460) -- (8,322)(j) (18,288)
Equity (loss) income
from investment in
real estate........... (154) -- -- -- 154(k) --
Minority interests'
share of equity
loss (income)......... 11 -- -- -- (506)(l) (495)
Other, net.............. 346 (1,275) (654) -- 642(m) (941)
------- --------- ------- -------- -------- --------
302 (10,880) (1,114) -- (8,032) (19,724)
------- --------- ------- -------- -------- --------
Income before income
taxes................... 15,839 (1,009) 8,263 1,438 (3,904) 20,627
Income tax expense........ -- -- 3,607 -- 4,231(n) 7,838
------- --------- ------- -------- -------- --------
Net income................ $15,839 $ (1,009) $ 4,656 $ 1,438 $(8,135)(o) $ 12,789
======= ========= ======= ======== ======= ========
Pro forma net income per
common share............ $ 0.47
Pro forma common shares
outstanding............. 27,220,000
</TABLE>
The accompanying notes are an integral part of this Pro Forma Statement of
Income.
16
<PAGE> 24
INTERSTATE HOTELS COMPANY
PRO FORMA STATEMENT OF INCOME (3)
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
FINANCING
ACQUISITION PLAN
AND AND OTHER THE
THE COMPANY INTERSTONE I INTERSTONE/CGL ORGANIZATION PRO FORMA COMPANY
HISTORICAL HISTORICAL HISTORICAL PLAN ADJUSTMENTS PRO FORMA
----------- ------------- --------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Hotel revenues.......... $ -- $23,677 $19,625 $ 2,689(a) $ -- $ 45,991
Net management fees..... 7,183 -- -- -- (1,211)(d) 5,972
Purchasing fees......... 801 -- -- -- (67)(e) 734
Other fees.............. 2,540 -- -- -- -- 2,540
Insurance income........ 1,772 -- -- -- (211)(f) 1,561
------- ------- ------- ------- -------- --------
12,296 23,677 19,625 2,689 (1,489) 56,798
------- ------- ------- ------- -------- --------
Operating expenses:
Hotel expenses.......... -- 18,753 14,104 2,096(b) (1,478)(g) 33,475
General and
administrative........ 2,304 -- -- -- 250(h) 2,554
Payroll and related
benefits.............. 4,249 -- -- -- -- 4,249
State and local taxes... 34 -- -- -- -- 34
Depreciation and
amortization.......... 1,101 2,704 2,194 236(c) (875)(i) 5,360
------- ------- ------- ------- -------- --------
7,688 21,457 16,298 2,332 (2,103) 45,672
------- ------- ------- ------- -------- --------
Operating income.......... 4,608 2,220 3,327 357 614 11,126
------- ------- ------- ------- -------- --------
Other income (expense):
Interest, net........... (488) (2,510) (2,509) -- 1,167(j) (4,340)
Equity income (loss)
from investment in
real estate........... 125 -- -- -- (125)(k) --
Minority interests'
share of equity
(income) loss......... (8) -- -- -- 359(l) 351
Other, net.............. -- (301) (208) -- 345(m) (164)
------- ------- ------- ------- -------- --------
(371) (2,811) (2,717) -- 1,746 (4,153)
------- ------- ------- ------- -------- --------
Income before income
taxes................... 4,237 (591) 610 357 2,360 6,973
Income tax expense........ -- -- -- -- 2,650(n) 2,650
------- ------- ------- ------- -------- --------
Net income................ $ 4,237 $ (591) $ 610 $ 357 $ (290)(o) $ 4,323
======= ======= ======= ======= ======== ========
Pro forma net income per
common share............ $ 0.16
Pro forma common shares
outstanding............. 27,220,000
</TABLE>
The accompanying notes are an integral part of this Pro Forma Statement of
Income.
17
<PAGE> 25
NOTES TO PRO FORMA FINANCIAL DATA
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The acquisition of the equity interests in the Owned Hotels from Blackstone has
been accounted for in the accompanying pro forma financial data at fair value
using the purchase method, except that carryover basis has been used for 9.8% of
such acquisitions. The contributions of equity interests in the Owned Hotels
have been accounted for using predecessor carryover basis. The acquisition of
the Boston Marriott Westborough Hotel has been accounted for using the purchase
method.
NOTE 2. PRO FORMA BALANCE SHEET ADJUSTMENTS (IN THOUSANDS)
ACQUISITION AND ORGANIZATION PLAN PRO FORMA ADJUSTMENTS
<TABLE>
<S> <C> <C>
(a) Adjustments to reflect the net decrease in cash and cash equivalents:
Payments related to the purchase of partnership interests
net of deposits paid of $5,393.......................................... $(118,994)(1)
Payment of arrangement fee for exercise of Blackstone Option............ (233)(2)
Purchase of Boston Marriott Westborough Hotel, net of $250 deposit
paid.................................................................... (19,977)(3)
Distributions of first quarter cash flow to Blackstone from the
Owned Hotels............................................................ (970)(4)
Purchase of common stock of Host Funding, Inc. ......................... (540)(5)
Working capital funded for Boston Marriott Westborough Hotel............ 250(3)
---------
$(140,464)
=========
(b) Elimination of interest receivable from the partners in the Owned
Hotels.................................................................. $ (33)(6)
=========
(c) Adjustment to reflect the funding of cash restricted for renovations to
the Boston Marriott Westborough Hotel................................... $ 1,200(3)
=========
(d) Adjustments to reflect the net increase in the basis of the fixed assets
related to the acquisition of the Owned Hotels:
Purchase of the Boston Marriott Westborough Hotel from an unrelated
third party............................................................. $ 18,777(3)
Record the step-up in basis on 90.2% of the excess cash paid over the
net book
value of the acquisition of Blackstone's partnership interests in the
Owned Hotels............................................................ 61,056(1)
---------
$ 79,833
=========
(e) Adjustment to reflect the elimination of the investment in
Interstone/CGL ......................................................... $ (13,009)(6)
=========
(f) Adjustment to reflect the elimination of loans to the partners in the
Owned Hotels............................................................ $ (7,380)(6)
=========
(g) Adjustments to reflect the net decrease in deposits and other assets:
Application of deposit for purchase of Blackstone's partnership
interests in
the Owned Hotels........................................................ $ (5,393)(1)
Application of deposit for the purchase of the Boston Marriott
Westborough Hotel....................................................... (250)(3)
Purchase of common stock of Host Funding, Inc., accounted for on the
cost method............................................................. 540(5)
---------
$ (5,103)
=========
</TABLE>
18
<PAGE> 26
<TABLE>
<S> <C> <C>
(h) Adjustments to reflect the increase in the minority interests for the
outside ownership maintained in Interstone/CGL:
Minority interest in Interstone/CGL .................................... $ 6,619(7)
Elimination of minority interest acquired by the Company................ (880)(6)
---------
$ 5,739
=========
(i) Adjustments to eliminate partners capital for the Owned Hotels:
Book value of partnership interests contributed......................... $ (35,872)(6)
Book value of Blackstone's partnership interests purchased.............. (56,698)(1)
Book value of minority interest retained in Interstone/CGL ............. (6,619)(7)
---------
$ (99,189)
=========
(j) Adjustments to reflect the net increase in paid-in capital:
Record 9.8% of the excess cash paid over the net book value of the
partnership
interests acquired recorded at carryover basis.......................... $ (6,633)(1)
Arrangement fee for Blackstone Option paid in cash...................... (233)(2)
Distributions of first quarter cash flow to Blackstone from
the Owned Hotels........................................................ (970)(4)
Book value of partnership interests contributed......................... 35,872(6)
Adjustment to reflect the elimination of the investment in
Interstone/CGL.......................................................... (13,009)(6)
Elimination of minority interests acquired by the Company............... 880(6)
Elimination of loans to the partners in the Owned Hotels................ (7,380)(6)
Elimination of interest receivable from the partners in the Owned
Hotels.................................................................. (33)(6)
---------
$ 8,494
=========
FINANCING PLAN AND OTHER PRO FORMA ADJUSTMENTS
(k) Adjustments to reflect the net increase in cash and cash equivalents:
Proceeds from issuance of 11,000,000 shares of Common Stock
at $20 per share and exercise of Blackstone Option...................... $ 243,300(8)
Proceeds of the Term Loan............................................... 195,000(8)
Payment of estimated fees and expenses related to the issuance
of Common Stock......................................................... (16,800)(8)
Payment of estimated fees and expenses related to the Term Loan, the
Acquisition Facility, the interim loan commitment fee and the interest
rate hedge.............................................................. (10,886)(8)
Repayment of existing indebtedness of the Company....................... (35,000)(9)
Repayment of existing indebtedness of the Owned Hotels, except the
Boston Marriott Westborough Hotel....................................... (204,361)(9)
Payment of prepayment penalties related to existing indebtedness........ (2,324)(9)
Payment of accrued interest related to existing indebtedness............ (820)(9)
Payment of notes payable to shareholder................................. (30,000)(10)
---------
$ 138,109
=========
(l) Adjustments to reflect the net decrease in accounts receivable:
Distribution of interest receivable on partner loans to shareholders for
investments made in the Owned Hotels.................................... $ (38)(10)
Elimination of management fees receivable from the Owned Hotels......... (636)(11)
---------
$ (674)
=========
</TABLE>
19
<PAGE> 27
<TABLE>
<S> <C> <C>
(m) Adjustments to reflect the net deferred income taxes in accordance with
Statement of Financial Accounting Standard 109 ("SFAS 109") following
the transition from pass-through tax entities to C Corporation status:
Current deferred tax asset.............................................. $ 4,500
Long-term deferred tax liability........................................ (3,600)
---------
$ 900(12)
=========
(n) Distribution of partner loans to shareholders for investments made in
the Owned Hotels........................................................ $ (1,298)(10)
=========
(o) Adjustments to reflect the net increase in deposits and other assets:
Deferred loan costs on the issuance of the Term Loan and the
Acquisition Facility.................................................... $ 7,644(8)
Write-off of deferred loan costs of the Company......................... (2,159)(9)
Write-off of deferred loan costs of the Owned Hotels, except the
Boston Marriott Westborough Hotel....................................... (4,390)(9)
---------
$ 1,095
=========
(p) Adjustments to reflect the net decrease in other accrued liabilities:
Elimination of management fees receivable from the Owned Hotels......... $ (636)(11)
Payment of accrued interest related to existing indebtedness............ (820)(9)
---------
$ (1,456)
=========
(q) Adjustments to reflect the net increase in the current portion of
long-term debt:
Proceeds from issuance of the Term Loan, current portion................ $ 5,000(8)
Repayment of existing indebtedness, current portion..................... (3,667)(9)
---------
$ 1,333
=========
(r) Adjustments to reflect the net decrease in long-term debt, excluding
current portion:
Repayment of existing indebtedness of the Company....................... $ (35,000)(9)
Repayment of existing indebtedness of the Owned Hotels, except the
Boston Marriott Westborough Hotel, long-term portion.................... (200,694)(9)
Proceeds of the Term Loan, long-term portion............................ 190,000(8)
---------
$ (45,694)
=========
(s) Payment of notes payable to shareholders................................ $ (30,000)(10)
=========
(t) Adjustment to reflect increase in par value of stock outstanding........ $ 269(13)
=========
</TABLE>
20
<PAGE> 28
<TABLE>
<S> <C> <C>
(u) Adjustments to reflect the net increase in paid-in capital:
Proceeds from issuance of 11,000,000 shares of Common Stock
at $20 per share and exercise of the Blackstone Option.................. $ 243,300(8)
Payment of estimated fees and expenses related to the issuance of Common
Stock and the interim loan commitment fee.......................... (20,042)(8)
Distribution of partner loans to shareholders for investments made in
the
Owned Hotels............................................................ (1,298)(10)
Distribution of interest receivable on partner loans to shareholders for
investments
made in the Owned Hotels................................................ (38)(10)
Write-off of deferred loan costs of the Company......................... (2,159)(9)
Write-off of deferred loan costs of the Owned Hotels, except the
Boston Marriott Westborough Hotel....................................... (4,390)(9)
Payment of prepayment penalties related to existing indebtedness........ (2,324)(9)
Record deferred income taxes in accordance with SFAS 109................ 900(12)
Increase in par value of stock outstanding.............................. (269)(13)
Reduction of paid-in capital for reclassification of retained deficit... (11,637)(14)
Increase in unearned compensation....................................... (3,216)(15)
---------
$ 198,827
=========
(v) Adjustments to reflect net increase in unearned compensation:
Increase in unearned compensation for issuance of restricted stock...... $ (6,319)(15)
Unearned compensation related to restricted stock expensed on Offering
date.................................................................... 9,535(15)
---------
$ 3,216
=========
(w) Adjustment to reflect reclassification of retained deficit.............. $ 11,637(14)
=========
</TABLE>
The detail supporting the pro forma balance sheet as of March 31, 1996
reflect 15 self-balancing entries which are identified in (1) through (15) below
and reflect the following:
(1) Record purchase of Blackstone partnership interests in the Owned Hotels and
adjustment of the basis in the assets.
(2) Record arrangement fee paid for exercise of the Blackstone Option.
(3) Record purchase of the Boston Marriott Westborough Hotel from an unrelated
third party.
(4) Record final cash flow distribution to Blackstone from the Owned Hotels.
(5) Record purchase of 60,000 shares of common stock of Host Funding, Inc. at
$9.00 per share.
(6) Record contribution by existing shareholders of the partnership interests
in the Owned Hotels, in exchange for stock in the Company, net of
outstanding loans related to the Owned Hotels.
(7) Record consolidation of minority interest in Interstone/CGL retained by an
unrelated third party.
(8) Record debt and equity financing and related costs and expenses.
(9) Record repayment of indebtedness to unaffiliated third parties and
write-off of related deferred loan costs.
(10) Record final distributions to shareholders.
(11) Record elimination of intercompany receivables/payables.
(12) Record initial net deferred tax benefit in accordance with SFAS 109.
(13) Record change in par value of shares outstanding.
(14) Record reclassification of retained deficit to paid-in capital.
(15) Record unearned compensation related to restricted stock plans.
21
<PAGE> 29
NOTE 3. PRO FORMA STATEMENT OF INCOME ADJUSTMENTS (IN THOUSANDS)
ACQUISITION AND ORGANIZATION PLAN PRO FORMA ADJUSTMENTS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------- ----------------
<S> <C> <C> <C>
(a) Adjustments to reflect the addition of revenues for the
acquisition of the Boston Marriott Westborough Hotel........ $ 10,811 $ 2,689
========= ========
(b) Adjustments to reflect addition of operating expenses for
the acquisitions of the Boston Marriott Westborough Hotel... $ 8,515 $ 2,096
========= =========
(c) Adjustment to reflect the pro forma depreciation expense
related to the purchase of the Boston Marriott Westborough
Hotel from an unrelated third party......................... $ 858 $ 236
========= =========
FINANCING PLAN AND OTHER PRO FORMA ADJUSTMENTS
(d) Adjustments to reflect net decrease in net management fees:
Pro forma adjustment to reflect full year management of the
Owned Hotels and Host Hotels................................ $ 2,306 $ 50
Elimination of net management fees for the Owned Hotels..... (5,022) (1,261)
--------- ---------
$ (2,716) $ (1,211)
========= =========
(e) Adjustments to eliminate purchasing fees earned from the
Owned Hotels:
Elimination of purchasing fees capitalized by the Owned
Hotels...................................................... $ (360) $ (61)
Elimination of purchasing fees expensed by the Owned
Hotels...................................................... (61) (6)
--------- ---------
$ (421) $ (67)
========= ========
(f) Adjustment to reflect the elimination of insurance premiums
paid by the Owned Hotels.................................... $ (846) $ (211)
========= ========
(g) Adjustments to reflect net decrease in operating expenses of
the Owned Hotels:
Pro forma net increase in management fee expense for
Interstone I
properties as a result of new management contracts.......... $ 490 $ --
Pro forma net decrease in management fee expense for
Interstone/CGL properties as a result of new
management contracts........................................ (1,917) --
Elimination of net management fees for the Owned Hotels..... (5,022) (1,261)
Elimination of insurance premiums paid by the Owned
Hotels...................................................... (846) (211)
Elimination of purchasing fees expensed by the Owned
Hotels...................................................... (61) (6)
--------- --------
$ (7,356) $ (1,478)
========= ========
(h) Adjustment to reflect increase in general and administrative
expenses related to managing and administering a publicly
held company................................................ $ 1,000 $ 250
========= ========
</TABLE>
22
<PAGE> 30
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------- ----------------
<S> <C> <C> <C>
(i) Adjustments to reflect the net decrease in depreciation and
amortization:
Pro forma depreciation and amortization expense of the
Interstone I properties*.................................... $ 8,886 $ 2,331
Pro forma depreciation and amortization expense of the
Interstone/CGL properties*.................................. 7,113 1,780
Elimination of historical depreciation and amortization
expense of
the Interstone I properties................................. (10,251) (2,704)
Elimination of historical depreciation and amortization
expense of
the Interstone/CGL properties............................... (7,455) (2,194)
Elimination of amortization of loan costs of the Company
related
to indebtedness repaid...................................... (36) (76)
Elimination of depreciation expense related to purchasing
fees capitalized............................................ (12) (12)
--------- --------
$ (1,755) $ (875)
========= ========
(j) Adjustments to reflect the net change in interest expense:
Interest expense related to the Term Loan**................. $ (14,696) $ (3,615)
Net interest expense related to the Interstone/CGL
loan***..................................................... (2,281) (561)
Interest expense related to the unused commitment fee on the
Acquisition Facility****.................................... (375) (94)
Amortization of loan costs relating to the Term Loan, the
Acquisition Facility and the interest rate hedge............ (1,540) (385)
Elimination of interest expense of the Company related to
indebtedness repaid......................................... 505 803
Elimination of interest expense of the Interstone I
properties
related to indebtedness repaid.............................. 9,605 2,510
Elimination of interest expense of the Interstone/CGL
properties
related to indebtedness repaid.............................. 460 2,509
--------- --------
$ (8,322) $ 1,167
========= ========
- - ----
* Pro forma depreciation expense is calculated on the straight line method over the estimated
useful life of the asset. (Pro forma depreciation expense for buildings and improvements is
calculated over a period of 10 to 38 years, and pro forma depreciation expense for furniture
and fixtures is calculated over a period of 7 years.) Pro forma amortization of deferred
expenses is calculated on the straight line method over the estimated useful life of the
asset. (Pro forma amortization for franchise fees is calculated over a period of 8 to 25
years, and a non-compete agreement is calculated over a period of 5 years.)
** Interest on the $195 million Term Loan is assumed in two tranches: $54 million swapped at
7.80% and the remainder floating at LIBOR (5.5%) plus 2%. Principal is assumed to be
amortized at $1.25 million per quarter. A $50,000 annual agency fee is also assumed.
*** Interest on the $29.8 million Interstone/CGL loan is assumed in two tranches: $18 million
swapped at 7.80% and the remainder floating at LIBOR (5.5%) plus 2%. Principal is assumed to
be amortized at $187,500 per quarter. A $12,500 annual agency fee is also assumed.
**** Interest expense for the unused commitment fee is 3/8 of 1% of the available draw on the
Acquisition Facility.
(k) Adjustment to reflect the elimination of equity income from
Interstone/CGL.............................................. $ 154 $ (125)
========= ========
</TABLE>
23
<PAGE> 31
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------- ------------
<S> <C> <C> <C>
(l) Adjustments to reflect the net change in the minority
interests for the outside ownership maintained in
Interstone/CGL:
Minority interests' share of loss (income) of
Interstone/CGL.............................................. $ (495) $ 351
Elimination of minority interests acquired by the Company... (11) 8
--------- --------
$ (506) $ 359
========= ========
(m) Adjustments to reflect the net decrease in other income
(expense):
Elimination of gain on settlement of debt obligations
assumed by
the Company in connection with the 1995 Reorganization
(see "Certain Relationships and Related Transactions--
1995 Reorganization")....................................... $ (346) $ --
Elimination of corporate overhead allocations from the prior
owner
of the Interstone/CGL properties............................ 622 --
Record $500 for annual asset management fees on
Interstone/CGL
to an unrelated partner..................................... (500) --
Elimination of relocation costs of management funded by the
previous partners of the Owned Hotels....................... 277 345
Elimination of losses recognized by the Interstone I
properties
related to a 1995 debt refinancing.......................... 589 --
--------- --------
$ 642 $ 345
========= ========
(n) Adjustments to record corporate income tax using an
effective income tax rate of 38%. The pro forma consolidated
statement of income does not include the initial recording
of an estimated net deferred income tax liability of $1,620
associated with the change in tax status. This amount will
be recorded by the Company subsequent to the consummation of
the Offering:
Income tax at an effective rate of 38%...................... $ 7,838 $ 2,650
Elimination of income tax recorded by previous corporate
owner of the Interstone/CGL properties...................... (3,607) --
--------- --------
$ 4,231 $ 2,650
========= ========
(o) Pro forma net income does not include certain one-time charges to income amounting to $17,191
related to the recognition of unearned compensation, the interim loan commitment fee, payment of
prepayment penalties, the Blackstone arrangement fee and the write-off of deferred loan costs of
indebtedness repaid, net of applicable income taxes.
</TABLE>
24
<PAGE> 32
SELECTED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND HOTEL DATA)
The following table sets forth selected historical financial data of the
Company as of and for each of the years ended December 31, 1991, 1992, 1993,
1994 and 1995 and the three months ended March 31, 1995 and 1996, selected pro
forma financial data of the Company for the year ended December 31, 1995 and as
of and for the three months ended March 31, 1996, and certain other data. The
selected financial data as of December 31, 1994 and 1995 and for each of the
years ended December 31, 1993, 1994 and 1995 have been derived from audited
combined financial statements of the Company included elsewhere in this
Prospectus. The selected financial data of the Company as of December 31, 1991,
1992 and 1993 and for each of the years ended December 31, 1991 and 1992 have
been derived from audited combined financial statements of the Company which are
not required to be included in this Prospectus. The selected historical
financial data of the Company as of and for the three months ended March 31,
1995 and 1996 have been derived from unaudited financial statements of the
Company and, in the opinion of the Company, reflect all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
information set forth therein. The interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short term variations. The pro forma financial data give effect to the Offering
and the transactions described in "Business and Properties--Host Funding
Transaction" and "The Organization, Acquisition and Financing Plan" (excluding
the possible acquisition of the Trumbull Hotel) as if all such transactions had
occurred as of January 1, 1995, except that the pro forma balance sheet data
give effect to such transactions as if each had occurred on March 31, 1996. The
pro forma financial information presented is not necessarily indicative of what
the actual financial position and results of operations of the Company would
have been as of and for the periods indicated, nor does it purport to represent
the Company's future financial position and results of operations. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Prospectus.
25
<PAGE> 33
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995 (1) 1995 1996 1996 (1)
-------- -------- -------- -------- ---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Hotel revenues......... $ -- $ -- $ -- $ -- $ -- $183,842 $ -- $ -- $ 45,991
Net management fees
(2).................. 16,304 16,219 19,229 22,284 27,022 24,306 5,846 7,183 5,972
Purchasing fees (2).... 928 1,182 1,414 2,157 2,508 2,087 544 801 734
Other fees............. 413 609 2,065 5,324 7,816 7,816 1,518 2,540 2,540
Insurance income (2)... -- 1,863 2,856 6,961 7,672 6,826 2,341 1,772 1,561
-------- -------- -------- -------- ---------- --------- -------- -------- ---------
Total revenues..... 17,645 19,873 25,564 36,726 45,018 224,877 10,249 12,296 56,798
Operating expenses:
Hotel expenses......... -- -- -- -- -- 137,236 -- -- 33,475
General and
administrative....... 3,020 3,861 4,763 7,652 9,271 10,271 1,949 2,304 2,554
Payroll and related
benefits............. 8,856 8,803 10,321 12,420 15,469 15,469 3,834 4,249 4,249
State and local
taxes................ 43 235 294 650 540 540 131 34 34
Depreciation and
amortization......... 3,286 3,352 3,282 3,659 4,201 21,010 1,042 1,101 5,360
-------- -------- -------- -------- ---------- --------- -------- -------- ---------
Operating income......... 2,440 3,622 6,904 12,345 15,537 40,351 3,293 4,608 11,126
Other income (expense):
Interest, net.......... (101) 98 12 30 99 (18,288) 52 (488) (4,340)
Equity (loss) income
from investment in
real estate.......... -- -- -- -- (154) -- -- 125 --
Minority interests'
share of equity loss
(income)............. -- -- -- -- 11 (495) -- (8) 351
Other, net............. (431) (100) (6) 14 346 (941) -- -- (164)
-------- -------- -------- -------- ---------- -------- -------- -------- --------
Income before income
taxes.................. 1,908 3,620 6,910 12,389 15,839 20,627 3,345 4,237 6,973
Income tax expense (3)... -- -- -- -- -- 7,838 -- -- 2,650
-------- -------- -------- -------- ---------- -------- -------- -------- --------
Net income............... $ 1,908 $ 3,620 $ 6,910 $ 12,389 $ 15,839 $ 12,789 $ 3,345 $ 4,237 $ 4,323
======== ======== ======== ======== ========== ======== ======== ======== ========
Pro forma net income per
common share (4)....... $ 0.47 $ .16
Pro forma common shares
outstanding............ 27,220,000 27,220,000
BALANCE SHEET DATA (AT
YEAR END):
Cash and cash
equivalents.............. $ 2,997 $ 4,461 $ 4,520 $ 6,702 $ 14,035 $ 7,303 $ 12,074 $ 21,112
Total assets.............. 25,146 24,270 24,436 30,741 61,401 34,239 70,025 482,856
Total debt................ 2,168 2,076 1,809 3,890 36,270 3,640 36,058 225,870
Total equity (deficit).... 18,360 16,685 16,627 18,858 9,256 18,851 (16,740) 205,703
OTHER FINANCIAL DATA:
EBITDA (5)................ $ 5,338 $ 7,109 $ 10,474 $ 16,668 $ 20,481 $ 60,465 $ 4,466 $ 5,860 $ 16,707
Net cash provided by
operating
activities............... 3,668 7,332 10,389 15,318 25,328 52,422 4,868 4,945 4,940
Net cash (used in)
investing activities..... (726) (481) (3,088) (3,852) (22,858) (361,935) (664) (6,279) (148,427)
Net cash (used in)
provided by financing
activities............... (2,571) (5,387) (7,242) (9,285) 4,863 312,379 (3,603) (627) 134,779
TOTAL PORTFOLIO HOTEL
DATA: (6)
Total portfolio hotel
revenues................. $513,907 $584,344 $760,766 $858,986 $1,056,279 $246,072 $301,401
Number of hotels (7)...... 49 53 82 136 150 138 149
Number of rooms (7)....... 17,386 18,985 24,202 31,502 35,044 31,738 35,357
COMPARABLE HOTEL OPERATING DATA: (8)
Occupancy percentage
(9)...................... 74.9% 75.4% 76.6% 75.3% 77.3%
ADR (10).................. $83.73 $86.96 $91.78 $95.38 $100.29
REVPAR (11)............... $62.74 $65.60 $70.31 $71.79 $77.51
Gross operating profit
margin (12).............. 28.2% 30.0% 31.5% 32.6% 34.0%
</TABLE>
26
<PAGE> 34
- - ------------------
(1) Reflects the Offering, the transactions described in "Business and
Properties--Host Funding Transaction" and "The Organization, Acquisition
and Financing Plan" (excluding the possible acquisition of the Trumbull
Hotel) and the other adjustments described in "Pro Forma Financial Data."
(2) Pro forma net management and purchasing fees and insurance income declined
due to the assumed consolidation of the Owned Hotels and the resultant pro
forma elimination of $4.0 million and $1.5 million of management and
related fees actually derived from the Owned Hotels in 1995 and the three
months ended March 31, 1996, respectively.
(3) Until immediately prior to the consummation of the Offering, the Company
operated as an S corporation and, accordingly, was not subject to federal
and certain state income taxes. The pro forma statement of income data have
been computed as if the Company had been subject to federal and state
income taxes, based on the applicable statutory tax rates and tax laws then
in effect.
(4) Based on 27,220,000 shares of Common Stock outstanding after the Offering.
(5) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. Management believes that EBITDA is a useful measure of
operating performance because it is industry practice to evaluate hotel
properties based on operating income before interest, depreciation and
amortization, which is generally equivalent to EBITDA, and EBITDA is
unaffected by the debt and equity structure of the property owner. EBITDA
does not represent cash flow from operations as defined by GAAP, is not
necessarily indicative of cash available to fund all cash flow needs and
should not be considered as an alternative to net income under GAAP for
purposes of evaluating the Company's results of operations.
(6) Represents all hotels to which the Company provides management or related
services.
(7) As of the end of the periods presented.
(8) The comparable hotel data set consists of all of the hotels (consisting of
35 hotels containing a total of 12,771 rooms) managed continually by the
Company from January 1, 1993 through March 31, 1996.
(9) Represents total rooms occupied by hotel guests on a paid basis divided by
total available rooms. Total available rooms represents the number of rooms
available for rent multiplied by the number of days in the reported period.
(10) Represents total room revenues divided by the total number of rooms
occupied by hotel guests on a paid basis.
(11) Represents room revenues divided by total available rooms.
(12) Represents gross operating profit divided by total revenues. "Gross
operating profit" represents total revenues less departmental expenses and
undistributed operating expenses, excluding management fees.
27
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is management's discussion and analysis of the Company's
financial position and results of operations. In light of the transactions
referred to in "Business and Properties--Host Funding Transaction" and "The
Organization, Acquisition and Financing Plan," the Offering and application of
the net proceeds therefrom as described in "Use of Proceeds" and the fact that
the Owned Hotels were purchased on varying dates since 1994, the following
discussion and analysis includes discussion and analysis of the Company's pro
forma financial position and results of operations in addition to historical
data. See "Pro Forma Financial Data" for a discussion of the adjustments made to
the historical data.
The following table sets forth selected items from the statements of income
as a percent of total revenues and certain other selected data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------- --------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1995 1995 1996 1996
----- ----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Hotel expenses................... -- -- -- 61.1 -- -- 58.9
General and administrative....... 18.6 20.8 20.6 4.6 19.0 18.7 4.5
Payroll and related benefits..... 40.4 33.8 34.4 6.9 37.4 34.6 7.5
State and local taxes............ 1.2 1.8 1.2 0.2 1.3 0.3 0.1
Depreciation and amortization.... 12.8 10.0 9.3 9.3 10.2 8.9 9.4
----- ----- ----- -------- ----- ----- --------
Operating income............... 27.0 33.6 34.5 17.9 32.1 37.5 19.6
Other income (expense)........... -- 0.1 0.7 (8.7) 0.5 (3.0) (7.3)
----- ----- ----- -------- ----- ----- --------
Income before income taxes..... 27.0 33.7 35.2 9.2 32.6 34.5 12.3
Income tax expense............... -- -- -- 3.5 -- -- 4.7
----- ----- ----- -------- ----- ----- --------
Net income..................... 27.0% 33.7% 35.2% 5.7% 32.6% 34.5% 7.6%
===== ===== ===== ======== ===== ===== ========
</TABLE>
The pro forma adjustments described below under "Pro Forma Three Months
Ended March 31, 1996 Compared to Combined Three Months Ended March 31, 1995" and
"Pro Forma Year Ended December 31, 1995 Compared to Combined Year Ended December
31, 1994" result primarily from the acquisition of the Owned Hotels. The Owned
Hotels consist of 15 geographically diverse upscale hotels, containing an
aggregate of 4,621 rooms and operating under the Embassy Suites(R), Hilton(R),
Marriott(R) and Radisson(R) trade names principally in major metropolitan
markets such as Atlanta, Boston, Chicago, Los Angeles, Philadelphia, Houston,
Fort Lauderdale and Washington, D.C. The Owned Hotels produced superior
operating results in
28
<PAGE> 36
1995, achieving an average occupancy rate of 73.0%, ADR of $88.03 and REVPAR of
$64.29. The following is a list of the Owned Hotels:
<TABLE>
<CAPTION>
NUMBER
HOTEL LOCATION OF ROOMS
---------------
<S> <C> <C>
Warner Center Marriott Woodland Hills, CA 463
Colorado Springs Marriott Colorado Springs, CO 310
Denver Hilton South Greenwood Village, CO 305
Ft. Lauderdale Airport Hilton Dania, FL 388
Atlanta Marriott North Central Atlanta, GA 287
Lisle Radisson Lisle, IL 242
Schaumburg Embassy Suites Schaumburg, IL 209
Boston Marriott Andover Andover, MA 293
Boston Marriott Westborough Westborough, MA 223
Huntington Hilton Melville, NY 302
Philadelphia Marriott West West Conshohocken, PA 286
Marriott Suites at Valley Forge Valley Forge, PA 229
Houston Marriott North at Greenspoint Houston, TX 391
Tysons Corner Marriott Tysons Corner, VA 390
Fort Magruder Inn and Conference Center Williamsburg, VA 303
------
4,621
=============
</TABLE>
The amounts referred to as combined financial information ("combined")
represent the historical financial results of operations of the Company combined
with the historical financial results of operations of the Owned Hotels, without
any pro forma adjustments related to the Acquisition, Organization or Financing
Plan.
PRO FORMA THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO COMBINED THREE MONTHS
ENDED
MARCH 31, 1995
Total revenues increased by $3.2 million, or 6.1%, from $53.6 million in
the first three months of combined 1995 to $56.8 million in the first three
months of pro forma 1996. Hotel revenues increased by $2.7 million, or 6.2%,
from $43.3 million in the first three months of combined 1995 to $46.0 million
in the first three months of pro forma 1996. The increase was due to the overall
improvement in the operating performance of the Owned Hotels, partially
attributed to a change in franchise affiliations for certain of the Owned Hotels
and the completion of hotel renovations during 1995. Net management fees
increased slightly from $5.8 million in the first three months of combined 1995
to $6.0 million in the first three months of pro forma 1996 due primarily to
performance improvement of managed hotels. Purchasing fees and other fees
increased by $1.2 million, or 58.8%, from $2.1 million in the first three months
of combined 1995 to $3.3 million in the first three months of pro forma 1996 due
partially to incremental revenues of $0.3 million associated with the net
addition of new hotels that required renovation and purchasing services. The
remaining increase of $0.9 million was attributed to incremental revenues
related to the net addition of new hotels, many of which utilize the Company's
other contractual services, such as MIS support and the training and relocation
programs. Insurance income decreased by $0.7 million, or 33.3%, from $2.3
million in the first three months of combined 1995 to $1.6 million in the first
three months of pro forma 1996 due to timing associated with the recognition of
income from premiums written.
Hotel expenses decreased by $1.2 million, or 3.6%, from $34.7 million in
the first three months of combined 1995 to $33.5 million in the first three
months of pro forma 1996. The decrease was due primarily to the overall
improvement in operating efficiencies.
General and administrative expenses are associated with the management of
hotels and consist primarily of centralized management expenses such as
operations management, sales and marketing, finance and other hotel support
services, as well as general corporate expenses. General and administrative
expenses increased by $0.7 million, or 31.0%, from $1.9 million in the first
three months of combined 1995 to $2.6 million in the first three months of pro
forma 1996. The increase was due primarily to incremental expenses associated
with the
29
<PAGE> 37
net addition of new hotels and expenses associated with managing and
administering a publicly held company. General and administrative expenses as a
percentage of revenues increased to 4.5% in the first three months of pro forma
1996 compared to 3.6% in the first three months of combined 1995 as a result of
operating leverage and increased operating efficiencies.
Payroll and related benefits expenses increased by $0.4 million, or 10.8%,
from $3.8 million in the first three months of combined 1995 to $4.2 million in
the first three months of pro forma 1996. The increase was due primarily to the
addition of new employees related to the growth of the Company's hotel
management business. Payroll and related benefits expenses as a percentage of
revenues increased to 7.5% in the first three months of pro forma 1996 compared
to 7.2% in the first three months of combined 1995.
Depreciation and amortization of $5.5 million in the first three months of
combined 1995 remained relatively consistent with depreciation and amortization
of $5.4 million in the first three months of pro forma 1996.
Operating income increased by $3.7 million, or 50.8%, from $7.4 million in
the first three months of combined 1995 to $11.1 million in the first three
months of pro forma 1996. Operating margin increased from 13.8% in the first
three months of combined 1995 to 19.6% in the first three months of pro forma
1996. The improvement in the operating margin was attributed to the increase in
revenues and the decrease in hotel expenses as a percentage of revenues,
partially offset by an increase in general and administrative expenses and
payroll and related benefits expenses.
Interest expense increased by $2.5 million, or 107.3%, from $2.2 million in
the first three months of combined 1995 to $4.7 million in the first three
months of pro forma 1996 due primarily to additional borrowings related to the
Acquisition and the Financing Plan.
The pro forma income tax expense of $2.7 million in the first three months
of pro forma 1996 was computed as if the Company was subject to federal and
state income taxes, based on an effective tax rate of 38%. The majority of the
results of operations in the first three months of combined 1995 were not taxed
since certain entities were pass-through entities for tax purposes.
As a result of the changes noted above, net income increased by $0.3
million, or 8.6%, from $4.0 million in the first three months of combined 1995
to $4.3 million in the first three months of pro forma 1996. Net income margin
increased from 7.4% in the first three months of combined 1995 to 7.6% in the
first three months of pro forma 1996.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Total revenues increased by $2.1 million, or 20.0%, from $10.2 million in
the first three months of 1995 to $12.3 million in the first three months of
1996. Net management fees increased by $1.4 million, or 22.9%, from $5.8 million
in the first three months of 1995 to $7.2 million in the first three months of
1996 due to the addition of 40 new management contacts and increased revenues
associated with existing managed hotels. The increase in net management fees was
partially offset by the loss of 29 management contracts primarily due to the
divestiture of hotels by third-party hotel owners. Approximately $0.8 million,
or 57%, of this increase resulted from increases in base management fees, and
$0.6 million, or 43%, of this increase resulted from increases in incentive
management fees due to performance improvement of existing contracts and the
increase in the number of new contracts that provide for incentive management
fees. Purchasing fees and other fees increased by $1.3 million, or 62.0%, from
$2.0 million in the first three months of 1995 to $3.3 million in the first
three months of 1996 due partially to incremental revenues of $0.3 million
associated with the net addition of new hotels that required renovation and
purchasing services. The remaining increase of $1.0 million was attributable to
incremental revenues related to the net addition of new hotels, many of which
utilize the Company's other contractual services, such as MIS support and
training and relocation programs. Insurance income decreased by $0.5 million, or
24.3%, from $2.3 million in the first three months of 1995 to $1.8 million in
the first three months of 1996 due to the timing associated with the recognition
of income from premiums written.
General and administrative expenses increased by $0.4 million, or 18.2%,
from $1.9 million in the first three months of 1995 to $2.3 million in the first
three months of 1996. The increase was due primarily to
30
<PAGE> 38
incremental expenses associated with the net addition of new hotels. General and
administrative expenses as a percentage of revenues decreased to 18.7% in the
first three months of 1996 compared to 19.0% in the first three months of 1995.
Payroll and related benefits expenses increased by $0.4 million, or 10.8%,
from $3.8 million in the first three months of 1995 to $4.2 million in the first
three months of 1996. The increase was due primarily to the addition of new
employees related to the growth of the Company's hotel management business.
Payroll and related benefits expenses as a percentage of revenues decreased to
34.6% in the first three months of 1996 compared to 37.4% in the first three
months of 1995 as a result of operating leverage and increased operating
efficiencies.
Operating income increased by $1.3 million, or 39.9%, from $3.3 million in
the first three months of 1995 to $4.6 million in the first three months of
1996. Operating margin increased from 32.1% in the first three months of 1995 to
37.5% in the first three months of 1996. The improvement in the operating margin
was attributed to the increase in revenues and the decrease in operating
expenses as a percentage of revenues.
As a result of the changes noted above, net income (exclusive of income tax
expense) increased by $0.9 million, or 26.7%, from $3.3 million in the first
three months of 1995 to $4.2 million in the first three months of 1996. Net
income margin increased from 32.6% in the first three months of 1995 to 34.5% in
the first three months of 1996.
PRO FORMA YEAR ENDED DECEMBER 31, 1995 COMPARED TO COMBINED YEAR ENDED DECEMBER
31, 1994
Total revenues increased by $34.3 million, or 18.0%, from $190.6 million in
combined 1994 to $224.9 million in pro forma 1995. Hotel revenues increased by
$29.9 million, or 19.5%, from $153.9 million in combined 1994 to $183.8 million
in pro forma 1995. The increase was due primarily to incremental revenues of
$20.2 million related to four of the Owned Hotels for which only partial year
financial results were included in combined 1994. The remaining increase
resulted from the overall performance improvement of the Owned Hotels. Net
management fees increased by $2.0 million, or 9.1%, from $22.3 million in
combined 1994 to $24.3 million in pro forma 1995 due primarily to the net
addition of 14 new management contracts throughout the year and increased
revenues associated with existing managed hotels. Purchasing fees and other fees
increased by $2.4 million, or 32.4%, from $7.5 million in combined 1994 to $9.9
million in pro forma 1995 due primarily to incremental revenues of $0.7 million
relating to additional franchise/marketing representation fees related to the
Colony portfolio, which was acquired in May 1994, and incremental revenues of
$0.6 million resulting from additional centralized accounting fees associated
with the management contracts that were acquired from Winthrop Hotels & Resorts
in July 1994 (the "Winthrop contracts"). The remaining increase of $1.1 million
was attributable to incremental revenues related to the net addition of new
hotels, many of which utilize the Company's purchasing, project management and
other contractual services. Insurance income of $7.0 million in combined 1994
remained relatively consistent with insurance income of $6.8 million in pro
forma 1995.
Hotel expenses increased by $15.4 million, or 12.7%, from $121.8 million in
combined 1994 to $137.2 million in pro forma 1995. The increase was due
primarily to incremental expenses of $14.1 million related to four of the Owned
Hotels for which only partial year financial results were included in combined
1994.
General and administrative expenses increased by $2.6 million, or 34.2%,
from $7.7 million in combined 1994 to $10.3 million in pro forma 1995. The
increase was due primarily to incremental expenses of $1.3 million associated
with the Colony portfolio, increased commissions and claims expenses of $0.5
million related to the Company's insurance business and $1.0 million of
incremental expenses associated with managing and administering a publicly held
company, offset by a $0.2 million decrease in general corporate expenses as a
result of operating leverage and increased operating efficiencies. General and
administrative expenses as a percentage of revenues increased to 4.6% in pro
forma 1995 compared to 4.0% in combined 1994.
Payroll and related benefits expenses increased by $3.1 million, or 24.5%,
from $12.4 million in combined 1994 to $15.5 million in pro forma 1995. The
increase was due primarily to incremental expenses of $1.5 million associated
with the Colony portfolio and the growth of the Crossroads portfolio and $1.3
million
31
<PAGE> 39
related to an increase in incentive bonuses paid to certain executive officers
and development staff. Payroll and related benefits expenses as a percentage of
revenues increased to 6.9% in pro forma 1995 compared to 6.5% in combined 1994.
Depreciation and amortization increased by $1.6 million, or 8.1%, from
$19.4 million in combined 1994 to $21.0 million in pro forma 1995 due primarily
to incremental depreciation related to the step-up in basis of the Owned Hotels
included in pro forma 1995.
Operating income increased by $11.7 million, or 40.8%, from $28.7 million
in combined 1994 to $40.4 million in pro forma 1995. Operating margin increased
from 15.0% in combined 1994 to 17.9% in pro forma 1995. The improvement in the
operating margin was attributed to the increase in revenues and the decrease in
hotel expenses as a percentage of revenues, partially offset by an increase in
general and administrative expenses, payroll and related benefits expenses and
depreciation and amortization.
Interest expense increased by $10.9 million, or 133.6%, from $8.1 million
in combined 1994 to $19.0 million in pro forma 1995 due primarily to additional
borrowings related to the Acquisition and the Financing Plan.
An extraordinary item of $18.4 million was recognized as income in combined
1994 to reflect a gain on the early extinguishment of debt for one of the Owned
Hotels, and no such gains were recognized in pro forma 1995.
The pro forma income tax expense of $7.8 million in pro forma 1995 was
computed as if the Company was subject to federal and state income taxes, based
on an effective tax rate of 38%. The majority of the results of operations in
combined 1994 were not taxed since certain entities were pass-through entities
for tax purposes.
As a result of the changes noted above, net income (exclusive of the
extraordinary item) decreased by $4.0 million, or 23.9%, from $16.8 million in
combined 1994 to $12.8 million in pro forma 1995. Net income margin decreased
from 18.5% in combined 1994 to 5.7% in pro forma 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenues increased by $8.3 million, or 22.6%, from $36.7 million in
1994 to $45.0 million in 1995. Net management fees increased by $4.7 million, or
21.3%, from $22.3 million in 1994 to $27.0 million in 1995 due to the addition
of 43 new management contracts and increased revenues associated with existing
managed hotels. The increase in net management fees was partially offset by the
loss of 29 management contracts primarily due to the divestiture of hotels by
third-party hotel owners. Approximately $3.1 million, or 66%, of this increase
resulted from increases in base management fees, and $1.6 million, or 34%, of
this increase resulted from increases in incentive management fees due to
performance improvement of existing contracts and the increase in the number of
new contracts that provide for incentive management fees. Purchasing fees and
other fees increased by $2.8 million, or 38.0%, from $7.5 million in 1994 to
$10.3 million in 1995 due primarily to incremental revenues of $0.7 million
relating to additional franchise/marketing representation fees related to the
Colony portfolio and incremental revenues of $0.6 million resulting from
additional centralized accounting fees associated with the Winthrop Contracts.
The remaining increase of $1.5 million was attributable to incremental revenues
related to the net addition of new hotels, many of which utilize the Company's
purchasing, project management and other contractual services. Insurance income
increased by $0.7 million, or 10.2%, from $7.0 million in 1994 to $7.7 million
in 1995 due to the net addition of new managed hotels that elected to
participate in the Company's insurance program.
General and administrative expenses increased by $1.6 million, or 21.2%,
from $7.7 million in 1994 to $9.3 million in 1995. The increase was due
primarily to incremental expenses of $1.3 million associated with the Colony
portfolio and increased commissions and claims expenses of $0.5 million related
to the Company's insurance business, offset by a $0.2 million decrease in
general corporate expenses as a result of operating leverage and increased
operating efficiencies. General and administrative expenses as a percentage of
revenues decreased to 20.6% in 1995 compared to 20.8% in 1994.
Payroll and related benefits expenses increased by $3.1 million, or 24.5%,
from $12.4 million in 1994 to $15.5 million in 1995. The increase was due
primarily to incremental expenses of $1.5 million associated with
32
<PAGE> 40
the Colony portfolio and the growth of the Crossroads portfolio and $1.3 million
related to an increase in incentive bonuses paid to certain executive officers
and development staff. Payroll and related benefits expenses as a percentage of
revenues increased to 34.4% in 1995 compared to 33.8% in 1994.
Operating income increased by $3.2 million, or 25.9%, from $12.3 million in
1994 to $15.5 million in 1995. Operating margin increased from 33.6% in 1994 to
34.5% in 1995. The improvement in the operating margin was attributed to the
increase in revenues and the decrease in general and administrative expenses as
a percentage of revenues, partially offset by an increase in payroll and related
benefits expenses and other operating expenses.
As a result of the changes noted above, net income (exclusive of income tax
expense) increased by $3.4 million, or 27.8%, from $12.4 million in 1994 to
$15.8 million in 1995. Net income margin increased from 33.7% in 1994 to 35.2%
in 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Total revenues increased by $11.1 million, or 43.7%, from $25.6 million in
1993 to $36.7 million in 1994. Net management fees increased by $3.1 million, or
15.9%, from $19.2 million in 1993 to $22.3 million in 1994 due to the addition
of 83 new management contracts and increased revenues associated with existing
managed hotels. The increase in net management fees was partially offset by the
loss of 29 management contracts primarily due to the divestiture of hotels by
third-party hotel owners. Approximately $1.3 million, or 42%, of this increase
resulted from increases in base management fees and $1.8 million, or 58%, of
this increase resulted from increases in incentive management fees. Purchasing
fees and other fees increased by $4.0 million, or 115.0%, from $3.5 million in
1993 to $7.5 million in 1994 due primarily to an increase of $2.0 million
associated with the creation of training and relocation programs for managed
hotels and new revenues of $0.8 million relating to additional
franchise/marketing representation fees related to the Colony portfolio. The
remaining increase of $1.2 million was attributed to incremental revenues
related to the net addition of new hotels, many of which utilize the Company's
purchasing, project management and other contractual services. Insurance income
increased by $4.1 million, or 143.7%, from $2.9 million in 1993 to $7.0 million
in 1994. Approximately $1.5 million of the increase was attributed to the
addition of new managed hotels that elected to participate in the Company's
insurance program, and the balance was due to the addition in mid-1994 of a
health care financial indemnity policy to Northridge's coverages.
General and administrative expenses increased by $2.9 million, or 60.7%,
from $4.8 million in 1993 to $7.7 million in 1994. The increase was due
primarily to new expenses of $0.8 million associated with the Colony portfolio,
an increase of $1.3 million associated with the creation of training and
relocation programs, and non-recurring expenses of $0.3 million to assist the
families of three employees who were killed in an airplane crash. The remaining
$0.5 million of the increase was attributed to incremental expenses related to
the growth in the Company's hotel management business. General and
administrative expenses as a percentage of revenues increased to 20.8% in 1994
compared to 18.6% in 1993.
Payroll and related benefits expenses increased by $2.1 million, or 20.3%,
from $10.3 million in 1993 to $12.4 million in 1994. The increase was due
primarily to new expenses of $0.9 million associated with the Colony portfolio.
The remaining $1.2 million of the increase was attributed to the addition of new
employees related to the growth of the Company's hotel management business and
the new training and relocation programs. Payroll and related benefits expenses
as a percentage of revenues decreased to 33.8% in 1994 compared to 40.4% in 1993
due to increased operating efficiencies.
Operating income increased by $5.4 million, or 78.8%, from $6.9 million in
1993 to $12.3 million in 1994. Operating margin increased from 27.0% in 1993 to
33.6% in 1994. The improvement in the operating margin was attributed to the
increase in revenues (including insurance income) and the decrease in payroll
and related benefits expenses as a percentage of revenues, partially offset by
an increase in other operating expenses.
As a result of the changes noted above, net income (exclusive of income tax
expense) increased by $5.5 million, or 79.3%, from $6.9 million in 1993 to $12.4
million in 1994. Net income margin increased from 27.0% in 1993 to 33.7% in
1994.
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<PAGE> 41
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash on hand, cash from
operations and borrowings under certain credit facilities.
Net cash provided by operations was $25.3 million in 1995, compared to
$15.3 million in 1994. The increase was primarily attributable to a $3.5 million
increase in net income and a net increase in accounts payable and accrued
liabilities of $8.2 million. Net cash used in investing activities (after $4.9
million of net cash provided by financing activities) was $18.0 million,
primarily as a result of the Company's equity investment in hotel real estate.
The Company has received a commitment from, and prior to consummation of
the Offering intends to enter into a definitive credit agreement with, Credit
Lyonnais, New York Branch ("Credit Lyonnais") pursuant to which Credit Lyonnais,
will provide or arrange for, subject to certain conditions, a total of $295
million of financing, consisting of a seven year $100 million revolving credit
facility (the "Acquisition Facility") and a seven-year $195 million term loan
facility (the "Term Loan" and, together with the Acquisition Facility, the
"Credit Facilities"). The agreement will be subject to a number of customary
conditions and to the consummation of the Acquisition and the Organization,
retirement of certain debt, and receipt of gross proceeds from the Offering of
at least $203 million.
The Term Loan will be used to refinance certain indebtedness of the Company
and to pay fees and expenses incurred in connection with the Credit Facilities.
Of the proceeds of the Term Loan used to refinance existing Company
indebtedness, $90 million will be used to purchase a subordinated participation
interest in $120 million of mortgage indebtedness currently encumbering the six
Owned Hotels owned by Interstone/CGL. Following such purchase, the Company will
have outstanding, on a consolidated basis, in addition to the Term Loan, $30
million of the Interstone/CGL indebtedness. Such indebtedness will mature
contemporaneously with the Credit Facilities and will bear interest, at the
borrower's option, at a reserve-adjusted Eurodollar rate for periods of one,
two, three or six months plus 2% or at the Base Rate (as defined) plus 1%. Of
the $120 million of Term Loan and Interstone/CGL indebtedness, $72 million will
be subject to an interest rate swap agreement hedging the Company's interest
rate exposure for increases in the adjusted Eurodollar rate in excess of 5.8%.
The Acquisition Facility will be used to finance (i) the expansion of
existing facilities, (ii) advances to third parties owning hotel properties in
connection with obtaining management contracts for such properties, and (iii)
acquisitions of hotel properties and/or interests in and/or advances to limited
partnerships or other entities owning hotel properties. Upon consummation of the
Offering, there will be no amounts outstanding under the Acquisition Facility.
The Term Loan will mature in 2003 and requires a principal payment of $20
million on the seventh anniversary of closing. The remainder of the Term Loan
will be amortized in quarterly payments in a yearly aggregate as follows: $5
million in the first year, $10 million in the second year, $15 million in the
third year, $25 million in the fourth year, $35 million in the fifth year, $40
million in the sixth year and $45 million in the seventh year. The Acquisition
Facility will mature in 2003 and will be reduced by quarterly commitment
reductions totalling $5 million per quarter after the first five years. Usage of
the Acquisition Facility (with no more than $15 million of the facility being
available at closing to effect the transactions described in "The Organization,
Acquisition and Financing Plan") may include up to $5 million for trade letters
of credit and letters of credit in support of ordinary course of business
obligations. Revolving loans (other than acquisition loans) under the
Acquisition Facility and the maximum amount available to be drawn under such
outstanding letters of credit will be required to be reduced to no more than $10
million in the aggregate for a period of at least 30 consecutive days during
each 12 consecutive month period. Revolving loans incurred to finance additional
hotel acquisitions may not exceed $95 million outstanding at any time.
Mandatory prepayments of the Credit Facilities will be required from the
net cash proceeds of asset sales or the issuance of certain indebtedness or
equity (other than the Offering), 50% of annual excess cash flow and net
termination fees under management contracts in excess of $500,000 per year. All
such mandatory prepayments generally will be applied (i) first to repay
revolving loans under the Acquisition Facility incurred to finance additional
hotel acquisitions without any reduction in the Acquisition Facility commitment,
(ii)
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<PAGE> 42
second to repay on a pro rata basis the remaining installments of the Term Loan,
and (iii) third to reduce the Acquisition Facility commitment. However, proceeds
from sales of assets owned on the closing date of the Credit Facilities (other
than the Boston Marriott Westborough Hotel) and termination fees received under
management contracts in effect on such closing date are to be applied first as
provided in clause (ii), second as provided in clause (i), and third as provided
in clause (iii).
Amounts outstanding under the Credit Facilities will bear interest, at the
Company's option, at the Base Rate (as defined) plus 1% or at a reserve-adjusted
Eurodollar rate for periods of one, two, three or six months, plus 2%. The Base
Rate will be the higher of (i) the rate which Credit Lyonnais establishes from
time to time as its reference rate for short-term commercial loans in U.S.
dollars and (ii) the rate which is .5% in excess of the overnight cost of funds
of Credit Lyonnais. The Company will be required to keep in effect interest rate
protection agreements in an amount equal to 60% of (a) the total indebtedness
outstanding as of the initial borrowing date under the Credit Facilities less
(b) the $90 million portion thereof which is used to acquire the subordinated
participation in the Interstone/CGL indebtedness. Depending on market
conditions, the Company may consider entering into interest rate protection
agreements in addition to those required under the Credit Facilities in order to
limit its exposure to contract rate changes. In connection with the Credit
Facilities, the Company will pay customary commitment and other fees.
The obligations under the Credit Facilities will be secured by
substantially all of the Company's assets, including (i) a first mortgage on all
properties owned or subsequently acquired by the Company, to the extent not
prohibited by agreements governing indebtedness of the Company, (ii) an
assignment of the Company's interests under all recorded leases and subsequently
acquired recorded leasehold interests, (iii) a security interest and assignment
of all of the Company's management contracts or amounts payable thereunder,
accounts receivable and general intangibles, (iv) the stock or partnership
interests of the Company's subsidiaries, and (v) a security interest in all of
the Company's personal property and intangibles.
The Credit Facilities will contain various covenants, including
restrictions on (i) the incurrence or existence of indebtedness, (ii) mergers,
acquisitions, divestitures, reorganizations and other asset acquisitions and
dispositions, (iii) the creation or existence of liens on property or assets,
(iv) dividends or other distributions on the Company's capital stock, (v)
certain transactions with affiliates, (vi) prepayment or amendment to
subordinated indebtedness or equity and (vii) investments, leases and capital
expenditures. The Credit Facilities also require the Company to spend each year
a minimum of 1.5% and a maximum of 6% of its annual revenues on capital
expenditures for maintenance of its hotels. Additionally, the Company must
satisfy certain financial covenants, including, without limitation, the
following: (a) the Company must maintain, on a quarterly basis, a minimum annual
EBITDA of $65 million in 1996, $70 million in each of 1997 and 1998 and $75
million each year thereafter; (b) the Company must maintain, on a quarterly
basis, a consolidated net worth of (x) $190 million plus (y) the aggregate of
80% of its consolidated net income, if positive, for each fiscal quarter ending
after the initial borrowing date (which percentage reduces to 70% for each
fiscal quarter after 1998); (c) the Company must not permit its leverage ratio
(defined as the ratio of the Company's total indebtedness (excluding up to $30
million in certain non-recourse indebtedness) to the Company's EBITDA) to be
greater than 4.5 to 1 at the end of each fiscal quarter of 1996 and 1997, 4.25
to 1 at the end of each fiscal quarter of 1998 and 1999, 4.00 to 1 at the end of
each fiscal quarter of 2000 and 2001, 3.75 to 1 at the end of each fiscal
quarter of 2002, or 3.50 to 1 at the end of each fiscal quarter of 2003; (d) the
Company must not permit its interest coverage ratio (defined as the ratio of the
Company's EBITDA to the Company's total interest expense on its outstanding
indebtedness) to be less than 2.5 to 1 at the end of each fiscal quarter of 1996
and 1997, or 2.75 to 1 at the end of each fiscal quarter thereafter; and (e) the
Company must not permit its debt service coverage ratio (defined as the ratio of
the Company's EBITDA to the Company's total interest expense plus scheduled
principal payments on its outstanding indebtedness) to be less than 2.00 to 1 at
the end of each fiscal quarter of 1996 and 1997, or 2.25 to 1 at the end of each
fiscal quarter thereafter. All of the foregoing tests are to be made using data
from the four consecutive fiscal quarters then last ended.
The Company's 1996 and 1997 capital expenditure budgets (before
acquisitions) are $9.2 million and $8.7 million, respectively. The Company
intends to pursue a growth-oriented strategy involving, among other things, the
acquisition of additional management contracts (which may from time to time
require capital
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<PAGE> 43
expenditures by the Company), as well as acquisitions of interests in additional
hotel properties and hotel management companies. Management believes that the
Acquisition Facility, plus cash provided by operations, will be sufficient to
pursue the Company's strategy for the immediate future. However, depending upon
conditions in the capital and other financial markets and other factors, the
Company may from time to time consider the issuance of debt or other securities,
the proceeds of which could be used to finance acquisitions, to refinance debt
or for other general corporate purposes. Management of the Company believes that
with respect to its current operations, the Company's cash on hand and funds
from operations will be sufficient to cover its reasonably foreseeable working
capital, capital expenditure and debt service requirements.
SEASONALITY
The lodging industry is affected by normally recurring seasonal patterns.
At most of the Company's hotels, demand is higher in the second and third
quarters than during the remainder of the year. Demand also changes on different
days of the week, with Sunday having the lowest occupancy.
INFLATION
The effects of inflation, as measured by fluctuations in the consumer price
index, have not had a material impact on the Company's revenues or net income in
recent years.
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<PAGE> 44
BUSINESS AND PROPERTIES
The Company is the largest independent hotel management company in the
United States based on total portfolio hotel revenues and number of guestrooms
and properties managed. The Company manages or performs related services for 154
hotels, with 35,730 rooms, located in 28 states in the United States and in the
District of Columbia, Canada, Mexico, Israel, the Caribbean, Thailand and
Russia. Following consummation of the Offering, the Company will own or have a
controlling interest in 15 of these properties (the "Owned Hotels"), all of
which are upscale hotels currently managed by the Company. In 1995, the Owned
Hotels contributed 81.8% of the pro forma 1995 total revenues of the Company.
In 1995, 84.1% of the Company's net management revenues were derived from
upscale or luxury hotels and resorts. The Company is the largest franchisee of
upscale hotels in the Marriott(R) system, providing services to 36 hotels, with
12,649 rooms, bearing the Marriott(R) flag. Consistent with the Company's
multiple branding strategy, the Company also manages hotels under many other
major full-service brand names, including Doubletree(R), Embassy Suites(R),
Hilton(R), Radisson(R), Sheraton(R) and Westin(R), as well as under the
Company's own Colony(R) trade name. Among the well-known hotels managed by the
Company are: The Charles Hotel at Harvard Square in Cambridge, Massachusetts;
the Don CeSar Beach Resort in St. Petersburg Beach, Florida; The Hay-Adams Hotel
in Washington, D.C.; The Bellevue Hotel in Philadelphia, Pennsylvania; the
Westin Bonaventure in Los Angeles, California; Marriott's Casa Marina Resort in
Key West, Florida; and the Marriott at Sawgrass Resort in Ponte Vedra Beach,
Florida.
Since its founding in 1961 to own and operate a single motor lodge in
northwestern Pennsylvania, the Company has achieved consistent annual growth,
even through industry downturns. The total revenues of the hotels to which the
Company provided management or related services increased from $514 million in
1991 to almost $1.1 billion in 1995, an average annual compound growth rate of
19.7%. During the same period, the Company's portfolio of hotels increased from
49 to 150. The Company's total revenues grew from $17.6 million in 1991 to $45.0
million in 1995, an average annual compound growth rate of 26.5%. The Company's
net income increased at an average annual compound growth rate of 69.8% over the
same period, from $1.9 million in 1991 to $15.8 million in 1995. The Company
attributes its steady growth to the disciplined pursuit of four core strategies:
(i) providing superior, innovative hotel management services, resulting in
increased investment value for the hotel owner; (ii) adding new management
contracts and selectively acquiring hotel management businesses; (iii) adding
new hotels to the Company's portfolio of upscale and luxury properties through
acquisitions; and (iv) maximizing the profitability of the Company's acquired
hotels by repositioning them within their local markets and applying to them the
Company's proven management techniques.
Proven Ability to Source Acquisitions. As a result of its experienced
management and the size and geographic diversity of its hotel portfolio, as well
as an in-depth knowledge of individual markets, the Company has access to
acquisition opportunities not available to all its competitors. Information
about acquisition opportunities is obtained through contacts at every level of
the Company, including hotel general managers, regional managers and senior
management. Industry association contacts also provide information about
potential acquisitions. In addition, management's knowledge of existing hotels
throughout the United States and personal relationships with numerous hotel
owners and operators provide the Company with extensive information regarding
acquisition opportunities.
Flexibility Afforded by Multiple Branding. The Company is able to own and
operate hotels under a variety of brand names. This flexibility allows the
Company to own and operate multiple hotels under different brands within the
same geographic market and provides the Company with competitive and economic
advantages such as the ability to optimally position hotels within their local
markets, to provide a broad base of national reservation and marketing systems
and to pursue acquisitions within both its existing and new markets more freely
than hotel operating companies that are committed to particular flags.
Corporate Infrastructure and Operational Synergies. By virtue of providing
management and related services to 154 hotels, the Company achieves significant
synergies and economies of scale not available to many of its competitors. The
Company's management seeks to maintain a blend of centralized control over
strategic issues while encouraging decentralized decision-making with respect to
appropriate operational issues. All personnel, marketing, cash management and
other policies are formulated at the Company's central
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<PAGE> 45
corporate offices and are provided to its hotels. The Company's corporate
offices also provide accounting, legal, insurance and finance functions,
institute management information systems and coordinate the preparation of
budgets. This centralization of control over strategic matters allows the
Company's hotels to be operated with fewer employees and frees hotel management
personnel to focus on matters having the greatest impact on the performance of
the particular hotel and on the quality of its guests' hotel stays.
Strong Management Team. Collectively, the Company's senior management has
an average of 22 years of experience in the lodging industry and an average of
13 years with the Company. Following consummation of the Offering, the seven
members of the Company's senior management will beneficially own an aggregate of
2.6% of the outstanding shares of Common Stock (excluding Milton Fine, who will
beneficially own 23.1% of the outstanding shares of Common Stock). As a result,
the interests of the Company's senior management will be closely aligned with
the interests of the Company's shareholders. See "Management--Compensation Plans
and Arrangements."
Stable Cash Flow. The Company believes that it will have long-term
financial stability and significant sources of internal financing for future
growth as a result of its ownership of the Owned Hotels, its substantial
portfolio of hotel management agreements and its expected growth in its hotel
portfolio. On a pro forma basis, giving effect to the transactions described in
"Business and Properties--Host Funding Transaction," and "The Organization,
Acquisition and Financing Plan" (excluding the possible acquisition of the
Trumbull Hotel), 80.6% of the Company's total revenues in 1995 were generated
from the Owned Hotels. The Company also expects to generate stable cash flow
from net management fees. As of December 31, 1995, the Company had 39 management
agreements with remaining terms of five years or more. These agreements
generated net management fees of $12.6 million, constituting 5.5% of the
Company's total pro forma revenues in 1995. In addition, the Company has a
favorable renewal record for its management agreements, which has contributed to
the stability of the Company's cash flow. Since 1990, over 90% of the Company's
management agreements for upscale hotels have been renewed at expiration,
excluding management agreements covering properties that have been sold to
unaffiliated parties.
Access to Capital. The Company believes that in order to continue to
maximize the value of its shareholders' equity and to execute its growth
strategy, it is essential to implement and periodically review a diversified
financing strategy that (i) incorporates long-term, secured and unsecured
corporate debt, (ii) minimizes exposure to fluctuations of interest rates and
(iii) maintains maximum flexibility to manage the Company's short-term cash
needs. The Company believes that its capital structure will be conducive to and
will allow flexibility for the growth which the Company seeks to achieve.
THE LODGING INDUSTRY
The domestic lodging industry as a whole has shown significant improvement
in recent years. According to Coopers & Lybrand Hospitality Directions (January
1996) ("Hospitality Directions"), the lodging industry earned estimated pre-tax
profits of $7.6 billion in 1995, which is an increase of 38% over the amount of
pre-tax profit earned during 1994. The percentage growth in room demand exceeded
the percentage growth in new room supply by 2.0%, 1.6%, 3.3% and 1.4% in 1992,
1993, 1994 and 1995, respectively. The excess of demand growth over supply
growth has given the lodging industry a significant and increasing degree of
"pricing power,"--an operator's ability to increase ADR without affecting
occupancy percentages. This pricing power has resulted in significant
industry-wide growth in ADR from 1992 through 1995. In 1995, industry-wide ADR
increased 4.8% over 1994, and industry-wide occupancy percentages increased 1.2%
over 1994. ADR increases exceeded the rate of inflation in 1995 by 1.7%, the
third consecutive year of real rate growth. Hospitality Directions also projects
that occupancy will continue to increase in 1996 and 1997 to 66.3% and 66.7%,
respectively, and that ADR will increase 4.5% and 4.4% in 1996 and 1997,
respectively.
The Company believes that, in the near-term, pricing power within the
lodging industry is likely to be particularly strong in the upscale segment, in
which the Company primarily operates. Two primary factors underlying this
projected strength are the lower consumer price sensitivity in the upscale
segment and an absence of significant additions to the upscale room base over
the next few years. The lack of a significant increase in the upscale segment
room base is projected because, in general, returns on construction cost are not
sufficient to justify investment capital.
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The hotel management business within the lodging industry is comprised of
large franchise operators such as Best Western(R), Comfort Inn(R), Days Inn(R),
Doubletree(R), Embassy Suites(R), Hilton(R), Holiday Inn(R), Howard Johnson(R),
Hyatt(R), Marriott(R), Radisson(R), Ramada(R), Sheraton(R), Super 8(R) and
Westin(R), as well as independent companies such as the Company. Due to intense
competition-based requirements with respect to marketing and cost controls,
hotel owners have frequently turned to professional third-party hotel management
companies to oversee and manage the operation of their properties. The Company
believes that hotel owners are also increasingly turning to independent hotel
management companies due to their focus on managing individual properties rather
than a hotel brand.
BUSINESS STRATEGY
The Company attributes its steady growth to the disciplined pursuit of four
core strategies: (i) providing superior, innovative hotel management services,
resulting in increased investment value for the hotel owner; (ii) adding new
management contracts and selectively acquiring hotel management businesses;
(iii) adding new hotels to the Company's portfolio of upscale and luxury
properties through acquisitions; and (iv) maximizing the profitability of the
Company's acquired hotels by repositioning them within their local markets and
applying to them the Company's proven management techniques.
Improving Value for Hotel Owners. The Company has consistently generated
operating results superior to the hotel industry through a business philosophy
emphasizing the creation and enhancement of investment value for the hotel owner
and the employment of innovative management strategies designed to maximize
owner value. The Company's operating strategies involve specific procedures and
services designed to achieve revenue and asset value enhancement, cost control
and guest and employee satisfaction. After entering into a new hotel management
agreement or acquiring a new hotel, the Company implements an operating plan
based on a comprehensive operations and market-position study which identifies
key areas requiring immediate attention to ensure that resources are devoted to
the most critical areas first. Key areas may include such departments as rooms,
food and beverage, sales and marketing, general and administrative and
maintenance. The Company then develops a detailed action plan to implement the
new standards of operation. If necessary, certain departments are quickly and
aggressively streamlined to maximize efficiencies and reduce costs. The
Company's system of investigation, prioritization and immediate action is
designed to ensure that the hotel will achieve optimal performance as rapidly as
possible.
After implementation of initial improvements, the Company continues to seek
methods to increase revenue and operating cash flow from the hotels. Quality of
facilities and customer service is continually reviewed and emphasized by
management. As the Company gains experience with the operations of a particular
hotel, the marketing plan and budget for the hotel are refined to increase the
occupancy rate and ADR at the hotel, while maintaining effective cost controls.
In addition, regional and general managers are provided incentives through cash
bonuses to achieve revenue and operating goals.
Addition of New Hotel Management Agreements. The increasing profitability
of the Company's hotel management business has been driven by its ability to win
new hotel management agreements and by the operating leverage inherent in the
hotel management business. Through the application of its proven operating
principles, the Company has achieved consistent annual growth, even through
industry downturns. Since 1990, over 90% of the Company's management agreements
for upscale hotels have been renewed at expiration, excluding management
agreements covering properties that have been sold to unaffiliated parties. The
Company has increased the net number of hotel management agreements in its
portfolio every year since
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<PAGE> 47
1987, and since 1990 has achieved significant growth in the net number of
management contracts added to its portfolio, as demonstrated in the following
table:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Contracts at Beginning of Year............................ 30 39 49 53 82 136
Contracts Added:
Interstate portfolio................................. 4 12 12 15 18 16
Crossroads portfolio................................. 5 3 2 28 33 21
Colony portfolio..................................... -- -- -- -- 32 6
Contracts Lost:
Interstate portfolio................................. -- (3) (6) (4) (10) (7)
Crossroads portfolio................................. -- (2) (4) (10) (10) (17)
Colony portfolio..................................... -- -- -- -- (9) (5)
---- ---- ---- ---- ---- ----
Contracts at End of Year.................................. 39 49 53 82 136 150
==== ==== ==== ==== ==== ====
</TABLE>
Through the efforts of its internal business development staff, comprised
of 12 salespeople, the Company will continue to seek to acquire new hotel
management agreements and hotel management companies that operate hotels
suitable for integration into the Company's portfolios. These individuals will
continue to identify new business by conducting comprehensive market studies,
developing extensive call lists, employing direct solicitation techniques and
seeking referrals from third-party owners of the Company's managed hotels.
The Company believes that it will continue to win new hotel management
agreements as a result of its reputation for integrity, its track record of
delivering superior financial returns for hotel owners and investors and its
willingness to structure key terms of hotel management agreements to satisfy
hotel owner objectives. In particular, the Company believes that its stable
relationships with institutional hotel investors will facilitate the Company's
growth by generating new hotel management agreements within the institutions'
existing hotel portfolios, as well as for hotels newly acquired by them.
The Company also believes that the operation of hotels in the United States
is highly fragmented, with many hotels being operated by managers who lack the
experience and expertise to operate, market and maintain such hotels profitably.
The Company believes that the industry will experience consolidation as existing
owners and operators continue to experience financial and operating difficulties
and sell or lease hotels to professional management companies such as the
Company.
By operating hotels in multiple segments of the lodging industry, the
Company increases its opportunities to compete for new hotel management
agreements. Although the Company remains committed to participating in each
segment of the lodging industry and, accordingly, will seek to add hotel
management agreements to each of its three portfolios as opportunities arise,
the Company believes that the greatest opportunities for expansion exist in the
luxury and upscale segments of the lodging industry. Many luxury and upscale
hotels have been underperforming and could greatly benefit from the Company's
strong management and proven operating strategies, without compromising the
quality and service expectations of the hotels' guests.
Improvement of Performance of Owned Hotels. The Company operates its
portfolio hotels efficiently by utilizing regional and centralized support
services to control costs, efficiently allocating resources and maintaining
consistently high quality services to guests. In addition, the Company believes
that significant opportunities exist to enhance the value of some of the Owned
Hotels, either through modest upgrading or through major renovation.
Approximately $13.7 million of capital was committed by the Company and its
partners at the time of the purchase of certain of the Owned Hotels for
renovations entailing exterior and interior reconstruction. A majority of the
planned renovation has been completed, and the entire renovation plan is
expected to be completed by the end of 1996.
Selective Hotel Acquisitions and New Construction. The Company anticipates
that it will be able to grow through the acquisition of hotels having attractive
economic prospects that are suitable for application of the Company's operating
strategies. In particular, the Company will seek to acquire well-located and
constructed hotels at significant discounts to replacement cost and at
attractive returns with potential for cash flow growth and long-term capital
appreciation. In addition, the Company anticipates that it may make partial
investments
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<PAGE> 48
in hotel properties through joint ventures with strategic business partners or
through equity contributions or secured loans. The Company also believes that
its extensive real estate and finance industry contacts, as well as its
continuing relationship with Blackstone, will continue to facilitate the
Company's ability to identify, evaluate and negotiate potential acquisition
opportunities. Under existing arrangements with Blackstone, which expire at the
end of 1997, the Company and Blackstone may co-invest up to a total of $60
million of equity for additional hotel investments. See "The Organization,
Acquisition and Financing Plan--Acquisition of Owned Hotels."
The Company may also pursue growth through the construction of new
mid-market hotels in selected markets. In particular, the Company will evaluate
the competitive environment, including market room and occupancy rates, site
location and marketing, financial and operating issues, as well as the
opportunity to realize operating efficiencies from the ownership of multiple
hotels, in any market under consideration for new development.
OPERATIONS
The Company provides a wide variety of services to its portfolio hotels.
Such services include those traditionally provided by major hotel operating
companies, such as sales and marketing support, financial planning and
reporting, rooms, food and beverage and engineering services, human resources
and training programs and legal support, as well as certain specialized support
services, such as purchasing, project management, leasing and risk management.
The Company's services are provided by hotel personnel who are employed,
trained and supported by the Company's experienced corporate personnel. Most of
these services are provided by the Company in consideration of the management
fees payable to the Company, which are based upon a percentage of gross revenues
and/or operating profits. The Company's management agreements generally provide
for payment to the Company of a base fee equal to a specific percentage of the
hotel's gross revenues. The Company's base fees range from 1% to 6% of gross
revenues, with an average of approximately 2.4%. In addition, some of the
Company's contracts provide for payment of an incentive fee based on operating
profits or net operating cash flow if certain operating profit or cash flow
levels are achieved. The Company's incentive fees generally range from 10% to
20% of operating profits or net operating cash flow. In 1995, base fees
represented approximately 82.4% of the Company's net management fees, and
incentive fees represented the remaining 17.6% of net management fees. Hotel
owners are responsible for all operating expenses, capital expenditures and
working capital requirements related to the managed hotels. The Company charges
the third-party owners incremental fees for providing purchasing, project
management and equipment leasing services. The following is a brief description
of each of the services generally provided by the Company to its managed hotels.
Purchasing. The Company assists its portfolio hotels with purchases of a
wide variety of goods and services, including perishable food, consumable
supplies, dry goods, linens, cable television systems, telephone systems,
advertising agency services, independent marketing services, consulting
services, printing services, furniture, fixtures and equipment. The Company's
purchasing service is a key element of its operating system and its ability to
improve the profitability of its portfolio hotels. As the largest independent
hotel management company in the United States, the Company has significant
leverage to negotiate competitive prices on goods and services from both local
and national vendors. As a result, the Company is able to pass along substantial
savings to its hotels. The purchasing services provided by the Company are
offered at a fee based on merchandise value.
Project Management. The Company assists and advises its portfolio hotels
on all aspects of renovation and reconstruction projects, including design,
budgeting, scheduling, purchasing, systems, materials and contracting. The
Company is actively involved in each stage of a project, from planning through
completion of construction. The project management services provided are offered
on a contracted fee basis.
Leasing. The Company offers equipment leasing services to its portfolio
hotels for furniture and office equipment such as computers, telephone equipment
and photocopiers. The Company generally leases such items for a term of three to
five years. The Company also provides some shorter-term rentals. The Company
offers equipment leasing services primarily as a convenience for its hotels. The
Company provided leasing services to 26 of the hotels in the Company's portfolio
in 1995.
41
<PAGE> 49
Risk Management. Through its subsidiary, Northridge Insurance Company
("Northridge") the Company offers its portfolio hotels reinsurance and risk
management services. The Company purchases insurance from major insurance
carriers at attractive rates due to the Company's high volume purchasing and
exceptional claims history. The Company then provides its hotels the opportunity
to participate in the policy at prices and coverages more advantageous than
third-party hotel owners could otherwise obtain. As of December 31, 1995, over
70% of the Company's managed properties participated in its insurance program,
which currently covers over $1.5 billion in insurable values. In conjunction
with its risk management services and in order to minimize its operating
liabilities, the Company sets policies regarding the standards of operation to
which all of its portfolio hotels and their employees must adhere.
Sales and Marketing Support. The Company provides its portfolio hotels
with traditional sales and marketing support, as well as customized assistance,
to identify and attract potential business, leisure and convention guests.
Rooms Services. The Company assists its portfolio hotels in developing
quality standards and operating procedures for room operations, while focusing
on controlling expenses and maximizing profits. Such assistance includes:
- Developing the concept, design and staffing requirements for the front
office, housekeeping, property maintenance, laundry, valet,
telecommunications, garage and other guest services departments;
- Establishing quality standards for products and services and evaluating
performance against these standards;
- Conducting training conferences and workshops for rooms department
employees at all levels;
- Creating operating procedures, training manuals, reference guides and
training programs;
- Developing, maintaining and auditing front office software applications
and training staff in their proper usage; and
- Selecting equipment and supplies such as linens, guest room amenities and
uniforms.
Food and Beverage Services. The Company assists its portfolio hotels in
developing high quality, profitable food and beverage operations as well as
innovative approaches to food and beverage concepts and designs. Such assistance
includes:
- Providing educational and technical training materials and seminars on
how to improve the technical skills of employees;
- Establishing quality levels and management guidelines for new and
existing food and beverage facilities in accordance with area market
expectations;
- Providing ongoing research and development of systems and equipment;
- Creating and implementing system-wide promotional programs to enhance
hotel revenues;
- Conducting business audits that analyze current financial performance
against industry norms, providing a detailed review of existing
procedures and programs and setting a plan for achieving goals in
business growth and cost containment; and
- Providing low cost access to the freshest and highest quality food
products and beverages available in the market.
Human Resources and Training Programs. The Company's human resources
department is responsible for designing the employee selection process, creating
competitive compensation programs and developing appropriate training programs
at all levels. The Company's human resources department has developed 26
training programs to introduce new employees to the Company's methods of
operation and to augment their skills. The training programs focus on such areas
as supervisory development, middle management training, career planning,
technical training and executive development. In addition, Company employees are
required to attend outside courses developed by a variety of managerial and
technical organizations both within and outside the industry.
Financial Planning and Reporting. The Company provides its portfolio
hotels with a wide variety of accounting, financial reporting and financial
planning services that assist the hotel owners in making informed decisions.
42
<PAGE> 50
Management Information Systems. The Company provides its portfolio hotels
with access to key operating information and technologies as well as on-going
systems support. Access to key information enables the Company's hotels to set
operating objectives and measure their operating performance on a daily basis.
Engineering Services. The Company provides its portfolio hotels with
expertise in physical plant systems such as mechanical, plumbing, electrical,
fire and life safety and swimming pools.
Legal Support. The Company's in-house legal department provides its
portfolio hotels with legal support with respect to employment law issues,
liquor licensing and various vendor and service contract negotiations.
THE COMPANY'S PORTFOLIOS
The Company has achieved superior operating results as compared to other
hotel operating companies as a result of its ability to successfully manage a
highly diverse group of hotels and other properties, both in terms of their
geographic location and the segment of the lodging industry they serve. The
Company operates hotels throughout the United States and in the District of
Columbia, Canada, Mexico, Israel, the Caribbean, Thailand and Russia. The
Company also manages hotels in each segment of the lodging industry--luxury,
upscale, mid-priced, economy and budget. In addition, the Company operates
hotels in diverse geographic locations and market segments which makes the
Company less susceptible to unfavorable general and regional economic
conditions.
To facilitate the management of its diverse portfolio of hotels, the
Company has divided its hotels among three separate portfolios--Interstate
(luxury and upscale), Crossroads (mid-priced, economy and budget) and Colony
(hotels and resorts, including condominium and time-shares)--as indicated in the
following table and as described more fully below.
<TABLE>
<CAPTION>
NUMBER NUMBER % OF 1995 NET
THE COMPANY'S PORTFOLIOS OF HOTELS OF ROOMS MANAGEMENT FEES
------------------------------------- --------- -------- ---------------
<S> <C> <C> <C>
Interstate........................... 78 26,259 84%
Crossroads........................... 53 7,145 11%
Colony............................... 23 2,326 5%
--- ------ ---
Total........................... 154 35,730 100%
=== ====== ===
</TABLE>
Interstate Portfolio. Interstate, the original and largest of the
Company's three hotel management portfolios and the core of its hotel management
business, consists of luxury and upscale hotels, suites and resorts, comprised
of 78 hotels with a total of 26,259 rooms. Among Interstate's top performing
hotels are the Owned Hotels, all of which are contained in this portfolio. The
Owned Hotels, which consist of 15 hotels, containing an aggregate of 4,621
rooms, produced superior operating results in 1995, achieving an average
occupancy rate of 73.0%, ADR of $88.03 and REVPAR of $64.29, compared to 1995
industry averages for upscale hotels of a 68.5% occupancy rate, ADR of $80.38
and REVPAR of $55.06. The Company expects further improvement in the results of
operations of the Owned Hotels as the effects of the repositioning of certain of
them are realized.
The Company manages many of the Interstate portfolio hotels under brand
names such as Colony(R), Doubletree(R), Embassy Suites(R), Hilton(R), Holiday
Inn(R), Marriott(R), Radisson(R), Sheraton(R) and Westin(R). Among the
well-known hotels in the Interstate portfolio are: The Charles Hotel at Harvard
Square in Cambridge, Massachusetts; the Don CeSar Beach Resort in St. Petersburg
Beach, Florida; The Hay-Adams Hotel in Washington, D.C.; The Bellevue Hotel in
Philadelphia, Pennsylvania; the Westin Bonaventure in Los Angeles, California;
Marriott's Casa Marina Resort in Key West, Florida; and the Marriott at Sawgrass
Resort in Ponte Vedra Beach, Florida. Interstate's hotels are geographically
diversified, located in 23 states throughout the United States and in the
District of Columbia and Canada.
Interstate's hotels serve a diverse customer base comprised of travelers
involved in business, leisure and convention and meeting activities. Business
travelers, which represent the largest and most profitable customer group for
Interstate's hotels, have increased as a proportion of total customers since
1991 due to the Company's strategic efforts to attract more business travelers
and the general improvement in the economy.
43
<PAGE> 51
Interstate's hotels are typically large upscale hotels or resorts with high
volume food, catering and beverage operations and ample meeting space. These
hotels provide guests with high quality rooms, facilities and guest services
such as concierge services, room service, health clubs, business centers, voice
mail, in-room movies and other amenities. Many of the hotels in the Interstate
portfolio also provide quality leisure activities. For example, the Marriott at
Sawgrass Resort offers golfing privileges at the famous TPC Stadium golf course.
The following table provides a complete listing of the hotels in the
Interstate portfolio as of May 1, 1996:
INTERSTATE PORTFOLIO HOTELS
<TABLE>
<CAPTION>
NUMBER
OF COMMENCEMENT
HOTEL LOCATION ROOMS DATE
----- -------- ------ ------------
<S> <C> <C> <C>
Colony Properties under Interstate Management
Harbor View Hotel Edgartown, MA 124 July 94
Kelley House Edgartown, MA 59 July 94
Harbor House Hotel Nantucket, MA 112 July 94
Wharf Cottages and Marina Nantucket, MA 23 July 94
White Elephant Inn Nantucket, MA 96 July 94
Toronto Colony Hotel Toronto, Ontario 717 Dec. 93
Delta
Toronto Delta Meadowvale Mississauga, Ontario 374 Feb. 96
Doubletree
Doubletree Resort Surfside Clearwater Beach, FL 428 Dec. 94
Embassy Suites
Schaumburg Embassy Suites (1) Schaumburg, IL 209 Dec. 95
Hilton
Denver Hilton South (2) Greenwood Village, CO 305 Dec. 94
Ft. Lauderdale Airport Hilton (1) Dania, FL 388 Dec. 95
Gaithersburg Hilton Gaithersburg, MD 301 June 93
Newark Hilton Gateway Newark, NJ 253 Sep. 95
Parsippany Hilton Parsippany, NJ 508 Sep. 91
Huntington Hilton (2) Melville, NY 302 Dec. 95
Holiday Inn and Crowne Plaza
San Francisco Holiday Inn Golden Gateway San Francisco, CA 498 Aug. 92
Seattle Crowne Plaza Seattle, WA 415 Dec. 92
Marriott
Marriott's Laguna Cliffs Resort Dana Point, CA 346 Oct. 94
San Diego Marriott Suites Downtown San Diego, CA 264 Jan. 90
San Diego Marriott Mission Valley (3) San Diego, CA 350 Dec. 88
San Francisco Marriott Fisherman's Wharf San Francisco, CA 255 Oct. 88
Warner Center Marriott (1) Woodland Hills, CA 463 Feb. 94
Colorado Springs Marriott (2) Colorado Springs, CO 310 Feb. 89
Trumbull Marriott (3) Trumbull, CT 321 Dec. 85
Boca Raton Marriott Boca Raton, FL 256 Aug. 87
Ft. Lauderdale Marriott North (3) Ft. Lauderdale, FL 321 Dec. 86
Marriott's Casa Marina Resort Key West, FL 312 Dec. 78
Marriott's Reach Resort (3) Key West, FL 149 Dec. 93
Orlando Airport Marriott Orlando, FL 484 Nov. 88
Orlando Marriott Orlando, FL 1,064 Nov. 88
Marriott at Sawgrass Resort Ponte Vedra Beach, FL 516 Aug. 88
</TABLE>
44
<PAGE> 52
<TABLE>
<CAPTION>
NUMBER
OF COMMENCEMENT
HOTEL LOCATION ROOMS DATE
----- -------- ------ ------------
<S> <C> <C> <C>
Atlanta Marriott North Central (2) Atlanta, GA 287 Feb. 95
Boston Marriott Andover (1) Andover, MA 293 Dec. 95
Boston Marriott Westborough (4) Westborough, MA 223 July 91
Minneapolis Marriott Southwest (3) Minnetonka, MN 320 Nov. 88
St. Louis Marriott West (3) St. Louis, MO 300 Jan. 92
Charlotte Marriott Executive Park Charlotte, NC 298 Sep. 83
Albany Marriott (3) Albany, NY 360 July 85
Syracuse Marriott East Syracuse, NY 250 July 77
Cincinnati Marriott (3) Cincinnati, OH 352 Mar. 86
Harrisburg Marriott (3) Harrisburg, PA 348 June 80
Philadelphia Marriott West (2) West Conshohocken, PA 286 Oct. 91
Pittsburgh Airport Marriott (3) Pittsburgh, PA 314 Nov. 87
Pittsburgh Green Tree Marriott (3) Pittsburgh, PA 467 Nov. 72
Marriott Suites at Valley Forge (1) Valley Forge, PA 229 Dec. 95
Providence Marriott (3) Providence, RI 345 Nov. 75
Chattanooga Marriott Chattanooga, TN 343 Jan. 88
Memphis Marriott Memphis, TN 320 Oct. 87
Arlington Dallas Marriott Arlington, TX 310 Dec. 92
Houston Marriott North at Greenspoint (2) Houston, TX 391 May 88
Radisson
Manhattan Beach Radisson Plaza Hotel Manhattan Beach, CA 380 Jan. 91
San Jose Radisson Plaza Hotel Airport San Jose, CA 185 Dec. 95
Union City Radisson Hotel Union City, CA 265 Dec. 95
Lisle Radisson (2)(5) Lisle, IL 242 Nov. 93
Sheraton
Sheraton Biscayne Bay Miami, FL 598 Oct. 86
Westin
Los Angeles Westin Bonaventure Los Angeles, CA 1,369 Dec. 95
Independent
Lexington Hotel Phoenix, AZ 180 Nov. 93
Pala Mesa Resort Fallbrook, CA 133 June 93
Colonial Inn La Jolla, CA 75 Sep. 94
Cliffs at Shell Beach Resort Shell Beach, CA 165 Oct. 94
Goodwin Hotel Hartford, CT 124 Jan. 92
Hay-Adams Hotel Washington, DC 143 June 95
Don CeSar Beach Resort (6) St. Petersburg Beach, FL 275 Dec. 92
The Charles Hotel at Harvard Square Cambridge, MA 296 Feb. 85
Mission Point Resort Mackinac, MI 235 July 94
Waterford Hotel Oklahoma City, OK 197 Dec. 94
The Bellevue Hotel Philadelphia, PA 170 Dec. 94
Founders Inn and Conference Center Virginia Beach, VA 240 Nov. 95
Fort Magruder Inn and Conference
Center (2) Williamsburg, VA 303 Oct. 95
Other Contracts (7)
Hyatt Regency Burlingame San Francisco, CA 793 Jan. 96
Hartford Marriott Farmington Farmington, CT 381 Jan. 95
Crowne Plaza Westshore Tampa, FL 272 Jan. 93
Hyatt Charlotte South Park Charlotte, NC 262 Jan. 93
</TABLE>
45
<PAGE> 53
<TABLE>
<CAPTION>
NUMBER
OF COMMENCEMENT
HOTEL LOCATION ROOMS DATE
----- -------- ------ ------------
<S> <C> <C> <C>
Charlotte Marriott City Center Charlotte, NC 431 Jan. 93
New York Palace New York, NY 963 Aug. 92
Hyatt Fairlakes Fairfax, VA 316 Jan. 93
Hyatt Dulles Herndon, VA 317 Jan. 93
Tysons Corner Marriott (1) Tysons Corner, VA 390 Dec. 95
------
Total Interstate Rooms 26,259
Total Interstate Hotels 78
</TABLE>
- - ------------------
(1) Denotes an Owned Hotel in which Interstone II has a controlling interest (as
defined in "The Organization, Acquisition and Financing Plan--Acquisition of
Owned Hotels").
(2) Denotes an Owned Hotel owned by Interstone I (as defined in "The
Organization, Acquisition and Financing Plan--Acquisition of Owned Hotels")
or in which it has a controlling interest.
(3) An affiliate of Milton Fine (but not the Company) will continue to own a
minority interest in this hotel following the Offering.
(4) In April 1996, the Company executed a contract to acquire this hotel.
(5) Includes an office center containing approximately 150,000 square feet.
(6) In February 1996, the Company signed a letter of intent to purchase
approximately 13% of the partnership interests in this hotel.
(7) The Company provides certain services, such as asset management or
consulting services but not property management services, to these hotels.
Crossroads Portfolio. The Company's Crossroads portfolio consists of
mid-priced, economy and budget hotels, motels and inns comprised of 53 hotels
with a total of 7,145 rooms. The Company established the Crossroads portfolio in
1990 to broaden the scope of its hotel management business beyond upscale
hotels. In 1995, the Crossroads portfolio accounted for approximately $3.0
million, or 11%, of the Company's net management fees. The Company does not own
any equity interests in any of the Crossroads hotels.
Crossroads manages hotels under brand names such as Best Western(R),
Comfort Inn(R), Courtyard by Marriott(R), Days Inn(R), Fairfield Inn(R),
Hilton(R), Holiday Inn(R), Howard Johnson(R), Radisson(R), Ramada(R),
Sheraton(R), Super 8(R), Travelodge(R) and Villager Lodge(R) and also manages
several independent hotels. Crossroads' hotels are located in 15 states,
primarily on the east and west coasts. The hotels in the Crossroads portfolio
appeal to value-oriented business and leisure travelers. They are typically
mid-priced hotels with limited food, catering and beverage operations and little
or no meeting space. Crossroads' hotels provide guests with modest rooms,
facilities and guest services. Amenities may include complimentary continental
breakfasts, pool facilities, facsimile services and cable television.
46
<PAGE> 54
The following table provides a complete listing of the hotels in the
Crossroads portfolio as of May 1, 1996:
CROSSROADS PORTFOLIO HOTELS
<TABLE>
<CAPTION>
NUMBER
OF COMMENCEMENT
HOTEL LOCATION ROOMS DATE
----- -------- ------ ------------
<S> <C> <C> <C>
Best Western
Canton Best Western University Inn Canton, NY 102 Apr. 95
Comfort Inn
Comfort Inn Murray Hill Murray Hill, NY 128 Nov. 95
Courtyard by Marriott
Marina Del Rey Courtyard by Marriott Marina Del Rey, CA 276 May 95
Albany Courtyard by Marriott Albany, NY 78 Jan. 96
Days Inn
West Palm Beach Days Inn West Palm Beach, FL 234 Aug. 94
College Park Days Inn College Park, MD 68 Feb. 95
Days Inn Brookville Brookville, PA 134 Feb. 96
Chambersburg Days Inn Chambersburg, PA 107 May 94
Virginia Beach Days Inn Airport Virginia Beach, VA 148 Nov. 94
Fairfield Inn
Vicksburg Fairfield Inn Vicksburg, MS 81 July 95
Hilton
Meadowlands Hilton Secaucus, NJ 295 Aug. 91
Holiday Inn
Walnut Creek Holiday Inn Walnut Creek, CA 148 May 95
Ft. Lauderdale Beach Galleria Holiday Inn Ft. Lauderdale, FL 240 Dec. 94
Madeira Beach Holiday Inn Madeira Beach, FL 149 Dec. 94
Fort Wayne Holiday Inn Ft. Wayne, IN 147 Sep. 93
Richmond Holiday Inn Richmond, VA 280 Aug. 94
Howard Johnson
Greenwich Howard Johnson Greenwich, CT 103 Sep. 93
Clearwater Central Howard Johnson Clearwater Beach, FL 193 Dec. 94
Ithaca Howard Johnson Ithaca, NY 72 Sep. 93
Latham Howard Johnson Latham, NY 146 Sep. 93
Utica Howard Johnson Utica, NY 147 Sep. 93
Radisson
Rochester Radisson Inn Rochester, NY 171 Sep. 93
Radisson Hotel Virginia Beach Virginia Beach, VA 292 Dec. 95
Ramada
Santa Ana Ramada Grand Avenue Hotel Santa Ana, CA 182 Nov. 94
Ramada Inn Gulfview Clearwater Beach, FL 289 Dec. 94
Ft. Lauderdale Airport Ramada Inn Ft. Lauderdale, FL 298 Dec. 94
Niles Ramada Inn Niles, MI 127 Feb. 95
Bordentown Ramada Inn Bordentown, NJ 95 Feb. 95
Sheraton
Batavia Sheraton Inn Batavia, NY 200 July 93
</TABLE>
47
<PAGE> 55
<TABLE>
<CAPTION>
NUMBER
OF COMMENCEMENT
HOTEL LOCATION ROOMS DATE
----- -------- ------ ------------
<S> <C> <C> <C>
Super 8
Flagstaff Super 8 Motel Flagstaff, AZ 86 Dec. 94
Arcata Super 8 Motel Arcata, CA 62 Dec. 94
Indio Super 8 Motel Indio, CA 70 Dec. 94
Red Bluff Super 8 Motel Red Bluff, CA 72 Dec. 94
Mission Bay Super 8 Motel San Diego, CA 117 Apr. 96
Selma Super 8 Motel Selma, CA 40 Dec. 94
Willows Super 8 Motel Willows, CA 41 Dec. 94
Yucca Valley Super 8 Motel Yucca Valley, CA 48 Dec. 94
Rock Falls Super 8 Motel Rock Falls, IL 63 Apr. 96
Somerset Super 8 Motel Somerset, KY 63 Apr. 96
Poplar Bluff Super 8 Motel Poplar Bluff, MO 63 Apr. 96
Miner/Sikeston Super 8 Motel Sikeston, MO 63 Apr. 96
Travelodge
Travelodge Metro Center Phoenix, AZ 170 Dec. 95
Villager Lodge
Villager Lodge Cincinnati Cincinnati, OH 98 June 95
Columbus Villager Lodge Columbus, OH 161 June 95
Independent
Mirage Springs Hotel and Casino Desert Hot Springs, CA 110 Mar. 96
Azure Tides Inn Sarasota-Lido Key, FL 59 Dec. 95
Mears Great Oak Landing Chestertown, MD 28 June 95
College Park Royal Pine Inn College Park, MD 114 Feb. 95
Government Hotel Charlotte, NC 195 Dec. 95
Brookstown Inn Winston-Salem, NC 71 July 94
Plainview Plaza Hotel Plainview, NY 182 Sep. 93
Linden Row Inn Richmond, VA 70 July 94
Other Contracts
Greensboro Ramada Inn Airport(1) Greensboro, NC 169 Oct. 94
-----
Total Crossroads Rooms 7,145
Total Crossroads Hotels 53
</TABLE>
- - ------------------
(1) The Company provides certain services, such as accounting or consulting
services but not property management services, to this hotel.
Colony Portfolio. The Company's Colony portfolio consists of upscale and
mid-priced leisure hotels and resorts, condominiums and time-shares, comprised
of 23 properties with a total of 2,326 rooms. The Company purchased the assets
of Colony Hotel and Resorts in May 1994 for $1 million, payable in five equal
annual installments through 1999. The portfolio of resorts enabled the Company
to expand its presence in the resort market and establish a presence in the
global market. In 1995, the Colony portfolio accounted for approximately $1.3
million, or 5% of the Company's net management fees.
Colony operates most of its properties under the brand name "A Colony Hotel
and Resort." Colony's managed hotels and other properties are located in six
states (including vacation destinations such as Hawaii, Colorado and Vermont) as
well as Mexico, Israel, the Caribbean, Thailand and Russia.
The properties in the Colony portfolio appeal primarily to leisure
travelers. They include upscale and mid-priced properties with a wide range of
room types, facilities and guest services. Most of Colony's properties provide
amenities such as golf, tennis, beach facilities and/or water or snow skiing,
depending on the location.
48
<PAGE> 56
The following table provides a complete listing of the properties in the
Colony portfolio as of May 1, 1996:
COLONY PORTFOLIO PROPERTIES
<TABLE>
<CAPTION>
NUMBER
OF COMMENCEMENT
HOTEL LOCATION ROOMS DATE
----- -------- ------ ------------
<S> <C> <C> <C>
Hotels and Resorts
Hawaii Polo Inn (1) Honolulu, HI 72 June 94
Kaluakoi Hotel & Golf Club Kepuhi Beach, Molokai, HI 103 June 94
Lawaii Beach Resort Koloa, Kauai, HI 171 June 94
Banyan Harbor Lihue, Kauai, HI 148 June 95
Alana Waikiki Hotel Waikiki Beach, HI 313 Feb. 96
Lake Lure Golf Resort Lake Lure, NC 47 June 94
Montauk Yacht Club Resort and Marina Montauk, NY 107 June 94
Stratton Village Lodge Stratton Mountain, VT 91 June 94
Stratton Mountain Inn Stratton Mountain, VT 119 June 94
Hotel Tverskaya Moscow, Russia 122 Sep. 95
Kamala Bay Terrace Phuket, Thailand 117 June 94
Vacation Villa Resorts
Ocotillo Lodge Palm Springs, CA 124 Nov. 95
Mountainside at Silvercreek Silvercreek, CO 120 June 94
Kona Bali Kai Resort Kailua-Kona, HI 66 June 94
Poipu Kai Resort Koloa, Kauai, HI 85 June 94
Golden Eagle Resort (1) Stowe, VT 89 June 94
Colony Tel Aviv Resort (1) Tel Aviv, Israel 80 June 94
San Felipe Marina and Spa (1) Baja, Mexico 52 June 94
Puerto Aventuras Beach Hotel Cancun, Mexico 30 Sep. 95
Oyster Pond Beach Hotel St. Maarten, Netherlands Antilles 40 Oct. 94
Point Pleasant St. Thomas, Virgin Islands 110 Sep. 95
Timothy Beach Resort St. Kitts, West Indies 60 June 94
Caribees Resort St. Lucia, West Indies 60 Oct. 95
------
Total Colony Rooms 2,326
Total Colony Properties 23
</TABLE>
- - ------------------
(1) Denotes a property for which the Company provides only franchise and/or
marketing services.
49
<PAGE> 57
GEOGRAPHIC DIVERSIFICATION
The geographic distribution of the Company's hotel portfolio reflects the
Company's belief that geographic diversification helps to insulate its portfolio
from local market fluctuations that are typical for the lodging industry. The
following table summarizes certain information with respect to the distribution
of the Company's hotel portfolio as of December 31, 1995:
<TABLE>
<CAPTION>
NUMBER NUMBER % OF PRO FORMA 1995
OF OF % OF MANAGEMENT % OF PRO FORMA
STATE/COUNTRY HOTELS ROOMS TOTAL ROOMS REVENUES (1) 1995 HOTEL REVENUES
- - ---------------------------- ------- ------- ----------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
Florida (2) 23 7,576 21.6 27.7% 6.6%
California (3) 24 5,964 17.0 14.0 11.5
Massachusetts (4) 8 1,226 3.5 6.4 12.3
New York (5) 13 3,130 8.9 6.2 10.1
Pennsylvania (6) 7 1,921 5.5 6.1 13.5
New Jersey 4 1,151 3.3 5.5 --
Tennessee 2 663 1.9 4.2 --
North Carolina 7 1,473 4.2 2.9 --
Washington 1 415 1.2 2.7 --
Missouri 1 300 0.9 2.4 --
Connecticut 4 929 2.7 2.0 --
Texas (7) 2 701 2.0 2.0 6.0
Ohio 3 611 1.8 1.8 --
Canada 1 717 2.0 1.7 --
Rhode Island 1 345 1.0 1.6 --
Hawaii 6 645 1.9 1.4 --
Maryland 4 511 1.5 1.4 --
Virginia (8) 9 2,356 6.7 1.4 13.2
Minnesota 1 320 0.9 1.3 --
Oklahoma 1 197 0.6 1.2 --
Arizona 3 436 1.3 0.9 --
Michigan 2 362 1.0 0.8 --
Nevada 1 147 0.4 0.8 --
Colorado (9) 3 731 2.1 0.6 11.0
District of Columbia 1 143 0.4 0.6 --
Indiana 1 147 0.4 0.4 --
Netherlands Antilles 1 40 0.1 0.4 --
Russia 1 122 0.3 0.4 --
Vermont 3 299 0.9 0.4 --
Wisconsin 1 138 0.4 0.2 --
Israel 1 80 0.2 0.2 --
Thailand 1 117 0.3 0.2 --
Mississippi 1 81 0.2 0.1 --
Mexico 2 82 0.2 0.1 --
Georgia (10) 1 287 0.8 * 4.2
Illinois (10) 2 451 1.3 * 11.6
West Indies 2 120 0.3 * --
Virgin Islands 1 110 0.3 * --
--- ------ ----- ----- -----
Totals 150 35,044 100.0% 100.0% 100.0%
=== ====== ===== ===== ======
</TABLE>
- - ------------------
* Less than 0.1%
(1) Management Fee Revenues include net management fees and asset management
fees.
(2) Includes one Owned Hotel, containing 388 rooms.
(3) Includes one Owned Hotel, containing 463 rooms.
50
<PAGE> 58
(4) Includes two Owned Hotels, containing 516 rooms.
(5) Includes one Owned Hotel, containing 302 rooms.
(6) Includes two Owned Hotels, containing 515 rooms.
(7) Includes one Owned Hotel, containing 391 rooms.
(8) Includes two Owned Hotels, containing 693 rooms.
(9) Includes two Owned Hotels, containing 611 rooms.
(10) All hotels located in this state are Owned Hotels, and management fees
relating thereto are eliminated on a pro forma basis.
NATIONAL FRANCHISE AFFILIATIONS
As an independent hotel operating company, the Company can choose the
franchises that will provide the greatest benefits to the hotels it manages.
Factors considered when selecting a franchise include brand recognition, access
to national reservations systems, national direct sales efforts, volume
purchasing agreements, and technical and business assistance. As of December 31,
1995, 123 hotels were operated under a national or regional franchise system.
Operating under multiple franchise systems provides the Company with further
diversification, less dependence on the continued popularity of one brand and
less vulnerability to new requirements of any individual franchise system. The
following chart summarizes certain information with respect to the franchise
affiliations of the hotels in the Company's portfolio as of December 31, 1995:
<TABLE>
<CAPTION>
NUMBER NUMBER % OF
FRANCHISE OF HOTELS OF ROOMS TOTAL ROOMS
- - ----------------------------- --------- -------- ------------
<S> <C> <C> <C>
Marriott (1) 36 12,649 36.1%
Colony 25 3,030 8.6
Hilton (2) 7 2,348 6.7
Holiday Inn and Crowne Plaza 9 2,287 6.5
Radisson (3) 7 1,741 5.0
Westin 1 1,369 3.9
Ramada Hotel 6 1,160 3.3
Hyatt 3 895 2.6
Sheraton 2 798 2.3
Days Inn 5 737 2.1
Howard Johnson 5 661 1.9
Doubletree 1 428 1.2
Super 8 Motels 7 419 1.2
Courtyard by Marriott 1 276 0.8
Villager Lodge 2 259 0.7
Embassy Suites (4) 1 209 0.6
Travelodge 1 170 0.5
Country Hearth 1 150 0.4
Comfort Inn 1 128 0.4
Best Western 1 102 0.3
Fairfield Inn 1 81 0.2
Independent (5) 27 5,147 14.7
--- ------ -----
Totals 150 35,044 100.0%
=== ====== =====
</TABLE>
- - ------------------
(1) Includes nine Owned Hotels, containing 2,872 rooms.
(2) Includes three Owned Hotels, containing 991 rooms.
(3) Includes one Owned Hotel, containing 242 rooms.
(4) Includes one Owned Hotel, containing 209 rooms.
(5) Includes one Owned Hotel, containing 303 rooms.
51
<PAGE> 59
HOST FUNDING TRANSACTION
In April 1996, Crossroads purchased 60,000 shares of common stock of Host
Funding, Inc. ("Host"), a publicly traded hotel real estate investment trust, in
connection with Host's initial public offering. In connection therewith, a
subsidiary of Crossroads entered into long-term leases with Host to lease five
Super 8 Motels (the "Host Hotels") owned by Host. Rental payments under each
lease consist of base rent (the "Base Rent"), payable monthly, which is based
upon a schedule for each hotel. The yearly total Base Rent for each hotel varies
from $112,300 to $265,300. In 1996, the monthly Base Rent for each hotel will be
reduced by 1% of monthly gross room revenue. In addition, each hotel will pay
percentage rent, payable quarterly, which is based upon gross revenues from the
operation of the hotel. Crossroads will receive a management fee based on a
percentage of gross revenues for each hotel. Crossroads is generally responsible
for paying all operating expenses of the hotel property, including maintenance
and repair costs and insurance premiums, and for maintaining any underlying
ground utilities. Other than hotels or motels owned, managed, operated, or in
which Crossroads had an interest prior to the commencement of the leases,
Crossroads is not permitted to manage, operate or own any interest in any hotel
or motel property within a five mile radius of each leased hotel. The leases
will expire in 2011 but are terminable earlier upon the payment of certain
termination fees. Crossroads has agreed to initially pledge one-half of the
shares of Host common stock acquired by it to secure its subsidiary's
performance during the first three years of the leases. Thereafter, the number
of shares required to be pledged declines during the remaining term of the
leases. In lieu of such pledge, Crossroads may elect to guaranty the obligations
of the tenant under the leases. As part of this transaction, Crossroads and Host
have formed a strategic alliance that is expected to provide Crossroads the
opportunity to lease additional hotels acquired by Host.
REINSURANCE BUSINESS
The Company operates a strategically related reinsurance business through
its Northridge subsidiary. Northridge provides reinsurance to major insurance
carriers solely in connection with the insurance that those carriers provide to
the Company and its hotels. Northridge limits its reinsurance to specific lines
of insurance with defined limits. Northridge also provides direct insurance
coverage to the Company in connection with its self-insured health care program.
In 1995 and 1994, Northridge generated revenues of $7.7 million and $7.0
million, respectively, incurred claims expenses of $0.6 million and $0.1
million, respectively, and recorded net income of $6.7 million and $6.4 million,
respectively.
MANAGEMENT
The Company has a distinct corporate culture and management style, which
has evolved over the Company's 35 years of operation. The Company's management
seeks to maintain a blend of centralized control over strategic issues while
encouraging decentralized decision-making with respect to operational issues.
The Company believes that the operational details which determine the quality of
a guest's hotel stay are best managed by on-site hotel personnel.
The Company has a human resources department dedicated to designing the
employee selection process, creating competitive compensation programs and
developing appropriate training programs at all levels. The Company's human
resources department has developed 26 training programs to introduce new
employees to the Company's method of operation and to augment their managerial
skills. The training programs focus on such areas as supervisory development,
middle management training, career planning, technical training and executive
development. In addition, Company employees are required to attend outside
courses developed by a variety of managerial and technical organizations both
within and outside the industry.
The Company's executive officers supervise core departments such as
accounting, management information systems, marketing, central purchasing and
human resources. The corporate office utilizes information systems that track
each hotel's daily occupancy, average room rate and revenues from rooms and food
and beverage operations. By having the latest information available at all
times, management believes it is better able to respond to changes in each
market and control variable expenses to maximize the profitability of each
hotel. The Company's senior management has been with the Company for an average
of 13 years and have an average of 22 years of experience in the lodging
industry. See "Risk Factors--Substantial Reliance on Senior Management."
Following consummation of the Offering, the senior management will beneficially
own 2.6% of
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<PAGE> 60
the outstanding shares of Common Stock (excluding Milton Fine, who will
beneficially own 23.1% of the outstanding shares of Common Stock). As a result,
the interests of the Company's senior management will be closely aligned with
the interests of shareholders. See "Management--Stock Option Grants" and
"--Compensation Plans and Arrangements."
The Company's hotel management business is organized generally around
geographic regions to ensure a close working relationship among individuals at
the Company's hotels and at its corporate offices. Each region is headed by a
Regional Vice President or a Regional Director of Operations who is responsible
for overseeing and monitoring the hotels in his or her respective region to
ensure that they are operating under the specific guidelines established by the
Company. Each Regional Vice President and Regional Director of Operations heads
a team that specializes in sales and marketing, operations and accounting. The
regional teams are responsible for ensuring that the on-site management
personnel adhere to the Company's policies, take full advantage of the Company's
corporate resources and achieve financial and operating targets. The Company's
five Regional Vice Presidents and nine Regional Directors of Operations have
been with the Company an average of six years.
Each of the Company's hotels is managed by a General Manager and an
Executive Committee, which is comprised of the hotel department heads. In
addition to conducting the day-to-day operations of the hotel, the General
Manager and Executive Committee are responsible for developing and implementing
an accurate, timely and detailed annual budget, comprehensive marketing plan,
capital improvement program, human resources development program and short- and
long-term operating strategies. The General Manager and the Executive Committee
regularly review current activity and discuss overall performance and direction
of key areas of the hotel. The Company's 66 General Managers in the Company's
Interstate division have been with the Company an average of eight years.
COMPETITION
The hotel management business is highly competitive. Some of the Company's
competitors may have substantially greater marketing and financial resources
than the Company. Competition among independent hotel management companies has
intensified in the past few years, and, as a result, hotel owners in many cases
have been requesting lower base fees coupled with greater incentive fees or
seeking capital contributions from independent hotel management companies in the
form of loans or equity investments. See "Risk Factors-- Competition for
Management Agreements."
PROPERTIES
The principal executive offices of the Company are located in Pittsburgh,
Pennsylvania and are occupied pursuant to a lease that expires December 31,
1997. The Company is currently renegotiating this lease. In addition to its
executive offices, the Company leases office space in Scottsdale, Arizona,
Honolulu, Hawaii and Orlando, Florida. The Company believes that such properties
are sufficient to meet its present needs and does not anticipate any difficulty
in securing additional space, as needed, on terms acceptable to the Company.
EMPLOYEES
The Company employs most of the employees at its owned, leased and managed
hotels as well as those at its corporate offices; however, third-party hotel
owners pay the wages and benefits for all the employees in their hotels. At
December 31, 1995, the Company had approximately 18,200 employees, approximately
18,000 of whom were employees of specific hotels.
Fourteen of the properties under the Company's management, employing
approximately 2,200 workers, are subject to labor union contracts. The Company
has not experienced any union strikes or other material labor disruptions.
GOVERNMENT REGULATION
The lodging industry in general, and the Company in particular, is subject
to extensive foreign and U.S. federal, state and local government regulations.
See "Risk Factors--Government Regulation." There are currently no material legal
or administrative proceedings pending against the Company with respect to any
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<PAGE> 61
regulatory matters, and the Company believes that it is in compliance in all
material respects with statutory and administrative regulations with respect to
its business.
ENVIRONMENTAL MATTERS
Under various foreign and U.S. federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In certain jurisdictions,
liability may be imposed upon owners or operators of real properties for
personal injury associated with exposure to asbestos-containing materials.
Environmental laws also may impose restrictions on the manner in which property
may be used or businesses may be operated, and these restrictions may result in
expenditures and require interruption of such businesses. In connection with its
current or previous operations or previous ownership of hotels, the Company may
be potentially liable for any of these costs under environmental laws and
related common law principles. The Company seeks to reduce its environmental
liability when it acquires hotels by conducting environmental audits of the
subject property. Although the Company currently is not aware of any material
environmental claims pending or threatened against it or any of its managed,
leased, owned or previously owned hotels, no assurance can be given that a
material environmental claim will not be asserted against, and ultimately result
in liability for, the Company. The cost of defending against, and ultimately
paying or settling, claims of liability or of remediating a contaminated
property could have a material adverse effect on the financial condition and
results of operations of the Company. See "Risk Factors--Government Regulation."
All of the Owned Hotels have undergone Phase I environmental assessments
(which generally provide a physical inspection and database search but not soil
or groundwater analyses) within the last 24 months. In addition, most of the
Company's owned, leased and managed hotels have been inspected to determine the
presence of asbestos containing materials ("ACMs"). While ACMs are present in
certain of the properties, operations and maintenance programs for maintaining
such ACMs have been or are in the process of being designed and implemented, or
the ACMs have been scheduled to be or have been abated, at such hotels. The
Company believes that the presence of ACMs in its owned, leased and managed
hotels will not have a material adverse effect on its financial condition and
results of operations; however, there can be no assurance that this will be the
case.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is named as defendant
in legal proceedings resulting from incidents at its hotels. The Company
maintains comprehensive liability insurance and also requires hotel owners to
maintain adequate insurance coverage. The Company believes such coverage to be
of a nature and amount sufficient to ensure that it is adequately protected from
any material financial loss as a result of such claims. In addition, the Company
generally is indemnified by third-party hotel owners for lawsuits and damages
against it in its capacity as hotel manager. The Company currently is not the
subject of any legal actions for which it is neither insured nor indemnified and
which the Company believes will individually or in the aggregate have a material
adverse effect on the Company's financial condition or results of operations,
nor to the Company's knowledge is any such litigation threatened.
INTELLECTUAL PROPERTY
Generally, the third-party owners of the Company's portfolio hotels, rather
than the Company, are parties to the franchise agreements to use the trade names
under which the hotels are operated. The Company is a party, however, to
franchise agreements with Marriott International, Inc., Hilton Inns, Inc.,
Promus Hotels, Inc. and Radisson Hotels International, Inc. The Company's
franchise agreements to use the Marriott(R), Hilton(R), Embassy Suites(R) and
Radisson(R) trade names expire at varying times generally ranging from 2000 to
2015. The Company has registered, or has applied with the United States Patent
Office for registration of, a number of trademarks and service marks
incorporating the word "Colony," as well as many other trademarks and service
marks used in the Company's business.
54
<PAGE> 62
Below are trade names utilized by the Company's portfolio hotels pursuant
to license arrangements with national franchisors:
EMBASSY SUITES(R) IS A REGISTERED TRADEMARK OF EMBASSY SUITES, INC.
("EMBASSY"), WHICH IS A WHOLLY-OWNED SUBSIDIARY OF PROMUS HOTELS, INC.
("PROMUS"). NEITHER EMBASSY NOR PROMUS HAS ENDORSED OR APPROVED THE OFFERING
MADE HEREBY. A GRANT OF AN EMBASSY SUITES FRANCHISE LICENSE FOR CERTAIN OF THE
HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR
IMPLIED APPROVAL OR ENDORSEMENT BY EMBASSY OR PROMUS (OR ANY OF THEIR RESPECTIVE
AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE COMMON STOCK
OFFERED HEREBY.
HILTON(R), HILTON INN(R) AND THE STYLIZED H(R) ARE REGISTERED TRADEMARKS OF
HILTON INNS, INC. ("HILTON HOTELS"). NEITHER HILTON INNS, INC. NOR HILTON HOTELS
NOR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES
(COLLECTIVELY, THE "HILTON ENTITIES") SHALL IN ANY WAY BE DEEMED AN ISSUER OR
UNDERWRITER OF THE SHARES OF COMMON STOCK OFFERED HEREBY NOR HAS ANY OF THE
HILTON ENTITIES ENDORSED OR APPROVED THE OFFERING. THE HILTON ENTITIES HAVE NOT
ASSUMED AND SHALL NOT HAVE ANY LIABILITY OR RESPONSIBILITY FOR ANY FINANCIAL
STATEMENTS OR OTHER FINANCIAL INFORMATION CONTAINED HEREIN OR ANY PROSPECTUS OR
ANY WRITTEN OR ORAL COMMUNICATIONS REGARDING THE SUBJECT MATTER HEREOF. A GRANT
OF A HILTON FRANCHISE LICENSE FOR CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND
SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY
ANY OF THE HILTON ENTITIES (OR ANY OF THEIR AFFILIATES, SUBSIDIARIES OR
DIVISIONS) OF THE COMPANY OR THE COMMON STOCK OFFERED HEREBY.
MARRIOTT(R), MARRIOTT BY COURTYARD(R) AND FAIRFIELD INN(R) ARE REGISTERED
TRADEMARKS OF MARRIOTT INTERNATIONAL, INC., WHICH HAS NOT ENDORSED OR APPROVED
THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF THE HOTELS SET FORTH IN THIS
PROSPECTUS. A GRANT OF A MARRIOTT FRANCHISE LICENSE FOR CERTAIN OF THE HOTELS IS
NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED
APPROVAL OR ENDORSEMENT BY MARRIOTT INTERNATIONAL, INC. (OR ANY OF ITS
AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE COMMON STOCK
OFFERED HEREBY.
RADISSON(R) IS A REGISTERED TRADEMARK OF RADISSON HOTELS INTERNATIONAL,
INC., WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL
RESULTS OF THE HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A RADISSON
FRANCHISE LICENSE FOR CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT
BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY RADISSON
HOTELS INTERNATIONAL, INC. (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS)
OF THE COMPANY OR THE COMMON STOCK OFFERED HEREBY.
In addition, other hotels in the Company's portfolio operate pursuant to
license agreements with these and other franchisors.
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<PAGE> 63
THE ORGANIZATION, ACQUISITION AND FINANCING PLAN
THE ORGANIZATION
Prior to consummation of the Offering, the Fine Family Shareholders owned
all of the voting stock and approximately 92% of the non-voting stock of IHC,
with the remaining approximately 8% of the non-voting stock in IHC owned by
certain of IHC's officers (excluding Milton Fine). In addition, the Fine Family
Shareholders owned direct and indirect interests in certain of the subsidiaries
and affiliated companies of IHC including its Crossroads, Northridge and Colony
subsidiaries. The Fine Family Shareholders and certain officers (excluding
Milton Fine) and former employees of IHC also owned interests in the Interstone
I, Interstone II and Interstone III partnerships with Blackstone (as described
below in "--Acquisition of Owned Hotels"), which own 14 Owned Hotels. Prior to
consummation of the Offering, all of the foregoing interests will be contributed
to the Company in exchange for Common Stock of the Company. As a result,
following the Offering neither the Fine Family Shareholders nor any of the
Company's officers and employees will have any direct ownership interest in any
of the Company's subsidiaries or any of the Owned Hotels. In addition, prior to
the consummation of the Offering, the Company and its affiliates will effect the
following transactions (collectively with the foregoing transactions, the
"Organization"): (i) all of the outstanding shares of common stock of IHC will
be contributed to the Company by the Fine Family Shareholders in exchange for
Common Stock of the Company and (ii) the Company will issue restricted shares of
Common Stock to certain officers and employees of the Company in exchange for
restricted stock in IHC previously issued to them (see "Management--Stock Option
Grants"). As a result and after giving effect to the Acquisition from Blackstone
described below the Company will own 100% of IHC and its subsidiaries and all of
the equity interests in the Owned Hotels (excluding minority interests owned by
third parties in seven hotels). The Company will issue 13,565,000 shares of
Common Stock pursuant to the Organization to the Fine Family Shareholders and
certain officers and current and former employees of the Company, all of which
will be restricted shares under the Securities Act. See "Shares Eligible for
Future Sale." In addition, the Company will enter into a Registration Rights
Agreement with each of the existing shareholders of the Company prior to the
Offering (collectively, the "Original Shareholders") pursuant to which the
Original Shareholders will have the right to request the Company to register
under the Securities Act (a "Demand Registration") shares of Common Stock held
by them ("Registrable Securities") and, if the Company proposes to register
shares of Common Stock under the Securities Act (other than a registration on
Form S-8 or S-4), the right to request the Company to include in such
registration Registrable Securities held by the Original Shareholders (a
"Piggyback Registration"). The Company has agreed to pay substantially all
expenses in connection with any such Demand Registration or Piggyback
Registration. The Company has also agreed to indemnify the Original Shareholders
against certain liabilities, including liabilities under the Securities Act,
incident to any such Demand Registration or Piggyback Registration.
ACQUISITION OF OWNED HOTELS
In March 1994, Milton Fine, as trustee, and certain officers and former
employees of IHC formed a partnership ("IHC/Interstone") which in turn formed a
series of partnerships (collectively, "Interstone I") with Blackstone to pursue
acquisitions of hotel properties. Interstone I acquired title to seven hotels
and a controlling interest in another hotel, consisting of the Denver Hilton
South, the Huntington Hilton, the Colorado Springs Marriott, the Atlanta
Marriott North Central, the Philadelphia Marriott West, the Houston Marriott
North at Greenspoint, the Lisle Radisson, and the Fort Magruder Inn and
Conference Center. Under the Interstone I partnership agreements, Blackstone
serves as the managing general partner, and IHC manages all eight of the hotel
properties acquired by Interstone I. IHC/Interstone will contribute all of their
interests in Interstone I to the Company prior to consummation of the Offering
(see "--The Organization"), and the Company will purchase the equity interests
of Blackstone in Interstone I pursuant to the Acquisition Agreement described
below.
Following the completion of the Interstone I investment program, in
December 1995 IHC, the Fine Family Shareholders and certain officers of IHC
formed a partnership ("IHC/Interstone II"), which in turn formed another series
of partnerships with Blackstone (collectively, "Interstone II") to acquire a 75%
interest in a portfolio of six hotels owned by an institutional investor,
consisting of the Schaumburg Embassy Suites,
56
<PAGE> 64
the Fort Lauderdale Airport Hilton, the Warner Center Marriott, the Boston
Marriott Andover, the Marriott Suites at Valley Forge and the Tysons Corner
Marriott. Under the Interstone II partnership agreements, Blackstone serves as
the managing general partner, and IHC manages all six of the hotel properties
acquired by Interstone II. The following actions may not be taken without the
prior consent of the institutional investor: (i) requiring that the partners
make capital contributions to pay for any discretionary extraordinary expenses;
(ii) selling or refinancing one or more of the properties on or before the third
anniversary of the date Interstone II acquired such property; (iii) incurring
indebtedness materially in excess of 65% of the fair market value of Interstone
II's properties (or such portion of its properties being used as collateral for
the indebtedness); or (iv) transferring any interest in the partnership (other
than to an affiliate), admitting a new partner into the partnership or partially
disposing of property owned by the partnership. The Fine Family Shareholders and
the officers of IHC will contribute all of their interests in Interstone II to
the Company prior to consummation of the Offering (see "--The Organization"),
and the Company will purchase the interest of Blackstone in Interstone II as
described below.
In connection with the formation of Interstone II, IHC and Blackstone
entered into an Option Agreement (the "Option Agreement") pursuant to which IHC
granted to Blackstone the Blackstone Option to purchase a 20% equity interest in
a new company to be formed upon exercise of the Blackstone Option to succeed the
Company and upon payment by Blackstone of the exercise price of $23.3 million.
In connection with the execution of the Acquisition Agreement (as described
below), Blackstone exercised the Blackstone Option conditioned upon the
consummation of the Offering. Upon the closing of the Blackstone Option and
payment of the $23.3 million exercise price, Blackstone will receive $44.8
million of Common Stock based on the initial public offering price and the
Company will pay one of the Blackstone entities a $233,000 arrangement fee which
it agreed to pay to Blackstone pursuant to the Option Agreement for services in
negotiating and arranging the Blackstone Option.
Simultaneously with the completion of the Interstone II investment program,
in December 1995, IHC/Interstone II and Blackstone formed a third series of
partnerships (collectively, "Interstone III") to acquire additional hotel
properties. IHC/Interstone II (which following the consummation of the Offering
will be wholly owned by the Company) initially committed up to $15 million for a
25% interest therein, and Blackstone initially committed up to $45 million for a
75% interest therein. The capital commitments expire on December 31, 1997. No
acquisitions have been made by Interstone III as of the date of this Prospectus.
Pursuant to the Interstone III partnership agreements, all hotel acquisition
opportunities that meet the investment parameters for Interstone III which come
to the attention of the Company or Blackstone must be presented to Interstone
III unless the party identifying the acquisition opportunity certifies that in
its judgment the acquisition by Interstone III would not be feasible,
appropriate or practical. IHC will seek to manage all hotels, if any, acquired
by Interstone III. The Interstone III investment parameters include mid- to
high-quality hotel properties located in growing markets, requiring an equity
investment of at least $5 million and having a total purchase price of at least
$10 million, and which are well-positioned in relation to their competition and
provide a significant growth opportunity through intensive management
repositioning and/or redevelopment. In evaluating prospective acquisitions for
Interstone III, the Company intends to apply generally the same investment
criteria it uses for its own acquisitions, including the projected initial
free-and-clear rate of return and future growth in such rate of return. If one
of the partners of Interstone III considers, but determines not to pursue, a
hotel acquisition opportunity, the other partner may pursue such hotel
acquisition opportunity for its own account. Pursuant to the Acquisition
Agreement, the Company and Blackstone agreed to modify the terms of the
Interstone III investment program effective as of the closing of the Acquisition
to increase IHC/Interstone II's percentage interest and capital commitment in
Interstone III to 51% and $30.6 million, respectively, and to reduce
Blackstone's percentage interest and capital commitment to 49% and $29.4
million, respectively. Following such closing, all major decisions involving
Interstone III will be made jointly by the Company and Blackstone. The Company
and Blackstone will each have a buy-sell option commencing in December 1997.
Interstone III will pay a 1% acquisition fee to the partner introducing each
hotel acquisition made by such partnerships. IHC/Interstone II will contribute
all of its interests in Interstone III to the Company prior to consummation of
the Offering. See"--The Organization."
In March 1996, the Company entered into an Agreement of Purchase and Sale
(the "Acquisition Agreement") to acquire all of Blackstone's interests in
Interstone I (excluding one Interstone I hotel, the Fort
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<PAGE> 65
Magruder Hotel and Conference Center), Interstone II and the Trumbull Hotel
(collectively, the "Acquisition") for a cash purchase price of approximately
$136.4 million plus the assumption of certain indebtedness related to the
Trumbull Hotel. The acquisition of the Trumbull Hotel, however, is conditioned
on Blackstone, which presently holds the mortgage loan secured by the Trumbull
Hotel, acquiring fee title to the Trumbull Hotel from its current owner, a
partnership in which one of the Fine Family Shareholders owns a less than 1%
general partner interest, prior to the closing of the Acquisition. Blackstone
currently does not have an agreement to acquire the Trumbull Hotel and,
accordingly, the acquisition of the Trumbull Hotel has not been reflected in the
pro forma financial information included in this Prospectus. Closing of the
Acquisition will occur upon the earlier of the consummation of the Offering or
July 15, 1996.
In connection with the execution of the Acquisition Agreement, the Company
also entered into a Contribution Agreement (the "Contribution Agreement") with
certain affiliates of the Company and Blackstone pursuant to which such
affiliates agreed to contribute to the Company their interests in the
partnership (the "Fort Magruder Partnership") that owns the Fort Magruder Inn
and Conference Center in consideration of the issuance of $8.3 million of Common
Stock at the initial public offering price (the "Contribution"). Closing of the
Contribution will occur immediately prior to the closing of the Acquisition. If
at the time of the closing of the Contribution the Offering has not been
consummated, the Company will be required to pay Blackstone $8.3 million cash in
lieu of shares of Common Stock.
The simplified organization charts set forth on the following page
summarize the organizational structure of the Company and its predecessors
before the Organization, Acquisition and Offering, and upon consummation of the
Organization, Acquisition and Offering and exercise of the Blackstone Option.
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<PAGE> 66
BEFORE THE ORGANIZATION AND OFFERING
<TABLE>
<S> <C>
----------------------
I I ----------------
I Fine Family I I I
I Trusts/Management I I Blackstone I
I I I I
---------------------- ----------------
I I I I
I I I 80% I 20% Stock Option
I I I I
I I ---------------------------
I I I I
I I I I
I I I Interstate Hotels I
I I I Corporation I
I I I I
I I I I
I I ---------------------------
I I I
I I I
I I ------------------------------------------------------------------------
I I I I I
I I I ----------------------- I --------------- I
---------------- I I I ---------------- I Fine Family Trusts/ I I I Fine Family I I
I Blackstone I I I I I Blackstone I I Management I I I Trusts I I
---------------- I I I ---------------- ----------------------- I --------------- I
I ----------------- I I I I I I I I
I I I I I ----------------- I I (1) I I (2)
75% I I 25% 2% I 23% I I 75% 75% I I 2% I 23% ------------------
------------------------ ------------------------ ----------------------- I I
I I I I I I I Northridge, I
I Interstone I I I Interstone II I I Interstone III I I Crossroads I
I I I I I I I and Colony I
------------------------ ------------------------ ----------------------- I I
I ------------------
------------------- I
I Institutional I I
I Investor I I
------------------- I
I I
-------------- I
I I
25% I I 75%
----------------------
I I
I Interstone/CGL I
I I
----------------------
</TABLE>
AFTER THE ORGANIZATION AND OFFERING
<TABLE>
<S> <C>
----------------- ----------------------
I I I I ----------------
I Public I I Fine Family I I I
I Shareholders I I Trusts/Management I I Blackstone I
I I I I I I
----------------- ---------------------- ----------------
I I I
I I I
I I I
------------------- I ------------------
I I I
40.4% I 49.8% I I 9.8%
-------------------------
I I
I Interstate Hotels I
I Company I
I (Registrant) I
I I
-------------------------
I
I 100%
I
---------------------------
I I
I I
I Interstate Hotels I
I Corporation I
I I
I I
---------------------------
I
I
-------------------------------------------------------------------------------------------------------
I I I I
I I I ---------------- I
I I I I Blackstone I I
I I I ---------------- I
I I I I I 100%
I 100% I 100% 51% I I 49% ------------------
------------------------ ------------------------ ----------------------- I I
I I I I I I I Northridge, I
I Interstone I I I Interstone II I I Interstone III I I Crossroads I
I I I I I I I and Colony I
------------------------ ------------------------ ----------------------- I I
I ------------------
------------------- I
I Institutional I I
I Investor I I
------------------- I
I I
-------------- I
I I
25% I I 75%
----------------------
I I
I Interstone/CGL I
I I
----------------------
</TABLE>
- - ------------------
(1) 25% Voting Interest; 1% Distribution Interest.
(2) 75% Voting Interest; 99% Distribution Interest.
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<PAGE> 67
Pursuant to the Contribution Agreement the Company, Blackstone and the Fine
Family Shareholders agreed to execute a Stockholders Agreement (the "Interstone
Shareholders Agreement") at the closings of the Acquisition and the
Contribution.
Tag Along Rights. The Interstone Shareholders Agreement provides that if
any Fine Family Shareholder seeks to transfer his or its shares of Common Stock,
Blackstone will have the right to participate in such transfer at the same price
and on the same terms and sell a specified number of its shares of Common Stock
based upon the ratio which the number of shares of Common Stock owned by
Blackstone bears to the aggregate number of shares of Common Stock owned by
Blackstone and the selling Fine Family Shareholder. Such tag along rights do not
apply to any transfers made pursuant to a public offering registered under the
Securities Act, to certain permitted transferees, or to any other parties
provided the aggregate number of shares transferred in reliance on this
exception shall not exceed 250,000 shares.
Right of First Offer. Under the Interstone Shareholders Agreement,
Blackstone has agreed not to transfer any of its shares of Common Stock without
first complying with a right of first offer procedure in favor of the Fine
Family Shareholders pursuant to which they have the first right to offer to
purchase the shares of Common Stock Blackstone proposes to sell ("First Offer
Shares"). If no purchase offer is received pursuant to such procedure or if
Blackstone declines a purchase offer made by the Fine Family Shareholders,
Blackstone will be entitled for a period of 120 days to sell all, but (subject
to certain exceptions) not less than all, of the First Offer Shares provided
that if a purchase offer was submitted by the Fine Family Shareholders no such
transfer may be made at a cash per share price less than the purchase offer per
share price. These right of first offer procedures do not apply to transfers
involving a registered public offering or sales made under Rule 144 under the
Securities Act in compliance with the "manner of sale" requirements of Rule
144(f), or to certain permitted transferees.
Registration Rights. The Interstone Shareholders Agreement provides that,
following consummation of the Offering, Blackstone will have the right to
request, up to three times, the Company to register under the Securities Act
shares of Common Stock held by Blackstone (a "Demand Registration") and, if the
Company proposes to register shares of Common Stock under the Securities Act
(other than a registration on Form S-8 or S-4), the right to request the Company
to include in such registration shares of Common Stock held by Blackstone (a
"Piggyback Registration"). Any Demand Registration must be for the registration
of at least 25% of the total number of shares of Common Stock issued to
Blackstone on the date of execution of the Stockholders Agreement or if less,
all shares of Common Stock owned by it. The Company has agreed to pay
substantially all expenses in connection with any Demand Registration or
Piggyback Registration. In any underwritten Demand Registration or Piggyback
Registration, the managing underwriters will have the right, subject to certain
limitations, to limit the number of shares of Common Stock included in such
registration. The Company has agreed to indemnify Blackstone against certain
liabilities, including liabilities under the Securities Act, incident to any
Demand Registration or Piggyback Registration.
Board Representation and Voting. The Interstone Shareholders Agreement
provides that the Fine Family Shareholders will vote their shares of Common
Stock and take other necessary actions from time to time so that the Board
includes at least one individual selected by Blackstone and who is reasonably
acceptable to the Company. The Blackstone director designee also has the right
to serve on an executive committee formed by the Board of Directors.
Blackstone's initial director designee is Thomas J. Saylak. See
"Management--Directors and Executive Officers." The Company and the Fine Family
Shareholders have agreed not to take any action to remove any Blackstone
director designee without cause. Blackstone will vote all of its shares of
Common Stock for the election of the director-candidates nominated by the Board.
Lock-up Agreement. The Interstone Shareholders Agreement provides that,
subject to certain conditions, Blackstone will not sell, transfer, pledge or
otherwise dispose of its shares of Common Stock (except to permitted
transferees) for a period of 180 days following consummation of the Offering,
and upon request of the Company in the case of any non-underwritten public
offering and upon the request of the managing underwriter in the case of an
underwritten public offering, not to sell or offer to sell any shares of Common
Stock, other than shares included in such public offering, during the period
ending 90 days following the date of the final prospectus for such offering.
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<PAGE> 68
Termination. The Interstone Shareholders Agreement provides that the
tag-along rights, right of first offer and registration rights provisions of the
Interstone Shareholders Agreement terminate at the time Blackstone and its
permitted transferees own less than 10% of the shares of Common Stock issued to
Blackstone on the date of the Interstone Shareholders Agreement. The Board
representation and voting provisions of the Interstone Shareholders Agreement
will terminate at the time Blackstone and its permitted transferees own less
than 25% of the shares of Common Stock issued to Blackstone on the date of the
Interstone Shareholders Agreement, provided that Blackstone may terminate these
provisions at any time.
ACQUISITION OF ADDITIONAL HOTELS
In February 1996, the Company signed a letter of intent to purchase an
approximately 13.0% partnership interest in the Don CeSar Beach Resort, a resort
currently managed by the Company.
In April 1996, the Company executed a contract to purchase the Boston
Marriott Westborough Hotel located in Westborough, Massachusetts. The Company
has managed this hotel since 1991. The total acquisition cost including a
reserve for capital renovations is approximately $20.2 million. Closing is
currently scheduled to occur by July 31, 1996. The contract is subject to
certain closing conditions. The Company anticipates using working capital to
finance the acquisition cost. See "Use of Proceeds." There can be no assurance
that this property will be acquired.
THE FINANCING PLAN
The Company will implement a financing plan (the "Financing Plan") in order
to fund the cash payments associated with the Organization, the Acquisition and
the purchase of the Boston Marriott Westborough Hotel, to repay certain mortgage
and other indebtedness of the Company and to provide liquidity for the Company's
operating and growth strategies. Under the Financing Plan, the Company intends
to offer 11,000,000 shares of Common Stock in the Offering, and thereby raise
approximately $220 million in gross proceeds (assuming an initial public
offering price of $20 per share) and enter into a revolving credit facility,
which will include the Term Loan and the Acquisition Facility. In addition, the
Company will receive $23.3 million upon the closing of the Blackstone Option,
which will be applied toward the repayment of notes issued to the existing
shareholders in payment of an S corporation dividend in March 1996. See "Prior S
Corporation Status" and "Certain Relationships and Related
Transactions--Transactions with the Fine Family Shareholders." After applying
the net proceeds from the Offering and borrowings under the Term Loan and
Acquisition Facility and the cash received upon exercise of the Blackstone
Option as set forth below, the Company will have approximately $21.1 million of
cash available plus $100 million of capital available under the Acquisition
Facility (the availability of which will be subject to the terms set forth in
the definitive agreements relating thereto), to fund the Company's operating and
growth strategies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
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<PAGE> 69
The following table sets forth the anticipated sources and uses of funds:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Sources of Funds:
Pro forma cash prior to the Offering..................... $ 23.5
Common Stock (gross proceeds derived from the
Offering).............................................. 220.0
Term Loan................................................ 195.0
Application of deposits made for acquisitions............ 5.6
Exercise of Blackstone Option............................ 23.3
-------
Total............................................... 467.4
-------
Uses of Funds:
Cash funding of the Acquisition (excluding the possible
acquisition of the Trumbull Hotel)..................... (124.4)
Cash funding of the Boston Marriott Westborough Hotel
acquisition............................................ (20.2)
Repayment of certain mortgage and other indebtedness..... (239.4)
Commissions, fees and expenses:
Offering............................................ (16.8)
Debt financing...................................... (10.9)
Other............................................... (2.6)
Other.................................................... (2.0)
-------
Total............................................. (416.3)
-------
Remaining Proceeds............................................ 51.1
Less:
Repayment of notes to shareholders....................... (30.0)
-------
Pro forma cash after the Offering................... $ 21.1
=======
</TABLE>
62
<PAGE> 70
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers, and their ages and
positions with the Company as of the date of this Prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------ ---- ------------------------------------------------
<S> <C> <C>
Milton Fine 70 Chairman of the Board
W. Thomas Parrington, Jr. 51 President, Chief Executive Officer and Director
J. William Richardson 48 Chief Financial Officer and Executive Vice
President, Finance and Administration
Robert L. Froman 49 Executive Vice President, Development
Marvin I. Droz 41 Senior Vice President and General Counsel
David J. Fine 32 Director
Michael J. Aranson 51 Director
R. Michael McCullough 57 Director
Thomas J. Saylak 35 Director
Steven J. Smith 55 Director
</TABLE>
Milton Fine co-founded the Company in 1961 and served as its Chief
Executive Officer until April 1996. Mr. Fine is a life trustee of the Carnegie
Institute and Chairman of the Board of the Carnegie Museum of Art. He is also a
member of the Board of Directors of the Andy Warhol Museum in Pittsburgh,
Pennsylvania.
W. Thomas Parrington, Jr. has been with the Company since 1981, serving as
Chief Executive Officer since April 1996, President and Director since 1994 and
as Chief Financial Officer prior thereto.
J. William Richardson has served as the Company's Chief Financial Officer
and Executive Vice President of Finance and Administration since 1994. Mr.
Richardson previously served as Controller and Treasurer of the Company since
1988.
Robert L. Froman has been with the Company since 1984, serving as Executive
Vice President of Development since 1986.
Marvin I. Droz has served as Senior Vice President and General Counsel
since joining the Company in 1990.
David J. Fine has been a Director of the Company since 1991. Mr. Fine is an
attorney concentrating his legal practice in the areas of real estate finance
and property acquisition, development and disposition. From 1990 to 1991, Mr.
Fine was an attorney with Gaston and Snow, and from 1991 to 1996, he was an
attorney with Eckert, Seamans, Cherin & Mellott. David J. Fine is the son of
Milton Fine.
Michael J. Aranson has been a Director of the Company since 1991 and is an
Officer and Director of Resource Investments, Inc., which functioned as a
private broker-dealer and investment advisory firm, which he co-founded, from
1975 through 1986. Mr. Aranson and his affiliated entities serve as a general
partner of 67 investment partnerships which own commercial real estate in 33
states.
R. Michael McCullough has been a Director of the Company since 1991. Mr.
McCullough is Senior Chairman of Booz, Allen & Hamilton, Inc., an international
management and technology consulting firm.
Thomas J. Saylak has been a Director of the Company since December 1995.
Mr. Saylak is a Senior Managing Director of The Blackstone Group L.P. Prior to
joining Blackstone in 1993, Mr. Saylak was a principal in Trammell Crow
Ventures, the real estate investment, banking and investment management unit of
the Trammell Crow Company, from 1987 to 1993.
Steven J. Smith has been a Director of the Company since 1991 and has been
a management consultant since 1989.
Board Committees. The Board has established two directorate committees--a
compensation committee (the "Compensation Committee") and an audit review
committee (the "Audit Review Committee"). The
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<PAGE> 71
Compensation Committee is comprised of persons who are not full-time employees
of the Company 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). The Compensation Committee reviews executive salaries,
administers the bonus, incentive compensation and stock option plans of the
Company and approves the salaries and other benefits of the executive officers
of the Company. In addition, the Compensation Committee consults with the
Company's management regarding pension and other benefit plans and compensation
policies and practices of the Company. The Audit Review Committee reviews the
professional services provided by the Company's independent auditors and the
independence of such auditors from the management of the Company. The Audit
Review Committee also reviews the scope of the audit by the Company's
independent auditors, the annual financial statements of the Company, the
Company's system of internal accounting controls and such other matters with
respect to the accounting, auditing and financial reporting practices and
procedures of the Company as it finds appropriate or as are brought to its
attention, and meets from time to time with members of the Company's internal
audit staff. A majority of the members of the Audit Review Committee are
directors who are not employed by the Company or any of its affiliates.
Director Nomination Procedures. Nominations for election of directors by
the shareholders may be made by the Board or by any shareholder entitled to vote
in the election of directors generally. The Company's By-Laws require that
shareholders intending to nominate candidates for election as directors deliver
written notice thereof to the Secretary of the Company not later than 60 days in
advance of the meeting of shareholders; provided, however, that in the event
that the date of the meeting is not publicly announced by the Company by
inclusion in a report filed with the Securities and Exchange Commission (the
"Commission") or furnished to shareholders, or by mail, press release or
otherwise more than 75 days prior to the meeting, notice by the shareholders to
be timely must be delivered to the Secretary of the Company 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 Company's By-Laws further
require that the notice by the shareholder set forth certain information
concerning such shareholder and the shareholder's nominees, including their
names and addresses, a representation that the shareholder 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 the Company's stock owned or beneficially owned by such shareholder, a
description of all arrangements or understandings between the shareholder 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
shareholder and the consent of each nominee to serve as a director of the
Company if so elected. The chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with these requirements.
Pursuant to the Interstone Shareholders Agreement, the Fine Family Shareholders
have agreed to vote their shares of Common Stock for a director designee
selected by Blackstone. See "The Organization, Acquisition and Financing
Plan--Acquisition of Owned Hotels."
DIRECTOR COMPENSATION
Directors who are not also officers or employees of the Company ("Outside
Directors") will be paid an annual retainer of $15,000 plus $750 for each Board
meeting attended. In addition, members of each directorate committee will be
paid $500 ($650 in the case of the committee chairperson) for each committee
meeting attended on days on which the Board does not also meet. Outside
Directors will also be entitled to participate in the Company's Stock Option
Plan for Non-Employee Directors (the "Director Plan").
The Director Plan will be administered by a committee (the "Director Plan
Committee") of the Board to be comprised of not less than two directors. The
Director Plan Committee will have the power to interpret the Director Plan, to
determine all questions thereunder and to adopt and amend rules and regulations
for the administration of the Director Plan, except that the Director Plan
Committee will have no authority, discretion or power to determine the terms or
timing of options to be granted under the Director Plan.
Subject to adjustment as described below, the number of shares of Common
Stock issued or transferred, plus the number of shares covered by outstanding
options, under the Director Plan may not exceed 100,000. Shares of Common Stock
covered by an option which is cancelled or terminated will again be available to
be issued or to be the subject of a stock option granted under the Director
Plan. The Director Plan Committee will make or provide for adjustments to the
maximum number of shares issuable pursuant to the Director
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<PAGE> 72
Plan, the number and kind of shares of Common Stock or other securities that are
covered by outstanding options and the exercise price applicable to outstanding
options as the Director Plan Committee determines to be equitably required to
prevent dilution or expansion of the rights of optionees which would otherwise
result from any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, any
merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
warrants or other rights to purchase securities or any other corporate
transaction or event (any such transaction or event, an "Antidilution Event")
which the Director Plan Committee determines has or may have an effect similar
to any of the foregoing.
Any person who becomes an Outside Director will automatically receive at
such time an option to purchase 5,000 shares of Common Stock at an exercise
price per share equal to the market value of a share of Common Stock on the date
the individual first becomes a director (the options described in this sentence
are hereinafter referred to as "Initial Options"). For purposes of the Director
Plan and the Company's Equity Incentive Plan, "fair market value" is the closing
sale price of the shares of Common Stock as reported on the Composite
Transactions tape of the New York Stock Exchange on the date an Option is
granted or, if there were no sales on such date, on the most recent preceding
date on which sales occurred. Initial Options will become exercisable to the
extent of 34% of the shares covered thereby after the optionee continuously has
served as a director through the next annual shareholders' meeting immediately
following such grant date, and to the extent of an additional 33% of the shares
covered thereby in each of the next two successive years if the optionee has
continuously served as a director in such years. Notwithstanding the foregoing,
if an optionee dies or becomes disabled, all Initial Options held by such
optionee will become immediately exercisable to the extent the Initial Options
would have been exercisable had the optionee remained a director through the
date of the Company's next annual shareholders' meeting. To the extent
exercisable, each Initial Option will be exercisable in whole or in part.
On the date of the annual meeting of the Company's shareholders in each
year, commencing with the 1997 annual meeting, each Outside Director elected at
or continuing his or her term after such meeting automatically will be granted a
non-qualified option to purchase 5,000 shares of Common Stock at an exercise
price per share equal to the fair market value of a share of Common Stock on
such date ("Annual Option"). Annual Options become exercisable on the same basis
as Initial Options.
The exercise price of stock options granted under the Director Plan may be
paid in cash, shares of Common Stock held by the optionee for at least six
months or a combination thereof. The requirement of payment in cash will be
deemed to be satisfied if the optionee provides for a broker who is a member of
the National Association of Securities Dealers, Inc. ("NASD") to sell a
sufficient number of shares of Common Stock being purchased so that the net
sales proceeds equal, at least, the exercise price, and such broker agrees to
deliver the exercise price to the Company not later than the settlement date of
the sale. Shares of Common Stock issued pursuant to the Director Plan may be
authorized but unissued shares or treasury stock. Fractional shares will not be
issued in connection with the exercise of a stock option, and cash in lieu
thereof will be paid by the Company. Each Initial Option and Annual Option (each
an "Option") will terminate on the earliest to occur of (i) three months after
the optionee ceases to serve as a director of the Company for a reason other
than the optionee's death or disability, (ii) one year following the optionee's
death or disability, or (iii) five years from the date the Option becomes
exercisable. Options will not be transferable other than by will or the laws of
descent or distribution and will be exercisable during the lifetime of the
Optionee only by the Optionee or, in the event of the Optionee's incapacity, by
the Optionee's guardian or legal representative acting in a fiduciary capacity.
The Board may at any time amend or terminate the Director Plan.
Notwithstanding the foregoing, (i) except for the adjustments described above,
without the approval of the shareholders of the Company, no such amendment will
increase the maximum number of shares covered by the Director Plan, materially
modify the requirements as to eligibility for participation in the Director Plan
or otherwise cause the Director Plan or any grant made pursuant thereto to cease
to satisfy any applicable condition of Rule 16b-3; (ii) no such amendment will
cause any Director to fail to qualify as a "disinterested person" within the
meaning of Rule 16b-3; (iii) provisions relating to the amount and price of
securities to be awarded and the timing of awards under the Director Plan will
not be amended more than once every six months, other than to comport
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<PAGE> 73
with changes in the Code, the Employment Retirement Income Security Act or the
rules promulgated thereunder; and (iv) no amendment or termination will
adversely affect any outstanding award without the consent of the director
holding such award.
In general, (i) no income will be recognized by an Optionee at the time an
Option is granted and (ii) at the time of exercise of an Option, ordinary income
will be recognized by the Optionee in an amount equal to the difference between
the Option price paid for the shares and the fair market value of the shares on
the date of exercise. To the extent that an Optionee recognizes ordinary income
in the circumstances described above, the Company will be entitled to a
corresponding deduction provided that, among other things, the income meets the
test of reasonableness, is an ordinary and necessary business expense and is not
an "excess parachute payment" within the meaning of Section 280G of the Code.
Options under the Director Plan will be granted automatically. The number
of Initial Options and Annual Options to be granted will depend on the number of
Outside Directors elected to the Board and the timing of any such election. No
Options may be granted under the Director Plan after April 2006.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid to Milton Fine, who served as Chairman of the Board and Chief
Executive Officer in 1995 but is presently Chairman of the Board, and each of
the four other most highly compensated executive officers of the Company in 1995
(collectively, the "Named Executive Officers"). The information in the table
gives effect to the ratio applicable to an exchange of shares of IHC common
stock for shares of Common Stock of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS PAYOUTS COMPENSATION(1)
- - ------------------------------ -------- -------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Milton Fine................... $159,896 $ -- -- $ -- $50,000
Chairman of the Board
W. Thomas Parrington, Jr...... 313,781 378,000 227,906 2,600 18,000
President and Chief
Executive Officer (2)
J. William Richardson......... 216,608 259,929 136,744 3,250 15,000
Chief Financial Officer and
Executive Vice President,
Finance and Administration
Robert L. Froman.............. 225,163 181,666 136,744 -- --
Executive Vice President,
Development
Marvin I. Droz................ 174,720 200,928 91,163 -- --
Senior Vice President and
General Counsel
</TABLE>
- - ------------------
(1) Consists entirely of fees paid for services as a director of the Company's
subsidiary, Northridge Insurance Company.
(2) Mr. Parrington was President and Chief Operating Officer during 1995.
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<PAGE> 74
STOCK OPTION GRANTS
The following table sets forth certain information with respect to the
options granted to the Named Executive Officers during 1995 (the "Prior
Options"), all of which were cancelled prior to and in anticipation of the
Offering as described below. The information gives effect to the ratio
applicable to an exchange of shares of common stock of IHC for shares of Common
Stock of the Company.
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES GRANTED TO ANNUAL RATES OF STOCK PRICE
UNDERLYING EMPLOYEES IN MARKET PRICE APPRECIATION FOR OPTION TERM
OPTIONS 1995 FISCAL EXERCISE OR AT DATE OF EXPIRATION --------------------------------------
NAME GRANTED YEAR BASE PRICE GRANT(1) DATE 0% 5% 10%
- - -------------- ---------- ------------ ----------- ------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Fine...... -- n/a n/a n/a n/a n/a n/a n/a
Mr.
Parrington.. 227,906 25.5% $ 3.18 $10.65 2013 $1,702,458 $5,116,490 $12,769,573
Mr.
Richardson.. 136,744 15.3 5.52 10.65 2013 701,497 2,749,922 7,341,785
Mr. Froman.... 136,744 15.3 4.39 10.65 2013 856,017 2,904,443 7,496,306
Mr. Droz...... 91,163 10.2 10.65 10.65 2013 -- 1,365,622 4,426,875
</TABLE>
- - ------------------
(1) Market price has been determined based upon a valuation performed in 1995
for the Company prior to the Offering and the transactions referred to in
"Business and Properties--Host Funding Transaction" and "The Organization,
Acquisition and Financing Plan."
The following table sets forth information regarding the values of the
Prior Options at December 31, 1995. The information gives effect to the ratio
applicable to an exchange of shares of common stock of IHC for shares of Common
Stock of the Company.
OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT IN-THE-MONEY OPTIONS
NAME DECEMBER 31, 1995(1) AT DECEMBER 31, 1995(1)(2)
- - ------------------------------------------ -------------------- --------------------------
<S> <C> <C>
Mr. Fine.................................. -- --
Mr. Parrington............................ 227,906 $1,702,458
Mr. Richardson............................ 136,744 701,497
Mr. Froman................................ 136,744 856,017
Mr. Droz.................................. 91,163 --
</TABLE>
- - ------------------
(1) All Prior Options held by the Named Executive Officers at December 31, 1995
were unexercisable.
(2) Market price has been determined based upon a valuation performed in 1995
for the Company prior to the Offering and the transactions referred to in
"Business and Properties--Host Funding Transaction" and "The Organization,
Acquisition and Financing Plan."
Prior to and in anticipation of the Offering, the Prior Options were
cancelled in consideration of the issuance to the Named Executive Officers and
certain other employees of restricted stock of IHC that will be exchanged for a
total of 635,681 shares of Common Stock (the "Outstanding Restricted Stock"), as
follows: Mr. Droz: 53,833 shares; Mr. Fine: 0 shares; Mr. Froman: 123,574
shares; Mr. Parrington: 219,761 shares; Mr. Richardson: 115,849 shares; and all
other employees: 122,664 shares. The Outstanding Restricted Stock is subject to
restrictions on transfer and rights of repurchase in the event of the employee's
death, disability or termination of employment prior to the consummation of the
Offering. See "--Compensation Plans and Arrangements--Equity Incentive Plan" for
a discussion of the Company's Equity Incentive Plan, under which options and
other equity-based rights have been and in the future may be issued by the
Company.
Outstanding Options. Pursuant to the Company's Equity Incentive Plan, the
Company has granted stock options to purchase an aggregate of 900,000 shares of
Common Stock at an exercise price equal to the initial public offering price.
Each of the options has a ten-year term and becomes exercisable as to one-third
of the
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<PAGE> 75
shares covered thereby on each of the first three annual anniversaries of the
date of grant so long as the holder thereof remains a full-time employee of the
Company, except that the options become immediately exercisable in the event of
the holder's death, disability or termination of employment by the Company for
Cause (as defined) or in the event that any person or group (other than the Fine
Family) becomes the beneficial owner of more than 30% of the outstanding shares
of capital stock of the Company entitled generally to vote in the election of
directors ("Voting Stock") and, within 12 months after such acquisition, there
is a change in a majority of the members of the Board (any such event, a "Change
in Control"). Unexercised options terminate 30 calendar days after the holder's
termination of employment by the Company, except that such period is 180 days in
the event of disability and 360 days in the event of death.
It is the present intention of the Board that additional Option Rights or
other awards will not be awarded until decisions are made regarding compensation
levels for 1997, except in connection with new hires, promotions or awards to
directors who are not employees of the Company or any of its affiliates.
Decisions as to the awarding of Option Rights or other awards are within the
discretion of the Compensation Committee.
Set forth in the table below are the numbers of shares of Common Stock
underlying the stock options granted to (i) the Named Executive Officers, (ii)
all current executive officers as a group, (iii) all current directors who are
not executive officers as a group, and (iv) all employees, including all current
officers who are not executive officers, as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS
------------------------------------------------------------ ------------------
<S> <C>
Milton Fine................................................. 150,000
Chairman of the Board
W. Thomas Parrington, Jr.................................... 200,000
President and Chief Executive Officer
J. William Richardson....................................... 93,750
Chief Financial Officer and Executive Vice President,
Finance and Administration
Robert L. Froman............................................ 62,500
Executive Vice President, Development
Marvin I. Droz.............................................. 62,500
Senior Vice President and General Counsel
All directors who are not executive officers, as a group.... --
All employees, including officers who are not executive
officers, as a group...................................... 331,250
</TABLE>
COMPENSATION PLANS AND ARRANGEMENTS
Management Bonus Plan. The Company has established a Management Bonus Plan
under which all key management employees who are directly involved in the growth
and success of the Company and its subsidiaries, including the Named Executive
Officers, are eligible to receive bonuses based upon achievement of specified
targets and goals for the Company and the individual employee. Bonus awards may
not exceed 50% to 120% of the executive's annual base salary and 20% of each
executive's bonus award will be payable in the form of shares of Common Stock,
which will be subject to restrictions and forfeiture provisions similar to those
applicable to the Outstanding Restricted Stock. Subject to adjustment as
provided in the Management Bonus Plan, the number of shares that may be issued
or transferred under the Management Bonus Plan may not in the aggregate exceed
250,000 shares, which may be shares of original issuance or treasury shares or a
combination thereof. The Management Bonus Plan is administered by the
Compensation Committee or such other committee of the Board as the Board may
appoint.
Executive Loans. In 1996, the Company loaned $2.0 million and $1.0 million
to, respectively, Messrs. Parrington and Richardson (the "Executive Loans"). The
Executive Loans are fully recourse to the borrowers thereunder, mature on June
30, 2006 and bear interest at the adjusted federal rate. If the executive's
employment is terminated by the Company for cause or by the executive for any
reason other than death,
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disability or circumstances that would entitle the executive to benefits under
his or her change in control agreement (described below), then the executive's
loan would become due and payable in three equal annual installments commencing
with the first anniversary of the date of such termination. If the executive's
employment is terminated for any other reason, the loan plus accrued interest
would be forgiven. If the executive remains employed by the Company, one-tenth
of the principal amount of the Executive Loans plus the interest for that year
will be forgiven on June 30, 1997 and each of the next nine annual anniversaries
thereof.
Deferred Compensation Agreements. In connection with the termination of
certain prior benefit arrangements, each of Messrs. Parrington and Richardson
entered into a deferred compensation agreement. Under the deferred compensation
agreements, $561,000 and $702,000 will be deposited into a grantor trust
established by the Company for the benefit of, respectively, Messrs. Parrington
and Richardson. Such amounts plus accumulated earnings will be paid out in ten
semiannual payments beginning at the earlier of the date of approved retirement
from the Company or the attainment of age 60, provided that the beneficiary
thereof performs consulting services to the Company and does not engage in any
competitive activity. See "Certain Relationships and Related
Transactions--Transaction with Officers and Directors" for a discussion of
certain other loans by the Company.
Executive Retirement Plan. Each of the General Managers of the Company's
hotels which are employees of the Company and other employees of the Company
holding job classifications of Vice President or above, including the Named
Executive Officers (collectively, the "Participants"), is eligible to
participate in the Company's executive retirement plan (the "ERP"). The ERP is
intended to be a non-qualified and unfunded plan maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees. Actual participation in the ERP is determined by
the ERP's administrative committee, which is appointed by the Board.
The Company annually contributes 8% of the Participant's base salary and
may make discretionary contributions of up to an additional 5% of the
Participant's base salary. These discretionary contributions are based on the
Company's net increase in earnings per share in a given year. In addition,
Participants are eligible to designate a portion (specified annually by the
Board or the Compensation Committee) of their cash bonus to be contributed to
the ERP.
The funds contributed by the Company or participants are held in a grantor
trust established by the Company. Unless the administrative committee determines
that the amounts contributed to the ERP on behalf of a participant ("Plan
Benefits") are payable earlier, in general a Participant receives his ERP Plan
Benefits one year after his retirement or termination of employment. Plan
Benefits are paid out in a lump sum and are taxable to the Participant as
ordinary income upon receipt.
Stock Purchase Plan. Each full-time employee who has completed 12
consecutive months of employment with the Company, including the Named Executive
Officers but excluding any employee whose customary employment is not for more
than 20 hours per week or more than five months per calendar year, is eligible
to participate in the Company's stock purchase plan (the "Stock Purchase Plan").
The Stock Purchase Plan is intended to satisfy the requirements of Section 423
of the Code. Under the Stock Purchase Plan, participating employees may elect to
authorize the Company to withhold a minimum of $390 per six-month period or $15
per week and a maximum of 8% of the participating employee's salary, which
amounts will be held in the participating employee's account and used to
purchase from the Company Common Stock on a semi-annual basis at a price equal
to a designated percentage from 85% to 100% of the average closing sales price
for Common Stock as reported on the Composite Transactions Tape of the New York
Stock Exchange (except as described below). The designated percentage will be
established semi-annually by the Compensation Committee, which is responsible
for the administration of the Stock Purchase Plan, except that for the period
ending December 31, 1996 the price will be the Offering Price (subject to the
limitations described below).
The price paid by a participating employee under the Stock Purchase Plan
for shares of Common Stock may not be less than the lesser of (i) 85% of the
fair market value of such shares on the date of the regular offering of the
right to participate in such plan (the "offering date") and (ii) 85% of the fair
market price of such shares on the date the shares are purchased (the "purchase
date"). The fair market value of the shares
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available for purchase by a participating employee (determined as of the
offering date) generally may not exceed $25,000 per calendar year.
Amounts withheld from a participating employee's salary in order to
purchase shares of Common Stock under the Stock Purchase Plan will be taxable as
part of the employee's compensation. However, the purchase of shares under the
Stock Purchase Plan will not itself be a taxable event even if the purchase
price for the shares is less than the fair market value of the shares on either
the offering date or the purchase date. (The difference between the fair market
value, on either the offering date or the purchase date, and the purchase price
is not taxable on the offering date or the purchase date.)
If a participating employee disposes of shares that were purchased under
the Stock Purchase Plan, and the purchase price was less than 100% of the fair
market value of the shares at the offering date, and such disposition is neither
within two years after the offering date nor within one year after the purchase
date (the "holding period"), then the employee will realize ordinary income to
the extent of the lesser of (i) the amount by which the fair market value of the
shares on the offering date exceeded the purchase price and (ii) the amount by
which the fair market value of the shares at the time of disposition exceeds the
price paid for the shares. Any further gain, upon a sale of such shares, is
taxed as a long-term capital gain. To the extent the purchase price exceeded the
amount realized by an employee upon the sale of the shares, the employee will
have a long-term capital loss.
If, during the holding period, an employee disposes of shares that were
purchased under the Stock Purchase Plan, and the purchase price was less than
100% of the fair market value of the shares at the offering date, then the full
amount of the excess of the fair market value of the shares on the purchase date
over the purchase price will be taxable as ordinary income in the year of sale
(regardless of the market price of the shares at the time of disposition), and
any profit above the amount of such excess upon a disposition by sale will be
taxable as a longterm or short-term capital gain (depending upon how long the
employee has held the shares). Any loss, after including the amount of the
excess of the fair market value of the shares on the purchase date over the
purchase price as ordinary income, will be treated as a capital loss.
If, during the holding period, a participating employee sells or disposes
of shares purchased under the Stock Purchase Plan, the Company will be entitled
to a deduction against ordinary income for the full amount of the compensation
that the employee must report as ordinary income. The Company will not be
entitled to any deduction if the employee sells the shares after the holding
period or dies while owning such shares.
If a participating employee dies prior to disposing of shares purchased
under the Stock Purchase Plan, the employee's tax return for the year of death
must include as ordinary income the lesser of (i) the amount by which the fair
market value of the shares on the offering date exceeded the purchase price or
(ii) the amount by which the fair market value of the shares at the time of
death exceeded the purchase price. If such an amount is required to be included
on the employee's tax return for the year of death, an estate tax deduction may
be available to the estate of the deceased employee.
Any dividends paid on shares purchased under the Stock Purchase Plan must
be reported as ordinary income in the year received.
Employees may resell Common Stock acquired under the Stock Purchase Plan
without restrictions; however, any "affiliate" who acquires Common Stock under
the Stock Purchase Plan may resell only upon compliance with Rule 144 of the
commission, except that the two-year holding period requirement of Rule 144 will
not apply. For this purpose, the term "affiliate" includes any participating
employee who directly, or through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Company.
The Stock Purchase Plan reserves 500,000 shares of authorized but unissued
or reacquired Common Stock for purchase thereunder. The Stock Purchase Plan will
remain in effect until terminated at any time by the Board, except that such
termination will be subject to employees' rights to purchase shares in any
outstanding semi-annual offering period.
The Stock Purchase Plan may be amended from time to time by the Board. No
amendment will increase the aggregate number of shares of Common Stock that may
be issued and sold under the Stock Purchase Plan (except for authorizations
pursuant to the antidilution provisions of the Stock Purchase Plan) without
further
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approval by the Company's shareholders. Furthermore, no amendment that would
cause the Stock Purchase Plan to fail to meet the requirements of Section 423 of
the Code will be adopted without shareholder approval.
Equity Incentive Plan. The Company's 1996 Equity Incentive Plan (the
"Equity Incentive Plan") is designed to attract and retain qualified officers
and other key employees of the Company. The Equity Incentive Plan authorizes the
grant of options to purchase shares of Common Stock ("Option Rights"), stock
appreciation rights ("Appreciation Rights"), restricted shares ("Restricted
Shares"), deferred shares ("Deferred Shares"), performance shares ("Performance
Shares") and performance units ("Performance Units"). The Compensation Committee
administers the Equity Incentive Plan and determines to whom Option Rights,
Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares and
Performance Units are to be granted and the terms and conditions, including the
number of shares and the period of exercisability, thereof.
Subject to adjustment as provided in the Equity Incentive Plan, the number
of shares of Common Stock that may be issued or transferred and covered by
outstanding awards granted under the Equity Incentive Plan may not in the
aggregate exceed 2,400,000 shares, which may be shares of original issuance or
treasury shares or a combination thereof. Officers, including officers who are
members of the Board, and other key employees of and consultants to the Company
and its subsidiaries may be selected by the Compensation Committee to receive
benefits under the Equity Incentive Plan.
The Compensation Committee may grant Option Rights that entitle the
optionee to purchase shares of Common Stock at a price equal to or greater or
less than market value on the date of grant, and the Option Rights may be
conditioned on the achievement of specified performance objectives ("Management
Objectives"). Subject to adjustment as provided in the Equity Incentive Plan, no
participant shall be granted Option Rights and Appreciation Rights, in the
aggregate, for more than 100,000 shares during any calendar year. The
Compensation Committee may provide that the option price is payable at the time
of exercise (i) in cash, (ii) by the transfer to the Company of nonforfeitable,
nonrestricted shares of Common Stock that are already owned by the optionee,
(iii) with any other legal consideration the Compensation Committee may deem
appropriate, or (iv) by any combination of the foregoing methods of payment. Any
grant may provide for deferred payment of the option price from the proceeds of
sale through a broker on the date of exercise of some or all of the shares of
Common Stock to which the exercise relates. Any grant may provide for automatic
grant of reload option rights upon the exercise of Option Rights, including
reload option rights, for shares of Common Stock or any other noncash
consideration authorized under the Equity Incentive Plan, except that the term
of any reload option right shall not extend beyond the term of the Option Right
originally exercised. The Compensation Committee has the authority to specify at
the time Option Rights are granted that shares of Common Stock will not be
accepted in payment of the option price until they have been owned by the
optionee for a specified period; however, the Equity Incentive Plan does not
require any such holding period and would permit immediate sequential exchanges
of shares of Common Stock at the time of exercise of Option Rights. Option
Rights granted under the Equity Incentive Plan may be Option Rights that are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Code, or Option Rights that are not intended to so qualify. Any grant
may provide for the payment of dividend equivalents to the optionee on a
current, deferred or contingent basis or may provide that dividend equivalents
be credited against the option price. No Option Right may be exercised more than
ten years from the date of grant. Each grant must specify the period of
continuous employment with, or continuous engagement of consulting services by,
the Company or any subsidiary that is necessary before the Option Rights will
become exercisable and may provide for the earlier exercise of the Option Rights
in the event of a change of control of the Company or other similar transaction
or event. Successive grants may be made to the same optionee regardless of
whether Option Rights previously granted to him or her remain unexercised.
Appreciation Rights granted under the Equity Incentive Plan may be either
free-standing Appreciation Rights or Appreciation Rights that are granted in
tandem with Option Rights. An Appreciation Right represents the right to receive
from the Company the difference (the "Spread"), or a percentage thereof not in
excess of 100%, between the base price per share of Common Stock in the case of
a free-standing Appreciation Right, or the option price of the related Option
Right in the case of a tandem Appreciation Right, and the market value of the
Common Stock on the date of exercise of the Appreciation Right. Tandem
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Appreciation Rights may only be exercised at a time when the related Option
Right is exercisable and the Spread is positive, and the exercise of a tandem
Appreciation Right requires the surrender of the related Option Right for
cancellation. A free-standing Appreciation Right must specify a base price,
which may be equal to or greater or less than the fair market value of a share
of Common Stock on the date of grant, must specify the period of continuous
employment, or continuous engagement of consulting services, that is necessary
before the Appreciation Right becomes exercisable (except that it may provide
for its earlier exercise in the event of a change in control of the Company or
other similar transaction or event) and may not be exercised more than ten years
from the date of grant. Any grant of Appreciation Rights may specify that the
amount payable by the Company upon exercise may be paid in cash, Common Stock or
a combination thereof and may either (i) grant to the recipient or retain in the
Compensation Committee the right to elect among those alternatives or (ii)
preclude the right of the participant to receive, and the Company to issue,
Common Stock or other equity securities in lieu of cash. In addition, any grant
may specify that the Appreciation Right may be exercised only in the event of a
change in control of the Company. Subject to adjustment as provided in the
Equity Incentive Plan, no participant shall be granted Option Rights and
Appreciation Rights, in the aggregate, for more than 100,000 shares during any
calendar year. The Compensation Committee may condition the award of
Appreciation Rights on the achievement of one or more Management Objectives and
may provide with respect to any grant of Appreciation Rights for the payment of
dividend equivalents thereon in cash or Common Stock on a current, deferred or
contingent basis.
An award of Restricted Shares involves the immediate transfer by the
Company to a participant of ownership of a specific number of shares of Common
Stock in consideration of the performance of services. The participant is
entitled immediately to voting, dividend and other ownership rights in the
shares. The transfer may be made without additional consideration or for
consideration in an amount that is less than the market value of the shares on
the date of grant, as the Compensation Committee may determine. The Compensation
Committee may condition the award on the achievement of specified Management
Objectives. Restricted Shares must be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period to be
determined by the Compensation Committee. An example would be a provision that
the Restricted Shares would be forfeited if the participant ceased to serve the
Company as an officer or other salaried employee during a specified period of
years. In order to enforce these forfeiture provisions, the transferability of
Restricted Shares will be prohibited or restricted in a manner and to the extent
prescribed by the Compensation Committee for the period during which the
forfeiture provisions are to continue. The Compensation Committee may provide
for a shorter period during which the forfeiture provisions are to apply in the
event of a change in control of the Company or other similar transaction or
event.
An award of Deferred Shares constitutes an agreement by the Company to
deliver shares of Common Stock to the participant in the future in consideration
of the performance of services, subject to the fulfillment of such conditions
during the Deferral Period (as defined in the Equity Incentive Plan) as the
Compensation Committee may specify. During the Deferral Period, the participant
has no right to transfer any rights covered by the award and no right to vote
the shares covered by the award. On or after the date of any grant of Deferred
Shares, the Compensation Committee may authorize the payment of dividend
equivalents thereon on a current, deferred or contingent basis in either cash or
additional shares of Common Stock. Grants of Deferred Shares may be made without
additional consideration or for consideration in an amount that is less than the
market value of the shares on the date of grant. Deferred Shares must be subject
to a Deferral Period, as determined by the Compensation Committee on the date of
grant, except that the Compensation Committee may provide for a shorter Deferral
Period in the event of a change in control of the Company or other similar
transaction or event. The Compensation Committee may condition the award of
Deferred Shares on the achievement of one or more Management Objectives.
A Performance Share is the equivalent of one share of Common Stock, and a
Performance Unit is the equivalent of $1.00. A participant may be granted any
number of Performance Shares or Performance Units, which shall be specified in
any such grant. The participant will be given one or more Management Objectives
to meet within a specified period (the "Performance Period"). The specified
Performance Period may be subject to earlier termination in the event of a
change in control of the Company or other similar transaction or event. A
minimum level of acceptable achievement will also be established by the
Compensation Committee. If by the end of the Performance Period the participant
has achieved the specified Management Objectives,
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the participant will be deemed to have fully earned the Performance Shares or
Performance Units. If the participant has not achieved the Management Objectives
but has attained or exceeded the predetermined minimum level of acceptable
achievement, the participant will be deemed to have partly earned the
Performance Shares or Performance Units in accordance with a predetermined
formula. To the extent earned, the Performance Shares or Performance Units will
be paid to the participant at the time and in the manner determined by the
Compensation Committee in cash, shares of Common Stock or any combination
thereof. Management Objectives may be described in terms of either Company-wide
objectives or objectives that are related to the performance of the division,
subsidiary, department or function within the Company or a subsidiary in which
the participant is employed or with respect to which the participant provides
consulting services. The Compensation Committee may adjust any Management
Objectives and the related minimum level of acceptable achievement if, in its
judgment, transactions or events have occurred after the date of grant that are
unrelated to the participant's performance and result in distortion of the
Management Objectives or the related minimum level of acceptable achievement.
No Option Right, Appreciation Right or other "derivative security" within
the meaning of Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), is transferable by a participant except
by will or the laws of descent and distribution. Option Rights and Appreciation
Rights may not be exercised during a participant's lifetime except by the
participant or, in the event of the participant's incapacity, by the
participant's guardian or legal representative acting in a fiduciary capacity on
behalf of the participant under state law and court supervision. Notwithstanding
the foregoing, the Compensation Committee, in its sole discretion, may provide
for the transferability of the particular awards under the Equity Incentive Plan
so long as such provisions will not disqualify the exemption for other awards
under Rule 16b-3, if such rule is then applicable to awards under the plan. The
Compensation Committee may specify at the date of grant that all or any part of
the shares of Common Stock that are to be issued or transferred by the Company
upon the exercise of Option Rights or Appreciation Rights, upon the termination
of the Deferral Period applicable to Deferred Shares or upon payment under any
grant of Performance Shares or Performance Units, or are to be no longer subject
to the substantial risk of forfeiture and restrictions on transfer referred to
in the Equity Incentive Plan with respect to Restricted Shares, are subject to
further restrictions on transfer.
The maximum number of shares that may be issued or transferred under the
Equity Incentive Plan, the number of shares covered by outstanding Option Rights
or Appreciation Rights and the option prices or base prices per share applicable
thereto, and the number of shares covered by outstanding grants of Deferred
Shares and Performance Shares, are subject to adjustment in the event of stock
dividends, stock splits, combinations of shares, recapitalizations, mergers,
consolidations, spin-offs, reorganizations, liquidations, issuances of rights or
warrants, and similar transactions or events. In the event of any such
transaction or event, the Compensation Committee may in its discretion provide
in substitution for any or all outstanding awards under the Equity Incentive
Plan such alternative consideration as it may in good faith determine to be
equitable in the circumstances and may require the surrender of all awards so
replaced. The Compensation Committee may also, as it determines to be
appropriate in order to reflect any such transaction or event, make or provide
for such adjustments in the number of shares that may be issued or transferred
and covered by outstanding awards granted under the Equity Incentive Plan and
the number of shares permitted to be covered by Option Rights and Appreciation
Rights, granted to any one participant during any calendar year.
The Compensation Committee must consist of not less than two nonemployee
directors who are "disinterested persons" within the meaning of Rule 16b-3. In
connection with its administration of the Equity Incentive Plan, the
Compensation Committee is authorized to interpret the Equity Incentive Plan and
related agreements and other documents. The Compensation Committee may make
grants to participants under any or a combination of all of the various
categories of awards that are authorized under the Equity Incentive Plan and may
condition the grant of awards on the surrender or deferral by the participant of
the participant's right to receive a cash bonus or other compensation otherwise
payable by the Company or a subsidiary to the participant. The Equity Incentive
Plan may be amended from time to time by the Compensation Committee but, without
further approval by the shareholders of the Company, no such amendment may (i)
increase the aggregate number of shares of Common Stock that may be issued or
transferred and covered by outstanding
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awards or increase the number of shares which may be granted to any participant
in any calendar year or (ii) otherwise cause Rule 16b-3 to cease to be
applicable to the Equity Incentive Plan.
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the Equity Incentive Plan based on
federal income tax laws in effect on the date of this Prospectus. This summary
is not intended to be exhaustive and does not describe state or local tax
consequences.
In general: (i) no income will be recognized by an optionee at the time a
nonqualified Option Right is granted; (ii) at the time of exercise of a
nonqualified Option Right, ordinary income will be recognized by the optionee in
an amount equal to the difference between the option price paid for the shares
and the fair market value of the shares if they are nonrestricted on the date of
exercise; and (iii) at the time of sale of shares acquired pursuant to the
exercise of a nonqualified Option Right, any appreciation (or depreciation) in
the value of the shares after the date of exercise will be treated as either
short-term or long-term capital gain (or loss) depending on how long the shares
have been held. No income generally will be recognized by an optionee upon the
grant or qualifying exercise of an incentive stock option. However, for purposes
of calculating the Optionee's alternative minimum tax, if any, the difference
between the fair market value of the shares of Common Stock at exercise and the
option exercise price constitutes an item of adjustment. If shares of Common
Stock are issued to an optionee pursuant to the exercise of an incentive stock
option and no disqualifying disposition of the shares is made by the optionee
within two years after the date of grant or within one year after the transfer
of the shares to the optionee, then upon the sale of the shares any amount
realized in excess of the option price will be taxed to the optionee as
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the exercise of an incentive stock
option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to any excess of the fair market value of
the shares at the time of exercise (or, if less, the amount realized on the
disposition of the shares in a sale or exchange) over the option price paid for
the shares. Any further gain (or loss) realized by the optionee generally will
be taxed as short-term or long-term gain (or loss) depending on the holding
period. No income will be recognized by a participant in connection with the
grant of an Appreciation Right. When the Appreciation Right is exercised, the
participant normally will be required to include as taxable ordinary income in
the year of exercise an amount equal to the amount of any cash, and the fair
market value of any nonrestricted shares of Common Stock, received pursuant to
the exercise. A recipient of Restricted Shares generally will be subject to tax
at ordinary income rates on the fair market value of the Restricted Shares
reduced by any amount paid by the recipient at such time as the shares are no
longer subject to a substantial risk of forfeiture or restrictions on transfer
for purposes of Section 83 of the Code. However, a recipient who so elects under
Section 83(b) of the Code within 30 days of the date of transfer of the shares
will have taxable ordinary income on the date of transfer of the shares equal to
the excess of the fair market value of the shares (determined without regard to
the risk of forfeiture or restrictions on transfer) over any purchase price paid
for the shares. If a Section 83(b) election has not been made, any dividends
received with respect to Restricted Shares that are subject at that time to a
substantial risk of forfeiture and restrictions on transfer generally will be
treated as compensation that is taxable as ordinary income to the recipient. No
income generally will be recognized upon the grant of Deferred Shares. The
recipient of a grant of Deferred Shares generally will be subject to tax at
ordinary income rates on the fair market value of nonrestricted shares of Common
Stock on the date that the Deferred Shares are transferred to him or her,
reduced by any amount paid by him or her, and the capital gains or loss holding
period for the Deferred Shares will also commence on that date. No income
generally will be recognized upon the grant of Performance Shares or Performance
Units. Upon payment in respect of the earn-out of Performance Shares or
Performance Units, the recipient generally will be required to include as
taxable ordinary income in the year of receipt an amount equal to the amount of
cash received and the fair market value of any nonrestricted shares of Common
Stock received.
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction
provided that, among other things, (i) the income meets the test of
reasonableness, is an ordinary and necessary business expense and is not an
"excess parachute payment" within the meaning of Section 280G of the Code and is
not disallowed by the $1.0 million limitation on certain executive compensation
and (ii) any applicable reporting obligations are satisfied.
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The total number of stock options or other awards that will be granted
under the Equity Incentive Plan in the future is not determinable at this time.
The Equity Incentive Plan is not intended to be the exclusive means by which the
Company may grant equity-based incentive awards, and the adoption thereof will
in no way limit the ability of the Company to grant equity-based awards outside
the Equity Incentive Plan.
EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS
Each of the Named Executive Officers is a party to an employment agreement
with the Company. Pursuant to the employment agreements, the Named Executive
Officer party thereto is entitled to the greater of either (i) the Named
Executive Officer's salary and bonus for the prior fiscal year or (ii) the
monthly payments which the Named Executive Officer is entitled to under the
executive's employment agreement for the remainder of the term of the agreement,
plus the continuation of health and other welfare benefits for the greater of
one year or the remainder of the term of the agreement, in the event that the
Named Executive Officer is terminated by the Company without Cause (as defined).
In addition, each of the Named Executive Officers is a party to a
change-in-control agreement that provides for the payment of such severance
benefits and the provision of such health and other benefits if the Named
Executive's employment is terminated by the Company, or by the Executive,
following a Change in Control (as defined), except that the severance benefits
payable thereunder are based upon three times the highest salary and bonus that
the Executive received during any of the three years preceding the year in which
the Change in Control occurred and are reduced dollar-for-dollar for salary and
bonus payments made by the Company during any period of continuation of
employment following the Change in Control. In addition, the amounts payable
under the change-in-control agreements are increased to compensate the Named
Executive Officer for any excise tax payable by the Company pursuant to Section
280G of the Code. The Named Executive Officers are not obligated under the
employment agreements or the change-in-control agreements to mitigate damages by
seeking alternative employment; however, the Company's obligations to provide
health and other welfare benefits thereunder terminates if the Named Executive
Officer obtains other full-time employment within three years of such
termination. Each Named Executive Officer's employment agreement will terminate
without further action immediately prior to the payment of any severance
benefits under the Named Executive Officer's change-in-control agreement. The
employment agreements and the change-in-control agreements include provisions
prohibiting the Named Executive Officers from engaging in any Competitive
Activity (as defined) for two year after termination of employment and providing
for the payment of legal fees and expenses incurred in enforcing or defending
such agreements.
All of the foregoing plans and agreements were approved by the Company's
shareholders and the Board prior to the Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was formed in June 1996 and currently is
composed of R. Michael McCullough (Chairman), Michael J. Aranson and Steven J.
Smith. Prior thereto, decisions regarding the compensation of officers were made
by the Board.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock on the date hereof and as adjusted to reflect the sale
of the shares of Common Stock offered hereby by (i) each person that owns
beneficially more than 5% of the Common Stock, (ii) each director and Named
Executive Officer of the Company, and (iii) all directors and executive officers
of the Company as a group. Unless indicated otherwise, the address for each of
the shareholders named in the table is Foster Plaza 10, 680 Andersen Drive,
Pittsburgh, Pennsylvania 15220. 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OWNED
NUMBER -----------------------
OF SHARES PRIOR TO AFTER
OWNED OFFERING OFFERING(1)
----------- -------- -----------
<S> <C> <C> <C>
Milton Fine (2).................................... 6,293,797 46.4% 23.1%
Fine Family Trusts (3)............................. 12,796,365 94.3 47.0
Blackstone (4)..................................... 2,655,000 -- 9.8
David J. Fine (5).................................. 6,502,568 47.9 23.9
W. Thomas Parrington, Jr. (6)...................... 256,387 1.9 *
J. William Richardson (7).......................... 140,266 1.0 *
Robert L. Froman (8)............................... 161,067 1.2 *
Marvin I. Droz (9)................................. 78,250 0.6 *
Michael J. Aranson................................. -- -- --
R. Michael McCullough.............................. -- -- --
Thomas J. Saylak................................... -- -- --
Steven J. Smith.................................... -- -- --
All directors and executive officers as a
group (10 persons)............................... 13,432,335 99.0% 49.3%
</TABLE>
- - ------------------
* Less than 1%.
(1) Percentages reflect the issuance, concurrent with the consummation of the
Offering, of 2,655,000 shares of Common Stock in connection with the
exercise of the Blackstone Option and the Contribution. See "The
Organization, Acquisition and Financing Plan--Acquisition of Owned Hotels."
(2) Milton Fine may be deemed to beneficially own 6,293,797 of the 12,796,365
shares of Common Stock beneficially owned by the Fine Family Trusts. Milton
Fine disclaims beneficial ownership of such shares.
(3) The "Fine Family Trusts" are comprised of five trusts: one of which Milton
Fine is the trustee and four of which David Fine is the trustee.
(4) Blackstone's address is 345 Park Avenue, New York, New York 10154.
Concurrent with the consummation of the Offering and Contribution, the
Company will issue to Blackstone $53.1 million of Common Stock based on the
initial public offering price (2,655,000 shares assuming an initial public
offering price of $20 per share) in connection with the exercise of the
Blackstone Option and the Contribution. See "The Organization, Acquisition
and Financing Plan--Acquisition of Owned Hotels."
(5) David Fine may be deemed to beneficially own 6,502,568 of the 12,796,365
shares of Common Stock beneficially owned by the Fine Family Trusts. David
J. Fine disclaims beneficial ownership of such shares.
(6) Includes 219,761 shares of Outstanding Restricted Stock, which are subject
to certain risks of forfeiture as described in "Management--Stock Option
Grants."
(7) Includes 115,849 shares of Outstanding Restricted Stock, which are subject
to certain risks of forfeiture as described in "Management--Stock Option
Grants."
(8) Includes 123,574 shares of Outstanding Restricted Stock, which are subject
to certain risks of forfeiture as described in "Management--Stock Option
Grants."
(9) Includes 53,833 shares of Outstanding Restricted Stock, which are subject to
certain risks of forfeiture as described in "Management--Stock Option
Grants."
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<PAGE> 84
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1995 REORGANIZATION
The Company was incorporated in April 1996 as a Pennsylvania corporation.
In 1995, the Company's predecessors consummated a series of transactions to
aggregate the hotel management businesses owned by the Fine Family Trusts into a
single entity (the "1995 Reorganization"). As a result of the 1995
Reorganization, 59 separate corporations that were wholly owned by the Fine
Family Trusts were merged with and into IHC, effective November 1, 1995, with
IHC being the surviving corporation. Pursuant to the Agreement and Plan of
Merger entered into in connection with the 1995 Reorganization, IHC assumed
liabilities aggregated approximately $7.4 million incurred by Milton Fine and a
$5.6 million liability incurred by the Fine Family Trusts to purchase stock
owned by a deceased shareholder of IHC. These liabilities were satisfied in
December 1995.
TRANSACTIONS WITH THE FINE FAMILY SHAREHOLDERS
During 1993, 1994 and 1995, the Company received payments in the aggregate
amounts of approximately $5.8 million, $6.7 million and $7.9 million,
respectively, for management services provided to 13, 18 and 27 hotels,
respectively, in which the Fine Family Trusts had an ownership interest.
Accounts receivable of approximately $0.7 million, $0.9 million and $1.0 million
were due from these hotels at December 31, 1993, 1994 and 1995, respectively.
During 1993, 1994 and 1995, the Company advanced funds from time to time to
its shareholders, and received repayments of a portion of such advances. At
December 31, 1995, the outstanding amount of such advances to shareholders was
$1.6 million.
In March 1996, the Company made a distribution to its existing shareholders
in the aggregate amount of $30 million. The distribution was paid with
promissory notes payable on September 28, 1997 and bearing interest at 5% per
annum. These notes will be repaid in connection with the Offering from proceeds
of the exercise of the Blackstone Option and working capital. See "The
Organization, Acquisition and Financing Plan--The Financing Plan."
Certain of the Fine Family Shareholders own minority interests in 12 hotels
that are managed but not owned by the Company. Except for one management
agreement pursuant to which the Company waived its management fee for a period
ending no later than November 30, 1998, the Company believes that in each case
the terms on which these hotels are managed are at least as favorable to the
Company as those it could have obtained from unaffiliated persons. The Fine
Family Shareholders have agreed to grant the Company a right of first offer and
a right of first refusal in connection with any proposed transfer of their
interests (subject to certain permitted transfers) in these hotels in
consideration of the Company's agreeing to continue to provide at no cost to the
Fine Family Shareholders certain accounting and administrative services of the
type which the Company is currently providing to the Fine Family Shareholders in
connection therewith.
See "The Organization, Acquisition and Financing Plan" for a description of
additional transactions among the Company and the Fine Family Shareholders in
contemplation of the Offering.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
See "Management--Compensation Plans and Arrangements--Executive Loans" for
a description of loans from the Company to Messrs. Parrington and Richardson.
The Company has made loans from time to time to its senior executives, including
each of the Named Executives other than Mr. Fine. The maximum amount of such
loans to any executive was $210,000 during the three-year period since January
1, 1993. Such loans are payable upon demand and, in general, do not bear
interest until such demand is made. The loans made to Messrs. Parrington and
Richardson are forgiven over time provided certain conditions are satisfied.
TRANSACTIONS WITH BLACKSTONE
See "The Organization, Acquisition and Financing Plan--Acquisition of Owned
Hotels" for a description of certain transactions between the Company and
Blackstone.
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<PAGE> 85
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Articles of Incorporation provide that the authorized capital
stock of the Company consists of 75,000,000 shares of Common Stock, par value
$.01 per share, and 25,000,000 shares of preferred stock, par value $.01 per
share ("Preferred Stock"). Upon consummation of the Offering, 27,220,000 shares
of Common Stock will be issued and outstanding (28,870,000 shares if the
over-allotment option is exercised in full), and no shares of Preferred Stock
will be issued or outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per each share owned
of record on all matters voted upon by shareholders. Subject to preferential
rights that may be applicable to any Preferred Stock outstanding, holders of
Common Stock are entitled to receive dividends if, as and when declared by the
Board out of funds legally available therefor. See "Dividend Policy." In the
event of a liquidation, dissolution or winding-up of the Company, holders of
Common Stock are entitled to share equally and ratably in the assets of the
Company, if any, remaining after the payment of all liabilities of the Company
and the liquidation preferences of any outstanding Preferred Stock. Holders of
the Common Stock have no preemptive rights and no rights to convert their Common
Stock to any other securities, and there are no redemption or sinking fund
provisions with respect to the Common Stock. The Company is subject to
provisions of the Pennsylvania Business Corporation Law (the "BCL") which
provide for cumulative voting.
PREFERRED STOCK
The Board has the authority to issue the authorized shares of Preferred
Stock in one or more series and to fix the designations, relative powers,
preferences, rights, qualifications, limitations and restrictions of all shares
of each such series, including without limitation dividend rates, conversion
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences and the number of shares constituting each such series, without any
further vote or action by the shareholders. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
holders of Common Stock or adversely affect the rights and powers, including
voting rights, of the holders of Common Stock. The issuance of Preferred Stock
also could have the effect of delaying, deferring or preventing a change in
control of the Company.
CERTAIN CORPORATE GOVERNANCE MATTERS
The Company's Articles of Incorporation and By-Laws provide, in general,
that (i) the number of directors of the Company will be fixed, within a
specified range, by a majority of the total number of the directors of the
Company(assuming no vacancies) or by the holders of at least 80% of the
Company's voting stock, (ii) shareholder action can be taken only at an annual
or special meeting of shareholders and not by written consent in lieu of a
meeting, (iii) except as described below, special meetings of shareholders may
be called only by the Chairman of the Board or by 80% of the total number of
directors of the Company (assuming no vacancies) and the business permitted to
be conducted at any such meeting is limited to that brought before the meeting
by the Company's Chairman of the Board or his specific designee or by 80% of the
total number of directors of the Company (assuming no vacancies), (iv) the
Chairman of the Board may be removed only by the holders of at least 80% of the
Company's voting stock, (v) directors of the Company may be removed only for
cause and (vi) the Board or the Chairman of the Board may postpone and
reschedule any previously scheduled annual or special meeting of shareholders.
The Company's By-Laws also require that shareholders desiring to bring any
business before an annual meeting of shareholders deliver written notice thereof
to the Secretary of the Company not later than 60 days in advance of the meeting
of shareholders; provided, however, that in the event that the date of the
meeting is not publicly announced by the Company by press release or inclusion
in a report filed with the Commission or furnished to shareholders more than 75
days prior to the meeting, notice by the shareholder to be timely must be
delivered to the Secretary of the Company 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 Company's By-Laws further require that the
notice by the shareholder set forth a description of the business to be brought
before the meeting and the reasons for conducting such business at the meeting
and certain information concerning the shareholder proposing such
78
<PAGE> 86
business and the beneficial owner, if any, on whose behalf the proposal is made,
including their names and addresses, the class and number of shares of the
Company that are owned beneficially and of record by each of them and any
material interest of either of them in the business proposed to be brought
before the meeting. Upon the written request of the holders of not less than 25%
of the Company's voting stock or upon the request of the Chairman of the Board,
the Board will be required to call a meeting of shareholders for the purpose
specified in such written request and fix a record date for the determination of
shareholders entitled to notice of and to vote at such meeting (which record
date may not be later than 60 days after the date of receipt of notice of such
meeting), provided that (i) in the event that the Board calls an annual or
special meeting of shareholders to be held not later than 90 days after receipt
of any such written request, no separate special meeting of shareholder as so
requested will be required to be convened provided that the purposes of such
annual or special meeting called by the Board include (among others) the
purposes specified in such written request of the shareholders and (ii) unless
otherwise determined by the Chairman of the Board or vote of a majority of the
members of the Board then in office, action may not be taken at a special
meeting of the shareholders in respect of the removal of directors other than
for cause, any change in the number of directors or any other matter affecting
the composition of the Board or any directorate committee.
Under applicable provisions of Pennsylvania law, the approval of a
Pennsylvania company's board of directors, in addition to shareholder approval,
is required to adopt any amendment to the company's articles of incorporation,
but a company's by-laws may be amended either by action of its shareholders or,
if the company's articles of incorporation so provide, its board of directors.
The Company's Articles of Incorporation and By-Laws provide that except as
described below, the provisions summarized above and the provisions relating to
nomination procedures may not be amended by the shareholders, nor may any
provision inconsistent therewith be adopted by the shareholders, without the
affirmative vote of the holders of at least 80% of the Company's voting stock,
voting together as a single class, except that if any such action (other than
any direct or indirect amendments to the provision requiring that shareholder
action be taken at a meeting of shareholders rather than by written consent in
lieu of a meeting) is approved by the holders of a majority, but less than 80%,
of the then-outstanding voting stock (in addition to any other approvals
required by law, including approval by the Board with respect to any amendment
to the Company's Articles of Incorporation), such action will be effective as of
one year from the date of adoption.
The foregoing provisions of the Company's Articles of Incorporation and
By-Laws may discourage or make more difficult the acquisition of control of the
Company by means of a tender offer, open market purchase, proxy contest or
otherwise. These provisions may have the effect of discouraging certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of the Company first to negotiate with the
Company. The Company's management believes that the foregoing measures provide
benefits to the Company and its shareholders by enhancing the Company's ability
to negotiate with the proponent of any unfriendly or unsolicited proposal to
take over or restructure the Company and that such benefits outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
The Company is subject to provisions of the BCL which require that a
merger, consolidation, share exchange or sale of assets between a public
corporation, or a subsidiary thereof, and a shareholder be approved by a
majority of voting shares outstanding other than those held by the "interested
shareholder" (which includes a shareholder who is a party to the proposed
transaction or who is treated differently from other shareholders) unless (i)
the transaction has been approved by a majority of the corporation's directors
who are not affiliated with the interested shareholder and first elected to the
board within 24 months of the vote to approve such transaction, or (ii) the
transaction results in the payment to all other shareholders of an amount not
less than the highest amount paid for the same class of shares by the interested
shareholder. In addition, subject to certain exceptions, a "business
combination" with a shareholder or group of shareholders beneficially owning
more than 20% of the voting power of a public corporation (excluding certain
shares) is prohibited for a five-year period following the date on which the
holder acquired the 20% or greater voting power and, unless certain other
conditions are satisfied, requires approval of a majority of voting shares
outstanding other than those held by such interested shareholder. Moreover, the
BCL provides that any profit realized from the disposition of an equity security
of a corporation by a shareholder who disposes of such security within 18 months
after obtaining control must be returned to the corporation. These and other
related
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<PAGE> 87
BCL provisions may discourage open market purchases of a corporation's stock or
a non-negotiated tender or exchange offer for such stock and, accordingly, may
limit a shareholder's ability to realize a premium over the market price of the
Common Stock in connection with any such transaction.
Because of the length of time that the Fine Family Trusts have held
controlling interests in the Company, these statutory restrictions are not
applicable to such shareholders.
TRANSFER AGENT AND REGISTRAR
The Company has appointed Chemical Mellon Shareholder Services as the
transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering (assuming the over-allotment options are
not exercised), the Company will have 27,220,000 shares of Common Stock
outstanding. Of these shares, all of the shares of Common Stock sold in the
Offering will be freely tradeable by persons other than "affiliates" of the
Company without restriction or limitation under the Securities Act. The
remaining 16,220,000 shares are "restricted securities" within the meaning of
Rule 144 under the Securities Act (the "Restricted Shares") and may not be sold
in the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption contained in Rule 144.
In general, under Rule 144, if two years have elapsed since the later of
the date of acquisition of Restricted Shares from the Company or any "affiliate"
of the Company, as that term is defined under the Securities Act, the acquiror
or subsequent holder thereof is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the Common Stock then
outstanding or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If three years have elapsed since the date of
acquisition of Restricted Shares from the Company or from any "affiliate" of the
Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares in the public market
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements. The Company
and each of the existing shareholders have agreed that, subject to certain
limited exceptions, for a period of 180 days from the date of this Prospectus
they will not, without the prior written consent of Merrill Lynch, offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable for Common Stock.
Prior to the Offering, there has been no public market for the Common
Stock. See "Risk Factors--No Prior Market for the Common Stock." The Company can
make no predictions as to the effect, if any, that future sales of Restricted
Shares, or the availability of such Restricted Shares for sale, or the issuance
of shares of Common Stock upon the exercise of options or otherwise, or the
perception that such sales or exercises could occur, will have on the market
price prevailing from time to time. Sales of substantial amounts of Restricted
Shares in the public market could have an adverse effect on the market price of
the Common Stock.
In connection with the Acquisition, the Company entered into a stockholders
agreement, pursuant to which it granted Blackstone certain registration rights
with respect to the Common Stock. In addition, pursuant to the Organization the
Company granted to the existing shareholders certain registration rights with
respect to the Common Stock. See "The Organization, Acquisition and Financing
Plan--The Organization" and "--Acquisition of Owned Hotels."
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<PAGE> 88
TAXATION
The following is a general discussion of certain material U.S. federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a "Non-U.S. Holder." A "Non-U.S. Holder" is any person other than (i) a
citizen or resident of the United States, (ii) a corporation or partnership
created or organized in the United States or under the laws of the United States
or of any state thereof or (iii) an estate or trust whose income is includable
in gross income for U.S. federal income tax purposes regardless of its source.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which may be changed either retroactively or prospectively. This discussion does
not address all aspects of U.S. federal income and estate taxation that may be
relevant to Non-U.S. Holders and, in particular, does not address consequences
that may apply in light of their particular circumstances. In addition, the
discussion does not address any tax consequences arising under the laws of any
state, local or foreign taxing jurisdiction.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING AND DISPOSING OF COMMON STOCK.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-U.S. Holder of
Common Stock generally will be subject to withholding tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. For purposes
of determining whether tax is to be withheld at a 30% rate or at a reduced
treaty rate, the Company ordinarily will presume that dividends paid to an
address in a foreign country are paid to a resident of such country absent
knowledge that such presumption is not warranted.
There will be no withholding tax on dividends that are effectively
connected with the Non-U.S. Holder's conduct of a trade or business within the
United States provided such holder provides a valid Internal Revenue Service
(the "IRS") Form 4224 to the payor. Instead, the effectively connected dividends
will be subject to regular U.S. income tax generally in the same manner as if
the Non-U.S. Holder were a U.S. resident. A non-U.S. corporation receiving
effectively connected dividends also may be subject to an additional "branch
profits tax" which is imposed, under certain circumstances, at a rate of 30% (or
such lower rate as may be specified by an applicable treaty) of the non-U.S.
corporation's effectively connected earnings and profits, subject to certain
adjustments.
Proposed regulations were issued by the IRS in April 1996 that would, if
and when finalized, substantially modify the existing rules for withholding of
tax on payments of certain types of income (including dividends) to foreign
persons. These proposals ("Proposed Regulations") would, subject to certain
exceptions and transition rules, be effective for payments made after December
31, 1997, regardless of the date of issuance of the instrument with respect to
which those payments are made. There can be no assurance that the Proposed
Regulations will be finalized (whether before or after their proposed effective
date) or, if they are finalized, that they will not be materially modified from
their current form.
Among the provisions of the Proposed Regulations is a proposal that would
require a Non-U.S. Holder of common stock to certify its residence in a country
with which the United States has an income tax treaty in order to claim the
benefit of a reduced rate of withholding tax under such treaty on dividends paid
with respect to such common stock. In addition, the Proposed Regulations would,
if finalized in their current form, make other changes to the existing
procedures relating to withholding of tax on dividends. Prospective investors
are urged to consult their tax advisors with respect to the possible impact of
the Proposed Regulations on their particular situations.
In addition, under a 1984 proposed regulation (which never entered into
force), in order to claim the benefits of a tax treaty, a Non-U.S. Holder of
Common Stock would have been required to demonstrate entitlement to such
benefits by filing certain forms including a statement from a designated
governmental body of the treaty country. The administrative document whereby the
IRS issued the Proposed Regulations also removes that 1984 proposed regulation.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will be subject to U.S. federal income tax with
respect to gain realized on a sale or other disposition of Common Stock only if
(i) the gain is effectively connected with a trade or business of such holder in
the United States, (ii) in the case of certain Non-U.S. Holders who are
non-resident alien individuals and hold the Common Stock as a capital asset,
such individuals are present in the United States
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<PAGE> 89
for 183 or more days in the taxable year of the disposition or (iii) subject to
the exception below, the Company is or has been a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code at any
time within the shorter of the five-year period preceding such disposition or
such holder's holding period. The Company believes it currently is and will
likely remain a U.S. real property holding corporation. However, gain realized
on a disposition of Common Stock by a Non-U.S. Holder that is not deemed to own
more than five percent of the Common Stock during such period will not be
subject to U.S. federal income tax under the rule described in clause (iii) of
this paragraph, provided that the Common Stock is "regularly traded" (within the
meaning of Section 897(c)(3) of the Code) on an established securities market
located in the United States at the time of disposition. If a Non-U.S. Holder is
deemed to own more than five percent of the Common Stock at any time during the
shorter of the five-year period preceding such disposition or such holder's
holding period, such Non-U.S. Holder may be subject to U.S. federal income tax
upon a disposition of shares of such stock and is urged to consult its tax
advisor.
BACKUP WITHHOLDING AND REPORTING REQUIREMENTS
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable income tax treaty. Copies of this
information also may be made available under the provisions of a specific treaty
or agreement with the tax authorities in the country in which the Non-U.S.
Holder resides or is established.
United States backup withholding (which generally is imposed at the rate of
31% on certain payments to persons that fail to furnish the information required
under the United States information reporting requirements) and information
reporting generally will not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside the United States.
The payment of proceeds from the disposition of Common Stock to or through
a United States office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of proceeds from the disposition of Common Stock to or
through a non-U.S. office of a non-U.S. broker generally will not be subject to
backup withholding and information reporting, except as noted below. In the case
of proceeds from a disposition of Common Stock paid to or through a non-United
States office of a broker that is (i) a United States person, (ii) a "controlled
foreign corporation" for United States federal income tax purposes or (iii) a
foreign person 50% or more of whose gross income from certain periods is
effectively connected with a United States trade or business, (a) backup
withholding will not apply unless such broker has actual knowledge that the
owner is not a Non-U.S. Holder, and (b) information reporting will apply unless
the broker has documentary evidence in its files that the owner is a Non-U.S.
Holder (and the broker has no actual knowledge to the contrary).
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
DIVIDENDS
The Proposed Regulations would, if finalized in their current form, modify
the foregoing rules to conform them to the rules proposed therein with respect
to withholding tax on dividends. Prospective investors are urged to consult
their tax advisors with respect to the possible impact of these provisions of
the Proposed Regulations on their particular situations.
FEDERAL ESTATE TAX
An individual who is not a citizen or resident (as defined for U.S. federal
estate tax purposes) of the United States at the time of death and who is
treated as the owner of Common Stock, or that has made certain lifetime
transfers of an interest in the Common Stock, will be required to include the
value thereof in his or her gross estate for U.S. federal estate tax purposes
and may be subject to U.S. federal estate tax unless an applicable estate tax
treaty provides otherwise.
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<PAGE> 90
UNDERWRITING
The U.S. Underwriters named below (the "U.S. Underwriters"), acting through
their U.S. representatives, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Montgomery Securities, Morgan Stanley & Co. Incorporated,
Smith Barney Inc. and Credit Lyonnais Securities (USA) Inc. (the "U.S.
Representatives"), have severally agreed, subject to the terms and conditions of
a U.S. Purchase Agreement with the Company (the "U.S. Purchase Agreement"), to
purchase from the Company the number of shares of Common Stock set forth
opposite their respective names. The U.S. Underwriters are committed to purchase
all of such shares if any are purchased. Under certain circumstances, the
commitments of non-defaulting U.S. Underwriters may be increased as set forth in
the U.S. Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
Montgomery Securities....................................................
Morgan Stanley & Co. Incorporated........................................
Smith Barney Inc.........................................................
Credit Lyonnais Securities (USA) Inc.....................................
---------
Total....................................................... 9,350,000
========
</TABLE>
The Company has also entered into a purchase agreement (the "International
Purchase Agreement") with certain underwriters outside the United States (the
"International Underwriters" and, together with the U.S. Underwriters, the
"Underwriters") for whom Merrill Lynch International, Credit Lyonnais
Securities, Montgomery Securities, Morgan Stanley & Co. International Limited
and Smith Barney Inc. are acting as International representatives (the
"International Representatives"). Subject to the terms and conditions set forth
in the International Purchase Agreement, and concurrently with the sale of
9,350,000 shares of Common Stock to the U.S. Underwriters pursuant to the U.S.
Purchase Agreement, the Company has agreed to sell to the International
Underwriters, and the International Underwriters have severally agreed to
purchase, an aggregate of 1,650,000 shares of Common Stock. Under certain
circumstances under the International Purchase Agreement, the commitments of
non-defaulting International Underwriters may be increased. The initial public
offering price per share and the total underwriting discount per share will be
identical under the U.S. Purchase Agreement and the International Purchase
Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant to
each such agreement are purchased. Sales of Common Stock to be purchased by the
U.S. Underwriters in the U.S. Offering and the International Underwriters in the
International Offering are conditioned upon one another.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date hereof to purchase up to an additional 1,402,500 shares at
the initial public offering price per share, less the underwriting discount,
solely to cover over-allotments, if any. To the extent that the U.S.
Underwriters exercise this option, each U.S. Underwriter will be obligated,
subject to certain conditions, to purchase the number of additional shares of
Common Stock proportionate to such U.S. Underwriter's initial amount reflected
in the foregoing table. Additionally, the Company has granted the International
Underwriters an option exercisable for 30 days after the date hereof to purchase
up to an additional 247,500 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments, if any,
on terms similar to those granted to the U.S. Underwriters.
The U.S. Underwriters propose initially to offer the shares to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain selected dealers at such price less a concession not
in excess of $ per share, and the U.S. Underwriters may allow, and such dealers
may reallow, a discount not in excess of $ per share to certain other dealers.
After the completion of the Offering, the offering price, concession and
discount may be changed.
83
<PAGE> 91
The U.S. Underwriters and the International Underwriters have entered into
an intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the International Underwriters and the U.S.
Underwriters of such number of shares of Common Stock as may be mutually agreed.
The price of any Common Stock so sold shall be the initial public offering
price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the International
Underwriters and any dealer to whom they sell Common Stock will not offer to
sell or sell Common Stock to persons who are U.S. or Canadian persons or to
persons they believe intend to resell to persons who are U.S. or Canadian
persons, and the U.S. Underwriters and any dealer to whom they sell Common Stock
will not offer to sell or sell Common Stock to non-U.S. or non-Canadian persons
or to persons they believe intend to resell to non-U.S. or non-Canadian persons,
except, in each case, for transactions pursuant to such agreement.
Prior to the Offering, there has been no active public market for the
Common Stock. The initial public offering price will be determined by
negotiations among the Company and the U.S. Representatives. Among the factors
to be considered in such negotiations are the Company's recent results of
operations, the future prospects of the Company and its industry in general, the
price-earnings ratios and market prices of securities of companies engaged in
activities similar to those of the Company and prevailing conditions in the
securities markets. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to the Offering at or above the initial public offering price.
The Company and its directors, executive officers and existing
shareholders, including Blackstone, have agreed not to sell or otherwise dispose
of any shares of Common Stock (other than shares purchased pursuant to the
Offering or in the open market) or securities convertible into or exercisable
for Common Stock without the prior written consent of Merrill Lynch for a period
of 180 days after the date of this Prospectus. See "Shares Eligible for Future
Sale."
The Common Stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance. In order to meet the
requirements for listing of the Common Stock on that exchange, the U.S.
Underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
In the Purchase Agreement, the Company has agreed to indemnify the several
Underwriters against certain civil liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
The Company has agreed to pay Merrill Lynch a fee for advisory services in
connection with the Organization in an amount up to 0.50% of the gross proceeds
of the Offering.
At the request of the Company, the Underwriters have reserved up to 250,000
shares of Common Stock for sale at the initial public offering price to certain
employees, customers, vendors and business associates of the Company who have
expressed an interest in purchasing shares of Common Stock. The number of shares
of Common Stock available to the general public will be reduced to the extent
these persons purchase the reserved shares of Common Stock. Any reserved shares
of Common Stock that are not so purchased by such persons at the closing of the
Offering will be offered by the Underwriters to the general public on the same
terms as the other Common Stock offered by this Prospectus.
The Company is concurrently offering 1,000 shares of Common Stock at the
initial public offering price directly to certain employees and business
associates of the Company pursuant to this Prospectus in certain jurisdictions
outside of the United States where the Underwriters are prohibited by law from
selling the Common Stock. Such shares are included in the 11,000,000 shares
being sold pursuant to this Prospectus. Since such shares are being sold
directly by the Company and not through the Underwriters, no underwriting
discount or commission will be paid to the Underwriters with respect to such
shares.
84
<PAGE> 92
Each International Underwriter has represented and agreed that (i) it has
not offered or sold, and will not offer or sell, in the United Kingdom by means
of any document, any shares of the Common Stock other than to persons whose
ordinary business it is to buy or sell shares or debentures, whether as
principal or agent (except under circumstances which do not constitute an offer
to the public within the meaning of the Companies Act of 1985), (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act of 1986 with respect to anything done by it in relation to the
Common Stock in, from or otherwise involving the United Kingdom, and (iii) it
has only issued or passed on, and will only issue or pass on in the United
Kingdom, any document received by it in connection with the issue of the Common
Stock to a person who is of a kind described in Article 9(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988 or is a
person to whom such document may otherwise lawfully be issued or passed on.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company by Jones, Day, Reavis & Pogue, New York, New
York. Certain legal matters in connection with this Offering will be passed upon
for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New
York.
EXPERTS
The balance sheet of the Company as of April 23, 1996; the Combined
Financial Statements of Interstate Hotels Corporation and Affiliates as of
December 31, 1994 and 1995 and for the years ended December 31, 1993, 1994 and
1995; the Combined Financial Statements of Interstone I Property Partnerships
and Predecessor Entities as of December 31, 1994 and 1995 and for the years
ended December 31, 1993, 1994 and 1995; the Combined Financial Statements of
Interstone/CGL Partners, L.P. and Predecessor Entity as of December 31, 1994,
December 14, 1995 and December 31, 1995 and for the years ended December 31,
1993 and 1994, for the period from January 1, 1995 to December 14, 1995 and for
the period from December 15, 1995 to December 31, 1995; and Financial Statements
of Boston Marriott Westborough Hotel as of December 31, 1994 and 1995 and for
the years ended December 31, 1993, 1994 and 1995 included in this Prospectus
have been included herein in reliance on the reports of Coopers & Lybrand
L.L.P., independent accountants, given on their authority as experts in
accounting and auditing.
85
<PAGE> 93
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which is a part of the Registration Statement, omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement and the exhibits thereto for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained herein concerning the provisions of any documents are not
necessarily complete, and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference. The Registration Statement,
including exhibits filed therewith, may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and will also be available for inspection
and copying at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 upon payment of the fees prescribed
by the Commission. The Common Stock has been approved for listing on the New
York Stock Exchange, subject to official notice of issuance. Reports and other
information concerning the Company may be inspected and copied at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company will be required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934. The Company intends
to furnish its shareholders annual reports containing consolidated financial
statements certified by its independent accountants and quarterly reports
containing unaudited condensed consolidated financial statements for each of the
first three quarters of each fiscal year.
86
<PAGE> 94
INTERSTATE HOTELS COMPANY
INDEX TO COMBINED FINANCIAL STATEMENTS
---------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERSTATE HOTELS COMPANY
Report of Independent Accountants.................................................. F-2
Balance Sheet as of April 23, 1996................................................. F-3
Note to Financial Statement........................................................ F-4
INTERSTATE HOTELS CORPORATION AND AFFILIATES
Report of Independent Accountants.................................................. F-5
Combined Balance Sheets as of December 31, 1994 and 1995 and
March 31, 1996 (unaudited)...................................................... F-6
Combined Statements of Income for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996 (unaudited).................. F-7
Combined Statements of Changes in Equity (Deficit) for the years ended December 31,
1993, 1994 and 1995 and the three months ended March 31, 1996 (unaudited)....... F-8
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 (unaudited)............. F-9
Notes to Combined Financial Statements............................................. F-10
INTERSTONE I PROPERTY PARTNERSHIPS AND PREDECESSOR ENTITIES
Report of Independent Accountants.................................................. F-24
Combined Balance Sheets as of December 31, 1994 and 1995 and
March 31, 1996 (unaudited)...................................................... F-25
Combined Statements of Operations and Owners' Equity for the years ended December
31, 1993, 1994 and 1995 and the three months ended March 31, 1995 and 1996
(unaudited)..................................................................... F-26
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 (unaudited)............. F-27
Notes to Combined Financial Statements............................................. F-28
INTERSTONE/CGL PARTNERS, L.P. AND PREDECESSOR ENTITY
Report of Independent Accountants.................................................. F-37
Combined Balance Sheets as of December 31, 1994, December 14, 1995 and
December 31, 1995 and March 31, 1996 (unaudited)................................ F-38
Combined Statements of Operations and Predecessor's Equity and Partners' Capital
for the years ended December 31, 1993 and 1994, for the period from January 1,
1995 to December 14, 1995 and for the period from December 15, 1995 to December
31, 1995 and the three months ended March 31, 1995 and 1996 (unaudited)......... F-39
Combined Statements of Cash Flows for the years ended December 31, 1993 and 1994,
for the period from January 1, 1995 to December 14, 1995 and for the period from
December 15, 1995 to December 31, 1995 and the three months ended March 31, 1995
and 1996 (unaudited)............................................................ F-40
Notes to Combined Financial Statements............................................. F-41
BOSTON MARRIOTT WESTBOROUGH HOTEL
Report of Independent Accountants.................................................. F-49
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)..... F-50
Statements of Operations and Equity for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 (unaudited)............. F-51
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
the three months ended March 31, 1995 and 1996 (unaudited)...................... F-52
Notes to Financial Statements...................................................... F-53
</TABLE>
F-1
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Interstate Hotels Company:
We have audited the accompanying balance sheet of Interstate Hotels Company
(the Company), as of April 23, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company as of April 23, 1996 in
conformity with generally accepted accounting principles.
/S/ COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
April 23, 1996
F-2
<PAGE> 96
INTERSTATE HOTELS COMPANY
BALANCE SHEET
APRIL 23, 1996
---------
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 1,000
-------
Total assets.............................................................. $ 1,000
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock, $0.01 par value; 50,000,000 shares authorized; 10,000 shares issued
and outstanding................................................................ 100
Additional paid-in capital........................................................ 900
-------
Total stockholders' equity................................................ 1,000
-------
Total liabilities and stockholders' equity........................... $ 1,000
======
</TABLE>
The accompanying note is an integral part of the financial statement.
F-3
<PAGE> 97
INTERSTATE HOTELS COMPANY
NOTE TO FINANCIAL STATEMENT
---------
1. BASIS OF PRESENTATION:
Interstate Hotels Company (the Company) was formed on April 19, 1996
pursuant to a plan to pursue an initial public offering (the Offering) of common
stock. Immediately prior to the consummation of the Offering, Interstate Hotels
Corporation (IHC), an entity owned by the stockholders of the Company, will
contribute all of the outstanding shares of common stock of IHC to the Company
in exchange for equal shares of common stock. Prior to the consummation of the
Offering, certain other affiliates which own interests in hotels (the Owned
Hotels) and certain executives of IHC, who own interests in the Owned Hotels,
will contribute all of their interests to the Company in exchange for common
stock. As a result, the Company anticipates owning 100% of its subsidiaries and
all of the interests in the Owned Hotels (excluding minority equity interests in
seven of the hotels).
F-4
<PAGE> 98
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Interstate Hotels Corporation:
We have audited the accompanying combined balance sheets of Interstate Hotels
Corporation and Affiliates (the Company) as of December 31, 1994 and 1995, and
the related combined statements of income, changes in equity (deficit) and cash
flows for the three years in the period ended December 31, 1995. These combined
financial statements are the responsibility of the Company'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.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
as of December 31, 1994 and 1995, and the combined results of their operations,
changes in equity (deficit) and cash flows for the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
/S/ COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
April 10, 1996, except for the
third paragraph of Note 9,
as to which the date is April 22, 1996
F-5
<PAGE> 99
INTERSTATE HOTELS CORPORATION AND AFFILIATES
COMBINED BALANCE SHEETS
---------
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 6,701,518 $ 14,034,622 $ 12,073,518
Accounts receivable (Note 13)........................ 8,276,693 10,653,952 15,652,224
Net investment in direct financing leases (Note 4)... 242,818 399,266 368,897
Prepaid expenses and other assets.................... 55,182 312,642 432,542
----------- ------------ ------------
Total current assets....................... 15,276,211 25,400,482 28,527,181
Restricted cash (Notes 14 and 15)........................ 1,285,674 2,096,213 1,936,278
Property and equipment, net (Note 5)..................... 1,913,704 1,894,149 1,882,811
Investments in contracts, net of accumulated amortization
of $13,790,408 and $16,933,107 at December 31, 1994 and
1995, respectively, and $17,795,805 at March 31,
1996................................................... 8,752,174 5,860,972 5,048,272
Equity investment in hotel real estate (Note 6).......... -- 12,884,150 13,008,969
Notes receivable (Note 13):
Officers and employees............................... 1,370,537 1,219,313 1,865,134
Affiliates........................................... 879,944 8,717,662 8,717,662
Net investment in direct financing leases (Note 4)....... 681,611 836,010 882,303
Deposits and other assets................................ 581,228 2,492,041 8,156,734
----------- ------------ ------------
Total assets.......................... $30,741,083 $ 61,400,992 $ 70,025,344
=========== ============ ============
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable:
Trade........................................... 1,116,329 925,085 653,776
Health Trust (Note 11).......................... 539,436 5,505,207 7,480,998
Affiliates (Note 3)............................. 1,220,000 -- --
Accrued payroll and related benefits................. 2,757,565 3,026,235 2,051,859
Other accrued liabilities............................ 2,359,074 5,546,201 9,640,627
Current portion of long-term debt.................... 672,792 362,735 371,003
----------- ------------ ------------
Total current liabilities.................. 8,665,196 15,365,463 20,198,263
Notes payable to stockholders (Note 20).................. -- -- 30,000,000
Long-term debt (Note 7).................................. 3,217,436 35,907,225 35,686,654
----------- ------------ ------------
Total liabilities.......................... 11,882,632 51,272,688 85,884,917
----------- ------------ ------------
Minority interests (Note 6).............................. -- 871,910 880,357
Commitments and contingencies (Note 14)
Equity (deficit):
Common stock (Note 8)................................ 41,600 2,780 2,780
Paid-in capital...................................... 17,880,302 26,883,017 --
Partners' capital.................................... 3,878,442 -- --
Unearned compensation (Note 9)....................... -- (3,262,853) (3,216,142)
Retained deficit..................................... (738,739) (12,736,889) (11,636,905)
Receivable from stockholders (Note 13)............... (2,203,154) (1,629,661) (1,889,663)
----------- ------------ ------------
Total equity (deficit)..................... 18,858,451 9,256,394 (16,739,930)
----------- ------------ ------------
Total liabilities and equity
(deficit)........................... $30,741,083 $ 61,400,992 $ 70,025,344
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-6
<PAGE> 100
INTERSTATE HOTELS CORPORATION AND AFFILIATES
COMBINED STATEMENTS OF INCOME
---------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income from managed hotels
(Notes 10 and 13):
Net management fees........ $13,769,936 $16,117,152 $19,604,917 $ 4,308,852 $ 5,033,615
Net management
fees--related party...... 5,459,527 6,167,359 7,417,134 1,537,155 2,149,282
Purchasing fees............ 1,414,311 2,156,817 2,508,507 543,710 801,052
Other fees................. 2,064,457 5,323,707 7,815,689 1,518,075 2,540,263
Insurance income (Note 15)...... 2,855,744 6,961,026 7,672,097 2,341,269 1,772,337
----------- ----------- ----------- ----------- -----------
25,563,975 36,726,061 45,018,344 10,249,061 12,296,549
----------- ----------- ----------- ----------- -----------
Operating expenses:
General and administrative.... 4,762,425 7,651,646 9,271,215 1,949,015 2,304,280
Payroll and related
benefits................... 10,320,729 12,420,248 15,468,422 3,834,433 4,249,381
State and local taxes......... 294,378 649,598 540,088 131,201 34,056
Depreciation and
amortization............... 3,282,044 3,659,132 4,201,266 1,041,543 1,100,888
----------- ----------- ----------- ----------- -----------
18,659,576 24,380,624 29,480,991 6,956,192 7,688,605
----------- ----------- ----------- ----------- -----------
Operating income...... 6,904,399 12,345,437 15,537,353 3,292,869 4,607,944
Other income (expense):
Interest income............... 251,930 302,110 693,263 127,654 365,709
Interest expense.............. (240,136) (271,651) (594,103) (75,419) (853,058)
Equity (loss) income from
investment in hotel real
estate (Note 6)............ -- -- (154,003) -- 124,819
Minority interests' share of
equity loss (income) from
investment in hotel real
estate (Note 6)............ -- -- 10,421 -- (8,447)
Other, net.................... (5,761) 13,547 346,383 -- --
----------- ----------- ----------- ----------- -----------
Net income............ $ 6,910,432 $12,389,443 $15,839,314 $ 3,345,104 $ 4,236,967
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-7
<PAGE> 101
INTERSTATE HOTELS CORPORATION AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
---------
<TABLE>
<CAPTION>
RECEIVABLE
COMMON PAID-IN PARTNERS' UNEARNED RETAINED FROM
STOCK CAPITAL CAPITAL COMPENSATION DEFICIT STOCKHOLDERS TOTAL
-------- ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992.................. $ 34,000 $17,756,802 $ 1,009,680 -- $ (269,403) $ (1,846,080) $ 16,684,999
Common stock of newly
established
entities............ 22,700 -- -- -- -- -- 22,700
Additional capital
contributions....... -- 99,400 -- -- -- -- 99,400
Partners' capital
contributions....... -- -- 1,000 -- -- -- 1,000
Net increase in
receivable from
stockholders........ -- -- -- -- -- (1,133,320) (1,133,320)
Distributions paid.... -- -- (1,690,000) -- (4,268,646) -- (5,958,646)
Net income............ -- -- 2,641,353 -- 4,269,079 -- 6,910,432
-------- ----------- ----------- ------------ ------------ ------------ ------------
Balance at December 31,
1993.................. 56,700 17,856,202 1,962,033 -- (268,970) (2,979,400) 16,626,565
Effect of
recapitalization
(Note 8)............ (21,500) 21,500 -- -- -- -- --
Common stock of newly
established
entities............ 6,400 -- -- -- -- -- 6,400
Additional capital
contributions....... -- 2,600 -- -- -- -- 2,600
Net decrease in
receivable from
stockholders........ -- -- -- -- -- 776,246 776,246
Distributions paid.... -- -- (4,955,600) -- (5,987,203) -- (10,942,803)
Net income............ -- -- 6,872,009 -- 5,517,434 -- 12,389,443
-------- ----------- ----------- ------------ ------------ ------------ ------------
Balance at December 31,
1994.................. 41,600 17,880,302 3,878,442 -- (738,739) (2,203,154) 18,858,451
Effect of
Reorganization (Note
3).................. (41,583) 4,520,025 (4,478,442) -- -- -- --
Assumption of
liability by
principal
stockholder (Note
3).................. -- 1,220,000 -- -- -- -- 1,220,000
Common stock of newly
established
entities............ 2,600 -- -- -- -- -- 2,600
Partners' capital
contributions....... -- -- 600,000 -- -- -- 600,000
Stock options granted
(Note 9)............ 163 3,262,690 -- $ (3,262,853) -- -- --
Assumption of
stockholders'
liability (Note
3).................. -- -- -- -- (12,994,923) -- (12,994,923)
Net decrease in
receivable from
stockholders........ -- -- -- -- -- 573,493 573,493
Distributions paid.... -- -- -- -- (14,842,541) -- (14,842,541)
Net income............ -- -- -- -- 15,839,314 -- 15,839,314
-------- ----------- ----------- ------------ ------------ ------------ ------------
Balance at December 31,
1995.................. 2,780 26,883,017 -- (3,262,853) (12,736,889) (1,629,661) 9,256,394
-------- ----------- ----------- ------------ ------------ ------------ ------------
Unearned compensation
recognized.......... -- -- -- 46,711 -- -- 46,711
Notes payable to
stockholders
(Note 20)........... -- (26,883,017) -- -- (3,116,983) -- (30,000,000)
Net increase in
receivable from
stockholders........ -- -- -- -- -- (260,002) (260,002)
Distributions paid.... -- -- -- -- (20,000) -- (20,000)
Net income............ -- -- -- -- 4,236,967 -- 4,236,967
-------- ----------- ----------- ------------ ------------ ------------ ------------
Balance at March 31,
1996
(unaudited)........... $ 2,780 $ -- $ -- $ (3,216,142) $(11,636,905) $ (1,889,663) $(16,739,930)
======== ========== ========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-8
<PAGE> 102
INTERSTATE HOTELS CORPORATION AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
---------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 6,910,432 $ 12,389,443 $ 15,839,314 $ 3,345,104 $ 4,236,967
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 3,282,044 3,659,132 4,201,266 1,041,543 1,100,888
Gain on sales of equipment...................... -- (14,682) (9,387) -- --
Financing revenue received on capital leases.... (5,710) (39,089) (92,539) (16,699) (29,766)
Equity loss (income) from investment in hotel
real estate................................... -- -- 154,003 -- (124,819)
Minority interests' share of equity (loss)
income from investment in hotel real estate... -- -- (10,421) -- 8,447
Other income.................................... -- -- (350,000) -- --
Unearned compensation........................... -- -- -- -- 46,711
Cash provided (used) by assets and liabilities:
Accounts receivable............................. (489,170) (2,652,129) (2,377,259) (3,034,694) (4,998,272)
Prepaid expenses and other assets............... 48,989 (16,878) (257,460) (222,471) (119,900)
Accounts payable................................ 108,806 915,261 4,774,527 16,999 1,704,482
Accrued liabilities............................. 533,892 1,076,703 3,455,797 3,738,363 3,120,050
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities..... 10,389,283 15,317,761 25,327,841 4,868,145 4,944,778
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Investments in contracts.......................... (352,000) (2,138,921) (941,817) (89,988) (50,000)
Equity investment in hotel real estate............ -- -- (13,038,153) -- --
(Increase) decrease in notes receivable........... (1,478,595) 528,694 (7,686,494) (216,379) (645,821)
Purchase of property and equipment................ (716,007) (607,354) (438,165) (86,538) (113,837)
Proceeds from sale of management contract......... -- -- 266,041 -- --
Purchase of assets to be leased................... (236,380) (874,697) (606,115) (26,697) (104,945)
Payments received under capital leases............ 26,759 204,688 387,807 47,746 118,797
(Increase) decrease in restricted cash............ (205,308) (813,572) (810,539) (324,326) 159,935
Deposits and other assets......................... (126,558) (150,364) 9,617 31,775 (5,643,214)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities......... (3,088,089) (3,851,526) (22,857,818) (664,407) (6,279,085)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt...................... 1,625,000 3,548,000 35,000,000 -- --
Repayment of long-term debt....................... (1,892,739) (2,641,990) (15,265,191) (250,000) (212,303)
Financing costs paid.............................. (5,000) (33,518) (2,087,611) -- (134,492)
Minority interests................................ -- -- 882,331 -- --
Capital contributions............................. 123,100 9,000 602,600 600,000 --
Funds advanced to stockholders.................... (1,704,136) (1,688,754) (3,244,661) (3,803,810) (260,002)
Repayment of funds advanced to stockholders....... 570,816 2,465,000 3,818,154 1,089,400 --
Distributions paid................................ (5,958,646) (10,942,803) (14,842,541) (1,238,153) (20,000)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by financing
activities.................................. (7,241,605) (9,285,065) 4,863,081 (3,602,563) (626,797)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 59,589 2,181,170 7,333,104 601,175 (1,961,104)
Cash and cash equivalents at beginning of period.... 4,460,759 4,520,348 6,701,518 6,701,518 14,034,622
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period.......... $ 4,520,348 $ 6,701,518 $ 14,034,622 $ 7,302,693 $12,073,518
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest............................ $ 240,136 $ 261,151 $ 507,398 $ 75,419 $ 858,561
=========== =========== =========== =========== ===========
Supplemental disclosure of noncash investing and
financing activities:
Notes payable issued to acquire contracts......... -- $ 1,175,568 -- -- --
=========== =========== =========== =========== ===========
Assumption of liability by principal stockholder
(Note 3)........................................ -- -- $ 1,220,000 -- --
=========== =========== =========== =========== ===========
Assumption of stockholders' liability (Note 3).... -- -- $ 12,994,923 -- --
=========== =========== =========== =========== ===========
Unearned compensation related to stock options
(Note 9)........................................ -- -- $ 3,262,853 -- --
=========== =========== =========== =========== ===========
Notes payable issued to stockholders (Note 20).... -- -- -- -- $30,000,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-9
<PAGE> 103
INTERSTATE HOTELS CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
---------
1. BASIS OF PRESENTATION:
Interstate Hotels Corporation and Affiliates (the Company) provides
management and other services principally to hotels. The Company's financial
statements combine the accounts of Interstate Hotels Corporation (IHC) and IHC
Member Corporation (IHC Member), which are under common control and ownership.
These combined financial statements also include the following wholly-owned
subsidiaries of the combined entities: Crossroads Hospitality Company, L.L.C.
(Crossroads), Colony Hotels and Resorts Company (Colony), Continental Design and
Supplies Company, L.L.C. (CDS), Hilltop Equipment Leasing Company, L.P.
(Hilltop) and Northridge Insurance Company (Northridge). Also included in these
combined financial statements is the majority-owned consolidated investment in
IHC/Interstone Partnership II, L.P. (IHC/IPII).
IHC, Crossroads and Colony operate properties and collect management fees
pursuant to management agreements with the respective owners of the hotels. It
is the responsibility of IHC, Crossroads and Colony to manage the assets,
collect the revenues and pay the operating expenses and other liabilities of the
respective properties in accordance with the management agreements. In addition,
franchise, accounting and other operating fees are earned for certain properties
as stipulated in the respective agreements. These fees are included in other
fees in the Company's combined statements of income. The accompanying combined
statements of income include only the income earned by the Company from the
operation of the respective properties (refer to Note 10). The properties'
operating assets, liabilities, income and expenses are included in the owners'
financial statements.
CDS, Hilltop and Northridge provide various services to properties operated
by IHC, Crossroads and Colony. CDS provides the hotels with certain purchasing
and project management services and earns fees based on a percentage of the
price of equipment purchased and hotel gift shop revenues. Fees earned by CDS
comprise purchasing fees in the Company's combined statements of income.
Hilltop provides office, computer and telephone equipment under capital and
operating leases to certain hotels with noncancelable terms ranging from one to
sixty months. Rental income earned by Hilltop is included in other fees in the
Company's combined statements of income.
Northridge provides reinsurance to major insurance carriers solely in
connection with the insurance that those carriers provide to the properties
managed by the Company. Northridge also provides direct insurance coverage to
the Company in connection with its self-insured health care program. Income
earned by Northridge comprises insurance income in the Company's combined
statements of income.
IHC/IPII owns an interest in an affiliated partnership that owns six
hotels, five of which are managed by the Company (Note 6).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination and Consolidation:
The combined financial statements of the Company include the accounts of
the entities described in Note 1. All transactions and intercompany balances
among the entities are eliminated.
The principal stockholder of the Company has an ownership interest in
certain hotels and related entities managed by the Company (Note 13). These
entities are not included in the Company's combined financial statements.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These may affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. They
F-10
<PAGE> 104
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
may also affect the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents:
For purposes of the combined statements of cash flows, all unrestricted,
highly liquid investments purchased with a remaining maturity of three months or
less are considered to be cash equivalents. Substantially all cash and cash
equivalents are maintained at a limited number of financial institutions. No
collateral or other security is provided on cash deposits, other than $100,000
of deposits for each financial institution insured by the Federal Deposit
Insurance Corporation.
Leases:
Assets acquired and subsequently leased to hotels under capital leases are
recorded at the net investment in direct financing leases, which represents the
total future minimum lease payments receivable net of unearned income. When
payments are received, the receivable is reduced and the unearned income is
recognized on a pro-rata basis over the life of the lease.
Property and Equipment:
Property and equipment are recorded at cost and are depreciated on the
straight-line method over their estimated useful lives. Expenditures for
maintenance and repairs are expensed as incurred. The cost and related
accumulated depreciation applicable to property no longer in service or sold are
eliminated from the accounts and any gain or loss thereon is included in
operations.
Investments in Contracts:
Investments in contracts consists of the allocated costs arising from the
purchase and change in control of the Company in 1989 and amounts paid to obtain
management and other contracts. Investments in contracts are being amortized
over the average life of the contracts ranging from three to ten years.
Equity Investment:
The Company accounts for investments in less than 50% owned entities on the
equity method of accounting.
Other Assets:
Other assets in 1995 include financing fees of approximately $2,075,000,
which are being amortized over the term of the related indebtedness of 84
months.
Revenue Recognition:
Net management fees, purchasing fees and other fees are recognized when
earned. Hotels managed under short-term operating leases with certain lessee and
lessor cancellation clauses are treated as management contracts, with the fees
earned from these leases recognized when earned.
Reimbursable Expenses:
The Company is reimbursed for costs associated with providing data
processing, sales and marketing and employee training services to managed
hotels. These revenues are included in other fees and the corresponding costs
are included in general and administrative and payroll and related benefits on
the combined statements of income.
Insurance:
Insurance premiums are recorded as income on a pro-rata basis over the life
of the related policies, as appropriate, with the portion applicable to the
unexpired terms of the policies in force recorded as unearned
F-11
<PAGE> 105
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
premium reserves. Losses are provided for reported claims, claims incurred but
not reported and claim settlement expense at each balance sheet date. Such
losses are based on management's best estimate of the ultimate cost of
settlement of claims. Actual liabilities may differ from estimated amounts. Any
changes in estimates are reflected in current earnings.
Income Tax Status:
Prior to the Reorganization on November 1, 1995 discussed in Note 3, the
entities that comprise the Company elected to be treated as either S
Corporations or limited partnerships. Similar elections were made, where
possible, for state income tax purposes.
After the Reorganization, the S Corporation status of Colony was terminated
and for the period subsequent to November 29, 1995 Colony is treated as a C
Corporation for federal and state income tax purposes. All of the other entities
included in the Company are S Corporations, limited liability companies or
partnerships, which are generally all treated as pass-through entities for tax
purposes.
Accordingly, the majority of all federal and state income tax liabilities
and benefits are borne by the respective stockholders or partners. State and
local income tax liabilities and benefits borne by the Company are not
significant and are included in the combined statements of income.
Pursuant to a proposed initial public offering, the Company will terminate
its status as an S Corporation. Accordingly, the Company will be fully subject
to federal and state income taxes.
3. REORGANIZATION:
On November 1, 1995, the Company underwent a capital restructuring in order
to eliminate duplicative administrative and accounting expenses, among other
things. Pursuant to the Reorganization, the Company merged a number of companies
and created subsidiaries for certain other entities which were all under common
control. The Reorganization was accounted for in a manner similar to that used
in pooling-of-interests accounting. Additionally, concurrent with the
Reorganization, the Company assumed a $12,995,000 obligation of the principal
stockholder that was accounted for as a distribution of capital. The Company
also recorded a contribution of capital when indebtedness in the amount of
$1,220,000 that was owed to an affiliate was assumed by the principal
stockholder.
4. NET INVESTMENT IN DIRECT FINANCING LEASES:
Hilltop leases office, computer and telephone equipment to hotels under
capital leases. The following represents the components of the net investment in
direct financing leases:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Total future minimum lease payments receivable........... $1,212,082 $1,611,815 $1,635,183
Less unearned income..................................... 287,653 376,539 383,983
----------- ----------- -----------
924,429 1,235,276 1,251,200
Less current portion..................................... 242,818 399,266 368,897
----------- ----------- -----------
$ 681,611 $ 836,010 $ 882,303
=========== =========== ===========
</TABLE>
F-12
<PAGE> 106
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
4. NET INVESTMENT IN DIRECT FINANCING LEASES--CONTINUED
Future minimum lease payments to be received under these leases for each of
the years ending December 31 are as follows:
<TABLE>
<S> <C>
1996.................................................................... $ 508,798
1997.................................................................... 430,278
1998.................................................................... 382,245
1999.................................................................... 240,477
2000.................................................................... 50,017
----------
$1,611,815
=========
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements................................... $ 656,590 $ 678,142 $ 678,142
Furniture, fixtures and equipment:
Corporate offices...................................... 3,274,097 3,681,498 3,790,783
Assets leased to hotels under operating leases......... 93,134 94,179 98,731
----------- ----------- -----------
4,023,821 4,453,819 4,567,656
Less accumulated depreciation............................ 2,110,117 2,559,670 2,684,845
----------- ----------- -----------
$1,913,704 $1,894,149 $1,882,811
=========== =========== ===========
</TABLE>
6. EQUITY INVESTMENT IN HOTEL REAL ESTATE:
IHC/IPII is owned 93.23% by the Company, with the remaining 6.77% owned by
a limited partnership consisting of certain officers of the Company. This
minority partnership contributed $882,331 to IHC/IPII for their interest, which
is reflected as minority interests in the Company's combined balance sheets.
IHC/IPII made a $13,038,000 investment on December 15, 1995 for a 20.45%
interest in Interstone/CGL Partners, L.P. (CGL).
F-13
<PAGE> 107
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
6. EQUITY INVESTMENT IN HOTEL REAL ESTATE--CONTINUED
The following represents the summarized financial information of CGL:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Assets:
Current.................................................. $ 7,822,863 $ 12,304,855
Noncurrent............................................... 171,741,811 170,445,058
------------ ------------
Total assets..................................... 179,564,674 182,749,913
Liabilities:
Current.................................................. 4,636,254 7,961,176
Other long-term liabilities.............................. 1,212,968 1,212,968
Long-term debt, including current portion................ 120,000,000 119,250,000
------------ ------------
Total liabilities................................ 125,849,222 128,424,144
------------ ------------
Net assets............................................ 53,715,452 54,325,769
Less ownership interest of others.......................... 40,831,302 41,316,800
------------ ------------
Equity investment in hotel real estate..................... $ 12,884,150 $ 13,008,969
============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 15, THREE
(INCEPTION) MONTHS
TO ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Hotel operations:
Operating revenues....................................... $2,484,498 $19,625,173
Operating costs and expenses............................. 1,386,137 7,695,917
---------- -----------
Operating profit......................................... 1,098,361 11,929,256
Other expenses........................................... 1,025,197 6,615,401
---------- -----------
Hotel income before partnership expenses................... 73,164 5,313,855
Partnership expenses:
Depreciation and amortization............................ 366,181 2,193,605
Interest................................................. 460,000 2,509,933
---------- -----------
826,181 4,703,538
---------- -----------
Net (loss) income.......................................... (753,017) 610,317
Ownership interest of others............................... (599,014) 485,498
---------- -----------
Equity (loss) income of investment in hotel real estate.... $ (154,003) $ 124,819
========== ===========
</TABLE>
F-14
<PAGE> 108
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
7. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
IHC 1995 revolving credit and term loan facility.... -- $35,000,000 $35,000,000
IHC 1994 revolving credit and term loan facility.... $1,948,000 -- --
Colony note payable................................. 875,568 703,300 540,997
Bank notes payable.................................. 766,660 566,660 516,660
Note payable........................................ 300,000 -- --
---------- ----------- -----------
3,890,228 36,269,960 36,057,657
Less current portion................................ 672,792 362,735 371,003
---------- ----------- -----------
$3,217,436 $35,907,225 $35,686,654
========== =========== ===========
</TABLE>
On December 13, 1995, IHC entered into a $35,000,000 Term Loan agreement
and a $15,000,000 Revolving Credit Facility (collectively, the Loan Agreement).
The Term Loan is separated into four seven-year notes and one six-year note. The
notes are payable in four quarterly installments of $1,750,000 beginning March
13, 2000, four quarterly installments of $2,625,000 beginning March 13, 2001 and
four quarterly installments of $4,375,000 beginning March 13, 2002. The Loan
Agreement provides for a 1% prepayment penalty in the first year. The Loan
Agreement also provides for mandatory prepayments to be made commencing with the
year ending December 31, 1998 based on excess cash flow, as defined in the
agreement.
Interest is payable subject to IHC's election of the Base Rate Option or
the Euro Rate Option. The Base Rate Option is the lender's prime rate plus 1.75%
for the seven-year notes and prime plus 1.5% for the six-year note. The Euro
Rate Option is LIBOR plus 3.25% for the seven-year notes and LIBOR plus 3% for
the six-year note. IHC elected the Euro Rate Option to be in effect at December
31, 1995, which was equal to 9.125% and 8.875% for the seven-year notes and the
six-year note, respectively.
A portion of the proceeds from the Term Loan was used to repay the
outstanding balance of the IHC 1994 revolving credit and term loan facility. The
proceeds were also used to retire the $12,995,000 obligation assumed pursuant to
the Reorganization (Note 3), fund the $13,038,000 equity investment in hotel
real estate (Note 6) and lend $7,380,000 to an uncombined affiliate (Note 13).
Included in other income on the Company's combined statements of income is a
$350,000 gain resulting from the settlement of the $12,995,000 obligation
assumed from the principal stockholder.
On December 13, 1998, the outstanding balance on the Revolving Credit
Facility will convert to a term loan and will be payable in eight equal
quarterly installments beginning March 13, 1999. No amounts were outstanding on
the Revolving Credit Facility at December 31, 1995. Interest is payable subject
to IHC's election of the Base Rate Option (prime plus 1%) or the Euro Rate
Option (LIBOR plus 2.5%). The available borrowings under the Revolving Credit
Facility are reduced by the letters of credit outstanding (Note 14), which at no
time may exceed $2,500,000. At December 31, 1995, the borrowings available
amounted to approximately $14,513,000. A nonrefundable commitment fee equal to
.375% of the unused portion of the Revolving Credit Facility is payable
quarterly. Additionally, letter of credit fees equal to 2.25% of the outstanding
letters of credit and an annual agent's fee of $40,000 are payable quarterly.
The Loan Agreement contains certain restrictive covenants, including the
maintenance of certain financial ratios, restrictions on the payment of
dividends, limitations on additional indebtedness and certain other reporting
requirements. The stockholders have pledged all of the stock and substantially
all of the assets of the Company as collateral for the Loan Agreement.
In 1993, the Company entered into a loan agreement with a bank. The
agreement provided for aggregate borrowings of $1,000,000 in the form of two
separate notes. One note for $500,000 was borrowed in 1993 and
F-15
<PAGE> 109
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
7. LONG-TERM DEBT--CONTINUED
is payable in 60 equal monthly installments plus interest at 7.77%. The second
note for $500,000 was borrowed in 1994 and is payable in 60 equal monthly
installments plus interest at 9.08%.
On May 31, 1994, Colony entered into a $1,000,000 non-interest bearing note
with Radisson Hotels International, Inc. in connection with the acquisition of
management and other service contracts. The note is payable in five annual
installments of $200,000 beginning January 1, 1995. At December 31, 1995, the
present value of the interest-free note was $703,300.
On July 12, 1994, IHC entered into a $300,000 7% note payable in connection
with the acquisition of management contracts. The note was paid on July 8, 1995.
Statement of Financial Accounting Standards No. 107 requires disclosure
about the fair value of financial instruments. Based on interest rates currently
available, management believes that the carrying amount of all long-term debt is
a reasonable estimation of fair value.
Aggregate scheduled maturities of long-term debt for each of the five years
ending December 31 and thereafter are as follows:
<TABLE>
<S> <C>
1996........................................................... $ 362,735
1997........................................................... 371,344
1998........................................................... 297,068
1999........................................................... 238,813
2000........................................................... 7,000,000
Thereafter..................................................... 28,000,000
-----------
$36,269,960
===========
</TABLE>
8. COMMON STOCK:
Common stock at December 31, 1995 and March 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
CLASS "A" CLASS "B"
NUMBER OF SHARES NUMBER OF SHARES
------------------------- -------------------------
PAR ISSUED AND ISSUED AND TOTAL
COMPANY VALUE AUTHORIZED OUTSTANDING AUTHORIZED OUTSTANDING AMOUNT
--------------------------- ----------- ---------- ----------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
IHC........................ $ .01 5,000 1,471 495,000 164,326 $1,658
IHC Member................. .01 1,000 100 49,000 12,075 122
Other entities............. .01 - 1.00 11,000 1,000 49,000 39,600 1,000
------ ----- ------- ------- ------
17,000 2,571 593,000 216,001 $2,780
====== ===== ======= ======= ======
</TABLE>
The Reorganization discussed in Note 3 resulted in the reclassification of
$41,583 between common stock and paid-in capital and the reclassification of
$4,478,442 between partners' capital and paid-in capital. The above changes have
been reflected in the 1995 combined financial statements.
In 1994, the Company recapitalized certain companies and created two
classes of common stock. Both classes are identical in all respects, including a
ratable share of all dividends and other distributions, except for voting
rights. Holders of Class "A" Common Stock are entitled to one vote per share,
while Class "B" Common Stock is non-voting. The recapitalization resulted in the
reclassification of $21,500 between common stock and paid-in capital, which was
reflected in the 1994 combined financial statements.
The Blackstone Option:
In October 1995, the Company and Blackstone Real Estate Partners, L.P.
(Blackstone) entered into an Option Agreement (the Option Agreement) pursuant to
which the Company granted to Blackstone an option (the Blackstone Option) to
purchase a 20% equity interest in a new company to be formed to succeed the
Company and certain of its affiliates and upon payment by Blackstone of the
exercise price of $23.3 million.
F-16
<PAGE> 110
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
8. COMMON STOCK--CONTINUED
The Blackstone Option was exercisable upon the occurrence of certain events,
including the filing by the Company with the Securities and Exchange Commission
of a registration statement relating to an underwritten initial public offering
(IPO) of shares of its common stock. In connection with the execution of the
Blackstone Acquisition Agreement discussed in Note 17, Blackstone exercised the
Blackstone Option conditioned upon the consummation of a proposed IPO. Upon the
closing of the Blackstone Option, Blackstone will receive $44.8 million of
common stock based on the IPO price, and the Company will pay Blackstone a
$233,000 arrangement fee.
9. STOCK OPTIONS:
In December 1995, the Company granted stock options pursuant to a Stock
Option Plan adopted on the same date to certain officers to purchase shares of
common stock. The exercise price for 7,143 of the options was determined based
on an independent market valuation to be fair market value of the stock on the
date of the grant and the exercise price for 9,137 of the options was below fair
market value. The Stock Option Plan also provides for a reserve for future
issuance of 332 options. The options are exercisable in installments over an
eight-year period commencing the earlier of age 60 or 10 years from the date of
the grant. No options were exercisable at December 31, 1995. The officers must
continue in the employment of the Company or serve as consultants to the Company
and not compete against the Company in order for the options to vest. The
unearned compensation related to the stock options granted is being charged to
expense over the vesting period using the market value at the issuance date.
Transactions involving stock options are summarized as follows:
<TABLE>
<CAPTION>
RANGE OF
OPTION
OPTION PRICE
NUMBER PRICE GRANTED AT
OF GRANTED AT BELOW FAIR
OPTIONS FAIR VALUE VALUE
-------- ---------- ----------
<S> <C> <C> <C>
Outstanding, December 31, 1994.................... -- -- --
Granted........................................... 16,280 $585 $ 174-303
Exercised......................................... -- -- --
Canceled.......................................... -- -- --
------
Outstanding, December 31, 1995.................... 16,280
======
</TABLE>
On April 22, 1996, the Company agreed to cancel the stock options granted
under the Stock Option Plan adopted in December 1995 in consideration of its
agreement to issue to the option holders an aggregate of 8,492 shares of
restricted stock. The restricted stock will be subject to restrictions on
transfer and rights of repurchase in the event of the employee's death,
disability or termination of employment prior to the consummation of a planned
initial public offering (refer to Note 17). As a result of the cancellation of
the stock options and issuance of the restricted stock at no cost to the
recipients, the Company will reverse the unamortized unearned compensation
related to the stock options and record compensation expense of approximately
$9.5 million, based on a market value of $1,123 per share for the Company's
common stock.
10. NET MANAGEMENT FEES:
The Company's management agreements have initial terms that range from one
month to 50 years, expire through the year 2044 and generally are cancelable
under certain conditions. In addition, certain agreements are renewable for
successive terms of one to ten years.
F-17
<PAGE> 111
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
10. NET MANAGEMENT FEES--CONTINUED
The management agreements specify the base fees to be earned, which are
generally based on percentages of gross revenues. In certain cases, incentive
fees are earned based on profitability as defined by the management agreements.
The net management fees earned were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Base management fees.............. $17,621,678 $19,704,733 $22,792,054 $5,567,682 $6,382,104
Incentive management fees......... 1,347,634 3,118,482 4,752,936 394,019 923,681
Receivership fees................. 757,991 34,519 -- -- --
----------- ----------- ----------- ---------- ----------
19,727,303 22,857,734 27,544,990 5,961,701 7,305,785
Less:
Administrative fees (Note
13)........................ 497,840 487,997 438,805 106,083 122,888
Write-off of uncollectible
base management fees....... -- 85,226 84,134 9,611 --
----------- ----------- ----------- ---------- ----------
$19,229,463 $22,284,511 $27,022,051 $5,846,007 $7,182,897
=========== =========== =========== ========== ==========
</TABLE>
11. EMPLOYEE BENEFITS:
The Company participates in the following employee benefit plans:
The IHC Employee Health and Welfare Plan (and related Health Trust)
provides employees of the Company, including hotels under management, with
group health insurance benefits. The Company is self-insured for certain
benefits, subject to certain individual claim and aggregate maximum
liability limits. For the period January 1, 1993 through July 31, 1994, the
Company and each Company-covered hotel paid premiums to the Health Trust
based on the estimated conventional premiums. Effective August 1, 1994,
each Company-covered hotel pays the premiums directly to the Company and
the Company funds the Health Trust. The Company is responsible for any
underfunding of the Health Trust and receives an insurance premium as
discussed in Note 15. The employee portion of the premiums continues to be
paid directly to the Health Trust. These premiums may be prospectively
adjusted to consider actual claims experience. The Company paid and
expensed amounts to the Health Trust related to coverage for employees at
its corporate offices of approximately $346,000 in 1993 and $217,000 in
1994. Amounts paid to the Health Trust since August 1, 1994 have been
eliminated against the insurance income recorded by the Company as
discussed in Note 15. Premiums for employees at the hotels managed by the
Company are borne by the respective hotels. The Health Trust is exempt from
federal income tax under Section 501(c)(9) of the Internal Revenue Code as
a voluntary employees' beneficiary association.
The Company maintains defined contribution savings plans for all
employees of the Company. Eligibility for participation in the plans is
based on the employee's attainment of 21 years of age and on the completion
of one year of service with the Company. Employer contributions are based
on a percentage of employee contributions. Participants may make voluntary
contributions to the plans of up to 6% of their compensation, as defined.
The Company incurred expenses related to employees at its corporate offices
of approximately $99,000 in 1993, $110,000 in 1994 and $124,000 in 1995.
12. DEFERRED COMPENSATION AGREEMENTS:
In December 1995, the Company entered into deferred compensation agreements
with two officers. The agreements provide for the officers to receive certain
future annual payments for an eight year period commencing the earlier of age 60
or 10 years from the date of the agreement. The officers must continue in
F-18
<PAGE> 112
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
12. DEFERRED COMPENSATION AGREEMENTS--CONTINUED
the employment of the Company or serve as consultants to the Company and not
compete against the Company in order for the future payments to be earned.
Certain key employees are awarded other deferred compensation based on
performance. Expense recorded for these awards amounted to approximately
$257,000 in 1993, $259,000 in 1994 and $224,000 in 1995.
13. RELATED PARTY TRANSACTIONS:
Income and Accounts Receivable:
Of the total income from managed hotels, approximately $5,793,000 in 1993,
$6,678,000 in 1994, $7,886,000 in 1995 and $1,706,000 and $2,422,000 for the
three months ended March 31, 1995 and 1996, respectively, were earned from
hotels in which the principal stockholder of the Company has an ownership
interest. Accounts receivable of approximately $946,000 and $1,028,000 at
December 31, 1994 and 1995, respectively, and $946,000 at March 31, 1996 were
due from these hotels.
Notes Receivable:
Included in notes receivable from affiliates is a note to IHC/Interstone
Partnership, L.P. (IHC/IPLP), an uncombined affiliate of IHC. On December 13,
1995, IHC/IPLP borrowed $7,380,000 from IHC. The note is payable in four
quarterly installments of $369,000 beginning March 13, 2000, four quarterly
installments of $400,000 beginning March 13, 2001 and four quarterly
installments of $1,076,000 beginning March 13, 2002. The note bears interest at
the rate in effect selected by IHC for the Loan Agreement discussed in Note 7.
Receivable from Stockholders:
The Company advanced approximately $1,133,000 (net of repayments of
approximately $571,000) in 1993, received approximately $776,000 (net of
advances of approximately $1,689,000) in 1994 and received approximately
$573,000 (net of advances of approximately $3,245,000) in 1995 from the
stockholders of the Company. Such advances have no specific repayment terms and
have been classified as a reduction of equity in the combined balance sheets.
Principal Stockholder's Obligation:
In 1989, the principal stockholder purchased the remaining ownership
interest in the Company from a deceased stockholder's estate for approximately
$20,388,000. The purchase was financed through a cash payment of $1,010,064 and
the issuance of two notes in the amount of $17,078,158 and $2,300,000,
respectively. The notes accrued interest at 8.5% and were payable in quarterly
principal and interest payments through 2002. Pursuant to the Reorganization
discussed in Note 3, the Company assumed the remaining obligation under the
notes of approximately $12,995,000, which was accounted for as a capital
distribution. The remaining balance on the notes was paid in December 1995
(refer to Note 7).
Administrative Fee Agreements:
Certain management contracts provide for the payment of administrative fees
to related parties for services rendered and to be rendered in connection with
the development and management of the various hotel facilities. The fees are
based on a percentage of the management fees earned from the operation of the
respective hotel properties.
Administrative fee expenses to related parties included in Note 10 amounted
to $430,000 in 1993, $398,000 in 1994 and $439,000 in 1995. Amounts payable on
these fees are included in accounts payable in the combined balance sheets and
amounted to $59,000 and $111,000 at December 31, 1994 and 1995, respectively.
F-19
<PAGE> 113
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
14. COMMITMENTS AND CONTINGENCIES:
The Company accounts for the leases of office space (the office leases
expire through 1999) and certain office equipment (the equipment leases expire
through 1998) as operating leases. Total rental expense amounted to
approximately $685,000 in 1993, $739,000 in 1994 and $912,000 in 1995. The
following is a schedule of future minimum lease payments under these leases:
<TABLE>
<S> <C>
1996............................................................ $1,014,000
1997............................................................ 916,000
1998............................................................ 76,000
1999............................................................ 41,000
----------
$2,047,000
==========
</TABLE>
The Company is required to pay a proportional share of real estate taxes
and operating expenses based on terms specified in one of the office space
leases. This additional rental payment amounted to $110,000 in 1993, $117,000 in
1994 and $132,000 in 1995.
The Company has made guarantees through the issuance of letters of credit
for affiliated entities regarding the payment of certain liabilities of:
Interstate/Ft. Lauderdale Associates, Ltd., the owner of the Ft. Lauderdale
Marriott North Hotel, in the amount of $77,000, IHC in the amount of $400,000
and CDS in the amount of $10,000. The Company also entered into two formal
agreements in 1995 that guarantee the obligation under a letter of credit issued
by affiliated partnerships (Interstone/Atlanta Partnership, L.P.,
Interstone/Colorado Springs Partnership, L.P., Interstone/Conshohocken
Partnership, L.P., Interstone/ Denver Partnership, L.P. and Interstone/Lisle
Partnership, L.P.) that have ownership interests in five hotels managed by IHC
in the amount of $1,250,000, as well as IHC's obligation to the owner of the
Dana Point Resort for certain financial performance thresholds as defined in the
management agreement in the amount of $1,000,000. The obligation to the owner of
the Dana Point Resort also requires IHC to maintain $500,000 in escrow, which is
included in restricted cash in the Company's combined balance sheets. The
Company also provides certain financial guarantees to the lessors of hotels
managed under lease agreements which operate in a manner similar to management
agreements. Presently, management does not expect to incur any claims against
these letters of credit and guarantees.
As discussed in Note 8, the exercise of the Blackstone Option is
conditioned upon the consummation of the proposed IPO. On November 27, 1996, if
the IPO is not consummated, the Company has the right to call the Blackstone
Option, and Blackstone has the right to require the Company to purchase the
Blackstone Option for a cash payment to Blackstone of $10,500,000. If the IPO is
not consummated, the Company will record an expense no later than November 27,
1996 for any cash payment required to purchase the Blackstone Option.
Additionally, the Company has employment contracts with five executives
which provide for payments of two times the individual's salary and bonus for
the prior fiscal year or the remaining salary due under the terms of the
contracts in the event the employee is terminated without cause or if there is a
change-in-control of the Company.
In the ordinary course of business various lawsuits, claims and proceedings
have been or may be instituted or asserted against the Company. Based on
currently available facts, management believes that the disposition of matters
that are pending or asserted will not have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
15. INSURANCE:
The Company provides certain insurance coverage to hotels under terms of
the various management contracts. This insurance is generally arranged through a
third party carrier. Northridge reinsures a portion of the coverage from this
third party primary insurer. The policies provide for layers of coverage with
minimum deductibles and annual aggregate limits. The policies are for coverage
relating to innkeepers' losses
F-20
<PAGE> 114
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
15. INSURANCE--CONTINUED
(general/comprehensive liability), wrongful employment practices, garage
keeper's legal liability, replacement cost automobile losses, and real and
personal property and business interruption insurance. All policies are
short-duration contracts and expire through August 1, 1996.
The Company is liable for any deficiencies in the IHC Employee Health and
Welfare Plan (and related Health Trust), which provides employees of the Company
with group health insurance benefits (Note 11). The Company has a Financial
Indemnity Liability Policy with Northridge which indemnifies the Company for its
obligations for the deficiency in the related Health Trust from between $900,000
and $4,000,000. The premiums for this coverage received from the properties
managed by the Company, net of intercompany amounts paid for employees at the
Company's corporate offices, are recorded as direct premiums written. There was
no deficiency in the related Health Trust at December 31, 1995.
Included in partners' capital is $1,285,674 and $1,596,213 at December 31,
1994 and 1995, respectively, of capital restricted under applicable government
insurance regulations. The corresponding asset associated with restricted
capital is included in restricted cash in the combined balance sheets. All other
accounts of Northridge are classified with assets and liabilities of a similar
nature in the combined balance sheets.
The combined statements of income include the insurance income earned and
related insurance expenses incurred by Northridge. The insurance expenses
incurred by Northridge totaled approximately $344,000, $617,000 and $1,089,000
for the years ended December 31, 1993, 1994 and 1995, respectively, and $165,000
and $315,000 for the three months ended March 31, 1995 and 1996, respectively.
The insurance income earned has been reflected as a separate item in the
accompanying combined statements of income and were comprised of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Reinsurance premiums written......... $2,360,509 $3,428,371 $4,981,063 $5,050,000 $4,094,053
Direct premiums written.............. -- 2,581,100 2,477,150 2,876,375 2,860,058
Reinsurance premiums ceded........... -- -- (422,136) -- --
Change in unearned premiums
reserve............................ (235,998) 41,511 (61,693) (5,940,000) (5,181,774)
Loss sharing premiums................ 731,233 910,044 697,713 354,894 --
---------- ---------- ---------- ---------- ----------
Insurance income..................... $2,855,744 $6,961,026 $7,672,097 $2,341,269 $1,772,337
========== ========== ========== ========== ==========
</TABLE>
16. CONCENTRATION OF OPERATIONS:
The Company provides services principally to hotels. These hotels are
located in 28 states, the District of Columbia, Canada, Mexico, Israel, the
Caribbean, Thailand and Russia, with the largest concentration of hotels in the
states of Florida and California. These hotels are operated under a number of
franchisers, most predominantly, Marriott International, Inc.
17. SUBSEQUENT EVENTS:
The Company's Board of Directors has authorized management to pursue an
initial public offering (the Offering) by a newly formed company to be
wholly-owned by shareholders of the Company.
The Blackstone Acquisition:
In March 1996, IHC Member entered into an Agreement of Purchase and Sale
(the Blackstone Acquisition Agreement) to acquire (the Blackstone Acquisition)
all of Blackstone's 75% interest in seven hotels and an approximate 54% interest
in CGL for a cash purchase price of approximately $124.4 million.
F-21
<PAGE> 115
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
17. SUBSEQUENT EVENTS--CONTINUED
Closing of the Blackstone Acquisition will occur upon the earlier of the
consummation of the Offering or July 15, 1996.
In March 1996, IHC Member made a $5.4 million deposit for the Blackstone
Acquisition, which is included in deposits and other assets in the accompanying
March 31, 1996 combined balance sheet.
In connection with the Blackstone Acquisition, the Company also entered
into a Contribution Agreement in which Blackstone will contribute their 75%
interest in one hotel in consideration for the issuance of $8.3 million of
common stock based on the price of the stock at the Offering, or cash, depending
on the closing date. The closing of the Contribution Agreement will occur
concurrent with the Offering.
Host Funding Transaction:
In April 1996, Crossroads purchased 60,000 shares of common stock of Host
Funding, Inc. (Host), a hotel real estate investment trust, in connection with
Host's initial public offering. In connection therewith, Crossroads entered into
long-term leases with Host to lease five Super 8 Motels owned by Host, which are
cancelable under certain conditions specified in the lease agreements. Rental
payments under each lease consist of base rent, payable quarterly, which is
based upon revenues received from the operation of the leased hotels, plus a
payment based on gross revenues of the hotel. The annual total base rent for
each hotel varies from $112,000 to $265,000. Crossroads will receive a base
management fee of 6% of gross revenues for each hotel after required rental
payments. Additionally, Crossroads has agreed to pledge all of its shares of
Host common stock to collateralize their performance under the leases during the
first three years of their term. Thereafter, the number of shares required to be
pledged declines during the remaining term of the leases.
Acquisition of Additional Hotels:
In February 1996, the Company signed a letter of intent to purchase an
approximately 13% partnership interest in the Don CeSar Beach Resort, a resort
currently managed by the Company.
In March 1996, the Company executed a contract to purchase the Boston
Marriott Westborough located in Westborough, Massachusetts. The Company has
managed this hotel since 1991. The purchase price is $19.5 million payable in
cash, with closing currently scheduled to occur by July 31, 1996, subject to
certain closing conditions. The Company has made a $250,000 deposit against the
purchase price, which is included in deposits and other assets in the
accompanying March 31, 1996 combined balance sheet.
18. UNAUDITED FINANCIAL STATEMENTS:
The unaudited combined balance sheet as of March 31, 1996 and the unaudited
combined statements of income, changes in equity (deficit) and cash flows for
the three months ended March 31, 1995 and 1996, in the opinion of management,
have been prepared on the same basis as the audited combined financial
statements and include all significant adjustments (consisting primarily of
normal recurring adjustments) considered necessary for a fair presentation of
the results of these interim periods. The data disclosed in these notes to the
combined financial statements for these periods are also unaudited. Operating
results for the three month period ended March 31, 1996 is not necessarily
indicative of the results for the entire year.
19. NEW ACCOUNTING PRONOUNCEMENTS:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." The
new standard is effective for fiscal year 1996. Management believes that the
implementation of the standard will not have a material effect on its combined
financial statements.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation." The new standard, which is effective for fiscal year 1996,
requires the Company to adopt either a recognition
F-22
<PAGE> 116
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
19. NEW ACCOUNTING PRONOUNCEMENTS--CONTINUED
method or a disclosure-only approach of accounting for stock based employee
compensation plans. Management intends to adopt the disclosure-only approach
and, as such, does not believe that the implementation of the standard will have
a material effect on its combined financial statements.
20. NOTES PAYABLE TO STOCKHOLDERS:
In March 1996, the Company made a capital distribution by issuing notes
payable to the stockholders of IHC in the aggregate amount of $30,000,000. The
notes accrue interest at a rate of 5%, payable quarterly in arrears, with the
principal amount, plus any accrued interest, due and payable in September 1997.
The combined balance sheet as of March 31, 1996 reflects a distribution to the
stockholders and corresponding liability for the notes payable.
F-23
<PAGE> 117
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Interstone I Property Partnerships:
We have audited the accompanying combined balance sheets of Interstone I
Property Partnerships (the Partnerships) and Predecessor Entities (as defined in
Note 1) as of December 31, 1994 and 1995 and the related combined statements of
operations and owners' equity and cash flows for each of the three years in the
period ended December 31, 1995. These combined financial statements are the
responsibility of the Partnerships' and Predecessor Entities' 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.
As discussed in Note 1, the combined financial statements of the
Predecessor Entities have been prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
a Registration Statement of Interstate Hotels Company and are not intended to be
a complete presentation of the Predecessor Entities.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Interstone
I Property Partnerships and Predecessor Entities as of December 31, 1994 and
1995 and the combined results of their operations and cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/S/ COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
April 10, 1996
F-24
<PAGE> 118
INTERSTONE I PROPERTY PARTNERSHIPS
AND PREDECESSOR ENTITIES
COMBINED BALANCE SHEETS
---------
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 7,547,516 $ 9,659,554 $ 5,681,625
Restricted cash (Note 2)......................... 685,149 508,459 890,824
Accounts receivable.............................. 3,725,508 4,341,929 7,202,585
Due from affiliates.............................. 626,387 -- --
Inventories (Note 4)............................. 715,673 651,548 612,291
Prepaid expenses and other assets................ 546,563 644,209 1,236,191
------------ ------------ ------------
Total current assets........................ 13,846,796 15,805,699 15,623,516
Restricted cash (Note 2)
Property and equipment........................... 3,724,731 1,337,293 1,927,936
Renovations...................................... 758,396 3,347,593 2,569,496
Property and equipment, net (Notes 1, 5 and 7)..... 139,535,123 150,597,558 150,276,540
Deferred expenses (Note 6)......................... 934,857 3,108,961 2,907,371
------------ ------------ ------------
Total assets................................ $158,799,903 $174,197,104 $173,304,859
============ ============ ============
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable................................. 3,940,977 3,033,068 4,099,912
Accrued liabilities:
Real estate taxes............................. 1,308,662 1,948,622 1,734,884
Salaries and benefits......................... 2,199,684 2,716,995 1,992,088
Royalties and fees (Note 3)................... 136,236 337,430 303,543
Management fees (Note 3)...................... 103,157 207,013 264,533
Other......................................... 3,205,713 2,865,170 2,610,454
Customer deposits................................ 535,858 504,171 1,531,777
Interest payable................................. 649,425 1,022,845 981,102
Due to affiliates................................ 648,437 -- --
Current portion of long-term debt (Note 7)....... 44,766,516 1,417,217 1,417,217
------------ ------------ ------------
Total current liabilities................... 57,494,665 14,052,531 14,935,510
Long-term debt (Note 7)............................ 74,381,625 113,719,504 113,506,225
Deferred taxes..................................... 126,500 -- --
------------ ------------ ------------
Total liabilities........................... 132,002,790 127,772,035 128,441,735
Commitments and contingencies (Note 14)............
Owners' equity..................................... 26,797,113 46,425,069 44,863,124
------------ ------------ ------------
Total liabilities and owners' equity........ $158,799,903 $174,197,104 $173,304,859
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-25
<PAGE> 119
INTERSTONE I PROPERTY PARTNERSHIPS
AND PREDECESSOR ENTITIES
COMBINED STATEMENTS OF OPERATIONS AND OWNERS' EQUITY
---------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ -------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms...................... $ 29,965,305 $ 40,612,704 $ 53,450,530 $12,851,402 $13,024,152
Food and beverage.......... 22,298,100 28,314,060 35,351,678 8,076,865 8,849,996
Telephone.................. 1,390,266 1,790,750 2,501,378 589,054 698,904
Gift shop and other........ 1,323,639 1,739,119 2,089,690 469,407 400,845
Office building lease...... -- 1,163,712 2,550,325 587,197 702,992
------------ ------------ ------------ ----------- -----------
54,977,310 73,620,345 95,943,601 22,573,925 23,676,889
Departmental costs and
expenses................... 28,026,057 34,481,202 42,247,524 10,820,450 10,177,959
------------ ------------ ------------ ----------- -----------
Departmental income
(Note 8).............. 26,951,253 39,139,143 53,696,077 11,753,475 13,498,930
------------ ------------ ------------ ----------- -----------
Other expenses (Note 3):
Administration and
general................. 4,649,691 6,481,683 9,210,839 2,100,580 2,197,645
Management fees............ 1,031,121 1,506,734 2,234,306 502,916 672,124
Royalties.................. 1,455,729 2,124,273 2,551,021 559,680 684,010
Advertising and sales...... 3,398,061 4,413,912 6,079,721 1,456,944 1,624,393
Repairs and maintenance.... 2,734,284 3,580,133 4,545,730 1,121,499 1,103,681
Heat, power and light...... 2,901,874 3,742,593 4,549,014 1,045,068 1,170,272
Insurance and taxes........ 2,236,296 2,797,763 4,403,629 989,962 1,122,606
Depreciation and
amortization............ 6,877,251 7,840,428 10,250,714 2,427,513 2,704,320
Other...................... 231,023 288,489 1,275,986 247,749 300,965
------------ ------------ ------------ ----------- -----------
25,515,330 32,776,008 45,100,960 10,451,911 11,580,016
------------ ------------ ------------ ----------- -----------
1,435,923 6,363,135 8,595,117 1,301,564 1,918,914
Interest expense (Note 7).... 6,381,912 7,852,173 9,605,070 2,170,198 2,509,728
------------ ------------ ------------ ----------- -----------
Loss before
extraordinary items... (4,945,989) (1,489,038) (1,009,953) (868,634) (590,814)
Extraordinary items-
extinguishments of debt
(Note 7)................... 25,795,725 18,381,077 -- -- --
------------ ------------ ------------ ----------- -----------
Net income (loss)....... 20,849,736 16,892,039 (1,009,953) (868,634) (590,814)
Owners' equity:
Beginning of period........ (22,131,943) (1,192,017) 26,797,113 26,797,113 46,425,069
Capital contributions...... 156,386 40,431,885 45,273,069 24,016,806 --
Capital distributions...... (66,196) (17,901) (29,486,579) (2,550,498) (971,131)
Elimination of predecessor
entities' equity........ -- (29,316,893) 4,851,419 (4,218,288) --
------------ ------------ ------------ ----------- -----------
End of period...... $ (1,192,017) $ 26,797,113 $ 46,425,069 $43,176,499 $44,863,124
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-26
<PAGE> 120
INTERSTONE I PROPERTY PARTNERSHIPS
AND PREDECESSOR ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
---------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................. $ 20,849,736 $ 16,892,039 $ (1,009,953) $ (868,634) $ (590,814)
Adjustments to reconcile net income
(loss) to cash provided by
operations:
Gain on extinguishments of
debt........................ (25,795,725) (18,381,077) -- -- --
Interest expense financed by
term debt................... 422,197 -- -- -- --
Depreciation and
amortization................ 6,877,251 7,840,428 10,250,714 2,427,513 2,704,320
Loss on disposal of assets.... 318,191 227,927 167,103 -- --
Deferred interest on
mortgages................... 943,400 938,495 1,070,260 -- --
Change in deferred income
taxes....................... (11,700) (22,100) 14,400 -- --
Changes in assets and liabilities:
Accounts receivable........... 374,838 (1,202,856) (1,042,981) (797,217) (2,860,656)
Inventories................... (151,830) 53,451 46,924 11,844 39,257
Prepaid expenses and other
assets...................... 278,031 213,266 (221,975) (318,933) (591,982)
Due from affiliates........... -- -- -- 156,596 --
Accounts payable.............. (582,208) 1,760,765 (483,874) (126,532) 1,066,844
Accrued liabilities........... 573,382 747,324 2,963,723 (1,255,125) (1,211,471)
Customer deposits............. 64,218 101,483 (31,687) 61,999 1,027,606
------------ ------------ ------------ ----------- -----------
Net cash flows provided
by (used in) operating
activities............. 4,159,781 9,169,145 11,722,654 (708,489) (416,896)
------------ ------------ ------------ ----------- -----------
Cash flows from investing activities:
Funds restricted for future
acquisition of furniture,
fixtures and equipment.......... (887,040) (3,905,387) (4,533,117) (627,567) (1,989,841)
Acquisition of property and
equipment....................... (2,471,662) (2,234,879) (6,402,351) (2,254,016) (2,177,295)
Restricted funds used to purchase
property and equipment.......... 181,509 451,022 3,964,646 1,406,357 2,177,295
Cash paid for deferred expenses.... (112,092) -- (1,242,300) -- --
Proceeds from sale of assets....... 125,849 19,772 1,006,937 -- --
Acquisitions, net of cash
acquired........................ -- (56,210,897) (52,887,935) (10,634,147) --
------------ ------------ ------------ ----------- -----------
Net cash used in
investing activities... (3,163,436) (61,880,369) (60,094,120) (12,109,373) (1,989,841)
------------ ------------ ------------ ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt....... 20,116,368 54,418,832 100,983,134 15,228,203 --
Payments on long-term debt......... (21,056,662) (5,126,112) (70,482,677) (22,959,860) (213,279)
Cash paid for financing fees....... -- (533,483) (786,708) -- (4,417)
Change in funds restricted for
escrow reserve.................. (53,055) (364,386) (894,541) 540,535 (382,365)
Advances from partners............. -- -- 400,000 -- --
Capital contributions.............. 156,386 9,357,372 45,899,456 24,016,806 --
Capital distributions.............. (66,196) (17,901) (24,635,160) (6,768,786) (971,131)
------------ ------------ ------------ ----------- -----------
Net cash (used in)
provided by financing
activities............. (903,159) 57,734,322 50,483,504 10,056,898 (1,571,192)
------------ ------------ ------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents..................... 93,186 5,023,098 2,112,038 (2,760,964) (3,977,929)
Cash and cash equivalents at beginning
of period............................ 2,431,232 2,524,418 7,547,516 7,547,516 9,659,554
------------ ------------ ------------ ----------- -----------
Cash and cash equivalents at end of
period............................... $ 2,524,418 $ 7,547,516 $ 9,659,554 $ 4,786,552 $ 5,681,625
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-27
<PAGE> 121
INTERSTONE I PROPERTY PARTNERSHIPS
AND PREDECESSOR ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
---------
1. BASIS OF PRESENTATION:
The accompanying combined financial statements are comprised of nine
limited partnerships (Interstone I or Partnerships) and Predecessor Entities,
which at December 31, 1995, are affiliates through common ownership. At December
31, 1995, the Partnerships are owned, either directly or indirectly, 75% by
Blackstone Real Estate Partners L.P. (Blackstone) and 25% by Milt Fine, the
principal stockholder of Interstate Hotels Corporation (IHC), and other IHC
executives. The Partnerships' assets consist of eight full-service operating
hotel properties, (collectively, the Hotels).
Interests in the Partnerships are expected to be purchased and acquired by
IHC Member Corporation as of July 15, 1996 or earlier based on the closing of
the initial public offering of common stock of IHC.
The following details the Partnerships and Predecessor Entities and the
respective properties included in the combined financial statements:
Interstone/Houston Partnership, L.P. (Houston) was formed effective
March 4, 1994. Effective March 7, 1994, Houston acquired the Houston
Marriott North at Greenspoint for $21,000,000.
Interstone/Lisle Partnership, L.P. (Lisle) was formed effective July
8, 1994, when it acquired the Radisson Hotel Lisle and the Lisle Executive
Center in Lisle, Illinois for $23,201,000. The executive center consists of
150,437 square feet and is managed by Blackstone Real Estate Advisors
(BREA), an affiliate of Blackstone.
Interstone/Colorado Springs Partnership, L.P. (Colorado) was formed
effective September 15, 1994. An option agreement exercised on September
27, 1994 resulted in the contribution of the Colorado Springs Marriott and
$792,379 in cash and all of the associated assets and liabilities to
Colorado. The predecessor owner of the hotel was controlled by the owner of
IHC.
Interstone/Denver Partnership, L.P. (Denver) was formed effective
November 7, 1994 and acquired the Denver Hilton South for $12,500,000
effective December 14, 1994.
Interstone/Atlanta Partnership, L.P. (Atlanta) was formed effective
February 1, 1995. Effective February 15, 1995, Atlanta acquired
substantially all of the assets and liabilities, except for the land, of
the Atlanta Marriott Northeast. The purchase price was $14,025,000 and the
land is being leased through an operating lease. See Note 12.
Interstone/Conshohocken Partnership, L.P. (Conshohocken) was formed
March 15, 1995 and on that date acquired all of the partnership interests
in WCB Eleven Limited Partnership, the owner of the Philadelphia Marriott
West for $23,744,000.
Interstone/Williamsburg Partnership, L.P. (Williamsburg), formed
effective July 6, 1995, purchased the Fort Magruder Inn and Conference
Center on October 10, 1995. The purchase price was $12,800,000, which
included $2,192,000 to acquire the land previously leased by the seller. In
addition to the purchase price, $1,200,000 was paid for a noncompete
agreement with the seller for a five year period.
Interstone/Huntington Partnership, L.P. (IHPLP) and Huntington Hotel
Partners, L.P. (HHPLP) (collectively, Huntington) own the Huntington Hilton
Hotel, effective December 7, 1995, located in Melville, New York and the
first and second mortgages encumbering the hotel, respectively. The hotel
was acquired through the acquisition of the first and second mortgages on
the hotel for $21,212,306 and a settlement agreement with 110 Huntington
Associates (HA), the former owner of the hotel.
With the exception of Lisle, Houston and Denver, the accompanying combined
financial statements include all transactions of the Partnerships and the
Predecessor Entities from January 1, 1993 to December 31, 1995 and are presented
on the basis of the predecessors' historical cost basis up to the date that the
property was acquired. From the date of acquisition to December 31, 1995, the
accompanying combined
F-28
<PAGE> 122
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
1. BASIS OF PRESENTATION--CONTINUED
financial statements are presented based on the Partnerships' new basis. Lisle,
Houston and Denver are included from their respective date of acquisition.
The terms of the Partnerships expire December 31, 2044 or 2045; however,
dissolution will occur earlier in the event of the sale of the Partnerships'
assets or a disabling event, as defined by the agreements. In accordance with
the terms of the partnership agreements, subsequent capital contributions from
the partners may be required in instances where cash from operations is
insufficient to meet debt service requirements and other partnership expenses.
Such additional capital contributions are to be made at the discretion of the
general partner and are to be paid by the partners in proportion to their
respective partnership interests.
The combined financial statements of the Predecessor Entities have been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in a Registration Statement of
Interstate Hotels Company and are not intended to be a complete presentation of
the Hotels' operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents:
The Partnerships consider all unrestricted, highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.
Restricted Cash:
The management and franchise agreements discussed in Note 3 and the
long-term debt discussed in Note 7 provide that certain cash from operations be
restricted for the future acquisition of or for the replacement of property and
equipment each year based on a percentage of gross hotel revenues. The
requirements range from 3% to 4%. In addition, certain of the loan agreements
described in Note 7 also required an amount to be deposited into a renovation
reserve for certain capital improvements and require monthly deposits to be made
into an escrow account for real estate taxes.
Inventories:
Inventories are stated at cost which is determined using the first-in,
first-out (FIFO) method of accounting.
Property and Equipment:
Property and equipment are recorded at cost which includes the allocated
purchase price for the acquisitions described in Note 1. Property and equipment
are depreciated primarily on the straight-line method over their estimated
useful lives (buildings and improvements over 28 to 35 years and furniture,
fixtures and equipment over 5 to 7 years). Expenditures for maintenance and
repairs are expensed as incurred. The cost and related accumulated depreciation
applicable to property no longer in service are eliminated from the accounts and
any gain or loss thereon is included in operations. A hotel's initial
expenditures for the purchase of china, glassware, silverware and linens are
capitalized as furniture, fixtures and equipment and amortized on a
straight-line basis over a five year life. Costs for replacement of those items
are charged to operations in the period the items are placed in service.
Deferred Expenses:
Generally the deferred financing costs and franchise fees are being
amortized on the straight-line basis over periods ranging from 3 to 5 years. The
non-compete agreement is being amortized over its 5 year term.
F-29
<PAGE> 123
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Concentration of Credit Risk:
The Partnerships maintain cash and cash equivalents accounts with various
financial institutions in excess of the amount insured by the Federal Deposit
Insurance Corporation. The Partnership has not experienced any losses in such
accounts.
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 dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition:
The Hotels recognize revenue from their rooms, catering, gift shop and
restaurant facilities as earned on the close of each business day.
Income Tax Status:
The entities included in the combined financial statement are non-tax
paying entities (partnerships) with the exception of one predecessor entity. For
the tax paying predecessor entity, income taxes were accrued and recorded in the
combined financial statements. Partnerships are not subject to state and federal
income taxes. Accordingly, net income or loss and any available tax credits are
allocated to the individual partners in proportion to their income and loss
rates of participation. Should loss allocations cause the adjusted capital
account of the limited partners to be reduced to zero, any additional losses are
allocated to the general partners.
Acquisitions:
The acquisitions from third parties have been accounted for by the purchase
method. Accordingly, the purchase price has been allocated to assets acquired
and liabilities assumed based on their estimated fair values, as determined by
real estate tax assessments and other fair market valuations. The acquisitions
were financed through the issuance of debt and capital contributions.
Unaudited Financial Statements:
The unaudited combined balance sheet as of March 31, 1996 and the unaudited
combined statements of operations and owners' equity and cash flows for the
three months ended March 31, 1995 and 1996, in the opinion of management, have
been prepared on the same basis as the audited combined financial statements and
include all significant adjustments (consisting primarily of normal recurring
adjustments) considered necessary for a fair presentation of the results of
these interim periods. The data disclosed in these notes to the combined
financial statements for these periods are also unaudited. Operating results for
the three month period ended March 31, 1996 is not necessarily indicative of the
results for the entire year.
3. RELATED PARTY TRANSACTIONS:
Since their acquisition by the Partnerships, the Hotels have generally been
operated pursuant to franchise agreements between IHC, as franchisee, and
various franchisers. Prior to their acquisition by the Partnerships, the
Predecessor Entities generally were also party to franchise arrangements. The
terms of the franchise agreements range from 10 to 25 years and can be extended
by the mutual consent of the parties. The agreements require ongoing fees, which
comprise royalty expense in the combined statement of operations, generally
ranging from 3% to 6% of room revenues and 2% to 3% of certain food and beverage
revenues. In
F-30
<PAGE> 124
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
3. RELATED PARTY TRANSACTIONS--CONTINUED
addition, other fees paid to the franchisers include a national advertising
campaign fee of approximately 1% of room revenues, as well as fees for a
national reservation system, networking, honored guest awards and other
promotional programs.
Since their acquisition by the Partnerships, the Hotels have been operated
under a management agreement with IHC which provides for a management fee of
2.8% of gross operating revenue. The terms of the agreements extend through
December 31, 2044. The agreements can be terminated earlier by either party upon
the occurrence of certain conditions as specified in the agreements. In
addition, Colorado and Conshohocken were managed by IHC prior to their
acquisition by the Partnerships. Generally, the Hotels not managed by IHC prior
to their acquisition by the Partnerships were party to similar management
arrangements. The management fees earned by IHC were approximately $726,000 in
1993, $1,062,000 in 1994 and $1,900,000 in 1995.
An affiliate of IHC provides reinsurance to major insurance carriers solely
in connection with the insurance coverage that those carriers provide to the
Hotels. IHC also provides certain accounting and bookkeeping assistance to the
Partnerships, of which no amounts were paid by the Partnerships for these
services.
4. INVENTORIES:
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH
-------------------- 31,
1994 1995 1996
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Food......................................................... $263,244 $248,327 $238,405
Beverage..................................................... 281,752 308,976 286,120
Gift shop and other.......................................... 170,677 94,245 87,766
-------- -------- --------
$715,673 $651,548 $612,291
======== ======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land............................................... $ 14,975,971 $ 18,357,867 $ 18,357,867
Buildings and improvements......................... 124,326,343 114,315,868 114,400,685
Furniture, fixtures and equipment.................. 30,679,335 33,600,537 35,686,812
------------ ------------ ------------
169,981,649 166,274,272 168,445,364
Less accumulated depreciation...................... 30,446,526 15,676,714 18,168,824
------------ ------------ ------------
$139,535,123 $150,597,558 $150,276,540
============ ============ ============
</TABLE>
When assets were acquired from Predecessor Entities, a new basis was
determined and accumulated depreciation was reduced to zero.
F-31
<PAGE> 125
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
6. DEFERRED EXPENSES:
The components of deferred expenses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred financing costs................................. $1,548,043 $2,069,941 $2,074,357
Franchise fees........................................... 77,500 119,800 119,800
Non-compete agreement.................................... -- 1,200,000 1,200,000
---------- ---------- ----------
1,625,543 3,389,741 3,394,157
Less accumulated amortization............................ 690,686 280,780 486,786
---------- ---------- ----------
$ 934,857 $3,108,961 $2,907,371
========== ========== ==========
</TABLE>
7. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
PROPERTY DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Lisle:
5.98% note payable due 1999...................... $ 15,425,000 -- --
Pooled loan agreement (A)........................ -- $ 22,436,016 $ 22,372,033
Houston:
8.0% note payable due 2001 (B)................... 16,250,000 16,250,000 16,250,000
Colorado:
5.98% note payable due 1999...................... 8,000,000 -- --
Pooled loan agreement (A)........................ -- 10,220,852 10,191,704
Denver:
10.69% note payable due 1998..................... 9,500,000 -- --
Pooled loan agreement (A)........................ -- 11,467,297 11,434,594
Atlanta:
Notes payable (average rate of 8.75%)............ 7,381,432 -- --
Capital lease obligations........................ 250,662 -- --
Pooled loan agreement (A)........................ -- 12,713,743 12,677,485
Conshohocken:
9.50% note payable due 1996...................... 14,598,203 -- --
Pooled loan agreement (A)........................ -- 17,948,813 17,897,626
Williamsburg:
6.75% note payable due 2003...................... 4,533,200 -- --
Capital lease obligations........................ 148,042 -- --
Variable rate note payable due 1999 (C).......... -- 11,000,000 11,000,000
Huntington:
7.5% note payable due 1996....................... 43,061,602 -- --
Variable rate note payable due 1998 (D).......... -- 13,100,000 13,100,000
----------- ----------- -----------
119,148,141 115,136,721 114,923,442
Less current portion..................... 44,766,516 1,417,217 1,417,217
------------ ------------ ------------
$ 74,381,625 $113,719,504 $113,506,225
============ ============ ============
</TABLE>
F-32
<PAGE> 126
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
7. LONG-TERM DEBT--CONTINUED
(A) Effective August 31, 1995, Lisle, Denver, Atlanta, Conshohocken and
Colorado entered into a pooled loan agreement. The total amount borrowed under
the pooled loan agreement was $75,000,000. The proceeds were used to retire debt
and acquire certain properties. The pooled loan agreement provides for joint and
several liability to the Partnerships for the full amount of the outstanding
loan. Substantially all of the assets and the management agreement of the
Partnerships collateralize the borrowings. Principal is payable in varying
monthly payments with interest at LIBOR plus 3%. The interest rate in effect at
December 31, 1995 was 8.91%. The varying monthly principal payments are based on
an annual calculation using a percentage of the outstanding principal balance,
net income and cash flows, as defined by the agreement. All remaining unpaid
accrued interest and principal will be due August 31, 1999. The loan agreement
provides for a 2% prepayment penalty in the first year and a 1% penalty in the
second year. The Partnerships purchased an interest rate cap that limits LIBOR
to 7.5% through August 31, 1998. The carrying value of the interest rate cap at
December 31, 1995 was approximately $443,000.
The pooled loan agreement contains certain restrictive covenants including
limitations on the assumption of additional indebtedness, changes in the
Partnerships' agreements and changes to the franchiser and the managing agents
of the Hotels (IHC and BREA). Additionally, an entity affiliated with the
managing general partner issued a letter of credit in the amount of $5,000,000
on behalf of the Partnerships. The letter of credit provides for principal
repayment upon the occurrence of a default or if certain financial terms are not
met by the Partnerships between March 31, 1996 and April 25, 1998.
(B) The Houston partnership borrowed $16,250,000 under a note payable
agreement, the proceeds of which, combined with capital contributions, were used
to acquire the Hotel. The note accrues interest at the contract rate of 8% and
is payable in monthly interest only payments at the pay rate of 7% through March
1995, 7.5% from April 1995 through March 1996 and 8% thereafter. Interest due in
excess of the pay rate is added to the principal balance and accrues interest at
the contract rate. At December 31, 1995, such amount was $246,895 and was
included in accrued interest on the accompanying combined balance sheets.
Beginning April 1996, the note will be payable in equal monthly installments of
principal and interest of $121,208 through March 2001, at which time all
remaining unpaid accrued interest and principal will be due.
(C) Effective October 10, 1995, the Williamsburg partnership entered into a
loan agreement which provides for an available $13,000,000, of which $11,000,000
was drawn on the date of the agreement (the initial disbursement). The proceeds
of the initial disbursement, combined with capital contributions, were used to
acquire the hotel. The agreement also includes a provision that allows for an
additional draw of up to $2,000,000 within 12 to 18 months after the initial
disbursement if certain financial conditions are met, as defined by the
agreement (the second disbursement). Interest is payable monthly at the rate of
LIBOR plus 3.5%. The interest rate in effect at December 31, 1995 was 9.44%.
Beginning at the time of the second disbursement or 18 months after the initial
disbursement, whichever is earlier, equal monthly principal payments will be due
based on the then outstanding principal balance amortized at the current
interest rate in effect over a 25 year period. The note payable matures October,
1999 at which time all remaining unpaid accrued interest and principal will be
due. The agreement provides for a 2% prepayment penalty for the first two years
after the initial disbursement and a 1% penalty in the third year.
(D) Huntington borrowed $13,100,000, the proceeds of which, combined with
capital contributions, were used to complete the acquisition described in Note
1. Interest is payable at the rate of LIBOR plus 4.0%. The interest rate in
effect at December 31, 1995 was 9.66%. The partnership has the option to request
a fixed interest rate based on quoted rates from the borrower for portions of
the outstanding balance not to exceed $4,000,000 for various periods as provided
in the note agreement. Interest is payable monthly commencing July 1, 1995.
Commencing March 1, 1997, equal monthly principal payments will be due based on
a 25 year amortization period. The note payable matures June 1998, at which time
all remaining unpaid principal and accrued interest will be due. The note
payable requires a 2% prepayment penalty through June 1996.
F-33
<PAGE> 127
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
7. LONG-TERM DEBT--CONTINUED
The management of the Partnerships estimate that based on projected net
income and cash flows, approximately $1,417,000 of principal payments will be
due during 1996 and, accordingly, this amount has been classified as a current
liability on the accompanying combined balance sheets.
Based on interest rates currently available to the Partnerships for the
issuance of debt with similar terms and remaining maturities, management
believes that the carrying amount of debt and the interest rate cap is a
reasonable estimation of fair value.
Aggregate scheduled maturities of the notes for each of the five years
ending December 31 are as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 1,417,217
1997.......................................................... 3,229,342
1998.......................................................... 16,597,473
1999.......................................................... 88,712,876
2000.......................................................... 4,102,144
Thereafter.................................................... 1,077,669
------------
$115,136,721
============
</TABLE>
A predecessor entity obtained a first mortgage note in the amount of
$14,000,000, the proceeds of which were used to satisfy an existing mortgage and
letter of credit note plus accrued interest, pursuant to a binding letter of
intent. The predecessor entity also entered into a subordinated mortgage note
with the lender and, in exchange for entering into the agreement, in addition to
payment of $600,000 proceeds from the first mortgage, the lender sold the
promissory note to the predecessor entity. The extinguishment of the mortgage
and letter of credit notes and the promissory note resulted in a gain of
$25,795,725, which is presented as an extraordinary item in the 1993 combined
statements of operations.
Pursuant to the terms of the commitment letter dated March 8, 1994, IHC
paid $100,000 to the holder of the term loan as an option for the purchase of a
predecessor entity's loan for $11,000,000. The extinguishment of the predecessor
entity's loan resulted in an $18,381,077 gain, which is presented as an
extraordinary item in the 1994 combined statements of operations.
8. DEPARTMENTAL INCOME:
Combined departmental income was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Rooms........................... $21,637,770 $28,813,329 $40,291,221 $ 8,862,336 $ 9,881,965
Food and beverage............... 4,367,048 7,676,644 9,305,887 1,936,860 2,486,623
Telephone....................... 603,939 836,275 1,132,807 272,110 382,249
Gift shop and other............. 342,496 772,157 692,895 170,387 129,812
Office.......................... -- 1,040,738 2,273,267 511,782 618,281
----------- ----------- ----------- ----------- -----------
$26,951,253 $39,139,143 $53,696,077 $11,753,475 $13,498,930
=========== =========== =========== =========== ===========
</TABLE>
9. EMPLOYEE BENEFITS:
The Hotels participate in the following employee benefit plans which are
sponsored by IHC:
The Interstate Hotels Corporation Employee Health and Welfare Plan (and
related Health Trust) provides employees of IHC with group health insurance
benefits. The group policies provide for a "minimum premium plan" whereby IHC is
self-insured for certain benefits, subject to certain individual claim and
F-34
<PAGE> 128
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
9. EMPLOYEE BENEFITS--CONTINUED
aggregate maximum liability limits. The Hotels pay, directly to IHC, the
employer portion of the premiums, which is based on the estimated conventional
premium. Premiums may be prospectively adjusted to consider actual claims
experience. The Hotels incurred expenses of approximately $573,000 in 1994 and
$1,007,000 in 1995 related to the plan. The Health Trust is exempt from federal
income tax under Section 501(c)(9) of the Internal Revenue Code as a voluntary
employees' beneficiary association.
IHC maintains a defined contribution savings plan for all employees.
Eligibility for participation in the plan is based on the employee's attainment
of 21 years of age and on the completion of one year of service with IHC.
Employer contributions are based on a percentage of employee contributions.
Participants may make voluntary contributions to the plan of up to 6% of their
compensation, as defined. The Hotels incurred expenses of approximately $87,000
in 1994 and $175,000 in 1995 related to the plan.
Additionally, IHC sponsors certain other employee benefit plans, which
change from time to time, but generally provide for incentive bonuses and
deferred compensation to certain key employees of the Hotels. These compensation
awards are dependent on the Hotel's performance and other established criteria.
The Hotels incurred expenses amounting to approximately $96,000 in 1994 and
$607,000 in 1995 related to these plans.
Predecessor entities generally did not provide any health and welfare,
retirement benefit or bonus and deferred compensation plans.
10. INCOME TAXES:
The provision for taxes of a predecessor entity was approximately $85,000,
$142,000 and $89,000 in 1993, 1994 and 1995, respectively, and consists
primarily of current federal and state taxes. These amounts are included in
other expenses in the accompanying combined statements of operations. The net
deferred tax liability primarily relates to depreciation.
11. LEASE INCOME:
The following is a schedule of future minimum rental income for the
Lisle Executive Center under noncancelable operating leases as of December
31, 1995:
<TABLE>
<S> <C>
1996........................................................... $ 2,680,000
1997........................................................... 2,451,000
1998........................................................... 1,789,000
1999........................................................... 1,572,000
2000........................................................... 1,018,000
Thereafter..................................................... 658,000
-----------
$10,168,000
===========
</TABLE>
F-35
<PAGE> 129
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
12. OPERATING LEASES:
The Hotels have various land and equipment operating leases. Total rental
expense amounted to approximately $247,000 in 1993, $294,000 in 1994 and
$685,000 in 1995. The following is a schedule of future minimum lease payments
under these leases:
<TABLE>
<S> <C>
1996............................................................ $ 655,000
1997............................................................ 377,000
1998............................................................ 193,000
1999............................................................ 43,000
2000............................................................ 29,000
Thereafter...................................................... 1,823,000
----------
$3,120,000
==========
</TABLE>
13. CASH FLOW INFORMATION:
Cash payments for interest were $1,788,652, $11,866,008 and $9,231,650 in
1993, 1994 and 1995, respectively.
Cash payments for taxes were $103,345, $79,978 and $4,184 in 1993, 1994 and
1995, respectively.
Non-cash investing and financing activities were as follows:
<TABLE>
<S> <C>
1994:
Elimination of Predecessor Entities' equity.................... $29,316,893
===========
1995:
Elimination of Predecessor Entities' equity.................... $ 4,851,419
===========
</TABLE>
14. COMMITMENTS AND CONTINGENCIES:
In the ordinary course of business various lawsuits, claims and proceedings
have been or may be instituted or asserted against the Partnerships. Based on
currently available facts, management believes that the disposition of matters
that are pending or asserted will not have a material adverse effect on the
financial position, results of operations or liquidity of the Partnerships.
The Huntington Hilton Hotel is encumbered by a third mortgage which is held
by an unrelated party for a principal sum of $2,100,000. The third mortgage is
subordinated to the first and second mortgages. The third mortgage arises from a
note payable from HA to the third mortgage holder which was not assumed by IHPLP
or HHPLP pursuant to the settlement agreement. See Note 1.
15. NEW ACCOUNTING PRONOUNCEMENT:
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." The new standard is
effective for fiscal year 1996. Management believes that the implementation of
the standard will not have a material effect on these combined financial
statements.
F-36
<PAGE> 130
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Interstone/CGL Partners, L.P.:
We have audited the accompanying combined balance sheet of Interstone/CGL
Partners, L.P. (the Partnership) as of December 31, 1995 and the related
combined statements of operations and partners' capital and cash flows for the
period from December 15, 1995 (inception) to December 31, 1995 and the
accompanying combined balance sheets of Predecessor Entity (as defined in Note
1) as of December 31, 1994 and December 14, 1995 and the related combined
statements of operations and predecessor equity and cash flows for the years
ended December 31, 1993 and 1994 and for the period from January 1, 1995 to
December 14, 1995. These combined financial statements are the responsibility of
the Partnership's and Predecessor Entity'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.
As discussed in Note 2, the combined financial statements of the
Predecessor Entity have been prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
a Registration Statement of Interstate Hotels Company and are not intended to be
a complete presentation of the Predecessor Entity.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Interstone/CGL
Partners, L.P. as of December 31, 1995 and the combined results of its
operations and cash flows for the period from December 15, 1995 (inception) to
December 31, 1995 and the financial position of the Predecessor Entity as of
December 31, 1994 and December 14, 1995 and the combined results of its
operations and cash flows for the years ended December 31, 1993 and 1994 and for
the period from January 1, 1995 to December 14, 1995, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P
Pittsburgh, Pennsylvania
April 10, 1996
F-37
<PAGE> 131
INTERSTONE/CGL PARTNERS, L.P.
AND PREDECESSOR ENTITY
COMBINED BALANCE SHEETS
---------
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR ENTITY PARTNERSHIP
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 14, DECEMBER 31, MARCH 31,
1994 1995 1996 1996
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ 3,198,348 $ 198,922 $ 6,126,483 $ 5,711,517
Accounts receivable................. 3,700,112 4,470,676 1,231,348 5,474,875
Inventories (Note 6)................ 1,525,754 1,367,815 350,229 388,751
Prepaid expenses and other.......... 1,024,352 763,053 114,803 729,712
------------ ------------ ------------ ------------
Total current assets........... 9,448,566 6,800,466 7,822,863 12,304,855
------------ ------------ ------------ ------------
Restricted cash (Note 3).............. 884,364 992,337 2,771,814 3,414,438
Property and equipment, net (Notes 3,
7 and 10)........................... 127,839,673 123,341,620 166,041,651 164,227,543
Deferred expenses (Note 8)............ -- -- 2,928,346 2,803,077
------------ ------------ ------------ ------------
Total assets................... $138,172,603 $131,134,423 $179,564,674 $182,749,913
============ ============ ============ ============
LIABILITIES, EQUITY AND CAPITAL
Current liabilities:
Accounts payable.................... 1,433,882 622,800 1,561,280 2,059,040
Due to CIGNA (Note 3)............... 1,592,863 1,848,384 -- --
Accrued liabilities:
Real estate taxes................ 721,912 623,778 595,053 658,712
Salaries and benefits............ 1,157,502 698,812 1,230,178 2,081,943
Royalties and fees (Note 5)...... 123,010 48,037 103,523 292,317
Management fees (Note 5)......... 594,871 512,588 57,037 266,085
Other............................ 979,274 1,589,552 714,682 2,360,846
Customer deposits................... 326,955 458,108 374,501 242,233
Current portion of long-term debt
(Note 10)........................ -- -- 3,000,000 3,000,000
------------ ------------ ------------ ------------
Total current liabilities...... 6,930,269 6,402,059 7,636,254 10,961,176
------------ ------------ ------------ ------------
Other liabilities (Note 9)............ -- -- 1,212,968 1,212,968
Long-term debt (Note 10).............. -- -- 117,000,000 116,250,000
------------ ------------ ------------ ------------
Total liabilities.............. 6,930,269 6,402,059 125,849,222 128,424,144
------------ ------------ ------------ ------------
Commitments and contingencies (Notes 9
and 13)
Predecessor equity.................... 131,242,334 124,732,364 -- --
Partners' capital..................... -- -- 53,715,452 54,325,769
------------ ------------ ------------ ------------
Total liabilities, equity and
capital..................... $138,172,603 $131,134,423 $179,564,674 $182,749,913
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-38
<PAGE> 132
INTERSTONE/CGL PARTNERS, L.P.
AND PREDECESSOR ENTITY
COMBINED STATEMENTS OF OPERATIONS AND PREDECESSOR'S EQUITY
AND PARTNERS' CAPITAL
---------
<TABLE>
<CAPTION>
PREDECESSOR ENTITY PARTNERSHIP
----------------------------------------- ----------- PREDECESSOR
DECEMBER 15 ENTITY PARTNERSHIP
(INCEPTION) ------------ -----------
JANUARY 1 TO THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, TO DECEMBER MARCH 31,
-------------------------- DECEMBER 14, 31, ---------------------------
1993 1994 1995 1995 1995 1996
----------- ------------ ------------ ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rooms................. $29,689,872 $ 44,368,711 $47,005,616 $1,197,237 $ 11,630,678 $ 12,523,368
Food and beverage..... 14,377,451 22,211,752 23,571,905 1,174,170 5,606,531 5,948,203
Telephone............. 1,472,886 2,051,051 2,369,874 59,208 574,674 717,126
Gift shop............. 269,430 491,778 381,200 19,760 90,574 90,835
Other................. 457,579 1,082,302 1,274,314 34,123 332,822 345,641
----------- ------------ ------------ ------------ ------------ ------------
46,267,218 70,205,594 74,602,909 2,484,498 18,235,279 19,625,173
Departmental costs and
expenses.............. 20,128,137 29,295,928 30,499,098 1,386,137 7,455,917 7,695,917
----------- ------------ ------------ ------------ ------------ ------------
Departmental income
(Note 11)......... 26,139,081 40,909,666 44,103,811 1,098,361 10,779,362 11,929,256
Other expenses (Note 5):
Administration and
general............. 5,007,565 7,733,793 7,624,794 292,393 1,859,342 1,692,922
Management fee........ 1,868,102 3,268,802 4,034,540 80,896 685,991 556,076
Royalties............. 673,762 1,120,609 1,272,321 55,255 370,335 494,902
Advertising and
sales............... 2,864,140 4,113,422 4,636,739 168,934 1,118,633 1,200,960
Repairs and
maintenance......... 2,406,479 3,358,253 3,469,537 152,470 809,337 843,441
Heat, power and
light............... 2,081,933 2,784,810 2,833,376 146,171 817,695 717,204
Insurance and taxes... 2,100,483 3,023,493 3,505,079 97,478 1,013,741 902,344
Depreciation and
amortization........ 4,885,249 7,124,855 7,088,752 366,181 1,867,231 2,193,605
Other, net............ 239,405 (198,437) 622,125 31,600 25,003 207,552
----------- ------------ ------------ ------------ ------------ ------------
22,127,118 32,329,600 35,087,263 1,391,378 8,567,308 8,809,006
----------- ------------ ------------ ------------ ------------ ------------
4,011,963 8,580,066 9,016,548 (293,017 ) 2,212,054 3,120,250
Interest expense (Note
10)................... -- -- -- (460,000 ) -- (2,509,933)
----------- ------------ ------------ ------------ ------------
Income (loss) before
income taxes...... 4,011,963 8,580,066 9,016,548 (753,017 ) 2,212,054 610,317
Income tax expense (Note
3).................... 1,605,000 3,432,000 3,607,000 -- 884,800 --
----------- ------------ ------------ ------------ ------------ ------------
Net income (loss)... 2,406,963 5,148,066 5,409,548 (753,017 ) 1,327,254 610,317
----------- ------------ ------------ ------------ ------------ ------------
Predecessor's equity and
partners' capital:
Beginning of period... 75,519,277 91,875,901 131,242,334 -- 131,242,334 53,715,452
Increase (decrease) in
predecessor's
equity.............. 13,949,661 34,218,367 (11,919,518 ) -- (3,977,397) --
Capital
contributions....... -- -- -- 54,468,469 -- --
----------- ------------ ------------ ------------ ------------ ------------
End of period......... $91,875,901 $131,242,334 $124,732,364 $53,715,452 $128,592,191 $ 54,325,769
=========== ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-39
<PAGE> 133
INTERSTONE/CGL PARTNERS, L.P.
AND PREDECESSOR ENTITY
COMBINED STATEMENTS OF CASH FLOWS
---------
<TABLE>
<CAPTION>
PREDECESSOR ENTITY PARTNERSHIP PREDECESSOR
------------------------------------------ ------------ ENTITY PARTNERSHIP
DECEMBER 15 ------------ -----------
JANUARY 1 (INCEPTION) THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, TO TO MARCH 31,
--------------------------- DECEMBER 14, DECEMBER 31, ---------------------------
1993 1994 1995 1995 1995 1996
----------- ------------ ------------ ------------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................ $ 2,406,963 $ 5,148,066 $ 5,409,548 $ (753,017) $ 1,327,254 $ 610,317
Adjustments to reconcile net
income (loss) to cash provided
by operations:
Depreciation and
amortization................. 4,885,249 7,124,855 7,088,752 366,181 1,867,231 2,193,605
Changes in assets and
liabilities:
Accounts receivable............ (694,952) 355,572 (770,564) (823,798) (1,031,507) (4,243,527)
Inventories.................... (234,024) 29,445 157,939 (6,085) 10,061 (38,522)
Prepaid expenses and other..... (79,904) (242,593) 261,299 64,234 (107,767) (614,909)
Accounts payable............... (15,025) 505,177 (811,082) 752,999 (157,210) 497,760
Accrued liabilities............ 527,007 1,685,986 (103,802) 1,468,004 388,466 2,959,430
Customer deposits.............. 136,001 (42,124) 131,153 (170,307) 52,863 (132,268)
----------- ------------ ----------- ------------ ----------- -----------
Net cash provided by
operating activities....... 6,931,315 14,564,384 11,363,243 898,211 2,349,391 1,231,886
----------- ------------ ----------- ------------ ----------- -----------
Cash flows from investing
activities:
Funds restricted for future
acquisition of furniture,
fixtures
and equipment.................. (374,721) (569,691) (489,594) (2,771,814) (85,727) (796,990)
Restricted funds used to purchase
furniture, fixtures and
equipment...................... 366,224 936,768 381,621 -- 23,056 154,366
Cash paid for deferred franchise
fees........................... -- -- -- (107,045) -- (20,000)
Cash received on foreclosure..... 351,384 2,247,262 -- -- -- --
Acquisition of Hotels, net of
cash acquired of $144,650...... -- -- -- (159,994,406) -- --
Acquisition of property and
equipment, net................. (1,280,646) (2,883,340) (2,590,699) -- (910,720) (234,228)
----------- ------------ ------------ ------------ ----------- -----------
Net cash used in investing
activities................. (937,759) (269,001) (2,698,672) (162,873,265) (973,391) (896,852)
----------- ------------ ------------ ------------ ----------- -----------
Cash flows from financing
activities:
Proceeds from long-term debt..... -- -- -- 120,000,000 -- --
Repayment of long-term debt...... -- -- -- -- -- (750,000)
Cash paid for financing fees..... -- -- -- (2,650,000) -- --
Distributions to predecessor..... (7,846,423) (12,446,117) (11,919,518) -- (3,977,397) --
Change in due to CIGNA........... 378,496 72,963 255,521 -- 496,047 --
Partner capital contributions.... -- -- -- 50,751,537 -- --
----------- ------------ ----------- ------------- ----------- -----------
Net cash (used in) provided
by financing activities.... (7,467,927) (12,373,154) (11,663,997) 168,101,537 (3,481,350) (750,000)
----------- ------------ ----------- ------------ ----------- -----------
Net (decrease) increase in cash and
cash equivalents................. (1,474,371) 1,922,229 (2,999,426) 6,126,483 (2,105,350) (414,966)
Cash and cash equivalents at
beginning of period.............. 2,750,490 1,276,119 3,198,348 -- 3,198,348 6,126,483
----------- ------------ ------------ ------------- ----------- -----------
Cash and cash equivalents at end of
period........................... $ 1,276,119 $ 3,198,348 $ 198,922 $ 6,126,483 $ 1,092,998 $ 5,711,517
=========== ============ =========== ============= =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-40
<PAGE> 134
INTERSTONE/CGL PARTNERS, L.P.
AND PREDECESSOR ENTITY
NOTES TO COMBINED FINANCIAL STATEMENTS
---------
1. ORGANIZATION:
Interstone/CGL Partners, L.P.:
Interstone/CGL Partners, L.P. (the Partnership), a limited partnership, was
formed effective November 2, 1995 by Interstone/CGL Management Associates (as
general partner) and Interstone Two Partners I, L.P., Interstone Two Partners
II, L.P., Interstone Two Partners III, L.P. and Interstone Two Partners IV, L.P.
(as limited partners, collectively the Interstone Partners). A Purchase, Sale
and Contribution Agreement (the Sale Agreement) was entered into between the
Partnership, CGI Partners L.P. (CGI), Quebec Street Investments Inc. (QSI) and
Connecticut General Life Insurance Company (CIGNA) on November 20, 1995. CGI and
QSI are affiliates of CIGNA, the then current owner of six hotels (the Hotels).
Pursuant to the Sale Agreement, CGI and QSI were admitted as 25% limited
partners of the Partnership in exchange for a 25% interest in the Hotels. On the
closing date, December 15, 1995, the Interstone Partners purchased the remaining
75% interest in the Hotels from CGI and QSI. Immediately following the purchase,
CGI and QSI distributed their limited partnership interests in the Partnership
to CIGNA. The transaction was accounted for as a purchase with CIGNA's
contributed basis in the Hotels recorded at CIGNA's historical cost.
Interests in the Partnership is expected to be purchased and acquired by
IHC Member Corporation (an affiliate of the partners) as of July 15, 1996 or
earlier, based on the closing of the initial public offering of common stock of
Interstate Hotels Company.
Predecessor Entity:
CIGNA (Predecessor Entity) acquired the Hotels through foreclosure or
deed-in-lieu-of foreclosure. Four of the Hotels were acquired prior to January
1, 1993 and are included in these financial statements beginning January 1,
1993. Valley Forge Doubletree Guest Suites Hotel and Warner Center Marriott
Hotel are included in the accompanying combined financial statements beginning
on May 20, 1993 and February 25, 1994, respectively, since records prior to such
dates are not available. The Predecessor Entity recorded the assets acquired at
the lower of cost or fair value.
Hotels:
The properties included in the combined financial statements include the
following full-service hotels (collectively, the Hotels):
<TABLE>
<CAPTION>
HOTEL LOCATION
- - ------------------------------------------------------------- ---------------------
<S> <C> <C>
Tysons Corner Marriott Hotel (Tysons) Tysons Corner, VA
Marriott Suites at Valley Forge, formerly Valley Forge
Doubletree Guest Suites Hotel through January 15, 1996
(collectively, Valley Forge) Wayne, PA
Embassy Suites Schaumburg Hotel (Schaumburg) Schaumburg, IL
Fort Lauderdale Airport Hilton (Ft. Lauderdale) Fort Lauderdale, FL
Boston Marriott Andover (Andover) Andover, MA
Warner Center Marriott Hotel (Warner) Woodland Hills, CA
</TABLE>
2. BASIS OF PRESENTATION:
The above entities are affiliates through common ownership, and accordingly
are presented in a combined presentation. All significant intercompany balances
and transactions have been eliminated in combination.
The term of the Partnership expires December 31, 2045; however, dissolution
will occur earlier in the event of the sale of the Partnership's assets or a
disabling event, as defined by the agreement. In accordance
F-41
<PAGE> 135
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
2. BASIS OF PRESENTATION--CONTINUED
with the terms of the partnership agreement, subsequent capital contributions
from the partners may be required in instances where cash from operations is
insufficient to meet debt service requirements and other partnership expenses.
Such additional capital contributions are to be made at the discretion of the
general partner and are to be paid by the partners in proportion to their
respective partnership interests. The partnership agreement also provides for
the exchange of partnership interests in the event of the failure of a partner
to make subsequent capital contributions.
The Partnership does not have access to certain books and records of CIGNA
for the period prior to December 15, 1995 and, therefore, the financial
statements for the Predecessor Entity include only those transactions recorded
in the books and records of the Hotels, except that income tax expense has been
provided for in the statements of operations based on applicable statutory
rates. Transactions recorded by CIGNA that related to the Hotels, principally
interest on intercompany borrowings, are excluded from these combined financial
statements since they were not recorded on the Hotels' records.
The combined financial statements of the Predecessor Entity have been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in a Registration Statement of
Interstate Hotels Company and are not intended to be a complete presentation of
the Hotels' operations.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents:
The Partnership considers all unrestricted, highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.
Restricted Cash:
The management and franchise agreements discussed in Note 5 and the
long-term debt discussed in Note 10 provide that certain cash from operations be
restricted based on a percentage of gross hotel revenues for the future
acquisition or for the replacement of property and equipment each year.
Inventories:
Inventories are stated at cost which is determined using the first-in,
first-out (FIFO) method of accounting. Upon the acquisition of the Hotels by the
Partnership, china, glass, silver and linen were no longer inventoried but
included in furniture, fixtures and equipment as discussed below.
Property and Equipment:
Property and equipment are recorded at cost which includes the allocated
purchase price for the acquisition described in Note 4 or the lower of cost or
fair value at the date of acquisition for the Predecessor Entity. Property and
equipment are depreciated primarily on the straight-line method over their
estimated useful lives (buildings and improvements over 28 to 35 years and
furniture, fixtures and equipment over 5 to 7 years). Expenditures for
maintenance and repairs are expensed as incurred. The cost and related
accumulated depreciation applicable to property no longer in service are
eliminated from the accounts and any gain or loss thereon is included in
operations. Upon the formation of the Partnership, the Hotels' allocation of the
purchase price of china, glassware, silverware and linens were capitalized as
furniture, fixtures and equipment and are being amortized on a straight-line
basis over a five year life. Costs for replacement of these items are charged to
operations in the period the items are placed in service.
F-42
<PAGE> 136
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Deferred Expenses:
Deferred expenses at December 31,1995 consist of deferred financing costs
and franchise fees related to the formation of the Partnership on December 15,
1995. The deferred financing costs and franchise fees are being amortized on the
straight-line basis over periods ranging from 5 to 12 years.
Due to CIGNA:
Prior to December 15, 1995, the Hotels participated in a centralized cash
management system with CIGNA. Cash advanced to the Hotels under this system is
presented as a current liability due to CIGNA in the accompanying combined
balance sheets.
Concentrations of Credit Risk:
The Partnership maintains cash and cash equivalents accounts with various
financial institutions in excess of the amount insured by the Federal Deposit
Insurance Corporation. The Partnership has not experienced any losses in such
accounts.
Financial Instruments:
Derivative financial instruments are used by the Partnership in the
management of its interest rate exposures and are accounted for on the accrual
basis. Costs of interest rate swap agreements are amortized over the life of the
contract.
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 dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition:
The Hotels recognize revenue from their rooms, catering, gift shop and
restaurant facilities as earned on the close of each business day.
Income Tax Status:
Partnerships are not subject to state and federal income taxes.
Accordingly, net income or loss and any available tax credits are allocated to
the individual partners in proportion to their income and loss rates of
participation. Should loss allocations cause the adjusted capital account of the
limited partners to be reduced to zero, any additional losses are allocated
instead to the general partners. As discussed in Note 1, for the period prior to
December 15, CIGNA was a taxable entity and an income tax expense was provided
based on applicable statutory rates.
Unaudited Financial Statements:
The unaudited combined balance sheet as of March 31, 1996 and the unaudited
combined statements of operations and equity and partners' capital and cash
flows for the three months ended March 31, 1995 and 1996, in the opinion of
management, have been prepared on the same basis as the audited combined
financial statements and include all significant adjustments (consisting
primarily of normal recurring adjustments) considered necessary for a fair
presentation of the results of these interim periods. The data disclosed in
these notes to the combined financial statements for these periods are also
unaudited. Operating results for the three month period ended March 31, 1996 is
not necessarily indicative of the results for the entire year.
F-43
<PAGE> 137
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
4. ACQUISITION OF PROPERTY:
Effective December 15, 1995, the Partnership acquired the Hotels and
substantially all of the associated assets and liabilities. The purchase price
of $172,000,000, which was financed through the issuance of $120,000,000 in
long-term debt and contributed cash, was allocated to assets and liabilities of
each hotel based on their estimated fair values, as determined by certain fair
market valuations. In addition, an acquisition fee of $500,000 was paid to an
affiliate of the managing general partner.
5. FRANCHISE, MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS:
The Hotel franchise agreements are as follows:
<TABLE>
<CAPTION>
HOTEL FRANCHISEE FRANCHISER
- - --------------------- -------------------------------------- ------------------------------
<S> <C> <C>
Valley Forge Interstone/CGL Partners, L.P. Doubletree Hotel Systems, Inc.
Schaumburg Interstone/CGL Partners, L.P. Promus Hotels, Inc.
Ft. Lauderdale Connecticut General Life Insurance Co. Hilton Inns, Inc.
and Interstone/CGL Partners, L.P.
Andover Interstate Hotels Corporation Marriott International, Inc.
Warner Interstate Hotels Corporation Marriott International, Inc.
</TABLE>
The terms of the agreements range from 30 days to 20 years. The agreements,
except for Tysons, require ongoing fees ranging from 2% to 5% of room revenue.
Such fees comprise royalty expense in the combined statements of operations. In
addition, other fees paid to the various franchisers include national
reservation system fees, national advertising campaign fees, honored guest
awards, and other promotional program fees.
Management agreements with Interstate Hotels Corporation (IHC) provide for
a management fee of 2.8% of gross revenues, 1.4% of which is subordinated to
debt service. The terms of the agreements extend through December 31, 2044. The
agreements can be terminated earlier by either party upon the occurrence of
certain conditions as specified in the agreement. The management agreement for
Tysons with Marriott International, Inc. provides for a management fee of 3% of
gross revenues in lieu of any franchise fees. The term of the agreement expired
March 12, 1996 and has been extended on a month to month basis by mutual consent
of the parties on the then current terms of the management agreement. With the
exception of Warner, each Hotel was managed by a management company other than
IHC for the period prior to December 15, 1995. Management fee expense for Warner
amounted to approximately $812,000 for the year ended December 31, 1994 and
$830,000 for the period from January 1, 1995 to December 14, 1995.
The Partnership also has an asset management agreement with an affiliate of
CIGNA which provides for fees of $500,000 per year. Additionally, the asset
management agreement provides for a termination fee payable to CIGNA in the
amount of $2,500,000, less aggregate management asset fees paid, in the event
that CIGNA no longer holds an interest in the Partnership.
An affiliate of IHC provides reinsurance to major insurance carriers solely
in connection with the insurance coverages that those carriers provide to the
Hotels. IHC also provides certain accounting and bookkeeping assistance to the
Partnership, of which no amounts were paid by the Partnership for these services
in 1995.
Rent expense approximating $627,000 and $500,000 for the periods ending
December 31, 1994 and December 14, 1995, respectively, was paid to affiliates of
the Predecessor Entity for Warner land rent. The land was acquired by the
Partnership on December 15, 1995.
F-44
<PAGE> 138
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
6. INVENTORIES:
The components of inventories were as follows:
<TABLE>
<CAPTION>
MARCH
DECEMBER DECEMBER DECEMBER 31,
31, 14, 31, 1996
1994 1995 1995 --------
---------- ---------- ---------- (UNAUDITED)
<S> <C> <C> <C> <C>
China, glass, silver and linen............... $1,109,711 $ 791,217 -- --
Food......................................... 156,148 142,865 $113,782 $131,739
Beverage..................................... 158,454 138,395 163,012 157,754
Gift shop and other.......................... 101,441 295,338 73,435 99,258
---------- ---------- -------- --------
$1,525,754 $1,367,815 $350,229 $388,751
========== ========== ======== ========
</TABLE>
7. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, DECEMBER 14, DECEMBER 31, 1996
1994 1995 1995 -----------
------------ ------------ ------------ (UNAUDITED)
<S> <C> <C> <C> <C>
Land.................................. $ 19,546,363 $ 19,570,133 $ 19,489,864 $ 19,489,864
Buildings and improvements............ 100,123,030 100,148,647 125,222,411 125,314,322
Furniture, fixtures and equipment..... 33,453,013 35,994,325 21,671,427 21,813,744
------------ ------------ ------------ ------------
153,122,406 155,713,105 166,383,702 166,617,930
Less accumulated depreciation......... 25,282,733 32,371,485 342,051 2,390,387
------------ ------------ ------------ ------------
$127,839,673 $123,341,620 $166,041,651 $164,227,543
============ ============ ============ ============
</TABLE>
8. DEFERRED EXPENSES:
The components of deferred expenses were as follows:
<TABLE>
<CAPTION>
DECEMBER MARCH 31,
31, 1996
1995 ----------
---------- (UNAUDITED)
<S> <C> <C>
Deferred financing costs.................................... $2,825,000 $2,825,000
Franchise fees.............................................. 127,475 147,475
---------- ----------
2,952,475 2,972,475
Less accumulated amortization............................... 24,129 169,398
---------- ----------
$2,928,346 $2,803,077
========== ==========
</TABLE>
9. OTHER LIABILITIES:
Pursuant to an agreement dated December 15, 1995 between the Partnership
and Marriott Hotel Services, Inc. and in connection with the Sale Agreement
discussed in Note 1, the Partnership assumed a liability payable to Marriott
Hotel Services, Inc. upon the termination of certain franchise agreements. The
agreement stipulates a payment varying between $1,212,968 and $2,425,936
depending upon when termination of the franchise agreements occurs. It is the
intent of management to maintain the franchise agreements for the full term. As
such, management accrued $1,212,968 as of December 31, 1995, which represents
the minimum liability under the agreement.
10. LONG-TERM DEBT:
Effective December 15, 1995, the Partnership entered into a loan agreement
(the Agreement). The Agreement consisted of two notes payable in the aggregate
principal amount of $120,000,000 made pursuant to a loan (the MultiState Loan)
and a California loan (the California Loan). The MultiState Loan's and the
California Loan's portions of the total were $100,000,000 and $20,000,000,
respectively.
F-45
<PAGE> 139
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
10. LONG-TERM DEBT--CONTINUED
The notes are payable in quarterly principal payments of $750,000 with
monthly interest at LIBOR plus 2.75%. The interest rate in effect at December
31, 1995 was 8.63%. In addition, the Agreement provides for supplemental
amortization payments beginning in January 1997 based on cash flow, as defined
by the Agreement. All remaining unpaid interest and principal will be due
December 14, 2000. The Partnership entered into an interest rate swap that
provides for a fixed interest rate of 8.55% on principal of $72,000,000
effective January 31, 1996 and expiring December 15, 2000.
The Agreement provides that no distributions, dividends or repayments are
permitted during the first loan year. Thereafter, distributions, dividends or
repayments to partners will be made based on cash flow as defined in the
Agreement. The monthly asset management fee payment to CIGNA, pursuant to a
separate agreement (Note 5), is also subject to cash flow. The notes payable
contain certain other restrictive covenants including limitations on the
assumption of additional indebtedness, changes in the partnership agreement and
changes in the franchiser and the managing agent of the Hotel (IHC). The notes
are collateralized by the management agreements.
The Agreement also provides for joint and several liability to the
Partnership for the full amount of the outstanding loan. The California Loan is
collateralized by substantially all of the assets of Warner and the MultiState
Loan is collateralized by all of the assets of the other Hotels. The Agreement
also provides for the release of a hotel from the collateral requirements upon
the payment of a release price, as defined in the loan agreement, to be applied
to the total outstanding principal balance under the Agreement for all Hotels.
Additionally, the monthly principal payments are increased upon the collateral
release of each hotel.
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value of financial instruments. Based on interest rates currently
available, management believes that the carrying amount of the notes payable and
the interest rate swap are a reasonable estimation of fair value.
Aggregate scheduled maturities of the notes for each of the five years
ending December 31, are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 3,000,000
1997............................................................ 3,000,000
1998............................................................ 3,000,000
1999............................................................ 3,000,000
2000............................................................ 108,000,000
------------
$120,000,000
============
</TABLE>
11. DEPARTMENTAL INCOME:
Combined departmental income was as follows:
<TABLE>
<CAPTION>
DECEMBER 15 THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, JANUARY 1 TO (INCEPTION) TO MARCH 31,
--------------------------- DECEMBER 14, DECEMBER 31, -------------------------
1993 1994 1995 1995 1995 1996
------------ ------------ ------------ -------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Rooms.............. $ 22,022,998 $ 33,954,095 $ 36,056,686 $ 778,989 $ 8,947,762 $ 9,736,645
Food and
beverage......... 3,420,603 5,703,848 6,205,118 279,568 1,406,239 1,580,862
Telephone.......... 733,229 972,971 1,413,475 2,482 304,179 436,506
Gift shop.......... 46,351 54,248 68,799 4,275 18,572 10,028
Other.............. (84,100) 224,504 359,733 33,047 102,610 165,215
------------ ------------ ------------ ---------- ----------- -----------
$ 26,139,081 $ 40,909,666 $ 44,103,811 $1,098,361 $10,779,362 $11,929,256
============ ============ ============ ========== =========== ===========
</TABLE>
F-46
<PAGE> 140
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
12. EMPLOYEE BENEFITS:
Effective December 15, 1995, the Hotels participate in the following
employee benefit plans which are sponsored by IHC:
The Interstate Hotels Corporation Employee Health and Welfare Plan (and
related Health Trust) provides employees of IHC with group health insurance
benefits. The group policies provide for a "minimum premium plan" whereby IHC is
self-insured for certain benefits, subject to certain individual claim and
aggregate maximum liability limits. The Hotels pay, directly to IHC, the
employer portion of the premiums, which is based on the estimated conventional
premium. Premiums may be prospectively adjusted to consider actual claims
experience. The Hotels incurred expenses of approximately $4,300 for the period
from December 15, 1995 to December 31, 1995 related to the plan. The Health
Trust is exempt from federal income tax under Section 501(c)(9) of the Internal
Revenue Code as a voluntary employees' beneficiary association.
IHC maintains a defined contribution savings plan for all employees.
Eligibility for participation in the plan is based on the employee's attainment
of 21 years of age and on the completion of one year of service with IHC.
Employer contributions are based on a percentage of employee contributions.
Participants may make voluntary contributions to the plan of up to 6% of their
compensation, as defined. The Hotels incurred expenses of approximately $2,400
for the period from December 15, 1995 to December 31, 1995 related to the plan.
Additionally, IHC sponsors certain other employee benefit plans, which
change from time to time, but generally provide for incentive bonuses and
deferred compensation to certain key employees of the Hotels. These compensation
awards are dependent on the Hotel's performance and other established criteria.
The Hotels incurred expenses amounting to approximately $10,000 for the period
from December 15, 1995 to December 31, 1995 related to these plans.
13. COMMITMENTS AND CONTINGENCIES:
Earthquake Insurance:
Warner participates in a pooled earthquake insurance program that includes
all Company-managed properties in California. The program provides a total
aggregate coverage of $35,000,000 with each hotel paying a deductible equal to
5% of its then current fair market value.
The Partnership's investment in the property and equipment of Warner as of
December 31, 1995 was as follows:
<TABLE>
<S> <C>
Land............................................................. $ 6,250,000
Buildings and improvements....................................... 43,613,883
Furniture, fixtures and equipment................................ 6,707,068
-----------
$56,570,951
===========
</TABLE>
In the ordinary course of business, various lawsuits, claims or proceedings
have been or may be instituted or asserted against the Partnership. Based on
currently available facts, management believes that the disposition of matters
that are pending or asserted will not have a material adverse effect on the
financial position, results of operation or liquidity of the Partnership.
F-47
<PAGE> 141
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
---------
14. SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing and financing for foreclosed or contributed properties
activities consisted of the following:
<TABLE>
<S> <C>
1993:
Land........................................................... $ 4,548,000
Building....................................................... 14,357,084
Furniture, fixtures and equipment.............................. 2,891,000
-----------
$21,796,084
===========
1994:
Building....................................................... $34,359,250
Furniture, fixtures and equipment.............................. 7,248,950
Accounts receivable............................................ 1,791,127
Inventory...................................................... 721,052
Prepaid expenses............................................... 337,778
Liabilities.................................................... (40,935)
-----------
$44,417,222
===========
DECEMBER 15 TO DECEMBER 31, 1995:
CIGNA 25% capital contribution of the Hotels................... $ 3,716,932
Acquisition costs incurred by CIGNA............................ 613,281
Deferred expenses.............................................. 195,000
-----------
$ 4,525,213
===========
</TABLE>
15. NEW ACCOUNTING PRONOUNCEMENT:
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." The new standard is
effective for the first quarter of 1996. Management believes that the
implementation of the standard will not have a material effect on these combined
financial statements.
F-48
<PAGE> 142
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Interstate Hotels Corporation:
We have audited the accompanying balance sheets of Boston Marriott Westborough
Hotel (the Hotel) as of December 31, 1994 and 1995, and the related statements
of operations and equity and cash flows for the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Hotel's management. Our responsibility is to express an opinion on these
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.
As discussed in Note 1, the financial statements of the Hotel have been prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in a Registration Statement of Interstate
Hotels Company and are not intended to be a complete presentation of the Hotel.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boston Marriott Westborough
Hotel as of December 31, 1994 and 1995, and its operations and cash flows for
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Pittsburgh, Pennsylvania
May 2, 1996
F-49
<PAGE> 143
BOSTON MARRIOTT WESTBOROUGH HOTEL
BALANCE SHEETS
---------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- 1996
1994 1995 -----------
----------- ----------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 110,616 $ 1,049,549 $ 1,738,937
Accounts receivable.............................. 962,699 870,685 657,447
Inventories (Note 4)............................. 259,882 275,039 245,698
Prepaid expenses and other....................... 138,677.... 129,074 102,202
----------- ----------- -----------
Total current assets................... 1,471,874 2,324,347 2,744,284
Property and equipment, net (Note 5).................. 12,024,769 11,438,422 11,310,447
----------- ----------- -----------
Total assets........................... $13,496,643 $13,762,769 $14,054,731
=========== =========== ===========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable................................. 269,670 134,779 194,436
Accrued liabilities:
Salaries and benefits.......................... 248,415 294,890 145,735
Compensated absences........................... 187,175 179,552 205,594
Royalties and fees (Note 3).................... 31,764 56,253 64,587
Management fees (Note 3)....................... 98,442 89,592 71,351
Other.......................................... 228,792 195,930 155,835
Customer deposits................................ 25,548 19,788 30,589
----------- ----------- -----------
Total liabilities...................... 1,089,806 970,784 868,127
Commitments and contingencies (Notes 8 and 9)
Equity................................................ 12,406,837 12,791,985 13,186,604
----------- ----------- -----------
Total liabilities and equity........... $13,496,643 $13,762,769 $14,054,731
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE> 144
BOSTON MARRIOTT WESTBOROUGH HOTEL
STATEMENTS OF OPERATIONS AND EQUITY
---------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms......................... $ 5,011,439 $ 5,501,954 $ 5,997,813 $ 1,348,732 $ 1,535,105
Food and beverage............. 3,683,959 4,016,093 4,218,510 1,003,700 990,709
Telephone..................... 322,211 318,707 358,571 84,615 99,872
Gift shop..................... 91,115 92,761 91,381 21,525 13,328
Other......................... 104,851 120,947 144,350 37,908 49,909
----------- ----------- ----------- ----------- -----------
9,213,575 10,050,462 10,810,625 2,496,480 2,688,923
Departmental costs and expenses
(Note 3)...................... 4,087,048 4,419,216 4,680,309 1,094,856 1,130,263
----------- ----------- ----------- ----------- -----------
Departmental income (Note
7)....................... 5,126,527 5,631,246 6,130,316 1,401,624 1,558,660
Other expenses (Note 3):
Administration and general.... 882,379 855,731 925,265 216,452 216,855
Credit card commissions....... 138,316 141,075 156,962 31,697 40,351
Management fee................ 414,355 479,286 528,631 87,377 129,112
Royalties..................... 394,229 434,731 464,945 106,422 115,045
Advertising and sales......... 625,127 599,276 640,302 156,766 139,624
Repairs and maintenance....... 344,957 418,660 474,837 109,553 131,629
Heat, power and light......... 323,592 343,711 385,730 115,834 117,929
Insurance and taxes........... 230,773 275,270 258,503 72,173 75,014
Depreciation.................. 775,388 808,323 830,760 207,690 207,690
----------- ----------- ----------- ----------- -----------
4,129,116 4,356,063 4,665,935 1,103,964 1,173,249
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................... 997,411 1,275,183 1,464,381 297,660 385,411
Income tax expense.............. 399,000 510,000 586,000 119,000 154,000
----------- ----------- ----------- ----------- -----------
Net income................. 598,411 765,183 878,381 178,660 231,411
Equity:
Beginning of period........... 13,810,649 12,271,929 12,406,837 12,406,837 12,791,985
(Decrease) increase in
equity..................... (2,137,131) (630,275) (493,233) (701,025) 163,208
----------- ----------- ----------- ----------- -----------
End of period................. $12,271,929 $12,406,837 $12,791,985 $11,884,472 $13,186,604
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE> 145
BOSTON MARRIOTT WESTBOROUGH HOTEL
STATEMENTS OF CASH FLOWS
---------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
----------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income........................ $ 598,411 $ 765,183 $ 878,381 $ 178,660 $ 231,411
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation................... 775,388 808,323 830,760 207,690 207,690
Changes in assets and liabilities:
Accounts receivable............ (116,944) (94,839) 92,014 647,004 213,328
Inventories.................... 9,350 11,685 (15,157) 9,205 29,341
Prepaid expenses and other..... (10,559) (47,842) 9,603 (37,244) 26,872
Accounts payable............... 68,179 70,941 (134,891) (12,924) 59,657
Accrued liabilities............ 150,564 206,429 21,629 (236,397) (173,115)
Customer deposits.............. 838,769 (852,557) (5,760) 418,287 10,801
----------- --------- ---------- ---------- ----------
Net cash provided by operating
activities................... 2,313,158 867,323 1,676,579 1,174,281 605,895
----------- --------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchase of property and
equipment...................... (148,734) (451,052) (244,413) (28,636) (79,715)
----------- --------- ---------- ---------- ----------
Net cash used in investing
activities................... (148,734) (451,052) (244,413) (28,636) (79,715)
Cash flows from financing
activities:
Net (distributions) contributions
from owners.................... (2,137,131) (630,275) (493,233) (701,025) 163,208
----------- --------- ---------- ---------- ----------
Net cash (used in) provided by
financing activities......... (2,137,131) (630,275) (493,233) (701,025) 163,208
Net increase (decrease) in cash and
cash equivalents.................. 27,293 (214,004) 938,933 444,620 689,388
Cash and cash equivalents at
beginning of period............... 297,327 324,620 110,616 110,616 1,049,549
----------- --------- ---------- ---------- ----------
Cash and cash equivalents at end of
period............................ $ 324,620 $ 110,616 $1,049,549 $ 555,236 $1,738,937
=========== ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-52
<PAGE> 146
BOSTON MARRIOTT WESTBOROUGH HOTEL
NOTES TO FINANCIAL STATEMENTS
---------
1. BASIS OF PRESENTATION:
The Boston Marriott Westborough Hotel (Hotel) is a full service property
operated under a management agreement (Agreement) with Interstate Hotels
Corporation (IHC) and the owner of the Hotel, State Mutual Life Insurance
Company of America (SMLIC). The initial term of the Agreement ends on December
31, 2001 and can be extended, by mutual consent of the parties, on the then
current terms of the Agreement for annual periods. SMLIC obtained the Hotel on
January 2, 1991 through a deed-in-lieu of foreclosure and recorded the assets
acquired at the lower of cost or fair value based on certain fair market
valuations. The Hotel is expected to be purchased by IHC Member Corporation (an
affiliate of IHC).
IHC does not have access to certain books and records of SMLIC, and
therefore, the financial statements include only those transactions recorded in
the books and records of the Hotel except that income tax expense has been
provided for in the statement of operations based on applicable statutory rates.
Transactions recorded by SMLIC that relate to the Hotel, principally interest on
intercompany borrowings, are excluded from these financial statements since they
are not recorded on the Hotel's records.
These financial statements have been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission for
inclusion in a Registration Statement of Interstate Hotels Company and are not
intended to be a complete presentation of the Hotel's operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents:
The Hotel considers all unrestricted, highly liquid investments purchased
with a remaining maturity of three months or less to be cash equivalents.
Inventories:
Inventories are stated at cost which is determined using the first-in,
first-out (FIFO) method of accounting.
Property and Equipment:
Property and equipment are recorded at cost (or the allocated lower of cost
or fair value at the date of foreclosure as described in Note 1). Property and
equipment are depreciated primarily on the straight-line method over their
useful lives (building and improvements over 25 years and furniture, fixtures
and equipment over 7 years). Expenditures for maintenance and repairs are
expensed as incurred. The cost and the related accumulated depreciation
applicable to property no longer in service or fully depreciated are eliminated
from the accounts, and any gain or loss thereon is included in operations.
Concentration of Credit Risk:
The Hotel maintains cash and cash equivalents with two financial
institutions in excess of the amount insured by the Federal Deposit Insurance
Corporation. The Hotel has not experienced any losses in such amounts.
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 the
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.
F-53
<PAGE> 147
NOTES TO FINANCIAL STATEMENTS--CONTINUED
---------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Revenue Recognition:
The Hotel recognizes revenue from its rooms, gift shop, catering and
restaurant facilities as earned on the close of each business day.
Unaudited Financial Statements:
The unaudited balance sheet as of March 31, 1996 and the unaudited
statements of operations and equity and cash flows for the three months ended
March 31, 1995 and 1996, in the opinion of management, have been prepared on the
same basis as the audited financial statements and include all significant
adjustments (consisting primarily of normal recurring adjustments) considered
necessary for a fair presentation of the results of these interim periods. The
data disclosed in these notes to the financial statements for these periods are
also unaudited. Operating results for the three month period ended March 31,
1996 is not necessarily indicative of the results for the entire year.
3. RELATED PARTY TRANSACTIONS:
The Hotel is operated as a Marriott Hotel pursuant to a franchise agreement
(Agreement) dated July 13, 1991 between Interstate Hotels Corporation as
franchisee, and Marriott Corporation, as franchiser. The initial term of the
Agreement extends through July 12, 2001 and can be extended, by the mutual
consent of the parties and on the then current terms of Marriott International
franchise agreements, for five successive five-year terms. The Agreement
requires ongoing fees, which comprise royalty expense in the statements of
operations and equity amounting to 6% of room revenues and 3% of certain food
and beverage revenues. In addition, other fees paid to Marriott Corporation
include a national advertising campaign fee of .8% of room revenues, as well as
fees for a national reservation system, networking, honored guest awards and
other promotional programs. These other fees amounted to approximately $433,000
in 1993, $475,000 in 1994 and $513,000 in 1995.
The management agreement referred to in Note 1 provides for a base
management fee of 3.5% of gross revenues and an incentive fee equal to 20% of
cash available for distribution, as defined, in the management agreement. The
management fees earned by IHC were approximately $323,000 in 1993, $352,000 in
1994 and $378,000 in 1995. The incentive fees earned by IHC approximated $92,000
in 1993, $128,000 in 1994 and $150,000 in 1995.
An affiliate of IHC provides reinsurance to major insurance carriers for
certain insurance coverages that the carriers provide to the Hotel. IHC also
provides certain accounting and bookkeeping assistance to the Hotel, of which no
amounts were paid by the Hotel for these services.
4. INVENTORIES:
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
China, glass, silver and linen............................... $175,233 $196,611 $189,651
Food......................................................... 34,363 32,394 26,099
Beverage..................................................... 40,668 37,300 29,948
Gift shop and other.......................................... 9,618 8,734 --
-------- -------- --------
$259,882 $275,039 $245,698
======== ======== ========
</TABLE>
F-54
<PAGE> 148
NOTES TO FINANCIAL STATEMENTS--CONTINUED
---------
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................. $ 1,020,646 $ 1,050,646 $1,050,646
Building and improvements............................ 11,465,695 11,457,392 11,457,392
Furniture, fixtures and equipment.................... 2,354,638 2,577,354 2,657,069
----------- ----------- -----------
14,840,979 15,085,392 15,165,107
Less accumulated depreciation........................ 2,816,210 3,646,970 3,854,660
----------- ----------- -----------
$12,024,769 $11,438,422 $11,310,447
=========== =========== ===========
</TABLE>
6. DEPARTMENTAL INCOME:
Departmental income was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Rooms............................ $3,858,285 $4,232,332 $4,686,660 $1,041,932 $1,187,072
Food and beverage................ 1,069,955 1,200,047 1,185,742 299,975 278,785
Telephone........................ 190,143 198,935 237,011 54,614 70,831
Gift shop........................ (9,223) (15,979) (13,168) (2,632) (3,356)
Other............................ 17,367 15,911 34,071 7,735 25,328
---------- ---------- ---------- ---------- ----------
$5,126,527 $5,631,246 $6,130,316 $1,401,624 $1,558,660
========== ========== ========== ========== ==========
</TABLE>
7. EMPLOYEE BENEFITS:
The Hotel participates in the following employee benefit plans which are
sponsored by IHC:
The Interstate Hotels Corporation Employee Health and Welfare Plan (and
related Trust) provides employees of IHC with group health insurance benefits.
The group policies provide for a "minimum premium plan" whereby IHC is
self-insured for certain benefits, subject to certain individual claim and
aggregate maximum liability limits. The Hotel pays, directly to IHC, the
employer portion of the premium, which is based on the estimated conventional
premium. Premiums may be prospectively adjusted to consider actual claims
experience. The Hotel incurred expenses of approximately $147,000, $188,000 and
$154,000 for the years ended December 31, 1993, 1994 and 1995, respectively. The
Trust is exempt from federal income tax under Section 501(c)(9) of the Internal
Revenue Code as a voluntary employees' beneficiary association.
IHC maintains a defined contribution savings plan for all employees.
Eligibility for participation in the plan is based on the employee's attainment
of 21 years of age and on the completion of one year of service with IHC.
Employer contributions are based on a percentage of employee contributions.
Participants may make voluntary contributions to the plan of up to 6% of their
compensation, as defined. The Hotel incurred expenses of approximately $32,000
in 1993, $40,000 in 1994 and $44,000 in 1995 related to the plan.
Additionally, IHC sponsors certain other employee benefit plans, which
change from time to time, but generally provide for incentive bonuses and
deferred compensation to certain key employees of the Hotel. These compensation
awards are dependent on the Hotel's performance and other established criteria.
The Hotel incurred expenses amounting to approximately $159,000 in 1993,
$100,000 in 1994 and $109,000 in 1995 related to these plans.
F-55
<PAGE> 149
NOTES TO FINANCIAL STATEMENTS--CONTINUED
---------
8. OPERATING LEASES:
The Hotel accounts for various equipment leases as operating leases. Total
rental expense amounted to approximately $136,000 in 1993, $121,000 in 1994 and
$129,000 in 1995. The following is a schedule of future minimum lease payments
under these leases:
<TABLE>
<S> <C>
1996............................................................... $129,000
1997............................................................... 65,000
1998............................................................... 5,000
1999............................................................... 2,000
--------
$201,000
========
</TABLE>
9. COMMITMENT AND CONTINGENCIES:
Pursuant to the management agreement referred to in Note 1, SMLIC is
required to deposit in the Hotel's account additional funds necessary to
maintain operating funds on hand of $300,000.
In the ordinary course of business, various lawsuits, claims or proceedings
have been or may be instituted or asserted against the Hotel. Based on currently
available facts, management believes that the disposition of matters that are
pending or asserted will not have a material adverse effect on the financial
position, results of operation or liquidity of the Hotel.
10. SIGNIFICANT CUSTOMERS:
The Hotel's largest customer represented approximately 13%, 16% and 18% of
revenues for the years ended December 31, 1993, 1994 and 1995 and 18% and 17%
for the three month periods ended March 31, 1995 and 1996, respectively.
11. NEW ACCOUNTING PRONOUNCEMENT:
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." The new standard is
effective for the first quarter of 1996. Management believes that the
implementation of the standard will not have a material effect on these
financial statements.
F-56
<PAGE> 150
<TABLE>
<S> <C>
PHOTO PHOTO
BOCA RATON MARRIOTT, FORT MAGRUDER INN, WILLIAMSBURG, VIRGINIA (OWNED)
BOCA RATON, FLORIDA
(MANAGED)
</TABLE>
PHOTO
MARRIOTT'S CASA MARINA RESORT, KEY WEST,
FLORIDA (MANAGED)
PHOTO
SEATTLE CROWNE PLAZA, SEATTLE, WASHINGTON
(MANAGED)
PHOTO
FT. LAUDERDALE AIRPORT HILTON, DANIA,
FLORIDA (OWNED)
PHOTO
PITTSBURGH AIRPORT MARRIOTT,
PITTSBURGH, PENNSYLVANIA (MANAGED)
<PAGE> 151
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THIS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Dilution............................ 11
Use of Proceeds..................... 12
Prior S Corporation Status.......... 12
Dividend Policy..................... 12
Capitalization...................... 13
Pro Forma Financial Data............ 14
Selected Financial and Other Data... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 28
Business and Properties............. 37
The Organization, Acquisition and
Financing Plan.................... 56
Management.......................... 63
Principal Shareholders.............. 76
Certain Relationships and Related
Transactions...................... 77
Description of Capital Stock........ 78
Shares Eligible for Future Sale..... 80
Taxation............................ 81
Underwriting........................ 83
Legal Matters....................... 85
Experts............................. 85
Additional Information.............. 86
Index to Financial Statements....... F-1
</TABLE>
---------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
11,000,000 SHARES
LOGO
INTERSTATE HOTELS
COMPANY
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
CREDIT LYONNAIS SECURITIES
(USA) INC.
, 1996
===============================================================================
<PAGE> 152
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION OF THESE SECURITIES UNDER
THE SECURITIES LAWS OF ANY SUCH STATE.
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 19, 1996
PROSPECTUS
11,000,000 SHARES
INTERSTATE HOTELS COMPANY
COMMON STOCK
------------------------
All of the shares of Common Stock of Interstate Hotels Company (the
"Company") are being offered by the Company. Of the 11,000,000 shares of Common
Stock offered, 1,650,000 shares are being offered hereby outside the United
States and Canada by the International Underwriters and 9,350,000 shares are
being offered in a concurrent offering in the United States and Canada by the
U.S. Underwriters. The initial public offering price and aggregate underwriting
discount per share will be identical for both offerings (the "Offering"). It is
currently estimated that the initial public offering price will be between $19
and $21 per share. For factors to be considered in determining the initial
public offering price, see "Underwriting."
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "IHC," subject to official notice of issuance.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
===========================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
- - -----------------------------------------------------------------------------------------------------------
Per Share................................... $ $ $
- - -----------------------------------------------------------------------------------------------------------
Total(3).................................... $ $ $
===========================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the several International Underwriters and the
several U.S. Underwriters 30-day options to purchase up to an additional
1,402,500 and 247,500 shares of Common Stock, respectively, to cover over-
allotments. If all such shares of Common Stock are purchased, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel to the Underwriters. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that delivery of the shares of Common Stock
will be made in New York City on or about , 1996.
------------------------
MERRILL LYNCH INTERNATIONAL
CREDIT LYONNAIS SECURITIES
MONTGOMERY SECURITIES
MORGAN STANLEY & CO.
INTERNATIONAL
SMITH BARNEY INC.
------------------------
The date of this Prospectus is , 1996
LOGO
<PAGE> 153
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
UNDERWRITING
The International Underwriters named below (the "International
Underwriters"), acting through their international representatives, Merrill
Lynch International, Credit Lyonnais Securities, Montgomery Securities, Morgan
Stanley & Co. International Limited and Smith Barney Inc. (the "International
Representatives"), have severally agreed, subject to the terms and conditions of
an International Purchase Agreement with the Company (the "International
Purchase Agreement"), to purchase from the Company the number of shares of
Common Stock set forth opposite their respective names. The International
Underwriters are committed to purchase all of such shares if any are purchased.
Under certain circumstances, the commitments of non-defaulting International
Underwriters may be increased as set forth in the International Purchase
Agreement.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL UNDERWRITER OF SHARES
----------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch International..................................................
Credit Lyonnais Securities...................................................
Montgomery Securities........................................................
Morgan Stanley & Co. International Limited ..................................
Smith Barney Inc ............................................................
---------
Total........................................................... 1,650,000
=========
</TABLE>
The Company has also entered into a purchase agreement (the "U.S. Purchase
Agreement") with certain underwriters in the United States (the "U.S.
Underwriters" and, together with the International Underwriters, the
"Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Montgomery Securities, Morgan Stanley & Co. Incorporated, Smith Barney Inc. and
Credit Lyonnais Securities (USA) Inc. are acting as U.S. representatives (the
"U.S. Representatives"). Subject to the terms and conditions set forth in the
U.S. Purchase Agreement, and concurrently with the sale of 1,650,000 shares of
Common Stock to the International Underwriters pursuant to the International
Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters, and
the U.S. Underwriters have severally agreed to purchase, an aggregate of
9,350,000 shares of Common Stock. Under certain circumstances under the U.S.
Purchase Agreement, the commitments of non-defaulting U.S. Underwriters may be
increased. The initial public offering price per share and the total
underwriting discount per share will be identical under the International
Purchase Agreement and the U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Underwriters and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant to
each such agreement are purchased. Sales of Common Stock to be purchased by the
International Underwriters in the International Offering and the U.S.
Underwriters in the U.S. Offering are conditioned upon one another.
The Company has granted the International Underwriters an option
exercisable for 30 days after the date hereof to purchase up to an additional
247,500 shares at the initial public offering price per share, less the
underwriting discount, solely to cover over-allotments, if any. To the extent
that the International Underwriters exercise this option, each International
Underwriter will be obligated, subject to certain conditions, to purchase the
number of additional shares of Common Stock proportionate to such International
Underwriter's initial amount reflected in the foregoing table. Additionally, the
Company has granted the U.S. Underwriters an option exercisable for 30 days
after the date hereof to purchase up to an additional 1,402,500 shares at the
initial public offering price per share, less the underwriting discount, solely
to cover over-allotments, if any, on terms similar to those granted to the
International Underwriters.
The International Underwriters propose initially to offer the shares to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain selected dealers at such price less a concession not
in excess of $ per share, and the International Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share to certain
other dealers. After the completion of the Offering, the offering price,
concession and discount may be changed.
82
<PAGE> 154
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
The International Underwriters and the U.S. Underwriters have entered into
an intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the International Underwriters and the U.S.
Underwriters of such number of shares of Common Stock as may be mutually agreed.
The price of any Common Stock so sold shall be the initial public offering
price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the International
Underwriters and any dealer to whom they sell Common Stock will not offer to
sell or sell Common Stock to persons who are U.S. or Canadian persons or to
persons they believe intend to resell to persons who are U.S. or Canadian
persons, and the U.S. Underwriters and any dealer to whom they sell Common Stock
will not offer to sell or sell Common Stock to non-U.S. or non-Canadian persons
or to persons they believe intend to resell to non-U.S. or non-Canadian persons,
except, in each case, for transactions pursuant to such agreement.
Prior to the Offering, there has been no active public market for the
Common Stock. The initial public offering price will be determined by
negotiations among the Company and the U.S. Representatives. Among the factors
to be considered in such negotiations are the Company's recent results of
operations, the future prospects of the Company and its industry in general, the
price-earnings ratios and market prices of securities of companies engaged in
activities similar to those of the Company and prevailing conditions in the
securities markets. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to the Offering at or above the initial public offering price.
The Company and its directors, executive officers and existing
shareholders, including Blackstone, have agreed not to sell or otherwise dispose
of any shares of Common Stock (other than shares purchased pursuant to the
Offering or in the open market) or securities convertible into or exercisable
for Common Stock without the prior written consent of Merrill Lynch for a period
of 180 days after the date of this Prospectus. See "Shares Eligible For Future
Sale."
The Common Stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance. In order to meet the
requirements for listing of the Common Stock on that exchange, the U.S.
Underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company and the several Underwriters have agreed to indemnify each
other against liabilities under the Securities Act.
The Company has agreed to pay Merrill Lynch a fee for advisory services in
connection with the Organization in an amount up to .50% of the gross proceeds
of the Offering.
At the request of the Company, the Underwriters have reserved up to 250,000
shares of Common Stock for sale at the initial public offering price to certain
employees, customers, vendors and business associates of the Company who have
expressed an interest in purchasing shares of Common Stock. The number of shares
of Common Stock available to the general public will be reduced to the extent
these persons purchase the reserved shares of Common Stock. Any reserved shares
of Common Stock that are not so purchased by such persons at the closing of the
Offering will be offered by the Underwriters to the general public on the same
terms as the other Common Stock offered by this Prospectus.
The Company is concurrently offering 1,000 shares of Common Stock at the
initial public offering price directly to certain employees and business
associates of the Company pursuant to this Prospectus in certain jurisdictions
where the Underwriters are prohibited by law from selling the Common Stock. Such
shares are included in the 11,000,000 shares being sold pursuant to this
Prospectus. Since such shares are being sold directly by the Company and not
through the Underwriters, no underwriting discount or commission will be paid to
the Underwriters with respect to such shares.
83
<PAGE> 155
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
Each International Underwriter has represented and agreed that (i) it has
not offered or sold, and will not offer or sell, in the United Kingdom by means
of any document, any shares of the Common Stock other than to persons whose
ordinary business it is to buy or sell shares or debentures, whether as
principal or agent (except under circumstances which do not constitute an offer
to the public within the meaning of the Public Offers of Securities Regulations
1995), (ii) it has complied and will comply with all applicable provisions of
the Financial Services Act of 1986 with respect to anything done by it in
relation to the Common Stock in, from or otherwise involving the United Kingdom,
and (iii) it has only issued or passed on, and will only issue or pass on in the
United Kingdom, any document received by it in connection with the issue of the
Common
84
<PAGE> 156
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
Stock to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a
person to whom such document may otherwise lawfully be issued or passed on.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company by Jones, Day, Reavis & Pogue, New York, New
York. Certain legal matters in connection with this Offering will be passed upon
for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New
York.
EXPERTS
The balance sheet of the Company as of April 23, 1996; the Combined
Financial Statements of Interstate Hotels Corporation and Affiliates as of
December 31, 1994 and 1995 and for the years ended December 31, 1993, 1994 and
1995; the Combined Financial Statements of Interstone I Property Partnerships
and Predecessor Entities as of December 31, 1994 and 1995 and for the years
ended December 31, 1993, 1994 and 1995; the Combined Financial Statements of
Interstone/CGL Partners, L.P. and Predecessor Entity as of December 31, 1994,
December 14, 1995 and December 31, 1995 and for the years ended December 31,
1993 and 1994, for the period from January 1, 1995 to December 14, 1995 and for
the period from December 15, 1995 to December 31, 1995; and Financial Statements
of Boston Marriott Westborough Hotel as of December 31, 1994 and 1995 and for
the years ended December 31, 1993, 1994 and 1995 included in this Prospectus
have been included herein in reliance on the reports of Coopers & Lybrand
L.L.P., independent accountants, given on their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which is a part of the Registration Statement, omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement and the exhibits thereto for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained herein concerning the provisions of any documents are not
necessarily complete, and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference. The Registration Statement,
including exhibits filed therewith, may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and will also be available for inspection
and copying at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 upon payment of the fees prescribed
by the Commission. The Common Stock has been approved for listing on the New
York Stock Exchange, subject to official notice of issuance. Reports and other
information concerning the Company may be inspected and copied at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company will be required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934. The Company intends
to furnish its shareholders annual reports containing consolidated financial
statements certified by its independent accountants and quarterly reports
containing unaudited condensed consolidated financial statements for each of the
first three quarters of each fiscal year.
85
<PAGE> 157
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THIS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Dilution............................ 11
Use of Proceeds..................... 12
Prior S Corporation Status.......... 12
Dividend Policy..................... 12
Capitalization...................... 13
Pro Forma Financial Data............ 14
Selected Financial and Other Data... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 28
Business and Properties............. 37
The Organization, Acquisition and
Financing Plan.................... 56
Management.......................... 63
Principal Shareholders.............. 76
Certain Relationships and Related
Transactions...................... 77
Description of Capital Stock........ 78
Shares Eligible for Future Sale..... 80
Taxation............................ 81
Underwriting........................ 83
Legal Matters....................... 85
Experts............................. 85
Additional Information.............. 85
Index to Financial Statements....... F-1
</TABLE>
---------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
11,000,000 SHARES
LOGO
INTERSTATE HOTELS
COMPANY
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH INTERNATIONAL
CREDIT LYONNAIS SECURITIES
MONTGOMERY SECURITIES
MORGAN STANLEY & CO.
INTERNATIONAL
SMITH BARNEY INC.
, 1996
===============================================================================
<PAGE> 158
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses, other than underwriting
discounts and commissions, paid or payable in connection with the issuance and
distribution of the Common Stock being registered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............. $ 91,604
National Association of Securities Dealers, Inc. Filing Fee..... 27,065
New York Stock Exchange Listing Fee............................. 112,600
Printing and Engraving Expenses................................. 325,000
Legal Fees and Expenses......................................... 600,000
Accounting Fees and Expenses.................................... 700,000
Blue Sky Fees and Expenses...................................... 10,000
Transfer Agent and Registrar Fees............................... 3,000
Miscellaneous Fees and Expenses................................. 80,731
----------
Total...................................................... $1,950,000
==========
</TABLE>
All amounts are estimated except the Securities and Exchange Commission
Registration Fee and the National Association of Securities Dealers, Inc. Filing
Fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 1741 through 1750 of Subchapter D, Chapter 17, of the Pennsylvania
Business Corporation Law of 1988, as amended (the "BCL"), contain provisions for
mandatory and discretionary indemnification of a corporation's directors,
officers and other personnel, and related matters.
Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors and officers under certain prescribed circumstances
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with an action or
proceeding, whether civil, criminal, administrative or investigative (other than
derivative actions), to which any of them is a party or is threatened to be made
a party by reason of his being a representative of the corporation or serving at
the request of the corporation as a representative of another corporation,
partnership, joint venture, trust or other enterprise, if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his conduct was unlawful.
Section 1742 permits indemnification in derivative actions if the
appropriate standard of conduct is met, except in respect of any claim, issue or
matter as to which the person has been adjudged to be liable to the corporation
unless and only to the extent that the proper court determines upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for the
expenses that the court deems proper.
Under Section 1743, indemnification is mandatory to the extent that the
officer or director has been successful on the merits or otherwise in defense of
any action or proceeding referred to in Section 1741 or 1742.
Section 1744 provides that, unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as authorized
in the specific case upon a determination that the representative met the
applicable standard of conduct and that such determination will be made (i) by
the board of directors by a majority vote of a quorum of directors not parties
to the action or proceeding; (ii) if a quorum is not obtainable, or if
obtainable and a majority of disinterested directors so directs, by independent
legal counsel; or (iii) by the shareholders.
Section 1745 provides that expenses incurred by an officer or director in
defending an action or proceeding may be paid by the corporation in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determining that he is not entitled to be indemnified by the
corporation.
II-1
<PAGE> 159
Section 1746 provides generally that the indemnification and advancement of
expenses provided by Subchapter 17D of the BCL (i) will not be deemed exclusive
of any other rights to which a person seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding that office, and (ii) may not
be made in any case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness.
Section 1747 grants a corporation the power to purchase and maintain
insurance on behalf of any director or officer against any liability incurred by
him in his capacity as officer or director, whether or not the corporation would
have the power to indemnify him against that liability under Subchapter 17D of
BCL.
Sections 1748 and 1749 extend the indemnification and advancement of
expenses provisions contained in Subchapter 17D of the BCL to successor
corporations in fundamental corporate changes and to representatives serving as
fiduciaries of employee benefit plans.
Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter 17D of the BCL shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs and personal representative of such person.
The Company's Bylaws provide in general that the Company shall indemnify
its officers and directors to the fullest extent permitted by law. The Bylaws
further provide that any alteration, amendment, or repeal of the indemnification
provisions, if not approved by 80% of the total number of directors of the
Company, requires the affirmative vote of shareholders owning at least 80% of
the outstanding shares entitled to vote.
As authorized by the Company's Articles of Incorporation, the Company
entered into indemnification agreements with each of its directors. These
indemnification agreements provide for, among other things, (i) the
indemnification by the Company of the indemnitees thereunder to the extent
described above, (ii) the advancement of attorney's fees and other expenses, and
(iii) the establishment, upon approval by the Board, of trusts or other funding
mechanisms to fund the Company's indemnification obligations thereunder.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In April 1996, the Company issued 10,000 shares of Common Stock to Milton
Fine, Chairman of the Board of the Company, for nominal consideration. The
shares were issued without registration under the Securities Act pursuant to the
exemption afforded by Section 4(2) of the Securities Act.
Reference is made to "The Organization, Acquisition and Financing Plan--The
Organization" and "Management--Stock Option Grants" regarding shares of Common
Stock to be issued in connection with the Organization, the purchasers thereof
and the consideration therefor. Such issuances will occur without registration
under the Securities Act pursuant to the exemptions afforded by Section 3(a)(9)
or 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - ------------- ------------------------------------------------------------------------------
<S> <C>
* 1.1(a) Form of Purchase Agreement (U.S. Version)
* 1.1(b) Form of Purchase Agreement (International Version)
2.1 Agreement and Plan of Merger, dated as of November 1, 1995, among Interstate
Hotels Corporation and the other persons signatory thereto
* 2.2 Form of Formation Agreement among the Company and the parties identified on
the signature page thereof
* 3.1 Form of Amended and Restated Articles of Incorporation of the Company
* 3.2 Form of Amended and Restated By-Laws of the Company
4.1 Specimen Common Stock Certificate
</TABLE>
II-2
<PAGE> 160
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - ------------- ------------------------------------------------------------------------------
<S> <C>
* 4.2 Form of Credit Agreement among Interstate Hotels Corporation, Credit Lyonnais
and the other parties signatory thereto
* 5.1 Opinion of Jones, Day, Reavis & Pogue regarding the legality of issuance of
the Common Stock being registered
10.1(a) Option Agreement, dated as of October 12, 1995, among Interstate Hotels
Corporation and the other persons signatory thereto
10.1(b) Amendment No. 1 to Option Agreement, dated as of December 15, 1995, among
Interstate Hotels Corporation and the other persons signatory thereto
10.1(c) Amendment No. 2 to Option Agreement, dated as of March 29, 1996, among
Interstate Hotels Corporation and the other persons signatory thereto, as
revised
* 10.2(a) Agreement of Purchase and Sale, dated as of March 29, 1996, among the Sellers
named therein and IHC Member Corporation
* 10.2(b) First Amendment to Agreement of Purchase and Sale, dated as of March 29, 1996,
among the Sellers named therein and IHC Member Corporation
10.3(a) Contribution Agreement, dated as of March 29, 1996, among Interstate Hotels
Corporation and the other persons signatory thereto
* 10.3(b) First Amendment to Contribution Agreement, dated as of March 29, 1996, among
Interstate Hotels Corporation and the other persons signatory thereto
10.4 Form of Stockholders Agreement among the Company, Blackstone Real Estate
Advisors L.P. and the shareholders named therein
* 10.5 Form of Registration Rights and Shareholders Agreement among the Company and
the shareholders named therein
10.6 Master Agreement, dated as of April 1, 1996, among Host Funding, Inc.,
Crossroads Hospitality Tenant Company, L.L.C. and Crossroads Hospitality
Company, L.L.C.
10.7(a) Lease Agreement, dated as of March 29, 1996, between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C. relating to the Super 8 Miner,
Missouri
10.7(b) Lease Agreement, dated as of March 29, 1996, between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C. relating to the Super 8 Poplar
Bluff, Missouri
10.7(c) Lease Agreement, dated as of March 29, 1996, between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C. relating to the Super 8 Rock
Falls, Illinois
10.7(d) Lease Agreement, dated as of March 29, 1996, between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C. relating to the Super 8 San
Diego, California
10.7(e) Lease Agreement, dated as of March 29, 1996, between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C. relating to the Super 8
Somerset, Kentucky
10.8 [Intentionally omitted]
10.9(a)(1) Interstone Three Partners I L.P. Limited Partnership Agreement, dated as of
December 15, 1995, among BJS Interstone Management Associates, IHC/Interstone
Corporation, Blackstone Real Estate Partners I L.P. and IHC/Interstone
Partnership II, L.P.
* 10.9(a)(2) Form of First Amendment to Interstone Three Partners I L.P. Limited
Partnership Agreement among BJS Interstone Management Associates,
IHC/Interstone Corporation, Blackstone Real Estate Partners I L.P. and
IHC/Interstone Partnership II, L.P.
10.9(b)(1) Interstone Three Partners II L.P. Limited Partnership Agreement, dated as of
December 15, 1995, among BJS Interstone Management Associates, IHC/Interstone
Corporation, Blackstone Real Estate Partners II L.P. and IHC/Interstone
Partnership II, L.P.
* 10.9(b)(2) Form of First Amendment to Interstone Three Partners II L.P. Limited
Partnership Agreement among BJS Interstone Management Associates,
IHC/Interstone Corporation, Blackstone Real Estate Partners II L.P. and
IHC/Interstone Partnership II, L.P.
</TABLE>
II-3
<PAGE> 161
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - ------------- ------------------------------------------------------------------------------
<S> <C>
10.9(c)(1) Interstone Three Partners III L.P. Limited Partnership Agreement, dated as of
December 15, 1995, among BJS Interstone Management Associates, IHC/Interstone
Corporation, Blackstone Real Estate Partners III L.P., Blackstone Real Estate
Holdings L.P., Blackstone RE Capital Partners L.P., Blackstone RE Offshore
Capital Partners L.P. and IHC/Interstone Partnership II, L.P.
* 10.9(c)(2) Form of First Amendment to Interstone Three Partners III L.P. Limited
Partnership Agreement among BJS Interstone Management Associates,
IHC/Interstone Corporation, Blackstone Real Estate Partners III L.P.,
Blackstone Real Estate Holdings L.P., Blackstone RE Capital Partners L.P.,
Blackstone RE Offshore Capital Partners L.P. and IHC/Interstone Partnership
II, L.P.
10.9(d)(1) Interstone Three Partners IV L.P. Limited Partnership Agreement dated as of
December 15, 1995, among BJS Interstone Management Associates, IHC/Interstone
Corporation, Blackstone Real Estate Partners IV L.P., Blackstone RE Capital
Partners II L.P. and IHC/Interstone Partnership II, L.P.
* 10.9(d)(2) Form of First Amendment to Interstone Three Partners IV L.P. Limited
Partnership Agreement among BJS Interstone Management Associates,
IHC/Interstone Corporation, Blackstone Real Estate Partners IV L.P.,
Blackstone RE Capital Partners II L.P. and IHC/Interstone Partnership II, L.P.
10.10 Interstate Hotels Corporation Executive Retirement Plan
10.11 Interstate Hotels Company Equity Incentive Plan
10.12 Interstate Hotels Company Stock Purchase Plan
* 10.13 Interstate Hotels Company Management Bonus Plan, as revised
* 10.14 Interstate Hotels Company Stock Option Plan for Non-Employee Directors, as
revised
* 10.15(a) Employment Agreement between the Company and Milton Fine
10.15(b) Employment Agreement between the Company and W. Thomas Parrington, Jr.
10.15(c) Employment Agreement between the Company and J. William Richardson
10.15(d) Employment Agreement between the Company and Robert L. Froman
10.15(e) Employment Agreement between the Company and Marvin I. Droz
10.16 Form of Severance Agreement between the Company and each of Milton Fine, W.
Thomas Parrington, Jr., J. William Richardson, Robert L. Froman and Marvin I.
Droz
* 10.17 Form of Indemnification Agreement between the Company and each of its
directors
10.18(a) Interstate Hotels Company Supplemental Deferred Compensation Plan
10.18(b) Deferred Compensation Agreement between the Company and W. Thomas Parrington,
Jr.
10.18(c) Deferred Compensation Agreement between the Company and J. William Richardson
* 21.1 List of Subsidiaries of the Company
* 23.1 Consent of Coopers & Lybrand L.L.P.
* 23.2 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
24.1 Powers of Attorney executed by the Company, Michael J. Aranson, David J. Fine,
Milton Fine, R. Michael McCullough, W. Thomas Parrington, Jr., J. William
Richardson, Thomas J. Saylak and Steven J. Smith
</TABLE>
- - ------------------
* Filed herewith. All other exhibits have been filed previously.
(b) Financial Statement Schedules.
No schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are required under the related
instructions or are applicable or the information is contained in the financial
statements and therefore have been omitted.
II-4
<PAGE> 162
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Purchase Agreements certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 3 to the Company's Registration Statement on Form
S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Pittsburgh, in the State of Pennsylvania, on June 19, 1996.
INTERSTATE HOTELS COMPANY
By: /s/ W. THOMAS PARRINGTON, JR.
-----------------------------------
W. Thomas Parrington, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Company's Registration Statement on Form S-1 has been signed below
by the following persons in the capacities indicated on June 19, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ W. THOMAS PARRINGTON, JR. President, Chief Executive Officer and Director
- - ----------------------------------------
W. Thomas Parrington, Jr.
* Executive Vice President and Chief Financial
- - ---------------------------------------- Officer
J. William Richardson (Principal Financial and Accounting Officer)
* Director
- - ----------------------------------------
Milton Fine
* Director
- - ----------------------------------------
David J. Fine
* Director
- - ----------------------------------------
Michael J. Aranson
* Director
- - ----------------------------------------
R. Michael McCullough
* Director
- - ----------------------------------------
Steven J. Smith
* Director
- - ----------------------------------------
Thomas J. Saylak
</TABLE>
*By: /s/ W. THOMAS PARRINGTON, JR.
---------------------------------
W. Thomas Parrington, Jr.
Pursuant to Powers of Attorney
filed previously with the
Securities and Exchange Commission
II-6
<PAGE> 164
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
* 1.1(a) Form of Purchase Agreement (U.S. Version)
* 1.1(b) Form of Purchase Agreement (International Version)
2.1 Agreement and Plan of Merger, dated as of November 1, 1995, among
Interstate Hotels Corporation and the other persons signatory
thereto
* 2.2 Form of Formation Agreement among the Company and the parties
identified on the signature page thereof
* 3.1 Form of Amended and Restated Articles of Incorporation of the
Company
* 3.2 Form of Amended and Restated By-Laws of the Company
4.1 Specimen Common Stock Certificate
* 4.2 Form of Credit Agreement among Interstate Hotels Corporation,
Credit Lyonnais and the other parties signatory thereto
* 5.1 Opinion of Jones, Day, Reavis & Pogue regarding the legality of
issuance of the Common Stock being registered
10.1(a) Option Agreement, dated as of October 12, 1995, among Interstate
Hotels Corporation and the other persons signatory thereto
10.1(b) Amendment No. 1 to Option Agreement, dated as of December 15, 1995,
among Interstate Hotels Corporation and the other persons signatory
thereto
10.1(c) Amendment No. 2 to Option Agreement, dated as of March 29, 1996,
among Interstate Hotels Corporation and the other persons signatory
thereto, as revised
* 10.2(a) Agreement of Purchase and Sale, dated as of March 29, 1996, among
the Sellers named therein and IHC Member Corporation
* 10.2(b) First Amendment to Agreement of Purchase and Sale, dated as of
March 29, 1996, among the Sellers named therein and IHC Member
Corporation
10.3(a) Contribution Agreement, dated as of March 29, 1996, among
Interstate Hotels Corporation and the other persons signatory
thereto
* 10.3(b) First Amendment to Contribution Agreement, dated as of March 29,
1996, among Interstate Hotels Corporation and the other persons
signatory thereto
10.4 Form of Stockholders Agreement among the Company, Blackstone Real
Estate Advisors L.P. and the shareholders named therein
* 10.5 Form of Registration Rights and Shareholders Agreement among the
Company and the shareholders named therein
10.6 Master Agreement, dated as of April 1, 1996, among Host Funding,
Inc., Crossroads Hospitality Tenant Company, L.L.C. and Crossroads
Hospitality Company, L.L.C.
10.7(a) Lease Agreement, dated as of March 29, 1996, between Host Funding,
Inc. and Crossroads Hospitality Tenant Company, L.L.C. relating to
the Super 8 Miner, Missouri
10.7(b) Lease Agreement, dated as of March 29, 1996, between Host Funding,
Inc. and Crossroads Hospitality Tenant Company, L.L.C. relating to
the Super 8 Poplar Bluff, Missouri
10.7(c) Lease Agreement, dated as of March 29, 1996, between Host Funding,
Inc. and Crossroads Hospitality Tenant Company, L.L.C. relating to
the Super 8 Rock Falls, Illinois
</TABLE>
<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
10.7(d) Lease Agreement, dated as of March 29, 1996, between Host Funding,
Inc. and Crossroads Hospitality Tenant Company, L.L.C. relating to
the Super 8 San Diego, California
10.7(e) Lease Agreement, dated as of March 29, 1996, between Host Funding,
Inc. and Crossroads Hospitality Tenant Company, L.L.C. relating to
the Super 8 Somerset, Kentucky
10.8 [Intentionally omitted]
10.9(a)(1) Interstone Three Partners I L.P. Limited Partnership Agreement,
dated as of December 15, 1995, among BJS Interstone Management
Associates, IHC/Interstone Corporation, Blackstone Real Estate
Partners I L.P. and IHC/Interstone Partnership II, L.P.
* 10.9(a)(2) Form of First Amendment to Interstone Three Partners I L.P. Limited
Partnership Agreement among BJS Interstone Management Associates,
IHC/Interstone Corporation, Blackstone Real Estate Partners I L.P.
and IHC/Interstone Partnership II, L.P.
10.9(b)(1) Interstone Three Partners II L.P. Limited Partnership Agreement,
dated as of December 15, 1995, among BJS Interstone Management
Associates, IHC/Interstone Corporation, Blackstone Real Estate
Partners II L.P. and IHC/Interstone Partnership II, L.P.
* 10.9(b)(2) Form of First Amendment to Interstone Three Partners II L.P.
Limited Partnership Agreement among BJS Interstone Management
Associates, IHC/Interstone Corporation, Blackstone Real Estate
Partners II L.P. and IHC/Interstone Partnership II, L.P.
10.9(c)(1) Interstone Three Partners III L.P. Limited Partnership Agreement,
dated as of December 15, 1995, among BJS Interstone Management
Associates, IHC/Interstone Corporation, Blackstone Real Estate
Partners III L.P., Blackstone Real Estate Holdings L.P., Blackstone
RE Capital Partners L.P., Blackstone RE Offshore Capital Partners
L.P. and IHC/Interstone Partnership II, L.P.
* 10.9(c)(2) Form of First Amendment to Interstone Three Partners III L.P.
Limited Partnership Agreement among BJS Interstone Management
Associates, IHC/Interstone Corporation, Blackstone Real Estate
Partners III L.P., Blackstone Real Estate Holdings L.P., Blackstone
RE Capital Partners L.P., Blackstone RE Offshore Capital Partners
L.P. and IHC/Interstone Partnership II, L.P.
10.9(d)(1) Interstone Three Partners IV L.P. Limited Partnership Agreement,
dated as of December 15, 1995, among BJS Interstone Management
Associates, IHC/Interstone Corporation, Blackstone Real Estate
Partners IV L.P., Blackstone RE Capital Partners II L.P. and
IHC/Interstone
Partnership II, L.P.
* 10.9(d)(2) Form of First Amendment to Interstone Three Partners IV L.P.
Limited Partnership Agreement among BJS Interstone Management
Associates, IHC/Interstone Corporation, Blackstone Real Estate
Partners IV L.P., Blackstone RE Capital Partners II L.P. and
IHC/Interstone Partnership II, L.P.
10.10 Interstate Hotels Corporation Executive Retirement Plan
10.11 Interstate Hotels Company Equity Incentive Plan
10.12 Interstate Hotels Company Stock Purchase Plan
* 10.13 Interstate Hotels Company Management Bonus Plan, as revised
</TABLE>
<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
* 10.14 Interstate Hotels Company Stock Option Plan for Non-Employee
Directors, as revised
* 10.15(a) Employment Agreement between the Company and Milton Fine
10.15(b) Employment Agreement between the Company and
W. Thomas Parrington, Jr.
10.15(c) Employment Agreement between the Company and J. William Richardson
10.15(d) Employment Agreement between the Company and Robert L. Froman
10.15(e) Employment Agreement between the Company and Marvin I. Droz
10.16 Form of Severance Agreement between the Company and each of Milton
Fine, W. Thomas Parrington, Jr., J. William Richardson, Robert L.
Froman and Marvin I. Droz
* 10.17 Form of Indemnification Agreement between the Company and each of
its directors
10.18(a) Interstate Hotels Company Supplemental Deferred Compensation Plan
10.18(b) Deferred Compensation Agreement between the Company and
W. Thomas Parrington, Jr.
10.18(c) Deferred Compensation Agreement between the Company and
J. William Richardson
* 21.1 List of Subsidiaries of the Company
* 23.1 Consent of Coopers & Lybrand L.L.P.
* 23.2 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
24.1 Powers of Attorney executed by the Company, Michael J. Aranson,
David J. Fine, Milton Fine, R. Michael McCullough,
W. Thomas Parrington, Jr., J. William Richardson, Thomas J. Saylak
and Steven J. Smith
</TABLE>
- - ------------------
* Filed herewith. All other exhibits have been filed previously.
<PAGE> 1
Exhibit 1.1(a)
9,350,000 Shares
INTERSTATE HOTELS COMPANY
(a Pennsylvania corporation)
Common Stock
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
June 20, 1996
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MONTGOMERY SECURITIES
MORGAN STANLEY & CO., INCORPORATED
SMITH BARNEY INC.
CREDIT LYONNAIS SECURITIES (USA) INC.
as Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Interstate Hotels Company, a Pennsylvania corporation (the
"Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Montgomery Securities
("Montgomery"), Morgan Stanley & Co. Incorporated ("Morgan Stanley"), Smith
Barney Inc. ("Smith Barney"), Credit Lyonnais Securities (USA) Inc. ("Credit
Lyon-nais"), and each of the other underwriters named in Schedule A hereto
(collectively, the "U.S. Underwriters," which term shall also include any
underwriter substituted as hereinafter provided in Section 10 hereof), for
whom Merrill Lynch, Montgomery, Morgan Stanley, Smith Barney and Credit
Lyonnais are acting as representatives (in capacity, Merrill Lynch,
Montgomery, Morgan Stanley,
<PAGE> 2
Smith Barney and Credit Lyonnais shall hereinafter be referred to collectively
as the "Representatives"), with respect to the sale by the Company and the
purchase by the U.S. Underwriters, acting severally and not jointly, of the
respective number of shares of common stock, par value $.01 per share, of the
Company ("Common Stock") set forth in said Schedule A (except as otherwise
provided in the U.S. Pricing Agreement referred to below) and with respect to
the grant by the Company to the U.S. Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of 1,402,500 additional shares of Common Stock to cover over-allotments,
in each case except as may otherwise be provided in the U.S. Pricing Agreement
(as hereinafter defined). The 9,350,000 shares of Common Stock (the "Initial
U.S. Securities") to be purchased by the U.S. Underwriters and all or any part
of the 1,402,500 shares of Common Stock subject to the option described in
Section 2(b) hereof (the "Option U.S. Securities") are collectively
hereinafter called the "Securities."
Prior to the purchase and public offering of the Securities by the
several U.S. Underwriters, the Company and the Representatives, acting on
behalf of the several U.S. Underwriters, shall enter into an agreement
substantially in the form of Exhibit A hereto (the "U.S. Pricing Agreement").
The U.S. Pricing Agreement may take the form of an exchange of any standard
form of written telecommunication between the Company and the Representatives
and shall specify applicable information as is indicated in Exhibit A hereto.
The offering of the Securities will be governed by this agreement (the
"Agreement"), as supplemented by the U.S. Pricing Agreement. From and after
the date of the execution and delivery of the U.S. Pricing Agreement, this
Agreement shall be deemed to incorporate the U.S. Pricing Agreement.
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of 1,650,000 shares of Common Stock
(the "Initial International Securities") through arrangements with certain
underwriters outside the United States and Canada (the "International
Underwriters") for whom Merrill Lynch International, Credit Lyonnais
Securities, Montgomery Securities, Morgan Stanley & Co. International Limited
and Smith Barney Inc. are acting as the
2
<PAGE> 3
representatives (the "International Representatives") and the grant by the
Company to the International Underwriters, acting severally and not jointly,
of an option to purchase all or any part of the International Underwriters'
pro rata potion of up to 247,500 additional shares of Common Stock solely to
cover over-allotments, if any (the "Option International Securities", and
collectively with the Initial International Securities, the "International
Securities"). It is understood that the Company is not obligated to sell, and
the International Underwriters are not obligated to purchase, any Initial
International Securities unless all of the Initial U.S. Securities are
contemporaneous purchased by the U.S. Underwriters.
Prior to the purchase and public offering of the International
Securities by the several International Underwriters, the Company and the
International Representatives, acting on behalf of the several International
Underwriters, shall enter into an agreement substantially in the form of
Exhibit A to the International Purchase Agreement (the "International Pricing
Agreement"). The International Pricing Agreement may take the form of an
exchange of any standard form of written telecommunication between the Company
and the International Representatives and shall specify applicable
information as is indicated in Exhibit A to the International Purchase
Agreement. The offering of the International Securities will be governed by
the International Purchase Agreement, as supplemented by the International
Pricing Agreement. From and after the date of the execution and delivery of
the International Pricing Agreement, the International Purchase Agreement
shall be deemed to incorporate the International Pricing Agreement.
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (File No. 333-3958)
and a related preliminary prospectus for the registration of the Securities
under the Securities Act of 1933, as amended (the "1933 Act"), has filed
amendments thereto, if any, and amended preliminary prospectuses as may have
been required to the date hereof, and will file additional amendments thereto
and amended prospectuses as may hereafter be required. registration
statement (as amended, if applicable) and the prospectus constituting a part
thereof (including the information,
3
<PAGE> 4
if any, deemed to be part thereof pursuant to Rule 430A(b) of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act
Regulations")), as from time to time amended or supplemented pursuant to the
1933 Act, or otherwise, are hereinafter referred to as the "Registration
Statement," and the "Prospectus," respectively, except that if any revised
prospectus shall be provided to the U.S. Underwriters by the Company for use
in connection with the offering of the Securities which differs from the
Prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether or not revised prospectus is required to be filed
by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term
Prospectus shall refer to revised prospectus from and after the time it was
provided to the U.S. Underwriters for use. Two forms of prospectuses are to
be used in connection with the offering and sale of the Securities to the
Underwriters, one relating to the International Securities and one relating to
the U.S. Securities. The form of prospectus relating to the International
Securities is identical to the form of prospectus relating to the U.S.
Securities, except for the front and back covers and the information under the
caption "Underwriting." Any registration statement (including any amendment
or supplement thereto or information which is deemed part thereof) filed by
the Company to register additional shares of Common Stock of the Company under
Rule 462(b) of the 1933 Act Regulations (a "Rule 462(b) Registration
Statement") shall be deemed to be part of the Registration Statement. Any
prospectus (including any amendment or supplement thereto or information which
is deemed part thereof) included in a Rule 462(b) Registration Statement and
any term sheet as contemplated by Rule 434 of the 1933 Act Regulations (a
"Term Sheet") shall be deemed to be part of the Prospectus. Capitalized terms
used but not otherwise defined herein shall have the meanings given to those
terms in the Prospectus.
The Company understands that the U.S. Underwriters propose to make a
public offering of the Securities as soon as the U.S. Representatives deem
advisable after the Registration Statement becomes effective and the U.S.
Pricing Agreement has been executed and delivered.
4
<PAGE> 5
The Company has reserved up to 250,000 of the Shares for offering
and sale to certain of its employees, customers, vendors and business
associates pursuant to a reserve share program as stated in the "Underwriting"
section of the Prospectus (the "Reserve Share Program"). The Shares under the
Reserve Share Program will be sold to the employees, customers, vendors and
business associates by the U.S. Underwriters (except for 1,000 shares which
will be sold directly by the Company to two employees of the Company or one of
its Subsidiaries in Canada) pursuant to this Agreement and by the
International Underwriters pursuant to the International Purchase Agreement at
the public offering price. Any shares not purchased by persons by the end
of the first business day after the date on which the Registration Statement
has become effective will be offered to the public by the U.S. Underwriters
and the International Underwriters as set forth in the Prospectus.
SECTION 1. Representations and Warranties of the Company.
(a) The Company represents and warrants to each U.S. Underwriter as
of the date hereof and as of the date of the U.S. Pricing Agreement ( later
date being hereinafter referred to as the "Representation Date") as follows:
(i) At the time the Registration Statement becomes effective
and at the Representation Date, the Registration Statement will comply in
all material respects with the requirements of the 1933 Act and the 1933
Act Regulations and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus,
at the Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the U.S. Underwriters by the
Company for use in connection with the offering of the Securities which
differs from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective, in which case at the time it is
first provided to the U.S. Underwriters for use) and at the Closing Time
referred to in Section 2 hereof, will comply in all material respects
with the requirements of the
5
<PAGE> 6
1933 Act and the 1933 Act Regulations and will not include an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall
not apply to statements in or omissions from the Registration Statement
or Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any U.S. Underwriter through the
Representatives expressly for use in the Registration Statement or
Prospectus.
(ii) Coopers & Lybrand L.L.P., the accounting firm that audited
the financial statements included in the Registration Statement and
Prospectus, is an independent public accountant as required by the 1933
Act and the 1933 Act Regulations.
(iii) The financial statements (including the related notes
thereto) included in the Registration Statement and the Prospectus
present fairly, in all material respects, the financial position of the
respective entity or entities or group presented therein at the
respective dates indicated and the results of their operations for the
respective periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis through the periods specified. The other financial and
statistical information and data included in the Registration Statement
and the Prospectus present fairly, in all material respects, the
information included therein and, to the extent applicable, have been
prepared on a basis consistent with financial statements and/or the
books and records of the respective entities or group presented therein.
Pro forma financial information included in the Prospectus has been
prepared in accordance with the applicable requirements of the 1933 Act
and the 1933 Act Regulations with respect to pro forma financial
information and includes all adjustments necessary to present fairly, in
all material respects, the pro forma financial position of the Company at
the respective dates indicated and the
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results of operations for the respective periods specified.
(iv) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and no
proceeding for that purpose has been instituted or, to the knowledge of
the executive officers of the Company, after due inquiry, threatened by
the Commission or by the state securities authority of any jurisdiction.
No order preventing or suspending the use of the Prospectus has been
issued and no proceeding for that purpose has been instituted or, to the
knowledge of the executive officers of the Company, after due inquiry,
threatened by the Commission or by the state securities authority of any
jurisdiction.
(v) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise described therein, and giving pro forma effect to the
Acquisition (as described in the Prospectus), (A) there has been no
change in the condition, financial or otherwise, in the earnings, assets,
business affairs or business prospects of the Company or any of its
Subsidiaries, whether or not arising in the ordinary course of business,
which would be materially adverse to the Company and its Subsidiaries
taken as a whole (any change being hereinafter referred to as a
"Material Adverse Change"), (B) there has been no casualty, loss or
condemnation or other adverse event with respect to any of the hotel
properties in which the Company or any of its Subsidiaries will own as of
the Closing Date (the "Hotels") which would have a material adverse
effect on the earnings, assets, business affairs or business prospects of
the Company, its Subsidiaries or the Hotels, which would be materially
adverse to the Company and its Subsidiaries taken as a whole (a "Material
Adverse Effect"), (C) there have been no transactions or acquisitions
entered into by the Company or any of its Subsidiaries, other than those
in the ordinary course of business, which would have a Material Adverse
Effect, (D) there have been no changes to any of the management
agreements which the Company has entered into with various hotel property
owners, other than
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<PAGE> 8
those in the ordinary course of business, which would have a Material
Adverse Effect, (E) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock, and (F) there has been no change in the capital shares of the
Company, or any increase in the indebtedness of the Company or any of its
Subsidiaries or encumbering of the Hotels which would have a Material
Adverse Effect. For purposes of this Agreement, "Subsidiary" means, with
respect to any party, any corporation or other entity, whether
incorporated or unincorporated of which more than 50% of either the
equity interests is, or voting control of corporation or other entity
is, directly or indirectly through subsidiaries, beneficially owned by
the Company.
(vi) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Pennsylvania, with corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus and to enter into and perform its obligations under
this Agreement and the U.S. Pricing Agreement and the other Company
Documents (as hereinafter defined) to which it is a party; and the
Company is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which qualification is
required, whether by reason of the ownership, leasing or management of
property or the conduct of business, except where the failure to so
qualify would not have a Material Adverse Effect.
(vii) Each of the Company's Subsidiaries that is a limited
partnership (collectively, the "Partnership Subsidiaries") and would
constitute a "significant subsidiary" under Rule 1-02 of Regulation S-X
under the Securities Act has been duly formed and is validly existing as
a limited partnership in good standing under and by virtue of the laws of
the state of its formation, with the requisite partnership power and
authority to own, lease and manage its properties, to conduct the
business in which it is engaged or proposes to engage as described in the
Prospectus and to enter into and
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<PAGE> 9
perform its obligations under the Company Documents (as defined herein)
to which it is a party. Each of the Partnership Subsidiaries is duly
qualified or registered as a foreign entity to transact business and is
in good standing in each jurisdiction in which qualification is
required, whether by reason of the ownership, leasing or management of
property or the conduct of business, except where the failure to so
qualify would not have a Material Adverse Effect.
(viii) Each of the Company's Subsidiaries that is a
corporation (the "Corporate Subsidiaries," and collectively with the
Partnership Subsidiaries, the "Subsidiaries") and would at the Closing
Time constitute a "significant subsidiary" under Rule 1-02 of Regulation
S-X under the Securities Act ("Significant Subsidiary") is a corporation
duly incorporated and validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation with the requisite
corporate power and authority to own, lease and manage its properties, to
conduct the business in which it is engaged or proposes to engage and to
enter into and perform its obligations under the Company Documents to
which it is a party. Each of the Corporate Subsidiaries is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which qualification is required,
whether by reason of the ownership, leasing or management of property or
the conduct of business, except where the failure to so qualify would not
have a Material Adverse Effect. As of the Closing Time, all of the
issued and outstanding capital stock of each of the Corporate
Subsidiaries will be duly authorized, validly issued, fully paid and
non-assessable, and except as described, or in respect of indebtedness
which is described, in the Prospectus, all of capital stock will be
owned by the Company, directly or through the Company's Subsidiaries,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or restriction other than any lien or encumbrance
imposed by any Subsidiaries' organizational documents or by shareholder
agreements. No shares of capital stock of the Company's Subsidiaries are
reserved for any purpose, and there are no outstanding securities
convertible
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<PAGE> 10
into or exchangeable for any capital stock of the Company's Subsidiaries
and no outstanding options, rights (preemptive or otherwise) or warrants
to purchase or to subscribe for shares of capital stock or any other
securities of Company's Subsidiaries other than pursuant to
Subsidiaries' respective organizational documents.
(ix) At the Closing Time, the capital shares of the Company
will be as set forth in the Prospectus under "Capitalization" and
"Description of Capital Stock." All the issued and outstanding shares of
Common Stock of the Company have been duly authorized and are validly
issued, fully paid and non-assessable and have been offered and sold in
compliance with all applicable laws (including, without limitation,
federal or state securities laws). No shares of the capital stock of the
Company are reserved for any purpose except as described in the
Prospectus. Except as described in the Prospectus and except as granted
under this Agreement, there are no outstanding securities convertible
into or exchangeable for any capital stock of the Company and there are
no outstanding options, rights (preemptive or otherwise) or warrants to
purchase or to subscribe for Common Stock or any other securities of the
Company.
(x) The Securities have been duly authorized for issuance and
sale to the U.S. Underwriters pursuant to this Agreement, and, when
issued and delivered by the Company pursuant to this Agreement against
payment of the consideration set forth in the U.S. Pricing Agreement,
will be validly issued, fully paid and non-assessable. The terms of the
Common Stock conform in all material respects to all statements and
descriptions related thereto contained in the Prospectus. The issuance
of the Securities is not subject to any preemptive or other similar
rights, other than pursuant to the Registration Rights Agreement
(referred to in the Prospectus under "The Organization, Acquisition and
Financing Plan") and the Stockholders' Agreements (as hereinafter
defined).
(xi) All shares of Common Stock (other than the Securities)
issued or to be issued, at or
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<PAGE> 11
prior to the Closing Time, in connection with the Transactions (as
hereinafter defined) have been duly authorized for issuance by the
Company, and as of the Closing Time upon payment therefor as provided
herein will be validly issued, fully paid and non-assessable.
(xii) None of the Company or any of its Subsidiaries (the
"Transaction Entities") is in violation of its certificate or articles of
incorporation, by-laws, certificate of partnership, partnership
agreement, certificate of formation, limited liability company agreement
or other similar governing document, as the case may be, and none of the
Transaction Entities is in default in the performance or observance of
any obligation, agreement covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument or of any applicable law, rule, order, administrative
regulation or administrative or court decree, to which entity is a party
or by which entity may be bound, or to which any of its property or
assets or any Hotel may be bound or subject, except for violations and
defaults that would not, individually or in the aggregate, have a
Material Adverse Effect.
(xiii) (A) This Agreement has been duly and validly
authorized, executed and delivered by the Company and, assuming due
authorization, execution and delivery by the Representatives, is a valid
and binding agreement of the Company; (B) at the Representation Date, the
Pricing Agreement will have been duly and validly authorized, executed
and delivered by the Company, and assuming due authorization, execution
and delivery by the Representatives, will be a valid and binding
agreement of the Company; (C) at the Closing Time, the two Stockholders'
Agreements among the Company and the other parties signatory thereto (the
"Stockholders' Agreements") will be duly and validly authorized, executed
and delivered by the Company or its Subsidiaries that are parties there-
to, and will be valid and binding agreements of the Company or its
Subsidiaries that are parties thereto, enforceable against each of the
Company or its Subsidiaries that are parties thereto in accordance with
their terms,
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<PAGE> 12
except as enforceability may be limited by (i) bankruptcy, moratorium,
insolvency or other similar laws generally affecting the enforcement of
creditors' rights, (ii) general principles of equity, whether considered
in a proceeding in equity or at law, and (iii) the unenforceability under
certain circumstances under law or court decisions of provisions
providing for the indemnification of or contribution to a party with
respect to a liability where indemnification or contribution is against
public policy; (D) at the Closing Time, the Registration Rights Agreement
among the Company and the other parties signatory thereto (the
"Registration Rights Agreement") will be duly and validly authorized,
executed and delivered by the Company or its Subsidiaries that are
parties thereto, will be a valid and binding agreement of the Company or
its Subsidiaries that are parties thereto, and will be enforceable
against the Company or its Subsidiaries that are parties thereto in
accordance with its terms, except as enforceability may be limited by (i)
bankruptcy, moratorium, insolvency or other similar laws generally
affecting the enforcement of creditors' rights, (ii) general principles of
equity, whether considered in a proceeding in equity or at law, and (iii)
the unenforceability under certain circumstances under law or court
decisions of provisions providing for the indemnification of or
contribution to a party with respect to a liability where indemnification
or contribution is against public policy; (E) at the Closing Time, the
Credit Agreement among the Company, Interstate Hotels Corporation ("IHC"),
Credit Lyonnais New York Branch, and the other banks signatory thereto
(the "Credit Agreement") will be duly and validly authorized, executed and
delivered by the parties thereto, will be a valid and binding agreement of
the parties thereto, and will be enforceable against the parties thereto
in accordance with its terms; (F) the Option Agreement dated as of October
12, 1995, as amended December 15, 1995 and March 29, 1996, among IHC and
the other parties signatory thereto (the "Option Agreement") has been duly
and validly authorized, executed and delivered by IHC and IHC Member
Corporation, is a valid and binding agreement of IHC and IHC Member
Corporation, and is enforceable against IHC and IHC Member Corporation in
accordance with its terms, except as enforceability may be limited by
bankruptcy, moratorium, insolvency or other similar laws generally
affecting the enforcement of creditors' rights and by general principles
of equity, whether considered in a proceeding in equity or at law; (G) the
Agreement of Purchase and Sale, dated as of March 29, 1996, among IHC
Member Corporation and the other parties signatory thereto (the "Purchase
and Sale Agreement") has been duly and validly authorized, executed and
delivered by IHC Member Corporation, is a valid and binding agreement of
IHC Member Corporation,
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<PAGE> 13
and is enforceable against IHC Member Corporation in accordance with its
terms, except as enforceability may be limited by bankruptcy,
moratorium, insolvency or other similar laws generally affecting the
enforcement of creditors' rights and by general principles of equity,
whether considered in a proceeding in equity or at law; and (H) the
Contribution Agreement, dated as of March 29, 1996, among IHC and the
other parties signatory thereto (the "Contribution Agreement") has been
duly and validly authorized, executed and delivered by IHC, is a valid
and binding agreement of IHC, and is enforceable against IHC in
accordance with its terms, except as enforceability may be limited by
bankruptcy, moratorium, insolvency or other similar laws generally
affecting the enforcement of creditors' rights and by general principles
of equity, whether considered in a proceeding in equity or at law. This
Agreement, the U.S. Pricing Agreement, the Stockholders' Agreements, the
Registration Rights Agreement, the Credit Agreement, the Option
Agreement, the Purchase and Sale Agreement, the Contribution Agreement
and the Transaction Agreements (defined below) are sometimes hereinafter
collectively called the "Company Documents."
(xiv) The performance of the obligations set forth herein or
in the other Company Documents and the consummation of the Transactions
or the
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<PAGE> 14
other transactions contemplated hereby and thereby or in the Prospectus
by the Transaction Entities will not conflict with or constitute a breach
or violation by parties of, or default under or result in the creation
or imposition of any lien, charge or encumbrance upon any Hotel or any
other property or asset of a Transaction Entity under, (A) any of the
other Company Documents; (B) any material contract, indenture, mortgage,
loan agreement, note, lease, joint venture or partnership agreement or
other instrument or agreement to which any Transaction Entity is a party
or by which they, any of them, any of their respective properties or
other assets or any Hotel may be bound or subject; (C) the certificate or
articles of incorporation, by-laws, certificate of limited partnership,
partnership agreement or other governing documents, as the case may be,
of any Transaction Entity, or (D) any applicable law, rule, order,
administrative regulation or administrative or court decree, in each case
except for conflicts, breaches, violations or defaults that would not
have a Material Adverse Effect.
(xv) The execution and delivery of all material agreements and
documents executed in connection with or in contemplation of the
transactions (collectively, the "Transactions") described in the
Prospectus as "The Organization," "Acquisition of Owned Hotels,"
"Acquisition of Additional Hotels," and "The Financing Plan" under the
heading "THE ORGANIZATION, ACQUISITION AND FINANCING PLAN" (the
"Transaction Agreements"), and the performance of the obligations set
forth therein and the consummation of the Transactions or the
transactions contemplated thereby by the Transaction Entities have been
duly and validly authorized by all necessary corporate or partnership
action, as the case may be, by or on behalf of the Transaction Entities.
Except as described in the Prospectus (including, without limitation, the
transactions described in the Prospectus under the heading "The
Organization, Acquisition and Financing Plan -- Acquisition of Additional
Hotels"), each of the Transactions will have been completed on or before
the Closing Time.
(xvi) None of the Company's commitments to a partnership formed
between or among one or more
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<PAGE> 15
affiliates of the Company and one or more affiliates of Blackstone Real
Estate Advisors, L.P. (the "Interstone III Partnership"), including, but
not limited to the capital commitments described under "The Organization
and Financing Plan -- Acquisition of Owned Hotels" in the Prospectus is
expected to result in any Material Adverse Effect.
(xvii)(a) No labor dispute with the employees of any
Transaction Entity exists or is imminent, and (b) none of the executive
officers of the Company is aware of any existing or imminent labor
disturbance by the employees of any of the Transaction Entities'
principal suppliers, manufacturers or contractors, which, in the case of
either (a) or (b), could reasonably be expected to result in any Material
Adverse Effect.
(xviii) There is no action, suit or proceeding before or by
any court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the executive officers of the Company,
after due inquiry, threatened against or affecting any Transaction
Entity, Hotel or officer or director of the Company that is required to
be disclosed in the Registration Statement or the Prospectus or that, if
determined adversely to any Transaction Entity, Hotel, or officer or
director, considered in the aggregate will or could reasonably be
expected to (A) have a Material Adverse Effect, or (B) materially and
adversely affect the consummation of the Transactions.
(xix) Except as described in the Prospectus, there are no
pending legal or governmental proceedings to which any Transaction Entity
is a party or of which they or any of their respective properties or
assets or any Hotel is the subject, including ordinary routine litigation
incidental to the business, that, considered in the aggregate, could
reasonably be expected to have a Material Adverse Effect. There are no
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments which are required to be described or referred to in the
Registration Statement or to be filed as exhibits to the Registration
Statement by the 1933 Act or by the 1933 Act Regulations which
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<PAGE> 16
have not been so described, referred to or filed, and the descriptions
thereof or references thereto in the Registration Statement are accurate
in all material respects.
(xx) Except as described in the Prospectus, each of the
Transaction Entities has filed all federal, state, local and foreign
income tax returns which have been required to be filed (except in any
case in which the failure to so file would not have a Material Adverse
Effect), and has paid all taxes required to be paid and any other
assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable, except, in all cases, for any tax,
assessment, fine or penalty that is being contested in good faith (except
in any case in which the failure to so pay would not have a Material
Adverse Effect).
(xxi) None of the Transaction Entities is, and at Closing Time
none of the Transaction Entities will be, required to be registered under
the Investment Company Act of 1940, as amended (the "1940 Act").
(xxii) Except as described in the Prospectus, the Company and
its Subsidiaries own or possess, or can acquire on reasonable terms, the
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names (collectively, "proprietary
rights") material to the conduct of the business now operated by them,
and none of the Company or any of its Subsidiaries has received any
notice nor is any executive officer of the Company otherwise aware of any
infringement of or conflict with asserted rights of others with respect
to any proprietary rights, or of any facts which would render any
proprietary rights invalid or inadequate to protect the interest of
Transaction Entity therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling, or finding) or invalidity or
inadequacy, singly or in the aggregate, would have a Material Adverse
Effect.
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(xxiii) No authorization, approval, consent or order of any
court or governmental authority or agency or other entity or person is
required to be obtained by any Transaction Entity in connection with the
offering, issuance or sale of the Securities hereunder, except as may be
required under the 1933 Act or the 1933 Act Regulations or state
securities or real estate syndication laws or the by-laws and rules of
the National Association of Securities Dealers, Inc. (the "NASD") or as
have been received prior to the date of this Agreement. No consent is
required to be obtained by any Transaction Entity in connection with the
consummation of any part of the Transactions, for which the failure to
obtain consent would have a Material Adverse Effect, except as may have
been received prior to the date of this Agreement.
(xxiv) Each of the Transaction Entities possesses, or has made
application for, certificates, authorizations or permits issued by the
appropriate local, state, federal or foreign regulatory agencies or
bodies necessary to conduct the business now operated by it, or proposed
to be conducted by it, except for certificates, authorizations and
permits, the failure to obtain, maintain or possess of which by any of
the Transaction Entities would not have a Material Adverse Effect, and
none of the Transaction Entities have received any notice of proceedings
relating to the revocation or modification of any certificate, authority
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(xxv) Except as described in the Prospectus or pursuant to the
Registration Rights Agreement or Stockholders' Agreements, there are no
persons with registration or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered
by the Company under the 1933 Act.
(xxvi) The Securities have been approved for listing on the
New York Stock Exchange upon notice of issuance.
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(xxvii) At the Closing Time, (A) the Transaction Entities will
have good indefeasible title or a valid leasehold estate, as the case may
be, to each of the Hotels and other real property interests indicated in
the Prospectus to be owned or leased by the Company (or its
Subsidiaries), in each case free and clear of all liens, encumbrances,
claims, security interests and defects, other than (i) those referred to
in the Prospectus, (ii) mortgages and security agreements relating to the
Hotels, (iii) those referred to in the existing title insurance policies
pertaining to the Hotels, and (iv) those which would not have a Material
Adverse Effect; (B) there will be no options or rights of first refusal
to purchase any Hotel, any interest therein or any part thereof, other
than those referred to in the Prospectus; (C) each of the Hotels will
comply with all applicable codes, laws and regulations (including,
without limitation, building and zoning codes, laws and regulations and
laws relating to access to the Hotels), except for failures to comply
that would not have Material Adverse Effect, and (D) the executive
officers of the Company shall have no knowledge of, after due inquiry,
any pending or threatened condemnation proceeding, zoning change or other
proceeding or action that would have a Material Adverse Effect.
(xxviii) The Transaction Entities have obtained title
insurance on the fee and ground lease interests in each of the Hotels in
which the Company has an ownership interest, in an amount at least equal
to the purchase price of each owned Hotel.
(xxix) Except as disclosed in the Prospectus, and, except for
activities, conditions, circumstances or matters that would not have a
Material Adverse Effect, (A) to the knowledge of the executive officers
of the Company, after due inquiry, the operations of the Transaction
Entities are in compliance with all Environmental Laws (as defined below)
and all requirements of applicable permits, licenses, approvals and other
authorizations issued pursuant to Environmental Laws; (B) to the
knowledge of the executive officers of the Company, after due inquiry,
none of the Transaction Entities has caused or suffered to occur any
Release
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(as defined below) of any Hazardous Substance (as defined below) into the
Environment (as defined below) on, in or under or from any Hotel or any
developed or undeveloped land held (at any time) by any of the
Transaction Entities, and no condition exists on, in or under to any
Hotel that could reasonably be expected to result in the Company
violating, or incurring liability under, any Environmental Law or give
rise to the imposition of any Lien (as defined below) under any
Environmental Law; (C) none of the Transaction Entities has received any
written notice of a claim under or pursuant to any Environmental Law or
under common law pertaining to Hazardous Substances on, in, under or
originating from any Hotel; (D) none of the executive officers of the
Company has knowledge of, after due inquiry, nor has any Transaction
Entity received any written notice from any Governmental Authority (as
defined below) or other person claiming any violation of any
Environmental Law or a determination to undertake and/or request the
investigation, remediation, clean-up or removal of any Hazardous
Substance released into the Environment on, in, under or from any Hotel;
and (E) no Hotel is included or, to the knowledge of the executive
officers of the Company, after due inquiry, proposed for inclusion on the
National Priorities List issued pursuant to CERCLA (as defined below) by
the United States Environmental Protection Agency (the "EPA") or on the
Comprehensive Environmental Response, Compensation, and Liability
Information System database maintained by the EPA, and the executive
officers of the Company have no knowledge, after due inquiry, that any
Hotel has otherwise been identified in a published writing by the EPA as
a potential CERCLA removal, remedial or response site or, to the
knowledge of the executive officers of the Company, after due inquiry,
proposed for inclusion on any similar list of potentially contaminated
sites pursuant to any other Environmental Law.
As used herein, "Hazardous Substance" shall include any hazardous
substance, hazardous waste, toxic substance, pollutant, hazardous material, or
similarly designated materials including, without limitation, oil, petroleum
or any petroleum-derived substance or waste, asbestos or asbestos-containing
materials, PCB's, pesti-
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cides, explosives, radioactive materials, dioxins, urea formaldehyde
insulation or any constituent of any substance, pollutant or waste which is
identified, regulated, prohibited or limited under any Environmental Law
(including, without limitation, materials listed in the United States
Department of Transportation Optional Hazardous Material Table, 49 C.F.R.
Section 172.101, or in the EPA's List of Hazardous Substances and Reportable
Quantities, 40 C.F.R. Part 302 as the same may now or hereafter be amended;
"Environment" shall mean any surface water, drinking water, ground water, land
surface, subsurface strata, river sediment, buildings, structures, workplace
and indoor and outdoor air; "Environmental Law" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section Section 9601, et seq.) ("CERCLA"), the Resource Conservation
and Recovery Act of 1976, as amended (42 U.S.C. Section Section 6901, et
seq.), the Clean Air Act, as amended (42 U.S.C. Section Section 7401, et
seq.), the Clean Water Act, as amended (33 U.S.C. Section Section 1251, et
seq.), the Toxic Substances Control Act, as amended (15 U.S.C. Section Section
2601, et seq.), the Occupational Safety and Health Act of 1970, as amended (29
U.S.C. Section Section 651, et seq.), the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Section Section 1801, et seq.), and all other
federal, state and local laws, ordinances, regulations, rules and orders
relating to the protection of the environment or of human health from
environmental effects; "Governmental Authority" shall mean any federal, state
or local governmental office, agency or authority having the duty or authority
to promulgate, implement or enforce any Environmental Law; "Lien" shall mean,
with respect to any Hotel, any mortgage, deed of trust, pledge, security
interest, lien, encumbrance, penalty, fine, charge, assessment, judgment or
other liability in, on or affecting Hotel; and "Release" shall mean any
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, emanating or disposing of any
Hazardous Substance into the Environment, including, without limitation, the
abandonment or discard of barrels, containers, tanks (including, without
limitation, underground storage tanks) or other receptacles containing or
previously containing any Hazardous Substance or any release, emission,
discharge or similar term, as those terms are defined or used in any
Environmental Law.
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(xxx) To the actual knowledge of the executive officers of the
Company, none of the environmental consultants retained by the Company or any
Subsidiary which prepared environmental and asbestos inspection reports with
respect to any of the Hotels was employed for purpose on a contingent basis
or has any substantial interest in any Transaction Entity, and none of them
nor any of their directors, officers or employees is connected with any
Transaction Entity as a promoter, selling agent, voting trustee, director,
officer or employee.
(b) Any certificate signed by any executive officer or authorized
representative of the Company and delivered to the Representatives or to
counsel for the U.S. Underwriters shall be deemed a representation and
warranty by entity or person, as the case may be, to each U.S. Underwriter as
to the matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the
Company agrees to sell to each U.S. Underwriter, severally and not jointly,
and each U.S. Underwriter, severally and not jointly, agrees to purchase from
the Company, at the price per share set forth in the U.S. Pricing Agreement,
the number of Initial U.S. Securities set forth in Schedule A hereto opposite
the name of U.S. Underwriter (except as otherwise provided in the U.S.
Pricing Agreement), plus any additional number of Initial U.S. Securities
which U.S. Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(i) If the Company has elected not to rely upon Rule 430A
under the 1933 Act Regulations, the initial public offering price and the
purchase price per share to be paid by the several U.S. Underwriters for
the Securities each have been determined and set forth in the U.S.
Pricing Agreement and an amendment to the Registration Statement and the
Prospectus will be filed before the Registration Statement becomes
effective.
(ii) If the Company has elected to rely upon Rule 430A under
the 1933 Act Regulations, the
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<PAGE> 22
purchase price per share to be paid by the several U.S. Underwriters for
the Securities shall be an amount equal to the initial public offering
price, less an amount per share to be determined by agreement between the
Representatives and the Company. The initial public offering price per
share of the Securities shall be a fixed price to be determined by
agreement among the Representatives and the Company. The initial public
offering price and the purchase price, when so determined, shall be set
forth in the U.S. Pricing Agreement. In the event that prices have not
been agreed upon and the U.S. Pricing Agreement has not been executed and
delivered by all parties thereto by the close of business on the
fourteenth business day following the date of this Agreement, this
Agreement shall terminate forthwith, without liability of any party to
any other party other than pursuant to Sections 6 and 7 hereof, unless
otherwise agreed to by the Company and the Representatives.
(b) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the U.S. Underwriters, severally and not
jointly, to purchase up to an additional 1,402,500 shares of Common Stock at
the price per share set forth in the U.S. Pricing Agreement solely to cover
over-allotments. The option hereby granted will expire 30 days after the date
hereof (or, if the Company has elected to rely on Rule 430A under the 1933 Act
Regulations, 30 days after the execution of the U.S. Pricing Agreement),
provided that if thirtieth day is not a New York Stock Exchange trading day,
the thirtieth day will be the next succeeding New York Stock Exchange trading
day and may be exercised in whole or in part from time to time only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial U.S. Securities upon notice by the
Representatives to the Company setting forth the number of Option U.S.
Securities as to which the several U.S. Underwriters are then exercising the
option and the time and date of payment and delivery for Option U.S.
Securities. Any time and date of delivery (a "Date of Delivery") shall be
determined by the Representatives, but shall not be later than seven full
business days nor earlier than two full business
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<PAGE> 23
days after the exercise of said option, nor in any event prior to the Closing
Time, as hereinafter defined, unless otherwise agreed upon by the
Representatives and the Company. If the option is exercised as to all or any
portion of the Option U.S. Securities, the Option U.S. Securities shall be
purchased by the U.S. Underwriters, severally and not jointly, in proportion
to their respective Initial U.S. Securities underwriting obligations as set
forth in Schedule A.
(c) Payment of the purchase price for, and delivery of certificates
for, the Initial U.S. Securities shall be made at the office of Jones, Day,
Reavis & Pogue ("Jones Day"), 599 Lexington Avenue, New York, New York 10022,
or at other place as shall be agreed upon by the Representatives and the
Company, at 10:00 A.M. on the fourth business day (or the third business day
if required under Rule 15c6-1 of the rules and regulations (the "1934 Act
Regulations") of the Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), or unless postponed in accordance with the
provisions of Section 10) following the date the Registration Statement
becomes effective (or, if the Company has elected to rely upon Rule 430A of
the 1993 Act Regulations, the fourth business day (or the third business day
if required under Rule 15c6-1 of the 1934 Act) after execution of the U.S.
Pricing Agreement), or other time not later than ten business days after
date as shall be agreed upon by the Representatives and the Company ( time and
date of payment and delivery being herein called "Closing Time"). In
addition, in the event that any or all of the Option U.S. Securities are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, Option U.S. Securities shall be made at the
above-mentioned offices of Jones Day, or at other place as shall be agreed
upon by the Representatives and the Company, on each Date of Delivery as
specified in the notice from the Representatives to the Company. Payment for
the Initial U.S. Securities shall be made to the Company by wire transfer in
immediately available funds, provided that it is understood and agreed that
interest on the aggregate purchase price for the Initial U.S. Securities in
federal funds for one day at Merrill Lynch's overnight borrowing rate shall be
deducted from payment and shall reduce the purchase price payable for the
Initial U.S. Securities by amount. Payment for the Option U.S. Securi-
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<PAGE> 24
ties shall be made to the Company by certified or official bank check or
checks drawn in New York Clearing House funds or similar next day funds
payable to the order of the Company, against delivery to the Representatives
for the respective accounts of the U.S. Underwriters of certificates for the
Securities to be purchased by them. Certificates for the Initial U.S.
Securities and the Option U.S. Securities, if any, shall be in denominations
and registered in names as the Representatives may request in writing at
least two business days before the Closing Time or the relevant Date of
Delivery, as the case may be. It is understood that each U.S. Underwriter has
authorized the Representatives, for its account, to accept delivery of,
receipt for, and make payment of the purchase price for, the Initial U.S.
Securities and the Option U.S. Securities, if any, which it has agreed to
purchase. Merrill Lynch, Montgomery, Morgan Stanley, Smith Barney and Credit
Lyonnais, individually and not as representatives of the U.S. Underwriters,
may (but shall not be obligated to) make payment of the purchase price for the
Initial U.S. Securities or the Option U.S. Securities, if any, to be purchased
by any U.S. Underwriter whose payment has not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but any payment
shall not relieve U.S. Underwriter from its obligations hereunder. The
certificates for the Initial U.S. Securities and the Option U.S. Securities,
if any, will be made available for examination and packaging by the
Representatives not later than 10:00 A.M. on the last business day prior to
Closing Time or the relevant Date of Delivery, as the case may be, in New
York, New York.
SECTION 3. Covenants of the Company.
The Company covenants with each U.S. Underwriter as follows:
(a) As soon as the Company is advised or otherwise obtains
knowledge of any of the following, the Company will promptly notify the
Representatives of (i) the effectiveness of the Registration Statement and any
amendment thereto (including any post-effective amendments), (ii) the receipt
of any comments from the Commission relating to the Registration Statement and
the Prospectus, (iii) any request by the Commission for any amendment to the
Registration Statement or any amendment
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<PAGE> 25
or supplement to the Prospectus or for additional information, and (iv) the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus or the suspension of qualification of the
Securities for offering or sale in any jurisdiction or the initiation or
threat of any proceedings for these purposes. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment), any Rule 462(b) Registration
Statement or any amendment or supplement to the Prospectus (including any
revised prospectus) which the Company proposes for use by the U.S.
Underwriters in connection with the offering of the Securities which differs
from the Prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not revised prospectus is required to
be filed pursuant to Rule 424(b) of the 1933 Act Regulations, the 1934 Act,
the 1934 Act Regulations or any Term Sheet. The Company will furnish the
Representatives with copies of any amendment or supplement a reasonable
amount of time prior to proposed filing or use, as the case may be, and will
not file any amendment or supplement or use any prospectus to which the
Representatives or counsel for the U.S. Underwriters reasonably shall object.
(c) The Company will deliver to the Representatives, as soon as
possible, as many signed and conformed copies of the Registration Statement as
originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein and documents incorporated by
reference therein) as the Representatives reasonably may request.
(d) The Company will furnish to each U.S. Underwriter, from time to
time during the period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, number of copies of the Prospectus (as amended
or supplemented) as U.S. Underwriter reasonably may request for the purposes
contemplated by
25
<PAGE> 26
the 1933 Act or the applicable rules and regulations of the Commission
thereunder.
(e) If any event shall occur as a result of which it is necessary,
in the opinion of counsel for the U.S. Underwriters, to amend or supplement
the Prospectus in order to comply with the 1933 Act or the 1934 Act or to make
the Prospectus not misleading in the light of the circumstances existing at
the time it is delivered to a purchaser, the Company forthwith will amend or
supplement the Prospectus (in form and substance reasonably satisfactory to
counsel for the U.S. Underwriters) so that, as so amended or supplemented, the
Prospectus will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances existing at the time it is delivered to a
purchaser, not misleading; and the Company will furnish to the U.S.
Underwriters a reasonable number of copies of amendment or supplement.
(f) The Company will endeavor, in cooperation with the U.S.
Underwriters, to qualify the Securities for offering and sale under the
applicable securities laws of states and other United States or foreign
jurisdictions as the Representatives may reasonably designate; provided,
however, the Company will not be required to qualify as a foreign corporation,
file a general consent to service of process in any jurisdiction, subject
itself to taxation in respect of doing business in any jurisdiction in which
it is not otherwise so subject, or provide any undertaking or make any change
in its charter, certificate of incorporation, by-laws or other governing
document that the Board of Directors of the Company reasonably determines to
be contrary to the best interests of the Company and its shareholders. In
each jurisdiction in which the Securities have been so qualified, the Company
will use all reasonable efforts to file statements and reports as may be
required by the laws of jurisdiction to continue qualification in effect for
so long a period as the Representatives reasonably may request for the
distribution of the Securities.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the close of
the Company's
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<PAGE> 27
fiscal year, an earnings statement (in form and in a manner complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the "effective date" (as defined in said Rule 158) of the
Registration Statement.
(h) The Company will use the net proceeds received by it from the
sale of the Securities in the manner specified in the Prospectus under "Use of
Proceeds."
(i) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A and/or Rule 434 of the 1933 Act Regulations, then immediately
following the execution of the U.S. Pricing Agreement, the Company will
prepare and file with the Commission in accordance with Rule 430A and/or Rule
434 and Rule 424(b) of the 1933 Act Regulations copies of an amended
Prospectus, or, if required by Rule 430A and/or Rule 434, a post-effective
amendment to the Registration Statement (including an amended Prospectus),
containing all information so omitted. If required, the Company will prepare
and file or transmit for filing a Rule 462(b) Registration Statement not later
than the date of execution of the U.S. Pricing Agreement. If a Rule 462(b)
Registration Statement is filed by the Company, the Company shall make payment
of, or arrange for payment of, the additional registration fee owing to the
Commission as required by Rule 111 of the 1933 Act Regulations.
(j) The Company, during the period when the Prospectus is required
to be delivered under the 1933 Act or the 1934 Act, will file all documents
required to be filed with the Commission pursuant to Sections 13, 14 or 15 of
the 1934 Act within the time periods required by the 1934 Act and the 1934 Act
Regulations.
(k) The Company will use its reasonable efforts to maintain the
listing of the Securities on the New York Stock Exchange.
(l) During a period 180 days from the Closing Time, the Company
will not, without the prior written consent of Merrill Lynch, directly or
indirectly, sell, offer to sell, transfer, pledge, hypothecate, grant any
27
<PAGE> 28
option for the sale of or otherwise dispose of, any shares of Common Stock or
any security convertible into or exchangeable or exercisable for shares of the
Common Stock, except for (i) Securities to be sold to the U.S. Underwriters,
(ii) the award of options or other rights or the issuance of Common Stock
pursuant to employee and director stock purchase, equity incentive and option
plans as described in the Prospectus, (iii) the issuance of Common Stock
(whether upon conversion, exchange or otherwise) in connection with an
acquisition, whether by purchase of assets, merger or other form of business
acquisition or combination transaction, provided that the foregoing
restrictions apply to the issued Common Stock, or (iv) the adoption of a
shareholder rights plan.
(m) During a period of three years from the Closing Time, the
Company will deliver to Merrill Lynch, on behalf of the Representatives
promptly upon their being mailed or filed, copies of all current, regular and
periodic reports of the Company mailed to its shareholders or filed with the
New York Stock Exchange or with the Commission or any governmental authority
succeeding to any of the Commission's functions other than reports on Form 3
or Form 4 or registration statements on Form S-8.
SECTION 4. Payment of Expenses; Financial Advisory Fees.
(a) The Company will pay all expenses incident to the performance
of its obligations under this Agreement, including (i) the printing and filing
of the Registration Statement as originally filed and of each amendment
thereto, of each preliminary prospectus, and of the Prospectus and any
amendments or supplements thereto, (ii) the cost of printing, or reproducing,
and distributing to the U.S. Underwriters copies of this Agreement and the
U.S. Pricing Agreement, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the U.S. Underwriters, (iv) the fees and
disbursements of the Company's counsel and accountants, (v) the qualification
of the Securities under securities laws and real estate syndication laws in
accordance with the provisions of Section 3(f) hereof, including filing fees
and the fees of counsel at their normal hourly rate, in an aggregate amount
not to exceed $20,000 and reasonable charges and disbursements for the U.S.
Underwriters in connection therewith and in connection with the preparation of
the "blue sky" survey, (vi) the cost of printing, or reproducing and
delivering to
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<PAGE> 29
the U.S. Underwriters copies of the "blue sky" survey, (vii) the fee of the
National Association of Securities Dealers, Inc., (viii) the fees and expenses
incurred in connection with the listing of the Securities on the New York
Stock Exchange, Inc., (ix) the costs and charges of any transfer agent or
registrar, and the cost of preparing share certificates, and (x) any transfer
taxes imposed on the sale of the Securities to the several U.S. Underwriters.
It is understood, however, that except as provided in this Section 4, the U.S.
Underwriters will pay all of their costs and expenses, including the fees and
disbursements of their counsel, and any expenses in connection with a
"tombstone" advertisement in connection with the offering of the Securities.
(b) If this Agreement is cancelled or terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements
of counsel for the U.S. Underwriters.
(c) At Closing Time, the Company shall pay to Merrill Lynch a fee
(a "Financial Advisory Fee") in consideration of the financial advisory
services provided to the Company by Merrill Lynch in connection with the
Financing Plan. The Financial Advisory Fee to Merrill Lynch shall be equal to
.25% of the purchase price paid by the U.S. Underwriters for the purchase and
sale of the U.S. Securities hereunder. Payment of the Financial Advisory Fee
shall be, at the option of the Merrill Lynch, deducted from the amount of the
purchase price payable for the U.S. Securities hereunder, or made by certified
or official bank check or similar next day funds payable to the order of
Merrill Lynch.
(d) At Closing Time, the Company shall pay to Merrill Lynch an
additional fee equal to .25% of the purchase price paid by the U.S.
Underwriters for the purchase and sale of the U.S. Securities hereunder in the
event the sale of Securities is consummated on or before June 30, 1996.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The
obligations of the U.S. Underwriters hereunder are subject to the accuracy in
all material
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<PAGE> 30
respects, as of the date hereof and at Closing Time, of the representations
and warranties of the Company herein contained, to the performance by the
Company of its obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York City time, on the date hereof, or with the
consent of the Representatives, at a later time and date, not later, however,
than 5:30 P.M., New York City time, on the first business day following the
date hereof, or at later time and date as may be approved by a majority in
interest of the U.S. Underwriters; and at the Closing Time, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by
the Commission or any state securities regulatory authority. If the Company
has elected to rely upon Rule 430A and/or Rule 434 of the 1933 Act
Regulations, (A) the price of the Securities and any price-related information
previously omitted from the effective Registration Statement pursuant to Rule
430A and/or Rule 434 shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) of the 1933 Act Regulations within the prescribed time
period and (B) prior to the Closing Time, the Company shall have provided
evidence satisfactory to the Representatives of timely filing, or a
post-effective amendment providing information shall have been promptly filed
and declared effective in accordance with the requirements of Rule 430A and/or
Rule 434 of the 1933 Act Regulations and shall have become effective not later
than 5:30 p.m., New York City time, on the Representation Date or, with the
consent of the Representatives, at a later time and date, not later, however,
than 5:30 p.m., New York City time, on the first business day following the
Representation Date, or of later date and time as shall have been approved by
a majority in interest of the Representatives. If a Rule 462(b) Registration
Statement is required, Rule 462(b) Registration Statement shall have been
transmitted to the Commission for filing and have become effective within the
prescribed time period, and, prior to the Closing Time, the Company shall have
provided to the U.S. Underwriters evidence of filing and effectiveness in
accordance with Rule 462(b) of the 1933 Act Regulations.
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<PAGE> 31
(b) At Closing Time the Representatives shall have received:
(1) The favorable opinion of Jones Day, in form and substance
reasonably satisfactory to counsel for the U.S. Underwriters, dated as of
the Closing Time, with respect to the matters set forth below:
(i) The Company and IHC have been duly incorporated and
are validly existing as corporations in good standing under the laws
of the Commonwealth of Pennsylvania with the requisite power and
authority to own or lease their properties and conduct their
business as described in the Prospectus, and the Company and IHC
have the requisite power and authority to enter into and perform
their obligations under the other Company Documents to which they
are a party.
(ii) IHC is duly qualified or registered as a foreign
corporation to transact business and is in good standing in the
states of Arizona, California, Colorado, Connecticut, Florida,
Georgia, Hawaii, Illinois, Maryland, Massachusetts, Michigan,
Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio,
Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Virginia and
Washington and in the District of Columbia and Toronto, Ontario.
(iii) The Company has the authorized and outstanding
capital as set forth under the caption "Capitalization" in the
Prospectus, and the authorized capital of the Company, including the
Securities, conforms in all material respects to the description
thereof set forth under the caption "Description of Capital Stock"
in the Prospectus. All the issued and outstanding shares of Common
Stock of the Company has been duly authorized and are validly
issued, fully paid and non-assessable. To the
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<PAGE> 32
knowledge of counsel, no shares of the capital stock of the Company
are reserved for any purpose except as described in the Prospectus.
To the knowledge of counsel, except as described in the Prospectus
and other than as provided in this Agreement, there are no
outstanding securities convertible into or exchangeable for any
capital shares of the Company and no outstanding options, rights
(preemptive or otherwise) or warrants to purchase or to subscribe
for shares of stock or any other securities of the Company.
(iv) The Securities have been duly authorized for
issuance and sale to the U.S. Underwriters and, when issued and paid
for in accordance with this Agreement and the U.S. Pricing
Agreement, will be validly issued, fully paid and non-assessable.
The issuance of the Securities is not subject to any preemptive or
other similar rights (other than pursuant to the Registration Rights
Agreement and the Stockholders' Agreements) arising under the
Pennsylvania Business Corporation Law, the Articles of Incorporation
or the by-laws of the Company, or any agreement to which the Company
is a party of which counsel is aware.
(v) Each of this Agreement and the U.S. Pricing Agreement
has been duly and validly authorized, executed and delivered by the
Company.
(vi) The execution and delivery of each of this Agreement
and the U.S. Pricing Agreement, and the performance by the Company
of its obligations set forth herein or therein do not and will not
conflict with or constitute a breach or violation of, or default
under: (1) any other Company Document; (2) any other contract or
agreement filed as an exhibit to the Registration Statement; (3) its
articles of incorporation or by-laws of the Company or (4) any law,
rule or administrative regulation applicable to the Company of any
governmental authority or agency of the United States or the
Commonwealth of Pennsylvania (except no opinion
32
<PAGE> 33
need be expressed as to the by-laws or rules of the NASD or any
state securities or real estate syndication laws); or (5) any order
or decree of any court or governmental authority of which counsel
is aware, except in each case for conflicts, breaches, violations or
defaults that, individually or in the aggregate, would not have a
Material Adverse Effect.
(vii) The Company is not an "investment company" or a
person "controlled by" an "investment company" within the meaning of
the 1940 Act.
(viii) No authorization, approval, consent or order of
any federal or state court or governmental authority or agency is
required in connection with the offering, issuance or sale of the
Securities hereunder, in each case, except as may be required in
connection with the sale of the Securities under the 1933 Act or the
1933 Act Regulations, the 1934 Act or the 1934 Act Regulations, the
by-laws and rules of the NASD, or state securities laws, real estate
syndication laws or as have been received prior to the date of
opinion.
(ix) At the time the Registration Statement became
effective, the Registration Statement (other than the operating
statistics, financial statements and other financial data included
therein or omitted therefrom, as to which no opinion need be
rendered) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
(x) To counsel's knowledge, there is no litigation or
governmental proceeding pending or threatened against the Company,
any of its Subsidiaries or any Hotel which would affect the subject
matter of this Agreement or is required to be described in the
Prospectus which is not so described.
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<PAGE> 34
(xi) The statements in the Prospectus under "Business and
Properties -- Operations" and "-- Host Funding Transaction,"
"Management," "The Organization, Acquisition and Financing Plan" and
"Certain Relationships and Related Transactions," insofar as they
purport to summarize the provisions of documents referred to
therein, and the statements in the Prospectus under "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Taxation,"
insofar as they purport to summarize the provisions of documents or
matters of law referred to therein or constitute legal conclusions
are accurate in all material respects.
(xii) To counsel's knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described in the Registration Statement,
or to be filed as exhibits thereto by the 1933 Act Regulations,
other than those described or referred to therein or filed as
exhibits thereto, and the descriptions thereof or references thereto
are accurate in all material respects.
(xiii) To counsel's knowledge, except as disclosed in
the Prospectus, there are no persons with registration or other
similar rights to have any securities of the Company registered
pursuant to the Registration Statement or otherwise registered by
the Company under the 1933 Act.
(xiv) The Securities are approved for listing on the New
York Stock Exchange upon official notice of issuance.
(xv) The Registration Statement has become effective
under the 1933 Act, and, to counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or
are pending or threatened by the Commission.
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<PAGE> 35
In addition, Jones Day shall state that representatives of firm
have participated in conferences with officers, directors and employees of the
Company, representatives of the independent public accountants who examined
the financial statements contained in the Registration Statement and
Prospectus and representatives of the U.S. Underwriters concerning the
information contained in the Registration Statement and Prospectus and the
proposed responses to various items in Form S-1. On the basis thereof
(relying as to materiality and matters of fact upon the opinions or
certificates of officers and other representatives of the Company), but
without independent verification by counsel of, and without passing upon or
assuming any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus or any
amendments or supplements thereto, no facts have come to the attention of
counsel that cause them to believe that (i) the Registration Statement (other
than the operating statistics, financial statements (including the notes
thereto) and other financial data included therein or omitted therefrom as to
which counsel expresses no views), at the time Registration Statement became
effective, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading or (ii) the Prospectus (other than
the operating statistics, financial statements and other financial and
statistical data included therein or omitted therefrom as to which counsel
expresses no views), as of its date or at the Closing Time, contained or
contains any untrue statement of a material fact or omitted or omits to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In giving its opinion, counsel may rely, as to all matters of fact,
upon certificates and written statements of officers, directors and employees
of and accountants for the Company. Counsel may state that their opinion is
limited to matters governed by the federal laws of the United States, the laws
of the State of New York and the Business Corporation Law of the Commonwealth
of Pennsylvania.
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<PAGE> 36
(2) The favorable opinion in form and substance reasonably
satisfactory to counsel for the Underwriters, dated as of the Closing
Time, of Marvin I. Droz, Esq., Senior Vice President and General Counsel
of the Company, with respect to the matters set forth below:
(i) The Company's Significant Subsidiaries other than IHC
(the "Other Subsidiaries") have been duly incorporated or formed and
are validly existing as corporations or entities in good standing
under the laws of the Commonwealth of Pennsylvania with the full
requisite power and authority to own or lease their properties and
conduct their business as described in the Prospectus, and the Other
Subsidiaries have the requisite power and authority to enter into
and perform their obligations under this Agreement and the other
Company Documents to which they are a party. The Other Subsidiaries
are duly qualified or registered as foreign corporations or entities
to transact business and are in good standing in each jurisdiction
in which qualifications are required, whether by reason of the
ownership, leasing or management of property or the conduct of
business, except where the failure to so qualify would not have a
Material Adverse Effect.
(ii) To counsel's knowledge, the Other Subsidiaries are
not in breach or violation of or default under (1) any of the
Company Documents; (2) any other contract, indenture, mortgage, loan
agreement, note, lease, joint venture or partnership agreement or
other instrument or agreement to which they are a party or by which
they are or any Hotel may be bound or subject to and of which
counsel is aware; (3) their articles of incorporation, by-laws or
other applicable governing document; (4) any applicable law, rule or
administrative regulation of the United States or the jurisdiction
of its incorporation; or (5) any order or administrative or court
decree of which counsel is aware, except for conflicts, breaches,
violations or defaults that,
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<PAGE> 37
individually or in the aggregate, would not have a Material Adverse
Effect.
(iii) The execution and delivery of the Company Documents
other than this Agreement and the U.S. Pricing Agreement and the
performance by the Other Subsidiaries of their obligations set forth
therein, do not and will not conflict with or constitute a breach or
violation of, or default under: (1) any of the Company Documents;
(2) any other contract, indenture, mortgage, loan agreement, note,
lease joint venture or partnership agreement or other instrument or
agreement to which the Other Subsidiaries are a party or by which
they are or any Hotel may be bound or subject to and of which
counsel is aware; (3) the articles of incorporation, by-laws or
other governing documents of the Other Subsidiaries; (4) any law,
rule or administrative regulation applicable to the Other
Subsidiaries of any governmental authority or agency of the United
States or the Commonwealth of Pennsylvania; or (5) any order or
administrative or court decree of which counsel is aware, except
for conflicts, breaches, violations or defaults, that, individually
or in the aggregate, would not have a Material Adverse Effect.
(iv) To counsel's knowledge, there is no litigation or
any legal or governmental proceeding pending or threatened against
the Other Subsidiaries or any Hotel which would affect the subject
matter of this Agreement.
In giving its opinion, counsel may (i) rely, as to all matters of
fact, upon certificates and written statements of officers, directors,
partners and employees of and accountants for the Company and the Subsidiaries
and (ii) state that his opinion is limited to matters governed by the federal
laws of the United States and the Business Corporation Law of the Commonwealth
of Pennsylvania. In addition, while counsel is the Company's General
Counsel, he would not necessarily be familiar with all legal matters affecting
the Company or any of its Subsidiaries.
(3) The favorable opinion, dated as of the Closing Time, of
Skadden, Arps, Slate, Meagher &
37
<PAGE> 38
Flom, New York, New York ("Skadden Arps"), counsel for the
Representatives, (A) with respect to the matters set forth in (vi) (with
respect to parts (1) and (5) only), (ix) (with respect to the Company
only and with respect to this Agreement and the U.S. Pricing Agreement
only), and (xiv) of subsection (b)(1) of this Section and (B) containing
a statement similar to the statement referred to in the first sentence of
the next to last paragraph of Section 5(b)(1).
In giving its opinion, Skadden Arps may rely, (A) as to all matters
of fact, upon certificates and written statements of officers and employees of
and accountants for the Company, (B) as to the good standing and qualification
of the Company to do business in any state or jurisdiction, upon certificates
of appropriate government officials or opinions of counsel in jurisdictions,
which opinions shall be in form and substance satisfactory to counsel for the
U.S. Underwriters, and (C) as to certain matters of law, upon the opinions
given pursuant to Sections 5(b)(1) and 5(b)(2) above.
(c) At Closing Time, (i) there shall not have been, since the date
hereof or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any Material Adverse Change, and
(ii) the Representatives shall have received a certificate of the President or
a Vice President and the chief financial or chief accounting officer (or
officer acting in a similar capacity) of the Company, dated as of the Closing
Time, evidencing compliance with the provisions of this subsection (c) and
stating that the representations and warranties in Section 1 hereof are true
and correct, in all material respects, with the same force and effect as
though expressly made at and as of Closing Time.
(d) At the time of the execution of this Agreement, the
Representatives shall have received from Coopers & Lybrand L.L.P. a letter,
dated the date of delivery thereof, in form and substance customary for
transactions as the Initial Public Offering, to the effect that (i) they are
independent public accountants with respect to the Company as required by the
1933 Act and the 1933 Act Regulations; (ii) it is its opinion that the
financial statements included in the Registra-
38
<PAGE> 39
tion Statement prepared by firm and covered by their opinions therein comply
as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations; (iii) based upon
limited procedures set forth in its letter, including a reading of the latest
available interim financial statements of the Company, a reading of the minute
books of the Company, inquiries of officials of the Company responsible for
financial and accounting matters and other inquiries and procedures as may be
specified in letter, nothing has come to its attention which causes Coopers &
Lybrand L.L.P. to believe that (A) the unaudited financial statements of the
Company included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the 1933 Act Regulations or are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included in the Registration Statement, (B)
the operating data and balance sheet data set forth in the Prospectus under
the captions "Pro Forma Financial Data" were not determined on a basis
substantially consistent with that used in determining the corresponding
amounts in the audited financial statements included in the Registration
Statement, (C) the pro forma financial information included in the
Registration Statement was not prepared in accordance with the applicable
requirements of the 1933 Act or the 1933 Act Regulations with respect to pro
forma financial information or was not determined on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement, or (D) at a specified date not more than five days
prior to the date of this Agreement, there has been any change in the capital
shares of the Company or any increase in the debt of the Company or any
decrease in the net assets of the Company as compared with the amounts shown
in March 31, 1996 historical financial information of the Company included in
the Registration Statement or, during the period from March 31, 1996 to a
specified date not more than five days prior to the date of this Agreement,
there were any decreases, as compared with the corresponding period in the
preceding year, in total revenues, net income or funds from operations of the
Company, except in all instances for changes, increases or decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur,
and (iv) in
39
<PAGE> 40
addition to the examination referred to in their opinions and the limited
procedures referred to in clause (iii) above, they have carried out certain
specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are included in the
Registration Statement and Prospectus and which are specified by the
Representatives, and have found amounts, percentages and financial
information to be in agreement with the relevant accounting, financial and
other records of the Company identified in letter.
(d) At the Closing Time, the Representatives shall have received
from Coopers & Lybrand L.L.P. a letter, dated the Closing Time, to the effect
that it reaffirms that statements made in the letter furnished pursuant to
subsection (d) of this Section, except that the "specified date" referred to
shall be a date not more than five days prior to the Closing Time and, if the
Company has elected to rely on Rule 430A of the 1933 Act Regulations, to the
further effect that they have carried out procedures as specified in clause
(iv) of subsection (d) of this Section with respect to certain amounts,
percentages and financial information specified by the Representatives and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and
have found amounts, percentages and financial information to be in agreement
with the records specified in clause (iv).
(e) At the Closing Time, the Securities shall be approved for
listing on the New York Stock Exchange upon official notice of issuance.
(f) At the Closing Time and at each Date of Delivery, if any,
counsel for the U.S. Underwriters shall have been furnished with documents
and opinions as they may reasonably require for the purpose of enabling them
to pass upon the issuance and sale of the Securities as herein contemplated
and related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Securities as herein contemplated shall be
reasonably satisfactory in form and substance to the Representatives and
counsel for the U.S. Underwriters.
40
<PAGE> 41
(g) At or prior to the Closing Time, the Representatives shall have
received a letter agreement from each director and executive officer of the
Company who is also a holder of Common Stock (the "Restricted Shares") and
Blackstone in form customary for transactions as the Initial Public Offering
to the effect that holder shall agree that during the period of 180 days from
the date hereof, holder will not, without the prior written consent of
Merrill Lynch, sell, offer to sell, transfer, grant any option for the sale
of, pledge, enter into any agreement to sell, or otherwise dispose of any
Restricted Shares, except (i) transfers to any family member or affiliate of
holder, including any trust established by holder, provided that the
foregoing restrictions apply thereto, (ii) transfers to the estate or legal
guardian of any other holder of shares of Common Stock, and (iii) pledges to
secure bona fide indebtedness or any disclosure of pledges.
(h) In the event that the U.S. Underwriters exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the Option
U.S. Securities, the representations and warranties of the Company contained
herein and the statements in any certificates furnished by the Transaction
Entities hereunder shall be true and correct in all material respects as of
the Date of Delivery and, at the Date of Delivery, the Representatives shall
have received:
(1) A certificate, dated Date of Delivery, of the President
or a Vice President and the chief financial or chief accounting officer
of the Company confirming that the certificates delivered at Closing Time
pursuant to Section 5(c) hereof remain true and correct in all material
respects as of Date of Delivery.
(2) The favorable opinion of Jones Day, in form and substance
reasonably satisfactory to counsel for the U.S. Underwriters, dated Date
of Delivery, relating to the Option U.S. Securities to be purchased on
Date of Delivery and otherwise to the same effect as the opinion required
by Section 5(b)(1) hereof.
(3) The favorable opinion of Marvin I. Droz, Esq., Senior Vice
President and General Coun-
41
<PAGE> 42
sel of the Company, in form and substance reasonably satisfactory to
counsel for the U.S. Underwriters, dated Date of Delivery and otherwise
to the same effect as the opinion required by Section 5(b)(2) hereof.
(4) The favorable opinion of Skadden Arps, counsel for the
U.S. Underwriters, dated Date of Delivery, relating to the Option U.S.
Securities to be purchased on Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(b)(3) hereof.
(5) A letter from Coopers & Lybrand L.L.P. in form and
substance reasonably satisfactory to the Representatives and dated Date
of Delivery, substantially the same in form and substance as the letter
furnished to the Representatives pursuant to Section 5(d) hereof, except
that the "specified date" in the letter furnished pursuant to this
Section 5(i)(5) shall be a date not more than five days prior to Date of
Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Representatives by notice to the Company at any time at or
prior to Closing Time, and termination shall be without liability of any
party to any other party except as provided in Section 4 hereof.
SECTION 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each U.S.
Underwriter and each person, if any, who controls any U.S. Underwriter within
the meaning of Section 15 of 1933 Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement, or alleged untrue statement, of a material fact contained
in the Registration Statement (or any amendment thereto), including
the information deemed to be part of the Registration Statement
pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable,
any information
42
<PAGE> 43
contained in any Rule 462(b) Registration Statement, if applicable,
any information contained in any Term Sheet, if applicable, or the
omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with written information
furnished to the Company by any U.S. Underwriter through the
Representatives expressly for use in the Registration Statement (or
any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided,
further, that this indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any U.S.
Underwriter from whom the person asserting any losses, liabilities,
claims, damages or expenses purchased Securities, or any person
controlling U.S. Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on
behalf of U.S. Underwriter to person, if is required by law, at
or prior to the written confirmation of the sale of Securities to
person and if the Prospectus (as so amended or supplemented) would
have corrected the defect giving rise to loss, liability, claim,
damage or expense;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever,
43
<PAGE> 44
as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any
claim whatsoever for which indemnification is provided under
subsection (i) above if settlement is effected with the written
consent of the indemnifying party; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the reasonable fees and
disbursements of one law firm chosen by Merrill Lynch to act as
counsel for all underwriters and their controlling persons),
reasonably incurred in investigating, preparing or defending against
any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever for which indemnification is provided under subsection
(i) or (ii) above, to the extent that any expense is not paid under
(i) or (ii) above.
(b) Each U.S. Underwriter severally agrees to indemnify and hold
harmless the Company, each of the Company's directors and each of the
Company's officers who signs the Registration Statement or any amendment
thereto and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a)(i),
(ii) and (iii) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in
the Registration Statement (or any amendment thereto) or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by U.S. Underwriter through the Representatives expressly for use in
the Registration Statement (or any amendment thereto) or preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any claims asserted
against or any action
44
<PAGE> 45
commenced against it in respect of which indemnity may be sought hereunder,
but failure to so notify an indemnifying party shall not relieve indemnifying
party from any liability which it may have otherwise than on account of this
indemnity agreement except to the extent the indemnifying party has been
prejudiced in any material respect by failure. An indemnifying party may
participate at its own expense in the defense of any action. If it so elects
within a reasonable time after receipt of notice, an indemnifying party,
jointly with any other indemnifying parties receiving notice, may assume the
defense of action with counsel chosen by it and reasonably approved by the
indemnified parties defendant in action, unless indemnified parties
reasonably object to assumption on the ground that there may be legal
defenses available to them which are different from or in addition to those
available to indemnifying party. If an indemnifying party assumes the
defense of action, the indemnifying parties shall not be liable for any fees
and expenses of counsel for the indemnified parties incurred thereafter in
connection with action. In no event shall the indemnifying parties be liable
for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 6 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement
of any claim or action effected without its written consent provided that
consent was not unreasonably withheld.
SECTION 7. Contribution.
In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in Section 6 is
for any reasons held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, the Company, on the one hand, and the
U.S. Underwriters, on the other hand, shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated
by said indemnity agreement incurred by the Company, on the one hand, and one
or more of the U.S. Underwriters, on the other hand, as incurred, in
45
<PAGE> 46
proportions that the U.S. Underwriters are responsible for that portion
represented by the percentage that the sum of the fees payable pursuant to
Sections 4(c) and (d) hereof and the underwriting discount appearing on the
cover page of the Prospectus bears to the initial public offering price
appearing thereon and the Company, responsible for the balance; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls a U.S. Underwriter
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as U.S. Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement, and each person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act shall have the same rights to contributions as the Company.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.
All representations, warranties and agreements contained in this
Agreement and the U.S. Pricing Agreement, or contained in certificates of
officers or authorized representatives of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any U.S. Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
(a) The Representatives may terminate this Agreement, by
written notice to the Company, at any time at or prior to Closing Time (i) if
there has been, since the date of this Agreement or since the respective dates
as of which information is given in the Registration Statement, any Material
Adverse Change, (ii) if there has occurred any material adverse change in the
financial markets in the United States or any outbreak of hostilities or
escalation of existing hostilities or other calamity or crisis the effect of
which on the financial markets of the United States is as to make it, in the
judgment of the Representatives, impracticable
46
<PAGE> 47
to market the Securities or to enforce contracts for the sale of the
Securities, or (iii) if trading in the Common Stock has been suspended by the
Commission or if trading generally on either the New York Stock Exchange, Inc.
or the American Stock Exchange, Inc. has been suspended, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by either of said Exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by any of Federal, New York or Pennsylvania authorities.
(b) If this Agreement is terminated pursuant to this Section,
termination shall be without liability of any party to any other party except
as provided in Sections 4 and 10 hereof. Notwithstanding any termination,
the provisions of Section 4, 6, and 7 shall remain in effect.
SECTION 10. Default by One or More of the Underwriters.
If one or more of the U.S. Underwriters shall fail at the Closing
Time to purchase the Initial U.S. Securities or on the Date of Delivery to
purchase the Option U.S. Securities which it or they are obligated to purchase
under this Agreement and the U.S. Pricing Agreement (the "Defaulted
Securities"), the Representatives shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting U.S.
Underwriters, or any other underwriters, to purchase all, but not less than
all, of the Defaulted Securities in amounts as may be agreed upon and upon
the terms herein set forth; if, however, the Representatives shall not have
completed arrangements within 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the Securities, each of the non-defaulting U.S. Underwriters shall be
obligated, severally and not jointly, to purchase the full amount thereof in
the proportions that its respective underwriting obligations hereunder bear to
the underwriting obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
Securities, this Agreement shall
47
<PAGE> 48
terminate without liability on the part of any non-defaulting U.S.
Underwriter; provided that if default occurs with respect to the Option U.S.
Securities after the Closing Time, this Agreement will not terminate as to the
Initial U.S. Securities.
No action taken pursuant to this Section shall relieve any
defaulting U.S. Underwriter from liability in respect of its default.
In the event of any default which does not result in a termination
of this Agreement, any of the Representatives or the Company shall have the
right to postpone Closing Time for a period not exceeding seven days in order
to effect any required changes in the Registration Statement or Prospectus or
in any other documents or arrangements.
SECTION 11. Notices.
All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if mailed or transmitted by any
standard form of telecommunication. Notices to the U.S. Underwriters shall be
directed to the Representatives at Merrill Lynch World Headquarters, North
Tower, World Financial Center, New York, New York 10281-1326, attention of
Michael F. Profenius, Managing Director, with a copy to Skadden, Arps, Slate,
Meagher & Flom, 919 Third Avenue, New York, New York 10022, attention of
Patrick J. Foye, Esq.; notices to the Company shall be directed to it at
Foster Plaza 10, 680 Andersen Drive, Pittsburgh, Pennsylvania 15220, attention
of Marvin I. Droz, Senior Vice President and General Counsel, with a copy to
Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022,
attention of Robert A. Profusek, Esq.
SECTION 12. Parties.
This Agreement and the U.S. Pricing Agreement shall each inure to
the benefit of and be binding upon the parties hereto and their respective
successors. Nothing expressed or mentioned in this Agreement or the U.S.
Pricing Agreement is intended or shall be construed to give any person, firm
or corporation, other than those referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or
48
<PAGE> 49
claim under or in respect of this Agreement or the U.S. Pricing Agreement or
any provision herein or therein contained. This Agreement and the U.S.
Pricing Agreement and all conditions and provisions hereof and thereof are
intended to be for the sole and exclusive benefit of the parties hereto and
thereto and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities
from any U.S. Underwriter shall be deemed to be a successor by reason merely
of practice.
13. Governing Laws and Time.
This Agreement and the Pricing U.S. Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said State. Specified times of day
refer to New York City time. If the foregoing is in accordance with your
understanding of our agreement, please sign and return to the Company a
counterpart hereof, whereupon this instrument, along with all counterparts,
will become a binding agreement among the U.S. Underwriters and the Company in
accordance with its terms.
Very truly yours,
INTERSTATE HOTELS COMPANY
By:
Name: W. Thomas Parrington, Jr.
Title: President and Chief
Executive Officer
Confirmed and Accepted,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MONTGOMERY SECURITIES
MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY INC.
CREDIT LYONNAIS SECURITIES (USA) INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: -------------------------------------------
Name:
Title: Authorized Signatory
For themselves and as Representatives of the other
U.S. Underwriters named in Schedule A hereto.
49
<PAGE> 50
SCHEDULE A
<TABLE>
Number of
Initial U.S.
Name of U.S. Underwriter Securities
- - ------------------------ ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . .
Montgomery Securities . . . . . . . . . . . .
Morgan Stanley & Co. Incorporated . . . . . .
Smith Barney Inc. . . . . . . . . . . . . . .
Credit Lyonnais Securities (USA) Inc. . . . .
[ADD OTHER UNDERWRITERS]
</TABLE>
<PAGE> 51
EXHIBIT A
9,350,000 Shares
INTERSTATE HOTELS COMPANY
(a Pennsylvania corporation)
Common Stock
(Par Value $.01 Per Share)
U.S. PRICING AGREEMENT
June 20, 1996
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MONTGOMERY SECURITIES
MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY INC.
CREDIT LYONNAIS SECURITIES (USA) INC.
as Representative of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Reference is made to the U.S. Purchase Agreement dated June 20, 1996,
(the "U.S. Purchase Agreement") relating to the purchase by the several U.S.
Underwriters named in Schedule A thereto (the "U.S. Underwriters"), for whom
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Ex. A-1
<PAGE> 52
Incorporated, Montgomery Securities, Morgan Stanley & Co. Incorporated, Smith
Barney Inc. and Credit Lyonnais Securities (USA) Inc. are acting as
representatives (the "Representatives"), of the above shares of common stock
(the "Securities") of Interstate Hotels Company (the "Company").
Pursuant to Section 2 of the U.S. Purchase Agreement, the Company agrees
with each U.S. Underwriter as follows:
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $21.
2. The purchase price per share for the Securities to be paid by the
U.S. Underwriters shall be $19.625, being an amount equal to the initial
public offering price set forth above less $1.375 per share.
Ex. A-2
<PAGE> 53
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the U.S. Underwriters and the Company in accordance with its
terms.
Very truly yours,
INTERSTATE HOTELS COMPANY
By: -------------------------------------
Name: W. Thomas Parrington, Jr.
Title: President and Chief
Executive Officer
Confirmed and Accepted,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MONTGOMERY SECURITIES
MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY INC.
CREDIT LYONNAIS SECURITIES (USA) INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ------------------------------------------------------------
Name:
Title: Authorized Signatory
For themselves and as Representatives of the other
U.S. Underwriters named in the U.S. Purchase Agreement.
Ex. A-3
<PAGE> 1
Exhibit 1.1(b)
1,650,000 Shares
INTERSTATE HOTELS COMPANY
(a Pennsylvania corporation)
Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
June 20, 1996
MERRILL LYNCH INTERNATIONAL
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
CREDIT LYONNAIS SECURITIES
MONTGOMERY SECURITIES
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SMITH BARNEY INC.
as Representatives of the several International
Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Interstate Hotels Company, a Pennsylvania corporation (the
"Company"), confirms its agreement with Merrill Lynch International, Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Credit Lyonnais
Securities ("Credit Lyonnais"), Montgomery Securities ("Montgomery"), Morgan
Stanley & Co. International Limited ("Morgan Stanley") and Smith Barney Inc.
("Smith Barney"), and each of the other underwriters named in Schedule A hereto
(collectively, the "International Underwriters," which term shall also include
any underwriter substituted as hereinafter provided in Section 10 hereof), for
whom Merrill Lynch, Credit Lyonnais,
<PAGE> 2
Montgomery, Morgan Stanley and Smith Barney are acting as representatives (in
such capacity, Merrill Lynch, Credit Lyonnais, Montgomery, Morgan Stanley and
Smith Barney shall hereinafter be referred to collectively as the
"Representatives"), with respect to the sale by the Company and the purchase by
the International Underwriters, acting severally and not jointly, of the
respective number of shares of common stock, par value $.01 per share, of the
Company ("Common Stock") set forth in said Schedule A (except as otherwise
provided in the International Pricing Agreement referred to below) and with
respect to the grant by the Company to the International Underwriters, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of 247,500 additional shares of Common Stock to cover
over-allotments, in each case except as may otherwise be provided in the
International Pricing Agreement (as hereinafter defined). The 1,650,000 shares
of Common Stock (the "Initial International Securities") to be purchased by the
International Underwriters and all or any part of the 247,500 shares of Common
Stock subject to the option described in Section 2(b) hereof (the "Option
International Securities") are collectively hereinafter called the
"Securities."
Prior to the purchase and public offering of the Securities by the
several International Underwriters, the Company and the Representatives, acting
on behalf of the several International Underwriters, shall enter into an
agreement substantially in the form of Exhibit A hereto (the "International
Pricing Agreement"). The International Pricing Agreement may take the form of
an exchange of any standard form of written telecommunication between the
Company and the Representatives and shall specify such applicable information
as is indicated in Exhibit A hereto. The offering of the Securities will be
governed by this agreement (the "Agreement"), as supplemented by the
International Pricing Agreement. From and after the date of the execution and
delivery of the International Pricing Agreement, this Agreement shall be deemed
to incorporate the International Pricing Agreement.
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "U.S. Purchase Agreement") providing for
the offering by the Company of 9,350,000 shares of Common Stock
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(the "Initial U.S. Securities") through arrangements with certain
underwriters within the United States and Canada (the "U.S. Underwriters") for
whom Merrill Lynch & Co., Montgomery Securities, Morgan Stanley & Co.
Incorporated, Smith Barney Inc. and Credit Lyonnais Securities (USA) Inc. are
acting as the representatives (the "U.S. Representatives") and the grant by the
Company to the U.S. Underwriters, acting severally and not jointly, of an
option to purchase all or any part of the International Underwriters' pro rata
potion of up to 1,402,500 additional shares of Common Stock solely to cover
over-allotments, if any (the "Option U.S. Securities", and collectively with
the Initial U.S. Securities, the "U.S. Securities").
Prior to the purchase and public offering of the U.S. Securities by
the several U.S. Underwriters, the Company and the U.S. Representatives, acting
on behalf of the several U.S. Underwriters, shall enter into an agreement
substantially in the form of Exhibit A to the U.S. Purchase Agreement (the
"U.S. Pricing Agreement"). The U.S. Pricing Agreement may take the form of an
exchange of any standard form of written telecommunication between the Company
and the U.S. Representatives and shall specify such applicable information as
is indicated in Exhibit A to the U.S. Purchase Agreement. The offering of the
U.S. Securities will be governed by U.S. Purchase Agreement, as supplemented by
the U.S. Pricing Agreement. From and after the date of the execution and
delivery of the U.S. Pricing Agreement, the U.S. Purchase Agreement shall be
deemed to incorporate the U.S. Pricing Agreement.
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (File No. 333-3958) and
a related preliminary prospectus for the registration of the Securities under
the Securities Act of 1933, as amended (the "1933 Act"), has filed such
amendments thereto, if any, and such amended preliminary prospectuses as may
have been required to the date hereof, and will file such additional amendments
thereto and such amended prospectuses as may hereafter be required. Such
registration statement (as amended, if applicable) and the prospectus
constituting a part thereof (including the information, if any, deemed to be
part thereof pursuant to Rule 430A(b) of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations")), as from
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time to time amended or supplemented pursuant to the 1933 Act, or otherwise,
are hereinafter referred to as the "Registration Statement," and the
"Prospectus," respectively, except that if any revised prospectus shall be
provided to the International Underwriters by the Company for use in connection
with the offering of the Securities which differs from the Prospectus on file
at the Commission at the time the Registration Statement becomes effective
(whether or not such revised prospectus is required to be filed by the Company
pursuant to Rule 424(b) of the 1933 Act Regulations), the term Prospectus shall
refer to such revised prospectus from and after the time it was provided to the
International Underwriters for such use. Two forms of prospectuses are to be
used in connection with the offering and sale of the Securities to the
International Underwriters, one relating to the International Securities and
one relating to the U.S. Securities. The form of prospectus relating to the
International Securities is identical to the form of prospectus relating to the
U.S. Securities, except for the front and back covers and the information under
the caption "Underwriting." Any registration statement (including any
amendment or supplement thereto or information which is deemed part thereof)
filed by the Company to register additional shares of Common Stock of the
Company under Rule 462(b) of the 1933 Act Regulations (a "Rule 462(b)
Registration Statement") shall be deemed to be part of the Registration
Statement. Any prospectus (including any amendment or supplement thereto or
information which is deemed part thereof) included in a Rule 462(b)
Registration Statement and any term sheet as contemplated by Rule 434 of the
1933 Act Regulations (a "Term Sheet") shall be deemed to be part of the
Prospectus. Capitalized terms used but not otherwise defined herein shall have
the meanings given to those terms in the Prospectus.
The Company understands that the International Underwriters propose
to make a public offering of the Securities as soon as the Representatives deem
advisable after the Registration Statement becomes effective and the
International Pricing Agreement has been executed and delivered.
The Company has reserved up to 250,000 of the Shares for offering and
sale to certain of its employees, customers, vendors and business associates
pursuant to a
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<PAGE> 5
reserve share program as stated in the "Underwriting" section of the
Prospectus (the "Reserve Share Program"). The Shares under the Reserve Share
Program will be sold to the employees, customers, vendors and business
associates by the International Underwriters pursuant to this Agreement and by
the U.S. Underwriters (except for 1,000 shares which will be sold directly by
the Company to two employees of the Company or one of its Subsidiaries in
Canada) pursuant to the U.S. Purchase Agreement at the public offering price.
Any such shares not purchased by such persons by the end of the first business
day after the date on which the Registration Statement has become effective
will be offered to the public by the International Underwriters and the U.S.
Underwriters as set forth in the Prospectus.
SECTION 1. Representations and Warranties of the Company.
(a) The Company represents and warrants to each International
Underwriter as of the date hereof and as of the date of the International
Pricing Agreement (such later date being hereinafter referred to as the
"Representation Date") as follows:
(i) At the time the Registration Statement becomes effective
and at the Representation Date, the Registration Statement will comply in
all material respects with the requirements of the 1933 Act and the 1933
Act Regulations and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus,
at the Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the International Underwriters by
the Company for use in connection with the offering of the Securities
which differs from the Prospectus on file at the Commission at the time
the Registration Statement becomes effective, in which case at the time it
is first provided to the International Underwriters for such use) and at
the Closing Time referred to in Section 2 hereof, will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations and will not include an untrue statement
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<PAGE> 6
of a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
made in reliance upon and in conformity with information furnished to the
Company in writing by any International Underwriter through the
Representatives expressly for use in the Registration Statement or
Prospectus.
(ii) Coopers & Lybrand L.L.P., the accounting firm that audited
the financial statements included in the Registration Statement and
Prospectus, is an independent public accountant as required by the 1933
Act and the 1933 Act Regulations.
(iii) The financial statements (including the related notes
thereto) included in the Registration Statement and the Prospectus present
fairly, in all material respects, the financial position of the respective
entity or entities or group presented therein at the respective dates
indicated and the results of their operations for the respective periods
specified; except as otherwise stated in the Registration Statement, said
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis through the
periods specified. The other financial and statistical information and
data included in the Registration Statement and the Prospectus present
fairly, in all material respects, the information included therein and, to
the extent applicable, have been prepared on a basis consistent with such
financial statements and/or the books and records of the respective
entities or group presented therein. Pro forma financial information
included in the Prospectus has been prepared in accordance with the
applicable requirements of the 1933 Act and the 1933 Act Regulations with
respect to pro forma financial information and includes all adjustments
necessary to present fairly, in all material respects, the pro forma
financial position of the Company at the respective dates indicated and
the
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<PAGE> 7
results of operations for the respective periods specified.
(iv) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and no
proceeding for that purpose has been instituted or, to the knowledge of
the executive officers of the Company, after due inquiry, threatened by
the Commission or by the state securities authority of any jurisdiction.
No order preventing or suspending the use of the Prospectus has been
issued and no proceeding for that purpose has been instituted or, to the
knowledge of the executive officers of the Company, after due inquiry,
threatened by the Commission or by the state securities authority of any
jurisdiction.
(v) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as otherwise
described therein, and giving pro forma effect to the Acquisition (as
described in the Prospectus), (A) there has been no change in the
condition, financial or otherwise, in the earnings, assets, business
affairs or business prospects of the Company or any of its Subsidiaries,
whether or not arising in the ordinary course of business, which would be
materially adverse to the Company and its Subsidiaries taken as a whole
(any such change being hereinafter referred to as a "Material Adverse
Change"), (B) there has been no casualty, loss or condemnation or other
adverse event with respect to any of the hotel properties in which the
Company or any of its Subsidiaries will own as of the Closing Date (the
"Hotels") which would have a material adverse effect on the earnings,
assets, business affairs or business prospects of the Company, its
Subsidiaries or the Hotels, which would be materially adverse to the
Company and its Subsidiaries taken as a whole (a "Material Adverse
Effect"), (C) there have been no transactions or acquisitions entered into
by the Company or any of its Subsidiaries, other than those in the
ordinary course of business, which would have a Material Adverse Effect,
(D) there have been no changes to any of the management agreements which
the Company has entered into with various hotel property owners, other
than
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<PAGE> 8
those in the ordinary course of business, which would have a Material
Adverse Effect, (E) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock,
and (F) there has been no change in the capital shares of the Company, or
any increase in the indebtedness of the Company or any of its Subsidiaries
or encumbering of the Hotels which would have a Material Adverse Effect.
For purposes of this Agreement, "Subsidiary" means, with respect to any
party, any corporation or other entity, whether incorporated or
unincorporated of which more than 50% of either the equity interests is,
or voting control of such corporation or other entity is, directly or
indirectly through subsidiaries, beneficially owned by the Company.
(vi) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Pennsylvania, with corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus and to enter into and perform its obligations under this
Agreement and the International Pricing Agreement and the other Company
Documents (as hereinafter defined) to which it is a party; and the Company
is duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership, leasing or management of
property or the conduct of business, except where the failure to so
qualify would not have a Material Adverse Effect.
(vii) Each of the Company's Subsidiaries that is a limited
partnership (collectively, the "Partnership Subsidiaries") and would
constitute a "significant subsidiary" under Rule 1-02 of Regulation S-X
under the Securities Act has been duly formed and is validly existing as a
limited partnership in good standing under and by virtue of the laws of
the state of its formation, with the requisite partnership power and
authority to own, lease and manage its properties, to conduct the business
in which it is engaged or proposes to engage as described in the
Prospectus and to enter into and
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<PAGE> 9
perform its obligations under the Company Documents (as defined herein) to
which it is a party. Each of the Partnership Subsidiaries is duly
qualified or registered as a foreign entity to transact business and is in
good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership, leasing or management of
property or the conduct of business, except where the failure to so
qualify would not have a Material Adverse Effect.
(viii) Each of the Company's Subsidiaries that is a corporation
(the "Corporate Subsidiaries," and collectively with the Partnership
Subsidiaries, the "Subsidiaries") and would constitute, at the Closing
Time,a "significant subsidiary" under Rule 1-02 of Regulation S-X under
the Securities Act ("Significant Subsidiary") is a corporation duly
incorporated and validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation with the requisite corporate
power and authority to own, lease and manage its properties, to conduct
the business in which it is engaged or proposes to engage and to enter
into and perform its obligations under the Company Documents to which it
is a party. Each of the Corporate Subsidiaries is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership, leasing or management of property or the conduct of
business, except where the failure to so qualify would not have a Material
Adverse Effect. As of the Closing Time, all of the issued and outstanding
capital stock of each of the Corporate Subsidiaries will be duly
authorized, validly issued, fully paid and non-assessable, and except as
described, or in respect of indebtedness which is described, in the
Prospectus, all of such capital stock will be owned by the Company,
directly or through the Company's Subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
restriction other than any lien or encumbrance imposed by any such
Subsidiaries' organizational documents or by shareholder agreements. No
shares of capital stock of the Company's Subsidiaries are reserved for any
purpose, and there are no outstanding securities convertible
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<PAGE> 10
into or exchangeable for any capital stock of the Company's Subsidiaries
and no outstanding options, rights (preemptive or otherwise) or warrants
to purchase or to subscribe for shares of such capital stock or any other
securities of Company's Subsidiaries other than pursuant to such
Subsidiaries' respective organizational documents.
(ix) At the Closing Time, the capital shares of the Company
will be as set forth in the Prospectus under "Capitalization" and
"Description of Capital Stock." All the issued and outstanding shares of
Common Stock of the Company have been duly authorized and are validly
issued, fully paid and non-assessable and have been offered and sold in
compliance with all applicable laws (including, without limitation,
federal or state securities laws). No shares of the capital stock of the
Company are reserved for any purpose except as described in the
Prospectus. Except as described in the Prospectus and except as granted
under this Agreement, there are no outstanding securities convertible into
or exchangeable for any capital stock of the Company and there are no
outstanding options, rights (preemptive or otherwise) or warrants to
purchase or to subscribe for such Common Stock or any other securities of
the Company.
(x) The Securities have been duly authorized for issuance and
sale to the International Underwriters pursuant to this Agreement, and,
when issued and delivered by the Company pursuant to this Agreement
against payment of the consideration set forth in the International
Pricing Agreement, will be validly issued, fully paid and non-assessable.
The terms of the Common Stock conform in all material respects to all
statements and descriptions related thereto contained in the Prospectus.
The issuance of the Securities is not subject to any preemptive or other
similar rights, other than pursuant to the Registration Rights Agreement
(referred to in the Prospectus under "The Organization, Acquisition and
Financing Plan") and the Stockholders' Agreements (as hereinafter
defined).
(xi) All shares of Common Stock (other than the Securities)
issued or to be issued, at or
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prior to the Closing Time, in connection with the Transactions (as
hereinafter defined) have been duly authorized for issuance by the
Company, and as of the Closing Time upon payment therefor as provided
herein will be validly issued, fully paid and non-assessable.
(xii) None of the Company or any of its Subsidiaries (the
"Transaction Entities") is in violation of its certificate or articles of
incorporation, by-laws, certificate of partnership, partnership agreement,
certificate of formation, limited liability company agreement or other
similar governing document, as the case may be, and none of the
Transaction Entities is in default in the performance or observance of any
obligation, agreement covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument or of
any applicable law, rule, order, administrative regulation or
administrative or court decree, to which such entity is a party or by
which such entity may be bound, or to which any of its property or assets
or any Hotel may be bound or subject, except for such violations and
defaults that would not, individually or in the aggregate, have a Material
Adverse Effect.
(xiii) (A) This Agreement and the U.S. Purchase Agreement has
been duly and validly authorized, executed and delivered by the Company
and, assuming due authorization, execution and delivery by the
Representatives, is a valid and binding agreement of the Company; (B) at
the Representation Date, the International Pricing Agreement and the U.S.
Pricing Agreement will have been duly and validly authorized, executed and
delivered by the Company, and assuming due authorization, execution and
delivery by the Representatives, will be a valid and binding agreement of
the Company; (C) at the Closing Time, the two Stockholders' Agreements
among the Company and the other parties signatory thereto (the
"Stockholders' Agreements") will be duly and validly authorized, executed
and delivered by the Company or its Subsidiaries that are parties thereto,
and will be valid and binding agreements of the Company or its
Subsidiaries that are parties thereto, enforceable against each of the
Company or its
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Subsidiaries that are parties thereto in accordance with their terms,
except as such enforceability may be limited by (i) bankruptcy,
moratorium, insolvency or other similar laws generally affecting the
enforcement of creditors' rights, (ii) general principles of equity,
whether considered in a proceeding in equity or at law, and (iii) the
unenforceability under certain circumstances under law or court decisions
of provisions providing for the indemnification of or contribution to a
party with respect to a liability where such indemnification or
contribution is against public policy; (D) at the Closing Time, the
Registration Rights Agreement among the Company and the other parties
signatory thereto (the "Registration Rights Agreement") will be duly and
validly authorized, executed and delivered by the Company or its
Subsidiaries that are parties thereto, will be a valid and binding
agreement of the Company or its Subsidiaries that are parties thereto, and
will be enforceable against the Company or its Subsidiaries that are
parties thereto in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, moratorium, insolvency or
other similar laws generally affecting the enforcement of creditors'
rights, (ii) general principles of equity, whether considered in a
proceeding in equity or at law, and (iii) the unenforceability under
certain circumstances under law or court decisions of provisions providing
for the indemnification of or contribution to a party with respect to a
liability where such indemnification or contribution is against public
policy; (E) at the Closing Time, the Credit Agreement among the Company,
Interstate Hotels Corporation ("IHC"), Credit Lyonnais New York Branch,
and the other banks signatory thereto (the "Credit Agreement") will be
duly and validly authorized, executed and delivered by the parties
thereto, will be a valid and binding agreement of the parties thereto, and
will be enforceable against the parties thereto in accordance with its
terms; (F) the Option Agreement dated as of October 12, 1995, as amended
December 15, 1995 and March 29, 1996, among IHC and the other parties
signatory thereto (the "Option Agreement") has been duly and validly
authorized, executed and delivered by IHC and IHC Member Corporation, is a
valid and
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binding agreement of IHC and IHC Member Corporation, and is enforceable
against IHC and IHC Member Corporation in accordance with its terms,
except as such enforceability may be limited by bankruptcy, moratorium,
insolvency or other similar laws generally affecting the enforcement of
creditors' rights and by general principles of equity, whether considered
in a proceeding in equity or at law; (G) the Agreement of Purchase and
Sale, dated as of March 29, 1996, among IHC Member Corporation and the
other parties signatory thereto (the "Purchase and Sale Agreement") has
been duly and validly authorized, executed and delivered by IHC Member
Corporation, is a valid and binding agreement of IHC Member Corporation,
and is enforceable against IHC Member Corporation in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
moratorium, insolvency or other similar laws generally affecting the
enforcement of creditors' rights and by general principles of equity,
whether considered in a proceeding in equity or at law; and (H) the
Contribution Agreement, dated as of March 29, 1996, among IHC and the
other parties signatory thereto (the "Contribution Agreement") has been
duly and validly authorized, executed and delivered by the IHC, is a valid
and binding agreement of IHC, and is enforceable against IHC in accordance
with its terms, except as such enforceability may be limited by
bankruptcy, moratorium, insolvency or other similar laws generally
affecting the enforcement of creditors' rights and by general principles
of equity, whether considered in a proceeding in equity or at law. This
Agreement, the International Pricing Agreement, the Stockholders'
Agreements, the Registration Rights Agreement, the Credit Agreement, the
Option Agreement, the Purchase and Sale Agreement, the Contribution
Agreement and the Transaction Agreements (defined below) are sometimes
hereinafter collectively called the "Company Documents."
(xiv) The performance of the obligations set forth herein or in
the other Company Documents
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and the consummation of the Transactions or the other transactions
contemplated hereby and thereby or in the Prospectus by the Transaction
Entities will not conflict with or constitute a breach or violation by
such parties of, or default under or result in the creation or imposition
of any lien, charge or encumbrance upon any Hotel or any other property or
asset of a Transaction Entity under, (A) any of the other Company
Documents; (B) any material contract, indenture, mortgage, loan agreement,
note, lease, joint venture or partnership agreement or other instrument or
agreement to which any Transaction Entity is a party or by which they, any
of them, any of their respective properties or other assets or any Hotel
may be bound or subject; (C) the certificate or articles of incorporation,
by-laws, certificate of limited partnership, partnership agreement or
other governing documents, as the case may be, of any Transaction Entity,
or (D) any applicable law, rule, order, administrative regulation or
administrative or court decree, in each case except for conflicts,
breaches, violations or defaults that would not have a Material Adverse
Effect.
(xv) The execution and delivery of all material agreements and
documents executed in connection with or in contemplation of the
transactions (collectively, the "Transactions") described in the
Prospectus as "The Organization," "Acquisition of Owned Hotels,"
"Acquisition of Additional Hotels," and "The Financing Plan" under the
heading "THE ORGANIZATION, ACQUISITION AND FINANCING PLAN" (the
"Transaction Agreements"), and the performance of the obligations set
forth therein and the consummation of the Transactions or the transactions
contemplated thereby by the Transaction Entities have been duly and
validly authorized by all necessary corporate or partnership action, as
the case may be, by or on behalf of the Transaction Entities. Except as
described in the Prospectus (including, without limitation, the
transactions described in the Prospectus under the heading "The
Organization, Acquisition and Financing Plan -- Acquisition of Additional
Hotels"), each of the Transactions will have been completed on or before
the Closing Time.
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(xvi) None of the Company's commitments to a partnership formed
between or among one or more affiliates of the Company and one or more
affiliates of Blackstone Real Estate Advisors, L.P. (the "Interstone III
Partnership"), including, but not limited to the capital commitments
described under "The Organization and Financing Plan -- Acquisition of
Owned Hotels" in the Prospectus is expected to result in any Material
Adverse Effect.
(xvii)(a) No labor dispute with the employees of any
Transaction Entity exists or is imminent, and (b) none of the executive
officers of the Company is aware of any existing or imminent labor
disturbance by the employees of any of the Transaction Entities' principal
suppliers, manufacturers or contractors, which, in the case of either (a)
or (b), could reasonably be expected to result in any Material Adverse
Effect.
(xviii) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending,
or, to the knowledge of the executive officers of the Company, after due
inquiry, threatened against or affecting any Transaction Entity, Hotel or
officer or director of the Company that is required to be disclosed in the
Registration Statement or the Prospectus or that, if determined adversely
to any Transaction Entity, Hotel, or such officer or director, considered
in the aggregate will or could reasonably be expected to (A) have a
Material Adverse Effect, or (B) materially and adversely affect the
consummation of the Transactions.
(xix) Except as described in the Prospectus, there are no
pending legal or governmental proceedings to which any Transaction Entity
is a party or of which they or any of their respective properties or
assets or any Hotel is the subject, including ordinary routine litigation
incidental to the business, that, considered in the aggregate, could
reasonably be expected to have a Material Adverse Effect. There are no
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments which are required to be described or referred to in the
Registration Statement or to be
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filed as exhibits to the Registration Statement by the 1933 Act or by the
1933 Act Regulations which have not been so described, referred to or
filed, and the descriptions thereof or references thereto in the
Registration Statement are accurate in all material respects.
(xx) Except as described in the Prospectus, each of the
Transaction Entities has filed all federal, state, local and foreign
income tax returns which have been required to be filed (except in any
case in which the failure to so file would not have a Material Adverse
Effect), and has paid all taxes required to be paid and any other
assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable, except, in all cases, for any such tax,
assessment, fine or penalty that is being contested in good faith (except
in any case in which the failure to so pay would not have a Material
Adverse Effect).
(xxi) None of the Transaction Entities is, and at Closing Time
none of the Transaction Entities will be, required to be registered under
the Investment Company Act of 1940, as amended (the "1940 Act").
(xxii) Except as described in the Prospectus, the Company and
its Subsidiaries own or possess, or can acquire on reasonable terms, the
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names (collectively, "proprietary
rights") material to the conduct of the business now operated by them, and
none of the Company or any of its Subsidiaries has received any notice nor
is any executive officer of the Company otherwise aware of any
infringement of or conflict with asserted rights of others with respect to
any proprietary rights, or of any facts which would render any proprietary
rights invalid or inadequate to protect the interest of such Transaction
Entity therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling, or
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finding) or invalidity or inadequacy, singly or in the aggregate, would
have a Material Adverse Effect.
(xxiii) No authorization, approval, consent or order of any
court or governmental authority or agency or other entity or person is
required to be obtained by any Transaction Entity in connection with the
offering, issuance or sale of the Securities hereunder, except such as may
be required under the 1933 Act or the 1933 Act Regulations or state
securities or real estate syndication laws or the by-laws and rules of the
National Association of Securities Dealers, Inc. (the "NASD") or such as
have been received prior to the date of this Agreement. No consent is
required to be obtained by any Transaction Entity in connection with the
consummation of any part of the Transactions, for which the failure to
obtain such consent would have a Material Adverse Effect, except such as
may have been received prior to the date of this Agreement.
(xxiv) Each of the Transaction Entities possesses, or has made
application for, such certificates, authorizations or permits issued by
the appropriate local, state, federal or foreign regulatory agencies or
bodies necessary to conduct the business now operated by it, or proposed
to be conducted by it, except for such certificates, authorizations and
permits, the failure to obtain, maintain or possess of which by any of the
Transaction Entities would not have a Material Adverse Effect, and none of
the Transaction Entities have received any notice of proceedings relating
to the revocation or modification of any such certificate, authority or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect.
(xxv) Except as described in the Prospectus or pursuant to the
Registration Rights Agreement or Stockholders' Agreements, there are no
persons with registration or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered
by the Company under the 1933 Act.
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(xxvi) The Securities have been approved for listing on the New
York Stock Exchange upon notice of issuance.
(xxvii) At the Closing Time, (A) the Transaction Entities will
have good indefeasible title or a valid leasehold estate, as the case may
be, to each of the Hotels and other real property interests indicated in
the Prospectus to be owned or leased by the Company (or its Subsidiaries),
in each case free and clear of all liens, encumbrances, claims, security
interests and defects, other than (i) those referred to in the Prospectus,
(ii) mortgages and security agreements relating to the Hotels, (iii) those
referred to in the existing title insurance policies pertaining to the
Hotels, and (iv) those which would not have a Material Adverse Effect; (B)
there will be no options or rights of first refusal to purchase any Hotel,
any interest therein or any part thereof, other than those referred to in
the Prospectus; (C) each of the Hotels will comply with all applicable
codes, laws and regulations (including, without limitation, building and
zoning codes, laws and regulations and laws relating to access to the
Hotels), except for such failures to comply that would not have Material
Adverse Effect, and (D) the executive officers of the Company shall have
no knowledge of, after due inquiry, any pending or threatened condemnation
proceeding, zoning change or other proceeding or action that would have a
Material Adverse Effect.
(xxviii) The Transaction Entities have obtained title insurance
on the fee and ground lease interests in each of the Hotels in which the
Company has an ownership interest, in an amount at least equal to the
purchase price of each such owned Hotel.
(xxix) Except as disclosed in the Prospectus, and, except for
activities, conditions, circumstances or matters that would not have a
Material Adverse Effect, (A) to the knowledge of the executive officers of
the Company, after due inquiry, the operations of the Transaction Entities
are in compliance with all Environmental Laws (as defined below) and all
requirements of applicable permits, licenses, approvals and other
authoriza-
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tions issued pursuant to Environmental Laws; (B) to the knowledge of the
executive officers of the Company, after due inquiry, none of the
Transaction Entities has caused or suffered to occur any Release (as
defined below) of any Hazardous Substance (as defined below) into the
Environment (as defined below) on, in or under or from any Hotel or any
developed or undeveloped land held (at any time) by any of the Transaction
Entities, and no condition exists on, in or under to any Hotel that could
reasonably be expected to result in the Company violating, or incurring
liability under, any Environmental Law or give rise to the imposition of
any Lien (as defined below) under any Environmental Law; (C) none of the
Transaction Entities has received any written notice of a claim under or
pursuant to any Environmental Law or under common law pertaining to
Hazardous Substances on, in, under or originating from any Hotel; (D) none
of the executive officers of the Company has knowledge of, after due
inquiry, nor has any Transaction Entity received any written notice from
any Governmental Authority (as defined below) or other person claiming any
violation of any Environmental Law or a determination to undertake and/or
request the investigation, remediation, clean-up or removal of any
Hazardous Substance released into the Environment on, in, under or from
any Hotel; and (E) no Hotel is included or, to the knowledge of the
executive officers of the Company, after due inquiry, proposed for
inclusion on the National Priorities List issued pursuant to CERCLA (as
defined below) by the United States Environmental Protection Agency (the
"EPA") or on the Comprehensive Environmental Response, Compensation, and
Liability Information System database maintained by the EPA, and the
executive officers of the Company have no knowledge, after due inquiry,
that any Hotel has otherwise been identified in a published writing by the
EPA as a potential CERCLA removal, remedial or response site or, to the
knowledge of the executive officers of the Company, after due inquiry,
proposed for inclusion on any similar list of potentially contaminated
sites pursuant to any other Environmental Law.
As used herein, "Hazardous Substance" shall include any hazardous
substance, hazardous waste, toxic
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<PAGE> 20
substance, pollutant, hazardous material, or similarly designated materials
including, without limitation, oil, petroleum or any petroleum-derived
substance or waste, asbestos or asbestos-containing materials, PCB's,
pesticides, explosives, radioactive materials, dioxins, urea formaldehyde
insulation or any constituent of any such substance, pollutant or waste which
is identified, regulated, prohibited or limited under any Environmental Law
(including, without limitation, materials listed in the United States
Department of Transportation Optional Hazardous Material Table, 49 C.F.R.
Section 172.101, or in the EPA's List of Hazardous Substances and Reportable
Quantities, 40 C.F.R. Part 302 as the same may now or hereafter be amended;
"Environment" shall mean any surface water, drinking water, ground water, land
surface, subsurface strata, river sediment, buildings, structures, workplace
and indoor and outdoor air; "Environmental Law" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section Section 9601, et seq.) ("CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended (42 U.S.C. Section Section 6901, et seq.), the
Clean Air Act, as amended (42 U.S.C. Section Section 7401, et seq.), the Clean
Water Act, as amended (33 U.S.C. Section Section 1251, et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. Section Section 2601, et seq.),
the Occupational Safety and Health Act of 1970, as amended (29 U.S.C. Section
Section 651, et seq.), the Hazardous Materials Transportation Act, as amended
(49 U.S.C. Section Section 1801, et seq.), and all other federal, state and
local laws, ordinances, regulations, rules and orders relating to the
protection of the environment or of human health from environmental effects;
"Governmental Authority" shall mean any federal, state or local governmental
office, agency or authority having the duty or authority to promulgate,
implement or enforce any Environmental Law; "Lien" shall mean, with respect to
any Hotel, any mortgage, deed of trust, pledge, security interest, lien,
encumbrance, penalty, fine, charge, assessment, judgment or other liability in,
on or affecting such Hotel; and "Release" shall mean any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, emanating or disposing of any Hazardous Substance into the
Environment, including, without limitation, the abandonment or discard of
barrels, containers, tanks (including, without limitation, underground storage
tanks) or other receptacles containing or previously containing any Hazardous
Substance or any release, emis-
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<PAGE> 21
sion, discharge or similar term, as those terms are defined or used in any
Environmental Law.
(xxx) To the actual knowledge of the executive officers of the
Company, none of the environmental consultants retained by the Company or any
Subsidiary which prepared environmental and asbestos inspection reports with
respect to any of the Hotels was employed for such purpose on a contingent
basis or has any substantial interest in any Transaction Entity, and none of
them nor any of their directors, officers or employees is connected with any
Transaction Entity as a promoter, selling agent, voting trustee, director,
officer or employee.
(b) Any certificate signed by any executive officer or authorized
representative of the Company and delivered to the Representatives or to
counsel for the International Underwriters or U.S. Underwriters shall be deemed
a representation and warranty by such entity or person, as the case may be, to
each International Underwriter or U.S. Underwriters as to the matters covered
thereby.
SECTION 2. Sale and Delivery to International Underwriters; Closing.
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the
Company agrees to sell to each International Underwriter, severally and not
jointly, and each International Underwriter, severally and not jointly, agrees
to purchase from the Company, at the price per share set forth in the
International Pricing Agreement, the number of Initial International Securities
set forth in Schedule A hereto opposite the name of such International
Underwriter (except as otherwise provided in the International Pricing
Agreement), plus any additional number of Initial International Securities
which such International Underwriter may become obligated to purchase pursuant
to the provisions of Section 10 hereof.
(i) If the Company has elected not to rely upon Rule 430A under
the 1933 Act Regulations, the initial public offering price and the
purchase price per share to be paid by the several International
Underwriters for the Securities each have
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<PAGE> 22
been determined and set forth in the International Pricing Agreement and
an amendment to the Registration Statement and the Prospectus will be
filed before the Registration Statement becomes effective.
(ii) If the Company has elected to rely upon Rule 430A under
the 1933 Act Regulations, the purchase price per share to be paid by the
several International Underwriters for the Securities shall be an amount
equal to the initial public offering price, less an amount per share to be
determined by agreement between the Representatives and the Company. The
initial public offering price per share of the Securities shall be a fixed
price to be determined by agreement among the Representatives and the
Company. The initial public offering price and the purchase price, when
so determined, shall be set forth in the International Pricing Agreement.
In the event that such prices have not been agreed upon and the
International Pricing Agreement has not been executed and delivered by all
parties thereto by the close of business on the fourteenth business day
following the date of this Agreement, this Agreement shall terminate
forthwith, without liability of any party to any other party other than
pursuant to Sections 6 and 7 hereof, unless otherwise agreed to by the
Company and the Representatives.
(b) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the International Underwriters, severally
and not jointly, to purchase up to an additional 247,500 shares of Common Stock
at the price per share set forth in the International Pricing Agreement solely
to cover over-allotments. The option hereby granted will expire 30 days after
the date hereof (or, if the Company has elected to rely on Rule 430A under the
1933 Act Regulations, 30 days after the execution of the International Pricing
Agreement), provided that if such thirtieth day is not a New York Stock
Exchange trading day, the thirtieth day will be the next succeeding New York
Stock Exchange trading day and may be exercised in whole or in part from time
to time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial International
Securities upon notice by the Representa-
22
<PAGE> 23
tives to the Company setting forth the number of Option International
Securities as to which the several International Underwriters are then
exercising the option and the time and date of payment and delivery for such
Option International Securities. Any such time and date of delivery (a "Date
of Delivery") shall be determined by the Representatives, but shall not be
later than seven full business days nor earlier than two full business days
after the exercise of said option, nor in any event prior to the Closing Time,
as hereinafter defined, unless otherwise agreed upon by the Representatives and
the Company. If the option is exercised as to all or any portion of the Option
International Securities, the Option International Securities shall be
purchased by the International Underwriters, severally and not jointly, in
proportion to their respective Initial International Securities underwriting
obligations as set forth in Schedule A.
(c) Payment of the purchase price for, and delivery of certificates
for, the Initial International Securities shall be made at the office of Jones,
Day, Reavis & Pogue ("Jones Day"), 599 Lexington Avenue, New York, New York
10022, or at such other place as shall be agreed upon by the Representatives
and the Company, at 10:00 A.M. on the fourth business day (or the third
business day if required under Rule 15c6-1 of the rules and regulations (the
"1934 Act Regulations") of the Commission under the Securities Exchange Act of
1934, as amended (the "1934 Act"), or unless postponed in accordance with the
provisions of Section 10) following the date the Registration Statement becomes
effective (or, if the Company has elected to rely upon Rule 430A of the 1993
Act Regulations, the fourth business day (or the third business day if required
under Rule 15c6-1 of the 1934 Act) after execution of the International Pricing
Agreement), or such other time not later than ten business days after such date
as shall be agreed upon by the Representatives and the Company (such time and
date of payment and delivery being herein called "Closing Time"). In addition,
in the event that any or all of the Option International Securities are
purchased by the International Underwriters, payment of the purchase price for,
and delivery of certificates for, such Option International Securities shall be
made at the above-mentioned offices of Jones Day, or at such other place as
shall be agreed upon by the Representatives and the Company, on
23
<PAGE> 24
each Date of Delivery as specified in the notice from the Representatives to
the Company. Payment for the Initial International Securities shall be made to
the Company by wire transfer in immediately available funds, provided that it
is understood and agreed that interest on the aggregate purchase price for the
Initial International Securities in federal funds for one day at Merrill
Lynch's overnight borrowing rate shall be deducted from such payment and shall
reduce the purchase price payable for the Initial International Securities by
such amount. Payment for the Option International Securities shall be made to
the Company by certified or official bank check or checks drawn in New York
Clearing House funds or similar next day funds payable to the order of the
Company, against delivery to the Representatives for the respective accounts of
the International Underwriters of certificates for the Securities to be
purchased by them. Certificates for the Initial International Securities and
the Option International Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
two business days before the Closing Time or the relevant Date of Delivery, as
the case may be. It is understood that each International Underwriter has
authorized the Representatives, for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the Initial International
Securities and the Option International Securities, if any, which it has agreed
to purchase. Merrill Lynch, Credit Lyonnais, Montgomery, Morgan Stanley and
Smith Barney, individually and not as representatives of the International
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial International Securities or the Option International
Securities, if any, to be purchased by any International Underwriter whose
payment has not been received by the Closing Time or the relevant Date of
Delivery, as the case may be, but any such payment shall not relieve such
International Underwriter from its obligations hereunder. The certificates for
the Initial International Securities and the Option International Securities,
if any, will be made available for examination and packaging by the
Representatives not later than 10:00 A.M. on the last business day prior to
Closing Time or the relevant Date of Delivery, as the case may be, in New York,
New York.
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<PAGE> 25
SECTION 3. Covenants of the Company.
The Company covenants with each International Underwriter as follows:
(a) As soon as the Company is advised or otherwise obtains knowledge
of any of the following, the Company will promptly notify the Representatives
of (i) the effectiveness of the Registration Statement and any amendment
thereto (including any post-effective amendments), (ii) the receipt of any
comments from the Commission relating to the Registration Statement and the
Prospectus, (iii) any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information, and (iv) the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or the
suspension of qualification of the Securities for offering or sale in any
jurisdiction or the initiation or threat of any proceedings for these purposes.
The Company will make every reasonable effort to prevent the issuance of any
stop order and, if any stop order is issued, to obtain the lifting thereof at
the earliest possible moment.
(b) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment), any Rule 462(b) Registration
Statement or any amendment or supplement to the Prospectus (including any
revised prospectus) which the Company proposes for use by the International
Underwriters in connection with the offering of the Securities which differs
from the Prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the 1933 Act Regulations, the 1934 Act,
the 1934 Act Regulations or any Term Sheet. The Company will furnish the
Representatives with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file any such amendment or supplement or use any such prospectus to
which the Representatives or counsel for the International Underwriters
reasonably shall object.
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<PAGE> 26
(c) The Company will deliver to the Representatives, as soon as
possible, as many signed and conformed copies of the Registration Statement as
originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein and documents incorporated by
reference therein) as the Representatives reasonably may request.
(d) The Company will furnish to each International Underwriter, from
time to time during the period when the Prospectus is required to be delivered
under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as
amended or supplemented) as such International Underwriter reasonably may
request for the purposes contemplated by the 1933 Act or the applicable rules
and regulations of the Commission thereunder.
(e) If any event shall occur as a result of which it is necessary,
in the opinion of counsel for the International Underwriters, to amend or
supplement the Prospectus in order to comply with the 1933 Act or the 1934 Act
or to make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, the Company forthwith will
amend or supplement the Prospectus (in form and substance reasonably
satisfactory to counsel for the International Underwriters) so that, as so
amended or supplemented, the Prospectus will not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time it
is delivered to a purchaser, not misleading; and the Company will furnish to
the International Underwriters a reasonable number of copies of such amendment
or supplement.
(f) The Company will endeavor, in cooperation with the International
Underwriters, to qualify the Securities for offering and sale under the
applicable securities laws of such states and other United States or foreign
jurisdictions as the Representatives may reasonably designate; provided,
however, the Company will not be required to qualify as a foreign corporation,
file a general consent to service of process in any such jurisdiction, subject
itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject, or provide any undertaking or make any change in
its charter, certificate of incorporation, by-laws or
26
<PAGE> 27
other governing document that the Board of Directors of the Company
reasonably determines to be contrary to the best interests of the Company and
its shareholders. In each jurisdiction in which the Securities have been so
qualified, the Company will use all reasonable efforts to file such statements
and reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for so long a period as the Representatives
reasonably may request for the distribution of the Securities.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the close of
the Company's fiscal year, an earnings statement (in form and in a manner
complying with the provisions of Rule 158 of the 1933 Act Regulations) covering
a twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the "effective date" (as defined in said Rule
158) of the Registration Statement.
(h) The Company will use the net proceeds received by it from the
sale of the Securities in the manner specified in the Prospectus under "Use of
Proceeds."
(i) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A and/or Rule 434 of the 1933 Act Regulations, then immediately
following the execution of the International Pricing Agreement, the Company
will prepare and file with the Commission in accordance with such Rule 430A
and/or Rule 434 and Rule 424(b) of the 1933 Act Regulations copies of an
amended Prospectus, or, if required by such Rule 430A and/or Rule 434, a
post-effective amendment to the Registration Statement (including an amended
Prospectus), containing all information so omitted. If required, the Company
will prepare and file or transmit for filing a Rule 462(b) Registration
Statement not later than the date of execution of the International Pricing
Agreement. If a Rule 462(b) Registration Statement is filed by the Company,
the Company shall make payment of, or arrange for payment of, the additional
registration fee owing to the Commission as required by Rule 111 of the 1933
Act Regulations.
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<PAGE> 28
(j) The Company, during the period when the Prospectus is required
to be delivered under the 1933 Act or the 1934 Act, will file all documents
required to be filed with the Commission pursuant to Sections 13, 14 or 15 of
the 1934 Act within the time periods required by the 1934 Act and the 1934 Act
Regulations.
(k) The Company will use reasonable efforts to maintain the listing
of the Securities on the New York Stock Exchange.
(l) During a period 180 days from the Closing Time, the Company will
not, without the prior written consent of Merrill Lynch, directly or
indirectly, sell, offer to sell, transfer, pledge, hypothecate, grant any
option for the sale of or otherwise dispose of, any shares of Common Stock or
any security convertible into or exchangeable or exercisable for shares of the
Common Stock, except for (i) Securities to be sold to the International
Underwriters, (ii) the award of options or other rights or the issuance of
Common Stock pursuant to employee and director stock purchase, equity incentive
and option plans as described in the Prospectus, (iii) the issuance of Common
Stock (whether upon conversion, exchange or otherwise) in connection with an
acquisition, whether by purchase of assets, merger or other form of business
acquisition or combination transaction, provided that the foregoing
restrictions apply to the issued Common Stock, or (iv) the adoption of a
shareholder rights plan.
(m) During a period of three years from the Closing Time, the
Company will deliver to Merrill Lynch, on behalf of the Representatives
promptly upon their being mailed or filed, copies of all current, regular and
periodic reports of the Company mailed to its shareholders or filed with the
New York Stock Exchange or with the Commission or any governmental authority
succeeding to any of the Commission's functions other than reports on Form 3 or
Form 4 or registration statements on Form S-8.
SECTION 4. Payment of Expenses; Financial Advisory Fees.
(a) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, including (i) the printing and filing of
the Regis-
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<PAGE> 29
tration Statement as originally filed and of each amendment thereto, of each
preliminary prospectus, and of the Prospectus and any amendments or supplements
thereto, (ii) the cost of printing, or reproducing, and distributing to the
International Underwriters copies of this Agreement and the International
Pricing Agreement, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the International Underwriters, (iv) the
fees and disbursements of the Company's counsel and accountants, (v) the
qualification of the Securities under securities laws and real estate
syndication laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the fees of counsel at their normal hourly rate in an
aggregate amount not to exceed $20,000 and reasonable charges and disbursements
for the International Underwriters in connection therewith and in connection
with the preparation of the "blue sky" survey, (vi) the cost of printing, or
reproducing and delivering to the International Underwriters copies of the
"blue sky" survey, (vii) the fee of the National Association of Securities
Dealers, Inc., (viii) the fees and expenses incurred in connection with the
listing of the Securities on the New York Stock Exchange, Inc., (ix) the costs
and charges of any transfer agent or registrar, and the cost of preparing share
certificates, and (x) any transfer taxes imposed on the sale of the Securities
to the several International Underwriters. It is understood, however, that
except as provided in this Section 4, the International Underwriters will pay
all of their costs and expenses, including the fees and disbursements of their
counsel, and any expenses in connection with a "tombstone" advertisement in
connection with the offering of the Securities.
(b) If this Agreement is cancelled or terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the International Underwriters for
all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the International Underwriters.
(c) At Closing Time, the Company shall pay to Merrill Lynch a fee (a
"Financial Advisory Fee") in consideration of the financial advisory services
provided to the Company by Merrill Lynch in connection with the Financing Plan.
The Financial Advisory Fee to Merrill Lynch shall be equal to .25% of the
purchase price paid
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<PAGE> 30
by the International Underwriters for the purchase and sale of the
International Securities hereunder. Payment of the Financial Advisory Fee
shall be, at the option of the Merrill Lynch, deducted from the amount of the
purchase price payable for the Initial International Securities hereunder, or
made by certified or official bank check or similar next day funds payable to
the order of Merrill Lynch.
(d) At Closing Time, the Company shall pay to Merrill Lynch an
additional fee equal to .25% of the purchase price paid by the International
Underwriters for the purchase and sale of the International Securities
hereunder in the event the sale of such Securities is consummated on or before
June 30, 1996.
SECTION 5. Conditions of International Underwriters' Obligations.
The obligations of the International Underwriters hereunder are subject to the
accuracy in all material respects, as of the date hereof and at Closing Time,
of the representations and warranties of the Company herein contained, to the
performance by the Company of its obligations hereunder, and to the following
further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York City time, on the date hereof, or with the consent of
the Representatives, at a later time and date, not later, however, than 5:30
P.M., New York City time, on the first business day following the date hereof,
or at such later time and date as may be approved by a majority in interest of
the International Underwriters; and at the Closing Time, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by
the Commission or any state securities regulatory authority. If the Company
has elected to rely upon Rule 430A and/or Rule 434 of the 1933 Act Regulations,
(A) the price of the Securities and any price-related information previously
omitted from the effective Registration Statement pursuant to such Rule 430A
and/or Rule 434 shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) of the 1933 Act Regulations within the prescribed time
period and (B) prior to the Closing Time, the Company shall have provided
evidence satisfactory to the Representatives of such timely filing, or a post-
30
<PAGE> 31
effective amendment providing such information shall have been promptly filed
and declared effective in accordance with the requirements of Rule 430A and/or
Rule 434 of the 1933 Act Regulations and shall have become effective not later
than 5:30 p.m., New York City time, on the Representation Date or, with the
consent of the Representatives, at a later time and date, not later, however,
than 5:30 p.m., New York City time, on the first business day following the
Representation Date, or of such later date and time as shall have been approved
by a majority in interest of the Representatives. If a Rule 462(b)
Registration Statement is required, such Rule 462(b) Registration Statement
shall have been transmitted to the Commission for filing and have become
effective within the prescribed time period, and, prior to the Closing Time,
the Company shall have provided to the International Underwriters evidence of
such filing and effectiveness in accordance with Rule 462(b) of the 1933 Act
Regulations.
(b) At Closing Time the Representatives shall have received:
(1) The favorable opinion of Jones Day, in form and substance
reasonably satisfactory to counsel for the International Underwriters,
dated as of the Closing Time, with respect to the matters set forth below:
(i) The Company and IHC have been duly incorporated and
are validly existing as corporations in good standing under the laws
of the Commonwealth of Pennsylvania with the requisite power and
authority to own or lease their properties and conduct their business
as described in the Prospectus, and the Company and IHC have the
requisite power and authority to enter into and perform their
obligations under this Agreement and the other Company Documents to
which they are a party.
(ii) IHC is duly qualified or registered as a foreign
corporation to transact business and is in good standing in the
states of Arizona, California, Colorado, Connecticut, Florida,
Georgia, Hawaii, Illinois, Maryland, Massachusetts, Michigan,
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<PAGE> 32
Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio,
Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Virginia and
Washington and in the District of Columbia and Toronto, Ontario.
(iii) The Company has the authorized and outstanding
capital as set forth under the caption "Capitalization" in the
Prospectus, and the authorized capital of the Company and its
Significant Subsidiaries, including the Securities, conforms in all
material respects to the description thereof set forth under the
caption "Description of Capital Stock" in the Prospectus. All the
issued and outstanding shares of Common Stock of the Company and its
Subsidiaries have been duly authorized and are validly issued, fully
paid and non-assessable. To the knowledge of such counsel, no shares
of the capital stock of the Company are reserved for any purpose
except as described in the Prospectus. To the knowledge of such
counsel, except as described in the Prospectus and other than as
provided in this Agreement, there are no outstanding securities
convertible into or exchangeable for any capital shares of the
Company and no outstanding options, rights (preemptive or otherwise)
or warrants to purchase or to subscribe for shares of such stock or
any other securities of the Company.
(iv) The Securities have been duly authorized for issuance
and sale to the International Underwriters and, when issued and paid
for in accordance with this Agreement and the International Pricing
Agreement, will be validly issued, fully paid and non-assessable.
The issuance of the Securities is not subject to any preemptive or
other similar rights (other than pursuant to the Registration Rights
Agreement and the Stockholders' Agreements) arising under the
Pennsylvania Business Corporation Law, the Articles of Incorporation
or the by-laws of the Company, or any agreement to which the Company
is a party of which such counsel is aware.
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(v) Each of this Agreement and the International Pricing
Agreement has been duly and validly authorized, executed and
delivered by the Company.
(vi) The execution and delivery of each of this Agreement
and the International Pricing Agreement, and the performance by the
Company of its obligations set forth herein or therein do not and
will not conflict with or constitute a breach or violation of, or
default under: (1) any other Company Document; (2) any other contract
or agreement filed as an exhibit to the Registration Statement; (3)
its articles of incorporation or by-laws of the Company or (4) any
law, rule or administrative regulation applicable to the Company of
any governmental authority or agency of the United States or the
Commonwealth of Pennsylvania (except no opinion need be expressed as
to the by-laws or rules of the NASD or any state securities or real
estate syndication laws); or (5) any order or decree of any court or
governmental authority of which such counsel is aware, except in each
case for conflicts, breaches, violations or defaults that,
individually or in the aggregate, would not have a Material Adverse
Effect.
(vii) The Company is not an "investment company" or a
person "controlled by" an "investment company" within the meaning of
the 1940 Act.
(viii) No authorization, approval, consent or order of any
federal or state court or governmental authority or agency is
required in connection with the offering, issuance or sale of the
Securities hereunder, in each case, except such as may be required in
connection with the sale of the Securities under the 1933 Act or the
1933 Act Regulations, the 1934 Act or the 1934 Act Regulations, the
by-laws and rules of the NASD, or state securities laws, real estate
syndication laws or such as have been received prior to the date of
such opinion.
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(ix) At the time the Registration Statement became
effective, the Registration Statement (other than the operating
statistics, financial statements and other financial data included
therein or omitted therefrom, as to which no opinion need be
rendered) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
(x) To such counsel's knowledge, there is no litigation or
governmental proceeding pending or threatened against the Company,
any of its Subsidiaries or any Hotel which would affect the subject
matter of this Agreement or is required to be described in the
Prospectus which is not so described.
(xi) The statements in the Prospectus under "Business and
Properties -- Operations" and "-- Host Funding Transaction,"
"Management," "The Organization, Acquisition and Financing Plan" and
"Certain Relationships and Related Transactions," insofar as they
purport to summarize the provisions of documents referred to therein,
and the statements in the Prospectus under "Description of Capital
Stock," "Shares Eligible for Future Sale" and "Taxation," insofar as
they purport to summarize the provisions of documents or matters of
law referred to therein or constitute legal conclusions are accurate
in all material respects.
(xii) To such counsel's knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described in the Registration Statement,
or to be filed as exhibits thereto by the 1933 Act Regulations, other
than those described or referred to therein or filed as exhibits
thereto, and the descriptions thereof or references thereto are
accurate in all material respects.
(xiii) To such counsel's knowledge, except as disclosed in
the Prospectus, there
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are no persons with registration or other similar rights to have any
securities of the Company registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
(xiv) The Securities are approved for listing on the New
York Stock Exchange upon official notice of issuance.
(xv) The Registration Statement has become effective under
the 1933 Act, and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or
are pending or threatened by the Commission.
In addition, Jones Day shall state that representatives of such firm
have participated in conferences with officers, directors and employees of the
Company, representatives of the independent public accountants who examined the
financial statements contained in the Registration Statement and Prospectus and
representatives of the International Underwriters concerning the information
contained in the Registration Statement and Prospectus and the proposed
responses to various items in Form S-1. On the basis thereof (relying as to
materiality and matters of fact upon the opinions or certificates of officers
and other representatives of the Company), but without independent verification
by such counsel of, and without passing upon or assuming any responsibility
for, the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus or any amendments or supplements
thereto, no facts have come to the attention of such counsel that cause them to
believe that (i) the Registration Statement (other than the operating
statistics, financial statements (including the notes thereto) and other
financial data included therein or omitted therefrom as to which such counsel
expresses no views), at the time such Registration Statement became effective,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading or (ii) the Prospectus (other than the
operating statistics, financial statements and other
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<PAGE> 36
financial and statistical data included therein or omitted therefrom as to
which such counsel expresses no views), as of its date or at the Closing Time,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
In giving its opinion, such counsel may rely, as to all matters of
fact, upon certificates and written statements of officers, directors and
employees of and accountants for the Company. Counsel may state that their
opinion is limited to matters governed by the federal laws of the United
States, the laws of the State of New York and the Business Corporation Law of
the Commonwealth of Pennsylvania.
(2) The favorable opinion in form and substance reasonably
satisfactory to counsel for the Underwriters, dated as of the Closing
Time, of Marvin I. Droz, Esq., Senior Vice President and General Counsel
of the Company, with respect to the matters set forth below:
(i) The Company's Significant Subsidiaries other than IHC
(the "Other Subsidiaries") have been duly incorporated or formed and
are validly existing as corporations or entities in good standing
under the laws of the Commonwealth of Pennsylvania with the full
requisite power and authority to own or lease their properties and
conduct their business as described in the Prospectus, and the Other
Subsidiaries have the requisite power and authority to enter into and
perform their obligations under this Agreement and the other Company
Documents to which they are a party. The Other Subsidiaries are duly
qualified or registered as foreign corporations or entities to
transact business and are in good standing in each jurisdiction in
which such qualifications are required, whether by reason of the
ownership, leasing or management of property or the conduct of
business, except where the failure to so qualify would not have a
Material Adverse Effect.
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<PAGE> 37
(ii) To such counsel's knowledge, the Other Subsidiaries
are not in breach or violation of or default under (1) any of the
Company Documents; (2) any other contract, indenture, mortgage, loan
agreement, note, lease, joint venture or partnership agreement or
other instrument or agreement to which they are a party or by which
they are or any Hotel may be bound or subject to and of which such
counsel is aware; (3) their articles of incorporation, by-laws or
other applicable governing document; (4) any applicable law, rule or
administrative regulation of the United States or the jurisdiction of
its incorporation; or (5) any order or administrative or court decree
of which such counsel is aware, except for conflicts, breaches,
violations or defaults that, individually or in the aggregate, would
not have a Material Adverse Effect.
(iii) The execution and delivery of the Company Documents
other than this Agreement and the International Pricing Agreement and
the performance by the Other Subsidiaries of their obligations set
forth therein, do not and will not conflict with or constitute a
breach or violation of, or default under: (1) any of the Company
Documents; (2) any other contract, indenture, mortgage, loan
agreement, note, lease joint venture or partnership agreement or
other instrument or agreement to which the Other Subsidiaries are a
party or by which they are or any Hotel may be bound or subject to
and of which such counsel is aware; (3) the articles of
incorporation, by-laws or other governing documents of the Other
Subsidiaries; (4) any law, rule or administrative regulation
applicable to the Other Subsidiaries of any governmental authority or
agency of the United States or the Commonwealth of Pennsylvania; or
(5) any order or administrative or court decree of which such counsel
is aware, except for conflicts, breaches, violations or defaults,
that, individually or in the aggregate, would not have a Material
Adverse Effect.
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<PAGE> 38
(iv) To such counsel's knowledge, there is no litigation
or any legal or governmental proceeding pending or threatened against
the Other Subsidiaries or any Hotel which would affect the subject
matter of this Agreement.
In giving its opinion, such counsel may (i) rely, as to all matters
of fact, upon certificates and written statements of officers, directors,
partners and employees of and accountants for the Company and the Subsidiaries
and (ii) state that his opinion is limited to matters governed by the federal
laws of the United States and the Business Corporation Law of the Commonwealth
of Pennsylvania. In addition, while such counsel is the Company's General
Counsel, he would not necessarily be familiar with all legal matters affecting
the Company or any of its Subsidiaries.
(3) The favorable opinion, dated as of the Closing Time, of
Skadden, Arps, Slate, Meagher & Flom, New York, New York ("Skadden Arps"),
counsel for the Representatives, (A) with respect to the matters set forth
in (vi) (with respect to parts (1) and (5) only), (ix) (with respect to
the Company only and with respect to this Agreement and the International
Pricing Agreement only), and (xiv) of subsection (b)(1) of this Section
and (B) containing a statement similar to the statement referred to in the
first sentence of the next to last paragraph of Section 5(b)(1).
In giving its opinion, Skadden Arps may rely, (A) as to all matters
of fact, upon certificates and written statements of officers and employees of
and accountants for the Company, (B) as to the good standing and qualification
of the Company to do business in any state or jurisdiction, upon certificates
of appropriate government officials or opinions of counsel in such
jurisdictions, which opinions shall be in form and substance satisfactory to
counsel for the International Underwriters, and (C) as to certain matters of
law, upon the opinions given pursuant to Sections 5(b)(1) and 5(b)(2) above.
(c) At Closing Time, (i) there shall not have been, since the date
hereof or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any Material Adverse Change, and
(ii) the Representatives shall have received
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<PAGE> 39
a certificate of the President or a Vice President and the chief financial or
chief accounting officer (or such officer acting in a similar capacity) of the
Company, dated as of the Closing Time, evidencing compliance with the
provisions of this subsection (c) and stating that the representations and
warranties in Section 1 hereof are true and correct, in all material respects,
with the same force and effect as though expressly made at and as of Closing
Time.
(d) At the time of the execution of this Agreement, the
Representatives shall have received from Coopers & Lybrand L.L.P. a letter,
dated the date of delivery thereof, in form and substance customary for
transactions such as the Initial Public Offering, to the effect that (i) they
are independent public accountants with respect to the Company as required by
the 1933 Act and the 1933 Act Regulations; (ii) it is its opinion that the
financial statements included in the Registration Statement prepared by such
firm and covered by their opinions therein comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and the
1933 Act Regulations; (iii) based upon limited procedures set forth in its
letter, including a reading of the latest available interim financial
statements of the Company, a reading of the minute books of the Company,
inquiries of officials of the Company responsible for financial and accounting
matters and such other inquiries and procedures as may be specified in such
letter, nothing has come to its attention which causes Coopers & Lybrand L.L.P.
to believe that (A) the unaudited financial statements of the Company included
in the Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations or are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the audited
financial statements included in the Registration Statement, (B) the operating
data and balance sheet data set forth in the Prospectus under the captions "Pro
Forma Financial Data" were not determined on a basis substantially consistent
with that used in determining the corresponding amounts in the audited
financial statements included in the Registration Statement, (C) the pro forma
financial information included in the Registration Statement was not prepared
in accordance with the applicable requirements of the 1933
39
<PAGE> 40
Act or the 1933 Act Regulations with respect to pro forma financial
information or was not determined on a basis substantially consistent with that
of the audited financial statements included in the Registration Statement, or
(D) at a specified date not more than five days prior to the date of this
Agreement, there has been any change in the capital shares of the Company or
any increase in the debt of the Company or any decrease in the net assets of
the Company as compared with the amounts shown in March 31, 1996 historical
financial information of the Company included in the Registration Statement or,
during the period from March 31, 1996 to a specified date not more than five
days prior to the date of this Agreement, there were any decreases, as compared
with the corresponding period in the preceding year, in total revenues, net
income or funds from operations of the Company, except in all instances for
changes, increases or decreases which the Registration Statement and the
Prospectus disclose have occurred or may occur, and (iv) in addition to the
examination referred to in their opinions and the limited procedures referred
to in clause (iii) above, they have carried out certain specified procedures,
not constituting an audit, with respect to certain amounts, percentages and
financial information which are included in the Registration Statement and
Prospectus and which are specified by the Representatives, and have found such
amounts, percentages and financial information to be in agreement with the
relevant accounting, financial and other records of the Company identified in
such letter.
(d) At the Closing Time, the Representatives shall have received
from Coopers & Lybrand L.L.P. a letter, dated the Closing Time, to the effect
that it reaffirms that statements made in the letter furnished pursuant to
subsection (d) of this Section, except that the "specified date" referred to
shall be a date not more than five days prior to the Closing Time and, if the
Company has elected to rely on Rule 430A of the 1933 Act Regulations, to the
further effect that they have carried out procedures as specified in clause
(iv) of subsection (d) of this Section with respect to certain amounts,
percentages and financial information specified by the Representatives and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and
have found such amounts, percentages and financial information to be
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<PAGE> 41
in agreement with the records specified in such clause (iv).
(e) At the Closing Time, the Securities shall be approved for
listing on the New York Stock Exchange upon official notice of issuance.
(f) At the Closing Time and at each Date of Delivery, if any,
counsel for the International Underwriters shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as herein
contemplated and related proceedings, or in order to evidence the accuracy of
any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein contemplated
shall be reasonably satisfactory in form and substance to the Representatives
and counsel for the International Underwriters.
(g) At or prior to the Closing Time, the Representatives shall have
received a letter agreement from each director and executive officer of the
Company who is also a holder of Common Stock (the "Restricted Shares") and
Blackstone in form customary for transactions such as the Initial Public
Offering to the effect that such holder shall agree that during the period of
180 days from the date hereof, such holder will not, without the prior written
consent of Merrill Lynch, sell, offer to sell, transfer, grant any option for
the sale of, pledge, enter into any agreement to sell, or otherwise dispose of
any Restricted Shares, except (i) transfers to any family members or affiliate
of such holder, including any trust established by such holder, provided that
the foregoing restrictions apply thereto, (ii) transfers to the estate or legal
guardian of any other holder of shares of Common Stock, and (iii) pledges to
secure bona fide indebtedness or any foreclosure of such pledges.
(h) In the event that the International Underwriters exercise their
option provided in Section 2(b) hereof to purchase all or any portion of the
Option International Securities, the representations and warranties of the
Company contained herein and the statements in any certificates furnished by
the Transaction Entities
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<PAGE> 42
hereunder shall be true and correct in all material respects as of the Date of
Delivery and, at the Date of Delivery, the Representatives shall have received:
(1) A certificate, dated such Date of Delivery, of the
President or a Vice President and the chief financial or chief accounting
officer of the Company confirming that the certificates delivered at
Closing Time pursuant to Section 5(c) hereof remain true and correct in
all material respects as of such Date of Delivery.
(2) The favorable opinion of Jones Day, in form and substance
reasonably satisfactory to counsel for the International Underwriters,
dated such Date of Delivery, relating to the Option International
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(b)(1) hereof.
(3) The favorable opinion of Marvin I. Droz, Esq., Senior Vice
President and General Counsel of the Company, in form and substance
reasonably satisfactory to counsel for the International Underwriters,
dated such Date of Delivery and otherwise to the same effect as the
opinion required by Section 5(b)(2) hereof.
(4) The favorable opinion of Skadden Arps, counsel for the
International Underwriters, dated such Date of Delivery, relating to the
Option International Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section
5(b)(3) hereof.
(5) A letter from Coopers & Lybrand L.L.P. in form and
substance reasonably satisfactory to the Representatives and dated such
Date of Delivery, substantially the same in form and substance as the
letter furnished to the Representatives pursuant to Section 5(d) hereof,
except that the "specified date" in the letter furnished pursuant to this
Section 5(i)(5) shall be a date not more than five days prior to such Date
of Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be
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<PAGE> 43
fulfilled, this Agreement may be terminated by the Representatives by notice to
the Company at any time at or prior to Closing Time, and such termination shall
be without liability of any party to any other party except as provided in
Section 4 hereof.
SECTION 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
International Underwriter and each person, if any, who controls any
International Underwriter within the meaning of Section 15 of 1933 Act as
follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement,
or alleged untrue statement, of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant
to Rule 430A(b) of the 1933 Act Regulations, if applicable, any
information contained in any Rule 462(b) Registration Statement, if
applicable, any information contained in any Term Sheet, if
applicable, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of
a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that this indemnity agreement shall
not apply to any loss, liability, claim, damage or expense to the
extent arising out of any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by any
International Underwriter through the Representatives expressly for
use in the Registration Statement (or any amendment thereto) or any
preliminary prospectus or the
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<PAGE> 44
Prospectus (or any amendment or supplement thereto); and provided,
further, that this indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any
International Underwriter from whom the person asserting any such
losses, liabilities, claims, damages or expenses purchased
Securities, or any person controlling such International Underwriter,
if a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any such amendments or supplements
thereto) was not sent or given by or on behalf of such International
Underwriter to such person, if such is required by law, at or prior
to the written confirmation of the sale of such Securities to such
person and if the Prospectus (as so amended or supplemented) would
have corrected the defect giving rise to such loss, liability, claim,
damage or expense;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever for which indemnification is
provided under subsection (i) above if such settlement is effected
with the written consent of the indemnifying party; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the reasonable fees and
disbursements of one law firm chosen by Merrill Lynch to act as
counsel for all underwriters and their controlling persons),
reasonably incurred in investigating, preparing or defending against
any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever for which indemnification is provided under subsection (i)
or (ii) above, to the extent that any such expense is not paid under
(i) or (ii) above.
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(b) Each International Underwriter severally agrees to indemnify and
hold harmless the Company, each of the Company's directors and each of the
Company's officers who signs the Registration Statement or any amendment
thereto and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act, against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a)(i), (ii) and
(iii) of this Section, as incurred, but only with respect to untrue statements
or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Company by such
International Underwriter through the Representatives expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any claims asserted
against or any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability which it may have otherwise
than on account of this indemnity agreement except to the extent the
indemnifying party has been prejudiced in any material respect by such failure.
An indemnifying party may participate at its own expense in the defense of any
such action. If it so elects within a reasonable time after receipt of such
notice, an indemnifying party, jointly with any other indemnifying parties
receiving such notice, may assume the defense of such action with counsel
chosen by it and reasonably approved by the indemnified parties defendant in
such action, unless such indemnified parties reasonably object to such
assumption on the ground that there may be legal defenses available to them
which are different from or in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and expenses of counsel
for the indemnified parties incurred thereafter in connection with such action.
In no event shall the indemnifying parties be liable for fees and expenses
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<PAGE> 46
of more than one counsel (in addition to any local counsel) separate from their
own counsel for all indemnified parties in connection with any one action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. Anything in this
Section 6 to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent provided that such consent was not unreasonably withheld.
SECTION 7. Contribution.
In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in Section 6 is for
any reasons held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, the Company, on the one hand, and the
International Underwriters, on the other hand, shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by said indemnity agreement incurred by the Company, on the one
hand, and one or more of the International Underwriters, on the other hand, as
incurred, in such proportions that the International Underwriters are
responsible for that portion represented by the percentage that the sum of the
underwriting discount appearing on the cover page of the Prospectus bears to
the initial public offering price appearing thereon and the Company,
responsible for the balance, and the fees payable pursuant to Sections 4(c) and
(d) hereof; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section, each person, if
any, who controls an International Underwriter within the meaning of Section 15
of the 1933 Act shall have the same rights to contribution as such
International Underwriter, and each director of the Company, each officer of
the Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act shall
have the same rights to contributions as the Company.
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SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.
All representations, warranties and agreements contained in this
Agreement and the International Pricing Agreement, or contained in certificates
of officers or authorized representatives of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any International Underwriter or
controlling person, or by or on behalf of the Company, and shall survive
delivery of the Securities to the International Underwriters.
SECTION 9. Termination of Agreement.
(a) The Representatives may terminate this Agreement, by
written notice to the Company, at any time at or prior to Closing Time (i) if
there has been, since the date of this Agreement or since the respective dates
as of which information is given in the Registration Statement, any Material
Adverse Change, (ii) if there has occurred any material adverse change in the
financial markets in the United States or in the international financial
markets or any outbreak of hostilities or escalation of existing hostilities or
other calamity or crisis the effect of which on the financial markets of the
United States is such as to make it, in the judgment of the Representatives,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in the Common Stock has been suspended by
the Commission or if trading generally on either the New York Stock Exchange,
Inc. or the American Stock Exchange, Inc. has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by either of said Exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by any of Federal, New York or Pennsylvania authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except
as provided in Sections 4 and 10 hereof. Notwithstanding any such termination,
the provisions of Section 4, 6, and 7 shall remain in effect.
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SECTION 10. Default by One or More of the Underwriters.
If one or more of the International Underwriters shall fail at the
Closing Time to purchase the Initial International Securities or on the Date of
Delivery to purchase the Option International Securities which it or they are
obligated to purchase under this Agreement and the International Pricing
Agreement (the "Defaulted Securities"), the Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting International Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Representatives shall not have completed such arrangements within such
24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
International Securities, each of the non-defaulting International Underwriters
shall be obligated, severally and not jointly, to purchase the full amount
thereof in the proportions that its respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
International Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
International Securities, this Agreement shall terminate without liability on
the part of any non-defaulting International Underwriter; provided that if such
default occurs with respect to the Option International Securities after the
Closing Time, this Agreement will not terminate as to the Initial International
Securities.
No action taken pursuant to this Section shall relieve any defaulting
International Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, any of the Representatives or the Company shall
have the right to postpone Closing Time for a period not exceeding seven days
in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements.
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SECTION 11. Notices.
All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if mailed or transmitted by any
standard form of telecommunication. Notices to the International Underwriters
shall be directed to the Representatives at Merrill Lynch World Headquarters,
North Tower, World Financial Center, New York, New York 10281-1326, attention
of Michael F. Profenius, Managing Director, with a copy to Skadden, Arps,
Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, attention of
Patrick J. Foye, Esq.; notices to the Company shall be directed to it at Foster
Plaza 10, 680 Andersen Drive, Pittsburgh, Pennsylvania 15220, attention of
Marvin I. Droz, Senior Vice President and General Counsel, with a copy to
Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022,
attention of Robert A. Profusek, Esq.
SECTION 12. Parties.
This Agreement and the International Pricing Agreement shall each
inure to the benefit of and be binding upon the parties hereto and their
respective successors. Nothing expressed or mentioned in this Agreement or the
International Pricing Agreement is intended or shall be construed to give any
person, firm or corporation, other than those referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or the International Pricing
Agreement or any provision herein or therein contained. This Agreement and the
International Pricing Agreement and all conditions and provisions hereof and
thereof are intended to be for the sole and exclusive benefit of the parties
hereto and thereto and their respective successors, and said controlling
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Securities from any International Underwriter shall be deemed to be a successor
by reason merely of such practice.
13. Governing Laws and Time.
THIS AGREEMENT AND THE PRICING INTERNATIONAL AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCOR-
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DANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED IN SAID STATE WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT
OF LAW. Specified times of day refer to New York City time.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the International Underwriters and the Company in accordance
with its terms.
Very truly yours,
INTERSTATE HOTELS COMPANY
By:
------------------------------------
Name: W. Thomas Parrington, Jr.
Title: President and Chief
Executive Officer
Confirmed and Accepted,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
CREDIT LYONNAIS SECURITIES
MONTGOMERY SECURITIES
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SMITH BARNEY INC.
as Representatives of the several International
Underwriters
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
----------------------------------------
Name:
Title: Authorized Signatory
For themselves and as Representatives of the other
International Underwriters named in Schedule A hereto.
50
<PAGE> 51
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
International
Name of International Underwriter Securities
- - --------------------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit Lyonnais Securities . . . . . . . . . . . . . . . . . . . . . . . .
Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Morgan Stanley & Co., International Limited . . . . . . . . . . . . . . . .
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[ADD OTHER UNDERWRITERS]
</TABLE>
<PAGE> 52
EXHIBIT A
1,402,500 Shares
INTERSTATE HOTELS COMPANY
(a Pennsylvania corporation)
Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PRICING AGREEMENT
June 20, 1996
MERRILL LYNCH INTERNATIONAL
Merrill Lynch, Pierce, Fenner & Smith Incorporated
CREDIT LYONNAIS SECURITIES
MONTGOMERY SECURITIES
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SMITH BARNEY INC.
as Representatives of the several International
Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Reference is made to the International Purchase Agreement dated June 20,
1996, (the "International Purchase Agreement") relating to the purchase by the
several Interna-
Ex. A-1
<PAGE> 53
tional Underwriters named in Schedule A thereto (the "International
Underwriters"), for whom Merrill Lynch & International, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Credit Lyonnais Securities, Montgomery Securities,
Morgan Stanley & Co. International Limited and Smith Barney Inc. are acting as
representatives (the "Representatives"), of the above shares of common stock
(the "Securities") of Interstate Hotels Company (the "Company").
Pursuant to Section 2 of the International Purchase Agreement, the Company
agrees with each International Underwriter as follows:
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $21.
2. The purchase price per share for the Securities to be paid by the
International Underwriters shall be $19.625, being an amount equal to the
initial public offering price set forth above less $1.375 per share.
Ex. A-2
<PAGE> 54
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the International Underwriters and the Company in accordance
with its terms.
Very truly yours,
INTERSTATE HOTELS COMPANY
By:
-------------------------------------
Name: W. Thomas Parrington, Jr.
Title: President and Chief
Executive Officer
Confirmed and Accepted,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
CREDIT LYONNAIS SECURITIES
MONTGOMERY SECURITIES
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SMITH BARNEY INC.
as Representatives of the several International
Underwriters
By:
----------------------------------------
Name:
Title: Authorized Signatory
For themselves and as Representatives of the other
International Underwriters named in the International Purchase Agreement.
Ex. A-3
<PAGE> 1
EXHIBIT 2.2
===============================================================================
FORMATION AGREEMENT
among
INTERSTATE HOTELS COMPANY,
INTERSTATE HOTELS CORPORATION
and
THE CONTRIBUTORS NAMED HEREIN
As of June __, 1996
===============================================================================
<PAGE> 2
FORMATION AGREEMENT
FORMATION AGREEMENT (this "Agreement"), made as of the ______
day of June, 1996 by and among each of the Contributors (as defined below),
INTERSTATE HOTELS COMPANY, a Pennsylvania corporation ("Interstate"), and
INTERSTATE HOTELS CORPORATION, a Pennsylvania corporation ("IHC").
BACKGROUND
A. Interstate contemplates the consummation of an
initial public offering of its common stock.
B. The persons listed on SCHEDULE A attached hereto and
made a part hereof (collectively, "Contributors") own interests in the
corporations and partnerships listed opposite their respective names on
Schedule A attached hereto (collectively, the "Assets").
C. The Contributors desire to contribute the Assets to
Interstate in exchange for shares of Interstate's common stock, on the terms
and conditions hereinafter set forth.
D. The Contributors and Interstate intend that the
contribution of the Assets and the issuance of the common stock hereunder, will
be treated as a tax-free transfer within the meaning of Section 351(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
E. Interstate desires to contribute certain of the
Assets to IHC.
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements set forth herein, and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties, intending to be legally bound, agree as follows:
1. CONTRIBUTIONS OF ASSETS. On the Closing Date (as
hereinafter defined) and pursuant to the terms and subject to the conditions
set forth in this Agreement, the Contributors shall contribute to Interstate
and Interstate shall accept from the Contributors all of the Contributors'
right, title and interest in and to the Assets, free and clear of any and all
Encumbrances (as hereinafter defined) other than Permitted Exceptions (as
hereinafter defined). Immediately following the foregoing contribution,
Interstate shall contribute the Assets described on SCHEDULE B attached hereto
and made a part hereof to IHC. In addition, on the Closing Date IHC shall
assign its 1% general partner interest (the "GP Interest") in IHC/Pittsburgh
Partnership, L.P., a Delaware limited partnership ("IHC/Pittsburgh") to IHC
Member Corporation, a Delaware
<PAGE> 3
corporation ("IHC Member"), who shall be admitted as an additional general
partner of IHC/Pittsburgh.
2. CONSIDERATION. In consideration of the contribution
of the Assets by the Contributors, on the Closing Date, Interstate shall
deliver to the Contributors certificates representing shares of the common
stock, par value $.01 per share, of Interstate (the "Stock") with each
Contributor receiving the number of shares of Stock set forth opposite the name
of such Contributor on SCHEDULE A, attached hereto and made a part hereof. The
contribution by Interstate of the Assets described on Schedule B to IHC shall
be treated as a contribution of capital and no additional shares of capital
stock of IHC shall be issued to Interstate. The contribution by IHC of the GP
Interest in IHC/Pittsburgh to IHC Member shall be treated as a contribution of
capital and no additional shares of capital stock of IHC Member shall be issued
to IHC. Interstate, IHC and IHC Member intend that the contribution by
Interstate of the Assets described on Schedule B to IHC and the contribution by
IHC of the GP Interest in IHC/Pittsburgh to IHC Member will be treated as
tax-free transfers within the meaning of Section 351 of the Code.
3. THE CLOSING. (a) The closing of the contribution of
the Assets (the "Closing") shall take place on the date of closing of
Interstate's initial public offering (the "Closing Date"), or such other date
as the parties may mutually determine.
(b) The Closing shall be held on the Closing Date at 9:00
A.M. at the offices of Jones, Day, Reavis & Pogue, 500 Grant Street, One Mellon
Bank Center, Pittsburgh, Pennsylvania 15219, or at such other location agreed
upon by the parties hereto.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
CONTRIBUTORS. Each Contributor hereby represents, warrants and covenants to
Interstate as of the date hereof and as of the Closing Date, as to itself and
its own actions, severally but not jointly, as follows:
4.1 FORMATION; EXISTENCE. Each Contributor that
is a limited liability company, general or limited partnership
or corporation, as applicable, is duly formed, validly
existing and in good standing under the laws of the
jurisdiction of its organization.
4.2 POWER AND AUTHORITY. It has all requisite
power and authority to enter into this Agreement, to perform
its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance
of this Agreement and the consummation of the transactions
provided for in this Agreement have been duly authorized by
all necessary action on its part. This Agreement has been
duly executed and delivered by it and constitutes its legal,
- 2 -
<PAGE> 4
valid and binding obligation, enforceable against it in
accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights and by
general principles of equity (whether applied in a proceeding
at law or in equity).
4.3 NO CONSENTS. No consent, license, approval,
order, permit or authorization of, or registration, filing or
declaration with, any court, administrative agency or
commission or other governmental authority or instrumentality,
domestic or foreign, or any other persons is required to be
obtained or made in connection with the execution, delivery
and performance of this Agreement or any of the transactions
required or contemplated hereby other than such as have been
made or obtained prior to the date hereof or will be made or
obtained prior to the Closing Date.
4.4 NO CONFLICTS. The execution, delivery and
performance of this Agreement, and the contribution of the
Assets, will not (a) conflict with or result in any violation
of its organization documents, (b) conflict with or result in
any violation of any provision of any bond, note or other
instrument of indebtedness, indenture, mortgage, deed of
trust, loan agreement, lease or other material agreement or
instrument to which it is a party in its individual capacity
or by which its assets are bound, or (c) violate any existing
term or provision of any order, writ, judgment, injunction,
decree, statute, law, rule or regulation applicable to it or
its assets or properties.
4.5 ASSETS. It is the owner and holder of good
and marketable title of a portion of the Assets and such
Assets are held by it free and clear of any lien, pledge,
option, charge, security interest, encumbrance, title
retention agreement, right of first refusal, adverse claim or
restriction (collectively, "Encumbrances") other than the
liens, encumbrances and exceptions set forth on EXHIBIT A
attached hereto and made a part hereof ("Permitted
Exceptions"). Upon contribution of such Assets by it to
Interstate and upon the issuance of the Stock to the
Contributors, Interstate will receive good and marketable
title to such Assets free and clear of any Encumbrances other
than Permitted Exceptions.
4.6 ACTION BY CONTRIBUTORS. (a) It has not
caused any of the entities whose ownership interests comprise
the Assets (i) to sell or otherwise dispose (or enter into a
contract to sell or dispose) of any of their material assets,
(ii) to place a voluntary lien
- 3 -
<PAGE> 5
on any of their material assets, or (iii) to enter into,
modify or terminate any of their material contracts, material
leases or other material commitments.
(b) From the date hereof through the Closing
Date, it shall not, without the prior approval of Interstate,
cause any such entities (i) to sell or otherwise dispose of
any of their material assets, (ii) to place a voluntary lien
on any of their material assets, or (iii) to enter into,
modify or terminate any material contracts, material leases or
other material commitments, except, in the case of clause
(iii), in the ordinary course of business.
4.7 GOOD FAITH EFFORTS. It shall use its good
faith efforts to consummate the Closing and fulfill each of
its obligations hereunder.
4.8 INVESTMENT REPRESENTATIONS. It (a) has
received no general solicitation or general advertisement
concerning the Stock, (b) is a sophisticated investor that has
prior experience with investments of a similar nature, and has
sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks
of an investment in the Stock, (c) is accepting the Stock for
investment purposes only, for its own account and not with a
view to or in connection with any resale or distribution
thereof, (d) has no reason to anticipate any change in its
circumstances, financial or otherwise, which may cause or
require resale or distribution by it of all or any part of the
Stock, and (e) confirms that all requested information
pertaining to Interstate and the Stock and Interstate's
business operations has been made available to it, and it also
confirms that it has been given an opportunity to make any
further inquiries of Interstate that it desires to make. It
understands and agrees that (i) the Stock will be "restricted
securities" within the meaning of the Securities Act of 1933,
as amended ("Securities Act"), (ii) in the absence of a
registration statement filed in accordance with the Securities
Act and applicable state securities laws, or an exemption from
the registration requirements of such securities laws, such
Stock may not be offered or sold to any person and (iii) each
certificate representing the Stock will bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF
- 4 -
<PAGE> 6
EXCEPT IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND THE
APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION."
5. REPRESENTATIONS WARRANTIES AND COVENANTS OF
INTERSTATE. Interstate hereby represents, warrants and covenants to the
Contributors as of the date hereof and as of the Closing Date as follows:
5.1 FORMATION; EXISTENCE. Interstate is a
corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania.
5.2 POWER; AUTHORITY. Interstate has all
requisite power and authority to enter into this Agreement, to
perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and
performance of this Agreement, the acquisition of the Assets
and the consummation of the transactions provided for herein
have been duly authorized by all necessary action on the part
of Interstate. This Agreement has been duly executed and
delivered by Interstate and constitutes the legal, valid and
binding obligation of Interstate enforceable against
Interstate in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors'
rights and by general principles of equity (whether applied in
a proceeding at law or in equity).
5.3 NO CONSENTS. No consent, license, approval,
order, permit or authorization of, or registration, filing or
declaration with, any court, administrative agency or
commission or other governmental authority or instrumentality,
domestic or foreign, or any other persons is required to be
obtained or made in connection with the execution, delivery
and performance of this Agreement or any of the transactions
required or contemplated hereby other than such as have been
made or obtained or will be made or obtained prior to the
Closing Date.
5.4 NO CONFLICTS. The execution, delivery and
performance of the terms and provisions of this Agreement, and
the acquisition of the Assets, will not (a) conflict with or
result in any violation of its organizational documents, (b)
conflict with or result in any violation of any provision of
any bond, note or other instrument of indebtedness, indenture,
mortgage, deed of trust, loan agreement, lease or other
material agreement or instrument to which it is a party in its
individual capacity, or (c) violate any existing term
- 5 -
<PAGE> 7
or provision of any order, writ, judgment, injunction, decree,
statute, law, rule or regulation applicable to it or its
assets or properties.
5.5 EXAMINATION. Before entering into this
Agreement, Interstate has made such examination of the Assets
and all other matters affecting or relating to the
transactions contemplated hereunder as Interstate has deemed
necessary. In entering into this Agreement, Interstate has
not been induced by and has not relied upon any written or
oral representations, warranties or statements, whether
express or implied, made by any Contributor, any partner or
affiliate of any Contributor, or any agent, employee, or other
representative of any of the foregoing or by any broker or any
other person representing or purporting to represent any
Contributor, with respect to the Assets or any other matter
affecting or relating to the transactions contemplated hereby,
other than those expressly set forth in this Agreement.
5.6 GOOD FAITH EFFORTS. Interstate shall use its
good faith efforts to consummate the Closing and fulfill each
of its obligations hereunder.
5.7 CONTRIBUTORS. Although the Contributors have
jointly executed this Agreement for administrative efficiency,
Interstate hereby acknowledges and agrees that each
Contributor shall be liable hereunder only for the
representations, warranties and covenants made by such
Contributor with respect to such Contributor and the Assets
owned by such Contributor, and no Contributor shall be liable
for any representations, warranties or covenants made by any
of the other Contributors hereunder.
5.8 INVESTMENT REPRESENTATIONS. Interstate (a)
has received no general solicitation or general advertisement
concerning the Assets, (b) is a sophisticated investor that
has prior experience with investments of a similar nature, and
has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits
and risks of investment in the Assets, (c) is accepting the
Assets for investment purposes only, for its own account and
not with a view to or in connection with any resale or
distribution thereof, (d) has no reason to anticipate any
change in its circumstances, financial or otherwise, which may
cause or require resale or distribution by it of all or any
part of the Assets, and (e) confirms that all requested
information pertaining to the Assets and their business
operations has been made available to Interstate, and
Interstate also confirms that it has been given an opportunity
to
- 6 -
<PAGE> 8
make any further inquiries of the Assets and the Contributors
that it desires to make. Interstate understands and agrees
that (i) the Assets will be "restricted securities" within the
meaning of the Securities Act, (ii) in the absence of a
registration statement filed in accordance with the Securities
Act and applicable state securities laws, or an exemption from
the registration requirements of such securities laws, such
Assets may not be offered or sold to any person and (iii) each
certificate representing such Assets will bear the following
legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER THE APPLICABLE SECURITIES LAWS
OF ANY STATE OR OTHER JURISDICTION, AND MAY NOT BE
SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
REQUIREMENTS OF SUCH ACT AND THE APPLICABLE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION."
6. CONDITIONS PRECEDENT TO CLOSING.
6.1 CONTRIBUTORS' OBLIGATION. The obligation of
the Contributors to consummate the transfer of the Assets to
Interstate on the Closing Date is subject to the satisfaction
(or waiver by the Contributors) as of the Closing of the
following conditions:
(a) Each of the representations and warranties
made by Interstate in this Agreement shall be true and correct
in all material respects when made and on and as of the
Closing Date as though such representations and warranties
were made on and as of the Closing Date, and Interstate shall
have performed or complied in all material respects with each
obligation and covenant required by this Agreement to be
performed or complied with by Interstate on or before the
Closing.
(b) The Contributors shall have received duly
executed counterparts of each of the following documents,
dated as of the Closing Date:
(i) Assignment and Assumption Agreement for
each of the Assets representing interests in
partnerships;
(ii) amendments to the partnership agreement
(and the execution thereof by Interstate) and any
certificate of limited partnership for each of the
Assets representing partnership interests which
amendments shall reflect the assignment of
- 7 -
<PAGE> 9
partnership interests and admission of Interstate as an
additional or substitute partner;
(iii) any forms or affidavits required to be
filed with respect to any applicable transfer, stamp,
transfer gains or other similar taxes applicable to
the transfers;
(iv) the Registration Rights Agreement
attached hereto as EXHIBIT B and made a part hereof;
and
(v) such other documents reasonably required
by the Contributors to transfer the Assets hereunder.
(c) No order or injunction of any court or
administrative agency of competent jurisdiction nor any
statute, rule, regulation or executive order promulgated by
any governmental authority of competent jurisdiction shall be
in effect as of the Closing which restrains or prohibits the
transfer of the applicable Assets or the consummation of any
other transaction contemplated hereby.
(d) No action, suit or other proceeding shall be
pending which shall have been brought by any person or entity
(other than the parties hereto and their affiliates) (i) to
restrain, prohibit or change in any material respect the
contribution and acceptance of the Assets or the consummation
of any other transaction contemplated hereby or (ii) seeking
material damages with respect to such contribution and
acceptance or any other transaction contemplated hereby.
(e) The Contributors shall have received the
Stock of Interstate, in accordance with Section 2 above.
(f) The Contributors shall have obtained all
necessary consents to the transfer of the Assets from any
ground lessors, lenders, franchisors, partners and all other
third parties with approval rights. The Contributors shall
cooperate with Interstate in obtaining any necessary consents
(including reasonably timely execution of any applications or
similar documents).
(g) Interstate shall have paid (or reimbursed the
Contributors, as the case may be) all of the reasonable costs
and expenses incurred by the Contributors and Interstate in
connection with the consummation of the transactions
contemplated hereby, including without limitation any sales,
real estate transfer, stamp,
- 8 -
<PAGE> 10
recordation, or other similar taxes applicable to or arising
out of the contribution of the Assets.
6.2 INTERSTATE'S OBLIGATION. The obligation of
Interstate to issue the Stock is subject to the satisfaction
(or waiver by Interstate) as of the Closing of the following
conditions:
(a) Each of the representations and warranties
made by the Contributors in this Agreement shall be true and
correct in all material respects when made and on and as of
the Closing Date as though such representations and warranties
were made on and as of Closing Date, and the Contributors
shall have performed or complied in all material respects with
each obligation and covenant required by this Agreement to be
performed or complied with by the Contributors on or before
the Closing.
(b) Interstate shall have received duly executed
counterparts of each of the following documents, dated the
Closing Date:
(i) Assignment and Assumption Agreement
for each of the Assets representing interests in
partnerships;
(ii) amendments to the partnership agreement
and certificate of limited partnership for each of
the Assets representing partnership interests which
amendments shall reflect the assignment of
partnership interests and admission of Interstate as
an additional or substitute partner;
(iii) stock powers reflecting the assignment
of the Assets representing interests in corporations;
(iv) The Stockholders Agreement attached
hereto as EXHIBIT C;
(v) The Registration Rights and
Shareholders Agreement attached hereto as EXHIBIT B
and made a part hereof;
(vi) any forms or affidavits required to
be filed with respect to any applicable transfer,
stamp, transfer gains or other similar taxes
applicable to the transfers; and
(vii) such other documents reasonably
required by Interstate to transfer the Assets
hereunder.
- 9 -
<PAGE> 11
(c) No order or injunction of any court or
administrative agency of competent jurisdiction nor any
statute, rule, regulation or executive order promulgated by
any governmental authority of competent jurisdiction shall be
in effect as of the Closing which restrains or prohibits the
transfer of the applicable Assets or the consummation of any
other transaction contemplated hereby.
(d) No action, suit or other proceeding shall be
pending which shall have been brought by any person or entity
(other than the parties hereto and their affiliates) (i) to
restrain, prohibit or change in any material respect the
contribution and acceptance of the applicable Assets or the
consummation of any other transaction contemplated hereby or
(ii) seeking material damages with respect to such
contribution and acceptance or any other transaction
contemplated hereby.
7. FURTHER ASSURANCES. From time to time, as
and when requested by any party hereto, the other party shall
execute and deliver, or cause to be executed and delivered,
all such documents and instruments and shall take, or cause to
be taken, all such further or other actions as such other
party may reasonably deem necessary or desirable to consummate
the transactions contemplated by this Agreement.
8. SURVIVAL OF REPRESENTATIONS. The
representations and warranties contained in Section 4.5 of
this Agreement shall survive the Closing without limitation as
to time subject to applicable statutes of limitation. The
remainder of the representations and warranties contained in
this Agreement shall survive the Closing and shall terminate
on the first anniversary of the Closing Date.
9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY THE CONTRIBUTORS. Each
Contributor shall indemnify and hold Interstate, its
shareholders, officers, directors, employees, agents and
affiliates harmless from and against any and all costs, fees,
expenses, damages, deficiencies, interest and penalties
(including, without limitation, reasonable attorneys' fees and
disbursements) suffered or incurred by any such indemnified
party in connection with any and all losses, liabilities,
claims, damages and expenses ("Losses") arising out of, or in
any way relating to, (i) any breach of any representation or
warranty of such Contributor contained in this Agreement or in
any Schedule, certificate, instrument
- 10 -
<PAGE> 12
or other document delivered pursuant hereto, and (ii) any
breach of any covenant of such Contributor contained in this
Agreement and (iii) any act or omission by such Contributor
arising out of or related to the Assets occurring on or prior
to the Closing, such obligation to survive the Closing subject
to Section 9.3.
9.2 INDEMNIFICATION BY INTERSTATE. Interstate
shall indemnify and hold the Contributors, their partners,
members, shareholders, officers, directors, employees, agents
and affiliates harmless from any and all Losses arising out
of, or in any way relating to, (i) any breach of any
representation or warranty by Interstate contained in this
Agreement or in any Schedule, certificate, instrument or other
document delivered pursuant hereto or in connection herewith,
(ii) any breach of any covenant of Interstate contained in
this Agreement, and (iii) any act or omission arising out of
or related to the Assets occurring after the Closing, such
obligation to survive the Closing or termination of this
Agreement subject to Section 9.3.
9.3 TERMINATION OF INDEMNIFICATION. (a) The
obligations of the Contributors under Section 9.1 shall
terminate on the first anniversary of the Closing Date (or the
first anniversary of the termination of this Agreement) except
with respect to any claims expressly asserted prior to such
termination.
(b) The obligations of Interstate under Section
9.2 shall terminate on the first anniversary of the Closing
Date (or the first anniversary of the termination of this
Agreement) except with respect to any claims expressly
asserted prior to such termination.
10. TAXES; PRORATIONS. (a) All sales and use, stamp,
transfer, documentary or other ad valorem taxes imposed by any governmental
taxing authority or any other taxing authority (excluding, however, taxes on
capital gains or income) as a result of the contribution of the Assets
hereunder shall be paid by Interstate.
(b) Any and all distributions and allocations made with
respect to the Assets for the year in which the contribution contemplated
hereunder occurs shall be prorated between Interstate and the Contributor based
upon the number of days in such year during which the respective Assets were
held by each party.
11. INDEMNIFICATION OF FINE. In consideration of Fine
(as hereinafter defined) granting to IHC the rights described in Sections 12.1
and 12.2 and other good and valuable consideration,
- 11 -
<PAGE> 13
IHC shall indemnify and hold Milton Fine and his heirs, personal and legal
representatives and affiliates (collectively, "Fine Indemnities") harmless from
and against all Losses, including without limitation, any Losses as incurred to
the extent of the aggregate amount paid in investigation, preparation, defense
or settlement of any litigation or proceeding, suffered or incurred by any of
the Fine Indemnities, directly or indirectly, arising out of, or in any way
related to the action styled as STANLEY H. TREZEVANT, JR., V. INTERSTATE HOTELS
CORPORATION, ET AL., United States District Court for the Western District of
Tennessee, Docket Number 94-2709 GBRE, or any related action or the facts or
circumstances giving rise to any such action. The provisions of this section
shall survive Closing.
12. RIGHTS OF FIRST REFUSAL/RIGHTS OF FIRST OPPORTUNITY.
Milton Fine, individually and as trustee under that certain Second Amended and
Restated Trust Agreement for the Milton Fine Revocable Trust dated November 11,
1994 for the benefit of Milton Fine (collectively, "Fine") owns direct and
indirect interests (collectively, "Interests") in the entities set forth on
SCHEDULE C attached hereto (collectively, "Fine Partnerships"). In
consideration of the agreement by IHC to provide the services to Fine described
in Section 12.3 below, Fine shall grant to IHC the rights described in Sections
12.1 and 12.2 below.
12.1 RIGHTS OF FIRST REFUSAL. If Fine shall
receive a bona fide cash offer from a third party to purchase
any one or more of the Interests ("Offered Interests") in the
Fine Partnerships and Fine desires to sell the Offered
Interests pursuant to such offer, Fine shall offer to sell all
of the Offered Interests to IHC, or its designee, for the
price set forth in, and in accordance with the other terms and
conditions of, the bona fide offer by the third party. Fine
shall give to IHC written notice ("Offer Notice") of such
offer stating the Offered Interests, the name and address of
the proposed purchaser (including the names and addresses of
the owners of the equity interests in such prospective
purchaser), the price offered for the Offered Interests and
the other terms and conditions of the offer and shall attach a
photocopy of the bona fide offer by such third party to the
Offer Notice. Fine shall also provide to IHC such other
information regarding the proposed sale as is reasonably
requested by IHC and reasonably available to Fine. Within
fifteen (15) days after receipt of the Offer Notice, IHC or
its designee may accept the offer of Fine to purchase all (but
not less than all) of the Offered Interests and shall provide
Fine with written notice stating whether IHC or its designee
accepts or rejects such offer. If the offer is accepted, IHC
shall deposit in escrow with a bank or other financial
institution selected by Fine as escrowee an earnest
- 12 -
<PAGE> 14
money deposit in cash in an amount equal to 10% of the
purchase price and the parties shall promptly enter into an
agreement of sale consistent with the terms and conditions in
the Offer Notice. A failure by IHC or its designee to notify
Fine of its acceptance of the offer within such fifteen (15)
day period shall constitute a waiver of its rights hereunder.
If IHC fails to close such purchase, then Fine may retain the
escrow deposit and, in addition, may exercise any other rights
or remedies available to him at law or in equity. All
closings of the purchase by IHC under this Section shall be
held at IHC's principal office and shall take place on the
date mutually agreed by IHC and Fine but not later than thirty
(30) days after the date of the notice to Fine exercising the
purchase option. All transfer, stamp and recording taxes
imposed on the transfer and all other closing costs shall be
paid by IHC. If IHC or its designee does not accept the offer
to purchase all of the Offered Interests subject to the Offer
Notice, then at any time within one hundred eighty (180) days
after IHC or its designee notifies Fine of its rejection of
the offer (or is deemed to have rejected the offer pursuant to
the terms of this Section), Fine may sell the Offered
Interests to the third party offeror at a price not less than
90% of the price set forth in the Offer Notice and on other
terms and conditions no less favorable to Fine than those
stated in the Offer Notice. In determining the application of
the 90% as stated herein, only the stated purchase price shall
be relevant and no adjustments thereto shall be made in
respect of the other terms or conditions of a proposed sale.
If such transfer to such third party is not made within such
one hundred eighty (180) day period, Fine shall not transfer
the Offered Interests except by again complying with this
Section.
12.2 RIGHT OF FIRST OFFER. In the event Fine
desires to market or actively solicit the sale of any of the
Interests ("Sale Interests") to a third party, prior to
offering such Sale Interests for sale, Fine shall give IHC
written notice ("Sale Notice") of his intent to sell or market
such Sale Interests, stating Fine's intended cash purchase
price and all other terms and conditions of such proposed sale
together with all other information with respect thereto which
is reasonably required by IHC and reasonably available to
Fine. Within fifteen (15) days of its receipt of such Sale
Notice, IHC, or its designee, may elect, by providing written
notice to Fine, to purchase all (but not less than all) of the
Sale Interests at the same price and upon the same terms and
conditions as those set forth in the Sale Notice. A failure
by IHC or its designee to notify Fine of its acceptance of the
offer
- 13 -
<PAGE> 15
within such fifteen (15) day period shall constitute a waiver
of its rights hereunder. In the event that IHC or its
designee shall have elected to purchase all of the Sale
Interests in accordance with the provisions of the preceding
sentence, IHC shall deposit in escrow with a bank or other
financial institution selected by Fine as escrowee an earnest
money deposit in cash in an amount equal to 10% of the
purchase price and Fine and IHC (or its designee as the case
may be) shall promptly thereafter enter into an agreement for
sale at the price and on the same terms and conditions as set
forth in the Sale Notice. If IHC fails to close such
purchase, then Fine may retain the escrow deposit and, in
addition, may exercise any other rights or remedies available
to him at law or in equity. All closings of the purchase by
IHC under this Section shall be held at IHC's principal office
and shall take place on the date mutually agreed by IHC and
Fine but not later than thirty (30) days after the date of the
notice to Fine exercising the purchase option. All transfer,
stamp and recording taxes imposed on the transfer and all
other closing costs shall be paid by IHC. If IHC elects not to
purchase all of the Sale Interests, then at any time within
one hundred eight (180) days from the date of Fine's Sale
Notice to IHC, Fine may sell the Sale Interests for a purchase
price which is at least 90% of the offer price contained in
the Sale Notice or a greater price and upon other terms and
conditions no less favorable to Fine than those set forth in
the Sale Notice. In determining the application of the 90% as
stated herein, only the stated purchase price shall be
relevant and no adjustments thereto shall be made in respect
of the other terms or conditions of a proposed sale. Should
Fine desire to sell such Sale Interests at a price which is
less than 90% of the original offer price or upon terms which
materially differ from those set forth in the Sale Notice to
IHC, or should the one hundred eight (180) day time period
expire, Fine shall again comply with the requirements set
forth in this Section 12.2 prior to marketing or soliciting
for sale of any such Interests.
12.3 SERVICES In consideration for Fine granting
to IHC the above described rights, IHC shall continue, at no
cost or expense to Fine, to provide to Fine various
administrative, legal, support and/or accounting services
related to his Interests in the Fine Partnerships so long as
he owns such Interests; provided, that IHC's provision of such
services is limited by the following: (a) these services
shall be consistent with past practices as to the type, scope
and extent of such services; (b) IHC shall not be obligated to
provide any services which it does not otherwise provide nor
will IHC be required to hire
- 14 -
<PAGE> 16
personnel, acquire equipment or other assets or otherwise make
any capital expenditures solely for the purpose of providing
such services; and (c) the provision of such services shall
not unreasonably detract from the normal performance of duties
of the persons providing such services.
13. DEFAULT. In the event any of the parties hereto
shall default in the performance of its obligations hereunder, the
nondefaulting parties shall be entitled to terminate this Agreement with
respect to such party and/or pursue any and all remedies available to it at law
or in equity, including, without limitation, an action for specific
performance.
14. BROKERS. (a) Each Contributor represents and
warrants to Interstate that it has dealt with no broker, salesman, finder or
consultant with respect to this Agreement or the transactions contemplated
hereby. Each Contributor agrees to indemnify, protect, defend and hold
Interstate harmless from and against all claims, losses, damages, liabilities,
costs, expenses (including reasonable attorneys' fees and disbursements) and
charges resulting from such Contributor's breach of the foregoing
representation in this subsection (a). The provisions of this subsection (a)
shall survive the Closing and any termination of this Agreement.
(b) Interstate represents and warrants to the Contributors
that it has dealt with no broker, salesman, finder or consultant with respect
to this Agreement or the transactions contemplated hereby. Interstate agrees
to indemnify, protect, defend and hold the Contributors harmless from and
against all claims, losses, damages, liabilities, costs, expenses (including
reasonable attorneys' fees and disbursements) and charges resulting from
Interstate's breach of the foregoing representations in this subsection (b).
The provisions of this subsection (b) shall survive the Closing and any
termination of this Agreement.
15. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES.
The stipulations, terms, covenants and agreements contained in this Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto
and their respective permitted successors and assigns (including any successor
entity after a public offering of stock, merger, consolidation, purchase or
other similar transaction involving a party here to) and nothing herein
expressed or implied shall give or be construed to give to any person or
entity, other than the parties hereto and such assigns, any legal or equitable
rights hereunder.
16. ASSIGNMENT. This Agreement may not be assigned by
either party hereto without the consent of the other party hereto, except to an
entity under the control of, controlling or under common control with the
assigning party, provided that in
- 15 -
<PAGE> 17
each case, the assigning party will continue to remain primarily liable under
this Agreement notwithstanding any such assignment. Interstate may designate
parties to which the Assets will be assigned at the Closing, provided that
Interstate will continue to remain primarily liable under this Agreement
notwithstanding any such designation.
17. NOTICES. All notices, demands or requests made
pursuant to, under or by virtue of this Agreement must be in writing and shall
be (i) personally delivered, (ii) delivered by express mail, Federal Express or
other comparable overnight courier service, (iii) telecopied or (iv) mailed to
the party to which the notice, demand or request is being made by certified or
registered mail, postage prepaid, return receipt requested, as follows:
(a) To any Contributor:
to the address set forth opposite such
Contributor's name on the signature pages
hereto.
(b) To Interstate:
c/o Interstate Hotels Corporation
Foster Plaza X
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
Attention: Mr. W. Thomas Parrington, Jr.
Facsimile: 412-937-8053
with copies thereof to:
Interstate Hotels Corporation
Foster Plaza X
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
Attention: Marvin I. Droz, Esq.
Facsimile: 412-937-3116
and
Jones, Day, Reavis & Pogue
2300 Trammel Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: David Lowery, Esq.
Facsimile: 214-969-5100
All notices (i) shall be deemed to have been given on the date that the same
shall have been delivered in accordance with the provisions of this Section and
(ii) may be given either by a party or by such party's attorneys. Any party
may, from time to
- 16 -
<PAGE> 18
time, specify as its address for purposes of this Agreement any other address
upon the giving of 10 days' notice thereof to the other parties.
18. ENTIRE AGREEMENT. This Agreement, along with the
Schedules here to (but specifically excluding any other correspondence between
any of the parties hereto or any of their affiliates), contains all of the
terms agreed upon between the parties hereto with respect to the subject matter
hereof, and all understandings and agreements heretofore had or made among the
parties hereto are merged in this Agreement which alone fully and completely
expresses the agreement of the parties hereto.
19. AMENDMENTS. This Agreement may not be amended,
modified, supplemented or terminated, nor may any of the obligations of the
Contributors or Interstate hereunder be waived, except by written agreement
executed by the party or parties to be charged.
20. NO WAIVER. No waiver by either party of any failure
or refusal by another party to comply with its obligations hereunder shall be
deemed a waiver of any other or subsequent failure or refusal to so comply.
21. GOVERNING LAW. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with, the internal
laws of the Commonwealth of Pennsylvania.
22. SUBMISSION TO JURISDICTION. Each of Interstate and
each Contributor irrevocably submits to the jurisdiction of the United States
District Court for the Western District of Pennsylvania for the purposes of any
suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby. Each of Interstate and each Contributor
further agrees that service of any process, summons, notice or document by U.S.
registered mail to such party's respective address set forth above shall be
effective service of process for any action, suit or proceeding in Pennsylvania
with respect to any matters to which it had submitted to jurisdiction as set
forth above in the immediately preceding sentence. Each of Interstate and each
Contributor irrevocably and unconditionally waives trial by jury and
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in the United States District Court for the
Western District of Pennsylvania, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
- 17 -
<PAGE> 19
23. SEVERABILITY. If any term or provision of this
Agreement or the application thereof to any person or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
24. SECTION HEADINGS. The headings of the various
Sections of this Agreement have been inserted only for purposes of convenience,
are not part of this Agreement and shall not be deemed in any manner to modify,
explain, expand or restrict any of the provisions of this Agreement.
25. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
26. TERMINATION. Effective as of the Closing, that
certain Shareholder Agreement dated May, 1996 among IHC, the Family
Shareholders named therein and the Employee Shareholders named therein shall
terminate and be of no further force or effect.
[Remainder of page intentionally left blank.]
- 18 -
<PAGE> 20
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the day and year first above written.
INTERSTATE HOTELS COMPANY
By:
--------------------------------
Its:
----------------------------
INTERSTATE HOTELS CORPORATION
By:
--------------------------------
Its:
----------------------------
CONTRIBUTORS:
--------------------------------------
Milton Fine, Trustee, U/A dated
11/17/89, as amended, FBO
Milton Fine
--------------------------------------
David J. Fine, Trustee for the
Milton Fine Grantor Annuity
Trust U/A dated March 31, 1996
--------------------------------------
David J. Fine, Trustee, U/A dated
12/15/89 FBO Sibyl A.
Fine King
--------------------------------------
David J. Fine, Trustee, U/A dated
12/15/89 FBO Carolyn
Fine Friedman
- 19 -
<PAGE> 21
--------------------------------------
David J. Fine, Trustee, U/A dated
12/15/89 FBO David J. Fine
--------------------------------------
W. Thomas Parrington
--------------------------------------
J. William Richardson
--------------------------------------
Robert L. Froman
--------------------------------------
Marvin I. Droz
--------------------------------------
Henry L. Ciaffone
--------------------------------------
Kevin P. Kilkeary
--------------------------------------
Jay A. Litt
--------------------------------------
Gregory W. Ade
--------------------------------------
Robert D. Cowan
--------------------------------------
Robert C. Holland
- 20 -
<PAGE> 22
--------------------------------------
Jay Wold
--------------------------------------
Milton Fine
IHC ASSOCIATES LIMITED PARTNERSHIP
By: IHC Associates Corporation,
General Partner
By:
-----------------------------------
Title:
--------------------------------
HILLTOP INVESTMENTS PARTNERSHIP, L.P.
By:
-----------------------------------
Milton Fine, Trustee, U/A dated
11/17/89, as amended, FBO
Milton Fine, General Partner
INTERPRO, LTD.
By: Interstate Hotels Corporation
#1018, General Partner
By:
-----------------------------------
Title:
--------------------------------
- 21 -
<PAGE> 23
SCHEDULE A
ASSETS TO BE CONTRIBUTED TO INTERSTATE HOTELS COMPANY
AND NUMBER OF SHARES OF INTERSTATE HOTELS COMPANY STOCK
TO BE ISSUED TO CONTRIBUTORS IN RETURN THEREFORE
<TABLE>
<CAPTION>
CONTRIBUTOR COMPANY/INTERESTS TO BE CLASS NO. OF SHARES CERT. SHARES OF INTERSTATE
CONTRIBUTED NO. TO BE ISSUED TO
CONTRIBUTORS FOR
CONTRIBUTION
<S> <C> <C> <C> <C> <C> <C>
1. Milton Fine, Trustee Interstate Hotels Corporation A 538.145 22 5,020,461.61331
FBO Milton Fine A 197.438 26
-------
735.583
B 66,323.795 31
2. David Fine, Trustee Interstate Hotels Corporation A 179-229/600 23 1,623,981.91939
FBO Sibyl F. King A 65-4876/6000 27
-------------
245-1,166/6000
B 9,824.292 23
B 11,622.015 27
----------
21,446.307
3. David Fine, Trustee Interstate Hotels Corporation A 179-229/600 24 1,623,981.91939
FBO Carolyn F. A 65-4876/6000 28
Friedman --------------
245-1,166/6000
B 9,824.292 24
B 11,622.015 28
----------
21,446.307
4. David Fine, Trustee Interstate Hotels Corporation A 179-229/600 25 1,623,981.91939
FBO David Fine A 65-4876/6000 29
--------------
245-1,166/6000
B 9,824.292 25
B 11,622.015 29
----------
21,446.307
5. David Fine, Trustee Interstate Hotels Corporation B 17,383.000 30 1,300,636.19192
Milton Fine Grantor
Annuity Trust
6. Milton, Fine, Trustee Colony Hotels and Resorts B 0.4 1 0
FBO Milton Fine Company ("Colony")
7. David Fine, Trustee Colony B 1.2 2 0
FBO Sibyl F. King
8. David Fine, Trustee Colony B 1.2 3 0
FBO Carolyn F.
Friedman
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
CONTRIBUTOR COMPANY/INTERESTS TO BE CLASS NO. OF SHARES CERT. SHARES OF INTERSTATE
CONTRIBUTED NO. TO BE ISSUED TO
CONTRIBUTORS FOR
CONTRIBUTION
<S> <C> <C> <C> <C> <C> <C>
9. David Fine, Trustee Colony B 1.2 4 0
FBO David Fine
10. Milton Fine, Trustee IHC Member Corporation A 50.00 1 5,549.10609
FBO Milton Fine ("IHC Member")
B 4,950.00 1
B 2,175.00 5
--------
7,125.00
11. David Fine, Trustee IHC Member A 16-2/3 2 1,289.11017
FBO Sibyl F. King
B 1,650.00 2
12. David Fine, Trustee IHC Member A 16-2/3 3 1,289.11017
FBO Carolyn F. B 1,650.00 3
Friedman
13. David Fine, Trustee IHC Member A 16-2/3 4 1,289.11017
FBO David Fine
B 1,650.00 4
14. Milton Fine, Trustee Northridge Insurance Company B 22.73 10B 3,272.5
FBO Milton Fine ("Northridge")
15. David Fine, Trustee Northridge B 59.09 11B 8,825.83333
FBO Sibyl F. King
16. David Fine, Trustee Northridge B 59.09 12B 8,825.83333
FBO Carolyn F.
Friedman
17. David Fine, Trustee Northridge B 59.09 13B 8,825.83333
FBO David Fine
18. Milton Fine IHC/Colorado Springs -- 600 1 2,786.0
Corporation
19. Milton Fine IHC/Lisle Corporation -- 600 1 3,517.0
20. Milton Fine IHC/Huntington Corporation -- 600 1 711.0
21. Milton Fine IHC/Houston Corporation -- 600 1 1,970.0
22. Milton Fine IHC/Denver Corporation -- 600 1 1,569.0
23. Milton Fine, Trustee IHC/Conshohocken Corporation -- 600 1 2,151.0
FBO Milton Fine
24. Milton Fine, Trustee IHC/Atlanta Corporation -- 600 1 2,192.0
FBO Milton Fine
25. Milton Fine, Trustee IHC/CG Portfolio Corporation -- 600 1 11,733.0
FBO Milton Fine
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
CONTRIBUTOR COMPANY/INTERESTS TO BE CLASS NO. OF SHARES CERT. SHARES OF INTERSTATE
CONTRIBUTED NO. TO BE ISSUED TO
CONTRIBUTORS FOR
CONTRIBUTION
<S> <C> <C> <C> <C> <C> <C>
26. Milton Fine IHC/Interstone Corporation -- 600 1 59,332.0
27. Milton Fine IHC/Williamsburg Corporation -- 600 1 764.0
28. IHC Associates 6.7673% limited partner -- -- -- 146,599.0
Limited Partnership interest in IHC/Pittsburgh
Partnership, L.P.
6.7673% limited partner
interest in IHC/Interstone
Partnership, L.P.
6.7673% limited partner
interest in IHC/Interstone
Partnership II, L.P.
29. Hilltop Investments 92.2327% limited partner -- -- -- 1,212,574.0
Partnership, L.P. interest in IHC/Interstone
Partnership, L.P.
30. Interpro, Ltd. Special Interest in -- -- -- 251,208.0
IHC/Interstone Partnership,
L.P.
31. W. Thomas Parrington, Interstate Hotels Corporation B 2,935.71714 32 219,761.0
Jr.
32. J. William Richardson Interstate Hotels Corporation B 1,547.58986 33 115,849.0
33. Robert L. Froman Interstate Hotels Corporation B 1,650.78567 34 123,574.0
34. Marvin I. Droz Interstate Hotels Corporation B 719.13788 35 53,833.0
35. Henry L. Ciaffone Interstate Hotels Corporation B 287.65248 36 21,533.0
36. Kevin P. Kilkeary Interstate Hotels Corporation B 287.65248 42 21,533.0
37. Jay A. Litt Interstate Hotels Corporation B 287.65248 37 21,533.0
38. Robert C. Holland Interstate Hotels Corporation B 143.83292 38 10,767.0
39. Robert D. Cowan Interstate Hotels Corporation B 143.83292 39 10,767.0
40. Jay Wold Interstate Hotels Corporation B 143.83292 40 10,767.0
41. Gregory W. Ade Interstate Hotels Corporation B 143.83292 41 10,767.0
42. Milton Fine HMG Beverage, Inc. Common 400 -- 0
43. Milton Fine, Trustee IHC Capital Corporation Common 100 1 0
FBO Milton Fine
</TABLE>
<PAGE> 26
Schedule B
Assets to be Contributed
to IHC by Interstate
1. Four (4) shares of Class B stock of Colony Hotels and Resorts Company
2. 100 shares of Class A stock and 12,075 shares of Class B stock of IHC
Member Corporation
3. 200 shares of Class B stock of Northridge Insurance Company
4. 600 shares of common stock of IHC/Colorado Springs Corporation
5. 600 shares of common stock of IHC/Lisle Corporation
6. 600 shares of common stock of IHC/Huntington Corporation
7. 600 shares of common stock of IHC/Houston Corporation
8. 600 shares of common stock in IHC/Interstone Williamsburg Corporation
9. 600 shares of common stock of IHC/Denver Corporation
10. 600 shares of common stock of IHC/Conshohocken Corporation
11. 600 shares of common stock of IHC/Atlanta Corporation
12. 600 shares of common stock of IHC/CG Portfolio Corporation
13. 6.7673% limited partner interest in IHC/Interstone Partnership II, L.P.
14. 6.7673% limited partner interest in IHC/Pittsburgh Partnership, L.P.
15. 600 shares of common stock in IHC/Interstone Corporation
16. 92.2327% limited partner interest in IHC/Interstone Partnership, L.P.
17. Special Interest in IHC/Interstone Partnership, L.P.
18. 400 shares of common stock in HMG Beverage, Inc.
19. 6.7673% limited partner interest in IHC/Interstone L.P.
<PAGE> 27
Exhibit A
Permitted Exceptions
1. All liens, encumbrances and exceptions set forth in the
articles or certificate of incorporation, bylaws, certificate
of limited partnership, partnership agreement or similar
organizational document of the corporations and partnerships
comprising the Assets.
2. All encumbrances and exceptions set forth in the Stockholder
Agreements attached hereto as EXHIBIT C and D, respectively.
3. Liens for taxes not yet due and payable.
4. Any financing liens that the Assets will be subject to after
Closing including, without limitation, liens that will be
imposed at Closing by Credit Lyonnais.
<PAGE> 28
Schedule C
Fine Partnerships
<TABLE>
<CAPTION>
Owner Property
----- --------
<S> <C>
(1) Interstate Hotels Partners, L.P. (1) Albany Marriott
(2) Cincinnati Hotel Limited Partnership (2) Cincinnati Marriott
(3) Interstate/Fort Lauderdale Associates Ltd. (3) Ft. Lauderdale Marriott North
(4) Swatara Associates (4) Harrisburg Marriott
(5) Interstate Hotels Partners, L.P. (5) Minneapolis Marriott Southwest
(6) Park West Hotels Associates (6) Pittsburgh Airport Marriott
(7) Green Tree Associates (7) Pittsburgh Greentree Marriott
(8) Host/Interstate Partnership, L.P. (8) Pittsburgh Marriott City Center
(9) Providence Realty Associates, L.P. (9) Providence Marriott
(10) The Key West Reach Limited Partnership (10) Marriott's Reach Resort
(11) Maryville Centre Hotel Joint Venture (11) St. Louis Marriott
(12) Interstate Hotels Partners, L.P. (12) San Diego Marriott
(13) Trumbull Hotel Associates Limited Partnership (13) Trumbull Marriott
</TABLE>
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
INTERSTATE HOTELS COMPANY
Under Section 1915 of the
Pennsylvania Business Corporation Law
The undersigned corporation (the "Corporation"), organized and existing under
the laws of the Commonwealth of Pennsylvania, for the purpose of amending and
restating its Articles of Incorporation, hereby certifies as follows:
1. The name of the Corporation is Interstate Hotels Company, and the address of
its registered office is Foster Plaza 10, 680 Andersen Drive, Pittsburgh,
Pennsylvania 15220, Allegheny County.
2. The Corporation was originally incorporated under the Pennsylvania Business
Corporation Law (the "BCL") on April 19, 1996.
3. These Amended and Restated Articles of Incorporation will be effective upon
filing with the Pennsylvania Department of State.
4. These Amended and Restated Articles of Incorporation were duly adopted in
accordance with the provisions of Section 1914 of the BCL by the unanimous
consent of the Board of Directors of the Corporation and the unanimous
consent of the shareholders of the Corporation.
5. These Amended and Restated Articles of Incorporation supersede the
Corporation's original Articles of Incorporation and all prior amendments
thereto.
6. The Corporation's Articles of Incorporation are hereby amended and restated
to read in their entirety as follows:
<PAGE> 2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INTERSTATE HOTELS COMPANY
* * *
FIRST. The name of the Corporation is Interstate Hotels Company.
SECOND. The address of the registered office of the Corporation in the
Commonwealth of Pennsylvania is Foster Plaza 10, 680 Andersen Drive,
Pittsburgh, Pennsylvania 15220.
THIRD. The Corporation is incorporated under the provisions of the
Pennsylvania Business Corporation Law (the "BCL"), and the purpose of the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the BCL.
FOURTH. Section 1. AUTHORIZED CAPITAL STOCK. The total number of shares of
capital stock that the Corporation is authorized to issue is 100,000,000
shares, consisting of 75,000,000 shares of Common Stock, par value $0.01 per
share ("COMMON STOCK"), and 25,000,000 shares of Preferred Stock, par value
$0.01 per share ("PREFERRED STOCK").
Section 2. PREFERRED STOCK. The Preferred Stock may be issued in one or
more series. The Board of Directors of the Corporation (the "BOARD") has the
authority to authorize the issuance of shares of Preferred Stock in any 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
any series. The authority of the Board with respect to each such series will
include, without limiting the generality or effect 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;
(c) the redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
<PAGE> 3
(d) whether dividends, if any, will be cumulative or noncumulative, the
dividend rate for 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 Corporation;
(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 Corporation 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 Corporation 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 set forth in the
resolution or resolutions providing for the issuance of such Preferred Stock
(each, 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 shareholders for
each share of Common Stock held of record by such holder as of the record date
for such meeting.
FIFTH. The Corporation will have perpetual existence.
SIXTH. These Amended and Restated Articles of Incorporation will be
effective upon filing with the Pennsylvania Department of State.
SEVENTH. The Board may make, amend, and repeal the Bylaws of the Corporation
("BYLAWS"). Any Bylaw made by the Board under the powers conferred hereby may
be amended or repealed by the Board (except as specified in any such Bylaw so
made or amended) or by the shareholders in the manner provided in the Bylaws.
Notwithstanding the foregoing and anything contained in these Articles of
Incorporation to the contrary, Sections 1.1, 1.3, 1.9, 2.2, 2.3, 2.4, 2.5 and
9.1 and Article VI of the Bylaws may not be amended or repealed by the
shareholders, and no provision inconsistent therewith may be adopted by the
shareholders, without the affirmative vote of the holders of at least 80% of
the Voting Stock, voting together as a single class; provided, however, that if
any such action (other than any direct or indirect amendment
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<PAGE> 4
to Section 1.6 of the Bylaws) is approved by the affirmative vote of the
holders of a majority, but less than 80%, of the Voting Stock (in addition to
any other approvals required by law), such action will become effective one
year after the date of such approval. Notwithstanding anything contained in
these Articles 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 Seventh. For the purposes of these Articles of Incorporation,
"VOTING STOCK" means stock of the Corporation of any class or series entitled
to vote generally in the election of Directors.
EIGHTH. Subject to the rights of the holders of any series of Preferred
Stock:
(a) any action required or permitted to be taken by the shareholders of
the Corporation must be effected at a duly called annual or special meeting
of shareholders of the Corporation and may not be effected by any consent in
writing of such shareholders or other action not taken at a meeting of
shareholders; and
(b) special meetings of shareholders of the Corporation may be called
only by (i) the Chairman of the Board (the "CHAIRMAN"), (ii) the Secretary of
the Corporation within 10 calendar days after receipt of the written request
of 80% of the total number, assuming no vacancies, of the Directors of the
Corporation (the "WHOLE BOARD"), and (iii) as provided in Section 1.3(c) of
the Bylaws.
At any annual meeting or special meeting of shareholders of the Corporation,
only such business will be conducted or considered as has been brought before
such meeting in the manner provided in the Bylaws; provided, however, that
action taken at a special meeting of shareholders may not include the removal
of Directors other than for cause, the increase or decrease in the number of
Directors or any other action affecting the composition of the Board or any
committee thereof (other than the removal of Directors, but only for cause as
contemplated above). Notwithstanding anything contained in these Articles 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
Eighth; provided, however, that if any proposed amendment or repeal of, or
adoption of a provision inconsistent with, clause (b) of the first sentence of
this Article Eighth 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 one year after such approval.
NINTH. 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, (i) the number of the Directors of the Corporation will be fixed
from time to time in the manner provided in the Bylaws and (ii) Directors may
be elected by the shareholders only at an annual meeting of shareholders and
only in the manner provided in the Bylaws.
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<PAGE> 5
Section 2. NOMINATION OF DIRECTOR CANDIDATES. Advance notice of
shareholder nominations for the election of Directors must be given in the
manner provided in the Bylaws.
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 shareholders. Any Director elected
in accordance with the preceding sentence will hold office for the remainder of
the 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 to elect additional Directors under circumstances
specified in a Preferred Stock Designation, any Director may be removed from
office (i) by the Board as provided in the Bylaws and (ii) by the shareholders
only for cause and only in the manner provided in this Section 4. At any
annual meeting of the shareholders, the affirmative vote of the holders of at
least a majority of the Voting Stock, voting together as a single class, may
remove such Director or Directors; provided, however, that the Chairman may be
removed only by the affirmative vote of the holders of at least 80% of the
Voting Stock, voting together as a single class.
Section 5. AMENDMENT, REPEAL, ETC. Notwithstanding anything contained in
these Articles 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 Ninth; 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 one year after such
approval.
TENTH. To the full extent permitted by the BCL or any other applicable law
currently or hereafter in effect, no Director of the Corporation will be
personally liable to the Corporation or its shareholders for or with respect to
any acts or omissions in the performance of his or her duties as a Director of
the Corporation. Any repeal or modification of this Article Tenth will not
adversely affect any right or protection of a Director of the Corporation in
respect of any act or omission occurring in whole or in part prior to such
repeal or modification.
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<PAGE> 6
ELEVENTH. Each person who is or was or had agreed to become a Director or
officer of the Corporation, 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 Corporation
as an employee or agent of the Corporation 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
Corporation to the full extent permitted by the BCL or any other applicable law
as currently or hereafter in effect. The right of indemnification provided in
this Article Eleventh (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 Eleventh. Without limiting the generality or
the effect of the foregoing, the Corporation may adopt Bylaws, or enter into one
or more agreements with any person, which provide for indemnification greater or
otherwise different than that provided in this Article Eleventh or the BCL, and
any such agreement approved by the Whole Board will be a valid and binding
obligation of the Corporation 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 Eleventh,
in the event that the Corporation enters into a contract with any person
expressly providing for indemnification of such person, the provisions of such
contract will exclusively govern the Corporation'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 Eleventh
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.
IN WITNESS WHEREOF, Interstate Hotels Company has caused its corporate seal
to be hereunto affixed and these Articles of Amendment to be signed by its Vice
President and attested by its Secretary, this day of June, 1996.
INTERSTATE HOTELS COMPANY
By:
-------------------------------
Vice President
ATTEST:
- - ---------------------------------
Secretary
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<PAGE> 1
Exhibit 3.2
================================================================================
INTERSTATE HOTELS COMPANY
AMENDED AND RESTATED
BYLAWS
As Adopted and in Effect
as of June __, 1996
================================================================================
<PAGE> 2
INTERSTATE HOTELS COMPANY
AMENDED AND RESTATED
BYLAWS
ARTICLE I - SHAREHOLDERS' MEETINGS
1.1. Time and Place of Meetings..............................1
1.2. Annual Meeting..........................................1
1.3. Special Meetings........................................1
1.4. Notice of Meetings......................................2
1.5. Record Date for Meetings................................2
1.6. Judges of Election......................................2
1.7. Quorum; Adjournments....................................2
1.8. Action by Shareholders..................................3
1.9. Order of Business.......................................3
ARTICLE II - DIRECTORS
2.1. Powers of Board of Directors............................5
2.2. Number, Election and Term of Office.....................5
2.3. Vacancies and New Directorships.........................6
2.4. Removal.................................................6
2.5. Nominations of Directors................................6
2.6. Resignation.............................................7
2.7. Regular Meetings........................................7
2.8. Special Meetings........................................7
2.9. Quorum..................................................7
2.10. Informal Action.........................................8
2.11. Telephone Participation in Meetings.....................8
2.12. Committees..............................................8
2.13. Compensation............................................9
2.14. Rules...................................................9
ARTICLE III - NOTICES
3.1. Generally...............................................9
3.2. Waivers.................................................9
ARTICLE IV - OFFICERS
4.1. Enumeration............................................10
4.2. Compensation...........................................10
4.3. Succession.............................................10
4.4. Authority and Duties...................................10
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ARTICLE V - DIRECTORS' LIABILITY.....................................10
5.1. Directors' Personal Liability...............................10
5.2. Preservation of Rights......................................11
ARTICLE VI - INDEMNIFICATION
6.1. Mandatory Indemnification...................................11
6.2. Mandatory Advancement of Expenses...........................11
6.3. Permissive Indemnification and Advancement of Expenses......11
6.4. Scope of Indemnification....................................12
6.5. Insurance...................................................12
6.6. Contracts and Funding.......................................12
6.7. Miscellaneous...............................................12
6.8. Definition of Corporation for this Article VI...............12
ARTICLE VII - SHARES OF CAPITAL STOCK
7.1. Issuance of Shares..........................................13
7.2. Share Certificates..........................................13
7.3. Classes of Stock............................................13
7.4. Transfers...................................................13
7.5. Lost, Stolen, Destroyed, or Mutilated Certificates..........14
7.6. Record Date for Distributions...............................14
7.7. Regulations.................................................14
ARTICLE VIII - GENERAL PROVISIONS
8.1. Corporate Seal..............................................14
8.2. Fiscal Year.................................................14
8.3. Authorization...............................................14
8.4. Financial Statements........................................15
8.5. Reliance upon Books, Reports, and Records...................15
8.6. Time Periods................................................15
8.7. Effect of Bylaws............................................15
8.8. Certain Defined Terms.......................................15
ARTICLE IX - AMENDMENTS
9.1. Amendment...................................................15
9.2. Effective Date..............................................15
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<PAGE> 4
AMENDED AND RESTATED BYLAWS
OF
INTERSTATE HOTELS COMPANY
ARTICLE I
SHAREHOLDERS' MEETINGS
1.1. TIME AND PLACE OF MEETINGS. All meetings of the shareholders for
the election of Directors or for any other purpose will be held at such time
and place, within or without the Commonwealth of Pennsylvania, as may be
designated by the Board or, in the absence of a designation by the Board, the
Chairman, and stated in the notice of meeting. The Board or the Chairman may
postpone and reschedule any previously scheduled annual or special meeting of
the shareholders.
1.2. ANNUAL MEETING. The annual meeting of the shareholders for the
election of Directors and the transaction of such other business as may
properly be brought before the meeting in accordance with Section 1.9 of these
Bylaws will be held at such time and on such date as may be designated by the
Board or, in the absence of a designation by the Board, the Chairman.
1.3. SPECIAL MEETINGS. (a) Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by law, the Articles of
Incorporation or these Bylaws, may be called only by (i) the Chairman and (ii)
the Secretary within 10 calendar days after receipt of the written request of
80% of the Whole Board. Any such request by 80% 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 Corporation of a written request executed
by the holders of not less than 25% of the outstanding Voting Stock (a "Meeting
Request"), the Board will (i) call a special meeting of the shareholders for
the purpose specified in such Meeting Request (which may not, however, include
the removal of Directors other than for cause, the increase or decrease in the
number of Directors or any other action affecting the composition of the Board
or any committee thereof) and (ii) fix a record date for the determination of
shareholders 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
Corporation of the Meeting Request); provided, however, that no separate
special meeting of shareholders requested pursuant to a Meeting Request will be
required to be convened if (A) the Board calls an annual or special meeting of
shareholders to be held not later than 90 calendar days
<PAGE> 5
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 Articles of Incorporation or these Bylaws to the contrary,
this Section 1.3(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 Voting Stock
present or represented by proxy and entitled to vote at any annual or special
meeting of shareholders at which such vote is to be taken, voting together as a
single class.
1.4. NOTICE OF MEETINGS. Written notice of every meeting of the
shareholders, stating the place, date, and hour of such meeting and, in the
case of a special meeting, the general nature of the business to be transacted,
will be given by, or at the direction of, the Secretary or any other person
authorized to call such meeting to each shareholder of record entitled to vote
at such meeting, not less than five calendar days prior to the date named for
the meeting, except as otherwise provided herein or by law. When a meeting is
adjourned to another place, date, or 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.
1.5. RECORD DATE FOR MEETINGS. The Board may fix a time prior to the
date of any meeting of the shareholders as a record date for the determination
of the shareholders entitled to notice of, or to vote at, the meeting. Except
in the case of an adjourned meeting, the record date will be not more than 90
calendar days prior to the date of the meeting of shareholders. Only
shareholders of record on the record date will be entitled to notice of, and to
vote at, such meeting notwithstanding any transfer of shares on the books of
the Corporation after the record date. When a determination of shareholders of
record has been made as provided herein for purposes of a meeting, the
determination will apply to any adjournment thereof unless the Board fixes a
new record date of the adjourned meeting. If a record date is not fixed by the
Board, the record date for determining shareholders entitled to notice of, or
to vote at, a meeting of the shareholders will be at the close of business on
the day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the day immediately preceding the day on
which the meeting is held.
1.6. JUDGES OF ELECTION. The Board may appoint one or more judges of
election to act as judges of the voting and to determine those entitled to vote
at any meeting of the shareholders, or any adjournment thereof, in advance of
such meeting. The Board may designate one or more persons as alternate judges
of election to replace any judge of election who fails to act. If no judge of
election or alternate is able to act at a meeting of shareholders, the
presiding officer of the meeting may appoint one or more substitute judges of
election.
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<PAGE> 6
1.7. QUORUM; ADJOURNMENTS. Except as otherwise provided by law or in a
Preferred Stock Designation, the presence, whether in person or represented by
proxy, of the holders of a majority of the Voting Stock issued and outstanding
and entitled to vote on a particular matter to be acted upon at a meeting of
the shareholders will constitute a quorum for the purposes of consideration and
action on the matter. If, however, such quorum is not present or represented at
any meeting of the shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy, will have the power to adjourn the
meeting; provided, however, that (i) any such meeting at which Directors are to
be elected may be adjourned only from day to day, or for such longer periods
(not to exceed 15 calendar days each) as the shareholders present in person or
by proxy and entitled to vote direct, until the Directors have been elected,
and (ii) those shareholders entitled to vote who attend a meeting called for
the election of Directors that has been previously adjourned for lack of a
quorum, although constituting less than a quorum as fixed in this Section 1.7,
will nevertheless constitute a quorum for the purpose of electing Directors.
1.8. ACTION BY SHAREHOLDERS. (a) Except as otherwise provided by law
or in the Articles of Incorporation, these Bylaws or a Preferred Stock
Designation, each shareholder will be entitled at every meeting of the
shareholders to one vote for each share of Voting Stock standing in the name of
such shareholder on the books of the Corporation 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 shareholder 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
matter brought before a meeting of the shareholders may be by voice vote,
unless otherwise required by the Articles of Incorporation or these Bylaws or
unless the Chairman or the holders of a majority of the outstanding shares of
all classes of capital 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.
(b) With respect to any corporate action to be taken at a meeting by a
vote of the shareholders entitled to vote thereon, when a quorum is present at
such meeting, such action will be authorized by a majority of the votes cast by
the holders of the Voting Stock entitled to vote thereon, unless the action is
one with respect to which by express provision of law, the Articles 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
authorization of such action. For purposes of these Bylaws, the term "cast"
does not include recording the fact of abstention or failing to vote for a
candidate or for approval or disapproval of a matter, whether or not the person
entitled to vote characterized the conduct as voting or casting a vote. In an
election of Directors, the candidates receiving the highest number of votes, up
to the number of Directors to be elected, will be elected.
1.9. ORDER OF BUSINESS. (a) The Chairman, or if the Chairman is not
present thereat such other officer of the Corporation designated by a majority
of the Whole Board, will call meetings of the shareholders to order and will
act as presiding officer thereof. The presiding officer of the meeting of the
shareholders will also determine the order of business
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<PAGE> 7
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 shareholders of the Corporation or their duly appointed
proxies) who may attend any such shareholders' meeting, by ascertaining whether
any shareholder or his or her proxy may be excluded from any meeting of the
shareholders 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
shareholders.
(b) At an annual meeting of the shareholders, 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 Section 1.4, (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 shareholder of the Corporation in accordance
with Section 1.9(c).
(c) For business to be properly requested by a shareholder to be
brought before an annual meeting, the shareholder must (i) be a shareholder of
the Corporation 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 shareholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation 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
shareholder to be timely must be so received by 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 shareholder's
notice to the Secretary must set forth as to each matter the shareholder
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 Corporation's books, of the shareholder
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 Corporation that
are owned beneficially and of record by the shareholder proposing such business
and by the beneficial owner, if any, on whose behalf the proposal is made, and
(D) any material interest of such shareholder 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 Section 1.10(c), a
shareholder must also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder with respect to the matters set forth in this Section
1.9(c). For purposes of this Section 1.9(c) and Section 2.5(c), "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 Corporation with the Securities and Exchange
Commission (the "Commission") pursuant to Section 13, 14, or 15(d) of the
Exchange Act or furnished to
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<PAGE> 8
shareholders. Nothing in this Section 1.9(c) will be deemed to affect any
rights of shareholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(d) At a special meeting of shareholders, 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 (including without limitation pursuant to a Meeting
Request) or a majority of the Whole Board in accordance with Section 1.4 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 shareholders is properly brought
before such meeting in accordance with this Section 1.9 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.
ARTICLE II
DIRECTORS
2.1. POWERS OF BOARD OF DIRECTORS. Except as otherwise provided by
law, the Articles of Incorporation or these Bylaws, all powers vested by law in
the Corporation will be exercised by or under the authority of, and the
business and affairs of the Corporation will be managed under the direction of,
the Board.
2.2. NUMBER, ELECTION 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, the authorized number
of Directors initially will be seven, and thereafter will not be less than six
nor more than ten as may be determined from time to time by (i) a vote of a
majority of the Whole Board or (ii) the affirmative vote of the holders of at
least 80% of the Voting Stock, voting together as a single class.
(b) Directors will be elected by the shareholders at the annual
meeting. Each Director will hold office until the next annual meeting of the
shareholders and until his or her successor has been duly elected and
qualified.
(c) Notwithstanding anything contained in the Articles of
Incorporation or these Bylaws to the contrary, the term of any Director who is
also an officer of the Corporation 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
Corporation. Notwithstanding anything contained in the Articles of
Incorporation or these Bylaws to the contrary, the affirmative vote of at least
80% of the
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<PAGE> 9
Directors then in office will be required to amend, repeal, or adopt any
provision inconsistent with this Section 2.2(c).
2.3. 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, newly created
directorships resulting from any increase in the authorized number of Directors
and any vacancies or the Board resulting from death, resignation, 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 shareholders. Any Director elected in accordance with the preceding
sentence will hold office for the remainder of the 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.
2.4. 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 (i) by the Board for cause and upon the vote of a majority of the Whole
Board and (ii) by the shareholders for cause and only in the manner provided in
the Articles of Incorporation; provided, however, that the Chairman may be
removed only by the affirmative vote of the holders of at least 80% of the
Voting Stock, voting together as a single class.
2.5. NOMINATIONS OF DIRECTORS. (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 shareholders as Directors of the Corporation.
(b) Nominations of persons for election as Directors of the
Corporation may be made only at an annual meeting of shareholders (i) by or at
the direction of the Board or (ii) by any shareholder who is a shareholder of
record at the time of giving of notice provided for in this Section 2.5, who is
entitled to vote for the election of Directors at such meeting, and who
complies with the procedures set forth in this Section 2.5. All nominations by
shareholders must be made pursuant to timely notice in proper written form to
the Secretary.
(c) To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 calendar days prior to the annual meeting of shareholders;
provided, however, that in the event that public announcement of the date of
the annual meeting is not made by the Corporation by inclusion in a report
filed with the Commission or furnished to shareholders, or by mail, press
release, or otherwise more than 75 calendar days prior to the date of the
annual meeting, notice by the shareholder 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 shareholder's notice must set forth or include
(i) the name and address, as they appear on the Corporation's books, of the
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shareholder giving the notice and of the beneficial owner, if any, on whose
behalf the nomination is made; (ii) a representation that the shareholder
giving the notice is a holder of record of stock of the Corporation 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 Corporation owned beneficially
and of record by the shareholder 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 shareholder
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 shareholder giving the notice; (v) such other information regarding
each nominee proposed by the shareholder giving the notice as would be required
to be included in a proxy statement filed pursuant to the proxy rules of the
Commission under the Exchange Act had the 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 Corporation 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
shareholder's notice of nomination which pertains to the nominee. The presiding
officer of any meeting will, if the facts warrant, determine that a nomination
was not made in accordance with the procedures prescribed by this Section 2.5,
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 Section 2.5, a shareholder 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 Section 2.5.
2.6. 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.
2.7. REGULAR MEETINGS. Regular meetings of the Board may be held
immediately after the annual meeting of the shareholders and at such other time
and place as may from time to time be determined by the Board. No notice will
be required to be given of any such regular meeting.
2.8. SPECIAL MEETINGS. Special meetings of the Board may be called by
the Chairman on two days' written or oral 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 in like manner and on like notice on the written request of a majority
of the Directors. Special meetings of the Board may be held at such time and
place either within or without the Commonwealth of Pennsylvania as is
determined by the Board or specified in the notice of any such meeting.
2.9. 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
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these Bylaws or the Articles 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 present 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.
2.10. INFORMAL ACTION. Any action required or permitted to be taken at
any meeting of the Board, or at a meeting of the members of any committee
thereof, may be taken without a meeting if, prior or subsequent thereto, all
members of the Board or committee, as the case may be, consent thereto in
writing, and such consent or consents are filed with the minutes or proceedings
of the Board or committee.
2.11. TELEPHONE PARTICIPATION IN MEETINGS. One or more members of the
Board, or any committee thereof, may participate in a meeting of the Board, or
any such committee, by means of conference telephone or similar communications
equipment by means of 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.
2.12. COMMITTEES. (a) The Board, by resolution passed by a majority
of the Board, may designate one or more committees, each such committee to
consist of one or more Directors and each to have such lawfully delegable
powers and duties as the Board may confer.
(b) Each 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 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.
(c) Except as otherwise provided in these Bylaws or by law, any
committee of the Board, to the extent provided 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 Corporation. 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 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 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.
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(d) A majority of the members of any committee the primary
responsibilities of which include (i) reviewing the professional services to be
provided by the Corporation's independent auditors and the independence of such
firm from the Corporation's management, reviewing financial statements with
management or independent auditors, and/or reviewing internal accounting
controls or (ii) recommending candidates to the Board for nomination for
election to the Board, and all of the members of any committee the primary
responsibilities of which include reviewing and approving salaries and other
compensation, whether cash or non-cash, and benefits of the Corporation's
executive officers, will be Directors who are not employees of the Corporation
or any affiliate thereof. Notwithstanding any provision of the Articles of
Incorporation or these Bylaws to the contrary, this Section 2.12(d) 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 shareholders at which such
vote is to be taken.
2.13. 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 Corporation or any of its
majority-owned subsidiaries, as the Board may determine.
2.14. RULES. The Board may adopt rules and regulations for the
conduct of its meetings and the management of the affairs of the Corporation.
ARTICLE III
NOTICES
3.1. GENERALLY. Whenever notice is required to be given to any person
by law or under the provisions of the Articles of Incorporation or these
Bylaws, it may be given to such person either personally or by sending a copy
thereof by first class or express mail, postage prepaid, or by telegram (with
messenger service specified), telex or TWX (with answerback received) or
courier service, charges prepaid, or by facsimile transmission, to the
recipient's address (or to his or her telex, TWX or facsimile number) appearing
on the books of the Corporation or, in the case of directors, supplied by him
or her to the Corporation for the purpose of notice. If the notice is sent by
mail, telegraph or courier service, it will be deemed to have been given to the
person entitled thereto when deposited in the United States mail or with a
telegraph office or courier service for delivery to that person or, in the case
of telex or TWX, when dispatched.
3.2. WAIVERS. Whenever notice is required to be given to any person by
law or under the provisions of the Articles 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 stated therein, will be deemed
equivalent to such notice. Attendance of a person at any meeting will
constitute a waiver of notice of such meeting, except when the person attends a
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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.
ARTICLE IV
OFFICERS
4.1. ENUMERATION. The officers of the Corporation will be elected by
the Board and will consist of a President, such Vice Presidents (if any) as the
Board may elect from time to time, a Secretary, a Treasurer, and such other
officers and assistant officers (if any) as the Board may elect from time to
time. The Board may at any time elect one of its members as Chairman, to
preside at meetings of the Board and of the shareholders and to have such
powers and perform such duties as may be prescribed from time to time by the
Board. Notwithstanding the foregoing, by specific action the Board may
authorize the Chairman to appoint any person to any office other than Chairman,
President, Secretary, or Treasurer. Any two or more 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 Corporation 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.
4.2. COMPENSATION. The compensation of all officers, assistant
officers, and agents of the Corporation will be fixed by, or pursuant to
authority delegated by, the Board or a committee thereof from time to time.
4.3. SUCCESSION. The officers of the Corporation 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 Corporation may be filled by the Board
as provided in Section 4.1.
4.4. AUTHORITY AND DUTIES. Each of the officers of the Corporation
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 as provided in Section 4.1.
ARTICLE V
DIRECTORS' LIABILITY
5.1. DIRECTORS' PERSONAL LIABILITY. A Director of the Corporation will
not be personally liable, as such, for monetary damages for any action taken,
or the failure to take any action, by such Director; provided, however, that
this provision will not eliminate or limit the liability of a Director to the
extent that such elimination or limitation of liability is expressly prohibited
by Section 1713 of the Pennsylvania Business Corporation Law (the
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"BCL") or any successor statute as in effect at the time the alleged action
taken, or alleged failure to take action, by such Director.
5.2. PRESERVATION OF RIGHTS. Any repeal or modification of this
Article V will not adversely affect any right or protection existing at the
time of such repeal or modification to which any Director or former Director
may be entitled under this Article V. The rights conferred by this Article V
will continue as to any person who has ceased to be a Director of the
Corporation and will inure to the benefit of the heirs and personal
representatives of such person.
ARTICLE VI
INDEMNIFICATION
6.1. MANDATORY INDEMNIFICATION. The Corporation will indemnify,
to the fullest extent now or hereafter permitted by law (including, but not
limited to, the indemnification provided by Chapter 17, Subchapter D, of the
BCL or any successor statute), each Director or officer (including each former
Director or officer) of the Corporation who was or is made a party to or a
witness in or is threatened to be made a party to or a witness in any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was an authorized representative of the Corporation, against all expenses
(including attorneys' fees and disbursements), judgments, fines (including
excise taxes and penalties) and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action or
proceeding.
6.2. MANDATORY ADVANCEMENT OF EXPENSES. The Corporation will pay all
expenses (including attorneys' fees and disbursements) incurred by a Director
or officer (including a former Director or officer) referred to in Section 6.1
in defending or appearing as a witness in any action or proceeding described in
Section 6.1 in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of such person to repay all
amounts advanced if it is ultimately determined that such person is not
entitled to be indemnified by the Corporation as provided in Section 6.4.
6.3. PERMISSIVE INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
Corporation may, as determined by the Board from time to time, indemnify to the
fullest extent now or hereafter permitted by law, any person who was or is made
a party to or a witness in or is threatened to be made a party to or a witness
in, or was or is otherwise involved in, any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that such person is or was an authorized representative
of the Corporation, both as to action in such person's official capacity and as
to action in another capacity while holding such office or position, against
all expenses (including attorneys' fees and disbursements), judgments, fines
(including excise taxes and disbursements) and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action
or proceeding. The Corporation may, as determined
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by the Board from time to time, pay expenses incurred by any such person by
reason of such person's participation in an action or proceeding referred to in
this Section 6.3 in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it will ultimately be determined that such person is not
entitled to be indemnified by the Corporation as provided in Section 6.4
hereof.
6.4. SCOPE OF INDEMNIFICATION. Indemnification under this Article VI
will not be made by the Corporation in any case where a court determines that
the alleged act or failure to act giving rise to the claim for indemnification
is expressly prohibited by Chapter 17, Subchapter D, of the BCL or any
successor statute as in effect at the time of such alleged action or failure to
take action.
6.5. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a Director or officer of other Corporation,
or is or was an authorized representative of the Corporation, against any
liability asserted against or incurred by such person in any such capacity, or
arising out of the status of such person as such, whether or not the
Corporation would have the power to indemnify such person against such
liability under the provisions of this Article VI.
6.6. CONTRACTS AND FUNDING. The Board, without approval of the
shareholders, will have the power to authorize the Corporation to borrow money,
including the power to authorize the pledge of the assets of the Corporation,
from time to time to discharge the Corporation's obligations with respect to
indemnification, the advancement and reimbursement of expenses, and the
purchase and maintenance of insurance referred to in this Article VI. The
Corporation may enter into contracts with any person entitled to
indemnification under this Article VI or otherwise, and may, in lieu of or in
addition to the purchase and maintenance of insurance referred to in Section
6.5 hereof, establish and maintain a fund of any nature or otherwise secure or
insure in any manner its indemnification obligations, whether arising under or
pursuant to this Article VI or otherwise.
6.7. MISCELLANEOUS. Each Director and officer of the Corporation will
be deemed to act in such capacity in reliance upon such rights of
indemnification and advancement of expenses as are provided in this Article VI.
The rights of indemnification and advancement of expenses provided by this
Article VI will not be deemed exclusive of any other rights to which any person
seeking indemnification or advancement of expenses may be entitled under any
agreement, any vote of shareholders or disinterested directors of the
Corporation, any statute or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office or position, and will continue as to a person who has ceased to be an
authorized representative of the Corporation and will inure to the benefit of
the heirs and personal representatives of such person. Indemnification and
advancement of expenses under this Article VI will be provided whether or not
the indemnified liability arises or arose from any threatened, pending or
completed action by or in the right of the Corporation. Any repeal or
modification of this Article VI will not adversely affect any right or
protection existing at the time of such repeal or modification to which any
person may be entitled under this Article VI.
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6.8. DEFINITION OF CORPORATION FOR THIS ARTICLE VI. Solely for
purposes of this Article VI, references to "the Corporation" will include all
constituent corporations absorbed in a consolidation or merger, as well as the
surviving or resulting corporation or corporations therefrom, so that (i) any
person who is or was an authorized representative of a constituent, surviving
or new corporation will stand in the same position under the provisions of this
Article VI with respect to the surviving or new corporation as such person
would if he or she had served the surviving or new corporation in the same
capacity and (ii) any person who is or was an authorized representative of the
Corporation will stand in the same position under the provisions of this
Article VI with respect to the surviving or new corporation as such person
would with respect to the Corporation if its separate existence had continued.
ARTICLE VII
SHARES OF CAPITAL STOCK
7.1. ISSUANCE OF SHARES. Shares of capital stock of any class now or
hereafter authorized, securities convertible into or exchangeable for such
shares, or options or other rights to purchase such shares or securities, may
be issued or granted in accordance with authority granted by resolution of the
Board from time to time.
7.2. SHARE CERTIFICATES. Certificates representing shares of the
capital stock of the Corporation will be in the form adopted from time to time
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 Corporation, 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
Corporation by the Chairman, President or a Vice President and by 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 Corporation. Any or all of the signatures and the seal of
the Corporation, 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.
7.3. CLASSES OF STOCK. The designations, preferences, and relative
participating, optional, or other special rights of the various classes of
capital stock or any 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 Corporation issues to represent such capital
stock or, in lieu thereof or in addition thereto, such certificates will set
forth the office of the Corporation from which the holders of certificates may
obtain a copy of such information.
7.4. TRANSFERS. Shares of capital stock of the Corporation will
be transferred only on the books of the Corporation, by the holder of record in
person or by such holder's duly authorized representative. Upon surrender to
the Corporation or the transfer agent (if any) of the Corporation of a
certificate for shares duly endorsed or accompanied by proper
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evidence of succession, assignment, or authority to transfer, it will be the
duty of the Corporation to issue, or cause its transfer agent (if any) to
issue, a new certificate to the person entitled thereto, cancel the old
certificate, and record the transaction upon its books.
7.5. LOST, STOLEN, DESTROYED, OR MUTILATED CERTIFICATES. The Secretary
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen, destroyed, or mutilated 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, destroyed, or mutilated. As a
condition precedent to the issuance of a new certificate or certificates, the
Secretary may require the owners of such lost, stolen, destroyed or mutilated
certificate or certificates to give the Corporation a bond in such sum and with
such surety or sureties as the Board may direct as indemnity against any claims
that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen, destroyed, or mutilated or the issuance of
the new certificate.
7.6. RECORD DATE FOR DISTRIBUTIONS. (a) In order that the Corporation
may determine the shareholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the shareholders 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 shareholders for
any such purpose will be at the close of business on the calendar day on which
the Board adopts the resolution relating thereto.
(b) The Corporation will be entitled to treat the person in whose name
any share of its stock is registered as the holder or owner in fact thereof for
all purposes, and will not be bound to recognize any equitable or other claim
to, or right, title or interest in, such share or shares on the part of any
other person, whether or not the Corporation will have express or other notice
thereof, except as may be otherwise expressly provided by the laws of the
Commonwealth of Pennsylvania.
7.7. REGULATIONS. The Board will have the power and authority to
make all such rules and regulations not inconsistent with these Bylaws as it
may deem expedient concerning the issue, transfer and registration of shares of
capital stock of the Corporation.
ARTICLE VIII
GENERAL PROVISIONS
8.1. CORPORATE SEAL. The Corporation may adopt a corporate seal
in such form as the Board may determine from time to time and use the same by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
8.2. FISCAL YEAR. The fiscal year of the Corporation will be as
designated by the Board from time to time.
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8.3. AUTHORIZATION. All checks, notes, mortgages, evidences of
indebtedness, vouchers, warrants, drafts, acceptances and other orders for the
payment of moneys of the Corporation, contracts and other documents, and
assignments or endorsements thereof, will be signed by the President or such
officer or officers or such other person as the Board may designate from time
to time.
8.4. FINANCIAL STATEMENTS. The Corporation will furnish annual
financial statements to its shareholders in accordance with Section 1554(a) of
the BCL or any successor statute. The financial statements may but need not be
audited or reviewed by an independent public accountant.
8.5. RELIANCE UPON BOOKS, REPORTS, AND RECORDS. Each Director, each
member of a committee designated by the Board, and each officer of the
Corporation will, in the performance of his or her duties, be fully protected
in relying in good faith upon the records of the Corporation and upon such
information, opinions, reports, or statements presented to the Corporation by
any of the Corporation'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 Corporation.
8.6. 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.
8.7. EFFECT OF BYLAWS. No provision of these Bylaws will vest any
property right in any shareholder.
8.8. CERTAIN DEFINED TERMS. Terms used herein with initial
capital letters that are defined in the Articles of Incorporation are used
herein as so defined.
ARTICLE IX
AMENDMENTS
9.1. AMENDMENT. Except as otherwise provided by law or by the Articles
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 shareholders,
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 or repeal adopted by
the Board may vary or conflict with any amendment or repeal adopted by the
shareholders.
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9.2. EFFECTIVE DATE. Any change in the Bylaws will take effect when
adopted unless otherwise provided in the resolution effecting the change.
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Exhibit 4.2
================================================================================
CREDIT AGREEMENT
among
INTERSTATE HOTELS COMPANY
INTERSTATE HOTELS CORPORATION
VARIOUS LENDING INSTITUTIONS
and
CREDIT LYONNAIS NEW YORK BRANCH
as
ADMINISTRATIVE AGENT
------------------------------------
Dated as of June __, 1996
------------------------------------
$295,000,000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 1. Amount and Terms of Credit.......................................... 1
1.01 Commitments...................................................... 1
1.02 Minimum Borrowing Amounts, etc................................... 2
1.03 Notice of Borrowing.............................................. 2
1.04 Disbursement of Funds............................................ 3
1.05 Notes............................................................ 3
1.06 Conversions...................................................... 4
1.07 Pro Rata Borrowings.............................................. 5
1.08 Interest......................................................... 5
1.09 Interest Periods................................................. 6
1.10 Increased Costs, Illegality, etc................................. 7
1.11 Compensation..................................................... 10
1.12 Change of Lending Office......................................... 10
SECTION 2. Letters of Credit................................................... 10
2.01 Letters of Credit................................................ 10
2.02 Letter of Credit Requests; Notices of Issuance................... 11
2.03 Agreement to Repay Letter of Credit Drawings..................... 12
2.04 Letter of Credit Participations.................................. 12
2.05 Increased Costs.................................................. 15
SECTION 3. Fees; Commitments................................................... 15
3.01 Fees............................................................. 15
3.02 Voluntary Reduction of Commitments............................... 16
3.03 Mandatory Adjustments of Commitments, etc........................ 16
SECTION 4. Payments............................................................ 17
4.01 Voluntary Prepayments............................................ 17
4.02 Mandatory Prepayments............................................ 18
4.03 Method and Place of Payment...................................... 21
4.04 Net Payments..................................................... 22
SECTION 5. Conditions Precedent................................................ 24
5.01 Conditions Precedent to Initial Borrowing Date................... 24
5.02 Conditions Precedent to All Credit Events........................ 32
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 6. Representations, Warranties and Agreements.......................... 33
6.01 Corporate Status................................................. 33
6.02 Corporate Power and Authority.................................... 33
6.03 No Violation..................................................... 34
6.04 Litigation....................................................... 34
6.05 Use of Proceeds; Margin Regulations.............................. 34
6.06 Governmental Approvals........................................... 34
6.07 True and Complete Disclosure..................................... 35
6.08 Financial Condition; Financial Statements........................ 35
6.09 Security Interests............................................... 36
6.10 Representations and Warranties in Transaction Documents.......... 37
6.11 Tax Returns and Payments......................................... 37
6.12 Compliance with ERISA............................................ 37
6.13 Subsidiaries..................................................... 38
6.14 Intellectual Property, etc....................................... 38
6.15 Environmental Matters............................................ 38
6.16 Properties....................................................... 39
6.17 Labor Relations; Collective Bargaining Agreements................ 39
6.18 Indebtedness..................................................... 40
6.19 Transaction...................................................... 40
6.20 Certain Material Agreements...................................... 40
6.21 Third-Party Rights............................................... 40
SECTION 7. Affirmative Covenants............................................... 40
7.01 Reporting Requirements........................................... 41
7.02 Books, Records and Inspections................................... 43
7.03 Insurance........................................................ 44
7.04 Payment of Taxes................................................. 44
7.05 Corporate Franchises............................................. 45
7.06 Compliance with Statutes, etc.................................... 45
7.07 Good Repair...................................................... 45
7.08 Compliance with Environmental Laws............................... 45
7.09 End of Fiscal Years; Fiscal Quarters............................. 46
7.10 Interest Rate Hedging............................................ 46
7.11 Additional Security; Further Assurances.......................... 47
7.12 Corporate Separateness........................................... 48
7.13 ERISA............................................................ 48
SECTION 8. Negative Covenants.................................................. 49
8.01 Changes in Business.............................................. 49
8.02 Consolidation, Merger or Sale of Assets, etc..................... 49
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
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<S> <C>
8.03 Liens............................................................ 52
8.04 Indebtedness..................................................... 54
8.05 Advances, Investments and Loans.................................. 56
8.06 Capital Expenditures; Leases..................................... 56
8.07 Prepayments of Indebtedness, Modifications of Agreements, etc.... 57
8.08 Dividends, etc................................................... 57
8.09 Transactions with Affiliates..................................... 58
8.10 Leverage Ratio................................................... 58
8.11 Minimum EBITDA................................................... 59
8.12 Interest Coverage................................................ 59
8.13 Consolidated Net Worth........................................... 60
8.14 Debt Service Coverage............................................ 60
8.15 Creation of Subsidiaries......................................... 60
8.16 Limitation on Certain Restrictions on Subsidiaries............... 61
8.17 Holdings......................................................... 61
SECTION 9. Events of Default................................................... 61
9.01 Payments......................................................... 61
9.02 Representations, etc............................................. 61
9.03 Covenants........................................................ 61
9.04 Default Under Other Agreements................................... 62
9.05 Bankruptcy, etc.................................................. 62
9.06 ERISA............................................................ 63
9.07 Security Documents............................................... 63
9.08 Judgments........................................................ 64
9.09 Environmental Matters............................................ 64
9.10 Guaranty......................................................... 64
SECTION 10 Definitions......................................................... 65
SECTION 11. The Administrative Agent........................................... 87
11.01 Appointment..................................................... 87
11.02 Delegation of Duties............................................ 87
11.03 Exculpatory Provisions.......................................... 88
11.04 Reliance by Administrative Agent................................ 88
11.05 Notice of Default............................................... 89
11.06 Non-Reliance.................................................... 89
11.07 Indemnification................................................. 89
11.08 The Administrative Agent in Individual Capacity................. 90
11.09 Successor Administrative Agent.................................. 90
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 12. Miscellaneous...................................................... 91
12.01 Payment of Expenses, etc........................................ 91
12.02 Right of Setoff................................................. 92
12.03 Notices......................................................... 92
12.04 Benefit of Agreement............................................ 92
12.05 No Waiver; Remedies Cumulative.................................. 95
12.06 Payments Pro Rata............................................... 95
12.07 Calculations; Computations...................................... 96
12.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of
Jury Trial.................................................... 96
12.09 Counterparts.................................................... 97
12.10 Effectiveness................................................... 97
12.11 Headings Descriptive............................................ 98
12.12 Amendment or Waiver............................................. 98
12.13 Survival........................................................ 98
12.14 Domicile of Loans............................................... 98
12.15 Confidentiality................................................. 98
12.16 Bank Register................................................... 99
SECTION 13. Guaranty........................................................... 99
13.01 The Guaranty.................................................... 99
13.02 Bankruptcy...................................................... 100
13.03 Nature of Liability............................................. 100
13.04 Independent Obligation.......................................... 100
13.05 Authorization................................................... 101
13.06 Reliance........................................................ 101
13.07 Subordination................................................... 101
13.08 Waiver.......................................................... 101
13.09 Limitation on Enforcement....................................... 102
</TABLE>
ANNEX I -- Commitments
ANNEX II -- Bank Addresses
ANNEX III -- Schedule of Subsidiaries
ANNEX IV -- Real Properties
ANNEX V -- Existing Indebtedness
ANNEX VI -- Existing Liens
ANNEX VII -- Existing Advances, Loans and Investments
ANNEX VIII -- Existing Letters of Credit
ANNEX IX -- Underground Storage Tanks
(iv)
<PAGE> 6
ANNEX X -- Third-Party Rights
EXHIBIT A-1 -- Form of Notice of Borrowing
EXHIBIT A-2 -- Form of Letter of Credit Request
EXHIBIT B-1 -- Form of Term Note
EXHIBIT B-2 -- Form of Revolving Note
EXHIBIT C-1 -- Form of Opinion of Jones, Day, Reavis & Pogue Special
Counsel to Holdings and its Subsidiaries
EXHIBIT C-2 -- Form of Opinion of General Counsel to Borrower
EXHIBIT C-3 -- Form of Opinion of White & Case, Special Counsel to the
Banks
EXHIBIT D -- Form of Officers' Certificate
EXHIBIT E -- Form of Subsidiary Guaranty
EXHIBIT F -- Form of Pledge Agreement
EXHIBIT G -- Form of Security Agreement
EXHIBIT H -- Form of Solvency Certificate
EXHIBIT I -- Form of Consent Letter
EXHIBIT J -- Form of Assignment Agreement
EXHIBIT K -- Form of Section 4.04(b)(ii) Certificate
(v)
<PAGE> 7
CREDIT AGREEMENT, dated as of June__, 1996, among INTERSTATE
HOTELS COMPANY ("Holdings"), a Pennsylvania corporation, INTERSTATE HOTELS
CORPORATION (the "Borrower"), a Pennsylvania corporation, the lending
institutions listed from time to time on Annex I hereto (each a "Bank" and,
collectively, the "Banks") and CREDIT LYONNAIS NEW YORK BRANCH, as
administrative agent (the "Administrative Agent"). Unless otherwise defined
herein, all capitalized terms used herein and defined in Section 10 are used
herein as so defined.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions set
forth herein, the Banks are willing to make available to the Borrower the credit
facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01 Commitments. Subject to and upon the terms and conditions
herein set forth, each Bank severally agrees to make a loan or loans (each a
"Loan" and, collectively, the "Loans") to the Borrower, which Loans shall be
drawn, to the extent such Bank has a commitment under such Facility, under the
Term Facility or the Revolving Facility, as set forth below:
(a) Loans under the Term Facility (each a "Term Loan" and,
collectively, the "Term Loans"): (i) shall be made pursuant to a single
Borrowing on the Initial Borrowing Date; (ii) except as hereinafter
provided, may, at the option of the Borrower, be incurred and
maintained as, and/or converted into, Base Rate Loans or Eurodollar
Loans, provided that all Term Loans made by all Banks pursuant to the
same Borrowing shall, unless otherwise specifically provided herein,
consist entirely of Term Loans of the same Type; and (iii) shall not
exceed in initial aggregate principal amount for any Bank the Term
Commitment, if any, of such Bank as in effect on the Initial Borrowing
Date. Once repaid, Term Loans borrowed hereunder may not be reborrowed.
(b) Loans under the Revolving Facility (each a "Revolving
Loan" and, collectively, the "Revolving Loans"): (i) may be made at any
time and from time to time on and after the Initial Borrowing Date and
prior to the RF Maturity Date; (ii)
<PAGE> 8
except as hereinafter provided, may, at the option of the Borrower, be
incurred and maintained as, and/or converted into, Base Rate Loans or
Eurodollar Loans, provided that (x) prior to the Syndication Date,
Revolving Loans may only be incurred as Eurodollar Loans on the first
day of a PSD Interest Period and (y) all Revolving Loans made as part
of the same Borrowing shall, unless otherwise specifically provided
herein, consist of Revolving Loans of the same Type; (iii) may be
repaid and reborrowed in accordance with the provisions hereof; and
(iv) shall not exceed for any Bank at any time outstanding that
aggregate principal amount which, when added to the product at such
time of (x) such Bank's RF Percentage and (y) the sum of the Letter of
Credit Outstandings, equals the Revolving Commitment of such Bank at
such time. In addition the aggregate outstanding principal amount of
all Acquisition Loans for all Banks at any time shall not exceed the
Acquisition Sublimit at such time.
1.02 Minimum Borrowing Amounts, etc. The aggregate principal
amount of each Borrowing shall not be less than the Minimum Borrowing Amount for
such Borrowing. More than one Borrowing may be incurred on any day, provided
that at no time shall there be outstanding more than eight Borrowings of
Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to
incur Term Loans or Revolving Loans, it shall give the Administrative Agent at
its Notice Office, (x) prior to 1:00 P.M. (New York time), at least three
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) of each Borrowing of Eurodollar Loans and (y) prior to 10:00 A.M. (New
York time) on the proposed date thereof written notice (or telephonic notice
promptly confirmed in writing) of each Borrowing of Base Rate Loans to be made
hereunder. Each such notice (each such notice, a "Notice of Borrowing") (or the
written confirmation) shall be in the form of Exhibit A-1 and (y) shall be
irrevocable and shall specify: (i) the Facility pursuant to which such Borrowing
is being made; (ii) the aggregate principal amount of the Loans to be made
pursuant to such Borrowing; (iii) the date of Borrowing (which shall be a
Business Day); and (iv) whether the respective Borrowing shall consist of Base
Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the Interest Period to
be initially applicable thereto. The Administrative Agent shall promptly give
each Bank written notice (or telephonic notice promptly confirmed in writing) of
each proposed Borrowing, of such Bank's proportionate share thereof and of the
other matters covered by the Notice of Borrowing.
(b) Without in any way limiting the obligation of the Borrower
to confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from an Authorized Officer of the
Borrower entitled to give telephonic notices under this Agreement on behalf
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<PAGE> 9
of the Borrower. In each such case, the Administrative Agent's record of the
terms of such telephonic notice shall be conclusive absent manifest error.
1.04 Disbursement of Funds. (a) No later than 1:00 P.M. (New
York time) on the date specified in each Notice of Borrowing, each Bank will
make available its pro rata share, if any, of each Borrowing requested to be
made on such date in the manner provided below. All amounts shall be made
available to the Administrative Agent in U.S. dollars and immediately available
funds at the Payment Office and the Administrative Agent promptly will make
available to the Borrower by depositing to its account at the Payment Office the
aggregate of the amounts so made available in the type of funds received. Unless
the Administrative Agent shall have been notified by any Bank prior to the date
of Borrowing that such Bank does not intend to make available to the
Administrative Agent its portion of the Borrowing or Borrowings to be made on
such date, the Administrative Agent may assume that such Bank has made such
amount available to the Administrative Agent on such date of Borrowing, and the
Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made available
to the Administrative Agent by such Bank and the Administrative Agent has made
available same to the Borrower, the Administrative Agent shall be entitled to
recover such corresponding amount from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Administrative Agent's demand therefor,
the Administrative Agent shall promptly notify the Borrower, and the Borrower
shall immediately pay such corresponding amount to the Administrative Agent. The
Administrative Agent shall also be entitled to recover from such Bank or the
Borrower, as the case may be, interest on such corresponding amount in respect
of each day from the date such corresponding amount was made available by the
Administrative Agent to the Borrower to the date such corresponding amount is
recovered by the Administrative Agent, at a rate per annum equal to (x) if paid
by such Bank, the overnight Federal Funds Effective Rate or (y) if paid by the
Borrower, the then applicable rate of interest, calculated in accordance with
Section 1.08, for the respective Loans.
(b) Nothing herein and no subsequent termination of the
Commitments pursuant to Section 3.02 or 3.03 shall be deemed to relieve any Bank
from its obligation to fulfill its commitments hereunder and in existence from
time to time or to prejudice any rights which the Borrower may have against any
Bank as a result of any default by such Bank hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal
of, and interest on, the Loans made to it by each Bank shall be evidenced: (i)
if Term Loans, by a promissory note substantially in the form of Exhibit B-1
with blanks appropriately completed in conformity herewith (each a "Term Note"
and, collectively, the "Term Notes"); and (ii) if Revolving Loans, by a
promissory note substantially in the form of Exhibit B-2
-3-
<PAGE> 10
with blanks appropriately completed in conformity herewith (each a "Revolving
Note" and, collectively, the "Revolving Notes").
(b) The Term Note issued to a Bank shall: (i) be executed by
the Borrower; (ii) be payable to the order of such Bank and be dated the Initial
Borrowing Date; (iii) be in a stated principal amount equal to the Term
Commitment of such Bank (or in the case of a new Note issued pursuant to Section
12.04, the Term Loans evidenced thereby at the time of issuance) and be payable
in the principal amount of Term Loans evidenced thereby; (iv) mature on the TF
Maturity Date; (v) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case
may be, evidenced thereby; (vi) be subject to mandatory repayment as provided in
Section 4.02; and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.
(c) The Revolving Note issued to a Bank shall: (i) be executed
by the Borrower; (ii) be payable to the order of such Bank and be dated the
Initial Borrowing Date; (iii) be in a stated principal amount equal to the
Revolving Commitment of such Bank and be payable in the principal amount of
Revolving Loans evidenced thereby; (iv) mature on the RF Maturity Date; (v) bear
interest as provided in the appropriate clause of Section 1.08 in respect of the
Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby;
(vi) be subject to mandatory repayment as provided in Section 4.02; and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.
(d) Each Bank will note on its internal records the amount of
each Loan made by it and each payment in respect thereof and will, prior to any
transfer of its Note, endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or any error in any such notation shall not affect the Borrower's obligations in
respect of such Loans.
1.06 Conversions. The Borrower shall have the option to
convert on any Business Day all or a portion at least equal to the applicable
Minimum Borrowing Amount of the outstanding principal amount of the Loans owing
pursuant to a single Facility into a Borrowing or Borrowings pursuant to such
Facility of the other Type of Loan, provided that: (i) no conversion of Base
Rate Loans into Eurodollar Loans may be made prior to the Syndication Date
except for a conversion made on the first day of a PSD Interest Period; (ii) no
partial conversion of a Borrowing of Eurodollar Loans shall reduce the
outstanding principal amount of the Eurodollar Loans made pursuant to such
Borrowing to less than the Minimum Borrowing Amount applicable thereto; (iii)
Base Rate Loans may only be converted into Eurodollar Loans if no Default under
Section 9.01 or Event of Default is in existence on the date of the conversion
unless the Required Banks otherwise agree; and (iv) Borrowings of Eurodollar
Loans resulting from this Section 1.06 shall be limited in numbers as provided
in Section 1.02. Each such conversion shall be effected by the Borrower giving
the Administrative Agent at its Notice Office, prior to 1:00 P.M. (New
-4-
<PAGE> 11
York time), at least three Business Days' (or one Business Day's, in the case of
a conversion into Base Rate Loans) prior written notice (or telephonic notice
promptly confirmed in writing) (each a "Notice of Conversion") specifying the
Loans to be so converted, the Type of Loans to be converted into and, if to be
converted into a Borrowing of Eurodollar Loans, the Interest Period to be
initially applicable thereto. The Administrative Agent shall give each Bank
prompt notice of any such proposed conversion affecting any of its Loans.
1.07 Pro Rata Borrowings. All Borrowings of Term Loans or
Revolving Loans shall be made by the Banks pro rata on the basis of their Term
Commitments or Revolving Commitments, as the case may be. It is understood that
no Bank shall be responsible for any default by any other Bank in its obligation
to make Loans hereunder and that each Bank shall be obligated to make the Loans
provided to be made by it hereunder, regardless of the failure of any other Bank
to fulfill its commitments hereunder.
1.08 Interest. (a) The unpaid principal amount of each Base
Rate Loan shall bear interest from the date of the Borrowing thereof until
maturity (whether by acceleration or otherwise) at a rate per annum which shall
at all times be the Applicable Percentage plus the Base Rate in effect from time
to time.
(b) The unpaid principal amount of each Eurodollar Loan shall
bear interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be the
Applicable Percentage plus the relevant Eurodollar Rate.
(c) All overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan shall bear interest at a rate per annum
equal to the Base Rate in effect from time to time plus the sum of (i) 2% and
(ii) the Applicable Percentage then in effect for Base Rate Loans, provided that
each Eurodollar Loan shall bear interest after maturity (whether by acceleration
or otherwise) until the end of the Interest Period then applicable thereto at a
rate per annum equal to 2% in excess of the rate of interest applicable thereto
at maturity.
(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, monthly in arrears on the last
Business Day of each calendar month, (ii) in respect of each Eurodollar Loan, on
the last day of each Interest Period applicable thereto and, in the case of an
Interest Period in excess of three months, on the dates which are successively
three months after the commencement of such Interest Period and (iii) in respect
of each Loan, on any prepayment or conversion (on the amount prepaid or
converted), at maturity (whether by acceleration or otherwise) and, after such
maturity, on demand.
-5-
<PAGE> 12
(e) All computations of interest hereunder shall be made in
accordance with Section 12.07(b).
(f) The Administrative Agent, upon determining the interest
rate for any Borrowing of Eurodollar Loans for any Interest Period, shall
promptly notify the Borrower and the Banks thereof.
1.09 Interest Periods. (a) At the time the Borrower gives a
Notice of Borrowing or Notice of Conversion in respect of the making of, or
conversion into, a Borrowing of Eurodollar Loans (in the case of the initial
Interest Period applicable thereto) or prior to 1:00 P.M. (New York time) on the
third Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans, it shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of the Interest Period applicable to such Borrowing, which Interest
Period shall, at the option of the Borrower, be a one, two, three or six month
period. Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of
Eurodollar Loans shall commence on the date of such Borrowing
(including the date of any conversion from a Borrowing of Base Rate
Loans) and each Interest Period occurring thereafter in respect of such
Borrowing shall commence on the day on which the next preceding
Interest Period expires;
(ii) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, provided that if any Interest Period
would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business
Day;
(iv) subject to the foregoing clauses (i) through (iii), only a
one month Interest Period shall be available to be selected prior to
the Syndication Date, with all Term Loans constituting Eurodollar Loans
during said period to be outstanding pursuant to a single Borrowing and
all Revolving Loans constituting Eurodollar Loans during such period to
be outstanding pursuant to a single Borrowing, with both such
Borrowings to commence and end on the same day;
-6-
<PAGE> 13
(v) no Interest Period with respect to any Borrowing of
Revolving Loans may (x) extend beyond any date upon which a Scheduled
RF Reduction is required to be made if after giving affect to the
selection of such Interest Period, the sum of (I) the aggregate
principal amount of Revolving Loans maintained as Eurodollar Loans with
Interest Periods ending after such date plus (II) Letter of Credit
Outstandings under Letters of Credit with expiry dates beyond such date
would exceed the Total Revolving Commitment after giving effect to such
reduction or (y) extend beyond the RF Maturity Date;
(vi) no Interest Period with respect to any Borrowing of Term
Loans may (x) extend beyond any date upon which a Scheduled Repayment
is required to be made if, after giving effect to the selection of such
Interest Period, the aggregate principal amount of Term Loans
maintained as Eurodollar Loans with Interest Periods ending after such
date would exceed the aggregate principal amount of Term Loans
permitted to be outstanding after such Scheduled Repayment or (y)
extend beyond the TF Maturity Date; and
(vii) no Interest Period may be elected at any time when a
Default under Section 9.01 or an Event of Default is then in existence
unless the Required Banks otherwise agree.
(b) If upon the expiration of any Interest Period the Borrower
has failed to (or may not) elect a new Interest Period to be applicable to the
respective Borrowing of Eurodollar Loans as provided above, the Borrower shall
be deemed to have elected to convert such Borrowing into a Borrowing of Base
Rate Loans effective as of the expiration date of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that
(x) in the case of clause (i) below, the Administrative Agent or (y) in the case
of clauses (ii) and (iii) below, any Bank shall have determined on a reasonable
basis (which determination shall, absent manifest error, be final and conclusive
and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period that, by reason of any changes arising after the
Effective Date affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder in an amount
which such Bank deems material with respect to any Eurodollar Loans
(other than any increased cost or reduction in the amount received or
receivable resulting from the imposition of or
-7-
<PAGE> 14
a change in the rate of taxes or similar charges) because of (x) any
change since the Effective Date in any applicable law, governmental
rule, regulation, guideline, order or request (whether or not having
the force of law), or in the interpretation or administration thereof
and including the introduction of any new law or governmental rule,
regulation, guideline, order or request (such as, for example, but not
limited to, a change in official reserve requirements, but, in all
events, excluding reserves includable in the Eurodollar Rate pursuant
to the definition thereof) and/or (y) other circumstances adversely
affecting the interbank Eurodollar market or the position of such Bank
in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has become unlawful by compliance by such Bank in good
faith with any change since the Effective Date in any law, governmental
rule, regulation, guideline or order, or the interpretation or
application thereof, or would conflict with any thereof not having the
force of law but with which such Bank customarily complies;
then, and in any such event, such Bank (or the Administrative Agent in the case
of clause (i) above) shall (x) on such date and (y) within 10 Business Days of
the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrower and to the Administrative Agent of such
determination (which notice the Administrative Agent shall promptly transmit to
each of the other Banks). Thereafter (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Banks that the circumstances
giving rise to such notice by the Administrative Agent no longer exist, and any
Notice of Borrowing or Notice of Conversion given by the Borrower with respect
to Eurodollar Loans which have not yet been incurred shall be deemed rescinded
by the Borrower or, in the case of a Notice of Borrowing, shall, at the option
of the Borrower, be deemed converted into a Notice of Borrowing for Base Rate
Loans to be made on the date of Borrowing contained in such Notice of Borrowing,
(y) in the case of clause (ii) above, the Borrower shall pay to such Bank, upon
written demand therefor, such additional amounts (in the form of an increased
rate of, or a different method of calculating, interest or otherwise as such
Bank shall determine) as shall be required to compensate such Bank for such
increased costs or reductions in amounts receivable hereunder (a written notice
as to the additional amounts owed to such Bank, showing the basis for the
calculation thereof, which basis must be reasonable, submitted to the Borrower
by such Bank shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower
shall take one of the actions specified in Section 1.10(b) as promptly as
possible and, in any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii) the
Borrower shall) either (i) if the affected
-8-
<PAGE> 15
Eurodollar Loan is then being made pursuant to a Borrowing, by giving the
Administrative Agent telephonic notice (confirmed promptly in writing) thereof
on the same date that the Borrower was notified by a Bank pursuant to Section
1.10(a)(ii) or (iii), cancel said Borrowing, convert the related Notice of
Borrowing into one requesting a Borrowing of Base Rate Loans or require the
affected Bank to make its requested Loan as a Base Rate Loan, or (ii) if the
affected Eurodollar Loan is then outstanding, upon at least one Business Day's
notice to the Administrative Agent, require the affected Bank to convert each
such Eurodollar Loan into a Base Rate Loan, provided that if more than one Bank
is affected at any time, then all affected Banks must be treated the same
pursuant to this Section 1.10(b).
(c) If any Bank shall have determined that after the Effective
Date, the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged by law with the interpretation or administration thereof, or
compliance by such Bank or its parent corporation with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, in each case made subsequent to
the Effective Date, has or would have the effect of reducing by an amount
reasonably deemed by such Bank to be material the rate of return on such Bank's
or its parent corporation's capital or assets as a consequence of such Bank's
commitments or obligations hereunder to a level below that which such Bank or
its parent corporation could have achieved but for such adoption, effectiveness,
change or compliance (taking into consideration such Bank's or its parent
corporation's policies with respect to capital adequacy), then from time to
time, within 15 days after demand by such Bank (with a copy to the
Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank or its parent corporation for
such reduction. Each Bank, upon determining in good faith that any additional
amounts will be payable pursuant to this Section 1.10(c), will give prompt
written notice thereof to the Borrower, which notice shall set forth the basis
of the calculation of such additional amounts, which basis must be reasonable,
although the failure to give any such notice shall not release or diminish any
of the Borrower's obligations to pay additional amounts pursuant to this Section
1.10(c) upon the subsequent receipt of such notice. No Bank shall demand
compensation for any reduction referred to in this Section 1.10(c) if it shall
not at the time be the general policy or practice of such Bank to demand such
compensation in similar circumstances under comparable provisions of other
credit agreements.
(d) Notwithstanding anything in this Agreement to the
contrary, no Bank shall be entitled to compensation under Section 1.10, 2.05 or
4.04 for any amounts incurred or accruing more than 180 days prior to the giving
of notice to the Borrower of additional costs of the type described in such
Sections.
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<PAGE> 16
1.11 Compensation. The Borrower shall compensate each Bank,
upon its written request (which request shall set forth the detailed basis for
requesting and the method of calculating such compensation), for all reasonable
losses, expenses and liabilities (including, without limitation, any loss,
expense or liability incurred by reason of the liquidation or reemployment of
deposits or other funds required by such Bank to fund its Eurodollar Loans)
which such Bank may sustain: (i) if for any reason (other than a default by such
Bank or the Administrative Agent) a Borrowing of Eurodollar Loans does not occur
on a date specified therefor in a Notice of Borrowing or Notice of Conversion
(whether or not withdrawn by the Borrower or deemed withdrawn pursuant to
Section 1.10(a)); (ii) if any repayment or conversion of any of its Eurodollar
Loans occurs on a date which is not the last day of an Interest Period
applicable thereto; (iii) if any prepayment of any of its Eurodollar Loans is
not made on any date specified in a notice of prepayment given by the Borrower;
or (iv) as a consequence of (x) any other default by the Borrower to repay its
Eurodollar Loans when required by the terms of this Agreement or (y) an election
made pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Bank agrees that, upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), 1.10(c), 2.05 or 4.04 with respect to such Bank, it will, if requested by
the Borrower, use reasonable efforts (subject to overall policy considerations
of such Bank) to designate another lending office for any Loans or Commitments
affected by such event, provided that such designation is made on such terms
that such Bank and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of any such Section. Nothing in this Section 1.12 shall
affect or postpone any of the obligations of the Borrower or the right of any
Bank provided in Section 1.10, 2.05 or 4.04.
SECTION 2. Letters of Credit.
2.01 Letters of Credit. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower may request a Letter of Credit Issuer
at any time and from time to time on or after the Initial Borrowing Date and
prior to the RF Maturity Date to issue, for the account of the Borrower and in
support of (x) trade obligations, workmen's compensation and other obligations
of the Borrower or any Subsidiary (other than a Specified Subsidiary) incurred
in the ordinary course of its business and/or (y) such other obligations of the
Borrower or any Subsidiary (other than a Specified Subsidiary) to any other
Person that are acceptable to the Administrative Agent and such Letter of Credit
Issuer, and subject to and upon the terms and conditions herein set forth such
Letter of Credit Issuer agrees to issue from time to time, irrevocable letters
of credit in such form as may be approved by such Letter of Credit Issuer and
the Administrative Agent (each such letter of credit, and each Existing Letter
of Credit described in Section 2.01(d), a "Letter of Credit" and collectively,
the "Letters of Credit").
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<PAGE> 17
(b) Notwithstanding the foregoing, (i) no Letter of Credit
shall be issued the Stated Amount of which, when added to the Letter of Credit
Outstandings at such time, would exceed either (x) $5,000,000 or (y) when added
to the aggregate principal amount of all Revolving Loans then outstanding, an
amount equal to the Total Revolving Commitment at such time and (ii) each Letter
of Credit shall have an expiry date occurring not later than one year after such
Letter of Credit's date of issuance, although any Letter of Credit may be
renewable for successive periods of up to 12 months, but not beyond the Business
Day next preceding the RF Maturity Date, on terms acceptable to the
Administrative Agent and the relevant Letter of Credit Issuer.
(c) Notwithstanding the foregoing, in the event a Bank Default
exists, no Letter of Credit Issuer shall be required to issue any Letter of
Credit unless such Letter of Credit Issuer has entered into arrangements
satisfactory to it and the Borrower to eliminate such Letter of Credit Issuer's
risk with respect to the participation in Letters of Credit of the Defaulting
Bank or Banks, including by cash collateralizing such Defaulting Bank's or
Banks' RF Percentage of the Letter of Credit Outstandings.
(d) Annex VIII hereto contains a description of all letters of
credit outstanding on, and to continue in effect after, the Initial Borrowing
Date. Each such letter of credit issued by a bank that becomes a Bank under this
Agreement prior to the Syndication Date (each, an "Existing Letter of Credit")
shall constitute a "Letter of Credit" for all purposes of this Agreement,
issued, for purposes of Section 2.04(a), on the date such bank so becomes a Bank
(or, if later, the Initial Borrowing Date), and the Borrower, the Administrative
Agent and the Banks hereby agree that, from and after such date, the terms of
this Agreement shall apply to such Letters of Credit, superseding any other
agreement theretofore applicable to them.
2.02 Letter of Credit Requests; Notices of Issuance. (a)
Whenever it desires that a Letter of Credit be issued, the Borrower shall give
the Administrative Agent and the Letter of Credit Issuer written notice
(including by way of telecopier) in the form of Exhibit A-2 thereof prior to
1:00 P.M. (New York time) at least five Business Days (or such shorter period as
may be acceptable to the relevant Letter of Credit Issuer) prior to the proposed
date of issuance (which shall be a Business Day) (each a "Letter of Credit
Request"), which Letter of Credit Request shall include an application for such
Letter of Credit and any other documents that such Letter of Credit Issuer
customarily requires in connection therewith. The Administrative Agent shall
promptly notify each Bank of each Letter of Credit Request.
(b) Each Letter of Credit Issuer shall, on the date of each
issuance of a Letter of Credit by it, give the Administrative Agent, each Bank
and the Borrower written notice of the issuance of such Letter of Credit,
accompanied by a copy to the Administrative Agent of the Letter of Credit or
Letters of Credit issued by it. Each Letter of Credit
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<PAGE> 18
Issuer shall provide to the Administrative Agent a monthly summary describing
each Letter of Credit issued by such Letter of Credit Issuer and then
outstanding.
2.03 Agreement to Repay Letter of Credit Drawings. (a) The
Borrower hereby agrees to reimburse each Letter of Credit Issuer, by making
payment to the Administrative Agent in immediately available funds at the
Payment Office, for any payment or disbursement made by such Letter of Credit
Issuer under any Letter of Credit (each such amount so paid or disbursed until
reimbursed, an "Unpaid Drawing") immediately after, and in any event on the date
on which, such Letter of Credit Issuer notifies the Administrative Agent and the
Borrower of such payment or disbursement (which notice to the Borrower shall be
delivered reasonably promptly after any such payment or disbursement), with
interest on the amount so paid or disbursed by such Letter of Credit Issuer, to
the extent not reimbursed prior to 1:00 P.M. (New York time) on the date of such
payment or disbursement, from and including the date paid or disbursed to but
not including the date such Letter of Credit Issuer is reimbursed therefor at a
rate per annum which shall be the rate then applicable to Base Rate Loans (plus
an additional 2% per annum if not reimbursed by the third Business Day after the
date of such payment or disbursement), such interest also to be payable on
demand.
(b) The Borrower's obligation under this Section 2.03 to
reimburse each Letter of Credit Issuer with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower may have or have had against such Letter
of Credit Issuer, the Administrative Agent, any other Letter of Credit Issuer or
any Bank, including, without limitation, any defense based upon the failure of
any drawing under a Letter of Credit to conform to the terms of the Letter of
Credit or any non-application or misapplication by the beneficiary of the
proceeds of such drawing, provided however that the Borrower shall not be
obligated to reimburse a Letter of Credit Issuer for any wrongful payment made
by such Letter of Credit Issuer under a Letter of Credit as a result of acts or
omissions constituting willful misconduct or gross negligence on the part of
such Letter of Credit Issuer.
2.04 Letter of Credit Participations. (a) Immediately upon the
issuance by a Letter of Credit Issuer of any Letter of Credit, such Letter of
Credit Issuer shall be deemed to have sold and transferred to each Bank, and
each Bank (each a "Participant") shall be deemed irrevocably and unconditionally
to have purchased and received from such Letter of Credit Issuer, without
recourse or warranty, an undivided interest and participation, to the extent of
such Bank's RF Percentage, in such Letter of Credit, each substitute letter of
credit, each drawing made thereunder and the obligations of the Borrower under
this Agreement with respect thereto (although Letter of Credit Fees shall be
payable directly to the Administrative Agent for the account of the Banks as
provided in Section 3.01(b) and the Participants shall have no right to receive
any portion of any Facing
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<PAGE> 19
Fees) and any security therefor or guaranty pertaining thereto. Upon any change
in the Revolving Commitments of the Banks pursuant to Section 12.04(b), it is
hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid
Drawings, there shall be an automatic adjustment to the participations pursuant
to this Section 2.04 to reflect the new RF Percentages of the assigning and
assignee Bank.
(b) In determining whether to pay under any Letter of Credit,
a Letter of Credit Issuer shall not have any obligation relative to the
Participants other than to determine that any documents required to be delivered
under such Letter of Credit have been delivered and that they appear to comply
on their face with the requirements of such Letter of Credit. Any action taken
or omitted to be taken by a Letter of Credit Issuer under or in connection with
any Letter of Credit if taken or omitted in the absence of gross negligence or
willful misconduct, shall not create for such Letter of Credit Issuer any
resulting liability.
(c) In the event that a Letter of Credit Issuer makes any
payment under any Letter of Credit and the Borrower shall not have reimbursed
such amount in full to such Letter of Credit Issuer pursuant to Section 2.03(a),
such Letter of Credit Issuer shall promptly notify the Administrative Agent, and
the Administrative Agent shall promptly notify each Participant of such failure,
and each Participant shall promptly and unconditionally pay to the
Administrative Agent for the account of such Letter of Credit Issuer, the amount
of such Participant's RF Percentage of such payment in U.S. dollars and in same
day funds, provided, however, that no Participant shall be obligated to pay to
the Administrative Agent its RF Percentage of such unreimbursed amount for any
wrongful payment made by such Letter of Credit Issuer under a Letter of Credit
as a result of acts or omissions constituting willful misconduct or gross
negligence on the part of such Letter of Credit Issuer. If the Administrative
Agent so notifies any Participant required to fund a payment under a Letter of
Credit prior to 11:00 A.M. (New York time) on any Business Day, such Participant
shall make available to the Administrative Agent for the account of the relevant
Letter of Credit Issuer such RF's Revolving Percentage of the amount of such
payment on such Business Day in same day funds. If and to the extent such
Participant shall not have so made its RF Percentage of the amount of such
payment available to the Administrative Agent for the account of the relevant
Letter of Credit Issuer, such Participant agrees to pay to the Administrative
Agent for the account of such Letter of Credit Issuer, forthwith on demand such
amount, together with interest thereon, for each day from such date until the
date such amount is paid to the Administrative Agent for the account of such
Letter of Credit Issuer at the Federal Funds Effective Rate. The failure of any
Participant to make available to the Administrative Agent for the account of the
relevant Letter of Credit Issuer its RF Percentage of any payment under any
Letter of Credit shall not relieve any other Participant of its obligation
hereunder to make available to the Administrative Agent for the account of such
Letter of Credit Issuer its RF Percentage of any payment under any Letter of
Credit on the date required, as specified
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<PAGE> 20
above, but no Participant shall be responsible for the failure of any other
Participant to make available to the Administrative Agent for the account of
such Letter of Credit Issuer such other Participant's RF Percentage of any such
payment.
(d) Whenever a Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Administrative Agent has received for
the account of such Letter of Credit Issuer any payments from the Participants
pursuant to clause (c) above, such Letter of Credit Issuer shall pay to the
Administrative Agent and the Administrative Agent shall promptly pay to each
Participant which has paid its RF Percentage thereof, in U.S. dollars and in
same day funds, an amount equal to such Participant's RF Percentage of the
principal amount thereof and interest thereon accruing after the purchase of the
respective participations.
(e) The obligations of the Participants to make payments to
the Administrative Agent for the account of each Letter of Credit Issuer with
respect to Letters of Credit shall be irrevocable and not subject to
counterclaim, set-off or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(i) any lack of validity or enforceability of this Agreement
or any of the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other
right which the Borrower may have at any time against a beneficiary
named in a Letter of Credit, any transferee of any Letter of Credit (or
any Person for whom any such transferee may be acting), the
Administrative Agent, any Letter of Credit Issuer, any Bank, or other
Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the Borrower
and the beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
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<PAGE> 21
2.05 Increased Costs. If after the Effective Date, the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Letter of Credit Issuer or any Bank
with any request or directive (whether or not having the force of law) by any
such authority, central bank or comparable agency (in each case made subsequent
to the Effective Date) shall either (i) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against Letters of
Credit issued by such Letter of Credit Issuer or such Bank's participation
therein, or (ii) shall impose on such Letter of Credit Issuer or any Bank any
other conditions affecting this Agreement, any Letter of Credit or such Bank's
participation therein; and the result of any of the foregoing is to increase the
cost to such Letter of Credit Issuer or such Bank of issuing, maintaining or
participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by such Letter of Credit Issuer or such Bank hereunder
(other than any increased cost or reduction in the amount received or receivable
resulting from the imposition of or a change in the rate of taxes or similar
charges), then, upon demand to the Borrower by such Letter of Credit Issuer or
such Bank (a copy of which notice shall be sent by such Letter of Credit Issuer
or such Bank to the Administrative Agent), the Borrower shall pay to such Letter
of Credit Issuer or such Bank such additional amount or amounts as will
compensate any such Letter of Credit Issuer or such Bank for such increased cost
or reduction. A certificate submitted to the Borrower by any Letter of Credit
Issuer or any Bank, as the case may be (a copy of which certificate shall be
sent by such Letter of Credit Issuer or such Bank to the Administrative Agent),
setting forth the basis for the determination of such additional amount or
amounts necessary to compensate any Letter of Credit Issuer or such Bank as
aforesaid shall be conclusive and binding on the Borrower absent manifest error,
although the failure to deliver any such certificate shall not release or
diminish any of the Borrower's obligations to pay additional amounts pursuant to
this Section 2.05.
SECTION 3. Fees; Commitments.
3.01 Fees. (a) The Borrower agrees to pay to the
Administrative Agent a Commitment Commission ("Commitment Commission") for the
account of each Non-Defaulting Bank for the period from and including the
Effective Date to but not including the date the Total Revolving Commitment has
been terminated, computed at a rate equal to 3/8 of 1% per annum on the average
daily Unutilized Revolving Commitment of such Bank. Such Commitment Commission
shall be due and payable quarterly in arrears on the last Business Day of each
March, June, September and December of each year, commencing September, 1996,
and on the date upon which the Total Revolving Commitment is terminated.
(b) The Borrower agrees to pay to the Administrative Agent,
for the account of each Non-Defaulting Bank, pro rata on the basis of its RF
Percentage, a fee in
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<PAGE> 22
respect of each Letter of Credit (the "Letter of Credit Fee") computed at the
rate of 2% per annum on the average daily Stated Amount of such Letter of
Credit. Accrued Letter of Credit Fees shall be due and payable quarterly in
arrears on the last Business Day of each March, June, September and December of
each year, commencing September, 1996, and on the date upon which the Total
Revolving Commitment is terminated.
(c) The Borrower agrees to pay to the Administrative Agent for
the account of each Letter of Credit Issuer a fee in respect of each Letter of
Credit issued by it (the "Facing Fee") computed at the rate of 1/4 of 1% per
annum on the average daily Stated Amount of such Letter of Credit. Accrued
Facing Fees shall be due and payable quarterly in arrears on the last Business
Day of each March, June, September and December of each year, commencing
September, 1996, and on the date upon which the Total Revolving Commitment is
terminated.
(d) The Borrower agrees to pay directly to each Letter of
Credit Issuer upon each issuance of, drawing under, and/or amendment of, a
Letter of Credit issued by it such amount as shall at the time of such issuance,
drawing or amendment be the administrative charge which such Letter of Credit
Issuer is customarily charging for issuances of, drawings under or amendments
of, letters of credit issued by it.
(e) The Borrower shall pay to the Administrative Agent on the
Initial Borrowing Date and thereafter for its own account and/or for
distribution to the Banks such fees as heretofore agreed by the Borrower and the
Administrative Agent.
(f) All computations of Fees shall be made in accordance with
Section 12.07(b).
3.02 Voluntary Reduction of Commitments. Upon at least three
Business Days' prior written notice (or telephonic notice confirmed in writing)
to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Banks), the Borrower
shall have the right, without premium or penalty, to terminate or partially
reduce the Unutilized Total Revolving Commitment, provided that (i) any such
termination shall apply to proportionately and permanently reduce the Revolving
Commitment, if any, of each of the Banks, (ii) any partial reduction pursuant to
this Section 3.02 shall be in the amount of at least $5,000,000 (or, if greater,
in integral multiples of $1,000,000) and (iii) each such reduction shall reduce
the then remaining Scheduled RF Reductions on a pro rata basis (based on the
then remaining amount of each such Scheduled RF Reduction).
3.03 Mandatory Adjustments of Commitments, etc. (a) The Total
Commitment (and the Term Commitment and Revolving Commitment of each Bank) shall
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<PAGE> 23
terminate on the Expiration Date unless the Initial Borrowing Date has occurred
on or before such date.
(b) The Total Term Commitment shall terminate in its entirety
on the Initial Borrowing Date (after giving effect to the making of Term Loans
on such date).
(c) The Total Revolving Commitment shall be reduced in an
amount of $5,000,000 on each of the last Business Day of each March, June,
September and December commencing September 2001 (each such reduction, a
"Scheduled RF Reduction").
(d) On each date upon which a mandatory repayment of Loans
pursuant to Section 4.02(A)(d), (e), (f), (g), (h) or (i) is required, or would
be required if any Acquisition Loans or Term Loans were then outstanding, the
Total Revolving Commitment shall be permanently reduced by the amount, if any,
by which the amount that would be required to be repaid pursuant to said
Sections if an unlimited amount of Acquisition Loans and Term Loans were
actually then outstanding exceeds the aggregate principal amount of Acquisition
Loans and Term Loans then outstanding.
(e) The Total Revolving Commitment (and the Revolving
Commitment of each Bank) shall terminate on the earlier of (x) the RF Maturity
Date and (y) the date on which a Change of Control occurs.
(f) Each partial reduction of the Total Revolving Commitment
provided for in this Section 3.03 shall apply pro rata to the Revolving
Commitment (if any) of each Bank.
SECTION 4. Payments.
4.01 Voluntary Prepayments. The Borrower shall have the right
to prepay Loans, in whole or in part, without premium or penalty, from time to
time on the following terms and conditions: (i) the Borrower shall give the
Administrative Agent at the Payment Office written notice (or telephonic notice
promptly confirmed in writing) of its intent to prepay the Loans, whether such
Loans are Term Loans or Revolving Loans, the amount of such prepayment and (in
the case of Eurodollar Loans) the specific Borrowing(s) pursuant to which made,
which notice shall be received by the Administrative Agent by 1:00 P.M. (New
York time) one Business Day prior to the date of such prepayment (and which
notice shall promptly be transmitted by the Administrative Agent to each of the
Banks); (ii) each partial prepayment of any Borrowing shall be in an aggregate
principal amount of at least $5,000,000, provided that no partial prepayment of
Eurodollar Loans made pursuant to a Borrowing shall reduce the aggregate
principal amount of the Loans outstanding pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount applicable
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<PAGE> 24
thereto; (iii) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans; and (iv) each prepayment
of Term Loans pursuant to this Section 4.01 shall reduce the then remaining
Scheduled Repayments on a pro rata basis (based upon the then remaining
principal amount of each such Scheduled Repayment).
4.02 Mandatory Prepayments.
(A) Requirements:
(a) If on any date (after giving effect to any other payments
on such date) the sum of (i) the aggregate outstanding principal amount of
Revolving Loans plus (ii) the aggregate amount of Letter of Credit Outstandings
exceeds the Total Revolving Commitment as then in effect, the Borrower shall
repay on such date that principal amount of Revolving Loans and, after Revolving
Loans have been paid in full, Unpaid Drawings, in an aggregate amount equal to
such excess. If, after giving effect to the prepayment of Revolving Loans and
Unpaid Drawings, the aggregate amount of Letter of Credit Outstandings exceeds
the Total Revolving Commitment as then in effect, the Borrower shall pay to the
Administrative Agent an amount in cash and/or Cash Equivalents equal to such
excess and the Administrative Agent shall hold such payment as security for the
obligations of the Borrower hereunder pursuant to a cash collateral agreement to
be entered into in form and substance reasonably satisfactory to the
Administrative Agent and the Borrower (which shall permit certain investments in
Cash Equivalents reasonably satisfactory to the Administrative Agent and the
Borrower until the proceeds are applied to the secured obligations). In
addition, if on any date (after giving effect to any other payments on such
date) the aggregate outstanding principal amount of Acquisition Loans exceeds
the Acquisition Sublimit then in effect, the Borrower shall repay on such date
that principal amount of Acquisition Loans in an aggregate amount equal to such
excess.
(b) On June 1 of each year commencing June 1, 1997, if a
Clean-Down Period shall not have occurred since the preceding July 1, the
Borrower shall prepay the principal amount of Working Capital Loans in an amount
(if any) necessary to reduce the sum of the aggregate outstanding principal
amount of Working Capital Loans plus the Letter of Credit Outstandings to not
more than $10,000,000, with the outstanding principal amount of Working Capital
Loans plus the Letter of Credit Outstandings not to exceed such $10,000,000 sum
until the Clean-Down Period has ended.
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<PAGE> 25
(c) On each date set forth below the Borrower shall be required to
repay the principal amount of Term Loans as is set forth opposite such date
(each such repayment, a "Scheduled Repayment"):
<TABLE>
<CAPTION>
Scheduled Repayment Date Amount
------------------------ -------
<S> <C>
September 30, 1996 $1,250,000
December 31, 1996 1,250,000
March 31, 1997 1,250,000
June 30, 1997 1,250,000
September 30, 1997 2,500,000
December 31, 1997 2,500,000
March 31, 1998 2,500,000
June 30, 1998 2,500,000
September 30, 1998 3,750,000
December 31, 1998 3,750,000
March 31, 1999 3,750,000
June 30, 1999 3,750,000
September 30, 1999 6,250,000
December 31, 1999 6,250,000
March 31, 2000 6,250,000
June 30, 2000 6,250,000
September 30, 2000 8,750,000
December 31, 2000 8,750,000
March 31, 2001 8,750,000
June 30, 2001 8,750,000
September 30, 2001 10,000,000
December 31, 2001 10,000,000
March 31, 2002 10,000,000
June 30, 2002 10,000,000
September 30, 2002 11,250,000
December 31, 2002 11,250,000
March 31, 2003 11,250,000
TF Maturity Date 31,250,000
</TABLE>
(d) On or prior to the third Business Day following the date of
receipt thereof by Holdings and/or any of its Subsidiaries of the Cash Proceeds
from any Asset Sale, an amount equal to 100% of the Net Cash Proceeds then
received from such Asset Sale shall be applied as a mandatory repayment of
principal of (x) first, the then outstanding Acquisition Loans and (y) second,
once no Acquisition Loans remain outstanding, the then outstanding Term Loans
provided that to the extent any such Asset Sale constitutes a
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<PAGE> 26
Specified Asset Sale then the mandatory repayments required to be made with the
Net Cash Proceeds thereof pursuant to this clause (d) shall be applied first to
Term Loans and second to Acquisition Loans.
(e) On the date of the receipt thereof by Holdings and/or any of its
Subsidiaries an amount equal to 100% of the cash proceeds (net of underwriting
discounts and commissions and other customary fees and costs associated
therewith) from the incurrence of Indebtedness for borrowed money by Holdings or
any of its Subsidiaries (other than Indebtedness permitted by Section 8.04 as in
effect on the Effective Date but excluding from such exception Non-Recourse Debt
that refinances properties financed by Acquisition Loans) shall be applied as a
mandatory repayment of principal of (x) first, the then outstanding Acquisition
Loans and (y) second, once no Acquisition Loans remain outstanding, the then
outstanding Term Loans.
(f) On the date of the receipt thereof by Holdings, an amount equal
to 100% of the cash proceeds (net of underwriting discounts and commissions and
other customary fees and costs associated therewith) from any sale or issuance
of equity by Holdings after the Initial Borrowing Date (other than (i) any over
allotment option related to the IPO and (ii) any sale or issuance to management
or employees) shall be applied as a mandatory repayment of principal of (x)
first, the then outstanding Acquisition Loans and (y) second, once no
Acquisition Loans remain outstanding, the then outstanding Term Loans.
(g) On each date which is 90 days after the last day of each fiscal
year of Holdings (commencing with the fiscal year ending on December 31, 1996),
an amount equal to 50% of Excess Cash Flow for such fiscal year (which in the
case of the first fiscal year shall be for the period from the Initial Borrowing
Date to the end of such first fiscal year) shall be applied as a mandatory
repayment of principal of (x) first, the then outstanding Acquisition Loans and
(y) second, once no Acquisition Loans remain outstanding, the then outstanding
Term Loans.
(h) On the date of the receipt thereof by Holdings or any of its
Subsidiaries, an amount equal to 100% of the net cash proceeds constituting
termination fees under any Management Contract shall be applied as a mandatory
repayment of principal of (x) first, the then outstanding Acquisition Loans and
(y) second, once no Acquisition Loans remain outstanding, the then outstanding
Term Loans, provided that to the extent the affected Management Contract was in
effect on the Effective Date (and notwithstanding any subsequent modification or
extension thereof), then the mandatory repayments required to be made with the
termination fees paid thereunder pursuant to this clause (h) shall be applied
first to Term Loans and second to Acquisition Loans, provided further that any
such net cash proceeds aggregating less than $500,000 for a Management Contract
that are received in any fiscal year of Holdings shall not be required to be
used to repay Loans
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<PAGE> 27
pursuant to this clause (h) until such time as all such exempted net cash
proceeds aggregate $500,000 in such fiscal year and, in such event, only to the
extent of such excess.
(i) On the date of the receipt thereof by the Borrower, an amount
equal to 100% of a payment received by the Borrower under the CGL Participation
relating to principal indebtedness (and not to interest thereon) shall be
applied as a mandatory repayment of principal of (x) first, the then outstanding
Term Loans and (y) second, once no Term Loans remain outstanding, the
Acquisition Loans.
(j) On the date of which a Change of Control occurs, the then
outstanding principal amount of Term Loans, if any, shall become due and payable
in full.
(B) Application:
(a) Each mandatory repayment of Term Loans required pursuant to
Section 4.02(A)(d), (e), (f), (g), (h) or (i) shall be applied to the repayment
of the then remaining Scheduled Repayments on a pro rata basis (based upon the
then remaining principal amount of each such Scheduled Repayment).
(b) With respect to each repayment of Loans required by this
Section 4.02, the Borrower shall designate the Types of Loans which are to be
repaid and the specific Borrowing(s) under the affected Facility pursuant to
which made, provided that (i) the Borrower shall first so designate all Loans of
the respective Facility that are Base Rate Loans and Eurodollar Loans with
Interest Periods ending on the date of repayment prior to designating any other
Eurodollar Loans of such Facility for repayment, (ii) if the outstanding
principal amount of Eurodollar Loans made pursuant to a Borrowing is reduced
below the applicable Minimum Borrowing Amount as a result of any such
prepayment, then all the Loans outstanding pursuant to such Borrowing shall be
converted into Base Rate Loans, and (iii) each prepayment of any Loans made
pursuant to a Borrowing shall be applied pro rata among such Loans. In the
absence of a designation by the Borrower as described in the preceding sentence,
the Administrative Agent shall, subject to the above, make such designation in
its sole discretion with a view, but no obligation, to minimize breakage costs
owing under Section 1.11.
4.03 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement shall be made to the
Administrative Agent for the ratable (based on its pro rata share) account of
the Banks entitled thereto, not later than 1:00 P.M. (New York time) on the date
when due and shall be made in immediately available funds and in lawful money of
the United States of America at the Payment Office, it being understood that
written notice by the Borrower to the Administrative Agent to make a payment
from the funds in the Borrower's account at the Payment Office shall constitute
the making of such payment to the extent of such funds held in such account. Any
pay-
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ments under this Agreement which are made later than 1:00 P.M. (New York time)
shall be deemed to have been made on the next succeeding Business Day. Whenever
any payment to be made hereunder shall be stated to be due on a day which is not
a Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable during such extension at the applicable rate in effect immediately prior
to such extension.
4.04 Net Payments. (a) All payments made by the Borrower hereunder,
under any Note or any other Credit Document, will be made without setoff,
counterclaim or other defense. Except as provided for in Section 4.04(b), all
such payments will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein with respect to such payments (but excluding, except as provided in the
second succeeding sentence, any tax, imposed on or measured by the net income or
net profits of a Bank pursuant to the laws of the jurisdiction under which such
Bank is organized or the jurisdiction in which the principal office or
applicable lending office of such Bank is located or any subdivision thereof or
therein) and all interest, penalties or similar liabilities with respect to such
nonexcluded taxes, levies, imposts, duties, fees, assessments or other charges
(all such nonexcluded taxes, levies, imposts, duties, fees assessments or other
charges being referred to collectively as "Taxes"). If any Taxes are so levied
or imposed, the Borrower agrees to pay the full amount of such Taxes and such
additional amounts as may be necessary so that every payment of all amounts due
hereunder, under any Note or under any other Credit Document, after withholding
or deduction for or on account of any Taxes, will not be less than the amount
provided for herein or in such Note or in such other Credit Document. If any
amounts are payable in respect of Taxes pursuant to the preceding sentence, the
Borrower agrees to reimburse each Bank, upon the written request of such Bank,
for taxes imposed on or measured by the net income or profits of such Bank
pursuant to the laws of the jurisdiction in which such bank is organized or in
which the principal office or applicable lending office of such Bank is located
or under the laws of any political subdivision or taxing authority of any such
jurisdiction in which such bank is organized or in which the principal office or
applicable lending office of such Bank is located and for any withholding of
income or similar taxes imposed by the United States of America as such Bank
shall determine are payable by, or withheld from, such Bank in respect of such
amounts so paid to or on behalf of such Bank pursuant to the preceding sentence
and in respect of any amounts paid to or on behalf of such Bank pursuant to this
sentence. The Borrower will furnish to the Administrative Agent within 45 days
after the date the payment of any Taxes, or any withholding or deduction on
account thereof, is due pursuant to applicable law certified copies of tax
receipts, or other evidence satisfactory to the Bank, evidencing such payment by
the Borrower. The Borrower will indemnify and hold harmless the Administrative
Agent and
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<PAGE> 29
each Bank, and reimburse the Administrative Agent or such Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid or withheld
by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for Federal income tax purposes
agrees to provide to the Borrower and the Administrative Agent on or prior to
the Effective Date, or in the case of a Bank that is an assignee or transferee
of an interest under this Agreement pursuant to Section 12.04 (unless the
respective Bank was already a Bank hereunder immediately prior to such
assignment or transfer and such Bank is in compliance with the provisions of
this Section 4.04(b)), on the date of such assignment or transfer to such Bank,
(i) two accurate and complete original signed copies of Internal Revenue Service
Form 4224 or 1001 (or successor forms) certifying to such Bank's entitlement to
a complete exemption from United States withholding tax with respect to payments
to be made under this Agreement, any Note or any other Credit Document, or (ii)
if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the
Code and cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (i) above, (x) a certificate substantially in the form of
Exhibit K (any such certificate, a Section 4.04(b)(ii) Certificate) and (y) two
accurate and complete original signed copies of Internal Revenue Service Form
W-8 (or successor form) certifying to such Bank's entitlement to a complete
exemption from United States withholding tax with respect to payments of
interest to be made under this Agreement, any Note or any other Credit Document.
In addition, each Bank agrees that from time to time after the Effective Date,
when a lapse in time or change in circumstances renders the previous
certification obsolete or inaccurate in any material respect, it will deliver to
the Borrower and the Administrative Agent two new accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a
Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as may
be required in order to confirm or establish the entitlement of such Bank to a
continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement, any Note or any other Credit Document,
or it shall immediately notify the Borrower and the Administrative Agent of its
inability to deliver any such Form or Certificate , in which case such Bank
shall not be required to deliver any such Form or Certificate pursuant to this
Section 4.04(b). Notwithstanding anything to the contrary contained in Section
4.04(a), but subject to Section 12.04(b) and the immediately succeeding
sentence, (x) the Borrower shall be entitled, to the extent it is required to do
so by law, to deduct or withhold income or other similar taxes imposed by the
United States (or any political subdivision or taxing authority thereof or
therein) from interest, fees or other amounts payable hereunder for the account
of any Bank which is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) for United States federal income tax purposes
and which has not provided to the Borrower such forms that establish a complete
exemption from such deduction or withholding and (y) the Borrower shall not be
obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to
a Bank in respect of income or similar taxes imposed by the United States or any
additional amounts with respect thereto (I) if
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<PAGE> 30
such Bank has not provided to the Borrower the Internal Revenue Service forms
required to be provided to the Borrower pursuant to this Section 4.04(b) or (II)
in the case of a payment other than interest, to a Bank described in clause (ii)
above, to the extent that such forms do not establish a complete exemption from
withholding of such taxes. Notwithstanding anything to the contrary contained in
the preceding sentence or elsewhere in this Section 4.04 and except as
specifically provided for in Section 12.04(b), the Borrower agrees to pay
additional amounts and indemnify each Bank in the manner set forth in Section
4.04(a) (without regard to the identity of the jurisdiction requiring the
deduction or withholding) in respect of any Taxes deducted or withheld by it as
described in the previous sentence as a result of any changes after the
Effective Date in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deducting
or withholding of income or similar Taxes.
SECTION 5. Conditions Precedent.
5.01 Conditions Precedent to Initial Borrowing Date. The obligation
of the Banks to make Loans, and of the Letter of Credit Issuer to issue Letters
of Credit, on the Initial Borrowing Date is subject to the satisfaction of each
of the following conditions at such time:
(a) Effectiveness; Notes. On or prior to the Initial Borrowing
Date, (i) the Effective Date shall have occurred and (ii) there
shall have been delivered to the Administrative Agent for the
account of each Bank the appropriate Term Note and Revolving Note
executed by the Borrower, in each case, in the amount, maturity and
as otherwise provided herein.
(b) Opinions of Counsel. On the Initial Borrowing Date, the
Administrative Agent shall have received opinions, addressed to the
Administrative Agent and each of the Banks and dated the Initial
Borrowing Date, from (i) Jones, Day, Reavis & Pogue, special counsel
to Holdings and its Subsidiaries, which opinion shall cover the
matters covered in Exhibit C-1 hereto, (ii) Marvin I. Droz, Esq.,
General Counsel of Holdings, which opinion shall cover the matters
contained in Exhibit C-2 hereto, (iii) White & Case, special counsel
to the Banks, which opinion shall cover the matters contained in
Exhibit C-3 hereto and (iv) local counsel satisfactory to the
Administrative Agent covering the perfection of the Liens granted
pursuant to the Security Documents and such other matters incident
to the transactions contemplated by this Agreement as the
Administrative Agent may reasonably request, in such jurisdictions
as the Administrative Agent may reasonably specify, all such
opinions to be in form and substance reasonably satisfactory to the
Administrative Agent.
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<PAGE> 31
(c) Corporate Proceedings. (i) On the Initial Borrowing Date,
the Administrative Agent shall have received from (x) each Credit
Party a certificate, dated the Initial Borrowing Date, signed by the
President or any Vice-President of such Credit Party in the form of
Exhibit D hereto with appropriate insertions and deletions, together
with copies of the articles of incorporation, partnership agreement,
limited liability company agreement, certificate of formation and
the by-laws or other organizational documents of such Credit Party
and the resolutions, or such other administrative approval, of such
Credit Party referred to in such certificate and all of the
foregoing shall be reasonably satisfactory to the Administrative
Agent, (y) the Borrower a certificate of its chief financial
officer, dated the Initial Borrowing Date, to the effect that all of
the applicable conditions set forth in Sections 5.01(g), (h), (i),
(j), (k), and (o) and 5.02 have been satisfied as of such date and
(z) CGL a true and correct copy of the amendment, if any, to the CGL
Partnership Agreement executed in connection with the CGL
Participation (the "CGL Partnership Amendment"), which amendment
shall be in form and substance satisfactory to the Administrative
Agent and shall be in full force and effect.
(ii) On the Initial Borrowing Date, all corporate and legal
proceedings and all instruments and agreements in connection with
the transactions contemplated by this Agreement and the other
Transaction Documents shall be reasonably satisfactory in form and
substance to the Administrative Agent, and the Administrative Agent
shall have received all information and copies of all certificates,
documents and papers, including good standing certificates and any
other records of corporate proceedings and governmental approvals,
if any, which the Administrative Agent may have reasonably requested
in connection therewith, such documents and papers, where
appropriate, to be certified by proper corporate or governmental
authorities.
(d) Plans; etc. On or prior to the Initial Borrowing Date,
there shall have been made available for review by the
Administrative Agent true and correct copies of:
(i) any Plans, and for each Plan (x) that is a
Single-Employer plan the most recently completed actuarial
valuation prepared therefor by such Plan's regular enrolled
actuary and the Schedule B (Actuarial Information) to the most
recent annual report (Form 5500 Series) for each Plan filed
with the Internal Revenue Service and (y) that is a
Multiemployer Plan, each of the documents referred to in
clause (x) either in the possession of Holdings or any of its
Subsidiaries or any ERISA Affiliate or reasonably available
thereto from the sponsor or trustees of such Plan;
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<PAGE> 32
(ii) any collective bargaining agreements or any other
similar agreement or arrangements covering the employees of
Holdings or any of its Subsidiaries (collectively, the
"Collective Bargaining Agreements");
(iii) all agreements evidencing or relating to the
Existing Indebtedness (the "Existing Indebtedness
Agreements");
(iv) all agreements entered into by Holdings governing
the terms and relative rights of its capital stock, and any
agreements entered into by members or shareholders of Holdings
with respect to its capital stock (collectively, the
"Shareholders' Agreements");
(v) any agreement with respect to, the management of
Holdings or any of its Subsidiaries (collectively, the
"Management Agreements");
(vi) any material employment agreements entered into by
Holdings or any of its Subsidiaries (collectively, the
"Employment Agreements");
(vii) management contracts relating to hotels managed by
Holdings or any of its Subsidiaries (collectively the
"Management Contracts") to the extent in existence on the
Initial Borrowing Date; and
(viii) any tax sharing, tax allocation and other similar
agreements entered into by Holdings and/or any of its
Subsidiaries (collectively, the "Tax Sharing Agreements");
all of which Plans, Collective Bargaining Agreements, Existing
Indebtedness Agreements, Shareholders' Agreements, Management
Agreements, Employment Agreements, Management Contracts and Tax
Sharing Agreements shall be in form and substance reasonably
satisfactory to the Administrative Agent.
(e) Adverse Change, etc. From May 15, 1996 to the Initial
Borrowing Date, nothing shall have occurred which the Administrative
Agent or the Required Banks shall reasonably determine (i) has, or
could reasonably be expected to have, a material adverse effect on
the Assets or the rights or remedies of the Banks or the
Administrative Agent under this Agreement or any other Credit
Document, or on the ability of the Borrower to perform its
obligations to them, or (ii) has, or could reasonably be expected to
have, a Material Adverse Effect.
(f) Litigation. No actions, suits or proceedings shall be
pending or, to the knowledge of the Borrower, threatened against
Holdings or any of its Subsidiaries or any of their assets on the
Initial Borrowing Date (i) with respect to this Agree-
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<PAGE> 33
ment or any other Credit Document or (ii) which the Administrative
Agent or the Required Banks shall determine has, or could reasonably
be expected to have, (x) a Material Adverse Effect or (y) a material
adverse effect on the Assets or the rights or remedies of the Banks
or the Administrative Agent hereunder or under any other Credit
Document or on the ability of any Credit Party to perform its
respective obligations to the Banks hereunder or under any other
Credit Document.
(g) Approvals. On the Initial Borrowing Date, all material
governmental and third party approvals in connection with the
transactions contemplated by the Credit Documents and the other
Transaction Documents and otherwise referred to herein or therein
shall have been obtained and remain in effect, and all applicable
waiting periods shall have expired without any action being taken by
any competent authority (including any court having jurisdiction)
which restrains or prevents such transactions or imposes, in the
reasonable judgment of the Required Banks or the Administrative
Agent, materially adverse conditions upon the consummation of such
transactions.
(h) Reorganization. On or prior to the Initial Borrowing Date,
(x) the shareholders of (i) IHC shall have contributed 100% of the
outstanding capital stock of IHC to Holdings in exchange for common
stock of Holdings and (ii) each of Member and the Subsidiaries of
IHC shall have contributed 100% of the outstanding capital stock,
equity and/or partnership interests of such Persons not already
owned by the Borrower to Holdings in exchange for common stock of
Holdings and (y) Holdings shall have contributed such stock and
interests received by it pursuant to the proceeding clause (x) to
the Borrower (collectively, the "Reorganization"), such
Reorganization to be effected pursuant to the Formation Agreement, a
copy of which certified as true and correct by an Authorized Officer
of the Borrower to have been delivered to the Administrative Agent
prior to the Initial Borrowing Date, which Formation Agreement shall
be in form and substance reasonably satisfactory to the
Administrative Agent. The Reorganization shall have been consummated
in accordance with the terms and conditions of the Formation
Agreement (without any material waiver thereto not consented to by
the Administrative Agent) and all applicable laws.
(i) IPO. On or prior to the Initial Borrowing Date, Holdings
shall have received in available funds at least $203,000,000 in net
cash proceeds from the initial public issuance of its common stock
(the "IPO") effected as contemplated by the Registration Statement.
(j) Acquisitions. (i) On or prior to the Initial Borrowing
Date, the Borrower shall have delivered to the Administrative Agent
all Acquisition Documents, certified as true and correct by an
Authorized Officer, all of which
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Acquisition Documents shall be in the same form as they were in on
May 15, 1996 or shall otherwise be reasonably satisfactory to the
Administrative Agent and each of the conditions precedent to the
obligations of the Borrower to consummate the Acquisition shall have
been satisfied (without any material waiver thereto not consented to
by the Administrative Agent) to the reasonable satisfaction of the
Administrative Agent. The Acquisition shall have been consummated in
compliance with the terms of the Acquisition Documents and all
applicable laws.
(ii) In the event that the Westborough Acquisition is effected
on the Initial Borrowing Date the Borrower shall have delivered to
the Administrative Agent on or prior to the Initial Borrowing Date
all Westborough Acquisition Documents, certified as true and correct
by an Authorized Officer, all of which Westborough Acquisition
Documents shall be in form and substance reasonably satisfactory to
the Administrative Agent and each of the conditions precedent to the
obligations of the Borrower to consummate the Westborough
Acquisition shall have been satisfied (without any material waiver
thereto not consented to by the Administrative Agent) to the
reasonable satisfaction of the Administrative Agent. The Westborough
Acquisition shall have been consummated in compliance with the terms
of the Westborough Acquisition Documents and all applicable laws.
(k) Refinancing. (i) On the Initial Borrowing Date and
concurrently with the Credit Events to occur on such date, the
commitments under the Existing PNC Credit Agreement shall have been
terminated, all loans thereunder shall have been repaid in full,
together with interest thereon, all letters of credit issued
thereunder shall have been terminated [or incorporated hereunder as,
or supported hereunder by, Letters of Credit], all other amounts
owing pursuant to the Existing PNC Credit Agreement shall have been
repaid in full and the creditors under the Existing PNC Credit
Agreement shall have terminated and released all Liens incurred in
connection therewith and the Administrative Agent shall have
received evidence in form, scope and substance reasonably
satisfactory to it that the matters set forth in this Section
5.01(k)(i) have been satisfied at such time.
(ii) On the Initial Borrowing Date and concurrently with the
Credit Events to occur on such date, all loans under the Existing
Wells Fargo Credit Agreements shall have been repaid in full,
together with interest thereon, all letters of credit issued in
connection therewith shall have been terminated, all other amounts
owing pursuant to the Existing Wells Fargo Credit Agreements shall
have been repaid in full and the creditors under the Existing Wells
Fargo Credit Agreements shall have terminated and released all Liens
incurred in connection therewith and the Administrative Agent shall
have received evidence in form, scope and substance reasonably
satisfactory to it that the matter set forth in this Section
5.01(k)(ii) have been satisfied at such time.
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<PAGE> 35
(iii) On the Initial Borrowing Date and concurrently with the
Credit Events to occur on such date, all loans under the Existing
Hilltop Credit Agreement shall have been repaid in full, together
with interest thereon, all other amounts owing pursuant to the
Existing Hilltop Credit Agreement shall have been repaid in full and
the creditors under the Existing Hilltop Credit Agreement shall have
terminated and released all Liens incurred in connection therewith
and the Administrative Agent shall have received evidence in form,
scope and substance reasonably satisfactory to it that the matters
set forth in this Section 5.01(k)(iii) have been satisfied at such
time.
(iv) On the Initial Borrowing Date and concurrently with the
Credit Events to occur on such date, all loans under the Existing
CIGNA Note shall have been repaid in full, together with interest
thereon, all other amounts owing pursuant to the Existing CIGNA Note
shall have been repaid in full and the creditors under the Existing
CIGNA Note shall have terminated and released all Liens incurred in
connection therewith and the Administrative Agent shall have
received evidence in form, scope and substance reasonably
satisfactory to it that the matters set forth in this Section
5.01(k)(iv) have been satisfied at such time.
(v) On the Initial Borrowing Date and concurrently with the
Credit Events to occur on such date, the Borrower shall have
purchased, out of the proceeds of the Term Loans, subordinated
participations (the "CGL Participations") in $90,000,000 aggregate
principal amount of the loans outstanding under the Existing CGL
Credit Agreements and the Administrative Agent shall have received,
and be reasonably satisfied with, all documents relating to the CGL
Participations.
(vi) On the Initial Borrowing Date and after giving effect to
the refinancings referred to in Section 5.01(k)(i), (ii), (iii) and
(iv) (collectively the "Refinancing"), neither Holdings nor any of
its Subsidiaries shall have any outstanding Indebtedness other than
the Existing Indebtedness described in Section 6.18, and no default
or event of default under and as defined in the documentation
governing any such Existing Indebtedness shall have occurred or be
continuing both before and after giving effect to the Transaction.
(l) Subsidiary Guaranty. On the Initial Borrowing Date,
Capital Corp and each Wholly-Owned Subsidiary shall have duly
authorized, executed and delivered a Guaranty in the form of Exhibit
E hereto (as modified, amended or supplemented from time to time in
accordance with the terms hereof and thereof, the "Subsidiary
Guaranty"), and the Subsidiary Guaranty shall be in full force and
effect.
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(m) Security Documents. (i) On the Initial Borrowing Date,
each Credit Party shall have duly authorized, executed and delivered
a Pledge Agreement substantially in the form of Exhibit F hereto (as
modified, amended or supplemented from time to time in accordance
with the terms thereof and hereof, the "Pledge Agreement"), and
shall have delivered to the Collateral Agent, as pledgee there-
under, all of the certificates representing the Pledged Securities
referred to therein, endorsed in blank or accompanied by executed
and undated stock powers, and the Pledge Agreement shall be in full
force and effect.
(ii) On the Initial Borrowing Date, each Credit Party shall
have duly authorized, executed and delivered a Security Agreement
substantially in the form of Exhibit G (as modified, supplemented or
amended from time to time in accordance with the terms thereof and
hereof, the "Security Agreement") covering all of such Credit
Party's present and future Security Agreement Collateral, in each
case together with:
(A) executed copies of Financing Statements (Form UCC-1)
in appropriate form for filing under the UCC of each
jurisdiction as may be necessary to perfect the security
interests purported to be created by the Security Agreement;
(B) certified copies of Requests for Information or
Copies (Form UCC-11), or equivalent reports, each of recent
date listing all effective financing statements that name each
Credit Party as debtor and that are filed in the jurisdictions
referred to in clause (A), together with copies of such
financing statements (none of which shall cover the Collateral
except (x) those with respect to which appropriate termination
statements executed by the secured lender thereunder have been
delivered to the Agent and (y) to the extent evidencing Liens
permitted pursuant to Section 8.03(d));
(C) evidence of the completion of all other recordings
and filings of, or with respect to, the Security Agreement as
may be necessary or, in the opinion of the Collateral Agent,
desirable to perfect the security interests intended to be
created by the Security Agreement;
(D) executed copies of notices delivered to each entity
which is the issuer of partnership interests and/or membership
interests pledged under the Security Agreement and executed
copies of acknowledgements executed by each such entity,
together with evidence that such other actions have been taken
as may be necessary or, in the opinion of the Collateral
Agent, desirable to perfect the security interest purported to
be created by the Security Agreement (including, without
limitation, evidence that each such
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<PAGE> 37
entity has duly recorded the security interest created by the
Security Agreement on the books and records of such entity);
and
(E) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to
perfect and protect the security interest purported to be
created by the Security Agreement have been taken.
(iii) On the Initial Borrowing Date, the Collateral Agent
shall have received:
(A) fully executed counterparts of mortgages, deeds of
trust or deeds to secure debt, in each case in form and
substance reasonably satisfactory to the Collateral Agent
(each as modified, amended or supplemented from time to time
in accordance under the terms hereof and thereof, a "Mortgage"
and, collectively, the "Mortgages"), which Mortgages shall
cover such of the Real Property owned or leased by any Credit
Party as is designated on Part B of Annex IV as a mortgaged
property (each a "Mortgaged Property" and, collectively, the
"Mortgaged Properties"), together with evidence that
counterparts of the Mortgages have been delivered to the title
insurance company insuring the Lien of the Mortgages for
recording in all places to the extent necessary or, in the
reasonable opinion of the Collateral Agent, desirable to
effectively create a valid and enforceable first priority
mortgage lien on such Credit Party's interest in each
Mortgaged Property (subject only to Permitted Encumbrances) in
favor of the Collateral Agent (or such other trustee as may be
required or desired under local law) for the benefit of the
Banks;
(B) executed copies of Financing Statements (Form UCC-1
or other applicable form) in appropriate form for filing under
the UCC of each jurisdiction as may be reasonably necessary to
perfect the security interests in fixtures, equipment and
personal property purported to be created by the Mortgages;
(C) mortgagee title insurance policies (or marked
commitments to issue the same) for the Mortgaged Properties
issued by title insurers reasonably satisfactory to the
Collateral Agent (each a "Mortgage Policy" and, collectively,
the "Mortgage Policies") in amounts reasonably satisfactory to
the Collateral Agent assuring the Collateral Agent that the
Mortgages on such Mortgaged Properties are valid and
enforceable first priority mortgage liens on such Mortgaged
Properties, free and clear of all defects and encumbrances
except Permitted Encumbrances, and the
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Mortgage Policies shall otherwise be in form and substance
reasonably satisfactory to the Collateral Agent; and
(D) surveys, in form and substance reasonably
satisfactory to the Collateral Agent, of the Mortgaged
Properties specified by the Administrative Agent, certified in
a manner satisfactory to the Collateral Agent by a licensed
professional surveyor reasonably satisfactory to the
Administrative Agent.
(n) Solvency. On the Initial Borrowing Date, the
Administrative Agent shall have received from the chief financial
officer of Holdings a certificate in the form of Exhibit H hereto,
expressing opinions of value and other appropriate facts or
information regarding the solvency of Holdings and its Subsidiaries
taken as a whole.
(o) Fees. On or prior to the Initial Borrowing Date, the
Borrower shall have paid to the Administrative Agent and the Banks
all Fees and expenses agreed upon by such parties to be paid on or
prior to such date.
(p) Consent Letter. On the Initial Borrowing Date, the
Administrative Agent shall have received a letter from Corporation
Service Company, presently located at 375 Hudson Street, New York,
New York 10014, in the form of Exhibit I hereto indicating its
consent to its appointment by each Credit Party as their agent to
receive service of process.
(q) Insurance Policies. On the Initial Borrowing Date, the
Collateral Agent shall have received evidence of insurance complying
with the requirements of Section 7.03 for the business and
properties of Holdings and its Subsidiaries, in form and substance
satisfactory to the Agent and, with respect to all casualty
insurance, naming the Collateral Agent as an additional insured and
loss payee.
5.02 Conditions Precedent to All Credit Events. The obligation
of the Banks to make each Loan and/or of a Letter of Credit Issuer to issue each
Letter of Credit is subject, at the time thereof, to the satisfaction of the
following conditions:
(a) Notice of Borrowing, etc. The Administrative Agent shall
have received a Notice of Borrowing meeting the requirements of
Section 1.03 with respect to the incurrence of Loans or a Letter of
Credit Request meeting the requirement of Section 2.03 with respect
to the issuance of a Letter of Credit.
(b) No Default; Representations and Warranties. At the time of
each Credit Event and also after giving effect thereto, (i) there
shall exist no Default or Event
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of Default and (ii) all representations and warranties contained
herein or in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such
representations and warranties had been made on and as of the date
of such Credit Event, except to the extent that such representations
and warranties expressly relate to an earlier date.
The acceptance of the benefits of each Credit Event shall
constitute a representation and warranty by the Borrower to each of the Banks
that all of the applicable conditions specified in Section 5.01 and/or 5.02, as
the case may be, exist as of that time. All of the certificates, legal opinions
and other documents and papers referred to in this Section 5, unless otherwise
specified, shall be delivered to the Administrative Agent for the account of
each of the Banks and, except for the Notes, in sufficient counterparts for each
of the Banks.
SECTION 6. Representations, Warranties and Agreements. In
order to induce the Banks to enter into this Agreement and to make the Loans,
and/or to issue and/or to participate in the Letters of Credit provided for
herein, each of Holdings and the Borrower makes the following representations
and warranties to, and agreements with, the Banks, all of which shall survive
the execution and delivery of this Agreement and each Credit Event:
6.01 Corporate Status. Each of Holdings and its Subsidiaries
(i) is a duly organized or formed and validly existing corporation, limited
liability company or partnership, as the case may be, in good standing under the
laws of the jurisdiction of its formation and has the organizational power and
authority to own its property and assets and to transact the business in which
it is engaged and presently proposes to engage and (ii) has duly qualified and
is authorized to do business in all jurisdictions where it is required to be so
qualified except where the failure to be so qualified would not have a Material
Adverse Effect.
6.02 Corporate Power and Authority. Each Credit Party has the
corporate or other organizational power and authority to execute, deliver and
carry out the terms and provisions of the Credit Documents to which it is party
and has taken all necessary corporate or other organizational action to
authorize the execution, delivery and performance of the Credit Documents to
which it is party. Each Credit Party has duly executed and delivered each Credit
Document to which it is party and each Credit Document to which it is party
constitutes the legal, valid and binding obligation of each Credit Party
enforceable in accordance with its terms, except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting creditors'
rights (including laws and principles applicable to fraudulent transfers) and by
equitable principles (regardless of whether enforcement is sought in equity or
at law).
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6.03 No Violation. Neither the execution, delivery and
performance by any Credit Party of the Credit Documents to which it is party nor
compliance with the terms and provisions thereof, nor the consummation of the
loan transactions contemplated therein (i) will contravene any provision of any
law, statute, rule, regulation, order, writ, injunction or decree of any court
or governmental instrumentality applicable to such Credit Party or its
properties and assets, (ii) will conflict or result in any breach of, any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
(other than pursuant to the Security Documents) result in the creation or
imposition of (or the obligation to create or impose) any Lien upon any of the
property or assets of Holdings or any of its Subsidiaries pursuant to the terms
of any indenture, mortgage, deed of trust, agreement or other instrument to
which Holdings or any of its Subsidiaries is a party or by which it or any of
its property or assets are bound or to which it may be subject or (iii) will
violate any provision of the partnership agreement, certificate of formation,
certificate of incorporation or by-laws, as the case may be, of such Credit
Party.
6.04 Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of Holdings, threatened with respect to Holdings or
any of its Subsidiaries (i) that have, or could reasonably be expected likely to
have, a Material Adverse Effect or (ii) that have, or could reasonably be
expected to have, a material adverse effect on the rights or remedies of the
Banks or on the ability of any Credit Party to perform its obligations to them
hereunder and under the other Credit Documents.
6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of
all Term Loans shall be utilized (i) to finance, in part, the Transaction and
(ii) to pay certain fees and expenses arising in connection with the Transaction
Documents. The proceeds of Revolving Loans may be utilized (x) on the Initial
Borrowing Date to finance, in part, the Westborough Acquisition in the event
that the Westborough Acquisition is consummated on the Initial Borrowing Date,
provided that the aggregate amount so utilized shall not exceed $15,000,000, and
(y) as provided in the following sentence. The proceeds of Acquisition Loans may
only be utilized to finance Permitted Acquisitions, while the proceeds of
Working Capital Loans may be utilized for general corporate purposes, other than
to finance Permitted Acquisitions and/or any other acquisition.
(b) No part of the proceeds of any Credit Event will be used
to purchase or carry Margin Stock. Neither any Credit Event, nor the use of the
proceeds thereof, will violate or be inconsistent with the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System.
6.06 Governmental Approvals. No order, consent, approval,
license, authorization, or validation of, or filing (other than filings related
to the perfection of the security interests granted to the Collateral Agent
pursuant to the Security Documents), recording or registration with, or
exemption by, any foreign or domestic governmental or
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<PAGE> 41
public body or authority, or any subdivision thereof, is required to authorize
or is required in connection with (i) the execution, delivery and performance of
any Credit Document or (ii) the legality, validity, binding effect or
enforceability of any Credit Document.
6.07 True and Complete Disclosure. All factual information
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of
Holdings, the Borrower or any of its Subsidiaries in writing to the
Administrative Agent or any Bank for purposes of or in connection with this
Agreement or any transaction contemplated herein is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of such
Person in writing to any Bank in connection with this Agreement will be, true
and accurate in all material respects on the date as of which such information
is dated or certified and not incomplete by omitting to state any material fact
necessary to make such information (taken as a whole) not misleading at such
time in light of the circumstances under which such information was or is
provided. The projections and pro forma financial information prepared by
Holdings and the Borrower which are contained in such materials are based on
good faith estimates and assumptions believed by such Persons to be reasonable
at the time made, it being recognized by the Banks that such projections as to
future events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ materially from the
projected results. As of the Effective Date, there is no fact known to Holdings,
the Borrower or any of its Subsidiaries which has, or could likely have, a
Material Adverse Effect which has not theretofore been disclosed to the
Administrative Agent.
6.08 Financial Condition; Financial Statements. (a) On and as
of the Initial Borrowing Date on a pro forma basis after giving effect to the
Transaction and to all Indebtedness incurred and to be incurred, and Liens
created, and to be created, by the Credit Parties in connection therewith, (i)
the sum of the assets, at a fair valuation, of Holdings and its Subsidiaries
taken as a whole will exceed their debts, (ii) Holdings and its Subsidiaries
taken as a whole will not have incurred or intended to (and Holdings and the
Borrower do not believe that they will) incur debts beyond their ability to pay
such debts as such debts mature and (iii) Holdings and its Subsidiaries taken as
a whole will have sufficient capital with which to conduct their business. For
purposes of this Section 6.08, "debt" means any liability on a claim, and
"claim" means (x) right to payment whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured; or (y) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(b) (i) The combined balance sheets of the Borrower and its
affiliates at December 31, 1994 and December 31, 1995, and the related combined
statements of income, changes in equity and cash flows for the fiscal periods
ended as of said dates,
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which have been examined by Coopers & Lybrand L.L.P., independent certified
public accountants, and (ii) the pro forma (after giving effect to the
Transaction and the related financings thereof) consolidated balance sheet of
Holdings and its Subsidiaries as of December 31, 1995, copies of each of which
have heretofore been furnished to each Bank, present fairly the financial
position of the respective entities as of the dates of said statements and the
results for the periods covered thereby (or, in the case of the pro forma
balance sheet, presents a good faith estimate of the consolidated pro forma
financial condition of Holdings and its Subsidiaries after giving effect to the
Transaction and the related financings thereof at the date thereof). All such
financial statements (other than the aforesaid pro forma balance sheets) have
been prepared in accordance with generally accepted accounting principles and
practices consistently applied except to the extent provided in the notes to
said financial statements. Nothing has occurred since December 31, 1995 that has
had a Material Adverse Effect.
(c) Except as fully reflected in the financial statements and
the notes thereto described in Section 6.08(b), there were as of the Initial
Borrowing Date (after giving effect to the Loans made on such date), no material
Contingent Obligations, contingent liability or liability for taxes, or any
long-term lease or unusual forward or long-term commitment, including, without
limitation, interest rate or foreign currency swap or exchange transaction with
respect to Holdings or any of its Subsidiaries which, either individually or in
aggregate, would be material to Holdings and its Subsidiaries taken as a whole,
except as incurred in the ordinary course of business consistent with past
practices subsequent to December 31, 1995.
6.09 Security Interests. Once executed and delivered, and
until terminated in accordance with the terms thereof, each of the Security
Documents creates, as security for the obligations purported to be secured
thereby, a valid and enforceable perfected security interest in and Lien on all
of the Collateral subject thereto from time to time, superior to and prior to
the rights of all third Persons (subject in the case of the Mortgages to
Permitted Encumbrances and subject to no other Liens (except that the Security
Agreement Collateral and/or Mortgage Properties may be subject to Permitted
Liens and (in the case of the Mortgaged Properties) Permitted Encumbrances
relating thereto)) in favor of the Collateral Agent for the benefit of the
Banks. No filings or recordings are required in order to perfect the security
interests created under any Security Document except for filings or recordings
required in connection with any such Security Document which shall have been
made, or for which satisfactory arrangements have been made, upon or prior to
the execution and delivery thereof. All mortgage, mortgage recording, stamp,
intangible or other similar taxes required to be paid by any Person under
applicable Legal Requirements or other laws applicable to the Real Property
encumbered by the Mortgages in connection with the execution, delivery,
recordation, filing, registration, perfection or enforcement of the Mortgages
have been paid.
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6.10 Representations and Warranties in Transaction Documents.
All representations and warranties of Holdings and/or any of its Subsidiaries
set forth in any of the Transaction Documents were true and correct in all
material respects as of the time such representations and warranties were made
and shall be true and correct in all material respects as of the Initial
Borrowing Date as if such representations and warranties were made on and as of
such date, unless stated to relate to a specific earlier date, in which case
such representations and warranties shall be true and correct in all material
respects as of such earlier date.
6.11 Tax Returns and Payments. Each of Holdings and each of
its Subsidiaries has filed all federal income tax returns and all other material
tax returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it which have become due, other than
those not yet delinquent and except for those contested in good faith. Holdings
and each of its Subsidiaries have paid, or have provided adequate reserves for
the payment of, all federal, state and foreign income taxes applicable for all
prior fiscal years and for the current fiscal year to the date hereof (giving
effect to the Reorganization).
6.12 Compliance with ERISA. Each Plan (and each related trust,
insurance contract or fund) is in substantial compliance with its terms and with
all applicable laws, including without limitation ERISA and the Code; each Plan
(and each related trust, if any) which is intended to be qualified under Section
401(a) of the Code has received a determination letter from the Internal Revenue
Service to the effect that it meets the requirements of Sections 401(a) and
501(a) of the Code; no Reportable Event has occurred; no Plan which is a
multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or
in reorganization; no Plan has an Unfunded Current Liability; no Plan which is
subject to Section 412 of the Code or Section 302 of ERISA has an accumulated
funding deficiency, within the meaning of such sections of the Code or ERISA, or
has applied for or received a waiver of an accumulated funding deficiency or an
extension of any amortization period, within the meaning of Section 412 of the
Code or Section 303 or 304 of ERISA; all contributions required to be made with
respect to a Plan have been timely made; neither Holdings nor any Subsidiary of
Holdings nor any ERISA Affiliate has incurred any material liability (including
any indirect, contingent or secondary liability) to or on account of a Plan
pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204
or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to
incur any such liability under any of the foregoing sections with respect to any
Plan; no condition exists which presents a material risk to Holdings or any
Subsidiary of Holdings or any ERISA Affiliate of incurring a liability to or on
account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no
proceedings have been instituted to terminate or appoint a trustee to administer
any Plan which is subject to Title IV of ERISA; no action, suit, proceeding,
hearing, audit or investigation with respect to the administration, operation or
the investment of assets of any Plan (other than routine claims for benefits) is
pending,
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expected or threatened; using actuarial assumptions and computation methods
consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate
liabilities of Holdings and its Subsidiaries and its ERISA Affiliates to all
Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA)
in the event of a complete withdrawal therefrom, as of the close of the most
recent fiscal year of each such Plan, would not exceed $500,000. Each group
health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the
Code) which covers or has covered employees or former employees of Holdings, any
Subsidiary of Holdings, or any ERISA Affiliate has at all times been operated in
compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code; no lien imposed under the Code or ERISA on the assets
of Holdings or any Subsidiary of Holdings or any ERISA Affiliate exists or is
likely to arise on account of any Plan; and Holdings and its Subsidiaries do not
maintain or contribute to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) which provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any Plan
the obligations with respect to which could reasonably be expected to have a
material adverse effect on the ability of any Credit Party to perform its
obligations under this Agreement or the other Credit Documents.
6.13 Subsidiaries. On the Initial Borrowing Date and after
giving effect to the Transaction, the only direct Subsidiary of Holdings is the
Borrower. Annex III hereto lists each Subsidiary of the Borrower (and the direct
and indirect ownership interest of Holdings therein), in each case existing on
the Initial Borrowing Date but after giving effect to the Transaction.
6.14 Intellectual Property, etc. Holdings, the Borrower and
each of its Subsidiaries has obtained or has the right to use all material
patents, trademarks, servicemarks, trade names, copyrights, licenses and other
rights, free from burdensome restrictions, that are necessary for the operation
of its business as presently conducted and as proposed to be conducted.
6.15 Environmental Matters. (a) Holdings, the Borrower and
each of its Subsidiaries is in compliance with all Environmental Laws governing
its business except to the extent that any such failure to comply (together with
any resulting penalties, fines or forfeitures) would not reasonably be expected
to have a Material Adverse Effect. All licenses, permits, registrations or
approvals required for the business of Holdings, the Borrower and each of its
Subsidiaries, as conducted as of the Initial Borrowing Date, under any
Environmental Law have been secured and Holdings, the Borrower and each of its
Subsidiaries is in substantial compliance therewith, except for such licenses,
permits, registrations or approvals the failure to secure or to comply therewith
is not reasonably likely to have a Material Adverse Effect. Neither Holdings,
the Borrower nor any of its Subsidiaries is in any respect in noncompliance
with, breach of or default under any applicable writ, order, judgment,
injunction, or decree to which Holdings, the Borrower or such Subsidiary is a
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<PAGE> 45
party or which would affect the ability of Holdings, the Borrower or such
Subsidiary to operate any real property and no event has occurred and is
continuing which, with the passage of time or the giving of notice or both,
would constitute noncompliance, breach of or default thereunder, except in each
such case, such noncompliance, breaches or defaults as would not reasonably be
expected to, in the aggregate, have a Material Adverse Effect. There are as of
the Initial Borrowing Date no Environmental Claims pending or, to the best
knowledge of Holdings and the Borrower, threatened wherein an unfavorable
decision, ruling or finding would reasonably be expected to have a Material
Adverse Effect. There are no facts, circumstances, conditions or occurrences on
any Real Property now or at any time owned, leased or operated by Holdings, the
Borrower or any of its Subsidiaries or, to the knowledge of Holdings and the
Borrower, on any property adjacent to any such Real Property that could
reasonably be expected (i) to form the basis of an Environmental Claim against
Holdings, the Borrower or any of its Subsidiaries or any Real Property of
Holdings, the Borrower or any of its Subsidiaries, or (ii) to cause such Real
Property to be subject to any restrictions on the ownership, occupancy, use or
transferability of such Real Property under any Environmental Law, except in
each such case, such Environmental Claims or restrictions that individually or
in the aggregate would not reasonably be expected to have a Material Adverse
Effect.
(b) Except as disclosed on Annex IX, as of the Initial
Borrowing Date (after giving effect to the Transaction) there are no underground
storage tanks located on any Real Property owned, leased or operated by
Holdings, the Borrower or any of its Subsidiaries.
6.16 Properties. Annex IV contains a true and complete list of
each Real Property owned or leased by Holdings, the Borrower or any of its
Subsidiaries on the Initial Borrowing Date (after giving effect to the
Transaction) and the type of interest therein held by Holdings, the Borrower or
the respective Subsidiary. Holdings, the Borrower and each of its Subsidiaries
has good and indefeasible title in fee to each Real Property owned by it and a
valid Leasehold in each Real Property leased by it, in each case, after giving
effect to the Transaction, free and clear of all Liens and security interests
other than the Liens created pursuant to the Mortgages, Permitted Liens and
Permitted Encumbrances. Holdings, the Borrower and each of its Subsidiaries has
received all material assignments, waivers, consents and other documents, and
duly effected all material recordings, filings and other material actions
necessary to establish, protect and perfect its right, title and interest in and
to each Real Property owned or leased by it. All material transfer taxes, deed
stamps, intangible taxes or other amounts in the nature of transfer taxes
required to be paid by any Person under applicable Legal Requirements or other
laws applicable to the Real Property in connection with the Transaction have
been paid.
6.17 Labor Relations; Collective Bargaining Agreements. There
is (i) no significant unfair labor practice complaint pending against Holdings,
the Borrower or any of its Subsidiaries or, to the knowledge of Holdings and the
Borrower, threatened against
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any of them, before the National Labor Relations Board, and no significant
grievance or significant arbitration proceeding arising out of or under any
collective bargaining agreement is now pending against Holdings, the Borrower or
any of its Subsidiaries or, to the knowledge of Holdings and the Borrower,
threatened against any of them, (ii) no significant strike, labor dispute,
slowdown or stoppage is pending against Holdings, the Borrower or any of its
Subsidiaries or, to the best knowledge of Holdings and the Borrower, threatened
against Holdings, the Borrower or any of its Subsidiaries and (iii) to the
knowledge of Holdings and the Borrower, no union representation question exists
with respect to the employees of Holdings, the Borrower or any of its
Subsidiaries, except (with respect to any matter specified in clause (i), (ii)
or (iii) above, either individually or in the aggregate) such as would not
reasonably be expected to have a Material Adverse Effect.
6.18 Indebtedness. Annex V sets forth a true and complete list
of all Indebtedness of the Borrower and each of its Subsidiaries (after giving
effect to the Transaction) incurred prior to, but which is to remain outstanding
after, the Initial Borrowing Date (collectively, the "Existing Indebtedness"),
in each case showing the aggregate principal amount, amortization and interest
rate thereof (and available commitments, if any, thereunder) and the name of the
respective borrower and any other entity which directly or indirectly guaranteed
such debt.
6.19 Transaction. On and as of the Initial Borrowing Date, (i)
all material consents and approvals of, and filings and registrations with, and
all other actions in respect of, all governmental agencies, authorities or
instrumentalities required to be obtained, given, filed or taken by the
Holdings, the Borrower or any other Credit Party in order to make or consummate
each component of the Transaction will have been obtained, given, filed or taken
and are or will be in full force and effect (or effective judicial relief with
respect thereto will have been obtained) except for filings, consents or notices
not required by federal or state securities laws to be made at such time, which
filings, consents or notices have been or will be made during the period in
which they are required to be made and (ii) each component of the Transaction
shall have been consummated in accordance, in all material respects, with the
applicable Transaction Documents and in compliance, in all material respects,
with all applicable laws.
6.20 Certain Material Agreements. After giving effect to the
Transaction, each Management Contract and each Existing Indebtedness Agreement
is in full force and effect in accordance with its respective terms, without any
material default existing thereunder.
6.21 Third-Party Rights. Except as disclosed on Annex X, as of
the Initial Borrowing Date, no Person holds any right of first refusal, option
to purchase or lease, buy-out right, right of first offer or other similar right
or option with respect to any portion
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of the Collateral or any partnership interest, joint venture interest,
membership interest or shareholder interest owned by Holdings in any of its
Subsidiaries.
SECTION 7. Affirmative Covenants. Each of Holdings and the
Borrower hereby covenants and agrees that so long as this Agreement is in effect
and until such time as the Total Commitment has been terminated, no Notes are
outstanding and the Loans, together with interest, Fees and all other
Obligations hereunder, have been paid in full:
7.01 Reporting Requirements. Holdings will furnish to each of
the Banks:
(a) Annual Financial Statements. As soon as available and in
any event within 90 days after the close of each fiscal year of
Holdings, the consolidated balance sheet of Holdings and its
consolidated Subsidiaries as at the end of such fiscal year and the
related consolidated statements of income, of stockholder's equity
and of cash flows for such fiscal year, in each case setting forth
comparative figures for the preceding fiscal year and examined by
independent certified public accountants of recognized national
standing whose opinion shall not be qualified as to the scope of
audit or as to the status of Holdings and its Subsidiaries as a
going concern, together with a certificate of such accounting firm
stating that in the course of its regular audit of the business of
Holdings and its Subsidiaries, which audit was conducted in
accordance with generally accepted auditing standards, nothing came
to the attention of such accounting firm which would lead it to
believe that any Default or Event of Default as they relate to
accounting matters has occurred and is continuing or if in the
opinion of such accounting firm such a Default or Event of Default
has occurred and is continuing, a statement as to the nature
thereof, it being understood that the delivery of Holdings Form 10-K
for any fiscal year or Form 10-Q for any fiscal quarter, as the case
may be, within the time frame specified in Section 7.01(a) or (b),
respectively, shall satisfy the requirements of Section 7.01(a) or
(b), as the case may be, to the extent covering the financial
information specified herein or therein.
(b) Quarterly Financial Statements. As soon as available and
in any event within 45 days after the close of each of the first
three quarterly accounting periods in each fiscal year of Holdings,
the consolidated balance sheet of Holdings and its consolidated
Subsidiaries as at the end of such quarterly period and the related
consolidated statements of income, of stockholder's equity and of
cash flows for such quarterly period and for the elapsed portion of
the fiscal year ended with the last day of such quarterly period, in
each case setting forth comparative figures for the related periods
in the prior fiscal year and which shall be certified by the Chief
Financial Officer or other Authorized Officer of Holdings, subject
to changes resulting from normal year-end audit adjustments.
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(c) Budget. Not less than 10 days prior to the commencement of
each fiscal year of Holdings, a preliminary consolidated budget (to
be followed no later than 30 days after the commencement of such
fiscal year by a final consolidated budget) of Holdings and its
Subsidiaries in reasonable detail for each of the four fiscal
quarters of such fiscal year, as customarily prepared by management
for its internal use, setting forth, with appropriate discussion,
the principal assumptions upon which such plans are based.
(d) Officer's Certificates. At the time of (i) the delivery of
the financial statements provided for in Sections 7.01(a) and (b), a
certificate of the Chief Financial Officer or other Authorized
Officer of Holdings to the effect that no Default or Event of
Default exists or, if any Default or Event of Default does exist,
specifying the nature and extent thereof, which certificate shall
set forth the calculations required to establish compliance with the
provisions of Sections 8.10, 8.11, 8.12, 8.13 and 8.14 as at the end
of such fiscal year or quarter, as the case may be and (ii) if
delivered with the financial statements required by Section 7.01(a),
set forth the calculations required to establish the amount of
Excess Cash Flow for the fiscal year of Holdings then last ended.
(e) Notice of Default or Litigation. Promptly, and in any
event within three Business Days after Holdings or any of its
Subsidiaries obtains knowledge thereof, notice of (x) the occurrence
of any event which constitutes a Default or Event of Default, which
notice shall specify the nature thereof, the period of existence
thereof and what action Holdings proposes to take with respect
thereto and (y) any litigation or governmental or regulatory
proceeding pending against Holdings or any of its Subsidiaries which
is likely to have a Material Adverse Effect or a material adverse
effect on the Collateral or the ability of any Credit Party to
perform its obligations hereunder or under any other Credit
Document.
(f) Auditors' Reports. Promptly upon receipt thereof, a copy
of each other report or "management letter" submitted to Holdings or
any of its Subsidiaries by their independent accountants or
independent actuaries in connection with any annual, interim or
special audit made by them of the books of Holdings or any of its
Subsidiaries.
(g) ERISA. Promptly upon completion thereof, deliver to each
of the Banks a complete copy of the annual report (Form 5500) of
each Plan (including, to the extent required, the related financial
and actuarial statements and opinions and other supporting
statements, certifications, schedules and information) required to
be filed with the Internal Revenue Service. In addition to any
certificates or notices delivered to the Banks pursuant to the first
sentence hereof, copies of reports and any material notices received
by Holdings, any Subsidiary of Holdings
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or any ERISA Affiliate with respect to any Plan shall be delivered
to the Banks no later than 10 days after the date such report has
been filed with the Internal Revenue Service or such notice has been
received by Holdings, such Subsidiary or such ERISA Affiliate, as
applicable.
(h) Environmental Matters. Promptly upon, and in any event
within 10 Business Days after, an officer of Holdings, the Borrower
or any of its Subsidiaries obtains knowledge thereof, notice of one
or more of the following environmental matters: (i) any pending or
threatened (in writing) material Environmental Claim against
Holdings, the Borrower or any of its Subsidiaries or any Real
Property owned or operated by Holdings, the Borrower or any of its
Subsidiaries; (ii) any condition or occurrence on or arising from
any Real Property owned or operated by Holdings, the Borrower or any
of its Subsidiaries that (a) results in material noncompliance by
Holdings, the Borrower or any of its Subsidiaries with any
applicable Environmental Law or (b) would reasonably be expected to
form the basis of a material Environmental Claim against Holdings,
the Borrower or any of its Subsidiaries or any such Real Property;
(iii) any condition or occurrence on any Real Property owned, leased
or operated by Holdings, the Borrower or any of its Subsidiaries
that could reasonably be expected to cause such Real Property to be
subject to any material restrictions on the ownership, occupancy,
use or transferability by Holdings, the Borrower or any of its
Subsidiaries of such Real Property under any Environmental Law; and
(iv) the taking of any material removal or remedial action in
response to the actual or alleged presence of any Hazardous Material
on any Real Property owned, leased or operated by Holdings, the
Borrower or any of its Subsidiaries as required by any Environmental
Law or any governmental or other administrative agency. All such
notices shall describe in reasonable detail the nature of the
Environmental Claim and Holdings', the Borrower's or such
Subsidiary's response thereto.
(i) Other Information. Promptly upon transmission thereof,
copies of any filings and registrations with, and reports to, the
SEC by Holdings or any of its Subsidiaries (other than any
registration statement on Form S-8) and copies of all financial
statements, proxy statements, notices and reports as Holdings or any
of its Subsidiaries shall send to analysts generally or to the
holders (other than Holdings and its Subsidiaries) of their capital
stock or of the Indebtedness in their capacity as such holders (in
each case to the extent not theretofore delivered to the Banks
pursuant to this Agreement) and, with reasonable promptness, such
other information or documents (financial or otherwise) as the
Administrative Agent on its own behalf or on behalf of the Required
Banks may reasonably request from time to time.
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7.02 Books, Records and Inspections. Holdings will, and will
cause each of its Subsidiaries to, permit, upon at least five Business Days'
notice to the Chief Financial Officer or any other Authorized Officer of
Holdings, officers and designated representatives of the Administrative Agent or
the Required Banks to visit and inspect any of the properties or assets of
Holdings and any of its Subsidiaries in whomsoever's possession (but only to the
extent Holdings or such Subsidiary has the right to do so to the extent in the
possession of another Person), and to examine the books of account of Holdings
and any of its Subsidiaries and discuss the affairs, finances and accounts of
Holdings and of any of its Subsidiaries with, and be advised as to the same by,
its and their officers and independent accountants and independent actuaries, if
any, all at such reasonable times and intervals and to such reasonable extent as
the Administrative Agent or the Required Banks may request.
7.03 Insurance. (a) Holdings will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect insurance with
reputable and solvent insurers (which may include Subsidiaries which are
licensed insurance carriers) in such amounts and covering such risks and
liabilities as are in accordance with normal industry practice, provided that
this covenant shall be satisfied in respect of any Mortgaged Property to the
extent the insurance covenants in the related Mortgage are satisfied. Holdings
will, and will cause each of its Subsidiaries to, furnish annually to the
Administrative Agent a summary of the insurance carried.
(b) Holdings will, and will cause each of its Subsidiaries to,
at all times keep their respective property insured in favor of the Collateral
Agent, and all policies (including the Mortgage Policies) or certificates (or
certified copies thereof) with respect to, or other evidence acceptable to the
Administrative Agent of, such insurance (and any other insurance maintained by
Holdings or any such Subsidiary) (i) shall be endorsed to the Collateral Agent's
satisfaction for the benefit of the Collateral Agent (including, without
limitation, by naming the Collateral Agent as loss payee (with respect to
Collateral) or, to the extent permitted by applicable law, as an additional
insured), (ii) shall state that such insurance policies shall not be cancelled
without 30 days' prior written notice thereof (or 10 days' prior written notice
in the case of cancellation for the non-payment of premiums) by the respective
insurer to the Collateral Agent, (iii) shall provide that the respective
insurers irrevocably waive any and all rights of subrogation with respect to the
Collateral Agent and the Banks and (iv) shall be deposited with the Collateral
Agent. In no event shall Holdings be required to deposit the actual insurance
policies with the Collateral Agent. The Administrative Agent shall deliver
copies of any certificates of insurance to a Bank upon such Bank's request.
(c) If Holdings or any of its Subsidiaries shall fail to
maintain all insurance in accordance with this Section 7.03, or if Holdings or
any of its Subsidiaries shall fail to so endorse and deposit all policies or
certificates with respect thereto, the Administrative Agent and/or the
Collateral Agent shall have the right (but shall be under no obligation),
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upon prior notice to Holdings, to procure such insurance, and Holdings agrees to
reimburse the Administrative Agent or the Collateral Agent, as the case may be,
for all costs and expenses of procuring such insurance.
7.04 Payment of Taxes. Holdings will pay and discharge, and
will cause each of its Subsidiaries to pay and discharge, all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims (other than claims relating to
the adjustment or settling, in the ordinary course of business, of claims in
respect of insurance policies or reinsurance contracts) which, if unpaid, might
become a Lien or charge upon any properties of Holdings or any of its
Subsidiaries, provided that neither Holdings nor any of its Subsidiaries shall
be required to pay any such tax, assessment, charge, levy or claim which is
being contested in good faith and by proper proceedings if it has maintained
adequate reserves with respect thereto in accordance with GAAP.
7.05 Corporate Franchises. Holdings will do, and will cause
each of its Subsidiaries to do, or cause to be done, all things necessary to
preserve and keep in full force and effect its corporate existence, rights and
authority, provided that any transaction permitted by Section 8.02 will not
constitute a breach of this Section 7.05.
7.06 Compliance with Statutes, etc. Holdings will, and will
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property other than those the non-compliance
with which would not have, and which would not be reasonably expected to have, a
Material Adverse Effect or a material adverse effect on the Collateral or the
ability of any Credit Party to perform its obligations under any Credit
Document.
7.07 Good Repair. Holdings will, and will cause each of its
Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in good
repair, working order and condition, normal wear and tear excepted, and that
from time to time there are made in such properties and equipment all needful
and proper repairs, renewals, replacements, extensions, additions, betterments
and improvements thereto, to the extent and in the manner customary for
companies in similar businesses.
7.08 Compliance with Environmental Laws. (a) (i) Holdings will
comply, and will cause each of its Subsidiaries to comply, in all material
respects, with all Environmental Laws applicable to the ownership, lease or use
of all Real Property now or hereafter owned, leased or operated by the Borrower
or any of its Subsidiaries, will promptly pay or cause to be paid all costs and
expenses incurred in connection with such
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compliance, and will keep or cause to be kept all such Real Property free and
clear of any Liens imposed pursuant to such Environmental Laws and (ii) neither
Holdings, the Borrower nor any of its Subsidiaries will generate, use, treat,
store, release or dispose of, or permit the generation, use, treatment, storage,
release or disposal of, Hazardous Materials on any Real Property now or
hereafter owned, leased or operated by Holdings, the Borrower or any of its
Subsidiaries or transport or permit the transportation of Hazardous Materials to
or from any such Real Property other than in substantial compliance with
applicable Environmental Laws and in the ordinary course of business. If
required to do so under any applicable directive or order of any governmental
agency, Holdings and the Borrower each agrees to undertake, and cause each of
its Subsidiaries to undertake, any clean up, removal, remedial or other action
necessary to remove and clean up any Hazardous Materials from any Real Property
owned, leased or operated by Holdings, the Borrower or any of its Subsidiaries
in accordance with, in all material respects, the requirements of all applicable
Environmental Laws and in accordance with, in all material respects, such orders
and directives of all governmental authorities, except to the extent that
Holdings, the Borrower or such Subsidiary is contesting such order or directive
in good faith and by appropriate proceedings and for which adequate reserves
have been established to the extent required by GAAP.
(b) At the written request of the Administrative Agent or the
Required Banks, which request shall specify in reasonable detail the basis
therefor, at any time and from time to time after the Banks receive notice under
Section 7.01(h) for any event for which notice is required to be delivered for
any Real Property which discloses an Environmental Claim or any potential
requirement for remedial or similar work aggregating in excess of $1,000,000,
the Borrower will provide, at its sole cost and expense, an environmental site
assessment report concerning any such Real Property now or hereafter owned,
leased or operated by Holdings, the Borrower or any of its Subsidiaries,
prepared by an environmental consulting firm reasonably satisfactory to the
Administrative Agent, indicating the presence or absence of Hazardous Materials
and the potential cost of any removal or remedial action in connection with any
Hazardous Materials on such Real Property. If the Borrower fails to provide the
same within 90 days after such request was made, the Administrative Agent may
order the same, and the Borrower shall grant and hereby grants, to the
Administrative Agent and the Banks and their agents, access to such Real
Property and specifically grants the Administrative Agent and the Banks an
irrevocable non-exclusive license, subject to the rights of tenants, to
undertake such an assessment, all at the Borrower's expense.
7.09 End of Fiscal Years; Fiscal Quarters. Holdings will, for
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries' fiscal years to end on December 31 of each year and (ii) each of
its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30,
September 30 and December 31 of each year.
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7.10 Interest Rate Hedging. The Borrower will, no later than
the date occurring 30 days after the Initial Borrowing Date, enter into an
Interest Rate Agreement, reasonably satisfactory to the Administrative Agent,
establishing a fixed or maximum rate in respect of an amount equal to at least
(x) 60% of Total Indebtedness outstanding on the Initial Borrowing Date (after
giving effect to the Transaction) less (y) the aggregate principal amount of the
CGL Participations, for a period of years reasonably acceptable to the
Administrative Agent.
7.11 Additional Security; Further Assurances. (a) The Borrower
will give the Collateral Agent not less than 15 days prior written notice of the
scheduled closing date for any Permitted Acquisition by the Borrower or any of
its Subsidiaries occurring after the Initial Borrowing Date. Subject to
obtaining any consents from third parties (including third party lessors and
co-venturers) necessary to be obtained for the granting of a Lien on the
interests or assets acquired pursuant to any such Permitted Acquisition (with
the Borrower hereby agreeing to use its reasonable efforts to obtain such
consents), the Borrower will, and will cause its Subsidiaries to, grant the
Collateral Agent for the benefit of the Banks security interests and mortgages
(each an "Additional Security Document") in the interests or properties (other
than (I) any Real Property and related personal property assets acquired by a
joint venture with the proceeds of equity investments made by the Borrower or a
Subsidiary to the extent such equity investments are pledged to the Collateral
Agent, (II) any Real Property and related personal property assets acquired with
the proceeds of, and securing, or subject to assumed, Non-Recourse Debt and
those constituting expansions of existing facilities subject to mortgages in
favor of other Persons) as are acquired after the Initial Borrowing Date by the
Borrower or such Subsidiary with the proceeds of Acquisition Loans and as may be
requested from time to time by the Administrative Agent or the Required Banks,
as additional security for the Obligations. Each Additional Security Document
shall be granted pursuant to documentation reasonably satisfactory in form and
substance to the Administrative Agent and shall constitute a valid and
enforceable perfected Lien upon the interests or properties so acquired,
superior to and prior to the rights of all third Persons and subject to no other
Liens except those permitted by Section 8.03 or otherwise agreed by the
Administrative Agent at the time of perfection thereof and such other
encumbrances as may be set forth in the mortgage policy, if any, relating to
such Additional Security Document which shall be delivered to the Collateral
Agent together with such Additional Security Document and which shall be
reasonably satisfactory in form and substance to the Collateral Agent. The
Additional Security Document or instruments related thereto shall have been duly
recorded or filed in such manner and in such places as are required by law to
establish, perfect, preserve and protect the Liens created thereby required to
be granted pursuant to the Additional Security Document and all taxes, fees and
other charges payable in connection therewith shall have been paid in full.
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(b) Holdings and the Borrower will, and will cause each of its
Subsidiaries to, at the expense of the Borrower, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Agent from time to time such
conveyances, financing statements, transfer endorsements, powers of attorney,
certificates, and other assurances or instruments and take such further steps
relating to the Collateral covered by any of the Security Documents as the
Collateral Agent may reasonably require. If at any time the Collateral Agent
determines, based on applicable law, that all applicable taxes (including,
without limitation, mortgage recording taxes or similar charges) were not paid
in connection with the recordation of any Mortgage, the Borrower shall promptly
pay the same upon demand. Furthermore, the Borrower shall cause to be delivered
to the Collateral Agent such opinions of counsel, title insurance, surveys and
other related documents as may be reasonably requested by the Collateral Agent
to assure itself that this Section 7.11 has been complied with, all of which
documents shall be in form and substance reasonably satisfactory to the
Collateral Agent.
(c) Holdings and the Borrower each agrees that each action
required above by this Section 7.11 shall be completed as soon as practicable,
but in no event later than 60 days after such action is requested to be taken by
the Administrative Agent or the Required Banks.
7.12 Corporate Separateness. Holdings and the Borrower will
take, and will cause each of its Subsidiaries to take, all such action as is
necessary to keep the operations of Holdings, the Borrower and its Subsidiaries
separate and apart from those of each Specified Subsidiary, including, without
limitation, ensuring that all customary formalities regarding corporate
existence, including holding regular board of directors' meetings and
maintenance of corporate records, are followed. All financial statements of
Holdings and its Subsidiaries provided to creditors will clearly evidence the
corporate separateness of Holdings and its other Subsidiaries from each
Specified Subsidiary. Finally, neither Holdings nor any of its other
Subsidiaries will take any action, or conduct its affairs in a manner which is
likely to result in the corporate existence of a Specified Subsidiary on the one
hand, and Holdings and its other Subsidiaries on the other, being ignored, or in
the assets and liabilities of Holdings or any of its other Subsidiaries being
substantively consolidated with those of a Specified Subsidiary in a bankruptcy,
reorganization or other insolvency proceeding. No action or indemnity expressly
permitted by this Agreement will breach this covenant.
7.13 ERISA. As soon as possible and, in any event, within ten
(10) days after Holdings, any Subsidiary of Holdings or any ERISA Affiliate
knows or has reason to know of the occurrence of any of the following, Holdings
will deliver to each of the Banks a certificate of the chief financial officer
of Holdings setting forth the full details as to such occurrence and the action,
if any, that Holdings, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given
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to or filed with or by Holdings, the Subsidiary, the ERISA Affiliate, the PBGC,
a Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred; that an accumulated funding deficiency, within
the meaning of Section 412 of the Code or Section 302 of ERISA, has been
incurred or an application may be or has been made for a waiver or modification
of the minimum funding standard (including any required installment payments) or
an extension of any amortization period under Section 412 of the Code or Section
303 or 304 of ERISA with respect to a Plan; that any contribution required to be
made with respect to a Plan has not been timely made; that a Plan has been or
may be terminated, reorganized, partitioned or declared insolvent under Title IV
of ERISA; that a Plan has an Unfunded Current Liability; that proceedings may be
or have been instituted to terminate or appoint a trustee to administer a Plan
which is subject to Title IV of ERISA; that a proceeding has been instituted
pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan;
that Holdings, any Subsidiary of Holdings or any ERISA Affiliate will or may
incur any liability (including any indirect, contingent, or secondary liability)
to or on account of the termination of or withdrawal from a Plan under Section
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan
under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or
502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in
Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B
of the Code; or that Holdings or any Subsidiary of Holdings may incur any
material liability pursuant to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) that provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any Plan.
SECTION 8. Negative Covenants. Each of Holdings and the
Borrower hereby covenants and agrees that on the Effective Date and thereafter
for so long as this Agreement is in effect and until such time as the Total
Commitment has been terminated, no Notes remain outstanding and the Loans,
together with interest, Fees and all other Obligations incurred hereunder are
paid in full:
8.01 Changes in Business. Holdings will not, and will not
permit the Borrower or any of its Subsidiaries to, engage in any significant
business or activities in any industries or business segments, other than the
business and activities conducted by Holdings and its Subsidiaries (taken as a
whole) on the Initial Borrowing Date (after giving effect to the Transaction) in
the business segments and industries described in the Registration Statement,
and other businesses and activities related or incidental thereto.
8.02 Consolidation, Merger or Sale of Assets, etc. Holdings
will not, and will not permit any Subsidiary to, wind up, liquidate or dissolve
its affairs, or enter into any transaction of merger or consolidation or sell or
otherwise dispose of any of its property or assets (but excluding any sale or
disposition of obsolete or excess FF&E or excess land in the ordinary course of
business), or purchase, lease or otherwise acquire (in
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one transaction or a series of related transactions) all or any part of the
property or assets of any Person (excluding any purchases, leases or other
acquisitions of property or assets in, and for use in, the ordinary course of
business) or agree to do any of the foregoing at any future time, except that
the following shall be permitted:
(a) capital expenditures by the Borrower and its Subsidiaries;
(b) the investments permitted pursuant to Section 8.05;
(c) (i) the merger or consolidation of any Subsidiary
Guarantor (other than Capital Corp) with or into the Borrower or
another Subsidiary Guarantor (other than Capital Corp) or the
liquidation or dissolution of any Subsidiary that is not a Material
Subsidiary or a Specified Subsidiary or (ii) the transfer or other
disposition of any property (other than the Capital Note) by the
Borrower to any Subsidiary Guarantor or by any Subsidiary Guarantor to
the Borrower or any other Subsidiary Guarantor, provided that all Liens
granted pursuant to the Security Documents on any property or assets
involved in any of the foregoing transactions shall remain in full
force and effect (with the same priority as they would have if such
transfer pursuant to this clause (ii) had not occurred), either as a
result of any such transfer being made subject to such Liens or as a
result of the surviving or transferee entity executing and delivering
new Security Documents, in each case to the satisfaction of the
Administrative Agent;
(d) the Borrower or any Subsidiary Guarantor (other than
Capital Corp) (or to the extent limited to one Permitted Acquisition,
any NRD Borrower) may make Permitted Acquisitions provided that at
least 15 days prior to the date of such acquisition, the Borrower shall
have delivered to the Administrative Agent an officer's certificate
executed by an authorized officer of the Borrower, which certificate
shall (i) contain the date such Permitted Acquisition is scheduled to
be consummated, (ii) contained the estimated purchase price of such
Permitted Acquisition, (iii) contain a description of the property
and/or assets acquired in connection with such Permitted Acquisition,
(iv) demonstrate that at the time of making any such Permitted
Acquisition the covenants contained in Sections 8.10, 8.11, 8.12, 8.13
and 8.14 shall be complied with on a pro forma basis as if the
properties and/or assets so acquired had been owned by the Borrower,
and the Indebtedness assumed and/or incurred to acquire and/or finance
same has been outstanding, for the 12 month period immediately
preceding such acquisition (without giving effect to any credit for
unobtained or unrealized gains in connection with such Permitted
Acquisition), (v) to the extent applicable, confirms that the Borrower
has performed physical inspections, including, without limitation,
Phase I environmental assessments, which demonstrate that the
representations and warranties of the Borrower contained in this
Agreement (including those set forth
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in Section 6.15) shall be true and correct after giving effect to such
Permitted Acquisition, (vi) except in the case of a Permitted
Acquisition of a Non-Managed Hotel, confirms that the hotel property
acquired pursuant to such Permitted Acquisition (or owned by the
partnership in which interests have been acquired or to which loans
and/or advances have been made pursuant to such Permitted Acquisition)
is to be managed by the Borrower and (vii) attach thereto a true and
correct copy of the then proposed purchase agreement or similar
agreement, partnership agreement, lease and/or management contract
entered into in connection with such Permitted Acquisition;
(e) the Borrower or any of its Subsidiaries may sell any hotel
property, land or building and/or any capital stock and/or equity
interests of any Person that owns such hotel property, land or
building, provided that after giving effect to such sale the covenants
contained in Sections 8.10, 8.11 , 8.12, 8.13 and 8.14 shall be
complied with on a pro forma basis as if such hotel property, land or
building so sold had not been owned by the Borrower and/or any of its
Subsidiaries for the 12- month period immediately preceding such sale;
(f) the Reorganization;
(g) the Borrower or any of its Subsidiaries (other than an NRL
Subsidiary) may enter into leases of property or assets not
constituting Permitted Acquisitions in the ordinary course of business
not otherwise in violation of this Agreement and to the extent not
prohibited by Section 8.06(b);
(h) the Borrower and its Subsidiaries (other than any
Specified Subsidiary) may purchase or otherwise acquire any property or
assets of any Person (other than pursuant to Permitted Acquisitions),
provided that (x) such purchases or acquisitions are made with funds
other than the proceeds of Loans and Non-Recourse Debt, (y) no Default
or Event of Default exists at the time thereof or after giving effect
thereto and (z) after giving effect thereto, Section 8.01 is complied
with;
(i) the Borrower and its Subsidiaries may sell or discount
accounts receivable in the ordinary course of business consistent with
past practices, but only in connection with the collection or
compromise thereof , so long as the aggregate outstanding face amount
of accounts receivable sold or discounted at any time does not exceed
$5,000,000; and
(j) any NRL Subsidiary may enter into leases of hotel
properties in connection with obtaining, or as a method of effectively
obtaining, the benefits of (and entered in lieu of) a Management
Contract relating to the hotel properties which are the subject of such
leases, provided that any such lease shall not be
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guaranteed (or otherwise supported) directly or indirectly by Holdings,
the Borrower, any Subsidiary Guarantor or any other Subsidiary (other
than the NRL Subsidiary entering into same) except that (x) the
documentation governing any such lease may contain provisions relating
to customary indemnities from the Borrower or a Subsidiary Guarantor
for fraud, use of proceeds and environmental matters or as are
otherwise reasonably acceptable to the Administrative Agent and (y) the
Borrower may incur guaranteed and other Contingent Obligations in
respect of such leases to the extent permitted by Section
8.04(f)(A)(z).
To the extent the Required Banks (or all of the Banks as shall be required by
Section 12.12) waive the provisions of this Section 8.02 with respect to the
sale, transfer or other disposition of any Collateral, or any Collateral is
sold, transferred or disposed of as permitted by this Section 8.02, (i) such
Collateral shall be sold, transferred or disposed of free and clear of the Liens
created by the respective Security Document; (ii) if such Collateral includes
all of the capital stock of a Subsidiary Guarantor, such capital stock shall be
released from the Pledge Agreement and such Subsidiary shall be released from
the Subsidiary Guaranty; and (iii) the Administrative Agent and the Collateral
Agent shall be authorized to take actions deemed appropriate by them in order to
effectuate the foregoing.
8.03 Liens. Holdings will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of Holdings or any such Subsidiary whether now owned or hereafter
acquired, or sell any such property or assets subject to an understanding or
agreement, contingent or otherwise, to repurchase such property or assets
(including sales of accounts receivable or notes with recourse to Holdings or
any of its Subsidiaries) or assign any right to receive income, or file or
permit the filing of any financing statement under the UCC or any other similar
notice of Lien under any similar recording or notice statute, except:
(a) Liens for taxes not yet delinquent or Liens for taxes
being contested in good faith and by appropriate proceedings for which
adequate reserves (in the good faith judgment of the management of
Holdings) have been established;
(b) Liens in respect of property or assets imposed by law
which were incurred in the ordinary course of business, such as
carriers', warehousemen's, materialmen's and mechanics' Liens and other
similar Liens arising in the ordinary course of business, which do not
in the aggregate materially detract from the value of such property or
assets or materially impair the use thereof in the operation of the
business of Holdings or any Subsidiary;
(c) Liens created by this Agreement or the other Credit
Documents;
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(d) Liens in existence on the Initial Borrowing Date which (x)
are listed, and the property subject thereto on the Initial Borrowing
Date described, in Annex VI, without giving effect to any extensions or
renewals thereof or (y) are otherwise permitted under this Section
8.03;
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.08;
(f) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations incurred in the ordinary course of business (exclusive of
obligations in respect of the payment for borrowed money);
(g) Leases or subleases granted to others not interfering in
any material respect with the business of Holdings or any of its
Subsidiaries and any interest or title of a lessor under any lease not
in violation of this Agreement;
(h) Easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of Holdings or any of its Subsidiaries;
(i) Liens arising from financing statements regarding leases
not in violation of this Agreement;
(j) Liens securing Non-Recourse Debt to the extent such Liens
do not attach to any property or assets other than the property or
asset financed or refinanced by any such Debt;
(k) Liens created by virtue of Capitalized Lease Obligations,
provided that such Liens are only in respect of the property or assets
subject to, and secure only, the respective Capital Lease;
(l) Liens (x) placed upon equipment or machinery used in the
ordinary course of business of the Borrower, any Subsidiary Guarantor
(other than Capital Corp) or any NRD Borrower at the time of (or within
180 days after) the acquisition thereof by the Borrower, any such
Subsidiary Guarantor (other than Capital Corp) or any such NRD Borrower
to secure Indebtedness incurred to pay all or a portion of the purchase
price thereof, provided that the Lien encumbering
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the equipment or machinery so acquired does not encumber any other
asset of the Borrower or any Subsidiary; or (y) existing on specific
tangible assets at the time acquired by the Borrower, any Subsidiary
Guarantor (other than Capital Corp) or any NRD Borrower or on assets of
a Person at the time such Person first becomes a Subsidiary of the
Borrower, provided that (i) any such Liens were not created at the time
of or in contemplation of the acquisition of such assets or Person by
the Borrower or any of its Subsidiaries, (ii) in the case of any such
acquisition of a Person, any such Lien attaches only to specific
tangible assets of such Person and not assets of such Person generally,
(iii) the Indebtedness secured by any such Lien does not exceed 100% of
the fair market value of the asset to which such lien attaches,
determined at the time of the acquisition of such asset or the time at
which such Person becomes a Subsidiary of the Borrower (except in the
circumstances described in clause (y) above to the extent such Liens
constituted customary purchase money Liens at the time of incurrence
entered into in the ordinary course of business) and (iv) the
Indebtedness secured thereby is permitted by Section 8.04(b);
(m) Permitted Encumbrances;
(n) Liens arising from the transactions permitted by Section
8.02(i) and attached only to the receivable so sold or discounted; and
(o) Liens securing lease obligations of an NRL Subsidiary
permitted pursuant to Section 8.02(j) to the extent such Liens do not
attach to any property or assets other than the property or assets
subject to such leases.
8.04 Indebtedness. Holdings will not, and will not permit any
of its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(b) Indebtedness of the Borrower, any Subsidiary Guarantor
(other than Capital Corp) or any NRD Borrower subject to Liens
permitted by Section 8.03(l) or constituting Capitalized Lease
Obligations, provided that the aggregate principal amount of such
Indebtedness and Capitalized Lease Obligations under all Capital Leases
shall not exceed $6,000,000 at any time outstanding;
(c) Existing Indebtedness without giving effect to any
subsequent extension, renewal or refinancing thereof;
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(d) Indebtedness of the Borrower under the Interest Rate
Agreements entered into pursuant to Section 7.10;
(e) Indebtedness of (x) Holdings to the Borrower to the extent
the proceeds thereof are promptly utilized to pay administrative and
reporting costs, (y) the Borrower to Holdings or any Subsidiary
Guarantor or (z) any Subsidiary Guarantor to the Borrower or any other
Subsidiary Guarantor, provided that (x) such Indebtedness shall be
evidenced by a promissory note which shall be pledged to the Collateral
Agent pursuant to the Pledge Agreement and (y) no Indebtedness owing to
or by Capital Corp shall be permitted by this clause (e);
(f) Contingent Obligations of (A) the Borrower in respect of
(x) leases of real property entered into by the Borrower, (y)
obligations of any Subsidiary Guarantor permitted under this Agreement
and (z) leases entered into by any NRL Subsidiary permitted by Section
8.02(j), provided that the aggregate amount of such Contingent
Obligations shall not exceed $3,000,000, and (B) the Borrower or any
Subsidiary in respect of any other Person (other than in respect of
indebtedness for borrowed money) arising as a matter of applicable law
because the Borrower or such Subsidiary is or is deemed to be a general
partner of such other Person;
(g) any NRD Borrower may incur indebtedness ("Non-Recourse
Debt") to finance or refinance a hotel property acquired pursuant to a
Permitted Acquisition, provided that (i) Non-Recourse Debt may only be
incurred on and after the date on which pro forma annual Consolidated
EBITDA of Holdings (after giving effect to all Permitted Acquisitions
then consummated or being consummated) first equals or exceeds
$70,000,000, (ii) Non-Recourse Debt shall not be guaranteed (or
otherwise supported) directly or indirectly by Holdings, the Borrower,
any Subsidiary Guarantor or any other Subsidiary (other than the NRD
Borrower incurring same) (except that the documentation governing any
Non-Recourse Debt may contain provisions relating to customary
indemnities from the Borrower or a Subsidiary Guarantor for fraud, use
of proceeds and environmental matters or as are otherwise reasonably
acceptable to the Administrative Agent), (iii) the principal amount of
any issue of Non-Recourse Debt shall not exceed 65% of the fair market
value of the property securing such Debt, determined at the time of the
acquisition of such property by a valuation firm of national standing
utilizing appraisal standards satisfying the Real Estate Appraisal
Reform Amendments of The Financial Institution Reform, Recovery and
Enforcement Act of 1989, as amended, and (iv) the aggregate principal
amount of Non-Recourse Debt incurred by all NRD Borrowers shall not
exceed $50,000,000 at any time outstanding;
(h) the Borrower or any Subsidiary Guarantor (other than
Capital Corp) may incur additional Indebtedness other than any guaranty
or other Contingent
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<PAGE> 62
Obligation created in respect of Non-Recourse Debt (except for the
indemnities specifically referred to in clause (g)) in an aggregate
principal amount not to exceed $10,000,000 at any time outstanding; and
(i) the Borrower may incur Indebtedness evidenced by the
Capital Note in an aggregate principal amount not to exceed the net
cash proceeds from the IPO.
8.05 Advances, Investments and Loans. Holdings will not, and
will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any Person, except:
(a) Holdings or any of its Subsidiaries may invest in cash and
Cash Equivalents;
(b) the Borrower and its Subsidiaries may acquire and hold
receivables owing to them in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms;
(c) loans and advances (x) to employees for business-related
travel expenses, moving expenses and other similar expenses, in each
case incurred in the ordinary course of business and (y) to employees
in an aggregate principal amount not to exceed $8,000,000 at any time
outstanding, shall be permitted;
(d) to the extent allowed by Section 8.02(c), (d) or (h), and
the creation of Subsidiaries in compliance with Section 8.15 shall be
permitted;
(e) investments acquired by the Borrower or any of its
Subsidiaries (x) in exchange for any other investment held by the
Borrower or any such Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer
of such other investment or (y) as a result of a foreclosure by the
Borrower or any of its Subsidiaries with respect to any secured
investment or other transfer of title with respect to any secured
investment in default;
(f) investments of the Borrower in Interest Rate Agreements
entered into pursuant to Section 7.10;
(g) Loans and advances permitted by Section 8.04(e) and/or
(i); and
(h) The investments (other than in Subsidiaries) outstanding
on the Initial Borrowing Date which are listed on Annex VII hereto
(without any increase thereto).
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8.06 Capital Expenditures; Leases. (a) The Borrower will not
permit the amount expended during any fiscal year for Consolidated Capital
Expenditures to be less than 3% (it being understood and agreed that up to 50%
of such amount may be in the form of a Reserve created during such fiscal year)
but not more than 6% of the aggregate revenues for such fiscal year of all
hotels owned or leased by the Borrower and its Subsidiaries.
(b) Holdings will not permit the aggregate payments
(including, without limitation, any property taxes paid by the Borrower and its
Subsidiaries (other than a Specified Subsidiary) as additional rent or lease
payments) by the Borrower and its Subsidiaries (other than a Specified
Subsidiary) on a consolidated basis under agreements in effect as of the Initial
Borrowing Date and/or entered into after the Initial Borrowing Date (including
any such agreement that is an extension, replacement, substitution, or renewal
of any agreement entered into prior to such date) to rent or lease any real or
personal property (exclusive of Capitalized Lease Obligations) to exceed
$2,500,000 in any fiscal year of Holdings.
8.07 Prepayments of Indebtedness, Modifications of Agreements,
etc. Holdings will not, and will not permit any of its Subsidiaries to:
(a) make (or give any notice in respect thereof) any voluntary
or optional payment or prepayment or redemption or acquisition for
value of (including, without limitation, by way of depositing with the
trustee with respect thereto money or securities before due for the
purpose of paying when due) or exchange of any Existing Indebtedness or
the Capital Note;
(b) amend or modify (or permit the amendment or modification
of) any of the terms or provisions of or terminate (other than any
scheduled termination in accordance with the terms thereof) (A) the
Capital Note and/or any document or agreement governing same, (B) in
any manner adverse to the interests of the Banks any documents or
agreement governing any Existing Indebtedness or the CGL Participation
or (C) in any manner that has, or which would reasonably be expected to
have, a Material Adverse Effect, any Acquisition Document or any
Westborough Acquisition Document; and/or
(c) amend, modify or change in any manner materially adverse
to the interests of the Banks the certificate of incorporation
(including, without limitation, and in any event, by the filing of any
certificate of designation), partnership agreement, certificate of
formation or by-laws of any Credit Party, or enter into any new
agreement with respect to the capital stock or equity interests, as the
case may be, of any Credit Party (to the extent adverse to the
interests of the Banks).
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8.08 Dividends, etc. Holdings will not, and will not permit
any Subsidiary to declare or pay any dividends (other than, in the case of
Holdings, dividends payable solely in common stock of Holdings) or return any
capital to, its stockholders, equity holders, members or partners or authorize
or make any other distribution, payment or delivery of property or cash to its
stockholders, equity holders, members or partners, as such, or redeem, retire,
purchase or otherwise acquire, directly or indirectly, for a consideration, any
shares of any class of its capital stock or equity or partnership interests or
membership interests now or hereafter outstanding (or any warrants for or
options or stock appreciation rights in respect of any of such shares), or set
aside any funds for any of the foregoing purposes, or permit any Subsidiary to
purchase or otherwise acquire for consideration any shares of any class of the
capital stock or equity or partnership interests or membership interests of
Holdings or any such Subsidiary, as the case may be, now or hereafter
outstanding (or any options or warrants or stock appreciation rights issued with
respect to such capital stock or membership interests or partnership interests)
(all of the foregoing "Dividends"), except that (i) any Subsidiary of the
Borrower may pay Dividends to the Borrower or to any Subsidiary Guarantor and
(ii) Capital Corp may pay cash Dividends to Holdings so long as Holdings shall
immediately utilize 100% of the proceeds thereof to make a capital contribution
to the Borrower.
8.09 Transactions with Affiliates. Holdings will not, and will
not permit any Subsidiary to, enter into any transaction or series of
transactions with any Affiliate (other than, in the case of a Subsidiary,
Holdings, the Borrower or a Subsidiary Guarantor) other than in the ordinary
course of business and on terms and conditions substantially as favorable to
Holdings or such Subsidiary as would be obtainable, in Holdings' reasonable
judgment, by Holdings or such Subsidiary at the time in a comparable
arm's-length transaction with a Person other than an Affiliate except (i)
Management Contracts, (ii) investments permitted by Section 8.06 and (iii)
payments made pursuant to Section 8.09.
8.10 Leverage Ratio. The Borrower will not permit the ratio of
(i) Modified Total Indebtedness as of a date set forth below to (ii) EBITDA for
the Test Period ended on such date to be greater than the ratio set forth
opposite such date below:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
September 30 and December 31, 1996,
March 31, June 30, September 30
and December 31, 1997 4.5:1
</TABLE>
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<PAGE> 65
<TABLE>
<S> <C>
March 31, June 30, September 30 and
December 31, 1998, March 31, June
30, September 30 and December 31,
1999 4.25:1
March 31, June 30, September 30 and
December 31, 2000, March 31, June
30, September 30 and December 31,
2001 4.00:1
March 31, June 30, September 30 and
December 31, 2002 3.75:1
March 31, 2003 and each fiscal
quarter thereafter 3.50:1
</TABLE>
8.11 Minimum EBITDA. Holdings will not permit EBITDA for any
Test Period ending on a date set forth below to be less than the amount set
forth opposite such date:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
September 30
and December 31, 1996 $65,000,000
March 31, June 30,
September 30 and
December 31, 1997,
March 31, June 30,
September 30 and
December 31, 1998 $70,000,000
March 31, 1999 and each
fiscal quarter thereafter $75,000,000
</TABLE>
8.12 Interest Coverage. Holdings will not permit the Interest
Coverage Ratio for any Test Period ending on a date set forth below to be less
than the ratio set forth opposite such date:
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<PAGE> 66
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
September 30 and December 31, 1996,
March 31, June 30, September 30
and December 31, 1997 2.50:1
March 31, 1998 and each
fiscal quarter thereafter 2.75:1
</TABLE>
8.13 Consolidated Net Worth. Holdings will not permit
Consolidated Net Worth as of the end of any fiscal quarter of Holdings to be
less than an amount equal to the sum of (x) $190,000,000 plus (y) the aggregate
of 80% (70% for each fiscal quarter ending after December 31, 1998) of the
Consolidated Net Income, if positive, for each fiscal quarter ending after the
Initial Borrowing Date and on or prior to the end of the fiscal quarter as of
which Consolidated Net Worth is being determined.
8.14 Debt Service Coverage. Holdings will not permit the Debt
Service Coverage Ratio for any Test Period ending on a date set forth below to
be less than the ratio set forth opposite such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
September 30 and December 31, 1996,
March 31, June 30, September 30
and December 31, 1997 2.00:1
March 31, 1998 and each
fiscal quarter thereafter 2.25:1
</TABLE>
8.15 Creation of Subsidiaries. Holdings will not, and will not
permit any Subsidiary to, create or acquire any Subsidiary other than (x) a
Wholly-Owned Subsidiary that executes a counterpart of the Subsidiary Guaranty,
Pledge Agreement and Security Agreement or (y) a Specified Subsidiary, to the
extent, in each case, that 100% of the capital stock of such entity is pledged
to the Collateral Agent pursuant to the Pledge Agreement. Upon an entity ceasing
to be a Specified Subsidiary, such entity, unless liquidated, shall become a
Subsidiary Guarantor and execute all documents required by the preceding and
following sentences. In addition, each new Subsidiary Guarantor created as
permitted by this Section 8.15 shall execute and deliver, or cause to be
executed, all other relevant documentation of the type described in Section 5 as
such new Subsidiary Guarantor
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<PAGE> 67
would have had to deliver if such new Subsidiary were a Credit Party on the
Initial Borrowing Date.
8.16 Limitation on Certain Restrictions on Subsidiaries.
Holdings will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction in the ability of any such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by Holdings or any Subsidiary of
Holdings, or pay any Indebtedness owed to Holdings or a Subsidiary of Holdings,
(b) make loans or advances to Holdings or any of Holdings' subsidiaries, or (c)
transfer any of its property or assets to Holdings or any of Holdings'
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (i) applicable law, (ii) this Agreement and the other Credit
Documents, (iii) customary provisions restricting subletting or assignment of
any lease governing a leasehold interest of Holdings or a Subsidiary of
Holdings, (iv) customary provisions restricting assignment of any licensing
agreement entered into by Holdings or any Subsidiary of Holdings in the ordinary
course of business, (v) customary provisions restricting the transfer of assets
subject to Liens permitted under Section 8.03(j) and (l), (vi) customary
provisions restricting assignment of any Management Contract (as defined in the
Security Agreement) or Franchise Agreement (as defined in the Security
Agreement) and (vii) restrictions governing any of the Non-Recourse Debt of an
NRD Borrower or any lease of an NRL Subsidiary.
8.17 Holdings. Holdings will not engage in any business or
activities other than the ownership of all of the capital stock of Capital Corp
and the Borrower and administrative and reporting activities entitled thereto.
Capital Corp will not engage in any business or activities other than holding
the Capital Note.
SECTION 9. Events of Default. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
9.01 Payments. The Borrower shall (i) default in the payment
when due of any principal of the Loans or (ii) default, and such default shall
continue for three or more Business Days, in the payment when due of any
interest on the Loans or any Fees or any other amounts owing hereunder or under
any other Credit Document; or
9.02 Representations, etc. Any representation, warranty or
statement made by any Credit Party herein or in any other Credit Document or in
any statement or certificate delivered or required to be delivered pursuant
hereto or thereto shall prove to be untrue in any material respect on the date
as of which made or deemed made; or
9.03 Covenants. Holdings or the Borrower shall (i) default in
the due performance or observance by it of any term, covenant or agreement
contained in Section
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7.10, 7.11 or 8, or (ii) default in the due performance or observance by it of
any term, covenant or agreement (other than those referred to in Section 9.01,
9.02 or clause (i) of this Section 9.03) contained in this Agreement and such
default shall continue unremedied for a period of at least 30 days after notice
by the Administrative Agent or the Required Banks; or
9.04 Default Under Other Agreements. (a) Holdings, the
Borrower or any of its Subsidiaries shall (i) default in any payment with
respect to any Indebtedness (other than the Obligations and/or any non-recourse
Indebtedness), and such default shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Indebtedness, or (ii) default in the observance or performance of any agreement
or condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto (and all grace periods
applicable to such observance, performance or condition shall have expired), or
any other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause any such Indebtedness to become due prior to its stated maturity; or (b)
any such Indebtedness of Holdings, the Borrower or any of its Subsidiaries shall
be declared to be due and payable, or shall be required to be prepaid (other
than by a regularly scheduled required prepayment or redemption or as a
mandatory prepayment or redemption (unless such required or mandatory prepayment
or redemption results from a default thereunder or an event of type that
constitutes an Event of Default hereunder), provided that it shall not
constitute an Event of Default pursuant to this Section 9.04 unless the
aggregate amount of all Indebtedness referred to in clauses (a) and (b) above
exceeds $5,000,000 at any one time; or
9.05 Bankruptcy, etc. Holdings, the Borrower or any of its
Material Subsidiaries shall commence a voluntary case concerning itself under
Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in
effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case
is commenced against Holdings, the Borrower or any of its Material Subsidiaries
and the petition is not controverted within 10 days, or is not dismissed within
60 days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially all
of the property of Holdings, the Borrower or any of its Material Subsidiaries;
or Holdings, the Borrower or any of its Material Subsidiaries commences
(including by way of applying for or consenting to the appointment of, or the
taking of possession by, a rehabilitator, receiver, custodian, trustee,
conservator or liquidator (collectively, a "conservator") of itself or all or
any substantial portion of its property) any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency, liquidation, rehabilitation, conservatorship or similar law of any
jurisdiction whether now or hereafter in effect relating to Holdings, the
Borrower or any of its Material Subsidiaries; or any such proceeding is
commenced against Holdings, the
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<PAGE> 69
Borrower or any of its Material Subsidiaries to the extent such proceeding is
consented to by such Person or remains undismissed for a period of 60 days; or
Holdings, the Borrower or any of its Material Subsidiaries is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or Holdings, the Borrower or any of its Material
Subsidiaries suffers any appointment of any conservator or the like for it or
any substantial part of its property which continues undischarged or unstayed
for a period of 60 days; or Holdings, the Borrower or any of its Material
Subsidiaries makes a general assignment for the benefit of creditors; or any
corporate action is taken by Holdings, the Borrower or any of its Material
Subsidiaries for the purpose of effecting any of the foregoing; or
9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof under Section 412 of
the Code or Section 302 of ERISA or a waiver of such standard or extension of
any amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, any Plan
which is subject to Title IV of ERISA shall have had or is likely to have a
trustee appointed to administer such Plan, any Plan which is subject to Title IV
of ERISA is, shall have been or is likely to be terminated or to be the subject
of termination proceedings under ERISA, any Plan shall have an Unfunded Current
Liability, a contribution required to be made with respect to a Plan has not
been timely made, Holdings, or any Subsidiary of Holdings or any ERISA Affiliate
has incurred or is likely to incur any liability to or on account of a Plan
under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or
4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a
group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2)
of the Code) under Section 4980B of the Code, or Holdings, or any Subsidiary of
Holdings has incurred or is likely to incur liabilities pursuant to one or more
employee welfare benefit plans (as defined in Section 3(1) of ERISA) that
provide benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or Plans; (b) there shall result from any such
event or events the imposition of a lien, the granting of a security interest,
or a liability or a material risk of incurring a liability; and (c) such lien,
security interest or liability, individually, and/or in the aggregate, in the
opinion of the Required Banks, has had, or could reasonably be expected to have,
a Material Adverse Effect; or
9.07 Security Documents. (a) Any Security Document shall cease
to be in full force and effect (other than upon termination thereof in
accordance with its terms), or shall cease to give the Collateral Agent the
Liens purported to be created thereby in favor of the Collateral Agent or (b)
any Credit Party shall default in the due performance or observance of any
material term, covenant or agreement on its part to be performed or observed
pursuant to any Security Document and such default shall continue beyond any
cure or grace period specifically provided for in such Security Document; or
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<PAGE> 70
9.08 Judgments. One or more judgments or decrees shall be
entered against Holdings, the Borrower and/or any of its Subsidiaries involving
a liability (not paid or fully covered by insurance) of $5,000,000 or more in
the aggregate for all such judgments and decrees for Holdings, the Borrower and
its Subsidiaries) and any such judgments or decrees shall not have been vacated,
discharged or stayed or bonded pending appeal within 60 days from the entry
thereof; or
9.09 Environmental Matters. Any Hazardous Materials shall have
been at any time (i) generated, used, treated or stored on, or transferred to or
from, any Real Property of Holdings or any of its Subsidiaries or (ii) released
on any such Real Property in violation of Environmental Laws, in each case where
such occurrence or event has had, or is reasonably likely to have, a Material
Adverse Effect; or
9.10 Guaranty. Any Guaranty or any provision thereof shall
cease to be in full force or effect, or any Guarantor or any Person acting by or
on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations
under such Guaranty or any Guarantor shall default in the due performance or
observance of any material term, covenant, or agreement on its part to be
performed or observed pursuant to the relevant Guaranty;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Banks, by written notice to the Borrower, take any or
all of the following actions, without prejudice to the rights of the
Administrative Agent or any Bank to enforce its claims against the Borrower,
except as otherwise specifically provided for in this Agreement (provided that,
if an Event of Default specified in Section 9.05 shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Administrative Agent as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Commitment terminated, whereupon the Commitment of each Bank shall forthwith
terminate immediately and any Commitment Commission shall forthwith become due
and payable without any other notice of any kind; (ii) declare the principal of
and any accrued interest in respect of all Loans, all Unpaid Drawings and all
obligations owing hereunder and thereunder to be, whereupon the same shall
become, forthwith due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower; (iii)
enforce, as Administrative Agent (or direct the Collateral Agent to enforce),
any or all of the Liens and security interests created pursuant to the Security
Documents; (iv) terminate any Letter of Credit which may be terminated in
accordance with its terms; and (v) direct the Borrower to pay (and the Borrower
hereby agrees that on receipt of such notice or upon the occurrence of an Event
of Default with respect to the Borrower under Section 9.05, it will pay) to the
Collateral Agent an amount of cash equal to the aggregate Stated Amount of all
Letters of Credit
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then outstanding (such amount to be held as security after the Borrower's
reimbursement obligations in respect thereof).
SECTION 10 Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Acquisition" shall mean the acquisition by the Borrower of
the Assets as provided in the Acquisition Documents.
"Acquisition Documents" shall mean (i) the Agreement of
Purchase and Sale and (ii) the Contribution Agreement, in each case in the form
delivered to the Administrative Agent pursuant to Section 5.01(j) and without
giving effect to any amendment or modification thereof not consented to by the
Required Banks.
"Acquisition Loans" shall mean Revolving Loans the proceeds of
which are utilized to make Permitted Acquisitions or to refinance loans or
advances the proceeds of which were utilized to make Permitted Acquisitions.
"Acquisition Sublimit" shall mean at any time the Total
Revolving Commitment at such time less $5,000,000.
"Additional Security Documents" shall have the meaning
provided in Section 7.11.
"Administrative Agent" shall have the meaning provided in the
first paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 11.09.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to control a
second Person if such first Person possesses, directly or indirectly, the power
(i) to vote 10% or more of the securities having ordinary voting power for the
election of directors or managers of such second Person or (ii) to direct or
cause the direction of the management and policies of such second Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Credit Agreement, as the same may
be from time to time further modified, amended and/or supplemented.
"Agreement of Purchase and Sale" shall mean the Agreement of
Purchase and Sale, dated as of March 29, 1996, among the sellers named therein
and Member, in
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the form delivered to the Administrative Agent pursuant to Section 5.01(j)(i)
amended through the Effective Date.
"Applicable Percentage" shall mean (i) in the case of Loans
maintained as Base Rate Loans, 1% and (ii) in the case of Loans maintained as
Eurodollar Loans, 2%.
"Assets" shall mean the partnership interests and hotel assets
acquired by the Borrower pursuant to, and as more fully described in, the
Acquisition Documents.
"Asset Sale" shall mean the sale, transfer or other
disposition (including by liquidations of a partnership of the interests therein
of the Borrower or any Subsidiary) by the Borrower or any Subsidiary to any
Person other than the Borrower or any Subsidiary Guarantor of any of their
respective assets (other than (i) sales, transfers or other dispositions of
obsolete or excess FF&E in the ordinary course of business and (ii) sales,
transfers or other dispositions with Net Cash Proceeds aggregating no more than
$500,000 in any fiscal year).
"Assignment Agreement" shall mean an Assignment Agreement
substantially in the form of Exhibit J hereto.
"Authorized Officer" shall mean any executive officer of
Holdings or the Borrower, as the case may be, designated as such in writing to
the Administrative Agent by Holdings or the Borrower, respectively, to the
extent acceptable to the Administrative Agent.
"Bank" shall have the meaning provided in the first paragraph
of this Agreement.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any incurrence of Loans or
to fund its portion of any unreimbursed payment under Section 2.04(c) or (ii) a
Bank having notified the Administrative Agent and/or the Borrower that it does
not intend to comply with the obligations under Section 1.01 and/or Section
2.04(c), in the case of either (i) or (ii) as a result of the appointment of a
receiver or conservator with respect to such Bank at the direction or request of
any regulatory agency or authority.
"Bankruptcy Code" shall have the meaning provided in Section
9.05.
"Base Rate" shall mean the higher of (x) the rate established
by the Administrative Agent from time to time as the reference rate for short
term commercial loans in U.S. dollars and (y) 1/2 of 1% in excess of the
overnight cost of funds of the Administrative Agent (as determined by the
Administrative Agent in its sole discretion).
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"Base Rate Loan" shall mean each Loan bearing interest at the
rates provided in Section 1.08(a).
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Borrowing" shall mean the incurrence of one Type of Loan
pursuant to a single Facility by the Borrower from all of the Banks having
Commitments with respect to such Facility on a pro rata basis on a given date
(or resulting from conversions on a given date), having in the case of
Eurodollar Loans the same Interest Period, provided that Base Rate Loans
incurred pursuant to Section 1.10(b) shall be considered part of any related
Borrowing of Eurodollar Loans.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close and
(ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) and which is also a day for trading by and
between banks in U.S. dollar deposits in the interbank Eurodollar market.
"Capital Corp" shall mean IHC Capital Corporation, a Delaware
corporation.
"Capital Lease" as applied to any Person shall mean any lease
of any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of that Person.
"Capital Note" shall mean the subordinated promissory note
issued by the Borrower and payable to Capital Corp in an aggregate principal
amount equal to the net proceeds of the IPO, which Capital Note shall be in form
and substance reasonably satisfactory to the Administrative Agent and shall be
pledged to the Collateral Agent pursuant to the Pledge Agreement to which
Capital Corp is party. Not less than $182,972,500 of the amounts received by the
Borrower pursuant to the Capital Note shall be utilized to effect the
Transaction prior to or contemporaneously with the utilization of proceeds of
initial Loans hereunder.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of the Borrower or any of its Subsidiaries in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.
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"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) having maturities of
not more than one year from the date of acquisition, (ii) U.S. dollar
denominated time deposits, certificates of deposit and bankers' acceptances of
(x) any Bank or (y) any bank whose short-term commercial paper rating from S&P
is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank, an "Approved Bank"), in each case with
maturities of not more than one year from the date of acquisition, (iii)
commercial paper issued by any Bank or Approved Bank or by the parent company of
any Bank or Approved Bank and commercial paper issued by, or guaranteed by, any
industrial or financial company with a short- term commercial paper rating of at
least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by Moody's, or guaranteed by any industrial company with a long term
unsecured debt rating of at least A or A2, or the equivalent of each thereof,
from S&P or Moody's, as the case may be, and in each case maturing within one
year after the date of acquisition and (iv) investments in money market funds
substantially all the assets of which are comprised of securities of the types
described in clauses (i) through (iii) above.
"Cash Proceeds" shall mean, with respect to any Asset Sale,
the aggregate cash payments (including any cash received by way of deferred
payment pursuant to a note receivable issued in connection with such Asset Sale,
other than the portion of such deferred payment constituting interest, but only
as and when so received) received by Holdings, the Borrower and/or any
Subsidiary from such Asset Sale.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. Section 9601 et seq.
"CGL" shall mean Interstone/CGL Partners, L.P., a Delaware
Limited Partnership.
"CGL Partnership Agreement" shall mean the Amended and
Restated Limited Partnership Agreement, dated as of November 20, 1995, among
Interstone/CGL Management Associates, Interstone Two Partners I L.P., Interstone
Two Partners II L.P., Interstone Two Partners III L.P., Interstone Two Partners
IV L.P., Connecticut General Life Insurance Company, CGI Partners, L.P. and
Quebec Street Investments, Inc.
"CGL Participation" shall have the meaning provided in Section
5.01(k)(v).
"Change of Control" shall mean and include (i) during any
period of two consecutive calendar years, individuals who at the beginning of
such period constituted Holdings' Board of Directors (together with any new
directors whose election by Holdings'
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Board of Directors or whose nomination for election by Holding's shareholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the directors then in office (ii) any Person
or group (as such term is defined in Section 13(da)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other than the Fine
Family, shall acquire, directly or indirectly, beneficial ownership (within the
meaning of Rule 13d-3 and 13d-5 of the Exchange Act) of 30% or more, on a fully
diluted basis, of the economic or voting interest in Holdings' capital stock
and/or (iii) any "change in control" or any similar term as defined in any of
the indentures, agreements or instruments governing any Indebtedness of Holdings
or any of its Subsidiaries.
"Clean-Down Period" shall mean a 30 consecutive day period
which shall commence on or after July 1 of each year and terminate on or before
June 30 of the following year during which the sum of the aggregate outstanding
principal amount of Working Capital Loans plus the Letter of Credit Outstandings
do not exceed $10,000,000 at any time during such period.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and the rulings
issued thereunder. Section references to the Code are to the Code, as in effect
at the Effective Date and any subsequent provisions of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in
each of the Security Documents.
"Collateral Agent" shall mean the Administrative Agent acting
as collateral agent for the Banks pursuant to the Security Documents.
"Collective Bargaining Agreement" shall have the meaning
provided in Section 5.01(d).
"Commitment" shall mean, with respect to each Bank, such
Bank's Term Commitment plus its Revolving Commitment.
"Commitment Commission" shall have the meaning provided in
Section 3.01(a).
"Consolidated Capital Expenditures" shall mean all
expenditures made by the Borrower and its Subsidiaries for the maintenance of
properties in the ordinary course (and not in connection with acquisitions or
major expansion/renovation programs).
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"Consolidated Net Income" shall mean for any period, the net
income (or loss), without deduction for minority interests, of Holdings and its
Subsidiaries on a consolidated basis for such period taken as a single
accounting period determined in conformity with GAAP, provided that there shall
be excluded (i) the income (or loss) of any entity (other than a Subsidiary) in
which any other Person (other than the Borrower or any of its Subsidiaries) has
a joint interest, except to the extent of the amount of dividends or other
distributions actually paid to the Borrower or any of its Subsidiaries by any
such entity during such period, (ii) the income (or loss) of any entity accrued
prior to the date it becomes a Subsidiary or is merged into or consolidated with
the Borrower or any of its Subsidiaries or on which its assets are acquired by
the Borrower or any of its Subsidiaries and (iii) the income of any Subsidiary
to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary.
"Consolidated Net Worth" shall mean at any time for the
determination thereof all amounts which, in conformity with GAAP, would be
included under the caption "total stockholders' equity" (or any like caption) on
a consolidated balance sheet of Holdings as at such date.
"Contingent Obligations" shall mean as to any Person any
obligation of such Person guaranteeing any Indebtedness, leases, dividends or
other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (a) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the purchase
or payment of any such primary obligation or (ii) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of such
primary obligation against loss in respect thereof, provided, however, that the
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Contribution Agreement" shall mean the Contribution
Agreement, dated as of March 29, 1996, among the contributors named therein and
the Borrower, as amended through the Initial Borrowing Date.
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"Credit Documents" shall mean this Agreement, the Notes, the
Security Documents and the Subsidiary Guaranty.
"Credit Event" shall mean the making of any Loans and/or the
issuance of any Letter of Credit.
"Credit Lyonnais" shall mean Credit Lyonnais New York Branch.
"Credit Party" shall mean Holdings, the Borrower and each
Subsidiary Guarantor.
"Debt Service Coverage Ratio" shall mean, for any Test Period,
the ratio of (x) EBITDA to (y) the Total Debt Service, in each case for such
Test Period.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a
Bank Default is in effect.
"Dividends" shall have the meaning provided in Section 8.08.
"EBIT" shall mean, for any period, (A) the sum of the amounts
for such period of (i) Consolidated Net Income, (ii) provisions for taxes based
on income, (iii) Total Interest Expense, (iv) amortization or write-off of
deferred financing costs to the extent deducted in determining Consolidated Net
Income and (v) losses on sales of assets (excluding sales in the ordinary course
of business) and other extraordinary losses and other one-time non-cash charges
less (B) gains on sales of assets (excluding sales in the ordinary course of
business) and other extraordinary gains and other one-time non-cash gains, all
as determined for Holdings and its Subsidiaries on a consolidated basis in
accordance with GAAP.
"EBITDA" shall mean, for any period, the sum of the amounts
for such period of (i) EBIT, (ii) depreciation expense, (iii) amortization
expense and (iv) any other non-cash charges, all as determined for Holdings and
its Subsidiaries on a consolidated basis in accordance with GAAP.
"Effective Date" shall have the meaning provided in Section
12.10.
"Eligible Transferee" shall mean and include a commercial
bank, financial institution or other "accredited investor" (as defined in SEC
Regulation D), in each case which is not a direct competitor of the Borrower or
engaged in the same or similar business
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as the Borrower, or any of its respective Subsidiaries or is not an Affiliate of
any such competitors of the Borrower or any of its respective Subsidiaries.
"Employment Agreements" shall have the meaning provided in
Section 5.01(d).
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any Environmental Law or any permit issued under any such law
(hereafter "Claims"), including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any applicable Federal, state,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy or any rule of
common law, and any binding and enforceable judicial or administrative
interpretation thereof, including any judicial or administrative order, consent,
decree or judgment issued to or rendered against the Borrower or any of its
Subsidiaries (in each of the foregoing cases, now or hereafter in effect and as
amended) relating to the environment, employee health and safety or Hazardous
Materials, including, without limitation, CERCLA; RCRA; the Federal Water
Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f
et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; the
Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C.
Section 11001 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 7401
et seq.; and the Occupational Safety and Health Act, 29 U.S.C. Section 651 et
seq. (to the extent it regulates occupational exposure to Hazardous Materials);
and any state and local or foreign counterparts or equivalents, in each case as
now or hereafter in effect and as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect at the Effective Date and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with Holdings or a Subsidiary of Holdings
would be deemed to be
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a "single employer" (i) within the meaning of Section 414(b),(c), (m) or (o) of
the Code or (ii) as a result of Holdings or a Subsidiary of Holdings being or
having been a general partner of such person.
"Eurodollar Loans" shall mean each Loan bearing interest at
the rates provided in Section 1.08(b).
"Eurodollar Rate" shall mean with respect to each Interest
Period for a Eurodollar Loan, (A) (i) the rate for deposits in U.S. Dollars for
a period equal to such Interest Period which appears on the Telerate Page 3750
as of 11:00 A.M. London time, on the day that is two Business Days prior to the
commencement of such Interest Period or (ii) in the event that the Eurodollar
Rate can not be determined pursuant to the preceding clause (i), the offered
quotation to first-class banks in the interbank Eurodollar market by the
Administrative Agent for dollar deposits of amounts in same day funds comparable
to the outstanding principal amount of the Eurodollar Loan of the Administrative
Agent for which an interest rate is then being determined with maturities
comparable to the Interest Period to be applicable to such Eurodollar Loan,
determined as of 11:00 A.M. (London time) on the date which is two Business Days
prior to the commencement of such Interest Period, in each case divided (and
rounded upward to the next whole multiple of 1/16 of 1%) by (B) a percentage
equal to 100% minus the then stated maximum rate of all reserve requirements
(including, without limitation, any marginal, emergency, supplemental, special
or other reserves) applicable to any member bank of the Federal Reserve System
in respect of Eurocurrency liabilities as defined in Regulation D (or any
successor category of liabilities under Regulation D).
"Event of Default" shall have the meaning provided in Section
9.
"Excess Cash Flow" shall mean, for any period, (x) EBITDA for
such period less (y) the sum, without duplication, of the amount for such period
of (i) Total Interest Expense, (ii) provisions for taxes based on income, (iii)
Consolidated Capital Expenditures other than any thereof made from a Reserve
established prior to such period, (iv) all scheduled principal payments on Total
Indebtedness (including all Scheduled Repayments), (v) all partnership
distributions made by any Subsidiary of the Borrower to any entity that is not a
wholly-owned direct or indirect Subsidiary of the Borrower and (vi) any Reserve
created (including any increase to an existing Reserve) during such period.
"Existing CGL Credit Agreements" shall mean the Loan
Agreements, each dated as of December 15, 1995, between CGL and Credit Lyonnais
as in effect on the Initial Borrowing Date and as the same may be subsequently
amended, modified or supplemented in accordance with the provisions thereof and
hereof.
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"Existing CIGNA Note" shall mean the Deed of Trust Note, dated
March 7, 1994, issued by Interstone/Houston Partnership, L.P. and payable to
Connecticut General Life Insurance Company.
"Existing Hilltop Credit Agreement" shall mean the Credit
Agreement, dated as of February 19, 1993, between Hilltop Equipment Leasing
Company, L.P. and PNC Bank, National Association.
"Existing Indebtedness" shall have the meaning provided in
Section 6.18.
"Existing Indebtedness Agreements" shall have the meaning
provided in Section 5.01(d).
"Existing Letter of Credit" shall have the meaning provided in
Section 2.01(d).
"Existing PNC Credit Agreement" shall mean the Credit
Agreement, dated as of December 13, 1995, among the Borrower, the financial
institution from time to time party thereto and PNC Bank, National Association,
as agent.
"Existing Wells Fargo Credit Agreements" shall mean,
collectively, (i) the Loan and Security Agreement, dated as of June 26, 1995,
between Interstone/Huntington Partnership L.P. and Wells Fargo Bank, N.A., (ii)
the Loan Agreement, dated as of August 31, 1995, among Interstone/Atlanta
Partnership, L.P., Interstone/Colorado Springs, L.P., Interstone/Denver
Partnership, L.P., Interstone/Lisle Partnership, L.P., Interstone/Conshohocken
Partnership, L.P. and Wells Fargo Bank, National Association, and (iii) the Loan
Agreement, dated as of October 10, 1995, between Interstone/Williamsburg
Partnership, L.P. and Wells Fargo Bank, National Association.
"Expiration Date" shall mean July 31, 1996.
"Facing Fee" shall have the meaning provided in Section
3.01(c).
"Facility" shall mean either of the credit facilities
established under this Agreement, i.e., the Term Facility or the Revolving
Facility.
"Federal Funds Effective Rate" shall mean, for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quota-
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tions for such day on such transactions received by the Administrative Agent
from three Federal Funds brokers of recognized standing selected by the
Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred
to in, Section 3.01.
"FF&E" shall mean furniture, fixtures and equipment.
"Fine" shall mean Milton Fine, individually and in his
capacity as trustee of the Fine Revocable Trust.
"Fine Children Trust" shall mean the three irrevocable trusts
established pursuant to that certain single Irrevocable Trust Agreement, dated
December 15, 1989, for the benefit respectively of the grantors thereof made
among Carolyn Fine Freidman, Sibyl A. Fine King and David J. Fine, as grantors,
and David J. Fine, as trustee.
"Fine Family" shall mean, collectively, Fine and the Fine
Children Trust.
"Fine Revocable Trust" shall mean the revocable trust
established pursuant to that certain Second Amended and Restated Trust
Agreement, dated November 11, 1994, for the benefit of Milton Fine.
"Formation Agreement" shall mean the Formation Agreement,
dated as of June ___, 1996, among Holdings and the contributors named therein,
in the form delivered pursuant to Section 5.01(h) and as the same may be
subsequently amended with the consent of the Administrative Agent.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time; it being understood
and agreed that determinations in accordance with GAAP for purposes of Section
8, including defined terms as used therein, are subject (to the extent provided
therein) to Section 12.07(a).
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranties" shall mean the guaranty provided by Holdings
pursuant to Section 13 of this Agreement and the Subsidiary Guaranty.
"Guarantor" shall mean Holdings and each Subsidiary Guarantor.
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"Hazardous Materials" shall mean (a) any petrochemical or
petroleum products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, transformers or other
equipment that contain dielectric fluid containing levels of polychlorinated
biphenyls, and radon gas; and (b) any chemicals, materials or substances defined
as or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "restricted hazardous materials," "extremely hazardous
wastes," "restrictive hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect under any applicable Environmental Law.
"Holdings" shall have the meaning provided in the first
paragraph of this Agreement.
"IHC" shall mean Interstate Hotels Corporation, a Pennsylvania
corporation.
"Indebtedness" of any Person shall mean without duplication
(i) all indebtedness of such Person for borrowed money, (ii) the deferred
purchase price of assets or services which in accordance with GAAP would be
shown on the liability side of the balance sheet of such Person, (iii) the face
amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder, (iv) all Indebtedness of a
second Person secured by any Lien on any property owned by such first Person,
whether or not such indebtedness has been assumed, (v) all Capitalized Lease
Obligations of such Person, (vi) all obligations of such Person to pay a
specified purchase price for goods or services whether or not delivered or
accepted, i.e., take-or-pay and similar obligations, (vii) all net obligations
of such Person under Interest Rate Agreements and (viii) all Contingent
Obligations of such Person, provided that Indebtedness shall not include trade
payables and accrued expenses, in each case arising in the ordinary course of
business.
"Initial Borrowing Date" shall mean the date, on or after the
Effective Date, upon which the initial Borrowing of Loans occurs.
"Interest Coverage Ratio" shall mean, for any Test Period, the
ratio of (x) EBITDA to (y) Total Interest Expense, in each case for such Test
Period.
"Interest Period" with respect to any Loan shall mean the
interest period applicable thereto, as determined pursuant to Section 1.09.
"Interest Rate Agreement" shall mean any interest rate swap
agreement, any interest rate cap agreement, any interest rate collar agreement
or other similar agreement or arrangement designed to protect against
fluctuations in interest rates.
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"Interstone II" shall mean IHC/Interstone Partnership II,
L.P., a Delaware Limited Partnership.
"IPO" shall have the meaning provided in Section 5.01(i).
"Leaseholds" of any Person means all the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Legal Requirements" shall mean all applicable laws, rules,
orders and regulations made by any legislature or government or any governmental
body or regulatory authority having jurisdiction over Holdings or a Subsidiary.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Fee" shall have the meaning provided in
Section 3.01(b).
"Letter of Credit Issuer" shall mean (i) Credit Lyonnais[,
(ii) in respect of each Existing Letter of Credit, the Bank that has issued same
as of the Effective Date] and/or (iii) such other Bank that is requested, and
agrees, to so act by the Borrower and acceptable to the Administrative Agent.
"Letter of Credit Outstandings" shall mean, at any time, the
sum, without duplication, of (i) the aggregate Stated Amount of all outstanding
Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in
Section 2.02(a).
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
"Loan" shall have the meaning provided in Section 1.01.
"Management Agreements" shall have the meaning provided in
Section 5.01(d).
"Management Contracts" shall have the meaning provided in
Section 5.01(d).
"Margin Stock" shall have the meaning provided in Regulation
U.
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"Material Adverse Effect" shall mean a material adverse effect
on the business, operations, property, assets, liabilities, condition (financial
or otherwise) or prospects of Holdings and its Subsidiaries taken as a whole
(after giving effect to the Transaction).
"Material Subsidiary" shall mean, at any time, any Subsidiary
of the Borrower that (x) has assets at such time comprising 5% or more of the
consolidated assets of the Borrower and its Subsidiaries or (y) had net income
in the most recently ended fiscal year of the Borrower comprising 5% or more of
the consolidated net income of the Borrower and its Subsidiaries for such fiscal
year.
"Member" shall mean IHC Member Corporation, a Delaware
corporation.
"Minimum Borrowing Amount" shall mean (i) for Base Rate Loans,
$1,000,000, (ii) for Eurodollar Loans, $5,000,000.
"Modified Total Indebtedness" shall mean at any time (i) Total
Indebtedness less (ii) the outstanding principal amount up to $30,000,000 in the
aggregate of Non- Recourse Debt included in determining Total Indebtedness.
"Moody's" shall mean Moody's Investors Service, Inc. and its
successors.
"Mortgage" shall have the meaning provided in Section
5.01(m)(iii) and, after the execution and delivery thereof, shall include each
mortgage constituting an Additional Security Document.
"Mortgage Policies" shall have the meaning provided in Section
5.01(m)(iii).
"Mortgaged Property" shall have the meaning provided in
Section 5.01(m)(iii) and, after the execution and delivery of any mortgage or
deed of trust constituting an Additional Security Document, shall include the
respective property subject thereto but shall not include after the date of such
release any real property theretofore a Mortgaged Property that has been
released from the Liens of the Security Documents in accordance with the terms
thereof or of this Agreement.
"Net Cash Proceeds" shall mean, with respect to any Asset
Sale, the Cash Proceeds resulting therefrom net of (i) reasonable and customary
expenses of sale incurred in connection with such Asset Sale, and other
reasonable and customary fees and expenses incurred, and all state, and local
taxes paid or reasonably estimated to be payable by such Person, as a
consequence of such Asset Sale and the payment of principal, premium and
interest of Indebtedness secured by the asset which is the subject of the Asset
Sale and required to be, and which is, repaid under the terms thereof as a
result of such Asset Sale, (ii) amounts of any distributions payable to holders
of minority interests in the relevant
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Person or in the relevant property or assets and (iii) incremental income taxes
paid or payable as a result thereof.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Non-Defaulting Bank" shall mean each Bank other than a
Defaulting Bank.
"Non-Managed Hotel" shall mean the Marriott property located
at Tysons Corner, Virginia and one other hotel property acquired by the Borrower
or a Subsidiary Guarantor after the Initial Borrowing Date and identified at the
time of acquisition as a Non-Managed Hotel by the Borrower to the Administrative
Agent, provided that such identified Non-Managed Hotel shall be managed by the
Borrower or any of its Subsidiaries from and after the first anniversary of the
consummation of the acquisition of such hotel property.
"Non-Recourse Debt" shall have the meaning provided in Section
8.04(g).
"Note" shall mean and include each Term Note and each
Revolving Note.
"Notice of Borrowing" shall have the meaning provided in
Section 1.03(a).
"Notice of Conversion" shall have the meaning provided in
Section 1.06.
"Notice Office" shall mean the office of the Administrative
Agent at 1301 Avenue of the Americas, New York, New York 10019, Attention:
Mischa Zabotin, or such other office as the Administrative Agent may designate
to the Borrower from time to time.
"NRD Borrower" shall mean each corporation (i) all of the
capital stock of which is directly owned by the Borrower, (ii) that owns one
(but not more than one) hotel property acquired pursuant to a Permitted
Acquisition and (iii) that incurs Non-Recourse Debt to finance or refinance the
acquisition of the property discussed in clause (ii) above, provided that upon
the repayment in full of such Non-Recourse Debt (other than from the proceeds of
refinancing Non-Recourse Debt), such corporation shall cease to be an NRD
Borrower.
"NRL Subsidiary" shall mean each corporation (i) all of the
capital stock of which is directly owned by the Borrower, (ii) that enters into
a lease or leases permitted by Section 8.02(j) and (iii) that incurs no
Indebtedness (except any such leases to the extent constituting Indebtedness),
provided that upon the termination of all such leases entered into by an NRL
Subsidiary, such corporation shall cease to be an NRL Subsidiary.
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"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to the Administrative Agent or any Bank pursuant to the terms of this
Agreement or any other Credit Document.
"Participant" shall have the meaning provided in Section
2.04(a).
"Payment Office" shall mean the office of the Administrative
Agent at 1301 Avenue of the Americas, New York, New York, Attention: Mischa
Zabotin, or such other office as the Administrative Agent may designate to the
Borrower from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisitions" shall mean and include (i)
expenditures (including the purchase of adjacent land) to expand then existing
hotel facilities located in the United States or Canada to the extent owned by
the Borrower or any Subsidiary Guarantor on the Initial Borrowing Date or
acquired pursuant to a Permitted Acquisition, in an aggregate amount not to
exceed $10,000,000 for all expenditures pursuant to this clause (i); (ii)
advances or credit extensions to, or other investments in, any Person owing a
hotel property located in the United States or Canada made in connection with
the Borrower or any Subsidiary Guarantor obtaining a management contact for such
hotel property, in an aggregate amount not to exceed $30,000,000 for all
advances, credit extensions and investments pursuant to this clause (ii), with
advances, extensions and investments in NRL Subsidiaries in an aggregate amount
of up to $5,000,000 to be included as a Permitted Acquisition pursuant to this
clause (ii); and (iii) acquisitions (whether by purchase, lease or otherwise,
and including expenditures for start-up activities and operations and
renovations) of hotel properties (or interests in such properties) located in
the United States or Canada and/or interests in (or the making of advances or
credit extensions to or investments in) partnerships or limited liability
companies owning hotel properties located in the United States or Canada,
provided that (x) the only Indebtedness that may be incurred by Holdings, the
Borrower and its Subsidiaries to effect a Permitted Acquisition shall be
Acquisition Loans and Non-Recourse Debt, and (y) the aggregate amount that may
be expended for all Permitted Acquisitions in respect of hotel properties and
facilities located in Canada will not exceed $25,000,000.
"Permitted Encumbrances" shall mean, with respect to a Real
Property constituting part of the Collateral, (i) the liens, encumbrances and
other matters disclosed in the Mortgage Policy relating to the Mortgage on such
Real Property or "insured over" or "insured around" to the satisfaction of the
Collateral Agent in such Mortgage Policy, (ii) such other title and survey
exceptions as the Collateral Agent may approve in writing in its reasonable
discretion, and (iii) the Permitted Liens, if any, described in Section 8.03(h)
affecting such Real Property.
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"Permitted Liens" shall mean Liens described in Section 8.03.
"Person" shall mean any individual, partnership, joint
venture, firm, corporation, limited liability company, association, trust or
other enterprise or any government or political subdivision or any agency,
department or instrumentality thereof.
"Plan" shall mean any multiemployer or single-employer plan as
defined in Section 4001 of ERISA, which is maintained or contributed to by (or
to which there is an obligation to contribute of) Holdings or a Subsidiary of
Holdings or an ERISA Affiliate, and each such plan for the five year period
immediately following the latest date on which Holdings, or a Subsidiary of
Holdings or an ERISA Affiliate maintained, contributed to or had an obligation
to contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section
5.01(m)(i).
"Pledged Securities" shall mean all the Pledged Securities as
defined in the Pledge Agreement.
"Prohibited Transaction" shall mean a transaction with respect
to a Plan that is prohibited under Section 4975 of the Code or Section 406 of
ERISA and not exempt under Section 4975 of the Code or Section 408 of ERISA.
"PSD Interest Period" shall mean an Interest Period commenced
prior to the Syndication Date, each of which Interest Periods must satisfy the
requirements of Section 1.09(iv).
"RCRA" shall mean the Resource Conservation and Recovery Act,
as the same may be amended from time to time, 42 U.S.C. Section 6901 et seq.
"Real Property" of any Person shall mean all of the right,
title and interest of such Person in and to land, improvements and fixtures,
including Leaseholds.
"Reference Rate" shall mean the rate which the Administrative
Agent establishes from time to time as its reference rate for short term
commercial loans in U.S. dollars, the Reference Rate to change when and as such
reference rate changes. The Reference Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer.
The Administrative Agent may make commercial loans or other loans at rates of
interest at, above or below the Reference Rate.
"Refinancing" shall have the meaning provided in Section
5.01(k)(vi).
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"Registration Statement" shall mean the Registration Statement
on Form S-1, Registration Number 333-3958 filed by Holdings with the SEC on
April 24, 1996, together with the amendments thereto filed on or prior to the
Effective Date (copies of which have been delivered to the Banks) and any
subsequent amendment thereto reasonably satisfactory to the Administrative
Agent.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.
"Reorganization" shall have the meaning provided in Section
5.01(h).
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan other than those events as to which the
30-day notice period is waived under subsection .13, .14, .16, .18, .19 or .20
of PBGC Regulation Section 2615.
"Required Banks" shall mean Non-Defaulting Banks whose
outstanding Term Loans and Term Commitments, and Revolving Commitments (or, if
after the Total Revolving Commitment has been terminated, outstanding Revolving
Loans) aggregate more than 50% of the sum of (i) the total outstanding Term
Loans and Term Commitments of Non-Defaulting Banks and (ii) the total Revolving
Commitments of Non-Defaulting Banks (or, if after the Total Revolving Commitment
has been terminated, the total outstanding Revolving Loans of Non-Defaulting
Banks).
"Reserve" shall mean for any period any cash reserve
reasonably taken by the Borrower in good faith and in accordance with GAAP (to
the extent applicable thereto) or pursuant to the requirements of any credit
agreement binding on the Borrower and/or any Subsidiary in respect of cash
payments to be made in future periods relating to Consolidated Capital
Expenditures (other than any such Reserve relating to Consolidated Capital
Expenditures not permitted to be made in such period as a result of Section
8.06(a)).
"Revolving Commitment" shall mean, with respect to each Bank,
the amount set forth opposite such Bank's name in Annex I hereto directly below
the column entitled "Revolving Commitment," as the same may be reduced from time
to time pursuant to Section 3.02, 3.03 and/or 9 or (y) adjusted from time to
time as a result of assignments to or from such Bank pursuant to Section 12.04.
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"Revolving Facility" shall mean the Facility evidenced by the
Total Revolving Commitment.
"Revolving Loan" shall have the meaning provided in Section
1.01(b).
"Revolving Note" shall have the meaning provided in Section
1.05(a).
"RF Maturity Date" shall mean June __, 2003.
"RF Percentage" shall mean, at any time for each Bank with a
Revolving Commitment, the percentage obtained by dividing such Bank's Revolving
Commitment by the Total Revolving Commitment, provided that if the Total
Revolving Commitment has been terminated, the RF Percentage of each Bank shall
be determined by dividing such Bank's Revolving Commitment immediately prior to
such termination by the Total Revolving Commitment immediately prior to such
termination.
"S&P" shall mean Standard & Poor's Corporation and its
successors.
"Scheduled Repayment" shall have the meaning provided in
Section 4.02(A)(c).
"Scheduled RF Reduction" shall have the meaning provided in
Section 3.03(c).
"SEC" shall mean the United States Securities and Exchange
Commission.
"SEC Regulation D" shall mean Regulation D as promulgated
under the Securities Act of 1933, as amended, as the same may be in effect from
time to time.
"Section 4.04(b)(ii) Certificate" shall have the meaning
provided in Section 4.04(b)(ii).
"Security Agreement" shall have the meaning provided in
Section 5.01(m)(ii).
"Security Agreement Collateral" shall mean all "Collateral" as
defined in the Security Agreement.
"Security Documents" shall mean the Pledge Agreement, the
Security Agreement, each Mortgage, each other Additional Security Document and
each security document entered into pursuant to Section 8.02(c).
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"Shareholders' Agreements" shall have the meaning provided in
Section 5.01(d).
"Specified Asset Sale" shall mean and include a sale by the
Borrower or any of its Subsidiaries of any assets owned by such Person on the
Initial Borrowing Date but shall not include the sale of the Boston Marriott
Westborough Hotel.
"Specified Subsidiary" shall mean and include at any time each
NRD Borrower and each NRL Subsidiary existing at such time.
"Stated Amount" of each Letter of Credit shall mean the
maximum available to be drawn thereunder (regardless of whether any conditions
for drawing could then be met).
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person directly
or indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Subsidiary Guarantor" shall mean Capital Corp and each
Wholly-Owned Subsidiary that is party to the Subsidiary Guaranty.
"Subsidiary Guaranty" shall have the meaning provided in
Section 5.01(l).
"Syndication Date" shall mean the earlier of (x) the date
which is 60 days after the Initial Borrowing Date and (y) the date upon which
the Administrative Agent determines in its sole discretion (and notifies the
Borrower) that the primary syndication has been completed.
"Tax Sharing Agreement" shall have the meaning provided in
Section 5.01(d).
"Taxes" shall have the meaning provided in Section 4.04.
"Term Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Annex I hereto directly below the
column entitled "Term Commitment," as the same may be reduced or terminated
pursuant to Section 3.03.
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"Term Facility" shall mean the Facility evidenced by the Total
Term Commitment.
"Term Loan" shall have the meaning provided in Section
1.01(a).
"Term Note" shall have the meaning provided in Section
1.05(a).
"Test Period" shall mean at any time the period (taken as one
accounting period) of four consecutive fiscal quarters then last ended, provided
that the computation of any amount (e.g. EBITDA) for a Test Period that includes
less than four full fiscal quarters commencing on or after the Initial Borrowing
Date shall include such amount for the Borrower, Member and their respective
Subsidiaries on a combined basis for the portion of such Test Period occurring
prior to the Initial Borrowing Date (determined on a basis consistent with the
Borrower's and Member's financial statements and the definitions contained
herein).
"TF Maturity Date" shall mean June __, 2003.
"Total Commitment" shall mean the sum of the Total Term
Commitment and the Total Revolving Commitment.
"Total Debt Service" shall mean, for any period, the sum,
without duplication, of the amounts for such period of (i) Total Interest
Expense and (ii) all scheduled principal payments on Total Indebtedness
(including all Scheduled Repayments).
"Total Indebtedness" shall mean all Indebtedness for borrowed
money of or guaranteed by the Borrower and/or any of its Subsidiaries all as
determined on a consolidated basis.
"Total Interest Expense" shall mean, for any period, total
interest expense (including that attributable to Capital Leases in accordance
with GAAP) of Holdings and its Subsidiaries on a consolidated basis with respect
to all outstanding Indebtedness of Holdings and its Subsidiaries including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and net costs under Interest Rate Agreements,
but excluding, however, any amortization of deferred financing costs, all as
determined in accordance with GAAP.
"Total Revolving Commitment" shall mean the sum of the
Revolving Commitments of each of the Banks.
"Total Term Commitment" shall mean the sum of the Term
Commitments of each of the Banks.
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"Transaction" shall include (i) the Reorganization, (ii) the
IPO, (iii) the Refinancing, (iv) the Acquisition and (v) if consummated on the
Initial Borrowing Date, the Westborough Acquisition.
"Transaction Documents" shall mean and include the Acquisition
Documents, the Westborough Acquisition Documents (in the event that the
Westborough Acquisition is consummated on the Initial Borrowing Date), the
Registration Statement, all agreements and documents governing the Refinancing
(including the CGL Participation) and the Credit Documents.
"Type" shall mean any type of Loan determined with respect to
the interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar
Loan.
"UCC" shall mean the Uniform Commercial Code.
"Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated plan
benefits under the Plan as of the close of its most recent plan year exceeds the
fair market value of the assets allocable thereto, each determined in accordance
with Statement of Financial Accounting Standards No. 87, based upon the
actuarial assumptions used by the Plan's actuary in the most recent annual
valuation of the Plan.
"Unpaid Drawing" shall have the meaning provided in Section
2.03(a).
"Unutilized Revolving Commitment" for any Bank at any time
shall mean the excess of (i) such Bank's Revolving Commitment at such time over
(ii) the sum of the principal amount of Revolving Loans made by such Bank and
outstanding at such time and (y) such Bank's RF Percentage of Letter of Credit
Outstandings at such time.
"Unutilized Total Revolving Commitment" shall mean, at any
time, the excess of (i) the Total Revolving Commitment at such time over (ii)
the sum of (x) the aggregate principal amount of all Revolving Loans then
outstanding plus (y) the aggregate Letter of Credit Outstandings at such time.
"Westborough Acquisition" shall mean the acquisition by the
Borrower of the Boston Marriott Westborough Hotel as provided in the Westborough
Acquisition Documents.
"Westborough Acquisition Documents" shall mean Agreement to
Sell and Purchase, effective as of March 1, 1996, by and between First Allmerica
Financial Life Insurance and the Borrower.
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"Wholly-Owned Subsidiary" shall mean each Subsidiary of the
Borrower all of whose capital stock, equity interests and partnership interests
are owned directly or indirectly by the Borrower, its officers, stockholders and
affiliates but excluding any Subsidiary primarily engaged in the business of
issuing insurance and/or insurance policies.
"Working Capital Loans" shall mean all Revolving Loans that
are not Acquisition Loans.
"Written" or "in writing" shall mean any form of written
communication or a communication by means of telex, facsimile transmission,
telegraph or cable.
SECTION 11. The Administrative Agent.
11.01 Appointment. Each Bank hereby irrevocably designates and
appoints Credit Lyonnais as Administrative Agent (such term to include for the
purposes of this Section 11 Credit Lyonnais acting as Collateral Agent) to act
as specified herein and in the other Credit Documents, and each such Bank hereby
irrevocably authorizes Credit Lyonnais as the Administrative Agent for such
Bank, to take such action on its behalf under the provisions of this Agreement
and the other Credit Documents and to exercise such powers and perform such
duties as are expressly delegated to the Administrative Agent by the terms of
this Agreement and the other Credit Documents, together with such other powers
as are reasonably incidental thereto. The Administrative Agent agrees to act as
such upon the express conditions contained in this Section 11. Notwithstanding
any provision to the contrary elsewhere in this Agreement, the Administrative
Agent shall not have any duties or responsibilities, except those expressly set
forth herein or in the other Credit Documents, nor any fiduciary relationship
with any Bank, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against the Administrative Agent. The provisions of this Section 11 are solely
for the benefit of the Administrative Agent, and the Banks, and no Credit Party
shall have any rights as a third party beneficiary of any of the provisions
hereof. In performing its functions and duties under this Agreement, the
Administrative Agent shall act solely as agent of the Banks and does not assume
and shall not be deemed to have assumed any obligation or relationship of agency
or trust with or for any Credit Party.
11.02 Delegation of Duties. The Administrative Agent may
execute any of its duties under this Agreement or any other Credit Document by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by Section 11.03.
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11.03 Exculpatory Provisions. Neither the Administrative Agent
nor any of its respective officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
this Agreement (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Banks for any
recitals, statements, representations or warranties made by Holdings or any
Subsidiary or any of their respective officers contained in this Agreement, any
other Credit Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent under or
in connection with, this Agreement or any other Credit Document or for any
failure of Holdings or any Subsidiary or any of their respective officers to
perform its obligations hereunder or thereunder. The Administrative Agent shall
not be under any obligation to any Bank to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement, or to inspect the properties, books or records of Holdings
or any Subsidiary. The Administrative Agent shall not be responsible to any Bank
for the effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement or any Credit Document or for any representations,
warranties, recitals or statements made herein or therein or made in any written
or oral statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Administrative Agent to the Banks or by or on behalf of
Holdings to the Administrative Agent or any Bank or be required to ascertain or
inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained herein or therein or as to the use
of the proceeds of the Loans or of the existence or possible existence of any
Default or Event of Default.
11.04 Reliance by Administrative Agent. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, facsimile transmission, telex or teletype message,
statement, order or other document or conversation believed by it, in good
faith, to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to Holdings), independent accountants
and other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Credit Document unless it shall first receive such advice
or concurrence of the Required Banks as it deems appropriate or it shall first
be indemnified to its satisfaction by the Banks against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Required Banks, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Banks.
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11.05 Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Bank or the Borrower or any other Credit Party referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default." In the event that the Administrative Agent receives such a
notice, the Administrative Agent shall give prompt notice thereof to the Banks.
The Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Banks, provided
that unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the Banks.
11.06 Non-Reliance. Each Bank expressly acknowledges that
neither the Administrative Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates have made any representations or
warranties to it and that no act by the Administrative Agent hereinafter taken,
including any review of the affairs of the Borrower or any Subsidiary, shall be
deemed to constitute any representation or warranty by the Administrative Agent
to any Bank. Each Bank represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent, or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, assets,
operations, property, financial and other conditions, prospects and
creditworthiness of Holdings and its Subsidiaries and made its own decision to
make its Loans hereunder and enter into this Agreement. Each Bank also
represents that it will, independently and without reliance upon the
Administrative Agent, or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, assets, operations, property, financial and other
conditions, prospects and creditworthiness of Holdings and its Subsidiaries. The
Administrative Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the business, operations,
assets, property, financial and other conditions, prospects or creditworthiness
of Holdings or any Subsidiary which may come into the possession of the
Administrative Agent or any of their officers, directors, employees, agents,
attorneys-in-fact or affiliates.
11.07 Indemnification. The Banks agree to indemnify the
Administrative Agent in its capacity as such ratably according to their
respective Loans and unutilized Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, reasonable expenses or disbursements of any kind whatsoever which may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, incurred by or asserted against the
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Administrative Agent in its capacity as such in any way relating to or arising
out of this Agreement or any other Credit Document, or any documents
contemplated by or referred to herein or the transactions contemplated hereby or
any action taken or omitted to be taken by the Administrative Agent under or in
connection with any of the foregoing, but only to the extent that any of the
foregoing is not paid by Holdings or any of its Subsidiaries, provided that no
Bank shall be liable to the Administrative Agent for the payment of any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements to the extent resulting
solely from the Administrative Agent's gross negligence or willful misconduct.
If any indemnity furnished to the Administrative Agent for any purpose shall, in
the opinion of the Administrative Agent, be insufficient or become impaired, the
Administrative Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished. The agreements in this Section 11.07 shall survive the payment of all
Obligations.
11.08 The Administrative Agent in Individual Capacity. The
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with Holdings and its Subsidiaries
as though not acting as Administrative Agent hereunder. With respect to the
Loans made by it and all Obligations owing to it, the Administrative Agent shall
have the same rights and powers under this Agreement as any Bank and may
exercise the same as though it were not the Administrative Agent, and the terms
"Bank" and "Banks" shall include the Administrative Agent in its individual
capacity.
11.09 Successor Administrative Agent. The Administrative Agent
may resign as the Administrative Agent upon 20 days' notice to the Banks and
Holdings. The Required Banks shall appoint from among the Banks a successor
Administrative Agent for the Banks subject to prior approval by Holdings (such
approval not to be unreasonably withheld), whereupon such successor agent shall
succeed to the rights, powers and duties of the Administrative Agent, and the
term "Administrative Agent" shall include such successor agent effective upon
its appointment, and the resigning Administrative Agent's rights, powers and
duties as the Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement. After the retiring Administrative Agent's
resignation hereunder as the Administrative Agent, the provisions of this
Section 11 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this Agreement.
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SECTION 12. Miscellaneous.
12.01 Payment of Expenses, etc. The Borrower agrees to: (i)
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Administrative Agent in
connection with the negotiation, preparation, execution and delivery of the
Credit Documents and the documents and instruments referred to therein and any
amendment, waiver or consent relating thereto (including, without limitation,
the reasonable fees and disbursements of White & Case) and of the Administrative
Agent and each of the Banks in connection with the enforcement of the Credit
Documents and the documents and instruments referred to therein (including,
without limitation, the reasonable fees and disbursements of counsel for the
Administrative Agent and for each of the Banks); (ii) in the event (x) that any
of the Mortgages are foreclosed in whole or in part or that any of the Mortgages
are put into the hands of an attorney for collection, suit, action or
foreclosure, (y) of the foreclosure of any mortgage prior to or subsequent to
any of the Mortgages in which proceeding the Collateral Agent is made a party,
or (z) of the bankruptcy, insolvency, rehabilitation or other similar proceeding
in respect of the Borrower or any of its Subsidiaries, pay all costs of
collection and defense, including reasonable attorneys' fees in connection
therewith and in connection with any appellate proceeding or post-judgment
action involved therein, which shall be due and payable together with all
required service or use taxes; (iii) pay and hold each of the Banks harmless
from and against any and all present and future stamp and other similar taxes
with respect to the foregoing matters and save each of the Banks harmless from
and against any and all liabilities with respect to or resulting from any delay
or omission (other than to the extent attributable to such Bank) to pay such
taxes; and (iv) indemnify each Bank, its officers, directors, employees,
representatives and agents (collectively, the "Indemnitees") from and hold each
of them harmless against any and all losses, liabilities, obligations (including
removal or remedial actions), claims, damages or expenses (including reasonable
attorneys' and consultants' fees and disbursements) incurred by any of them as a
result of, or arising out of, or in any way related to, or by reason of (a) any
interest in any Real Property (other than as permitted hereunder and/or under
the other Credit Documents) is claimed by any other Person, (b) any
investigation, litigation or other proceeding (whether or not any Bank is a
party thereto) related to the entering into and/or performance of any Credit
Document or the use of the proceeds of any Loans hereunder or the Transaction or
the consummation of any transactions contemplated in any Credit Document, or (c)
the actual or alleged presence of Hazardous Materials in the air, surface water
or groundwater or on the surface or subsurface of any Real Property owned,
leased or at any time operated by the Borrower or any of its Subsidiaries, the
release, generation, storage, transportation, handling or disposal of Hazardous
Materials at any location, whether or not owned or operated by the Borrower or
any of its Subsidiaries, the non-compliance by the Borrower or any of its
Subsidiaries of any Real Property with foreign, federal, state and local laws,
regulations, ordinances or Environmental Laws (including applicable permits
thereunder) applicable to any Real Property, or any Environmental Claim relating
to the Borrower or
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any of its Subsidiaries or any Real Property owned, leased or at any time
operated by the Borrower or any of its Subsidiaries, including, in each case,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified or of any other Indemnitee who is such Person or an
affiliate of such Person). To the extent that the undertaking to indemnify, pay
or hold harmless any Person set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Borrower
shall make the maximum contribution to the payment and satisfaction of each of
the indemnified liabilities which is permissible under applicable law.
12.02 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence of an Event of Default, each
Bank is hereby authorized at any time or from time to time, without presentment,
demand, protest or other notice of any kind to the Borrower or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and apply any and all deposits (general or special) and any other
Indebtedness at any time held or owing by such Bank (including, without
limitation, by branches and agencies of such Bank wherever located) to or for
the credit or the account of the Borrower against and on account of the
Obligations and liabilities of the Borrower to such Bank under this Agreement or
under any of the other Credit Documents, including, without limitation, all
interests in Obligations the Borrower purchased by such Bank pursuant to Section
12.06(b), and all other claims of any nature or description arising out of or
connected with this Agreement or any other Credit Document, irrespective of
whether or not such Bank shall have made any demand hereunder and although said
Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
12.03 Notices. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile transmission or cable communication)
and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to the
Borrower, at the address specified opposite its signature below; if to any Bank,
at its address specified for such Bank on Annex II hereto; or, at such other
address as shall be designated by any party in a written notice to the other
parties hereto. All such notices and communications shall be mailed,
telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and
shall be effective when received.
12.04 Benefit of Agreement. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, provided that no Credit Party may
assign or transfer any of its rights or obligations hereunder without the prior
written consent of all the Banks. Each Bank may at any time grant participations
in any of its rights hereunder or under any of the Notes to
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another financial institution, provided that in the case of any such
participation, (i) the participant shall not have any rights under this
Agreement or any of the other Credit Documents, including rights of consent,
approval or waiver (the participant's rights against such Bank in respect of
such participation to be those set forth in the agreement executed by such Bank
in favor of the participant relating thereto), (ii) such Bank's obligations
under this Agreement (including, without limitation, its Commitment hereunder)
shall remain unchanged, (iii) such Bank shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iv) such Bank
shall remain the holder of any Note for all purposes of this Agreement and (v)
the Borrower, the Administrative Agent, and the other Banks shall continue to
deal solely and directly with the selling Bank in connection with such Bank's
rights and obligations under this Agreement, and all amounts payable by the
Borrower hereunder shall be determined as if such Bank had not sold such
participation, except that the participant shall be entitled to the benefits of
Sections 1.10, 1.11 and 4.04 of this Agreement to the extent that such Bank
would be entitled to such benefits if the participation had not been entered
into or sold, and, provided further, that no Bank shall transfer, grant or sell
any participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Credit Document except to
the extent such amendment or waiver would (x) extend the final scheduled
maturity of the Term Loans or Revolving Loans in which such participant is
participating (it being understood that any waiver of the making of, or the
application of any amortization payment or other prepayment or the method of any
application of any prepayment to the amortization of the Loans shall not
constitute an extension of the final maturity date thereof), or reduce the rate
or extend the time of payment of interest or Fees thereon (except in connection
with a waiver of the applicability of any post-default increase in interest
rates), or reduce the principal amount thereof, or increase such participant's
participating interest in any Commitment over the amount thereof then in effect
(it being understood that a waiver of any Default or Event of Default or of any
mandatory prepayment or a mandatory reduction in the Total Commitment, or a
mandatory prepayment, shall not constitute a change in the terms of any
Commitment), (y) release all or substantially all of the Collateral (in each
case except as expressly provided in the Credit Documents) or (z) consent to the
assignment or transfer by Holdings and/or the Borrower of any of its rights and
obligations under this Agreement.
(b) Notwithstanding the foregoing, (x) any Bank may assign all
or a portion of its Loans and/or Commitments, which does not have to be pro rata
among the Facilities, and its rights and obligations hereunder to another Bank
that is not a Defaulting Bank, and (y) any Bank may assign all, or if less than
all, a portion equal to at least $5,000,000 in the aggregate for the assigning
Bank or assigning Banks, of its Loans and/ or Commitments and its rights and
obligations hereunder, which assignment does not have to be pro rata between the
Facilities, to one or more Eligible Transferees, each of which assignees shall
become a party to this Agreement as a Bank by execution of an Assignment
Agreement, provided that, (i) at such time Annex I shall be deemed modified to
reflect the
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Commitments (and/or outstanding Term Loans, as the case may be) of such new Bank
and of the existing Banks, (ii) upon surrender of the old Notes, new Notes will
be issued, at the Borrower's expense, to such new Bank and to the assigning
Bank, such new Notes to be in conformity with the requirements of Section 1.05
(with appropriate modifications) to the extent needed to reflect the revised
Commitments (and/or outstanding Term Loans, as the case may be), (iii) in the
case of clause (y) only, the consent of the Administrative Agent shall be
required in connection with any such assignment and (iv) the Administrative
Agent shall receive at the time of each such assignment, from the assigning or
assignee Bank, the payment of a non-refundable assignment fee of $3,000 and,
provided further, that such transfer or assignment will not be effective until
recorded by the Administrative Agent on a register maintained by it. To the
extent of any assignment pursuant to this Section 12.04(b) the assigning Bank
shall be relieved of its obligations hereunder with respect to its assigned
Commitments. At the time of each assignment pursuant to this Section 12.04(b) to
a Person which is not already a Bank hereunder and which is not a United States
Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal
income tax purposes, the respective assignee Bank shall provide to the Borrower
and the Administrative Agent the appropriate Internal Revenue Service Forms
(and, if applicable a Section 4.04(b)(ii) Certificate) described in Section
4.04(b). To the extent that an assignment of all or any portion of a Bank's
Commitments and related outstanding Obligations pursuant to this Section
12.04(b) would, at the time of such assignment, result in increased costs under
Section 1.10 from those being charged by the respective assigning Bank prior to
such assignment, then the Borrower shall not be obligated to pay such increased
costs (although the Borrower shall be obligated to any other increased costs of
the type described above resulting from changes after the date of the respective
assignment). Nothing in this clause (b) shall prevent or prohibit any Bank from
pledging its Notes or Loans to a Federal Reserve Bank in support of borrowings
made by such Bank from such Federal Reserve Bank.
(c) Notwithstanding any other provisions of this Section
12.04, no transfer or assignment of the interests or obligations of any Bank
hereunder or any grant of participation therein shall be permitted if such
transfer, assignment or grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any
State.
(d) Each Bank initially party to this Agreement hereby
represents, and each Person that became a Bank pursuant to an assignment
permitted by this Section 12.04 will, upon its becoming party to this Agreement,
represent that it is a commercial lender, other financial institution or other
"accredited" investor (as defined in SEC Regulation D) which makes or acquires
loans in the ordinary course of its business and that it will make or acquire
Loans for its own account in the ordinary course of such business, provided that
subject to the preceding clauses (a) and (b), the disposition of any promissory
notes or other
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evidences of or interests in Indebtedness held by such Bank shall at all times
be within its exclusive control.
(e) The Administrative Agent shall maintain at its Notice
Office a copy of each Assignment Agreement delivered to and accepted by it and a
register for the recorda- tion of the names and addresses of the Banks and the
Commitment of, and principal amount of the Loans owing to, each Bank from time
to time (the "Register"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Banks may treat each Person whose name is recorded
in the Register as a Bank hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Bank at any
reasonable time and from time to time upon reasonable prior notice.
12.05 No Waiver; Remedies Cumulative. No failure or delay on
the part of the Administrative Agent or any Bank in exercising any right, power
or privilege hereunder or under any other Credit Document and no course of
dealing between the Borrower and the Administrative Agent or any Bank shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Administrative Agent or any Bank would otherwise have. No notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Administrative Agent or the Banks to any other or further action
in any circumstances without notice or demand.
12.06 Payments Pro Rata. (a) The Administrative Agent agrees
that promptly after its receipt of each payment from or on behalf of the
Borrower in respect of any Obligations, it shall distribute such payment to the
Banks (other than any Bank that has expressly waived its right to receive its
pro rata share thereof) pro rata based upon their respective shares, if any, of
the Obligations with respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Banks is in a greater proportion than the total of such
Obligation then owed and due to such Bank bears to the total of such Obligation
then owed and due to all of the Banks immediately prior to such receipt, then
such Bank receiving such excess
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payment shall purchase for cash without recourse or warranty from the other
Banks an interest in the Obligations to such Banks in such amount as shall
result in a proportional participation by all of the Banks in such amount,
provided that if all or any portion of such excess amount is thereafter
recovered from such Bank, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
12.07 Calculations; Computations. (a) The financial statements
to be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by Holdings to the Banks); provided, that except as otherwise specifically
provided herein, all computations determining compliance with Sections 4.02 and
8, including definitions used therein, shall utilize accounting principles and
policies in effect at the time of the preparation of, and in conformity with
those used to prepare, the December 31, 1995 financial statements delivered to
the Banks pursuant to Section 6.10(b), but shall be prepared on a consolidated
basis instead of a combined basis and shall not give effect to purchase
accounting adjustments required or permitted by APB 16 (including non-cash
write-ups and non-cash charges relating to inventory and fixed assets, in each
case arising in connection with the Transaction) and APB 17 (including non-cash
charges relating to intangibles and goodwill arising in connection with the
Transactions).
(b) All computations of interest on Loans and Fees hereunder
shall be made on the actual number of days elapsed over a year of 360 days.
12.08 Governing Law; Submission to Jurisdiction; Venue; Waiver
of Jury Trial. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK, EXCEPT THAT
THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS
CREATED PURSUANT TO THE MORTGAGES SHALL BE GOVERNED BY AND CONSTRUED ACCORDING
TO THE LAW OF THE STATE IN WHICH THE APPLICABLE REAL PROPERTY IS LOCATED, IT
BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE,
THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE VALIDITY AND ENFORCEABILITY OF
ALL CREDIT DOCUMENTS, INCLUDING ALL MORTGAGES, AND ALL OF THE OBLIGATIONS
ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, THE
BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT
THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK GOVERNS THIS
AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS, EXCEPT TO THE EXTENT AFORESAID
WITH RESPECT TO THE LIENS CREATED BY THE MORTGAGES. Any legal action or
proceeding with respect to this Agreement or any other Credit Document may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
the Borrower hereby irrevocably accepts for itself and in respect of its
property, generally and
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unconditionally, the jurisdiction of the aforesaid courts. Holdings and the
Borrower hereby irrevocably designate, appoint and empower Corporation Service
Company, with offices on the date hereof at 375 Hudson Street, New York, New
York 10014, as its designee, appointee and agent to receive, accept and
acknowledge for and on its behalf, and in respect of its property, service of
any and all legal process, summons, notices and documents which may be served in
any such action or proceeding. If for any reason such designee, appointee and
agent shall cease to be available to act as such, Holdings and the Borrower
agrees to designate a new designee, appointee and agent in New York City on the
terms and for the purposes of this provision satisfactory to the agent under
this Agreement. Holdings and the Borrower hereby further irrevocably consents to
the service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to Holdings or the Borrower, as the case may be, at its
address for notices pursuant to Section 12.03, such service to become effective
30 days after such mailing. Nothing herein shall affect the right of the
Administrative Agent, any Bank to serve process in any other manner permitted by
law or to commence legal proceedings or otherwise proceed against Holdings and
the Borrower in any other jurisdiction.
(b) Holdings and the Borrower hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to in
clause (a) above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum.
(c) Each of the parties to this Agreement hereby irrevocably
waives all right to a trial by jury in any action, proceeding or counterclaim
arising out of or relating to this Agreement, the other Credit Documents or the
transactions contemplated hereby or thereby.
12.09 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Administrative Agent.
12.10 Effectiveness. This Agreement shall become effective on
the date (the "Effective Date") on which each of Holdings, the Borrower and each
of the Banks shall have signed a copy hereof (whether the same or different
copies) and shall have delivered the same to the Administrative Agent at the
Notice Office of the Administrative Agent or, in the case of the Banks, shall
have given to the Administrative Agent telephonic (confirmed in writing),
written telex or facsimile transmission notice (actually received) at such
office that the same has been signed and mailed to it.
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12.11 Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
12.12 Amendment or Waiver. Neither this Agreement nor any
terms hereof or thereof may be changed, waived, discharged or terminated unless
such change, waiver, discharge or termination is in writing signed by the
Borrower and the Required Banks, provided that no such change, waiver, discharge
or termination shall, without the consent of each Bank (other than a Defaulting
Bank) affected thereby, (i) extend the final maturity date applicable to a
Facility (it being understood that any waiver of the making of, or application
of any prepayment of or the method of application of any amortization payment or
other prepayment to, the amortization of, the Loans shall not constitute an
extension of such final maturity thereof), reduce the rate or extend the time of
payment of interest (other than as a result of waiving the applicability of any
post-default increase in interest rates) or Fees thereon, or reduce the
principal amount thereof, or increase the Commitment of any Bank over the amount
thereof then in effect (it being understood that a waiver of any Default or
Event of Default or of any mandatory prepayment or a mandatory reduction in the
Total Commitment shall not constitute a change in the terms of any Commitment of
any Bank), (ii) release all or substantially all of the Collateral (in each case
except as expressly provided in the Credit Documents), (iii) amend, modify or
waive any provision of this Section 12.12, or Section 11.07, 12.01, 12.04, 12.06
or 12.07(b), (iv) reduce the percentage specified in, or otherwise modify, the
definition of Required Banks or (v) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement. No provision
of Section 2 or 11 may be amended without the consent of (x) any Letter of
Credit Issuer adversely affected thereby or (y) the Administrative Agent,
respectively.
12.13 Survival. All indemnities set forth herein including,
without limitation, in Section 1.10, 1.11, 2.05, 4.04, 11.07 or 12.01 shall
survive the execution and delivery of this Agreement and the making and
repayment of the Loans.
12.14 Domicile of Loans. Each Bank may transfer and carry its
Loans at, to or for the account of any branch office, subsidiary or affiliate of
such Bank, provided that the Borrower shall not be responsible for costs arising
under Section 1.10 or 4.04 resulting from any such transfer (other than a
transfer pursuant to Section 1.12) to the extent not otherwise applicable to
such Bank prior to such transfer.
12.15 Confidentiality. Subject to Section 12.04, the Banks
shall hold all non-public information obtained pursuant to the requirements of
this Agreement which has been identified as such by the Borrower in accordance
with its customary procedure for handling confidential information of this
nature and in accordance with safe and sound banking practices and in any event
may make disclosure reasonably required by any bona
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fide transferee or participant in connection with the contemplated transfer of
any Loans or Commitments or participation therein (provided that each such
prospective transferee and/or participant shall execute an agreement for the
benefit of the Borrower with such prospective transferor Bank containing
provisions substantially identical to those contained in this Section 12.15), to
its auditors, attorneys or as required or requested by any governmental agency
or representative thereof or pursuant to legal process, provided that, unless
specifically prohibited by applicable law or court order, each Bank shall notify
the Borrower of any request by any governmental agency or representative thereof
(other than any such request in connection with an examination of the financial
condition of such Bank by such governmental agency) for disclosure of any such
non-public information prior to disclosure of such information, and provided
further that in no event shall any Bank be obligated or required to return any
materials furnished by Holdings or any Subsidiary. Holdings and the Borrower
hereby agrees that the failure of a Bank to comply with the provisions of this
Section 12.15 shall not relieve Holdings or the Borrower of any of the
obligations to such Bank under this Agreement and the other Credit Documents.
12.16 Bank Register. The Borrower hereby designates the
Administrative Agent to serve as its agent, solely for purposes of this Section
12.16, to maintain a register (the "Bank Register") on which it will record the
Commitments from time to time of each of the Banks, the Loans made by each of
the Banks and each repayment in respect of the principal amount of the Loans of
each Bank. Failure to make any such recordation, or any error in such
recordation, shall not affect the Borrower's obligations in respect of such
Loans. With respect to any Bank, the transfer of the Commitments of such Bank
and the rights to the principal of, and interest on, any Loan made pursuant to
such Commitments shall not be effective until such transfer is recorded on the
Bank Register maintained by the Administrative Agent with respect to ownership
of such Commitments and Loans and prior to such recordation all amounts owing to
the transferor with respect to such Commitments and Loans shall remain owing to
the transferor. The registration of assignment or transfer of all or part of any
Commitments and Loans shall be recorded by the Administrative Agent on the Bank
Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment and Assumption Agreement pursuant to Section
12.04(b). The Borrower agrees to indemnify the Administrative Agent from and
against any and all losses, claims, damages and liabilities of whatsoever nature
which may be imposed on, asserted against or incurred by the Administrative
Agent in performing its duties under this Section 12.16.
SECTION 13. Guaranty.
13.01 The Guaranty. In order to induce the Banks to enter into
this Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by Holdings from the proceeds of the Loans, Holdings
hereby agrees with the Banks as follows: Holdings hereby, unconditionally and
irrevocably, guarantees as primary
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obligor and not merely as surety the full and prompt payment when due, whether
upon maturity, by acceleration or otherwise, of any and all indebtedness of the
Borrower to the Banks. If any or all of the indebtedness of the Borrower to the
Banks becomes due and payable hereunder, Holdings unconditionally promises to
pay such indebtedness to the Banks, or order, on demand, together with any and
all expenses which may be incurred by the Agent or the Banks in collecting any
of the indebtedness. The word "indebtedness" is used in this Section 13 in its
most comprehensive sense and includes any and all advances, debts, obligations
and liabilities of the Borrower arising in connection with this Agreement or any
other Credit Document or under any Interest Rate Agreement with a Bank, in each
case, heretofore, now, or hereafter made, incurred or created, whether
voluntarily or involuntarily, absolute or contingent, liquidated or
unliquidated, determined or undetermined, whether or not such indebtedness is
from time to time reduced, or extinguished and thereafter increased or incurred,
whether the Borrower may be liable individually or jointly with others, whether
or not recovery upon such indebtedness may be or hereafter become barred by any
statute of limitations, and whether or not such indebtedness may be or hereafter
become otherwise unenforceable.
13.02 Bankruptcy. Additionally, Holdings unconditionally and
irrevocably guarantees the payment of any and all indebtedness of the Borrower
to the Banks whether or not due or payable by the Borrower upon the occurrence
in respect of the Borrower of any of the events specified in Section 9.05, and
unconditionally promises to pay such indebtedness to the Banks, or order, on
demand, in lawful money of the United States.
13.03 Nature of Liability. The liability of Holdings hereunder
is exclusive and independent of any security for or other guaranty of the
indebtedness of the Borrower whether executed by Holdings, any other guarantor
or by any other party, and the liability of Holdings hereunder shall not be
affected or impaired by (a) any direction as to application of payment by the
Borrower or by any other party, or (b) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to the
indebtedness of the Borrower, or (c) any payment on or in reduction of any such
other guaranty or undertaking, or (d) any dissolution, termination or increase,
decrease or change in personnel by the Borrower, or (e) any payment made to the
Administrative Agent or the Banks on the indebtedness which the Administrative
Agent or such Banks repay the Borrower pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and each Parent Guarantor waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding. This
Guaranty is a guaranty of payment and not a guaranty of collectibility.
13.04 Independent Obligation. The obligations of Holdings
hereunder are independent of the obligations of any other guarantor or the
Borrower, and a separate action or actions may be brought and prosecuted against
Holdings whether or not action is brought against any other guarantor or the
Borrower and whether or not any other guarantor or the
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Borrower be joined in any such action or actions. Holdings waives, to the
fullest extent permitted by law, the benefit of any statute of limitations
affecting its liability hereunder or the enforcement thereof. Any payment by the
Borrower or other circumstance which operates to toll any statute of limitations
as to the Borrower shall operate to toll the statute of limitations as to
Holdings.
13.05 Authorization. Holdings authorizes the Administrative
Agent and the Banks without notice or demand (except as shall be required by
applicable statute and cannot be waived), and without affecting or impairing its
liability hereunder, from time to time to (a) renew, compromise, extend,
increase, accelerate or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness or any part thereof in accordance with this
Agreement, including any increase or decrease of the rate of interest thereon,
(b) take and hold security from any guarantor or any other party for the payment
of this guaranty or the indebtedness and exchange, enforce, waive and release
any such security, (c) apply such security and direct the order or manner of
sale thereof as the Administrative Agent and the Banks in their discretion may
determine and (d) release or substitute any one or more endorsers, guarantors,
the Borrower or other obligors.
13.06 Reliance. It is not necessary for the Administrative
Agent or the Banks to inquire into the capacity or powers of the Borrower or its
Subsidiaries or the officers, directors, partners or agents acting or purporting
to act on its behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
13.07 Subordination. Any indebtedness of the Borrower now or
hereafter held by Holdings is hereby subordinated to the indebtedness of the
Borrower to the Administrative Agent and the Banks; and such indebtedness of the
Borrower to Holdings, if the Administrative Agent, after an Event of Default has
occurred, so requests, shall be collected, enforced and received by Holdings as
trustee for the Banks and be paid over to the Banks on account of the
indebtedness of the Borrower to the Banks, but without affecting or impairing in
any manner the liability of Holdings under the other provisions of this
Guaranty. Prior to the transfer by Holdings of any note or negotiable instrument
evidencing any indebtedness of the Borrower to Holdings, Holdings shall mark
such note or negotiable instrument with a legend that the same is subject to
this subordination.
13.08 Waiver. (a) Holdings waives any right (except as shall
be required by applicable statute and cannot be waived) to require the
Administrative Agent or the Banks to (a) proceed against the Borrower, any other
guarantor or any other party, (b) proceed against or exhaust any security held
from the Borrower, any other guarantor or any other party or (c) pursue any
other remedy in the Administrative Agent's or the Banks' power whatsoever.
Holdings waives any defense based on or arising out of any defense of the
Borrower, any other guarantor or any other party other than payment in full of
the
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indebtedness, including without limitation any defense based on or arising out
of the disability of the Borrower, any other guarantor or any other party, or
the unenforceability of the indebtedness or any part thereof from any cause, or
the cessation from any cause of the liability of the Borrower other than payment
in full of the indebtedness. The Administrative Agent and the Banks may, at
their election, foreclose on any security held by the Administrative Agent or
the Banks by one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the
Administrative Agent and the Banks may have against the Borrower or any other
party, or any security, without affecting or impairing in any way the liability
of Holdings hereunder except to the extent the indebtedness has been paid.
Holdings waives any defense arising out of any such election by the
Administrative Agent and the Banks, even though such election operates to impair
or extinguish any right of reimbursement or subrogation or other right or remedy
of Holdings against the Borrower or any other party or any security.
(b) Holdings waives all presentments, demands for performance,
protests and notices, including without limitation notices of nonperformance,
notice of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
indebtedness. Holdings assumes all responsibility for being and keeping itself
informed of the Borrower's financial condition and assets, and of all other
circumstances bearing upon the risk of nonpayment of the indebtedness and the
nature, scope and extent of the risks which Holdings assumes and incurs
hereunder, and agrees that the Administrative Agent and the Banks shall have no
duty to advise Holdings of information known to them regarding such
circumstances or risks.
13.09 Limitation on Enforcement. The Banks agree that this
Guaranty may be enforced only by the action of the Administrative Agent or the
Collateral Agent, in each case acting upon the instructions of the Required
Banks and that no Bank shall have any right individually to seek to enforce or
to enforce this Guaranty or to realize upon the security to be granted by any
Security Document, it being understood and agreed that such rights and remedies
may be exercised by the Administrative Agent or the Collateral Agent for the
benefit of the Banks upon the terms of this Agreement and any Security Document.
The Banks further agree that the Guaranty may not be enforced against any
director, officer, employee or stockholder of Holdings.
* * *
-102-
<PAGE> 1
Exhibit 5.1
June 19, 1996
Interstate Hotels Company
Foster Plaza 10
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
Re: Underwritten Offering of up to 12,650,000 Shares of Common
Stock, par value $.01 per share, of Interstate Hotels Company
Ladies and Gentlemen:
We are acting as counsel to Interstate Hotels Company, a
Pennsylvania corporation (the "Company"), in connection with the issuance and
sale of up to 12,650,000 shares (the "Shares") of common stock, par value $.01
per share, of the Company in accordance with the U.S. Purchase Agreement (the
"U.S. Purchase Agreement") to be entered into among the Company, Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Montgomery
Securities, Morgan Stanley & Co. Incorporated, Smith Barney Inc. and Credit
Lyonnais Securities (USA) Inc., as Representatives of the several U.S.
Underwriters (the "U.S. Underwriters") to be named in Schedule A thereto and
the International Purchase Agreement (the "International Purchase Agreement")
to be entered into among the Company, Merrill Lynch International, Credit
Lyonnais Securities, Montgomery Securities, Morgan Stanley & Co. International
Limited and Smith Barney Inc., as Representatives of the several International
Underwriters (the "International Underwriters") to be named in Schedule A
thereto. The U.S. Purchase Agreement and the International Purchase Agreement
are hereinafter referred to collectively as the "Purchase Agreements" and the
U.S. Underwriters and the International Underwriters are hereinafter referred
to collectively as the "Underwriters."
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion. Based on the foregoing
and subject to the qualifications and limitations hereinafter specified, we are
of the opinion that the Shares are duly authorized and, when issued and
delivered to the Underwriters in accordance with the Purchase Agreements
against payment of the consideration therefor as provided therein and as
contemplated by the Registration Statement on Form S-1 (the "Registration
Statement") filed by the Company to effect the
<PAGE> 2
Interstate Hotels Company
June 19, 1996
Page 2
registration of the Shares under the Securities Act of 1933, as amended, will
be validly issued, fully paid and nonassessable.
In rendering the foregoing opinion, we have assumed the
authenticity of all documents represented to us to be originals, the conformity
to original documents of all copies of documents submitted to us, the accuracy
and completeness of all corporate records made available to us by the Company
and the genuineness of all signatures that purport to have been made in a
corporate, governmental, fiduciary or other capacity, and that the persons who
affixed such signatures had authority to do so.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and the reference to us under the caption "Legal
Matters" in the Prospectus constituting a part of the Registration Statement.
Very truly yours,
/S/ JONES, DAY, REAVIS & POGUE
Jones, Day, Reavis & Pogue
<PAGE> 1
EXHIBIT 10.2(a)
AGREEMENT OF PURCHASE AND SALE
among
THE SELLERS NAMED HEREIN
and
IHC MEMBER CORPORATION
As of March 29, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
1. Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Purchase Price; Earnest Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Formation; Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.3 No Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.4 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.5 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.6 Action by Assignors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.7 Limitation on Sections 4.5 and 4.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.8 Good Faith Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Representations, Warranties and Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Formation; Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Power; Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 No Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 Examination; No Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.6 Good Faith Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.7 Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Operation of the Property Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Conditions Precedent to Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Sellers' Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Buyer's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7. New York State Real Estate Transfer Gains Tax; Other Real Estate Transfer Taxes. . . . . . . . . . . . . . . 15
8. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.1 Indemnification by the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.2 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.3 Termination of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
13. Rights of the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14. Interstone Three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15. Lisle Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
16. Use of Blackstone Name and Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
17. Agreement of Interstate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
18. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
19. Confidentiality; Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
20. Successors and Assigns; No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
21. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
22. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
23. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
24. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
25. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
26. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
27. Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
28. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
29. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
30. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Exhibits
Exhibit A Form of Interstone Amendments
Exhibit B Terms of Interstone Three Amendments
Schedules
Schedule A-1 BREP Assignors and Interstone Partnerships
Schedule A-2 GP Assignors and Property Partnerships
Schedule B Trumbull Members
Schedule C Purchase Price
Schedule D Section 4.6(a) Exceptions
</TABLE>
- ii -
<PAGE> 4
AGREEMENT OF PURCHASE AND SALE
AGREEMENT OF PURCHASE AND SALE (this "Agreement"), made as of
the 29th day of March, 1996 by and between each of the entities listed in the
column entitled "BREP Assignors" of Schedule A-1 attached hereto and made a
part hereof (individually, a "BREP Assignor"; collectively, the "BREP
Assignors"), each of the entities listed in the column entitled "GP Assignors")
of Schedule A-2 attached hereto and made a part hereof (individually, a "GP
Assignor"; collectively, the "GP Assignors"; the GP Assignors and the BREP
Assignors, collectively, the "Assignors"), BRE/TRUMBULL L.L.C., a Delaware
limited liability company ("BRE/Trumbull; BRE/Trumbull and the Assignors,
collectively, the "Sellers"), and IHC MEMBER CORPORATION, a Delaware
corporation ("Buyer").
Background
A. Each BREP Assignor is a partner in the respective
partnerships (individually, an "Interstone Partnership"; collectively, the
"Interstone Partnerships") listed opposite its name on Schedule A-1 in the
column entitled "Interstone Partnerships". The Interstone Partnerships hold
limited partnership interests of certain partnerships which own one or more
hotels (individually, a "Property Partnership"; collectively, the "Property
Partnerships"). Each GP Assignor is a partner in the respective Property
Partnerships listed opposite its name on Schedule A-2 in the column entitled
"Property Partnerships"; except that BREI/CGL Inc. is a partner in
Interstone/CGL Management Associates, which is a general partner in
Interstone/CGL Partners L.P., a Property Partnership, and as used herein, the
Property Partnerships shall include Interstone/CGL Management Associates and
Interstone/CGL Partners L.P. The partnership interests of the BREP Assignors
in the Interstone Partnerships and the partnership interests of the GP
Assignors in the Property Partnerships shall be referred to herein,
collectively, as the "Interests".
B. Reference is hereby made to that certain Contribution
Agreement dated as of the date hereof (the "Fort Magruder Agreement") among
Interstone Partners I L.P., Interstone Partners II L.P., Interstone Partners
III L.P., Interstone Partners IV L.P., BREI/Williamsburg L.L.C., S.B. Westridge
Inc., IHC/Williamsburg, Inc. (collectively, in such capacity, the "Fort
Magruder Contributors") and Interstate Hotels Corporation ("Interstate"),
whereby the Fort Magruder Contributors have agreed to contribute to Interstate,
and Interstate has agreed to accept from the Fort Magruder Contributors, all of
the Fort Magruder Contributors' partnership interests in
Interstone/Williamsburg Partnership, L.P. (the "Fort Magruder Partnership").
The closing under the Fort Magruder Agreement shall occur immediately prior to
the Closing (as defined below)
<PAGE> 5
2
hereunder, and accordingly, the Fort Magruder Partnership shall not be deemed a
Property Partnership hereunder.
C. BRE/Trumbull L.L.C., a Delaware limited liability
company ("BRE/Trumbull"), is the holder of that certain Note Consolidation,
Amendment and Restatement Agreement dated as of April 26, 1995 between Trumbull
Hotel Associates Limited Partnership ("Trumbull Owner") and BRE/Trumbull (the
"Trumbull Note"), secured by among other things that certain Open-End Mortgage
Deed Consolidation, Amendment and Restatement Agreement and UCC-1 Financing
Statement dated as of April 26, 1995 (the "Trumbull Mortgage") between Trumbull
Owner and BRE/Trumbull. Pursuant to the Trumbull Mortgage, BRE/Trumbull has a
first mortgage lien on the land and improvements located in Trumbull,
Connecticut commonly known as the Trumbull Marriott (the "Trumbull Hotel").
Each of the parties listed on Schedule B attached hereto and made a part hereof
is a member in BRE/Trumbull (the "Trumbull Members"). The Trumbull Members'
ownership interests in BRE/Trumbull shall be referred to herein as the
"Trumbull Interests". The Trumbull Hotel and the Trumbull Interests, whichever
is to be sold hereunder pursuant to the terms hereof, shall be referred to
herein as the "Trumbull Assets".
D. Pursuant to that certain Option Agreement dated as of
October 12, 1995 among Interstate, the Existing Stockholders named therein, The
Blackstone Group L.P., the Prospective Equity Participants named therein and
Blackstone Real Estate Advisors L.P. ("BREA"), as amended by that certain
Amendment No. 1 to Option Agreement dated as of December 12, 1995 and that
certain Amendment No. 2 to the Option Agreement dated as of the date hereof (as
amended, the "Option Agreement"), BREA on behalf of the Prospective Equity
Participants named therein has the option to purchase equity interests in
Interstate (or a successor to Interstate) in accordance with the terms of the
Option Agreement (the "Option").
E. The Interests and the Trumbull Assets shall be
referred to herein, collectively, as the "Assets".
F. The Sellers desire to sell to Buyer, and Buyer
desires to purchase from the Sellers, the Assets on the terms and conditions
hereinafter set forth.
Agreement
1. Sale of Assets. (a) On the Closing Date (as
hereinafter defined) and pursuant to the terms and subject to the conditions
set forth in this Agreement, the Sellers shall sell to Buyer, and Buyer shall
purchase from each of the Sellers, all of the Assets. It is understood and
agreed that the closing of the purchases of the Assets shall occur
contemporaneously and, except
<PAGE> 6
3
as explicitly set forth in this Section, none of the purchases of the Assets
shall close unless the purchase of all of the Assets closes contemporaneously.
The Sellers agree that the Assets shall include any right of the Sellers in any
insurance proceeds for property damage and any condemnation awards received by
any of the Property Partnerships after the date hereof with respect to any
casualty or condemnation of the property of the Property Partnerships.
(b) Buyer shall elect prior to the Closing whether it
will purchase the Trumbull Hotel or the Trumbull Interests or both at the
Closing, subject to the reasonable approval of the Sellers based on tax
consequences. Notwithstanding the foregoing, Seller shall have the right to
preserve the existence of the Trumbull Note and Trumbull Mortgage and require
the Buyer to cause the fee interest in the Trumbull Hotel to be acquired by one
legal entity and the Trumbull Interests or the Trumbull Note and Trumbull
Mortgage to be acquired by a different legal entity. Notwithstanding
subsection (a) above, if on the Closing Date BRE/Trumbull does not have fee
title to the Trumbull Hotel and cannot otherwise cause the sale of the Trumbull
Hotel to Buyer (or an affiliate as provided in the previous sentence) on the
Closing Date, the Trumbull Assets shall be withdrawn from the Assets sold
hereunder, and the Purchase Price shall be adjusted as set forth in Section
2(b) below.
2. Purchase Price; Earnest Money. (a) The aggregate
purchase price for the Assets (the "Purchase Price") shall be the amount set
forth on Schedule C attached hereto and made a part hereof opposite the date on
which all of the following shall have occurred: (i) this Agreement shall have
been executed and delivered by the parties hereto, (ii) the Escrow Agent (as
defined below) shall have received the Earnest Money (as defined below) and the
Escrow Agreement (as defined below) shall have been executed by all of the
parties thereto and (iii) the Sellers shall have received the Interstone
Amendments (as defined below) fully executed and delivered by the affiliates of
Buyer parties thereto.
(b) Provided the Trumbull Assets shall be included in the
Assets sold hereunder, the Sellers may require Buyer to pay at the Closing up
to $4,000,000 (in addition to any other amount due hereunder) to the then owner
of the Trumbull Hotel towards the purchase of the Trumbull Hotel (the
"Additional Trumbull Payments"), and Buyer shall make the Additional Trumbull
Payments as the Sellers direct. If on the Closing Date, the Trumbull Assets
are included in the Assets being sold hereunder, and the total Additional
Trumbull Payments made by Buyer are less than $4,000,000, Buyer shall pay to
the Sellers at the Closing (as an addition to the Purchase Price) 50% of the
difference between (i) $4,000,000 and (ii) the amount of Additional Trumbull
Payments made by Buyer. In the event that the Trumbull Assets, in accordance
with Section 1(b) above, are withdrawn from the Assets
<PAGE> 7
4
to be sold hereunder, the Purchase Price shall be reduced by an amount equal to
$12,000,000.
(c) Simultaneously with the execution of this Agreement,
Buyer and the Sellers shall arrange for the execution and delivery by the
partners of the Interstone Partnerships of amendments to the limited
partnership agreements of the Interstone Partnerships (the "Interstone
Amendments"), in the form of Exhibit A attached hereto and made a part hereof.
(d) The Purchase Price shall be paid to the Sellers, as
follows:
(i) upon execution of this Agreement, Buyer shall deposit
with Chicago Title Insurance Company, as escrow agent ("Escrow
Agent"), the sum of Five Million Dollars ($5,000,000) (together with
any interest earned thereon, the "Earnest Money") in immediately
available funds by wire transfer to such account as Escrow Agent shall
designate to Buyer; the Earnest Money shall be held in escrow in
accordance with the Escrow Agreement among the Sellers, Buyer and
Escrow Agent dated as of the date hereof and shall be nonrefundable to
Buyer except if all of the conditions set forth in Section 6.2 have
not been met by the Outside Closing Date or otherwise as set forth in
Section 12(b) below; and
(ii) on the Closing Date, Buyer shall deliver the
remainder of the Purchase Price to the Sellers in immediately
available funds by wire transfer to such account or accounts that
BREA, as agent for the Sellers, shall designate to Buyer. By their
execution of this Agreement, each Seller acknowledges that the
Purchase Price and all other amounts payable to the Sellers hereunder
may be wired to BREA as its agent hereunder unless otherwise
explicitly stated in this Agreement.
(e) In addition to any other amounts paid by Buyer
pursuant to this Section, Buyer shall also pay to BREA at the Closing the sum
of $2,000,000, which constitutes the amount of working capital provided to the
Property Partnerships by affiliates of BREA.
(f) In addition to any other amounts paid by Buyer
pursuant to this Section, Buyer shall also pay to BREA at the Closing an amount
equal to the direct or indirect partnership interest of the Assignors in all
net cash flow of the Property Partnerships for the period beginning immediately
after the last distribution to the Assignors with respect to each Property
Partnership and ending on the Closing Date. For the purposes of this Section,
net cash flow shall be calculated in the same manner as net cash flow of the
Property Partnerships has been previously calculated, except that (i) net cash
flow shall be increased by the amount of prepaid expenses of the Property
<PAGE> 8
5
Partnership as of the Closing Date and (ii) net cash flow shall be increased by
any payments made after the date hereof to any lender which is applied to the
reduction of the principal amount of a loan. Amounts held by any lender or
other third party as collateral, in a lock box account or otherwise shall be
included in the calculation of net cash flow for the purposes of this Section.
To the extent any items used in the calculation of net cash flow are not
determinable at the Closing, the parties shall use reasonable estimates to
determine net cash flow at the Closing, and shall make adjustments as the
necessary information becomes available. The provisions of this Section shall
survive the Closing of this Agreement.
(g) No adjustment shall be made to the Purchase Price
except as explicitly set forth in this Agreement.
3. The Closing. (a) The closing of the sale and
purchase of the Assets (the "Closing") shall take place on the date (the
"Closing Date") of the closing of the initial public offering of the common
stock of Interstate as contemplated pursuant to Section 3.1 of the Second
Amendment to the Option Agreement (the "IPO"); provided however, that the
Closing Date shall occur on or before July 1, 1996 (the "Outside Closing Date")
whether or not the IPO has occurred, time being of the essence.
(b) The Closing shall be held on the Closing Date at
10:00 A.M. at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York, or at such other location agreed upon by the parties
hereto.
4. Representations, Warranties and Covenants of the
Sellers. Each Seller hereby represents, warrants and covenants to Buyer as of
the date hereof and as of the Closing Date, as to itself and its own actions,
severally but not jointly, as follows:
4.1 Formation; Existence. It is a limited partnership or
corporation, as applicable, duly formed, validly existing and in good
standing under the laws of the state of Delaware.
4.2 Power and Authority. It has all requisite power and
authority to enter into this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the
consummation of the transactions provided for in this Agreement have
been duly authorized by all necessary action on its part. This
Agreement has been duly executed and delivered by it and constitutes
its legal, valid and binding obligation, enforceable against it in
accordance with its terms, except
<PAGE> 9
6
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
and by general principles of equity (whether applied in a proceeding
at law or in equity).
4.3 No Consents. No consent, license, approval, order,
permit or authorization of, or registration, filing or declaration
with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, is
required to be obtained or made in connection with the execution,
delivery and performance of this Agreement or any of the transactions
required or contemplated hereby, other than with respect to any liquor
licenses held by any of the Property Partnerships or their agents.
4.4 No Conflicts. The execution, delivery and compliance
with, and performance of the terms and provisions of, this Agreement,
and the sale of the Assets, will not (a) conflict with or result in
any violation of its organizational documents, (b) conflict with or
result in any violation of any provision of any bond, note or other
instrument of indebtedness, contract, indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
it is a party in its individual capacity, or (c) violate any existing
term or provision of any order, writ, judgment, injunction, decree,
statute, law, rule or regulation applicable to it or its assets or
properties.
4.5 Assets It is the owner and holder of the Interests
as set forth on Schedule A-1 or Schedule A- 2, as appropriate, and
such Interests are held by it free and clear of any lien, pledge,
charge, security interest, encumbrance, title retention agreement,
adverse claim or restriction (except for possible security interests
which will be terminated prior to the Closing). Other than pursuant
to agreements of which Buyer, Interstate or any affiliates of Buyer or
Interstate (provided that the Sellers shall not be deemed to be
affiliates of Buyer or Interstate for this purpose) have received
notice as partners in certain of the Interstone Partnerships and
Property Partnerships and as manager of the assets of the Property
Partnerships, there are no options, instruments or agreements to which
any such Interest is bound or pursuant to which any such Interest
might be restricted or otherwise encumbered (collectively,
"Encumbrances"). Upon transfer of such Interests by it to Buyer and
upon payment by Buyer to the Sellers of the Purchase Price, Buyer will
receive such Interests free and clear of any Encumbrances (other than
those arising from acts of Buyer or its affiliates). It has not prior
to the date hereof sold (or entered into an agreement to sell) any of
its partnership interests in the
<PAGE> 10
7
Interstone Partnerships or any general partnership interest in the
Property Partnerships (except for the possible granting of security
interests, all of which will be terminated prior to the Closing). The
Interests constitute all of the partnership interests in the
Interstone Partnerships which were held by the Blackstone Partners (as
defined in the limited partnership agreements of the Interstone
Partnerships) upon the formation of the Interstone Partnerships, and
all of the partnership interests in the Property Partnerships which
were held by the Blackstone General Partner and the Schreiber General
Partner (as such terms are defined in the limited partnership
agreements of the Property Partnerships) upon the formation of the
Property Partnerships. Buyer hereby acknowledges that this
representation is not being made by BRE/Trumbull.
4.6 Action by Assignors. (a) It has not, without actual
oral or written notice to Buyer or its affiliates (provided that none
of the Sellers shall be deemed affiliates of Buyer for this purpose)
as partners in certain of the Interstone Partnerships and Property
Partnerships and as manager of the assets of the Property
Partnerships, or as otherwise set forth on Schedule D, (i) caused any
Property Partnership to sell or otherwise dispose (or enter into a
contract to sell or otherwise dispose, except for this Agreement) of
any of its material assets, (ii) caused any Property Partnership to
place a voluntary lien on any of its material assets, or (iii) caused
any Property Partnership to enter into, modify or terminate any
material contracts, material leases or other material commitments.
(b) From the date hereof through the Closing Date, it
shall not, without the prior approval of Buyer, (i) cause any Property
Partnership to sell or otherwise dispose (or enter into a contract to
sell or otherwise dispose, except for this Agreement) of any of its
material assets, (ii) cause any Property Partnership to place a
voluntary lien on any of its material assets, or (iii) cause any
Property Partnership to enter into, modify or terminate any material
contracts, material leases or other material commitments, except, in
the case of clause (iii), in the ordinary course of business. From
the date hereof through the Closing Date, it shall not, without the
prior approval of Buyer, cause any Property Partnership to refinance
any loan secured by any of its assets, unless such loan shall be due
and payable.
4.7 Limitation on Sections 4.5 and 4.6. Nothing in
Section 4.5 or 4.6 shall be deemed to be a representation that a
Seller has not heretofore solicited other buyers for the Assets or has
not heretofore negotiated for the sale of the Assets with any other
parties. Notwithstanding the foregoing, each Seller covenants that it
shall not solicit other buyers for the Assets nor negotiate for the
sale of
<PAGE> 11
8
the Assets to other buyers prior to June 1, 1996; provided, however,
that such date shall be extended to July 1, 1996 if on June 1, 1996,
Buyer delivers to the Sellers a certificate of the lead underwriter
for the IPO stating that such lead underwriter reasonably believes
that the IPO shall be completed on or prior to July 1, 1996. Each
Seller further covenants that it shall not enter into a contract to
sell the Assets to other buyers prior to July 1, 1996.
4.8 Good Faith Efforts. It shall use its good faith
efforts to consummate the Closing and fulfill each of its obligations
hereunder.
5. Representations, Warranties and Covenants of Buyer.
Buyer hereby represents, warrants and covenants to the Sellers as of the date
hereof and as of the Closing Date as follows:
5.1 Formation; Existence. Buyer is a corporation
duly organized, validly existing and in good standing under the laws
of the State of Delaware.
5.2 Power; Authority. Buyer has all requisite
power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement,
the purchase of the Assets and the consummation of the transactions
provided for herein have been duly authorized by all necessary action
on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes the legal, valid and binding
obligation of Buyer enforceable against Buyer in accordance with their
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting
creditors' rights and by general principles of equity (whether applied
in a proceeding at law or in equity).
5.3 No Consents. No consent, license, approval, order,
permit or authorization of, or registration, filing or declaration
with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, is
required to be obtained or made in connection with the execution,
delivery and performance of this Agreement or any of the transactions
required or contemplated hereby, other than with respect to any liquor
licenses held by any of the Property Partnerships or their agents.
5.4 No Conflicts. The execution, delivery and compliance
with, and performance of the terms and provisions of, this Agreement,
and the sale of the Assets, will not (a) conflict with or result in
any violation of its organizational documents, (b) conflict with or
result in any
<PAGE> 12
9
violation of any provision of any bond, note or other instrument of
indebtedness, contract, indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a
party in its individual capacity, or (c) violate any existing term or
provision of any order, writ, judgment, injunction, decree, statute,
law, rule or regulation applicable to it or its assets or properties.
5.5 Examination; No Contingencies. Before entering into
this Agreement, Buyer has made such examination of the Interests, the
Property Partnerships, the assets owned by the Property Partnerships
and all other matters affecting or relating to the transactions
contemplated hereunder as Buyer has deemed necessary. In entering
into this Agreement, Buyer has not been induced by and has not relied
upon any written or oral representations, warranties or statements,
whether express or implied, made by BREA, any Seller, any partner of
BREA or any Seller, or any agent, employee, or other representative of
any of the foregoing or by any broker or any other person representing
or purporting to represent BREA or any Seller, with respect to the
Interests, the Property Partnerships, the assets owned by the Property
Partnerships or any other matter affecting or relating to the
transactions contemplated hereby, other than those expressly set forth
in this Agreement. Buyer's obligations under this Agreement shall not
be subject to any contingencies, diligence or conditions except as
expressly set forth in this Agreement.
5.6 Good Faith Efforts. Buyer shall use its good faith
efforts to consummate the Closing and fulfill each of its obligations
hereunder.
5.7 Sellers. Although the Sellers have jointly executed
this Agreement for administrative efficiency, Buyer hereby
acknowledges and agrees that each Seller shall be liable hereunder
only for the representations, warranties and covenants made by such
Seller with respect to such Seller and the Assets owned by such
Seller, and no Seller shall be liable for any representations,
warranties or covenants made by any of the other Sellers hereunder.
5.8 Operation of the Property Partnerships. Buyer
covenants and agrees that, prior to the Closing, it shall cause
Interstate's affiliates, as partners in the Interstone Partnerships or
the Property Partnerships, and as manager of the assets owned by the
Property Partnerships, to continue to operate the assets of the
Property Partnerships in accordance (in all material respects) with
the standards and procedures in which they have been and continue to
be operated as of the date hereof. Without limiting the foregoing,
Buyer covenants and agrees that such affiliates will not permit the
prepayment of expenses, the deferral of
<PAGE> 13
10
receivables or the incurrence of capital expenditures except in
accordance with such historical standards and procedures. If Buyer
breaches this covenant, the calculation of the amount owed to the
Sellers pursuant to Section 2(f) above shall be calculated as if the
prepayments, deferrals, incurrence of capital expenditures or other
items which fail to comply with such historical standards and
procedures were not made.
6. Conditions Precedent to Closing.
6.1 Sellers' Obligation. The obligation of the
Sellers to consummate the transfer of the Assets to Buyer on the
Closing Date is subject to the satisfaction (or waiver by the Sellers)
as of the Closing of the following conditions:
(a) Each of the representations and warranties made by
Buyer in this Agreement shall be true and correct in all material
respects when made and on and as of the Closing Date as though such
representations and warranties were made on and as of the Closing
Date, and Buyer shall have performed or complied in all material
respects with each obligation and covenant required by this Agreement
to be performed or complied with by Buyer on or before the Closing;
and Buyer shall have delivered to the Sellers a certificate dated the
Closing Date and signed by an authorized officer of Buyer confirming
the foregoing.
(b) The Sellers shall have received duly executed
counterparts of each of the following documents, dated as of the
Closing Date:
(i) Assignment and Assumption of Interests for
each of the Interests;
(ii) amendments to the limited partnership
agreements and certificates of limited partnership for the
Interstone Partnerships and the Property Partnerships
reflecting the assignment of partnership interests;
(iii) all documents reasonably necessary to be
executed by Buyer (or its affiliates) with respect to the sale
of the Trumbull Hotel, the Trumbull Interests and/or the
Trumbull Notes and Trumbull Mortgage in accordance with
Section 1(b) above, unless the Trumbull Assets have been
removed from the Assets pursuant to Section 1(b) above;
(iv) written confirmation from each of Buyer's
affiliates who are partners in the Interstone Partnerships
that they are not entitled to any
<PAGE> 14
11
distributions under Section 5.5 of any of the limited
partnership agreements of the Interstone Partnerships with
respect to amounts received by the Sellers under this
Agreement;
(v) the Interstone Three Amendments (as defined
below) or such other documents as discussed in Section 14
below);
(vi) any forms or affidavits required to be filed
with respect to any applicable transfer, stamp, transfer gains
or other similar taxes applicable to the transfers;
(vii) such other documents reasonably required by
the Sellers to transfer the Assets hereunder.
(c) No order or injunction of any court or administrative
agency of competent jurisdiction nor any statute, rule, regulation or
executive order promulgated by any governmental authority of competent
jurisdiction shall be in effect as of the Closing which restrains or
prohibits the transfer of the applicable Assets or the consummation of
any other transaction contemplated hereby.
(d) No action, suit or other proceeding shall be pending
which shall have been brought by any person or entity (other than the
parties hereto and their affiliates) (i) to restrain, prohibit or
change in any material respect the purchase and sale of the Assets or
the consummation of any other transaction contemplated hereby or (ii)
seeking material damages with respect to such purchase and sale or any
other transaction contemplated hereby.
(e) The Sellers shall have received a duly executed and
sworn Secretary's Certificate of Buyer, certifying that Buyer has duly
adopted resolutions authorizing the transactions contemplated hereby
and that the resolutions have not been revoked, modified or amended.
(f) The Sellers shall have received an executed and
acknowledged Incumbency Certificate of Buyer, certifying the authority
of the officers of Buyer to execute this Agreement and the other
documents delivered by Buyer to the Sellers at the Closing.
(g) The Sellers shall have received (i) the Earnest Money
from Escrow Agent, (ii) payment of the remainder of the Purchase Price
in accordance with Section 2(d)(ii) above, and (iii) payment of all
other amounts due to the Sellers hereunder.
(h) Buyer shall have obtained all necessary consents to
the transfer of the Assets from any ground lessors, lenders,
<PAGE> 15
12
franchisors, partners in the Property Partnerships and all other third
parties with approval rights. The Sellers shall cooperate with Buyer
in obtaining any necessary consents (including reasonably timely
execution of any applications or similar documents), but Buyer
acknowledges and agrees that the obtaining of all necessary consents
shall be Buyer's obligation hereunder. Notwithstanding the foregoing,
if, at the Closing, Buyer has not obtained all of the necessary
consents discussed in this subsection (i) but (1) Buyer agrees to
indemnify the Sellers and the affiliates of the Sellers against any
losses, liabilities, claims, damages and reasonable expenses the
Sellers or the affiliates of the Sellers may incur as a result of the
failure to obtain such consents, (2) the liability to the Sellers or
their affiliates from Buyer's failure to obtain all necessary consents
may not exceed $50,000,000 (except that with respect to the failure to
obtain a consent regarding a liquor license held by or on behalf of
any Property Partnership, such $50,000,000 limitation shall not apply
as long as Buyer, on the Closing Date, has named such parties as the
Sellers shall direct as additional insureds on all liability and dram
shop insurance policies and Buyer shall maintain such parties as
additional insureds on such policies until such consent is obtained)
and (3) the failure to obtain such consent will not subject the
Sellers' to the risk of criminal liability, then the Sellers shall not
be entitled to fail to close hereunder if the sole reason for such
failure to close is the fact that Buyer has not met the requirements
of this subsection (i).
(i) Buyer shall have paid (or reimbursed the Sellers, as
the case may be) all of the reasonable costs and expenses incurred by
the Sellers and Buyer in connection with the negotiation and execution
of this Agreement and the consummation of the transactions
contemplated hereby, including without limitation the reasonable legal
fees and disbursements of the Sellers' counsel, and any sales, real
estate transfer, stamp, recordation, or other similar taxes applicable
to or arising out of the sale of the Assets, but not including any tax
pursuant to the New York Gains Tax Law (as defined below).
(j) Buyer shall have paid or caused its affiliates to
have paid to BREA in satisfaction of amounts due to certain of the
Sellers a disposition fee of $987,000 in the aggregate payable under
the partnership agreements of the Interstone Partnerships. These
amounts shall be in addition to any other amounts payable by the
Buyers hereunder.
(k) If the IPO has been completed by the Closing Date,
BREA and its affiliates shall have received shares of common stock of
Interstate in accordance with the terms of the Option Agreement,
unless the failure to receive such shares is due to a default by BREA
thereunder.
<PAGE> 16
13
(l) The closing of the transactions contemplated by the
Fort Magruder Agreement shall have occurred in accordance with the
terms of the Fort Magruder Agreement unless the failure to close is
due to a default by the sellers thereunder (other than
IHC/Williamsburg, Inc.).
(m) Buyer shall have replaced the $5,000,000 letter of
credit provided to Wells Fargo by affiliates of the Sellers as
security.
(n) Buyer shall be a wholly owned subsidiary of
Interstate.
6.2 Buyer's Obligation. The obligation of Buyer to
purchase and pay for the Assets is subject to the satisfaction (or
waiver by Buyer) as of the Closing of the following conditions:
(a) Each of the representations and warranties made by
the Sellers in this Agreement shall be true and correct in all
material respects when made and on and as of the Closing Date as
though such representations and warranties were made on and as of
Closing Date, and the Sellers shall have performed or complied in all
material respects with each obligation and covenant required by this
Agreement to be performed or complied with by the Sellers on or before
the Closing; and the Sellers shall have delivered to Buyer
certificates dated the Closing Date and signed by authorized officers
of the Sellers confirming the foregoing.
(b) Buyer shall have received duly executed counterparts
of each of the following documents, dated the Closing Date:
(i) Assignment and Assumption of Interests for
each of the Interests;
(ii) amendments to the limited partnership
agreements and certificates of limited partnership for the
Interstone Partnerships and the Property Partnerships
reflecting the assignment of partnership interests;
(iii) all documents reasonably necessary to be
executed by Buyer (or its affiliates) with respect to the sale
of the Trumbull Hotel, the Trumbull Interests and/or the
Trumbull Notes and Trumbull Mortgage in accordance with
Section 1(b) above, unless the Trumbull Assets have been
removed from the Assets pursuant to Section 1(b) above;
<PAGE> 17
14
(iv) the Interstone Three Amendments (as defined
below) or such other documents as discussed in Section 14
below);
(v) any forms or affidavits required to be filed
with respect to any applicable transfer, stamp, transfer gains
or other similar taxes applicable to the transfers;
(vi) such other documents reasonably required by
Buyer to transfer the Assets hereunder.
(c) No order or injunction of any court or administrative
agency of competent jurisdiction nor any statute, rule, regulation or
executive order promulgated by any governmental authority of competent
jurisdiction shall be in effect as of the Closing which restrains or
prohibits the transfer of the applicable Assets or the consummation of
any other transaction contemplated hereby.
(d) No action, suit or other proceeding shall be pending
which shall have been brought by any person or entity (other than the
parties hereto and their affiliates) (i) to restrain, prohibit or
change in any material respect the purchase and sale of the applicable
Assets or the consummation of any other transaction contemplated
hereby or (ii) seeking material damages with respect to such purchase
and sale or any other transaction contemplated hereby.
(e) Buyer shall have received a duly executed and sworn
Secretary's Certificate from the Sellers (or the general partners of
the Sellers, where appropriate) certifying that the Sellers have taken
all necessary action to authorize the execution of all documents being
delivered hereunder and the consummation of all of the transactions
contemplated hereby and that such authorization has not been revoked,
modified or amended.
(f) Buyer shall have received an executed and
acknowledged Incumbency Certificate from the Sellers (or the general
partners of the Sellers, where appropriate) certifying the authority
of the officers of the Sellers (or the general partner of the Sellers,
where appropriate) to execute this Agreement and the other documents
delivered by the Sellers to Buyer at the Closing.
(f) If the IPO has been completed by the Closing Date,
Interstate shall have received all payments required to be made by
BREA and its affiliates in accordance with the terms of the Option
Agreement, unless the failure to receive such payments is due to a
default by Interstate.
(g) The closing of the transactions contemplated by the
Fort Magruder Agreement shall have occurred in
<PAGE> 18
15
accordance with the terms of the Fort Magruder Agreement unless the
failure to close is due to a default by Interstate or IHC/Williamsburg
Inc.
7. New York State Real Estate Transfer Gains Tax; Other
Real Estate Transfer Taxes. (a) In the case of any Interest in an Interstone
Partnership or Property Partnership which directly or indirectly owns real
property located in the State of New York, Buyer and the Sellers agree to
comply in a timely manner with the requirements of Article 31-B of the Tax Law
of the State of New York and the regulations applicable thereto, as the same
from time to time may be amended (the "NY Gains Tax Law"). Buyer agrees to
execute and acknowledge a Transferee Questionnaire (Form TP-581), prepared by
the Sellers, with respect to each such Interest within five business days after
the date of this Agreement. Each Seller of each such Interest agrees to
execute and acknowledge a Transferor Questionnaire (Form TP-580), prepared by
such Seller, with respect to each such Interest within five business days after
the date of this Agreement. The Sellers shall pay any amounts due under the NY
Gains Tax Law.
(b) Buyer and the Sellers agree to comply with all other
real estate transfer tax laws applicable to the sale of the Assets.
8. Further Assurances. From time to time, as and when
requested by any party hereto, the other party shall execute and deliver, or
cause to be executed and delivered, all such documents and instruments and
shall take, or cause to be taken, all such further or other actions as such
other party may reasonably deem necessary or desirable to consummate the
transactions contemplated by this Agreement.
9. Survival of Representations. The representations and
warranties contained in Section 4.6 of this Agreement shall survive the Closing
and shall terminate on the first anniversary of the Closing Date. The
remainder of the representations and warranties contained in this Agreement
shall survive the Closing and shall terminate on the third anniversary of the
Closing Date.
10. Indemnification.
10.1 Indemnification by the Sellers. Each Seller shall
indemnify and hold Buyer, its affiliates, members and partners, and
the partners, shareholders, officers, directors, employees,
representatives and agents of each of the foregoing harmless from and
against any and all costs, fees, expenses, damages, deficiencies,
interest and penalties (including, without limitation, reasonable
attorneys' fees and disbursements) suffered or incurred by any such
indemnified party in connection with any and all
<PAGE> 19
16
losses, liabilities, claims, damages and expenses ("Losses"), arising
out of, or in any way relating to, (i) any breach of any
representation or warranty of such Seller contained in this Agreement
or in any Schedule, certificate, instrument or other document
delivered pursuant hereto and (ii) any breach of any covenant of such
Seller contained in this Agreement, such obligation to survive the
Closing subject to Section 10.3.
10.2 Indemnification by Buyer. Buyer shall indemnify and
hold the Sellers, their affiliates, members and partners, and the
partners, shareholders, officers, directors, employees,
representatives and agents of each of the foregoing harmless from any
and all Losses arising out of, or in any way relating to, (i) any
breach of any representation or warranty by Buyer contained in this
Agreement or in any Schedule, certificate, instrument or other
document delivered pursuant hereto or in connection herewith, (ii) any
breach of any covenant of Buyer contained in this Agreement, and (iii)
whether or not the Closing occurs, any breach of any provision of any
partnership agreement of the Property Partnerships or of any agreement
to which any Property Partnership is a party, such obligation to
survive the Closing or termination of this Agreement subject to
Section 10.3.
10.3 Termination of Indemnification. (a) The obligations
of the Sellers under Section 10.1 shall terminate on the first
anniversary of the Closing Date (or the first anniversary of the
termination of this Agreement) except with respect to any claims
expressly asserted prior to such termination; provided however that
with respect to any representations of the Sellers herein which
survive for a period of 3 years after the Closing Date pursuant to
Section 9 above, the obligations of the Sellers with respect to such
representations shall survive until the termination of the survival of
such representations.
(b) The obligations of Buyer under Section 10.2 shall
terminate on the first anniversary of the Closing Date (or the first
anniversary of the termination of this Agreement) except with respect
to any claims expressly asserted prior to such termination; provided
however that with respect to any representations of Buyer herein which
survive for a period of 3 years after the Closing Date pursuant to
Section 9 above, the obligations of Buyer with respect to such
representations shall survive until the termination of the survival of
such representations.
11. Allocation of Purchase Price. The parties hereto
shall use good faith efforts to agree, prior to Closing, upon an allocation of
the Purchase Price among the Assets and among certain classes of assets owned
by the Property Partnerships;
<PAGE> 20
17
provided, however that a failure of the parties to reach agreement on such
allocation shall not permit any party to fail to close hereunder, and the
agreement contained in this Section shall survive the Closing.
12. Default. (a) If Buyer shall default in the
performance of its obligations under this Agreement to purchase the Assets by
the Outside Closing Date, or Interstate shall default in the performance of its
obligations under the Fort Magruder Agreement to purchase the assets thereunder
by the Outside Closing Date, or, if the IPO has occurred, Interstate shall
default in its obligations under the Option Agreement to deliver shares of
common stock of Interstate to BREA and its affiliates, the Sellers, as their
sole and exclusive remedy hereunder (except as set forth in the last sentence
of this subsection (a)), shall be entitled to terminate this Agreement, to
direct Escrow Agent to deliver the Earnest Money to the Sellers, and to retain
the Earnest Money as liquidated damages, at which time this Agreement shall be
terminated and of no further force and effect except for the provisions which
explicitly survive such termination. Buyer agrees that the Sellers shall have
the right to retain the Earnest Money as liquidated damages without the
necessity of proving actual damages due to the difficulty of proving actual
damages resulting from Buyer's default hereunder. In addition to the above
remedies, if Buyer shall default in its performance of its obligations under
this Agreement to purchase the Assets by the Outside Closing Date, the
provisions of the Interstone Amendments shall apply. Nothing in this Section
shall be deemed to waive any of BREA's rights under the Option Agreement, all
of which shall remain in full force and effect. Nothing in this Section shall
be deemed to limit the Sellers' remedies with respect to a breach by Buyer of
any of its obligations which survive the Closing.
(b) If any Seller shall default in the performance of its
obligations under this Agreement to cause the sale of the Assets by the Outside
Closing Date, Buyer, as its sole and exclusive remedy, shall be entitled to (i)
terminate this Agreement, direct Escrow Agent to deliver the Earnest Money to
Buyer and retain the Earnest Money, at which time this Agreement shall be
terminated and of no further force and effect except for the provisions which
explicitly survive such termination, or (ii) in the alternative, bring an
action for specific performance of the Sellers' obligations under this
Agreement. Nothing in this Section shall be deemed to limit the Buyer's
remedies with respect to a breach by any Seller of any of such Seller's
obligations which survive the Closing.
13. Rights of the Sellers. (a) If, at any time after the
date hereof through a date which is nine months after the Closing Date, an
Interstate Disposition (as defined below) occurs
<PAGE> 21
18
and the net proceeds (whether in cash or property) of such Interstate
Disposition reflect a total enterprise value (including debt) of Interstate (or
Qualifying Entity (as defined below)) in excess of (i) $650,000,000 if the
Trumbull Assets were sold to Buyer pursuant to this Agreement or (ii)
$621,000,000 if the Trumbull Assets were not sold to Buyer pursuant to the
terms of this Agreement, Buyer shall (contemporaneous with the closing of such
Interstate Disposition and as a condition thereto) pay to BREA, in cash
(without duplication of any additional net proceeds received by BREA and its
affiliates pursuant to the Option Agreement with respect to such Interstate
Disposition), 50% of the amount of such excess. As used in this Section, an
"Interstate Disposition" shall mean any of the following transactions, whether
in one transaction or through a series of transactions: (A) a merger,
consolidation, recapitalization, reorganization, reclassification or other
similar transaction involving Interstate or any other entity ("Qualifying
Entity") which, directly or indirectly, owns all or substantially all of the
assets of Interstate and its affiliates as of the date of this Agreement and
all or substantially all of the Assets being transferred hereunder and the
assets being transferred under the Fort Magruder Agreement; (B) a direct or
indirect sale, transfer, contribution or other disposition of all or
substantially all of the assets of Interstate or Qualifying Entity; and (C) a
direct or indirect sale, transfer, contribution or other distribution of the
capital stock or other equity interests of Interstate or Qualifying Entity (on
a primary or secondary basis), including without limitation an initial public
offering of shares of common stock of Interstate or Qualifying Entity.
(b) If, at any time after the date hereof through a date
which is nine months after the Closing Date, a Hotel Disposition (as defined
below) shall occur, and the net proceeds (whether in cash or property) of such
Hotel Disposition reflect a total enterprise value (including debt) for the
Hotel Assets (as defined below) in excess of (i) $480,000,000 if the Trumbull
Assets were sold to Buyer pursuant to this Agreement or (ii) $451,000,000, if
the Trumbull Assets were not sold to Buyer pursuant to the terms of this
Agreement, Buyer shall (contemporaneous with the closing of such Interstate
Disposition and as a condition thereto) pay to BREA, in cash, 50% of the amount
of such excess. As used in this Section, a "Hotel Disposition" shall mean any
of the following transactions, whether in one transaction or through a series
of transactions: (A) a direct or indirect sale, transfer, contribution or other
disposition of all or substantially all of the Hotel Assets; (B) a direct or
indirect sale, transfer, contribution or other disposition of all or
substantially all of the direct or indirect partnership interests in the
Property Partnerships by Buyer, Interstate, Qualifying Entity or any affiliate
of the foregoing and the Fort Magruder Partnership; with respect to clauses (A)
and (B), where the transferring party or parties are Interstate, Qualifying
Entity, Buyer, the Property Partnerships and/or any affiliates of Interstate;
(C) a merger, consolidation,
<PAGE> 22
19
recapitalization, reorganization, reclassification or other similar transaction
involving Interstate, Qualifying Entity or an affiliate or affiliates of
Interstate or Qualifying Entity which own, directly or indirectly, the Hotel
Assets; and (D) a direct or indirect sale, transfer, contribution or other
distribution of the capital stock or other equity interests, including without
limitation an initial public offering, of Interstate, Qualifying Entity or an
affiliate or affiliates of Interstate or Qualifying Entity which own, directly
or indirectly, the Hotel Assets. Net proceeds from a Hotel Disposition
described in clauses (C) and (D) above shall equal the net proceeds allocable
to the Hotel Assets only. As used in this Section, "Hotel Assets" means all of
the assets owned by the Property Partnerships and the Fort Magruder Partnership
as of the date hereof.
(c) If, at any time after the date hereof through a date
which is nine months after the Closing Date, an Interest Disposition (as
defined below) shall occur and the net proceeds (whether in cash or property)
of such Interest Disposition exceeds (i) the sum of (A) $141,700,000 plus (B)
any amount the Sellers require Buyer to pay to the owner of the Trumbull Hotel
pursuant to Section 2(b) above if the Trumbull Assets were sold to Buyer
pursuant to this Agreement or (ii) $129,700,000 if the Trumbull Assets were not
sold to Buyer pursuant to the terms of this Agreement, Buyer shall
(contemporaneous with the closing of such Interstate Disposition and as a
condition thereto) pay to BREA, in cash, 100% of the amount of such excess. As
used in this Section, an "Interest Disposition" shall mean the direct or
indirect sale, transfer, contribution or other disposition of all or
substantially all of the Interests and the Fort Magruder Interests, where the
transferring party or parties are Interstate, Qualifying Entity, Buyer, the
Property Partnerships and/or any affiliates of Interstate or Qualifying Entity,
whether in one transaction or through a series of transactions. Interstate
Dispositions, Hotel Dispositions and Interest Dispositions shall be
collectively referred to herein as the "Dispositions".
(d) Notwithstanding the foregoing, the provisions of this
Section 13 shall not be applicable with respect to a Disposition which occurs
after the completion of the IPO unless the Disposition was disclosed in the
registration statement, prospectus or any other public document in connection
with the IPO.
(e) Buyer hereby covenants and agrees that neither it nor
its affiliates shall structure any disposition transaction or transactions in a
manner designed principally to avoid the payment of any amounts that would
otherwise be payable to BREA under this Section 13, and upon a breach of the
covenant contained in this subsection (e), such amounts that would otherwise be
payable to the Sellers under this Section 13 if no breach had occurred shall
become due and payable by Buyer to the Sellers.
<PAGE> 23
20
(f) If any single transaction results in a payment
obligation to the Sellers pursuant to more than one of subsections (a), (b) or
(c) of this Section 13, the Sellers shall receive the highest amount payable
pursuant to this Section 13 in connection therewith.
(g) The provisions of this Section 13 shall survive the
Closing.
14. Interstone Three. (a) Simultaneously with the
Closing hereunder, Buyer and the Sellers shall cause their respective
affiliates which constitute all the partners in Interstone Three Partners I
L.P., Interstone Three Partners II L.P., Interstone Three Partners III L.P. and
Interstone Three Partners IV L.P. (collectively, the "Interstone Three
Partnerships") to execute and deliver amendments to the limited partnership
agreements of the Interstone Three Partnerships, reflecting the terms set forth
in Exhibit B attached hereto and made a part hereof (the "Interstone Three
Amendments").
(b) Notwithstanding the foregoing, if the Interstone
Three Partnerships purchase any assets prior to the Closing, prior to the
termination of this Agreement, the affiliates of the Sellers which are partners
in the Interstone Three Partnerships shall not sell any such assets without the
consent of the affiliates of Buyer which are partners in the Interstone Three
Partnerships. In addition, upon the Closing Buyer and the Sellers shall cause
their respective affiliates which constitute all the partners in Interstone
Three Partnerships to terminate the right of first opportunity under the
Interstone Three Partnerships and to form Interstone Four Partners I L.P.,
Interstone Four Partners II L.P., Interstone Four Partners III L.P. and
Interstone Four Partners IV L.P. (collectively, the "Interstone Four
Partnerships"), upon the same terms as the Interstone Three Partnerships as
they would have been amended by the Interstone Three Amendments (except that
the aggregate committed capital of the Interstone Four Partnerships shall equal
$60,000,000 less the aggregate capital contributions made under the Interstone
Three Partnerships, and such aggregate remaining committed capital for the
Interstone Four Partnerships shall be apportioned among the partners in
accordance with the partnership percentages in the Interstone Four
Partnerships). In addition, Buyer and the Sellers shall cause their respective
affiliates which constitute all the partners in Interstone Three Partnerships
to execute and deliver the Interstone Three Amendments at the Closing. In such
case, the Interstone Three Amendments will contain a provision that the
Interstone Three Amendments will not be effective until such time as the
partners of the Interstone Three Partnerships affiliated with Buyer shall have
distributed to the partners of the Interstone Three Partnerships affiliated
with the Sellers (in proportion to their sharing percentages in the Interstone
Three Partnerships) in the aggregate, 26% of the total capital contributions
made to the
<PAGE> 24
21
Interstone Three Partnerships through the Closing Date, with the effect that
after such distribution, the partners affiliated with the Sellers shall have
contributed 49% of the total contributions of the Interstone Three Partnerships
and the partners affiliated with Buyer shall have contributed 51% of the total
contributions of the Interstone Three Partnerships.
15. Lisle Management Agreement. The Sellers hereby agree
that at the Closing, they shall cause the delivery to Buyer of an amendment to
the Management and Leasing Agreement dated as of July 9, 1994 between BRPM
Associates L.P. and Interstone/Lisle Partnership L.P. (the "Lisle Management
Agreement") which shall grant Interstone/Lisle Partnership L.P. the option to
terminate the Lisle Management Agreement upon 15 days written notice at any
time after the Closing without the payment of any termination fee.
16. Use of Blackstone Name and Address. Buyer hereby
acknowledges and agrees that, notwithstanding any provision of the limited
partnership agreements of the Interstone Partnerships or the Property
Partnerships, neither Buyer nor any affiliate, successor, assignee or designee
of Buyer shall be entitled to use the name "Blackstone" in any way whatsoever.
Buyer further acknowledges and agrees that, upon the Closing, the principal
place of business of the Interstone Partnerships and the Property Partnerships
shall cease to be 118 North Bedford Road, Suite 300, Mount Kisco, New York
10549 or 345 Park Avenue, New York, New York 10154. The provisions of this
Section shall survive the Closing.
17. Agreement of Interstate. By its execution below,
Interstate hereby covenants and agrees that it shall provide funds to Buyer
from time to time to the extent necessary for Buyer to satisfy any claims any
of the Sellers may have against Buyer pursuant to this Agreement, taking into
account other liabilities that Buyer may have. Interstate acknowledges that
the covenants provided in this Section are material inducements to the Sellers'
execution of this Agreement, and that the Sellers are relying on the covenants
provided in this Section in executing and delivering this Agreement. The
provisions of this Section shall survive the Closing. Nothing contained in
this Agreement, in Section 12 or elsewhere, shall be deemed to limit the
Sellers' remedies against Interstate in the event Interstate breaches the
covenants provided in this Section.
18. Brokers. (a) Each Seller represents and warrants to
Buyer that it has dealt with no broker, salesman, finder or consultant with
respect to this Agreement or the transactions contemplated hereby. Each Seller
agrees to indemnify, protect, defend and hold Buyer harmless from and against
all claims,
<PAGE> 25
22
losses, damages, liabilities, costs, expenses (including reasonable attorneys'
fees and disbursements) and charges resulting from such Seller's breach of the
foregoing representation in this subsection (a). The provisions of this
subsection (a) shall survive the Closing and any termination of this Agreement.
(b) Buyer represents and warrants to the Sellers that it
has dealt with no broker, salesman, finder or consultant with respect to this
Agreement or the transactions contemplated hereby. Buyer agrees to indemnify,
protect, defend and hold the Sellers harmless from and against all claims,
losses, damages, liabilities, costs, expenses (including reasonable attorneys'
fees and disbursements) and charges resulting from Buyer's breach of the
foregoing representations in this subsection (b). The provisions of this
subsection (b) shall survive the Closing and any termination of this Agreement.
19. Confidentiality; Registration Statement. (a) Buyer
and the Sellers shall hold as confidential all information concerning each
other, the Partnerships, this Agreement and the transaction contemplated hereby
disclosed in connection with the transaction contemplated hereby, and shall not
release any such information to third parties without the prior written consent
of the other parties hereto, except (i) any information which was previously or
is hereafter publicly disclosed (other than in violation of this Agreement or
other confidentiality agreements to which affiliates of Buyer are parties),
(ii) to their counsel, accountants and other advisors who need to know such
information in connection with the transactions contemplated herein, (iii) to
prospective underwriters and their counsel, (iv) as required to obtain any
consent in connection with consummation of the transactions contemplated
herein, (v) to their lenders, (vi) to comply with any law, rule or regulation,
and (vii) any other disclosures which a party reasonably believes is necessary
in order to consummate the transactions contemplated herein and which do not
materially adversely affect the other parties hereto, the Interstone
Partnerships or the Property Partnerships. The provisions of this Section
shall survive the Closing or the termination of this Agreement for a period of
4 years.
(b) Buyer agrees that Interstate (or a successor) shall,
except as prohibited by law, consult with the Sellers concerning the drafting
and filing of the registration statement, prospectus and all other documents in
connection with the initial public offering of Interstate (or a successor) and
will reasonably consider any comments and objections the Sellers may have.
Notwithstanding the foregoing, no such registration statement, prospectus or
other document may refer to the Sellers or any affiliate of the Sellers without
the prior written consent of the Sellers, not to be unreasonably withheld or
delayed. Buyer agrees that the failure of Interstate to comply with this
provision shall constitute a default of Buyer hereunder.
<PAGE> 26
23
20. Successors and Assigns; No Third-Party Beneficiaries.
The stipulations, terms, covenants and agreements contained in this Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto
and their respective permitted successors and assigns (including any successor
entity after a public offering of stock, merger, consolidation, purchase or
other similar transaction involving a party hereto) and nothing herein
expressed or implied shall give or be construed to give to any person or
entity, other than the parties hereto and such assigns, any legal or equitable
rights hereunder.
21. Assignment. This Agreement may not be assigned by
either party hereto without the consent of the other party hereto, except to an
entity under the control of, controlling or under common control with the
assigning party, provided that in each case, the assigning party will continue
to remain primarily liable under this Agreement notwithstanding any such
assignment. Buyer may designate parties to which the Assets will be assigned
at the Closing, provided that Buyer will continue to remain primarily liable
under this Agreement notwithstanding any such designation.
22. Notices. All notices, demands or requests made
pursuant to, under or by virtue of this Agreement must be in writing and shall
be (i) personally delivered, (ii) delivered by express mail, Federal Express or
other comparable overnight courier service, (iii) telecopied or (iv) mailed to
the party to which the notice, demand or request is being made by certified or
registered mail, postage prepaid, return receipt requested, as follows:
(a) To any Seller:
c/o Blackstone Real Estate Advisors L.P.
345 Park Avenue
New York, New York 10154
Attention: Mr. Thomas J. Saylak
Facsimile: 212-754-8726
with copies thereof to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Glenn D. Kesselhaut, Esq.
Facsimile: 212-455-2502
<PAGE> 27
24
(b) To Buyer:
c/o Interstate Hotels Corporation
Foster Plaza X
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
Attention: Mr. Milton Fine
Facsimile: 412-937-8053
with copies thereof to:
Interstate Hotels Corporation
Foster Plaza X
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
Attention: Marvin I. Droz, Esq.
Facsimile: 412-937-3265
and
Jones, Day, Reavis & Pogue
2300 Trammel Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: David Lowery, Esq.
Facsimile: 214-969-5100
All notices (i) shall be deemed to have been given on the date that the same
shall have been delivered in accordance with the provisions of this Section and
(ii) may be given either by a party or by such party's attorneys. Any party
may, from time to time, specify as its address for purposes of this Agreement
any other address upon the giving of 10 days' notice thereof to the other
parties.
23. Entire Agreement. This Agreement, along with the
Exhibits hereto, and the "Ground Rules" letter agreement dated March 18, 1996
between BREA (by Thomas J. Saylak) and Interstate (by Marvin I. Droz), which
letter, as amended, shall survive the execution of this Agreement, (but
specifically excluding any other correspondence between any of the parties
hereto or any of their affiliates), contains all of the terms agreed upon
between the parties hereto with respect to the subject matter hereof, and all
understandings and agreements heretofore had or made among the parties hereto
are merged in this Agreement which alone fully and completely expresses the
agreement of the parties hereto.
24. Amendments. This Agreement may not be amended,
modified, supplemented or terminated, nor may any of the obligations of the
Sellers or Buyer hereunder be waived, except
<PAGE> 28
25
by written agreement executed by the party or parties to be charged.
25. No Waiver. No waiver by either party of any failure
or refusal by the other party to comply with its obligations hereunder shall be
deemed a waiver of any other or subsequent failure or refusal to so comply.
26. Governing Law. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with, the laws of
the State of New York.
27. Submission to Jurisdiction. Each of Buyer and each
Seller irrevocably submits to the jurisdiction of (a) the Supreme Court of the
State of New York, New York County, (b) the United States District Court for
the Southern District of New York, and (c) the United States District Court for
the Western District of Pennsylvania for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each of Buyer and each Seller further agrees that service of any
process, summons, notice or document by U.S. registered mail to such party's
respective address set forth above shall be effective service of process for
any action, suit or proceeding in New York or Pennsylvania with respect to any
matters to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. Each of Buyer and each Seller irrevocably and
unconditionally waives trial by jury and irrevocably and unconditionally waives
any objection to the laying of venue of any action, suit or proceeding arising
out of this Agreement or the transactions contemplated hereby in (a) the
Supreme Court of the State of New York, New York County, (b) the United States
District Court for the Southern District of New York, and (c) the United States
District Court for the Western District of Pennsylvania, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
28. Severability. If any term or provision of this
Agreement or the application thereof to any person or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
29. Section Headings. The headings of the various
Sections of this Agreement have been inserted only for purposes of convenience,
are not part of this Agreement and shall not be
<PAGE> 29
26
deemed in any manner to modify, explain, expand or restrict any of the
provisions of this Agreement.
30. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
<PAGE> 30
27
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the day and year first above written.
BJS INTERSTONE MANAGEMENT ASSOCIATES
By: Blackstone Real Estate Inc.,
general partner
By: /s/ Thomas J. Saylak
--------------------------------------
Name:
Title:
BLACKSTONE REAL ESTATE PARTNERS I L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BLACKSTONE REAL ESTATE PARTNERS II L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BLACKSTONE REAL ESTATE PARTNERS III L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
<PAGE> 31
28
BLACKSTONE REAL ESTATE PARTNERS IV L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BLACKSTONE REAL ESTATE HOLDINGS L.P.
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
--------------------------------------
Name:
Title:
BLACKSTONE RE CAPITAL PARTNERS L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BLACKSTONE RE CAPITAL PARTNERS II L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
<PAGE> 32
29
BLACKSTONE RE OFFSHORE CAPITAL
PARTNERS L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BJS INTERSTONE ASSOCIATES
By: Blackstone Real Estate Inc.,
general partner
By: /s/ Thomas J. Saylak
--------------------------------------
Name:
Title:
BREI/HOUSTON INC.
By: /s/ Thomas J. Saylak
-----------------------------------------------
Name:
Title:
BREI/LISLE INC.
By: /s/ Thomas J. Saylak
-----------------------------------------------
Name:
Title:
BREI/COLORADO SPRINGS INC.
By: /s/ Thomas J. Saylak
-----------------------------------------------
Name:
Title:
BREI/DENVER INC.
By: /s/ Thomas J. Saylak
-----------------------------------------------
Name:
Title:
BREI/ATLANTA INC.
By: /s/ Thomas J. Saylak
-----------------------------------------------
Name:
Title:
<PAGE> 33
30
BREI/CONSHOHOCKEN INC.
By: /s/ Thomas J. Saylak
-----------------------------------------------
Name:
Title:
BREI/HUNTINGTON INC.
By: /s/ Thomas J. Saylak
-----------------------------------------------
Name:
Title:
BREI/CGL INC.
By: /s/ Thomas J. Saylak
-----------------------------------------------
Name:
Title:
S.B. WESTRIDGE, INC.
By: /s/ John D. Schreiber
-----------------------------------------------
Name:
Title:
IHC MEMBER CORPORATION
By: /s/ Milton Fine
-----------------------------------------------
Name:
Title:
WITH RESPECT TO SECTION 17 ONLY:
INTERSTATE HOTELS CORPORATION
By: /s/ Milton Fine
---------------------------
Name:
Title:
<PAGE> 34
Schedule A-1
BREP Assignors and Interstone Partnerships
<TABLE>
<CAPTION>
BREP Assignors Interstone Partnerships
- - ----------------- -----------------------
<S> <C>
BJS Interstone Management
Associates Interstone Partners I L.P.
Interstone Partners II L.P.
Interstone Partners III L.P.
Interstone Partners IV L.P.
Interstone Two Partners I L.P.
Interstone Two Partners II L.P.
Interstone Two Partners III L.P.
Interstone Two Partners IV L.P.
Colorado Springs Master
Interstone L.P.
Blackstone Real Estate
Partners I L.P. Interstone Partners I L.P.
Interstone Two Partners I L.P.
Colorado Springs Master
Interstone L.P.
Blackstone Real Estate
Partners II L.P. Interstone Partners II L.P.
Interstone Two Partners II L.P.
Colorado Springs Master
Interstone L.P.
Blackstone Real Estate
Partners III L.P. Interstone Partners III L.P.
Interstone Two Partners III L.P.
Colorado Springs Master
Interstone L.P.
Blackstone Real Estate
Partners IV L.P. Interstone Partners IV L.P.
Interstone Two Partners IV L.P.
Colorado Springs Master
Interstone L.P.
Blackstone Real Estate
Holdings L.P. Interstone Partners III L.P.
Interstone Two Partners III L.P.
Blackstone RE Capital
Partners L.P. Interstone Partners III L.P.
Interstone Two Partners III L.P.
Colorado Springs Master
Interstone L.P.
</TABLE>
<PAGE> 35
2
<TABLE>
<S> <C>
Blackstone RE Capital
Partners II L.P. Interstone Partners IV L.P.
Interstone Two Partners IV L.P.
Colorado Springs Master
Interstone L.P.
Blackstone RE Offshore
Capital Partners L.P. Interstone Partners IV L.P.
Interstone Two Partners IV L.P.
Colorado Springs Master
Interstone L.P.
BJS Interstone Associates Colorado Springs Master
Interstone L.P.
</TABLE>
<PAGE> 36
Schedule A-2
GP Assignors and Property Partnerships
<TABLE>
<CAPTION>
GP Assignors Property Partnerships
- - ----------------- ---------------------
<S> <C>
BREI/Houston Inc. Interstone/Houston
Partnership, L.P.
BREI/Lisle Inc. Interstone/Lisle
Partnership, L.P.
BREI/Colorado Springs Inc. Interstone/Colorado Springs
Partnership, L.P.
BREI/Denver Inc. Interstone/Denver
Partnership. L.P.
BREI/Atlanta Inc. Interstone/Atlanta
Partnership, L.P.
BREI/Conshohocken Inc. Interstone/Conshohocken
Partnership L.P.
BREI/Huntington Inc. Huntington Hotel Partners L.P.
BREI/CGL Inc. Interstone/CGL Management
Associates, which is the general partner
of Interstone/CGL Partners L.P.; Interstone/CGL
Management Associates and Interstone/CGL
Partners L.P. shall both be deemed Property
Partnerships hereunder
S.B. Westridge, Inc. Interstone/Houston
Partnership, L.P.
Interstone/Lisle
Partnership, L.P.
Interstone/Colorado Springs
Partnership, L.P.
Interstone/Denver
Partnership, L.P.
Interstone/Atlanta
Partnership, L.P.
Interstone/Conshohocken
Partnership L.P.
Huntington Hotel Partners L.P.
</TABLE>
<PAGE> 37
Schedule B
Trumbull Members
Blackstone Real Estate Partners I L.P.
Blackstone Real Estate Partners II L.P.
Blackstone Real Estate Partners III L.P.
Blackstone Real Estate Partners IV L.P.
Blackstone Real Estate Holdings L.P.
Blackstone RE Capital Partners L.P.
Blackstone RE Capital Partners II L.P.
Blackstone RE Offshore Capital Partners L.P.
<PAGE> 38
Schedule C
Purchase Price
<TABLE>
<CAPTION>
Execution Date
of this Agreement and
Receipt by Escrow Agent
of the Earnest Money and
Interstone Amendments Aggregate Purchase Price
- - --------------------- -------------------------
<S> <C>
On or Before
March 31, 1996 $135,500,000
April 1, 1996
through April 30, 1996 $139,300,000
May 1, 1996
through May 31, 1996 $143,100,000
June 1, 1996
through June 30, 1996 $146,900,000
</TABLE>
<PAGE> 39
Schedule D
Section 4.6(a) Exceptions
Leases with the following tenants have been executed with
respect to the office building portion of the asset owned by Interstone/Lisle
Partnership, L.P.
ITT Hartford Insurance
McDonald's
Tellabs
Union Carbide
Huntsman Chemical
Crane Valves
Comnet
Juice Pak
Paige Temporary
H.J. Heinz
BACO (in negotiation)
<PAGE> 40
Exhibit A
Form of Interstone Amendment
The Interstone Amendments shall provide for the forfeiture of Interstate's
carried interest upon a default under this Agreement.
<PAGE> 41
Exhibit B
Form of Interstone Three Amendments
The Interstone Three Amendments shall make the following changes to the limited
partnership agreements of the Interstone Three Partnerships, and except as
changed in the Interstone Three Amendments, the limited partnership agreements
of the Interstone Three Partnerships shall remain in full force and effect:
1. Interstate shall have a 51% interest in each of the Interstone Three
Partnerships and BREA shall have a 49% interest in each of the
Interstone Three Partnerships
2. Interstate's committed capital shall be increased to $30,600,000 and
BREA's committed capital shall be reduced to $29,400,000.
3. Interstate shall control the day to day management of the Interstone
Three Partnerships; BREA and Interstate shall have joint control over
major decisions of the Interstone Three Partnerships (major decisions
shall include the purchase and sale of assets, financing decisions and
all other decisions discussed in Sections 3.2 and 3.3 of the limited
partnership agreements of the Interstone Three Partnerships)
4. A Buy/Sell provision shall be added as a deadlock mechanism
5. BREA shall only be entitled to an acquisition fee to the extent BREA
introduced the acquisition to Interstate, and Interstate shall be
entitled to an acquisition fee (at the same percentage) to the extent
Interstate introduced the acquisition to BREA
The parties hereto shall use their best efforts to cause the underwriters of
the IPO to market the IPO with the Interstone Three Partnerships having these
terms.
<PAGE> 1
EXHIBIT 10.2(b)
FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE
FIRST AMENDMENT TO AGREEMENT OF PURCHASE AND SALE dated as of
March 29, 1996 by and between each of the Assignors executing this First
Amendment below (the "Assignors") and IHC MEMBER CORPORATION ("Buyer").
Background
The Assignors and Buyer are parties to that certain Agreement
of Purchase and Sale dated as of March 29, 1996 (the "Agreement") and have
agreed to amend the terms of the Agreement as set forth herein.
Agreement
1. Recital B of the Agreement is hereby amended by
adding the phrase "as amended by a First Amendment thereto dated as of March
29, 1996," after the opening parenthesis on the second line thereof.
2. Section 2(a) of the Agreement is hereby deleted in
its entirety and the following is substituted therefor: "(a) The aggregate
purchase price for the Assets (the "Purchase Price") shall be $133,400,000.".
Schedule C to the Agreement is hereby deleted in its entirety.
3. Section 3(a) of the Agreement is hereby amended by
deleting the date "July 1, 1996" from the seventh line thereof and substituting
the date "July 15, 1996" therefor.
4. The Agreement is hereby amended by adding the
following sentences to the end of Section 13(a) thereof:
"The provisions of this Section 13(a) shall not apply to an
initial public offering of shares of common stock of
Interstate or Qualifying Entity if the Prospective Equity
Participants (as defined in the Option Agreement) receive in
connection with such iniital public offering shares of common
stock of Interstate or Qualifiying Entity (as applicable)
having a value equal to $44,800,000 based on the price to the
public in such initial public offering as provided in Section
3.3 of Amendment No. 2 to the Option Agreement dated as of
March 29, 1996 among Interstate, the Existing Stockholders
named therein, The Blackstone Group L.P., the Prospective
Equity Participants named therein and BREA ("Amendment No.
2"). Notwithstanding the provisions of this Section 13(a) and
without in any way limiting the provisions of Amendment No. 2,
if an initial public offering of shares of common stock of
Interstate or Qualifying Entity occurs prior to the date which
is nine months after the Closing Date and the Prospective
Equity Participants do not receive in
<PAGE> 2
2
connection with such initial public offering the shares of
common stock of Interstate or Qualifying Entity as provided in
Section 3.3 of Amendment No. 2, Buyer shall, as its sole
obligation under this Section 13(a) with respect to such
initial public offering and without regard to the net proceeds
from, or the total enterprise value reflected by, such initial
public offering, cause Interstate or Qualifying Entity (as
applicable) to deliver to BREA (on behalf of the Assignors)
certificates representing shares of the common stock of
Interstate or Qualifying Entity (as applicable) having a value
equal to $11,000,000 based on the price to the public of such
shares in such initial public offering, as calculated pursuant
to Section 3.3 of Amendment No. 2.".
5. Buyer agrees that it shall use commercially
reasonable efforts to close an initial public offering of shares of common
stock of Interstate or Qualifying Entity as soon as possible but not later than
July 15, 1996.
6. The Agreement, as amended hereby, is and shall remain
in full force and effect.
IN WITNESS WHEREOF, this First Amendment has been duly
executed by the parties hereto as of the day and year first above written.
BJS INTERSTONE MANAGEMENT ASSOCIATES
By: Blackstone Real Estate Inc.,
general partner
By: /s/ Thomas J. Saylak
---------------------------
Name:
Title:
BLACKSTONE REAL ESTATE PARTNERS I L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
-----------------------
Name:
Title:
<PAGE> 3
3
BLACKSTONE REAL ESTATE PARTNERS II L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By:/s/ Thomas J. Saylak
--------------------------
Name:
Title:
BLACKSTONE REAL ESTATE PARTNERS III
L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
--------------------------
Name:
Title:
BLACKSTONE REAL ESTATE PARTNERS IV L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
--------------------------
Name:
Title:
BLACKSTONE REAL ESTATE HOLDINGS L.P.
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
--------------------------
Name:
Title:
<PAGE> 4
4
BLACKSTONE RE CAPITAL PARTNERS L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
--------------------------
Name:
Title:
BLACKSTONE RE CAPITAL PARTNERS II L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
------------------------
Name:
Title:
BLACKSTONE RE OFFSHORE CAPITAL
PARTNERS L.P.
By: Blackstone Real Estate
Associates L.P., general partner
By: BREA L.L.C., general partner
By: /s/ Thomas J. Saylak
--------------------------
Name:
Title:
BJS INTERSTONE ASSOCIATES
By: Blackstone Real Estate Inc.,
general partner
By: /s/ Thomas J. Saylak
--------------------------
Name:
Title:
<PAGE> 5
5
BREI/HOUSTON INC.
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BREI/LISLE INC.
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BREI/COLORADO SPRINGS INC.
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BREI/DENVER INC.
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BREI/ATLANTA INC.
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BREI/CONSHOHOCKEN INC.
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
BREI/HUNTINGTON INC.
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
<PAGE> 6
6
BREI/CGL INC.
By: /s/ Thomas J. Saylak
------------------------------
Name:
Title:
S.B. WESTRIDGE, INC.
By: /s/ John D. Schreiber
------------------------------
Name:
Title:
IHC MEMBER CORPORATION
By: /s/ Milton Fine
------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.3(b)
FIRST AMENDMENT TO CONTRIBUTION AGREEMENT
FIRST AMENDMENT TO CONTRIBUTION AGREEMENT dated as of March
29, 1996 by and between each of the Contributors executing this First Amendment
below (the "Contributors") and INTERSTATE HOTELS CORPORATION ("Interstate").
Background
The Contributors and Interstate are parties to that certain
Contribution Agreement dated as of March 29, 1996 (the "Contribution
Agreement") and have agreed to amend the terms of the Contribution Agreement as
set forth herein.
Agreement
1. Section 2(a) of the Contribution Agreement is hereby
amended by deleting the second sentence thereof and substituting the following
sentence therefor: "As used herein, the "Contribution Amount" shall mean
$8,300,000." Schedule A to the Contribution Agreement is hereby deleted in its
entirety.
2. Section 3(a) of the Contribution Agreement is hereby
amended by deleting the date "July 1, 1996" from the sixth line thereof and
substituting the date "July 15, 1996" therefor.
3. Section 6.1(k) of the Contribution Agreement is
hereby amended by adding the phrase "as amended by a First Amendment thereto
dated as of March 29, 1996," after the opening parenthesis on the fourth line
thereof.
4. Section 11(a) of the Contribution Agreement is hereby
amended by deleting the date "July 1, 1996" from the seventh line thereof and
substituting the date "July 15, 1996" therefor.
5. The Contribution Agreement, as amended hereby, is and
shall remain in full force and effect.
<PAGE> 2
2
IN WITNESS WHEREOF, this First Amendment has been duly
executed by the parties hereto as of the day and year first above written.
CONTRIBUTORS:
INTERSTONE PARTNERS I L.P.
By: BJS Interstone Management
Associated, managing general partner
By: /s/ Thomas J. Saylak
-----------------------------
Name:
Title:
INTERSTONE PARTNERS II L.P.
By: BJS Interstone Management
Associated, managing general partner
By: /s/ Thomas J. Saylak
-----------------------------
Name:
Title:
INTERSTONE PARTNERS III L.P.
By: BJS Interstone Management
Associated, managing general partner
By: /s/ Thomas J. Saylak
-----------------------------
Name:
Title:
INTERSTONE PARTNERS IV L.P.
By: BJS Interstone Management
Associated, managing general partner
By: /s/ Thomas J. Saylak
-----------------------------
Name:
Title:
<PAGE> 3
3
BREI/WILLIAMSBURG L.L.C
By: /s/ Thomas J. Saylak
--------------------------------
Name:
Title:
S.B. WESTRIDGE, INC.
By: /s/ John D. Schreiber
--------------------------------
Name:
Title:
IHC/WILLIAMSBURG, INC.
By: /s/ W. Thomas Parrington, Jr.
--------------------------------
Name:
Title:
INTERSTATE:
INTERSTATE HOTELS CORPORATION
By: /s/ Milton Fine
--------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.5
================================================================================
REGISTRATION RIGHTS and SHAREHOLDERS AGREEMENT
among
INTERSTATE HOTELS COMPANY
and
THE SHAREHOLDERS NAMED HEREIN
Dated as of June __, 1996
================================================================================
<PAGE> 2
REGISTRATION RIGHTS AND SHAREHOLDERS AGREEMENT
THIS REGISTRATION RIGHTS AND SHAREHOLDERS AGREEMENT (the "Agreement"), dated
as of the ____ day of June, 1996 among INTERSTATE HOTELS COMPANY, a
Pennsylvania corporation (the "Company") and the shareholders of the Company
identified on the signature pages hereof (individually, a "Shareholder";
collectively, the "Shareholders").
WITNESSETH:
WHEREAS, the Shareholders have contributed to the Company certain assets in
exchange for restricted shares of Common Stock of the Company;
WHEREAS, the parties hereto desire to execute a shareholder agreement
relating to the Transfers of shares of Common Stock; and
WHEREAS, the Company has agreed to grant to the Shareholders certain
registration rights, as more specifically described herein, with respect to
their shares of Common Stock of the Company,
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the adequacy of which are hereby acknowledged and intending to be
legally bound, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings, whether used in the singular or the plural:
"Affiliate" means, with respect to any person, any other person that
directly or indirectly through one or more intermediaries Controls, or is
Controlled by, or is under common Control with, such first person.
"BREA" means the affiliates of Blackstone Real Estate Advisors L.P. who
become parties to that certain Shareholders Agreement among the Company and
the parties hereto.
"Common Stock" means the common stock, par value $0.01 per share, of the
Company and any other shares, units or other equity interests into which such
common stock may be converted or exchanged in any acquisition, merger,
consolidation, reorganization, reclassification or similar transaction.
"Control" means, with respect to any person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of
<PAGE> 3
such person, whether through the ownership of voting securities, by contract
or otherwise.
"Employee Shareholder" shall mean any Shareholder other than Milton Fine or
any of his Affiliates or Permitted Transferees or Milton Fine, Trustee, U/A
dated 11/17/89 as amended, FBO Milton Fine; David J. Fine, Trustee for the
Milton Fine Grantor Annuity Trust U/A dated March 31, 1996; David J. Fine,
Trustee, U/A dated 12/15/89 FBO Sibyl A. Fine King; David J. Fine, Trustee,
U/A dated 12/15/89 FBO Carolyn Fine Friedman; and David J. Fine, Trustee, U/A
dated 12/15/89 FBO David J. Fine.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Permitted Transferee" means (1) each spouse, child (natural or adopted),
grandchild or parent of any Shareholder (provided no individual who is less
than 21 years of age shall be a Permitted Transferee), (2) any trust for the
benefit of a Shareholder or a person described in clause (1), (3) any
corporation or partnership controlled by one or more Shareholders or any
persons described in clause (1) so long as a majority of the economic and
voting interests of such corporation or partnership are owned by such
Shareholders, the persons described in clause (1) or the trusts referred to
in clause (2), (4) any director, officer or employee of the Company or its
subsidiaries, or (5) any shareholders, partners or members of a Shareholder
in connection with the dissolution of such Shareholder.
"Person" means any individual, partnership, joint venture, limited liability
company, corporation or other entity, trust, unincorporated organization or
government or department or agency thereof.
"Public Sale" means any underwritten public distribution pursuant to a
registered public offering under the Securities Act or any sale pursuant to
Rule 144 (if available) or Rule 144A under the Securities Act (or any similar
rule then in force)
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Securities and Exchange Commission" means the Securities and Exchange
Commission and includes any federal governmental body or agency succeeding to
the functions thereof.
"Subsidiary" means, with respect to any person, any corporation, limited
liability company, partnership, joint venture, trust or estate of which (or
in which) more than 50% of: (a) the outstanding capital stock having ordinary
- 2 -
<PAGE> 4
voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether or not at the time capital stock of any
other class or classes of such corporation shall or might have voting power
upon the occurrence of any contingency); (b) the interest in the capital or
profits of such partnership, limited liability company or joint venture; or
(c) the beneficial interest of such trust or estate, is at the time directly
or indirectly (through one or more other Subsidiaries of such person) owned
by such person.
"Transfer" of any shares of Common Stock, means any sale, transfer,
assignment, or other disposition of such shares or any interest therein for
value (but excluding bona-fide pledges and any transfer upon foreclosure
thereof and any transfer by gift or devise), directly or indirectly
(including a transfer by any person of the capital stock or other interest in
a Subsidiary of such person which is the direct or indirect holder of shares
of Common Stock).
2. REGISTRATION RIGHTS. (a) If at any time after the date hereof the
Company intends to file with the Securities and Exchange Commission a
registration statement on any registration form of the Securities and Exchange
Commission (other than Form S-8 or S-4) covering the sale of shares of Common
Stock for cash in a public offering by the Company or any of its stockholders,
the Company shall notify the Shareholders of its intention to file that
registration statement at least 30 days prior to the filing thereof. The
notice shall state the total number of shares of Common Stock proposed to be
registered thereby. If a Shareholder notifies the Company within 10 days after
receipt of such notice from the Company of the desire of the Shareholder to
have included in that registration statement any of his shares of Common Stock,
then, subject to Section 2(e), the Company shall include those shares in that
registration statement ("Company Registration"). Neither the delivery of a
notice under this Section 2(a) nor a request by a Shareholder under this
Section 2(a) shall in any way, obligate the Company to file any registration
statement and notwithstanding the filing of such a registration statement, the
Company may, at any time before the effective date thereof, elect to terminate
the entire registration process without any further obligation to a Shareholder
with respect thereto. A registration request pursuant to this Section 2(a)
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective for such period as is described in
Section 2(c), (ii) if after it has become effective such registration is
interfered with by any stop order, injunction or other order or requirement of
the Securities and Exchange Commission or other governmental authority and
(iii) unless the amount of shares offered and sold by the Company as part of
such underwritten public offering shall have created an active trading market
for such shares immediately following such offering in the reasonable judgment
of the managing underwriter or underwriters in respect
- 3 -
<PAGE> 5
of such offering. If the registration demanded pursuant to this Section 2(a)
shall not have been deemed to be so effected, the Shareholder shall be entitled
to exercise his registration rights as provided herein until the registration
demanded pursuant to this Section 2(a) shall be deemed to be so effected.
(b) Shareholders holding not less than forty percent (40%) of the Common
Stock subject to the provisions hereof may, subject to the terms and conditions
contained in this Section 2, exercise the demand registration rights contained
in this Section 2(b) at any time and from time to time following expiration of
the 180 day period contained in that certain Lock-Up Agreement with Merrill
Lynch & Co. The Company will be obligated to effect only three Demand
Registrations (as defined below) pursuant to this Section 2(b). The
Shareholders shall have the right to make a demand on the Company to effect the
registration (a "Demand Registration") for an underwritten public offering
involving a secondary offering of all or a portion of the shares of Common
Stock held by them on Form S-1 (or other form available for registration of
sales of securities for cash) subject to Section 2(d). Shareholders shall
notify the Company of their desire to exercise each Demand Registration by
delivering to the Company written notice (a "Demand Notice") specifying the
number of shares of Common Stock which they desire to be included in the Demand
Registration. Upon receipt of the Demand Notice, the Company shall promptly
give written notice of the Demand Registration to all other holders of shares
of Common Stock, if any, that are entitled to have such shares included in such
registration (the "Other Holders") and otherwise comply with the registration
procedures contained herein. Each of the Other Holders may elect to
participate in the Demand Registration by giving the Company written notice of
such Other Holder's election to include its shares of Common Stock in the
Demand Registration within 15 days from the date on which the notice to Other
Holders is given by the Company, which notice shall specify the number of
shares of Common Stock which such Other Holder desires to be included in the
Demand Registration. A registration demanded pursuant to this Section 2(b)
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective for such period as is described in
Section 2(c) and (ii) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Securities and Exchange Commission or other governmental authority. If the
registration demanded pursuant to this Section 2(b) shall not have been deemed
to be so effected, such registration shall not be counted against the number of
Demand Registrations permitted by this Section 2(b).
(c) Upon the Company's receipt of a Demand Notice and the responses from
Other Holders (or the expiration of the 15-day period referred to above), the
Company shall prepare and file with the Securities and Exchange Commission, as
soon as practicable but no longer than 60 days from the date of the Company's
receipt of the Demand Notice, a registration statement
- 4 -
<PAGE> 6
covering the shares of Common Stock requested to be included in the Demand
Registration by a Shareholder and the Other Holders, and shall use its best
efforts to cause such registration statement to become effective as
expeditiously as possible. The Company shall in no event be required to
maintain the effectiveness under the Securities Act of any registration
statement relating to a Demand Registration for more than 15 months following
the date such registration statement became effective. In connection with the
Demand Notice and the filing of such registration statement, the Company will:
(i) Prepare and file with the Securities and Exchange Commission such
amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the sale
of such securities.
(ii) Cause all securities covered by such registration statement to be
listed on each securities exchange, if any, on which securities of such
class, if any, are then listed if requested by the Shareholder.
(iii) Cooperate and assist in any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD") and the
performance of any due diligence investigation by the underwriters (including
any "qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD).
(iv) Use its best efforts to register or qualify the securities covered
by such registration statement for sale under such other securities or blue
sky laws of such jurisdictions as the holders of the securities covered
thereby (hereinafter in this Section referred to as "such holders")
participating in such registration may reasonably request and do any and all
other acts and things which may be reasonably necessary or desirable to
enable such holders to consummate the disposition in such jurisdictions of
the securities covered thereby owned by such holders.
(v) Furnish to such holders participating in such registration and to
the underwriters of the securities being registered a reasonable number of
copies of the registration statement, preliminary prospectus, final
prospectus, and such other documents as such holders or underwriters may
reasonably request in order to facilitate the public offering of such
securities.
(vi) Notify such holders participating in such registration, promptly
after it shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a
part of such registration statement has been filed.
- 5 -
<PAGE> 7
(vii) Notify such holders promptly of any request by the Securities and
Exchange Commission for the amending or supplementing of such registration
statement or prospectus or for additional information.
(viii) Prepare and file with the Securities and Exchange Commission,
promptly upon the request of any such holders, any amendments or supplements
to such registration statement or prospectus which, in the opinion of special
counsel for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the securities by such holders.
(ix) Prepare and promptly file with the Securities and Exchange
Commission and promptly notify such holders of the filing of such amendment
or supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be delivered under the
Securities Act, any event shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statement therein, in the light of the circumstances in which they
were made, not misleading.
(x) Advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Securities
and Exchange Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for the purpose
and promptly use its best efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued.
(xi) As soon as practicable and in no event less than one day prior to
the filing of any amendment or supplement to such registration statement or
prospectus, furnish copies thereof to such holders and refrain from filing
any such amendment or supplement to which a majority in interest of such
holders shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements of
the Securities Act or the rules and regulations thereunder, unless in the
opinion of counsel for the Company the filing of such amendment or supplement
is reasonably necessary to protect the Company from any liabilities under any
applicable federal or state law and such filing will not violate applicable
law.
(xii) Allow the managing underwriter (and its counsel) to conduct "due
diligence" investigations of the
- 6 -
<PAGE> 8
Company and participate in the preparation of the registration statement, and
at the request of any such holder, enter into an underwriting agreement
containing customary terms, conditions and furnish on the date or dates
provided for in the underwriting agreement: (i) an opinion of counsel
satisfactory to such holder, addressed to the underwriters and to such holder
or holders making such request, opining as to such matters as such
underwriters and holder or holders may reasonably request; and (ii) a letter
or letters from the independent certified public accountants of the Company,
addressed to the underwriter and to such holder or holders making such
request, covering such matters as such underwriters and holder or holders may
reasonably request, in which letters such accountants shall state (without
limiting the generality of the foregoing) that they are independent certified
public accountants within the meaning of the Securities Act and that in the
opinion of such accountants the financial statements and other financial data
of the Company included in the registration statement or any amendment or
supplement there to comply in all material respects with the applicable
accounting requirements of the Securities Act.
(d) The obligations of the Company under Section 2(b) to comply with
requests for Demand Registrations are subject to the following limitations:
(i) The Company shall be entitled to postpone up to 60 days in any
twelve month period the filing of any registration statement otherwise
required to be prepared and filed by it pursuant to Section 2(b) if, at the
time it receives a Demand Notice, the Company determines, in its reasonable
and good faith judgment, that such registration and sale would materially
interfere with any financing, acquisition, corporate reorganization or other
material transaction involving the Company or any of its Subsidiaries and
promptly gives the Shareholders written notice of such determination. If the
Company shall so postpone the filing of a registration statement, the Demand
Notice received by the Company shall not be counted for purposes of
determining the number of Demand Registrations to which Shareholders are
entitled pursuant to this Section 2.
(ii) Any Demand Notice shall be for the registration of shares of Common
Stock representing at least 25% of the total number of shares of Common Stock
issued to the Shareholders on the date of this Agreement, or, if less, all
shares of Common Stock owned by the Shareholders delivering such Demand
Notice and their Permitted Transferees.
(iii) In the event of a Demand Registration, sales shall be made through a
managing underwriter or underwriters mutually selected by the Shareholders
and the Company.
- 7 -
<PAGE> 9
(e) Notwithstanding the provisions of Section 2(a) and 2(b): (i) in the
event of any Company Registration in which the managing underwriter(s) notify
the Company that the aggregate amount of securities of the Company proposed to
be offered by the Company, the Shareholders and Other Holders would adversely
affect the ability to effect such offering, then the number of shares of Common
Stock proposed to be offered by the Shareholders and any Other Holders shall be
reduced (if need be to zero) to the aggregate amount determined by the managing
underwriter(s) that can be offered without adversely affecting the ability to
effect such offering, such reductions to be made pro rata among the
Shareholders and such Other Holders in accordance with the number of shares of
Common Stock proposed to be offered by each such offeror; and (ii) in the event
of any Demand Registration in which the managing underwriter(s) notify the
Company that the aggregate amount of securities of the Company proposed to be
offered by the Company, the Shareholders and any Other Holders would adversely
affect the ability to effect such offering, then the number of shares of Common
Stock proposed to be offered by BREA, as one of the other Holders, if any,
shall first be included in such registration; then the shares of Common Stock,
if any, proposed to be included in such registration by the Company, the
Shareholders and any Other Holders (other than BREA) shall be reduced (if need
be to zero) to the aggregate amount determined by the managing underwriter(s)
that can be offered without adversely affecting the ability to effect such
offering, such reductions to be made pro rata in accordance with the number of
shares of Common Stock proposed to be offered by each such offeror.
3. REGISTRATION EXPENSES. To the extent permitted by applicable law, the
Company shall pay all expenses in connection with any Company Registration or
Demand Registration, including, without limitation, (a) all expenses incident
to filing with the NASD, (b) registration fees, (c) printing expenses, (d)
accounting and legal fees and expenses of one accounting firm and one law firm
to represent all selling Shareholders (selected by a majority of the
Shareholders participating in such registration, in the case of any Demand
Registration, and reasonably acceptable to a majority of the Shareholders, in
the case of any Company Registration), (e) expenses of any special audits
incident to or required by any such registration or qualification, (f) premiums
for insurance in such amount, if any, deemed appropriate by the managing
underwriter, and (g) expenses of complying with the securities or blue sky laws
of any jurisdictions in connection with such registration or qualification;
provided, however, the Company shall not be liable for (1) any discounts or
commissions to any underwriter attributable to shares of Common Stock being
sold by any selling stockholder, (2) any stock transfer taxes incurred in
respect of the shares of Common Stock being sold by any selling stockholder, or
(3) the legal fees of any selling stockholder (other than as set forth in
clause 3(d) above).
- 8 -
<PAGE> 10
4. BLUE SKY LAWS. In any registration under Sections 2(a) and 2(b), the
Company shall use its best efforts to register, qualify, or effect an exemption
with respect to the shares of Common Stock of the Shareholders under the "blue
sky" laws of such states as may be reasonably requested by the Shareholders or
the managing underwriter(s); provided, however, that the Company shall not be
required to qualify to do business or to file a general consent to service of
process in any such jurisdictions.
5. INDEMNIFICATION. In connection with any registration pursuant to
Section 2:
(a) The Company hereby agrees to indemnify and hold harmless, to the
fullest extent permitted by law, each Shareholder, and each of their
respective shareholders, partners, members, officers, directors, employees,
heirs, personal or legal representatives and agents, and any Affiliates (as
defined in the Securities Act), against any losses, costs, expenses, claims,
damages, liabilities, actions or judgments, including reasonable attorneys'
fees and disbursements (collectively, "Damages"), joint or several, to which
any of them may become subject under the Securities Act or otherwise, insofar
as such Damages arise out of or are based upon any untrue or alleged untrue
statement of a material fact contained in a registration statement filed with
the Securities and Exchange Commission by the Company, or preliminary or
final prospectus contained therein, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order
to make the statements made therein not misleading; and will reimburse each
Shareholder and their respective shareholders, partners, members, officers,
directors, employees, heirs, personal or legal representatives, and any
Affiliates, for any legal or other expenses incurred by any of them in
connection with investigating or defending against any such Damages; except
that the Company will not be liable in any such case to a Shareholder or any
other person or entity to the extent that any Damages arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in a registration statement, or preliminary or final
prospectus contained therein, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished by or on
behalf of such Shareholder specifically for use therein.
(b) Each Shareholder, severally, agrees to indemnify and hold harmless, to
the fullest extent permitted by law, the Company, each of its shareholders,
directors, officers, employees, agents, and any Affiliates (as defined in the
Securities Act) of the Company and each person who controls the Company
(within the meaning of the Securities Act or the
- 9 -
<PAGE> 11
Exchange Act), against any Damages, joint or several, to which any of them
may become subject under the Securities Act or otherwise, insofar as such
Damages arise out of or are based upon any untrue or alleged untrue statement
of a material fact contained in a registration statement filed with the
Securities and Exchange Commission by the Company, or preliminary or final
prospectus contained therein or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such untrue or alleged untrue statement
or omission or alleged omission is made in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
Shareholder, specifically for use therein, and will reimburse the Company,
its directors, officers, agents, and Affiliates or control persons, for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Damages.
(c) Any person entitled to indemnification hereunder shall give prompt
notice to the indemnifying person of any claim with respect to which it shall
seek indemnification and shall permit such indemnifying person to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
person; PROVIDED, that any person entitled to indemnification hereunder shall
have the right to employ separate counsel and to participate in the defense
of such claim, but the fees and expenses of such counsel shall be at the
expense of such person UNLESS (i) the indemnifying person shall have agreed
to pay such fees or expenses, or (ii) the indemnifying person shall have
failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such person, or (iii) in the opinion of outside counsel to
such person there may be one or more legal defenses available to such person
which are different from or in addition to those available to the
indemnifying person with respect to such claims (in which case, if the person
notifies the indemnifying person in writing that such person elects to employ
separate counsel at the expense of the indemnifying person, the indemnifying
person shall not have the right to assume the defense of such claim on behalf
of such person). If such defense is not assumed by the indemnifying person,
the indemnifying person shall not be subject to any liability for any
settlement made without its consent (but such consent shall not be
unreasonably withheld). No indemnified person shall be required to consent
to entry of any judgment or enter into any settlement that does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such indemnified person of a written release in form and substance reasonably
satisfactory to such indemnified person from all liability in respect of such
claim or litigation. An indemnifying person who is not
- 10 -
<PAGE> 12
entitled to, or elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one firm of counsel (and,
if necessary, local counsel) for all persons indemnified by such indemnifying
person with respect to such claim, unless in the written opinion of outside
counsel to an indemnified person a conflict of interest as to the subject
matter exists between such indemnified person and another indemnified person
with respect to such claim, in which event the indemnifying person shall be
obligated to pay the fees and expenses of additional counsel for such
indemnified person.
(d) If for any reason the indemnification provided for herein is
unavailable to an indemnified person or is insufficient to hold it harmless
as contemplated hereby, then the indemnifying person shall contribute to the
amount paid or payable by the indemnified person as a result of such loss,
cost, expense, claim, damage, liability, action or judgment in such
proportion as is appropriate to reflect not only the relative benefits
received by the indemnified person and the indemnifying person, but also the
relative fault of the indemnified person and the indemnifying person, as well
as any other relevant equitable considerations.
6. RIGHT OF FIRST OFFER.
(a) An Employee Shareholder shall not Transfer any shares of Common Stock
other than in compliance with this Section 6. Any such attempted Transfer not
in compliance herewith shall be null and void, AB INITIO, and the Company shall
not give effect to any such attempted Transfer in the stock transfer ledgers of
the Company.
(b) If an Employee Shareholder proposes to Transfer any shares of Common
Stock, he shall give written notice (the "First Offer Notice") of such proposal
to Milton Fine or his representative ("Fine") at least 5 days in advance
thereof, setting forth the number of shares which he desires to Transfer (the
"First Offer Shares"), the cash purchase price therefor and the other terms and
conditions of such proposed Transfer. Fine, on behalf of himself or his
designee, may, in his sole discretion, at any time within 5 days after delivery
by such Employee Shareholder of the First Offer Notice (the "First Offer
Period") elect, pursuant to a written offer, to purchase (a "Purchase Offer")
all (but not less than all) of the First Offer Shares covered by such First
Offer Notice at a per share cash price and upon the terms and conditions set
forth in the First Offer Notice. In the event Fine or his designee elects to
purchase all of the First Offer Shares, the parties shall thereafter promptly
(and in any event within 10 days of the date of such written acceptance) close
the purchase and sale of the First Offer Shares covered by the Purchase Offer.
At such closing, the Employee Shareholder shall deliver the First Offer Shares
to Fine or his designee against a cash payment therefor in
- 11 -
<PAGE> 13
full by wire transfer of immediately available funds to such account or
accounts as may be designated by the Employee Shareholder. Such closing shall
take place at the principal office of the Company.
(c) If no Purchase Offer is received by such Employee Shareholder within
the First Offer Period, such Employee Shareholder shall be entitled, for a
period of 120 days following the date of delivery of the First Offer Notice
(the "Free Transfer Period"), to Transfer all (but not less than all, excluding
shares covered by a First Offer Notice which are Transferred during the Free
Transfer Period in reliance on the provisions of Section 6(d) below) of the
First Offer Shares at a per share cash price no less than the 90% of per share
price specified in the First Offer Notice and on terms and conditions
materially similar to those specified in the First Offer Notice.
(d) The provisions of this Section 6 shall not apply to Transfers by
Employee Shareholders (including Transfers of First Offer Shares during the
Free Transfer Period) (i) of Common Stock pursuant to a Public Sale (1)
involving a public offering registered under the Securities Act or (2)
consistent with the "manner of sale" requirements specified in Rule 144(f)
under the Securities Act; or (ii) to a Permitted Transferee of an Employee
Shareholder; PROVIDED that, in the case of clause (ii), such Permitted
Transferee has agreed in writing to be bound by the terms and conditions of
this Agreement, in form and substance reasonably satisfactory to the Company,
to the same extent and in the same manner applicable to such Employee
Shareholder.
7. LOCK-UP PROVISION. Each Shareholder agrees in connection with any
public offering of the Company's securities following the date hereof that,
upon the request of the managing underwriter(s) in the case of any underwritten
public offering, or the Company in the case of a non-underwritten public
offering, each Shareholder shall not sell or offer to sell any shares of Common
Stock or any other securities of the Company, other than shares of Common Stock
included in the public offering, during the period commencing on the
distribution of a "red herring" prospectus for such offering and ending 90 days
following the date of the final prospectus used in such offering.
8. PARTICIPATION IN REGISTRATIONS The Shareholders may not participate
in any registration of securities of the Company unless such Shareholder:
(a) agrees to sell its securities on the basis provided in any
underwriting arrangements approved by the Company and reasonably acceptable
to the Shareholder (in the case of any Demand Registration) which are
customary and which are not in direct contradiction of any rights granted to
the Shareholder under this Agreement; and
- 12 -
<PAGE> 14
(b) completes and executes all questionnaires, powers of attorney,
custodial agreements, indemnities, underwriting agreements and other
documents required under the terms of such underwriting arrangements which
are customary and which are not in direct contradiction of any rights granted
to the Shareholder under this Agreement.
9. REQUEST TO DEREGISTER. The Company will promptly deregister any of a
Shareholder's shares initially included in a registration statement pursuant to
Section 2 if a Shareholder should thereafter desire to withdraw such shares
from the proposed offering, provided that (a) the registration statement has
not been declared effective, or (b) if the registration statement has been
declared effective, it is not current under the requirement of the Securities
Act due to the lapse of time or material changes in the affairs of the Company.
Such deregistration by the Company shall in no way indicate that the Company or
its counsel deem that any such shares meet the requirements for sale under such
rule.
10. TERMINATION. The Company's obligation to effect a Company Registration
or Demand Registration shall expire on the fifth anniversary hereof.
11. LEGEND ON STOCK CERTIFICATES. Each certificate evidencing shares of
Common Stock will be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
REGISTRATION RIGHTS AND SHAREHOLDERS AGREEMENT, DATED AS OF JUNE __, 1996,
AMONG INTERSTATE HOTELS COMPANY (THE "COMPANY") AND THE STOCKHOLDERS NAMED
THEREIN. A COPY OF SUCH AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
The Company will imprint such legends on certificates evidencing shares of
Common Stock outstanding prior to the date hereof. The legend set forth in the
paragraph above shall be removed at such time as the Shareholders no longer own
any Common Stock.
12. SEVERAL OBLIGATIONS. Any and all obligations of the Shareholders
hereunder shall be several as to itself and its own actions and not joint
obligations.
13. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES. The
stipulations, terms, covenants and agreements contained in this Agreement shall
inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors and Permitted Transferees and nothing herein
expressed or implied shall give or be construed to give to any person or
entity, other than the parties hereto and such successors and Permitted
Transferees, any legal or equitable rights hereunder.
- 13 -
<PAGE> 15
14. ASSIGNMENT. This Agreement may not be assigned by the Company without
the consent of a majority of the Shareholders party hereto and this Agreement
may not be assigned by a Shareholder (except to a Permitted Transferee) without
the consent of the Company. Notwithstanding any such assignment, the assigning
party will continue to remain primarily liable under this Agreement.
15. NOTICES. All notices, demands or requests made pursuant to, under or
by virtue of this Agreement must be in writing and shall be (i) personally
delivered, (ii) delivered by express mail, Federal Express or other comparable
overnight courier service, (iii) telecopied or (iv) mailed to the party to
which the notice, demand or request is being made by certified or registered
mail, postage prepaid, return receipt requested, as follows:
To a Shareholder:
At the address set forth opposite such Shareholder's name on the signature
page hereto.
To the Company:
Interstate Hotels Corporation
Foster Plaza X
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
Attention: Mr. W. Thomas Parrington, Jr.
Facsimile: 412-937-8053
with copies thereof to:
Interstate Hotels Corporation
Foster Plaza X
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
Attention: Marvin I. Droz, Esq.
Facsimile: 412-937-3265
and
Jones, Day, Reavis & Pogue
2300 Trammel Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: David Lowery, Esq.
Facsimile: 214-969-5100
All notices (i) shall be deemed to have been given on the date that the same
shall have been delivered in accordance with the provisions of this Section and
(ii) may be given either by a
- 14 -
<PAGE> 16
party or by such party's attorneys. Any party may, from time to time, specify
as its address for purposes of this Agreement any other address upon the giving
of 10 days' notice thereof to the other parties.
16. ENTIRE AGREEMENT. This Agreement contains all of the terms agreed
upon between the parties hereto with respect to the subject matter hereof, and
all understandings and agreements heretofore had or made among the parties
hereto are merged in this Agreement which alone fully and completely expresses
the agreement of the parties hereto.
17. AMENDMENTS. This Agreement may not be amended, modified, supplemented
or terminated, nor may any of the obligations of the Parties hereto be waived,
except by written agreement executed by the party or parties to be charged.
18. NO WAIVER. No waiver by any party of any failure or refusal by the
other party to comply with its obligations hereunder shall be deemed a waiver
of any other or subsequent failure or refusal to so comply.
19. REMEDIES. The Parties hereto will be entitled to enforce their rights
under this agreement specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement
and to exercise all other rights existing in their favor. The parties hereto
agree and acknowledge that money damages will not be an adequate remedy for any
breach of the provisions of this Agreement and that any party may in its sole
discretion apply to any court of law or equity or competent jurisdiction for
specific performance and/or injunctive relief in order to enforce or prevent
any violation of the provisions of this Agreement.
20. GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws of the
Commonwealth of Pennsylvania.
21. SUBMISSION TO JURISDICTION. Each Shareholder and the Company
irrevocably submits to the jurisdiction of (a) the Supreme Court of the State
of New York, New York County, (b) the United States District Count for the
Southern District of New York, and (c) the United States District Court for the
Western District of Pennsylvania for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated
hereby. Each Shareholder and the Company further agrees that service of any
process, summons, notice or document by U.S. registered mail to such party's
respective address set forth above shall be effective service of process for
any action, suit or proceeding in New York or Pennsylvania with respect to any
matters to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. Each Shareholder and the Company irrevocably
and unconditionally waives trial by jury and irrevocably and unconditionally
waives
- 15 -
<PAGE> 17
any objection to the laying of venue of any action, suit or proceeding arising
out of this Agreement or the transactions contemplated hereby in (a) the
Supreme Court of the State of New York, New York County, (b) the United States
District Court for the Southern District of New York, and (c) the United States
District Court for the Western District of Pennsylvania, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
22. SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable shall not be affected thereby, and each
term and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
23. SECTION HEADINGS. The headings of the various Sections of this
Agreement have been inserted only for purposes of convenience, are not part of
this Agreement and shall not be deemed in any manner to modify, explain, expand
or restrict any of the provisions of this Agreement.
24. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
25. CHANGES IN SHAREHOLDERS. All Common Stock Transferred to third parties
in conformity with this Agreement shall remain subject to the provisions of
this Agreement and shall bear the legend set forth in Section 11 hereof. In
the event that, in compliance with the other terms and conditions of this
Agreement, shares of Common Stock are Transferred (including, without
limitation, pursuant to a distribution to the partners or members of any
Shareholder) to a person who, or trust which, is not a party to this Agreement,
such person or trust such person or trust will take such shares of Common Stock
subject to the terms and conditions of this Agreement and by accepting such
shares of Common Stock will be deemed to be a party to this Agreement as if an
original signatory hereto without further action on the part of such party
and/or the Company.
26. SECONDARY OFFERING. If the closing of a secondary public offering of
the Company's Common Stock occurs while this Agreement is still in effect, each
Employee Shareholder shall sell in connection with such secondary public
offering the lesser of (i) all of such Employee Shareholder's shares of Common
Stock or (ii) the number of such shares necessary to provide net sales
- 16 -
<PAGE> 18
proceeds to the Employee Shareholder (after the payment by the Employee
Shareholder of all applicable federal, state and local taxes relating to such
sale) equal to the balance due under that certain Promissory Note, dated as of
May ___, 1996, from the Employee Shareholder to Milton Fine, Trustee, U/A dated
11/17/89 as amended, FBO Milton Fine.
[Remainder of page intentionally left blank.]
- 17 -
<PAGE> 19
IN WITNESS WHEREOF, the parties here to have caused this
Agreement to be duly executed, all as of the day and year first above written.
INTERSTATE HOTELS COMPANY
By:
--------------------------------
Title:
-----------------------------
--------------------------------------
Milton Fine, Trustee, U/A dated
11/17/89, as amended, FBO
Milton Fine
--------------------------------------
David J. Fine, Trustee for the
Milton Fine Grantor Annuity
Trust U/A dated March 31, 1996
--------------------------------------
David J. Fine, Trustee, U/A dated
12/15/89 FBO Sibyl A.
Fine King
--------------------------------------
David J. Fine, Trustee, U/A dated
12/15/89 FBO Carolyn
Fine Friedman
--------------------------------------
David J. Fine, Trustee, U/A dated
12/15/89 FBO David J. Fine
--------------------------------------
W. Thomas Parrington
- 18 -
<PAGE> 20
--------------------------------------
J. William Richardson
--------------------------------------
Robert L. Froman
--------------------------------------
Marvin I. Droz
--------------------------------------
Henry L. Ciaffone
--------------------------------------
Kevin P. Kilkeary
--------------------------------------
Jay A. Litt
--------------------------------------
Gregory W. Ade
--------------------------------------
Robert D. Cowan
--------------------------------------
Robert C. Holland
--------------------------------------
Jay Wold
--------------------------------------
Milton Fine
- 19 -
<PAGE> 21
IHC ASSOCIATES LIMITED PARTNERSHIP
By: IHC Associates Corporation,
General Partner
By:
-----------------------------------
Title:
--------------------------------
HILLTOP INVESTMENTS PARTNERSHIP, L.P.
By:
-----------------------------------
Milton Fine, Trustee, U/A dated
11/17/89, as amended, FBO
Milton Fine, General Partner
INTERPRO, LTD.
By: Interstate Hotels Corporation
#1018, General Partner
By:
-----------------------------------
Title:
--------------------------------
- 20 -
<PAGE> 1
Exhibit 10.9(a)(2)
================================================================================
INTERSTONE THREE PARTNERS I L.P.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
Dated as of June __, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
Definitions................................................. 2
SECTION 1.1 Definitions................................................................... 2
SECTION 1.2 Terms Generally............................................................... 12
ARTICLE II
General Provisions.............................................. 13
SECTION 2.1 Continuation of Partnership................................................... 13
SECTION 2.2 Partners...................................................................... 13
SECTION 2.3 Name.......................................................................... 13
SECTION 2.4 Term.......................................................................... 13
SECTION 2.5 Purpose; Powers............................................................... 13
SECTION 2.6 Place of Business............................................................. 15
SECTION 2.7 Alternative Investment Structure.............................................. 15
SECTION 2.8 Parallel Partnerships......................................................... 16
ARTICLE III
Management and Operation of the
Partnership; Identification and Approval of
Investments; Partner Services........................................ 16
SECTION 3.1 Management.................................................................... 16
SECTION 3.2 Joint Control by the General Partners......................................... 18
SECTION 3.3 Blackstone Partners Rights.................................................... 20
SECTION 3.4 Certain Duties and Obligations of the
Partners...................................................................... 21
SECTION 3.5 Restrictions on Authority of the General
Partners...................................................................... 22
SECTION 3.6 Right of First Opportunity.................................................... 23
SECTION 3.7 Right of First Opportunity; Exclusive
Rights; Investment Parameters................................................. 27
SECTION 3.8 Termination of Right of First
Opportunity................................................................... 30
SECTION 3.9 Financing..................................................................... 30
SECTION 3.10 Financial Advisory Services................................................... 31
SECTION 3.11 Other Partner Services........................................................ 32
SECTION 3.12 Marketing Rights.............................................................. 33
ARTICLE IV
Other Activities Permitted.......................................... 36
ARTICLE V
Capital Contributions;
Distributions................................................ 36
SECTION 5.1 Capital Contributions......................................................... 36
SECTION 5.2 Partner Loans for Failure to Fund
Committed Capital............................................................. 37
<PAGE> 3
SECTION 5.3 Dilution for Failure to Fund Capital.......................................... 37
SECTION 5.4 Distributions Generally....................................................... 38
SECTION 5.5 Distributions of Proceeds..................................................... 38
SECTION 5.6 Restricted Payments........................................................... 40
SECTION 5.7 Partnership Expenses.......................................................... 40
ARTICLE VI
Books and Reports; Tax Matters;
Capital Accounts; Allocations........................................ 41
SECTION 6.1 General Accounting Matters.................................................... 41
SECTION 6.2 Certain Tax Matters........................................................... 42
SECTION 6.3 Capital Accounts.............................................................. 44
SECTION 6.4 Allocations................................................................... 45
ARTICLE VII
Dissolution................................................. 47
SECTION 7.1 Dissolution................................................................... 47
SECTION 7.2 Winding-up.................................................................... 48
SECTION 7.3 Final Distribution............................................................ 48
ARTICLE VIII
Transfer of Partners' Interests....................................... 49
SECTION 8.1 Restrictions on Transfer of Partnership
Interests..................................................................... 49
SECTION 8.2 Other Transfer Provisions..................................................... 50
ARTICLE IX
Miscellaneous................................................ 51
SECTION 9.1 Equitable Relief.............................................................. 51
SECTION 9.2 Ownership and Use of Names.................................................... 51
SECTION 9.3 Governing Law................................................................. 52
SECTION 9.4 Successors and Assigns........................................................ 52
SECTION 9.5 Access; Confidentiality....................................................... 52
SECTION 9.6 Notices....................................................................... 52
SECTION 9.7 Counterparts.................................................................. 53
SECTION 9.8 Entire Agreement.............................................................. 53
SECTION 9.9 Amendments.................................................................... 53
SECTION 9.10 Section Titles................................................................ 53
SECTION 9.11 Representations and Warranties................................................ 53
</TABLE>
ii
<PAGE> 4
Schedules
SCHEDULE A Name, Address and Sharing Percentages
Exhibits
Exhibit A Form of Management Agreement
Exhibit B Form of Project Partnership Agreement
Exhibit C Form of Confirmation and Acknowledgment
of Right of First Opportunity
Exhibit D Pre-Existing Projects
Exhibit E Excluded Projects
iii
<PAGE> 5
INTERSTONE THREE PARTNERS I L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT,
dated as of June __, 1996 by and among BJS INTERSTONE
MANAGEMENT ASSOCIATES, a Delaware general partnership, as a
general partner, IHC/INTERSTONE CORPORATION, a Delaware
corporation, as a general partner, and BLACKSTONE REAL ESTATE
PARTNERS I L.P. and IHC/INTERSTONE PARTNERSHIP II, L.P., each
a Delaware limited partnership, as limited partners.
Preliminary Statement
A. The Blackstone Group and the Interstate Group each have
the capability for identifying, acquiring, improving, operating and disposing
of individual hotel, motel and other lodging properties and groups of hotel,
motel and other lodging properties, hotel and motel management companies (for
which the ownership of hotels and motels is a significant part of their
business) and public and private companies whose primary holdings are comprised
of such assets or operations ("Target Investment" or "Target Investments").
B. The Blackstone Partners and the Interstate Partners,
individually and acting through the Partnership, in each case in accordance
with the terms of this Agreement, wish to continue an exclusive arrangement
with each other under which, for the duration thereof and subject to the terms
set forth below, the Partnership, the Blackstone Partners and the Interstate
Partners through the Partnership and the Parallel Partnerships, will have the
first opportunity to acquire, operate and dispose of certain Target Investments
which are hereafter identified by the Blackstone Group and/or the Interstate
Group, as the case may be, and approved for investment in accordance with this
Agreement (each Target Investment proposed or approved, as the context
indicates, for acquisition pursuant to this Agreement is referred to as a
"Project").
C. In order to effect the foregoing, the parties hereto
entered into a limited partnership agreement dated as of December 15, 1995 (the
"Existing Agreement") and formed a partnership under the laws of the State of
Delaware with the name Interstone Three Partners I L.P. (the "Partnership").
D. Each of the Partners of the Partnership have agreed to
amend and restate the Existing Agreement in its entirety as set forth herein.
Agreement
Accordingly, in consideration of the mutual promises and
agreements herein made and intending to be legally bound hereby, the parties
hereto agree to amend and restate the Existing Agreement to read as follows:
<PAGE> 6
2
ARTICLE I
Definitions
SECTION 1.1 Definitions. Unless the context otherwise
requires, the following terms shall have the following meanings for purposes of
this Agreement:
"Acknowledgement" has the meaning set forth in Section
3.6(a).
"Adjusted Capital Account Balance" shall mean, with respect
to any Partner, the balance in such Partner's Capital Account adjusted
(i) by taking into account the adjustments, allocations and
distributions described in Regulations section
1.704-1(b)(2)(ii)(d)(4), (5), and (6); and (ii) by adding to such
balance such Partner's share of partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, determined pursuant to Regulations
section 1.704-2(g)(1) and 1.704-2(i)(5).
"Affiliate" with respect to any person means (i) any other
person who controls, is controlled by or is under common control with
such person, (ii) any director, officer, partner or employee of such
person or any person specified in clause (i) above or (iii) any
immediate family member of any person specified in clause (i) or (ii)
above. Notwithstanding the foregoing, for the purposes of this
Agreement, none of the Blackstone Partners nor their Affiliates shall
be deemed to be Affiliates of any of the Interstone Partners or the
Interstone Related Parties, none of the Interstate Partners nor their
Affiliates shall be deemed to be Affiliates of any of the Blackstone
Partners or the Blackstone Related Parties, and no officer or director
of any member of the Blackstone Group which is also an officer or
director of any member of the Interstone Group shall be deemed to be
an Affiliate of any of the Interstate Partners or Interstate Related
Parties,
and no member of the Interstone Group shall be deemed an Affiliate of any
member of the Blackstone Group.
"Agreement" means this Amended and Restated Limited
Partnership Agreement, as it may be amended, supplemented, modified or
restated from time to time.
"Asset Management Agreement" has the meaning set forth in
Section 3.6(f).
<PAGE> 7
3
"Authorized Representatives" of a General Partner shall be
those representatives designated by notice to all Partners by each
General Partner from time to time to represent such General Partner in
connection with the Partnership. The term "Authorized Representative"
shall refer to any one of the Authorized Representatives of a Partner.
The initial Authorized Representatives of the General Partners are set
forth in Section 3.1(e) below.
"Blackstone General Partner" means BJS Interstone Management
Associates, a Delaware general partnership, or any Affiliate of any
member of the Blackstone Group who replaces BJS Interstone Management
Associates as a general partner hereunder, or is admitted as an
additional general partner hereunder.
"Blackstone Group" means the Blackstone Partners, Affiliates
of the Blackstone Partners and the Blackstone Related Parties;
provided, that the Blackstone Group shall not include investors in the
Blackstone Partners who are not Affiliates of Blackstone Group
Holdings L.P., to the extent such investors are not investing through
any Affiliate of Blackstone Group Holdings L.P.
"Blackstone Limited Partner" means Blackstone Real Estate
Partners I L.P., a Delaware limited partnership, or any Affiliate of
any member of the Blackstone Group who replaces Blackstone Real Estate
Partners I L.P. as a limited partner hereunder, or is admitted as an
additional limited partner hereunder.
"Blackstone Partners" means collectively, the Blackstone
General Partner and the Blackstone Limited Partners and any other
Partner admitted to the Partnership which is an Affiliate of any of
the foregoing and any permitted assigns of such Partners.
"Blackstone Related Parties" means (i) Blackstone Group
Holdings L.P., (ii) each of the general partners of Blackstone Group
Holdings L.P. and his immediate family members, for so long as he is
such a partner and (iii) any corporation, partnership, limited
liability company, joint venture or other like entity in which the
Blackstone Partners or the parties referred to in (i) and (ii) above
individually or collectively, hold a fifty percent (50%) or greater,
direct or indirect (through one or more business entities), ownership
interest, but shall not include any such entity in which the
collective ownership interest of these parties is less than fifty
percent (50%) or which is a publicly traded company.
"Broken Deal" shall mean a proposed Project that is not
ultimately acquired by the Partnership.
<PAGE> 8
4
"Business Day" shall mean any day on which commercial banks
are authorized to do business and are not required by law or executive
order to close in New York, New York.
"Capital Account" has the meaning set forth in Section 6.3.
"Capital Contributions" means the net fair market value of
any capital contributions made by the Partners to the Partnership and
shall include (i) the contributions of such Partner made pursuant to
Sections 3.6, 3.9, 3.10, 5.1 and 5.7 and (ii) such Partner's payments
made to third party creditors of the Partnership with respect to
Partnership obligations to the extent such Partner is authorized by
this Agreement to make any such payment, unless and until reimbursed
by the Partnership.
"Capital Proceeds" means (A) the cash or other consideration
received by the Partnership (including interest on installment sales
when received) as a result of (i) any sale, exchange, abandonment,
foreclosure, insurance award, condemnation, easement sale or other
similar transaction relating to any property of the Partnership, (ii)
any financing or refinancing (to the extent such refinancing is deemed
a Disposition hereunder) relating to any property of the Partnership,
(iii) capital contributions to the Partnership upon admission of new
partners, (iv) any other transaction which, in accordance with
generally accepted accounting principles, would be treated as a
capital event, in each case less (B) any such cash which is applied to
(i) the payment of transaction costs and expenses, (ii) the repayment
of debt of the Partnership which is required under the terms of any
indebtedness of the Partnership or has been authorized by the General
Partners, (iii) the repair, restoration or other improvement of
Partnership Assets which is required under any contractual obligation
of the Partnership or has been authorized by the General Partners and
(iv) the establishment of reserves by the General Partners. "Capital
Proceeds" shall also mean any of the foregoing which are received by a
partnership or other vehicle in which the Partnership is a partner or
investor or in which the Partnership otherwise has an interest, to the
extent received by the Partnership as dividends or distributions.
"Carrying Value" shall mean, with respect to any Partnership
Asset, the asset's adjusted basis for U.S. federal income tax
purposes, except that the Carrying Values of all Partnership Assets
shall be adjusted to equal their respective fair market values, in
accordance with the rules set forth in Regulations Section
1.704-1(b)(2)(iv)(f),
<PAGE> 9
5
except as otherwise provided herein, as of: (a) the date of the
acquisition of any additional Partnership interest by any new or
existing Partner in exchange for more than a de minimis Capital
Contribution, other than pursuant to the initial formation of the
Partnership; (b) the date of the distribution of more than a de
minimis amount of Partnership property to a Partner; (c) the date a
Partnership interest is relinquished to the Partnership or (d) the
date of the termination of the Partnership under Section 708(b)(i)(B)
of the Code; provided, however, that adjustments pursuant to clauses
(a), (b) and (c) above shall be made only if the General Partners
determine that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners. The Carrying
Value of any Partnership Asset distributed to any Partner shall be
adjusted immediately prior to such distribution to equal its fair
market value. Depreciation shall be calculated by reference to
Carrying Value, instead of tax basis once Carrying Value differs from
tax basis.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute. Any reference herein to
a particular provision of the Code shall mean, where appropriate, the
corresponding provision in any successor statute.
"Committed Capital" shall mean, the aggregate amount of
$29,400,000 for the Blackstone Partners and the Blackstone Partners of
the Parallel Partnerships, and the aggregate amount of $30,600,000 for
the Interstate Partners and the Interstate Partners of the Parallel
Partnership.
"Competitive Rate" shall mean, with respect to a particular
service at a Target Investment, the lower of (i) the rate charged on
an arm's length basis for the same or similar service for comparable
properties in the geographic area in which the relevant Target
Investment is located by unaffiliated persons providing or performing
such service on an ongoing basis and (ii) the lowest rate charged by
any Affiliates of the Interstate General Partner for the same or
similar service for comparable properties in the geographic area in
which the relevant Target Investment is located.
"Consent" shall mean the approval, direction or
determination, as the case may be, of a Partner, given as provided in
Section 3.1, to do the act or thing for which the approval is
solicited or with respect to which the direction or determination is
given or made, or the act of granting such approval or giving such
direction or making such determination, as the context may require.
Any Consent required to be given by the Blackstone General Partner
shall be given by any one Authorized Representative of the Blackstone
General Partner. Any Consent to be given by the Interstate General
Partner shall be given by any two Authorized Representatives of the
Interstate General Partner.
<PAGE> 10
6
"Consideration" means the gross value of all cash, securities
and other properties paid or payable, directly or indirectly, in one
transaction or in a series or combination of transactions, in
connection with an acquisition or disposition of a Target Investment
or a transaction related thereto (including, without limitation,
amounts paid (A) pursuant to covenants not to compete, employment
contracts, employee benefit plans or other similar arrangements and
(B) to holders of any warrants, stock purchase rights, convertible
securities or similar rights and to holders of any options or stock
appreciation rights, whether or not vested). Consideration shall also
include the value of any long-term liabilities (including the
principal amount of any mortgage indebtedness or other indebtedness
for borrowed money, preferred stock obligations, any pension
liabilities and guarantees) indirectly or directly assumed or
acquired, or otherwise repaid or retired, in connection with or
anticipation of such acquisition. If an acquisition takes the form of
a purchase of assets, to the extent applicable Consideration shall
also include (i) the value of any current assets not purchased, minus
(ii) the value of any current liabilities not assumed. If the
Consideration to be paid is computed in any foreign currency, the
value of such foreign currency shall, for purposes hereof, be
converted into U.S. dollars at the prevailing exchange rate on the
date or dates on which such Consideration is paid. In this Agreement,
the value of any securities (whether debt or equity) or other property
paid or payable as part of the Consideration shall be determined as
follows: (1) the value of securities that are freely tradable in an
established public market will be determined on the basis of the last
market closing price prior to the public announcement of the
acquisition; and (2) the value of the securities that are not freely
tradable or have no established public market or, if the Consideration
utilized consists of property other than securities, the value of such
other property shall be the fair market value thereof as reasonably
determined by the General Partners.
"Contributing Partner" has the meaning set forth in Section
5.2.
"Disabling Event" means any event which would cause a General
Partner to cease to be a general partner of the Partnership pursuant
to Section 17-402 of the Partnership Act.
"Disposition" of a Project shall mean the sale, exchange or
other disposition by the Partnership of all or any portion of such
Project for cash, and shall include the receipt by the Partnership of
a liquidating dividend or
<PAGE> 11
7
other like distribution in cash. A refinancing of a Project shall be
deemed a Disposition of such Project unless the General Partners agree
otherwise. Whenever a portion of a Project (but not the entire
Project) is the subject of a Disposition, that portion shall be
treated as having been a separate project from that portion of the
Project that is retained by the Partnership, and the Capital
Contributions for such Project and the Proceeds (other than the
Proceeds of such Disposition of a portion of a Project) distributed to
the Partners with respect to such Project shall be treated as having
been divided between the portion subject to the Disposition and the
retained portion on a pro rata basis. For purposes of calculating the
Internal Rate of Return, a Broken Deal shall be considered a Project
subject to a Disposition that did not yield any Proceeds.
"Fair Market Value" of a Project as of a specific date shall
mean the fair market value of such project on such date as reasonably
determined by the General Partners (taking into consideration all
factors which may reasonably affect the sales price of the Project),
less the principal amount of any debt and other similar liabilities
secured by or otherwise related to such Project, and less a reasonable
estimate of transaction costs and expenses which would be incurred
upon a Disposition of such Project on such date. If the General
Partners can not reach agreement on the Fair Market Value of a
Project, the matter shall be settled by arbitration in New York, New
York in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except that the
number and method of selection of the arbitrators shall be as follows:
each General Partner shall select one qualified real estate investment
banker or MAI appraiser who is experienced in valuing assets and
liabilities of the type in question; the average of the Fair Market
Values of such Project determined by such arbitrators shall be the
Fair Market Value of such Project, and shall be final, conclusive and
binding on the Partners.
"Fiscal Period" means each fiscal quarter or such other
period as may be established by the General Partners.
"Fiscal Year" means the calendar year ending on December 31
of each year.
"General Partners" mean the Blackstone General Partner, the
Interstate General Partner and any other person admitted to the
Partnership as an additional or substitute general partner of the
Partnership in accordance with the provisions of this Agreement, until
such time as such person ceases to be a general partner of the
Partnership as provided herein.
"Internal Rate of Return" shall mean with respect to any
Partner as of the date of a cash distribution of
<PAGE> 12
8
Proceeds to such Partner, the rate of return (calculated as provided
below, taking into account the time value of money) which (x) the
Proceeds for which the return is being calculated represent on (y) all
Capital Contributions made by such Partner as of such date with
respect to the Project or Projects for which the return is being
calculated.
In determining the Internal Rate of Return, the following
shall apply:
(i) subject to the provisions of clause (ii) of
this definition, all present value calculations are to be
made as of the date such Capital Contributions were
contributed to the Partnership;
(ii) all Capital Contributions shall be treated as
having been contributed to the Partnership on the first day
of the month during which a Partner's funds were actually
delivered to the Partnership;
(iii) all distributions shall be treated as if
received on the last day of the month in which the
distribution was made;
(iv) all distribution amounts shall be based on
the amount of the distribution prior to the application of
any federal, state or local taxation to Partners (including
any withholding or deduction requirements); and
(v) the rates of return shall be per annum rates
and all amounts shall be calculated on a compounded annual
basis, and on the basis of a 365-day year.
When calculating the Internal Rate of Return (and for such
purpose only), a Partner's Capital Contribution to a Project shall not
be deemed to include 60% of such Partner's share of any amounts paid
to the Blackstone General Partner or its Affiliates pursuant to
Sections 3.9 and 3.10 below for such Project. When calculating the
Internal Rate of Return, a Partner's initial Capital Contributions
shall be deemed given on the date of admission of such Partner to the
Partnership, not on the date that the transferor of such Partner's
interest in the Partnership made its Capital Contributions; such
Capital Contributions shall be deemed Capital Contributions of the
transferor for the period from when made until the transfer to the new
Partner.
"Interstate General Partner" means IHC/Interstone
Corporation, a Delaware corporation, or any Affiliate of any member of
the Interstate Group who replaces IHC/Interstone Corporation as a
general partner hereunder or is admitted as an additional general
partner hereunder.
"Interstate Group" means the Interstate Partners, Affiliates
of the Interstate Partners and the Interstate Related Parties.
<PAGE> 13
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"Interstate Limited Partner" means IHC/Interstone Partnership
II, L.P., a Delaware limited partnership, or any Affiliate of any
member of the Interstate Group who replaces IHC/Interstone Partnership
II, L.P. as a limited partner hereunder or is admitted as an
additional limited partner hereunder.
"Interstate Partners" means collectively, the Interstate
General Partner, the Interstate Limited Partner and any other Partner
admitted to the Partnership which is an Affiliate of any of the
foregoing and any permitted assigns of such Partners.
"Interstate Related Parties" means (i) Interstate Hotels
Company, (ii) each of the senior executives of Interstate Hotels
Company and his immediate family members, for so long as he is
employed by Interstate Hotels Company, (iii) Milton Fine and his
immediate family members and (iv) any corporation, partnership,
limited liability company, joint venture or other like entity in which
the Interstate Partners or the parties referred to in (i), (ii) and
(iii) above individually or collectively, hold a fifty percent (50%)
or greater, direct or indirect (through one or more business
entities), ownership interest but shall not include any such entity in
which the collective ownership interest of these parties is less than
fifty percent (50%) or which is a publicly traded company.
"Limited Partners" means the Blackstone Limited Partners, the
Interstate Limited Partner and any person admitted to the Partnership
as an additional or substitute limited partner of the Partnership in
accordance with the provisions of this Agreement.
"Liquidator" has the meaning set forth in Section 7.2.
"Management Agreement" shall mean a Management Agreement in
the form attached hereto as Exhibit#A, as such agreement may be
amended from time to time in accordance with the terms thereof and
hereof.
"Minimum Gain" shall have the meaning set forth in
Regulations section 1.704-2(d)(1) and shall mean the amount determined
by (i) computing for each nonrecourse liability of the Partnership any
gain the Partnership would realize if it disposed of the property
subject to that liability for no consideration other than full
satisfaction of the liability and (ii) aggregating the separately
computed gains. If the Carrying Value of any Partnership Asset
differs from the adjusted tax basis of such property, the calculation
of
<PAGE> 14
10
Minimum Gain pursuant to the preceding sentence shall be made by
reference to the Carrying Value. For purposes hereof, a liability of
the Partnership is a nonrecourse liability to the extent that no
Partner or related person bears the economic risk of loss for that
liability within the meaning of Regulations section 1.752-1.
"Net Income (Loss)" shall mean for each Fiscal Year or other
period, the taxable income or loss of the Partnership, or particular
items thereof, determined in accordance with the accounting method
used by the Partnership for U.S. federal income tax purposes with the
following adjustments: (i) all items of income, gain, loss or
deduction allocated pursuant to Section 6.4(c) through (e) shall not
be taken into account in computing such taxable income or loss; (ii)
any income of the Partnership that is exempt from U.S. federal income
taxation and not otherwise taken into account in computing Net Income
and Net Loss shall be added to such taxable income or loss; (iii) if
the Carrying Value of any asset differs from its adjusted tax basis
for U.S. federal income tax purposes, any depreciation, amortization
or gain resulting from a disposition of such asset shall be calculated
with reference to such Carrying Value; (iv) upon an adjustment to the
Carrying Value of any asset, pursuant to the definition of Carrying
Value, the amount of the adjustment shall be included as gain or loss
in computing such taxable income or loss; and (v) except for items in
(i) above, any expenditures of the Partnership not deductible in
computing taxable income or loss, not properly capitalizable and not
otherwise taken into account in computing Net Income and Net Loss
pursuant to this definition shall be treated as deductible items.
"Non-Capital Proceeds" means (x) any cash or other
consideration received by the Partnership other than Capital Proceeds
less (y) any such cash that is applied to the establishment of
reserves which have been established by the General Partners and to
expenses of the Partnership.
"Non-Contributing Partner" has the meaning set forth in
Section 5.2.
"Nonrecourse Deductions" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(1).
"Organizational Expenses" means all reasonable third- party
costs and expenses pertaining to the organization of the Partnership
and the registration, qualification or exemption of the Partnership
under any applicable federal, state or foreign laws, including fees of
counsel to the Partnership and the Partners.
"Parallel Partnerships" has the meaning set forth in Section
2.8.
"Partner" means any person who is a partner of the
Partnership, whether a General Partner, a Limited Partner or both.
<PAGE> 15
11
"Partner Nonrecourse Debt" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" shall have the
meaning ascribed to such term in Regulations section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" shall mean any item of
partnership loss, deduction, or expenditure under section 705(a)(2)(B)
of the Code that is attributable to a Partner Nonrecourse Debt, as
determined pursuant to Regulations section 1.704-2(i)(2).
"Partnership" means Interstone Three Partners I L.P.
"Partnership Act" means the Delaware Revised Uniform Limited
Partnership Act, 6 Del. C. Section 17-101, et seq., as it may be
amended from time to time, and any successor to such statute.
"Partnership Assets" means all right, title and interest of
the Partnership in and to all or any portion of the assets of the
Partnership and any property (real or personal) or estate acquired in
exchange therefor or in connection therewith.
"Pre-Existing Projects" has the meaning set forth in Section
3.6(a).
"Proceeds" means the collective reference to Capital Proceeds
and Non-Capital Proceeds.
"Project" has the meaning set forth in the Preliminary
Statement.
"Project Limited Liability Company Agreement" shall mean a
limited liability company agreement in a form to be agreed upon by the
General Partners, as such agreement may be amended from time to time
in accordance with the terms thereof and hereof, formed pursuant to
this Agreement to own Projects purchased hereunder.
"Project Partnership Agreement" shall mean a partnership
agreement in the form attached hereto as Exhibit B, as such agreement
may be amended from time to time in accordance with the terms thereof
and hereof, formed pursuant to this Agreement to own Projects
purchased hereunder.
"Regulations" means the regulations promulgated under the
Code.
"Related Parties" means the Blackstone Related Parties and
the Interstate Related Parties.
<PAGE> 16
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"Request for Preliminary Approval" has the meaning set forth
in Section 3.6(b).
"Request for Final Approval" has the meaning set forth in
Section 3.6(f).
"Sharing Percentage" means the percentage interest of a
Partner as set forth on Schedule A hereto, as amended from time to
time in accordance herewith.
"Target Investment" has the meaning set forth in the
Preliminary Statement.
"Tax Matters Partner" has the meaning set forth in Section
6.2.
"Transfer" has the meaning set forth in Section 8.1(a).
"Transferee" has the meaning set forth in Section 8.1(b).
"Unrealized Loss" with respect to a Project on a date of a
distribution of Capital Proceeds shall mean the excess of the total
Capital Contributions with respect to such Project as of such date
over the Fair Market Value of such Project as of such date. A Project
shall not have any Unrealized Loss on a date of a distribution if the
calculation pursuant to this definition for such Project on such date
equals zero or less.
SECTION 1.2 Terms Generally. The definitions in Section 1.1
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The term "person" includes individuals,
partnerships, joint ventures, corporations, trusts, governments (or agencies or
political subdivisions thereof) and other associations and entities. Unless
the context requires otherwise, the words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The term
"hereunder" shall mean this entire Agreement as a whole unless reference to a
specific section of this Agreement is made.
<PAGE> 17
13
ARTICLE II
General Provisions
SECTION 2.1 Continuation of Partnership. The Blackstone
General Partner and the Interstate General Partner, as the General Partners,
and the Blackstone Limited Partners and the Interstate Limited Partner, as
limited partners, hereby agree to continue the Partnership and the Partners
agree that the Partnership shall continue for the limited purposes set forth
and on the other terms and conditions set forth in this Agreement. The
Blackstone General Partner hereby represents that each of the Blackstone
Limited Partners is an Affiliate of the Blackstone General Partner or its
Affiliates.
SECTION 2.2 Partners. Schedule A hereto contains the name,
address and Sharing Percentage of each Partner as of the date of this
Agreement. Schedule A shall be revised by the General Partners from time to
time to reflect the admission or withdrawal of a Partner or the transfer or
assignment of interests in the Partnership in accordance with the terms of this
Agreement and other modifications to or changes in the information set forth
therein.
SECTION 2.3 Name. The Partnership shall conduct its
activities under the name of Interstone Three Partners I L.P. The General
Partners shall have the power at any time to change the name of the
Partnership; provided, that the name shall always contain the words "Limited
Partnership" or the letters "L.P." The General Partners shall give prompt
notice of any such change to each Partner.
SECTION 2.4 Term. The term of the Partnership shall
commence on the date of this Agreement and shall continue until December 31,
2045, unless sooner dissolved, wound up and terminated in accordance with
Article VII of this Agreement.
SECTION 2.5 Purpose; Powers. (a) The purpose of the
Partnership shall be (i) to implement the right of first opportunity with the
Blackstone Group and the Interstate Group, including review and approval or
disapproval by the General Partners of due diligence investigation of proposed
Target Investments, and, upon final approval by the General Partners, causing
the acquisition by the Partnership of such Target Investments either by itself
or directly or indirectly through entities in which the Partnership shall have
a direct or indirect ownership interest; (ii) operating, managing and disposing
of any Target Investments approved for acquisition pursuant to this Agreement;
and (iii) to do all things necessary or incidental to any of the foregoing.
(b) In furtherance of its purposes, the Partnership shall
have all powers necessary, suitable or convenient for the
<PAGE> 18
14
accomplishment of its purposes, alone or with others, including
the following:
(i) to invest and reinvest the cash assets of the
Partnership in money-market or other short-term investments;
(ii) to have and maintain one or more offices within or
without the State of Delaware, and, in connection therewith, to rent
or acquire office space, engage personnel and compensate them and do
such other acts and things as may be advisable or necessary in
connection with the maintenance of such office or offices;
(iii) to open, maintain and close bank accounts and draw
checks and other orders for the payment of moneys;
(iv) to engage employees (with such titles and delegated
responsibilities as may be determined), accountants, consultants,
auditors, custodians, investment advisers, attorneys and any and all
other agents and assistants, both professional and nonprofessional,
and to compensate them as may be necessary or advisable;
(v) to form or cause to be formed and to own the stock
of one or more corporations, whether foreign or domestic, and to form
or cause to be formed and to participate in partnerships, joint
ventures and limited liability companies, whether foreign or domestic;
(vi) to enter into, make and perform all contracts,
agreements and other undertakings as may be necessary or advisable or
incident to carrying out its purposes;
(vii) to sue, prosecute, settle or compromise all claims
against third parties, to compromise, settle or accept judgment of
claims against the Partnership, and to execute all documents and make
all representations, admissions and waivers in connection therewith;
(viii) to distribute, subject to the terms of this
Agreement, at any time and from time to time to Partners cash or
investments or other property of the Partnership, or any combination
thereof;
(ix) to borrow money, whether secured or unsecured, and
to make, issue, accept, endorse and execute promissory notes, drafts,
bills of exchange and other instruments and evidences of indebtedness,
all without limit as to amount, and to secure the payment thereof by
mortgage, pledge, or assignment of, or security interest in, the
assets then owned or thereafter acquired by the Partnership;
(x) to buy, sell, operate and otherwise deal with Target
Investments;
<PAGE> 19
15
(xi) to hold, receive, mortgage, pledge, lease, transfer,
exchange or otherwise dispose of, grant options with respect to, and
otherwise deal in and exercise all rights, powers, privileges and
other incidents of ownership or possession with respect to, all
property held or owned by the Partnership; and
(xii) to take such other actions necessary or incidental
thereto as may be permitted under applicable law.
SECTION 2.6 Place of Business. The Partnership shall
maintain a registered office at The Corporation Trust Company, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801, or such other office
within the State of Delaware as is chosen by the General Partners. The
Partnership shall maintain an office and principal place of business at 345
Park Avenue, New York, New York 10154, or at such other place as may from time
to time be determined as its principal place of business by the General
Partners; the General Partners shall give notice to the other Partners of any
change in the Partnership's principal place of business. The name and address
of the Partnership's registered agent as of the date of this Agreement is The
Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801.
SECTION 2.7 Alternative Investment Structure. If the
Blackstone General Partner determines that for legal, tax, regulatory or other
reasons it is in the best interests of the Partners that a Target Investment be
made through an alternative investment structure, and all of the other General
Partners unanimously Consent to such alternative structure (which Consent shall
not be unreasonably withheld), the Blackstone General Partner shall structure
the making of all or any portion of such Target Investment outside of the
Partnership by requiring any Partner or Partners to make such Target Investment
either directly or indirectly through a partnership or other vehicle (such as
the purchase of stock, the purchase of partnership interests, or the formation
of another partnership or as tenants in common) that will invest on a parallel
basis with or in lieu of the Partnership, as the case may be. The Partners
shall be required to make capital contributions directly to each such vehicle
to the same extent, for the same purposes and on the same terms and conditions
as Partners are required to make Capital Contributions to the Partnership, and
such capital contributions shall reduce the unused Committed Capital of the
Partners to the same extent as if Capital Contributions were made to the
Partnership with respect thereto. Each Partner shall have the same economic
interest in all material respects in Target Investments made pursuant to this
Section 2.7 as such Partner would have if such Target Investment had been made
solely by the Partnership, and the other terms of such vehicle shall be
substantially identical in all material respects to those of the Partnership,
to the maximum extent applicable; provided, that such vehicle (or the entity in
which such vehicle invests) shall
<PAGE> 20
16
provide for the limited liability of the Limited Partners as a matter of the
organizational documents of such vehicle (or the entity in which such vehicle
invests) and as a matter of local law; and provided, further, that the General
Partners or Affiliates thereof will serve as the general partners or in some
other similar fiduciary capacity with respect to such vehicle.
SECTION 2.8 Parallel Partnerships. The General Partners
have established one or more additional collective partnerships (the "Parallel
Partnerships") organized pursuant to partnership agreements in substantially
the same form as this Agreement for certain types of investors to invest in
Target Investments together with the Partnership. The Blackstone General
Partner, or an Affiliate thereof, shall be a general partner of any such
Parallel Partnerships, and the Blackstone Limited Partners, or Affiliates
thereof, shall be limited partners of any such Parallel Partnerships. The
Interstate General Partner, or an Affiliate thereof, shall be a general partner
of any such Parallel Partnerships and the Interstate Limited Partner, or an
Affiliate thereof, shall be a limited partner of any such Parallel
Partnerships. The economic terms of each Parallel Partnership shall be the
same as those of the Partnership.
ARTICLE III
Management and Operation of the Partnership;
Identification and Approval of
Investments; Partner Services
SECTION 3.1 Management. (a) The General Partners shall have
the full and complete responsibility for managing the business of the
Partnership and shall make all of the decisions affecting the business of the
Partnership. Except as otherwise set forth in this Agreement, the Limited
Partners shall have no right of Consent with respect to such decisions. The
General Partners shall have all of the rights, powers and authorities permitted
to be exercised by a general partner of a limited partnership formed under the
Partnership Act. The General Partners shall exercise all powers necessary and
convenient for the purposes of the Partnership, including those enumerated in
Section 2.5, on behalf and in the name of the Partnership.
(b) Except as otherwise provided herein, the Limited Partners as
such shall not have the right to, and shall not, take part in the management or
affairs of the Partnership, nor in any event shall any Limited Partner have the
power to act for or bind the Partnership unless delegated such power by the
General Partners. The exercise by any Limited Partner of any right or power
conferred herein shall not be construed to constitute participation by such
Limited Partner in the control of the business of the Partnership so as to make
such Limited Partner
<PAGE> 21
17
liable as a general partner for the debts and obligations of the
Partnership for purposes of the Partnership Act.
(c) Any Consent required by this Agreement may be given as
follows:
(1) by a written Consent given by the approving Partner
at or prior to the doing of the act or thing of which the Consent is
solicited, provided that such Consent shall not have been nullified by
notice to all of the General Partners by the approving Partner at or
prior to the time, or by the negative vote by such approving Partner
at any meeting held to consider the doing, of such act or thing; or
(2) by the Consent given by the approving Partner to the
doing of the act or thing for which the Consent is solicited at any
meeting called or held to consider the doing of such act or thing.
(d) Unless the General Partners agree on a different
procedure, any matter requiring the Consent of all or any of the Partners
pursuant to this Agreement may be considered at a meeting of the Partners held
not less than three (3) nor more than fifteen (15) Business Days after notice
thereof shall have been given by a General Partner to all Partners. Such
notice (i) may be given by any General Partner, in its discretion, at any time.
Any such notice shall state briefly the purpose, time and place of the meeting.
All such meetings shall be held within or outside the State of Delaware at such
reasonable place as the General Partners shall designate and during normal
business hours. Unless otherwise provided by the General Partners, meetings
may be held telephonically.
(e) The written statements and representations of an
Authorized Representative for a General Partner shall be the only authorized
statements and representations of such General Partner with respect to the
matter covered by this Agreement. The initial Authorized Representatives are
(i) Kenneth C. Whitney, Thomas Saylak and John Schreiber for the Blackstone
General Partner and (ii) W. Thomas Parrington, J. William Richardson and Marvin
I. Droz for the Interstate General Partner. The written statement or
representation of any one Authorized Representative of the Blackstone General
Partner shall be sufficient to bind the Blackstone General Partner with respect
to all matters pertaining to the Partnership and addressed in such statement or
representation. The written statement or representation of any two Authorized
Representatives of the Interstate General Partner shall be sufficient to bind
the Interstate General Partner with respect to all matters pertaining to the
Partnership and addressed in such statement or representation.
(f) The failure to vote by any Partner on any matter
requiring such Partner's Consent within five business days after
<PAGE> 22
18
such vote is requested shall be deemed to be a negative vote with
respect to such matter.
(g) A Partner shall not be obligated to abstain from
voting on any matter (or vote in any particular manner) because of any interest
(or conflict of interest) of such Partner (or any Affiliate thereof) in such
matter.
(h) Each Partner agrees that, except as otherwise
expressly provided herein and to the fullest extent permitted by applicable
law, the approval of any proposed action of or relating to the Partnership by
all of the General Partners as provided herein (or if this Agreement grants one
General Partner sole approval rights over a certain action, the approval of
such action by such General Partner) shall bind each Partner and shall have the
same legal effect as the approval of each Partner of such action.
SECTION 3.2 Joint Control by the General Partners. Except
as specifically provided in this Agreement, the business, affairs and
operations of the Partnership shall be managed, and all Partnership decisions
shall be jointly made, by both General Partners, and no single General Partner,
acting alone, shall have the authority to bind or make any decision for the
Partnership or to conduct or manage the Partnership's business or affairs.
Without limiting the foregoing in any way, the following are examples of
decisions of the Partnership which shall be made jointly by the General
Partners:
(a) the reorganization of the Partnership as a
corporation or other entity, or the creation of a holding corporation,
partnership or limited liability company to own all or any substantial
portion of the assets of or all the equity interests in the
Partnership, provided that the surviving entity remains a pass-through
entity for taxation purposes;
(b) the termination or settlement of any litigation by
the Partnership;
(c) the making of any change in the Fiscal Period, any
determination of reserves under this Agreement, any distribution of
cash or investments or other property of the Partnership to the
Partners, or any withdrawals of capital from the Partnership;
(d) the making of any change in the name of the
Partnership or the use of another name by the Partnership to carry on
any business of the Partnership;
(e) the making of the determination and approval of such
tax matters as are specified in Section 6.2;
<PAGE> 23
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(f) the making of the allocation of amounts in respect
of an interest in the Partnership Transferred pursuant to Section
8.2(e);
(g) the authorization of a Partner to disclose
information agreed to be held confidential under Sections 9.5;
(h) the admission of an additional Partner to the
Partnership pursuant to the terms of this Agreement if such additional
Partner is not an Affiliate of either any member of the Blackstone
Group or any member of the Interstate Group;
(i) (A) the sale, exchange or other transfer of any
Partnership Asset, (B) the merger or consolidation of the Partnership
with or into any other business entity provided that the surviving
entity remains a pass-through entity for taxation purposes, and (C)
the right to require each of the Partners to exchange, transfer or
otherwise convey some or all of its partnership interest in the
Partnership as part of an exit or disposition strategy for the
Partnership;
(j) the making of any expenditure incurred in connection
with the administration of the Partnership;
(k) the entering into of any lease by the Partnership as
lessor;
(l) the engagement of any independent accountant,
counsel, actuary or consultant to the Partnership, or any change in or
termination of any engaged independent accountant, counsel, actuary or
consultant to the Partnership;
(m) the maintenance of a registered office in Delaware
other than that specified in Section 2.6;
(n) the determination of any titles and responsibilities
of employees of the Partner pursuant to Section 2.5(b)(iv);
(o) the approval of budgets;
(p) the expenditure by the Partnership of any funds in
connection with the disposition of a Target Investment or the
expenditure by the Partnership of any funds required in connection
with the operation of any Target Investments which are not included
within the approved budget for such Target Investment;
(q) any termination, replacement or other change in the
franchisor of any Target Investment in accordance with the terms of
the franchise agreement, or the execution,
<PAGE> 24
20
modification or termination of any agreement which is material to the
Partnership;
(r) the dissolution, termination and winding up of the
Partnership as provided in Section 7.1(a);
(s) any amendment to this Agreement which would have a
material adverse effect on any Partner's economic interest in the
Partnership;
(t) extending the term of the Partnership beyond
December 31, 2045;
(u) in accordance with Section 3.6 below, the decision
for the Partnership to investigate a Target Investment and the
decision for the Partnership to acquire a Target Investment, or the
decision for the Partnership to acquire any other asset;
(v) the borrowing of money;
(w) the filing of a petition under any bankruptcy or
other insolvency law by the Partnership, or the admission in writing
by the Partnership of its bankruptcy, insolvency or general inability
to pay its debts;
(x) the commencement of any litigation by the
Partnership;
(y) a transaction or other matter involving any actual
or potential conflict of interest affecting any Partner or Affiliate
thereof other than the entering into of any agreements or the payment
of any amounts provided for in this Agreement; and
(z) a change in the business of the Partnership to
include any business other than that specified in Section 2.5 which
takes the focus of the Partnership's business away from the lodging
industry.
Notwithstanding the foregoing and without limiting the foregoing
in any way, any General Partner may delegate in writing to (i)
the other General Partner, its right to make any decisions
concerning the Partnership or take any actions on behalf of the
Partnership and/or (ii) to any manager of any Target Investment,
the day to day administrative duties in connection with the
operation of such property.
SECTION 3.3 Blackstone Partners Rights. Notwithstanding
any other provision of this Agreement, the Blackstone General Partner may take
any of the following actions with out the Consent of any of the Interstate
Partners:
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21
(a) with respect to any Target Investment in which an
Affiliate of the Interstate General Partner is the manager, any
termination, replacement or other change in such manager in accordance
with the terms of the management agreement, the declaration of a
default or event of default under any management agreement for such
manager, and the exercise of any remedies under such management
agreement;
(b) the approval of a transfer of any partner's interest in
the Partnership and the approval of the admission of any additional
partner to the Partnership if such additional partner is an Affiliate
of any member of the Blackstone Group or any member of the Interstate
Group; and
(c) such other actions and decisions which are expressly
given solely to the Blackstone General Partner pursuant to the terms
of this Agreement.
SECTION 3.4 Certain Duties and Obligations of the
Partners. (a) Subject to the terms of this Agreement, the General Partners
shall take all action which may be reasonably necessary or appropriate (i) for
the formation and continuation of the Partnership as a limited partnership
under the laws of the State of Delaware and (ii) for the development,
maintenance, preservation and operation of the business of the Partnership in
accordance with the provisions of this Agreement and applicable laws and
regulations.
(b) No Partner shall take any action so as to cause the
Partnership to be classified for Federal income tax purposes as an association
taxable as a corporation and not as a partnership.
(c) The General Partners shall take (and each Partner
agrees to cooperate with the General Partners and approves of the General
Partners taking on its behalf) all action which is necessary to form or qualify
the Partnership to conduct the business in which the Partnership is engaged
under the laws of any jurisdiction in which the Partnership is doing business
and to continue in effect such formation or qualification.
(d) The General Partners shall not take, or cause to be
taken, any action that would result in any Limited Partner having any personal
liability for the obligations of the Partnership. The General Partners shall
be under a duty as described herein to conduct the affairs of the Partnership
in the best interests of the Partnership and of the Partners including the
safekeeping and use of all Partnership funds and assets and the use thereof for
the exclusive benefit of the Partnership. Neither any Partner nor any
Affiliate of any Partner shall enter into any transaction with the Partnership
unless the transaction (i) is expressly permitted hereunder, (ii) is entered
into on arm's-length terms in the ordinary course of Partnership business or
(iii) is approved by all of the General Partners upon
<PAGE> 26
22
disclosure of any direct or indirect interest such Partner or any
Affiliate thereof may have in the transaction.
(e) No General Partner shall be liable, responsible or
accountable in damages or otherwise to the Partnership or to any Partner for
(a) any act performed within the scope of the authority conferred on such
General Partner by this Agreement except for the gross negligence or willful
misconduct of such General Partner in carrying out its obligations hereunder,
(b) such General Partner's failure or refusal to perform any act, except those
expressly required by or pursuant to the terms of this Agreement, (c) such
General Partner's performance of, or failure to perform, any act on the
reasonable reliance on advice of legal counsel to the Partnership or (d) the
negligence, dishonesty or bad faith of any agent, consultant or broker of the
Partnership selected, engaged or retained and monitored with reasonable care.
In any threatened, pending or completed action, suit or proceeding, each
General Partner shall be fully protected and indemnified and held harmless by
the Partnership against all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, proceedings, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable attorneys' fees, costs of investigation, fines, judgments and
amounts paid in settlement, actually incurred by such General Partner in
connection with such action, suit or proceeding) by virtue of its status as a
General Partner or with respect to any action or omission taken or suffered in
good faith, other than liabilities and losses resulting from the gross
negligence or willful misconduct of such General Partner; provided, however,
that a General Partner shall not be so indemnified for any acts determined to
be in contravention of this Agreement or in breach of its fiduciary duties.
The indemnification provided by this paragraph shall be recoverable only out of
the assets of the Partnership, and no Partner shall have any personal liability
on account thereof.
SECTION 3.5 Restrictions on Authority of the General
Partners. The General Partners shall not have the authority to:
(a) do any act in contravention of this Agreement
(including under Section 3.2 or Section 3.3);
(b) do any act which would make it impossible to carry
on the ordinary business of the Partnership, except in connection with
the dissolution, winding up and termination of the Partnership as
provided by Article VII;
(c) possess Partnership property, or assign their
respective rights in specific Partnership property, for other than a
Partnership purpose;
(d) admit a person as a Partner except as provided in
this Agreement; or
<PAGE> 27
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(e) knowingly perform any act that would subject any
Limited Partner to liability as a general partner in any jurisdiction.
SECTION 3.6 Right of First Opportunity. (a) Subject to
Section 3.7(b) below, and until expiration or termination of the right of first
opportunity in favor of the Partnership set forth below (which right has been
confirmed and acknowledged in the Confirmation and Acknowledgment of Right of
First Opportunity ("Acknowledgment"), in the form attached hereto as Exhibit C,
which has been executed simultaneously herewith), each member of the Blackstone
Group and the Interstate Group shall offer to the Partnership (along with the
Parallel Partnerships) a right of first opportunity to invest in each Target
Investment which (x) is identified by such member after the date of this
Agreement or (y) which is identified on the list of Projects attached hereto as
Exhibit D (the "Pre-Existing Projects"), in each case, upon and subject to the
terms set forth in the remainder of this Section 3.6.
(b) Except as provided in Section 3.7(b) below, promptly
upon its identification of a Target Investment as a potential investment, each
member of the Blackstone Group and the Interstate Group shall notify each of
the General Partners about such Target Investment (such notification, a
"Request for Preliminary Approval") and shall provide each of the General
Partners with such information reasonably necessary to evaluate such
investment.
(c) Within five (5) Business Days after delivery to the
General Partners of the Request for Preliminary Approval and the accompanying
information pursuant to paragraph (b) above with respect to a proposed Target
Investment, and provided that notice shall have first been given from the party
requesting such action that approval is being sought under this Section, the
General Partners shall either approve or disapprove pursuit of such proposed
Target Investment (including the incurring of due diligence costs and
expenditures, the negotiation and documentation of the terms of purchase and
financing, and the posting of deposits). If the General Partners, having first
been notified that approval under this Section is being sought, fail to
unanimously approve the investigation of a proposed Target Investment within
such five (5) Business Day period, the proposed Target Investment shall be
deemed disapproved. Any General Partner shall have the right to reasonably
request additional information regarding the proposed Project within three (3)
Business Days after receipt of the Request for Preliminary Approval and the
accompanying information. If any General Partner requests such additional
information, the five (5) Business Day period referred to above shall commence
on the day such General Partner receives all such additional information. The
General Partners shall each have the right to approve or disapprove
investigation of any proposed Project in their sole and absolute discretion.
Once investigation of a Target
<PAGE> 28
24
Investment is approved, the due diligence costs and expenditures
reasonably incurred by the Partnership and within the scope
approved by the General Partners with respect to such Project
shall become the obligation of the Partnership.
(1) All due diligence costs and expenditures reasonably
incurred by the Partnership pursuant to this Section and within the
scope of the approved due diligence shall be funded if and when
required for payment, and shall be funded solely from, and shall
constitute, Capital Contributions to the Partnership by the Partners.
In no event shall due diligence expenses be funded from operating
revenues of the Partnership. The due diligence expenses incurred by
the Partnership shall be allocated for book and tax accounting
purposes between and among each Project in such manner as the General
Partners may reasonably approve. Due diligence expenses from a
Project shall be allocated among the Parallel Partnerships in such a
manner as the Blackstone General Partner shall determine, in its sole
discretion. Each Partner shall contribute its pro rata share of such
due diligence expenses, based upon such Partner's Sharing Percentage.
(2) The Partners intend that all due diligence will be
conducted through the Partnership in accordance with any Consent given
by the General Partners; however, a General Partner may elect to
perform its own due diligence in addition to that being performed by
the Partnership. In the event a General Partner so elects to perform
its own due diligence, such General Partner shall use its best efforts
to minimize duplication of efforts and costs with that of the
Partnership. The expenses (including legal fees) reasonably incurred
by such General Partner shall be payable by the Partnership as
Partnership expenses.
(d) If the General Partners approve investigation of a
Project, the Partnership shall promptly undertake due diligence investigation
and at appropriate times during and, in any event, prior to the conclusion of
that due diligence investigation, the Partnership shall make available to each
Partner copies of the material due diligence information obtained by the
Partnership with respect to the applicable Target Investment.
(e) If any General Partner has elected to participate in
the due diligence investigation of a proposed Project pursuant to Section
3.6(c)(2) above, then all due diligence activities shall be coordinated with
such General Partner as reasonably necessary to facilitate such participation.
(f) At such time, if any, as any member of the
Blackstone Group or the Interstate Group determines that a request for final
authority to proceed with acquisition of a Project is required because such
party reasonably believes that a binding commitment (i.e. a letter of intent
which is, or could
<PAGE> 29
25
become binding or a contract for purchase and sale) to proceed with the
acquisition must be executed by the Partnership or the opportunity to acquire
such interest would be lost, such party shall request the General Partners to
give their final approval to proceed with such acquisition (such notification, a
"Request for Final Approval"). Upon the request of any General Partner, a
Request for Final Approval shall be made in writing. In connection with any
Request for Final Approval, such party shall, to the extent applicable, (i)
submit to the General Partners the form of any purchase agreement and/or other
relevant documents pursuant to which the Partnership may acquire an interest in
a Project, and (ii) notify the General Partners of whether an Affiliate of the
Interstate General Partner is being proposed as the property manager for the
Project. Within five (5) Business Days after delivery of the Request for Final
Approval, the General Partners shall meet and either approve or disapprove, in
writing, the proposed Project, including a timetable for closing of the
acquisition, the posting of any non-refundable deposits, if applicable, and the
terms of engagement of any Affiliate of the Interstate General Partner for
property or asset management of the Project, as applicable. Each General
Partner shall have the right to grant final approval or disapproval of the
Project in its sole and absolute discretion. However, unless all of the General
Partners agree to extend the five (5) Business Day decision period set forth
above, the General Partners shall either approve or disapprove the Project
within that period without exception, and any failure to act within that period,
as it may be extended by the General Partners in their sole discretion, shall
constitute a disapproval of the Project. The Blackstone Partners specifically
acknowledge that, unless transfer of management is not feasible or practical,
the Interstate General Partner contemplates the engagement by the Partnership of
an Affiliate of the Interstate General Partner on an arm's length basis in
connection with the property management of one or more of the Projects and
contemplates that one or more of the Project proposals may propose such
engagement. If transfer of management is not feasible or practical, then,
unless such engagement is not feasible or practical, the Partnership shall
engage an Affiliate of the Interstate General Partner as an asset manager for
such Project pursuant to an Asset Management Agreement in form and substance
satisfactory to the parties thereto (the "Asset Management Agreement"), and the
fees payable by the Partnership under such Asset Management Agreement shall be
at Competitive Rates. Unless the General Partners unanimously agree otherwise,
no nonrefundable deposit shall be posted with respect to a Project until that
Project has received final Project approval pursuant to this subsection 3.6(f)
and the General Partners have had the opportunity to review the purchase
agreement and/or the other documents pursuant to which the Partnership may
acquire an interest in such Project. The final Project approval shall specify
the amount of each remaining funding obligation with respect to the applicable
Project and the date(s) by which each such amount is to be funded, it being the
intent of the Partners that they not fund to the Partnership
<PAGE> 30
26
those amounts due to the seller of (or if applicable, escrow agent for the
transfer of) the Project more than three (3) Business Days prior to the date
such amounts are due to the Seller or escrow agent, as applicable. The funding
obligations with respect to a Project shall be allocated among the Parallel
Partnerships in such a manner as the Blackstone General Partner shall determine,
in its sole discretion. By each funding date, the Partners shall fund to the
Partnership their pro rata portion of the funding obligation then due, based
upon each Partner's Sharing Percentage, including any purchase deposits
contemplated in connection with the Consent to such Project. In no event shall
final Project approval funding requirements be funded from operating revenues of
the Partnership. All such contributions to the Partnership shall constitute
Capital Contributions. Each of the General Partners will consult with the other
General Partners in connection with the negotiation of any documents necessary
for the acquisition of a Target Investment.
(g) If the General Partners approve a proposed Project
pursuant to subsection 3.6(f) above, unless the Project shall be purchased
through another form, the Partnership shall promptly finalize the form of the
Project Partnership Agreement or Project Limited Liability Company Agreement,
as applicable, for the ownership of the proposed Project (with such Project
specific modifications as are necessary to address any Project specific
characteristics not addressed by the form of Project Partnership Agreement or
Project Limited Liability Company Agreement, as applicable), and promptly
finalize the form of a Management Agreement or an Asset Management Agreement,
as applicable, to be entered into (with such Project specific modifications as
are necessary to address any Project specific characteristics not addressed by
the form of Management Agreement or Asset Management Agreement, as applicable,
and which the Manager and the Blackstone General Partner may approve), which
Management Agreement (if applicable) shall provide for aggregate fees not
greater than 2.8% of Gross Operating Revenues (as defined in the Management
Agreement). In no event shall any party hereunder have any liability to the
other party for failure to finalize or enter into any Management Agreement or
Asset Management Agreement, as applicable, so long as the parties have
proceeded in good faith to attempt to consummate such documentation following
approval of the General Partners of any proposed Project pursuant to Section
3.6.
(h) The General Partners agree that in the event that
(A) material facts or circumstances or a material change in any facts or
circumstances regarding a Target Investment which was approved for acquisition
by the General Partners become known to any General Partner which were not
previously known by such General Partner and (B) with the knowledge of such new
or changed facts or circumstances, such General Partner no longer desires to
proceed with such acquisition and (C) at the time of the occurrence of the
event or events referred to in clause (A) above, (x) the Partnership is not
irrevocably committed to
<PAGE> 31
27
consummate the acquisition of such Target Investment pursuant to a binding legal
agreement and (y) the Partnership's obligations under such agreement would not
be breached by the failure to consummate such acquisition, then such General
Partner may, by written notice to the other General Partners, revoke its Consent
to consummate such acquisition at which time such Target Investment shall no
longer be deemed approved.
(i) Notwithstanding anything in this Section to the
contrary, if, with respect to a Project, a member of the Blackstone Group or
the Interstate Group reasonably believes it must take some action to retain the
opportunity to purchase such Project before it has sufficient time to follow
the procedures for approval set forth in this Section, such party may take such
action (including the making of a deposit or the entering into a binding
agreement if assignable to the Partnership) in its own name only and at its own
risk without violating the terms of this Agreement, provided such party
promptly submits such Project to the Partnership for its consideration. If the
General Partners subsequently approve such Project, such party shall assign all
of its rights in the Project to the Partnership and the Parallel Partnerships,
as appropriate. If the General Partners subsequently disapprove such Project,
the Partnership shall not be bound in any way to such Project, and the party
who proposed the Project may proceed with such Project only if the conditions
of Section 3.7(b) and Section 3.7(c) have been met.
(j) Any General Partner may request that any of the time
periods set forth herein be reduced or extended, if reasonably necessary.
(k) Notwithstanding anything in this Section to the
contrary, none of the Interstate Partners shall be deemed in default hereunder
for failure to notify the Blackstone Group as required herein if notice has
been given to the Blackstone General Partner of any of the Parallel
Partnerships.
(l) Notwithstanding anything contained in this Agreement to
the contrary, unless all of the Partners unanimously agree otherwise, each
Project in which the Partnership invests shall secure mortgage debt financing
in principal amounts and with terms that are consistent with the then currently
prevailing market conditions, but in any event in principal amounts between 60%
and 75% of the total acquisition cost of such Project.
SECTION 3.7 Right of First Opportunity; Exclusive Rights;
Investment Parameters. (a) Subject to the terms of this Agreement as set
forth above, the Blackstone Partners and the Interstate Partners each covenant
to provide to the Partnership, and each other, during the term of this
Agreement, the right of first opportunity as provided in Section 3.6 above to
invest in (x) those Target Investments which are hereafter identified by them
and (y) the Pre-Existing Projects. By their previous execution of the
Acknowledgement, Interstate Hotels Company (in
<PAGE> 32
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the case of (A) below) and Blackstone Group Holdings L.P. (in the case of (B)
below) have agreed and hereby ratify and confirm that they agree, and agree to
cause (A) the Interstate Group and (B) the Blackstone Group, respectively, to
submit any Target Investments in which they or the Interstate Group and the
Blackstone Group would otherwise wish to invest independent of the Partnership
to the right of first opportunity set forth herein, and, in connection
therewith, they shall, and shall cause the Interstate Group and the Blackstone
Group to, subject to Section 3.7(b) below, refer all such investment
opportunities to the Interstate General Partner or the Blackstone General
Partner, as applicable, for submission to the Partnership pursuant to the terms
set forth above.
(b) Notwithstanding anything herein to the contrary, the
Interstate Group and the Blackstone Group expressly retain the right to
undertake acquisition or development of any Target Investment or any other
investment whatsoever, without the consent of the others, and free of any right
of first opportunity hereunder, at such time, in such form and upon such terms
as they, acting in their sole discretion, may determine appropriate, where any
one of the following conditions is satisfied:
(i) such Project is a Project that was disapproved or
deemed disapproved solely by action or inaction of the General
Partners after proper notice; provided, that if a Project is
disapproved or deemed disapproved by a General Partner who is a member
of the same group (i.e., the Blackstone Group or the Interstate Group)
as the party who submitted the Request for Preliminary Approval or
Request for Final Approval, as applicable, then the condition
contained in this clause (i) shall not be deemed satisfied for any
member of such group;
(ii) such Project fails to meet the definition of a
Target Investment;
(iii) except as expressly provided below, such Project is
listed on Exhibit E hereto, subject to the qualifications and
agreements described in such Exhibit;
(iv) such Project is identified or undertaken after the
termination of the right of first opportunity pursuant to the terms of
this Agreement;
(v) such party is acquiring, directly or indirectly, the
stock or assets of an entity which owns one or more Target Investments
but whose assets and/or operations are not primarily composed of
Target Investments;
(vi) such party is acquiring, directly or indirectly, the
stock or assets of an entity which primarily owns and/or operates
hotel or motel franchise systems or hotel or motel reservations
systems;
<PAGE> 33
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(vii) the Consideration being paid for such Target
Investment in the aggregate is less than $10,000,000 or the equity
portion of the Consideration being paid for such Target Investment in
the aggregate is less than $5,000,000; or
(viii) with respect to a Target Investment, the Interstate
Group or the Blackstone Group, as applicable, certifies, at any time
(whether or not such Project has been submitted to the Partners and
the Partnership under Section 3.6 above), that in its good faith
judgment, involvement with the Blackstone Group or the Interstate
Group, as applicable, in such Target Investment would be prohibited
by, or otherwise interfere with, its other business arrangements or
would otherwise not be appropriate, feasible or practical.
(c) Notwithstanding anything in Section 3.7(b) above to
the contrary, the right of first opportunity set forth herein will apply to any
acquisition undertaken by any member of the Blackstone Group or the Interstate
Group during the term of this right of first opportunity with respect to the
Pre-Existing Projects. In the event that a party is undertaking the
acquisition of a Target Investment free of the right of first opportunity
pursuant to Section 3.7(b)(i), such party shall acquire such Target Investment
upon terms that are no more favorable than the terms presented to the General
Partners with respect to such Target Investment.
(d) The Partners acknowledge that, without limiting the
definition of Target Investment, it is their intent that the Target Investments
ultimately acquired by the Partnership will be Target Investments which (i) are
mid to high quality (3-4 stars), (ii) are located in growing markets, (iii) are
well positioned vis-a-vis the competition and, (iv) provide significant
opportunity for enhanced performance through intensive management repositioning
and/or redevelopment. Additionally, there is a preference for multi-asset
acquisitions over single properties in order to provide for the most efficient
and cost effective underwriting and investment process. Further, such
acquisitions should provide minimum going-in free and clear returns of 11%
(after management and FF&E reserve), unless immediate opportunity for enhanced
performance can be demonstrated. Nevertheless, certain Target Investments may
be approved hereunder even if they do not fall within the above-referenced
investment parameters. Accordingly, except as otherwise provided herein
(including without limitation Section 3.7(b) below), all Target Investments,
including, those that do not fall within the above-referenced investment
parameters, shall be subject to the right of first opportunity set forth in
Section 3.6 above.
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SECTION 3.8 Termination of Right of First Opportunity.
(a) The Blackstone General Partner shall have the right
to terminate the right of first opportunity set forth in Section 3.6 if any
member of the Interstate Group defaults in the performance of any of its
obligations hereunder or under the Acknowledgement after the Blackstone General
Partner has given such Partner or any other such party notice of such default
and such Partner or other party has failed to cure such default within 30 days
after receipt of such notice.
(b) The Interstate General Partner shall have the right
to terminate the right of first opportunity set forth in Section 3.6 if any
member of the Blackstone Group defaults in the performance of any of its
obligations hereunder or under the Acknowledgement after the Interstate General
Partner has given such Partner or any other such party notice of such default
and such Partner or other party has failed to cure such default within 30 days
after receipt of such notice.
(c) The right of first opportunity set forth in Section
3.6 shall automatically terminate upon the earlier to occur of (i) December 15,
1997 or (ii) the date upon which the members of the Blackstone Group in the
Partnership and in the Parallel Partnerships shall have contributed an
aggregate of $29,400,000 to the Partnership and the Parallel Partnerships and
the members of the Interstate Group in the Partnership and the Parallel
Partnerships shall have contributed an aggregate of $30,600,000 to the
Partnership and the Parallel Partnerships.
(d) At any time after $54,000,000 has been invested (either
through acquisitions that are closed or through binding commitments to close
acquisitions) in the aggregate by the Partnership and the Parallel
Partnerships, then any Partner may elect to terminate the right of first
opportunity set forth in Section 3.6 upon three (3) Business Days notice to all
the other Partners.
(e) The General Partners may, in their discretion,
extend the right of first opportunity set forth in Section 3.6 for such period
of time as they may mutually agree.
SECTION 3.9 Financing. The Blackstone General Partner,
acting directly or through one or more of its Affiliates, shall endeavor to
secure an acquisition financing facility for the Partnership and the Parallel
Partnerships in an initial amount between $60,000,000 and $80,000,000, such
facility to be subject to borrowings by the Partnership and the Parallel
Partnerships to acquire Target Investments in the event that sufficient seller
financing is not available in connection with the acquisition of any such
Target Investment and for other related purposes. If needed, the Blackstone
General Partner may secure additional debt facilities for the Partnership and
the
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Parallel Partnerships up to an aggregate amount (including the initial
$60,000,000 to $80,000,000) between $140,000,000 and $180,000,000. The General
Partners must unanimously approve the terms and conditions of such financing.
In the event such financing is obtained, in addition to any other fees, expenses
or other compensation payable to the Blackstone General Partner and/or its
Affiliates hereunder or any fees payable to third parties in connection with
such financing, the Partnership and the Parallel Partnerships shall pay to the
Blackstone General Partner and/or its Affiliates, as the case may be, a fee for
placing such debt facilities in an amount equal to one percent (1%) of the
maximum principal amount of each such debt facility. The portion of such fee
allocated to the Partnership shall be determined by the Blackstone General
Partner, in its sole discretion. At the time such fee is payable, each Partner
shall fund to the Partnership, as a Capital Contribution, its pro rata portion
of such fee, based upon such Partner's Sharing Percentage, to the extent not
financed as part of the overall transaction. No fee shall be payable under this
Section in connection with the refinancing of any such debt facilities.
SECTION 3.10 Financial Advisory Services. (a) Each time
that the Partnership acquires a Target Investment, the Partnership and any
Parallel Partnerships invested in such Target Investment shall pay to whichever
of the Blackstone General Partner (and/or its Affiliates) or the Interstate
General Partners (and/or its Affiliates) proposed such Target Investment to the
Partnership, an aggregate advisory fee equal to one percent (1%) of the amount
of the Consideration for the acquisition of such Target Investment; provided
that the Blackstone General Partner or its Affiliates shall not be entitled to
such a fee after the occurrence and during the continuance of a default
hereunder by any of the Blackstone Partners (after any notice and opportunity
to cure); and provided further that the Interstate General Partner or its
Affiliates shall not be entitled to such a fee after the occurrence and during
the continuance of a default hereunder by any of the Interstate Partners (after
any notice and opportunity to cure). The portion of such fee allocated to the
Partnership shall be determined by the Blackstone General Partner. At the time
such fee is payable, each Partner shall fund to the Partnership, as a Capital
Contribution, its pro rata portion of such fee, based upon such Partner's
Sharing Percentage, to the extent not financed as part of the overall
transaction.
(b) Each time that the Partnership disposes (including,
without limitation, in exchange for stock of a corporation, partnership
interests in a partnership or interests in a limited liability company) of a
Target Investment, the Partnership and any Parallel Partnerships invested in
such Target Investment shall pay to the Blackstone General Partner (and/or its
Affiliates) an aggregate advisory fee equal to one percent (1%) of the amount
of the Consideration for the disposition of such Target Investment; provided
that the Blackstone General Partner
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or its Affiliates shall not be entitled to such a fee after the occurrence and
during the continuance of a default hereunder by any of the Blackstone Partners
(after any notice and opportunity to cure). The portion of such fee allocated
to the Partnership shall be determined by the Blackstone General Partner. At
the time such fee is payable, each Partner shall fund to the Partnership, as a
Capital Contribution, its pro rata portion of such fee, based upon such
Partner's Sharing Percentage, to the extent not financed as part of the overall
transaction.
SECTION 3.11 Other Partner Services.
(a) Until such time as the General Partners hire, as an
employee or employees of the Partnership, a portfolio manager, a controller
and/or an administrative staff to conduct and oversee the overall
administration of the Partnership, the Interstate General Partner shall conduct
all the administrative affairs of the Partnership at the then Competitive Rate;
provided, however, that the General Partners agree to hire an employee or
employees of the Partnership to perform such tasks promptly after the needs of
the Partnership so require. Any such employee may be employed jointly by the
Parallel Partnerships. The Interstate General Partner shall also, at no cost
to the Partnership (except where otherwise provided in this Agreement),
conduct, oversee and/or manage all (i) pre-acquisition due diligence, (ii)
property-level management, (iii) performance tracking, (iv) the making of
capital improvements to any Project, (v) overall portfolio management of the
Partnership Assets and (vi) negotiation of franchise fee arrangements. The
Interstate General Partner shall also be responsible for preparing
administrative, operating and capital budgets for the Partnership. The
Interstate General Partner shall submit to the General Partners all relevant
information regarding all proposed budgets, proposed franchise fee arrangements
and related financial matters, and the General Partners shall have the right to
Consent to all such materials before they are implemented by the Partnership.
(b) The Blackstone General Partner shall, at no cost to
the Partnership (except where otherwise provided in this Agreement), conduct,
oversee and/or manage all the acquisition and disposition activities of the
Partnership, including overseeing acquisitions and dispositions of Target
Investments, arranging debt financings on individual Target Investments and
conducting and/or overseeing all mergers and public securities offerings.
(c) The Partners acknowledge that Affiliates of the
Interstate General Partner have the capability of providing to the Partnership
various insurance and purchasing services. At the direction of the Blackstone
General Partner acting in its sole discretion (including, as to insurance,
approval by the Blackstone General Partner of the financial soundness of any
proposed insurance company and its reinsurers), the Partnership
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may engage such Affiliates of the Interstate General Partner to perform such
services (in which case such services shall be performed at Competitive Rates)
or the Partnership may engage independent third parties to perform such
services, provided, that if the Partnership has received an offer from any such
independent third party to perform such services, Affiliates of the Interstate
General Partner shall have the right to match such offer and, if such offer is
matched, the Partnership will engage such Affiliates on the terms of such offer.
(d) In performance of the services pursuant to this
Section 3.11 and otherwise, the Partners agree that they shall cooperate and
consult with each other in an effort to minimize duplication of efforts and
costs.
SECTION 3.12 Marketing Rights. At any time after December
__, 1997 [18 months from the execution hereof], the Blackstone Partners, acting
jointly, or the Interstate Partners, acting jointly, may propose the sale of a
Project or Projects (but not a portion of any Project) in accordance with the
following terms:
(a) All of the Blackstone Partners may jointly serve upon all
of the Interstate Partners, or all of the Interstate Partners may
jointly serve upon the all of the Blackstone Partners, a notice (an
"Offering Notice") as described below. The partners serving an
Offering Notice shall be referred to in this Section as the "Offering
Group". The partners receiving an Offering Notice shall be referred
to in this Section as the "Offeree Group". Each Offering Notice shall
specify one or more Projects (the "Offered Projects") that the Offeror
Group proposes to be sold (either by causing the Property Partnerships
which own such Offered Projects to sell such Offered Projects or by
selling all of the partnership interests in such Property
Partnerships) and designate a price for the sale of each Offered
Project (the "Offer Price"). The Offeree Group with respect to a
Project may not deliver an Offering Notice with respect to such
Project until the expiration of the Sale Option Period (as defined
below) for such Project with respect to the Offering Notice of the
Offeror Group with respect to such Project. The Offering Notice may
not propose to sell a portion of any Project. An Offering Notice
delivered under this Agreement must be simultaneously delivered under
the partnership agreement of each of the Parallel Partnerships, and
for the purposes of this Section 3.12, the Offeror Group shall consist
of all of the members of the Offeror Groups in each of the Parallel
Partnerships, the Offeree Group shall consist of all of the members of
the Offeree Groups in each of the Parallel Partnerships, the Offered
Projects shall consist of the interest of all of the Parallel
Partnerships in such Offered Projects, and the Offeree Deposit (as
defined below) shall be delivered in the aggregate by all of the
Parallel Partnerships,
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(b) Within 30 days after the receipt by the Offeree Group of
an Offering Notice (an "Offeree Option Period"), the Offeree Group may
in a writing to the Offeror Group (an "Offeree Reply Notice") (i)
elect to purchase all of the Offered Projects listed in such Offering
Notice (an "Offeror Group Interest") at a price equal to the aggregate
Offer Price for the Offered Projects, or (ii) decline to purchase such
Offered Projects. With respect to each Offering Notice, if the
Offeree Group fails to deliver an Offeree Reply Notice to the Offeror
Group prior to the expiration of the Offeree Option Period, the
Offeree Group shall for all purposes be conclusively deemed to have
declined to purchase the Offered Projects listed in such Offering
Notice. If the Offeree Group elects to purchase all of the Offered
Projects, the Offeree Group shall deliver to a mutually acceptable
escrow agent, a nonrefundable deposit in an amount equal to 5% of the
aggregate Offer Price for the Offered Projects (the "Offeree
Deposit"); in such case, the Offeree Reply Notice shall not be deemed
delivered until such time as the escrow agent has received the Offeree
Deposit. The Offeror Group and the Offeree Group shall endeavor to
structure any sale of the Offered Projects to the Offeree Group in a
tax efficient manner.
(c) If, with respect to an Offering Notice, the Offeree
Group elects to purchase the Offered Projects, the closing of the
purchase of such Offered Projects (the "Closing") will be held on a
date selected by the Offeree Group upon five Business Days' notice to
the Offeror Group but no later than 90 days after the Offeror Group's
receipt of the Offeree Reply Notice (the "Outside Purchase Date").
Each Closing shall be held in New York City at a location designated
by the General Partner in the Offeror Group. At the Closing, the
Partnership (or the Property Partnership, as applicable) shall execute
such transfer documents as the Offeree Group shall reasonably require
to transfer the Offered Projects to the Offeree Group, as is, where
is, and the Offeree Group shall pay to the Offeror Group, in
immediately available funds, the aggregate Offeror Price for all of
the Offered Projects listed in such Offering Notice. To the extent
the execution by a member or Affiliate of a member of the Offeree
Group is required on behalf of the Partnership or Property
Partnership, each member or Affiliate of a member of the Offeree Group
shall promptly execute and deliver any such document or instrument,
and each Partner of the Offeree Group hereby constitutes and appoints
each Partner in the Offeror Group its attorney in fact to execute,
acknowledge and deliver any such documents or instruments in its
stead.
(d) An Offeree Reply Notice shall be an irrevocable binding
obligation of the Offeree Group. If the Offeree Group elects in an
Offeree Reply Notice to purchase the Offered Projects, and the Offeree
Group fails to purchase
<PAGE> 39
35
such Offered Projects by the applicable Offeree Outside Purchase Date,
(i) the Offeree Group shall immediately forfeit all of its rights
under this Section 3.12 with respect to any Projects, including
without limitation the right to send out Offering Notices with respect
to any Projects, (ii) the Offeror Group shall be entitled to retain
the Offeree Deposit as liquidated damages, and (iii) the Offeror Group
shall be entitled to exercise any and all other remedies available at
law and equity, including specific performance since the parties
hereto recognize that damages alone would be inadequate.
(e) With respect to an Offering Notice, if the Offeree Group
declines (or is deemed to have declined) to purchase the Offered
Projects listed therein, the Offeror Group shall have the right,
without the consent of any Partner of the Offeree Group, within 90
days after the earlier of (i) the Offeror Group's receipt of an
Offeree Reply Notice in which the Offeree Group declines to purchase
the Offered Projects, and (ii) the expiration of the Offeree Option
Period (such 90 day period, the "Sale Option Period"), to cause the
sale of any or all of the Offered Projects listed in such Offering
Notice (including the sale to any member of the Offeror Group). Each
Partner of the Offeree Group shall promptly execute and deliver any
document or instrument the Offeror Group reasonably requires in order
to consummate the sale of such Offered Projects during the Sale Option
Period, and each Partner of the Offeree Group hereby constitutes and
appoints each Partner in the Offeror Group its attorney in fact to
execute, acknowledge and deliver any such documents or instruments in
its stead. Notwithstanding the foregoing, the Offeror Group shall not
be entitled to cause the sale of an Offered Project during the Sale
Option Period for a sales price of less than 90% of the Offer Price
for such Offered Project listed in such Offering Notice (or 100% of
the Offer Price for such Offered Project if the purchaser is any
member of the Offeror Group or any affiliate of any member of the
Offeror Group). If an Offered Project is not sold prior to the
expiration of the Sale Option Period, the Offeror Group may not cause
the sale of such Offered Project without again complying with all of
the provisions of this Section (unless all of the other Partners
consent). No Partner may exercise its rights under this Section with
respect to any particular Project more than once in any twelve month
period (but such Partner may exercise its rights under this Section
with respect to other Projects). The Offeror Group and the Offeree
Group shall endeavor to structure any sale of the Offered Projects to
the Offeror Group (or any member thereof) in a tax efficient manner.
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36
ARTICLE IV
Other Activities Permitted
Except as expressly provided hereunder, this Agreement shall
not be construed in any manner to preclude any Partner or any of its Affiliates
from engaging in any activity whatsoever permitted by applicable law (whether
or not such activity might compete, or constitute a conflict of interest, with
the Partnership), including, without limitation, the provision of financial or
investment advisory services to any person, managing investments or receiving
compensation or profit from any of the foregoing.
ARTICLE V
Capital Contributions; Distributions
SECTION 5.1 Capital Contributions. (a) No Partner shall
be required to make a Capital Contribution except as provided in this Section.
Each Partner agrees to make Capital Contributions (i) as required by this
Agreement, including, without limitation, Sections 3.6, 3.9, 3.10 and 5.7 of
this Agreement, (ii) to pay for costs and expenses under approved budgets and
for fees, costs and expenses specifically payable by the Partnership pursuant
to this Agreement or (iii) in the event that the General Partners determine
that the Partnership requires additional funds to meet its then existing
obligations, including to cover operating shortfalls, and funds are not
otherwise available from Partnership revenues or from loans to the Partnership
for such purposes. Each of the Partners shall be required to make Capital
Contributions to the Partnership in accordance with such Partner's Sharing
Percentage (as determined in accordance with Section 3.6(f) above); provided
that, except for amounts to be contributed under clause (iii) above (for which
no limit shall apply), the aggregate amount of Capital Contributions made by
the Blackstone Partners hereof and by the Blackstone Partners in the Parallel
Partnerships shall not exceed $29,400,000, and the aggregate amount of Capital
Contributions made by the Interstate Partners hereof and by the Interstate
Partners in the Parallel Partnerships shall not exceed $30,600,000. It is
understood and agreed that the commitment by the Blackstone Partners and the
Interstate Partners to fund their respective Committed Capital is not revolving
in nature and at such time as the date such Partner's Committed Capital shall
have been funded in full, such commitment will expire and be of no further
force or effect.
(b) No Partner shall have any obligation to restore any
negative balance in the Partner's Capital Account upon
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37
liquidation of the Partnership. No Partner shall be entitled to withdraw all or
any part of its Capital Contributions except as expressly provided in this
Partnership Agreement. No interest shall be payable by the Partnership on the
Capital Contributions of any Partner except as otherwise provided herein. In no
event shall any Partner be entitled to demand any property from the Partnership
other than cash.
(c) When Capital Contributions are required under
paragraph (a) above from the Partners, the General Partners shall give notice
to all of the Partners of the amount of funds required and the date such funds
shall be due, which due date shall be, unless otherwise provided in this
Agreement, no less than 10 Business Days from the date such notice is given.
SECTION 5.2 Partner Loans for Failure to Fund Committed
Capital. If any Partner shall fail to timely make a Capital Contribution
required in Section 5.1 (such Partner is hereinafter referred to as a
"Non-Contributing Partner") and such default is not cured within 10 days of the
date such Capital Contribution was due, then any other Partner (a "Contributing
Partner") may fund all or part of such Capital Contribution and, unless the
Contributing Partner otherwise elects the remedy of the dilution of such
Non-Contributing Partner's Interest in the Partnership as set forth in Section
5.3 below, any amounts funded by a Contributing Partner on behalf of a
Non-Contributing Partner shall be made directly to the Partnership but shall be
treated as (i) a recourse demand loan made by the Contributing Partner to the
Non-Contributing Partner (bearing interest at a fluctuating rate of interest
equal to 10% per annum in excess of the prime rate of interest publicly
announced by Citibank, N.A. from time to time, but not less than 15% per annum,
but in no event in excess of the maximum rate permitted by applicable law),
followed by (ii) a Capital Contribution by such Non-Contributing Partner to the
Partnership. Any such recourse loan (to the extent of unpaid principal and
interest) shall be payable on demand by the Contributing Partner and shall be
repaid directly by the Partnership on behalf of the Non-Contributing Partner to
the Contributing Partner from Non-Capital Proceeds and Capital Proceeds
otherwise distributable to the Non-Contributing Partner. Amounts paid directly
by the Partnership to the Contributing Partner on account of the loan shall be
deemed distributions to the Non-Contributing Partner. Any Non-Capital Proceeds
and Capital Proceeds used to repay such loan shall be applied first to interest
and then to principal thereof.
SECTION 5.3 Dilution for Failure to Fund Capital. (a) If
a Non-Contributing Partner fails to contribute any amounts required to be
contributed pursuant to Section 5.1 above as and when required to be
contributed and such funds are contributed to the Partnership by a Contributing
Partner, the Non-Contributing Partner's Sharing Percentage shall be, if the
Contributing Partner elects to apply the provisions of this Section 5.3 in lieu
of the loan mechanism provided in Section
<PAGE> 42
38
5.2, adjusted pursuant to Section 5.3(b) below as of the day on which the
Contributing Partner contributes such funds. In such an event the contribution
of such funds shall be treated as a Capital Contribution to the Partnership by
the Contributing Partner.
(b) The Sharing Percentage of a Non-Contributing Partner
may be reduced (but not below zero), upon the election described in Section
5.3(a) above, by an amount equal to the product of (i) 1.6 times (ii) a
fraction expressed as a percentage, (A) the numerator of which is the amount of
the Capital Contribution which such Non-Contributing Partner fails to
contribute and (B) the denominator of which is the aggregate of the Capital
Contributions made by the Partners up to and including such time, including the
Capital Contribution which such Non-Contributing Partner fails to make. The
Sharing Percentage of the Contributing Partner shall be increased by the amount
of the reduction in the Sharing Percentage of the Non- Contributing Partner.
Notwithstanding the foregoing, if within 90 days after the reduction of the
Non-Contributing Partner's Sharing Percentage described herein, the
Non-Contributing Partner pays to the Contributing Partner the amount which the
Non- Contributing Partner failed to contribute and such Contributing Partner
contributed, together with interest thereon (at a rate equal to 10% per annum
in excess of the prime rate of interest publicly announced by Citibank, N.A.
from time to time, but not less than 15% per annum, and in no event in excess
of the maximum rate permitted by applicable law), the Non-Contributing
Partner's Sharing Percentage and the Contributing Partner's Sharing Percentage
shall be reinstated as if the Non-Contributing Partner had timely made such
Capital Contribution.
SECTION 5.4 Distributions Generally. Capital Proceeds
shall be distributed as soon as practicable but in any event within 45 days
after the date that such Proceeds are received by the Partnership. Non-Capital
Proceeds shall be distributed at such times and intervals as the General
Partners shall determine, but in no event later than 30 days after the end of
each calendar quarter. The Partnership shall make such distributions in cash
among the Partners in accordance with this Article V.
SECTION 5.5 Distributions of Proceeds.
(a) Each distribution of Non-Capital Proceeds from a
Project shall be made to the Partners to the extent of, and pro rata in
accordance with, each of their Sharing Percentages (as the same may be adjusted
hereunder). Notwithstanding the foregoing, Non-Capital Proceeds from a Project
otherwise distributable to a Blackstone Partner shall be distributed as
follows:
(i) First, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from
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39
such Project in an amount equal to the Capital Contributions made by
such Partner with respect to such Project; and
(ii) Second, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from such Project,
in excess of any amounts distributed under Section 5.5(a)(i) above, in
an amount which generates a 20% Internal Rate of Return on the Capital
Contributions made by such Partner with respect to such Project; and
(iii) Thereafter, 86.532% to such Blackstone Partner and
13.468% to the Interstate Partners (pro rata in accordance with their
Sharing Percentages).
(b) Each distribution of Capital Proceeds from a Project
shall be made to the Partners to the extent of, and pro rata in accordance
with, each of their Sharing Percentages (as the same may be adjusted
hereunder). Notwithstanding the foregoing, Capital Proceeds from a Project
otherwise distributable to a Blackstone Partner shall be distributed as
follows:
(i) First, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in an amount equal to the sum of the Capital
Contributions made by such Partner as of such date with respect to all
Projects which have been subject to a Disposition on or prior to such
date; and
(ii) Second, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in excess of any amounts distributed under
Section 5.5(b)(i) above, in an amount which generates a 20% Internal
Rate of Return on the Capital Contributions made by such Partner as of
such date with respect to all Projects which have been subject to a
Disposition on or prior to such date and all Projects for which an
Unrealized Loss exists on such date; and
(iii) Third, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in excess of any amounts distributed under
Sections 5.5(b)(i) and (ii) above, in an amount equal to the total of
such Partner's pro rata shares of Unrealized Loss from all Projects
for which an Unrealized Loss exists on such date (based on such
Partner's Sharing Percentage); and
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(iv) Thereafter, 86.532% to such Blackstone Partner and
13.468% to the Interstate Partners (pro rata in accordance with their
Sharing Percentages).
SECTION 5.6 Restricted Payments. Notwithstanding any
provisions to the contrary in this Agreement, neither the Partnership nor the
General Partners on behalf of the Partnership shall make a distribution if such
distribution would violate the Partnership Act.
SECTION 5.7 Partnership Expenses. (a) Promptly after the
date of this Agreement, the Partnership, to the extent it does not pay such
costs and expenses directly, will reimburse each Partner for Organizational
Expenses incurred by such Partner.
(b) The following expenses shall be borne by the
Partnership:
(i) To the extent not reimbursed, all expenses (other
than any Partner's overhead) reasonably incurred in the operation of
the Partnership (and approved by the General Partners if required
hereunder), including without limitation, any taxes imposed on the
Partnership, fees and expenses for attorneys and accountants, the
costs and expenses of any insurance purchased by the Partnership, and
the costs and expenses of any litigation involving the Partnership and
the amount of any judgments or settlements paid in connection
therewith; and
(ii) All third party professional services which have
been approved by the General Partners and incurred in connection with
a proposed Target Investment that is not ultimately made or a proposed
disposition of a Project which is not actually consummated, including,
without limitation, (i) commitment fees that become payable in
connection with a proposed Target Investment that is not ultimately
made, (ii) legal fees, accounting fees and other third party
professional due diligence costs and expenses and (iii) all travel and
similar out of pocket costs and expenses of employees of the Partners
in connection with approved due diligence.
Partnership expenses shall be paid directly by the
Partnership or the Partnership shall reimburse the Partner who incurred such
expenses for the payment thereof, as the case may be.
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ARTICLE VI
Books and Reports; Tax Matters;
Capital Accounts; Allocations
SECTION 6.1 General Accounting Matters. (a) Allocations of
Net Income (Loss) pursuant to Section 6.4 shall be made by or under the
direction of the General Partners at the end of each Fiscal Period.
(b) Each Partner shall be supplied with the Partnership
information necessary to enable such Partner to prepare in a timely manner its
Federal, state and local income tax returns and such other financial or other
statements and reports that are approved by the General Partners.
(c) The Blackstone General Partner shall keep or cause
to be kept books and records pertaining to the Partnership's business showing
all of its assets and liabilities, receipts and disbursements, realized profits
and losses, Partners' Capital Accounts and all transactions entered into by the
Partnership. Such books and records of the Partnership shall be kept at the
office of the Blackstone General Partner and the Partners and their
representatives shall at all reasonable times have free access thereto for the
purpose of inspecting or copying the same. The Partnership's books of account
shall be kept on an accrual basis or as otherwise provided by the General
Partners, and otherwise in accordance with generally accepted accounting
principles, except that for income tax purposes such books shall be kept in
accordance with applicable tax accounting principles.
(d) Except as otherwise provided herein, all
determinations, valuations and other matters of judgment required to be made
for accounting and tax purposes under this Agreement shall be made by or under
the direction of the General Partners and shall be conclusive and binding on
all Partners, former Partners, their successors or legal representatives and
any other person except for computational errors or fraud, and to the fullest
extent permitted by law no such person shall have the right to an accounting or
an appraisal of the assets of the Partnership or any successor thereto except
for computational errors or fraud.
(e) The books of the Partnership shall be examined,
certified and audited annually as of the end of each Fiscal Year, by such
recognized firm of independent certified public accountants that is designated
by the General Partners. For each Fiscal Year of the Partnership, such
accountants shall determine and prepare full financial statements, including,
without limitation, a balance sheet, an income statement, a statement of
changes in financial position and a statement of the Non-Capital Proceeds and
Capital Proceeds of the Partnership. The General Partners shall promptly upon
receipt of such financial statements, and in any event within 90 days after the
end of each
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such Fiscal Year, transmit copies thereof to each Partner, together with the
report and management letter of such accountants covering the results of such
audit. The cost of all audits and reports provided to the Partners pursuant to
this Section shall be an expense of the Partnership.
SECTION 6.2 Certain Tax Matters.
The taxable year of the Partnership shall be the same as its
Fiscal Year. The Tax Matters Partner (as defined below) shall cause to be
prepared all Federal, state and local tax returns of the Partnership for each
year for which such returns are required to be filed and, after approval of
such returns by the General Partners, shall cause such returns to be timely
filed. The General Partners shall determine the appropriate treatment of each
item of income, gain, loss, deduction and credit of the Partnership and the
accounting methods and conventions under the tax laws of the United States, the
several states and other relevant jurisdictions as to the treatment of any such
item or any other method or procedure related to the preparation of such tax
returns. The Tax Matters Partner shall make the election provided for in
Section 754 of the Code, if, and only if the Partner who or which has acquired
an interest in the Partnership or a distribution of Partnership property with
respect to which the election is made will have provided to the Tax Matters
Partner concurrently, or within 30 days after the Transfer of such interest,
its undertaking to the effect that it, and its successors in interest
hereunder, will reimburse the Partnership annually for its additional
administrative costs incurred by reason of such election as determined by the
auditor of the Partnership. The Tax Matters Partner shall also make the
election to amortize Organizational Expenses pursuant to Code Section 709 and
the regulation promulgated thereunder. In addition, the General Partners may
cause the Partnership to make or refrain from making any and all other
elections permitted by the tax laws of the United States, the several states
and other relevant jurisdictions. The Tax Matters Partner for purposes of
Section 6231(a)(7) of the Code (the "Tax Matters Partner") shall be the
Blackstone General Partner. The Tax Matters Partner shall have all of the
rights, duties, powers and obligations provided for in Sections 6221 through
6232 of the Code with respect to the Partnership provided, however, that the
following provisions shall apply with respect to the Tax Matters Partner:
(a) The Tax Matters Partner shall be responsible for the
filing of the Partnership information returns required under Section
6031 of the Code. Within thirty (30) days after the end of each
Fiscal Year, the Tax Matters Partner shall furnish to the
Partnership's accountants sufficient information for the preparation
of all required Partnership tax returns.
(b) A Partner shall provide notice to the Tax Matters Partner
of its intent to file an original or an amended
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43
income tax return of which such Partner will take a position with
respect to a partnership item that is inconsistent with the position
taken by the Tax Matters Partner on the Partnership return. Such
notice must be given at least thirty (30) days prior to the filing of
such return. At such time, such Partner shall provide the Tax Matters
Partner with a statement detailing the inconsistent item or items
contained in such return. Within ten (10) days of receipt of such
statement, the Tax Matters Partner shall provide a copy of such
statement to each Partner.
(c) The Tax Matters Partner shall include in each Partnership
return sufficient information to entitle each eligible Partner and any
indirect partner (at its request) to notice from the Internal Revenue
Service pursuant to Section 6223(a) of the Code.
(d) Each Partner reserves the right to participate in an
audit proceeding.
(e) Each Partner reserves the right to enter into a separate
settlement agreement with the Internal Revenue Service. A Partner who
enters into a settlement agreement with the Internal Revenue Service
concerning a partnership item shall notify the Tax Matters Partner of
its terms within ten (10) days of such agreement, and the Tax Matters
Partner shall notify the other Partners of the terms of such agreement
within ten (10) days after receiving such notice. The Tax Matters
Partner shall notify each other Partner of the terms of any settlement
offer received by it within ten (10) days of receiving such offer.
(f) The Tax Matters Partner shall not file an administrative
adjustment request without the Consent of all of the General Partners.
Each Partner, other than the Tax Matter partner, reserves the right to
file an administrative adjustment request under Section 6227 of the
Code. Any Partner filing an administrative adjustment request shall
notify the Tax Matters Partner of its contents within ten (10) days
after filing such request. The Tax Matters Partner shall notify each
Partner of the contents of such request within ten (10) days of the
receipt of such notice.
(g) All Partners shall report to the Tax Matters Partner the
conversion of a partnership item to a nonpartnership item under
Section 6231(b) or any other provision of the Code within ten (10)
days of learning of the conversion.
(h) Each Partner reserves the right to file a petition for
judicial review and to participate in a judicial proceeding under
Section 6226 and 6228 of the Code. If the Tax Matters Partner files a
petition for judicial review or an appeal under Section 6226 of the
Code, it shall notify
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44
each Partner of such petition or appeal within ten (10) days of such
filing. Any other Partner filing a petition for judicial review or
any appeal under Sections 6226 or 6228 of the Code shall notify the
Tax Matters Partner of such petition or appeal on or before the date
of filing. The Tax Matters Partner shall notify each Partner of such
filing within ten (10) days of receipt of such notice from the filing
partner.
(i) The Tax Matters Partner shall not agree to extend the
statute of limitations for assessment without the Consent of all of
the General Partners.
(j) The Tax Matters Partner shall be authorized to incur
expenses in the performance of its duties pursuant to this Agreement.
Notwithstanding any other provision of this Agreement, such expenses
shall be borne by the persons who were Partners of the Partnership at
any time during the applicable taxable year without regard to whether
such persons are Partners at the time the expense is incurred. Such
expenses shall be allocated to the Partners and former Partners having
an interest in the proceeding at the time the cost is incurred in
proportion to their relative Sharing Percentages for the applicable
taxable year.
(k) The provisions of this Section shall govern the conduct
of all parties who are currently Partners and all parties who were
Partners during the applicable Partnership taxable year. A Partner
shall not be relieved of any duties or responsibilities imposed under
this Section by the termination or transfer of its interest in the
Partnership.
(l) All terms used in this Section that are defined in
Section 6231(a) of the Code shall have the meanings set forth therein.
SECTION 6.3 Capital Accounts. There shall be
established for each Partner on the books of the Partnership as of the date
hereof, or such later date on which such Partner is admitted to the
Partnership, a capital account (each being a "Capital Account"). Each Capital
Contribution shall be credited to the Capital Account of such Partner on the
date such contribution of capital is paid to the Partnership. In addition,
each Partner's Capital Account shall be (a) credited with such Partner's
allocable share of any Net Income of the Partnership, (b) debited with (i)
distributions to such Partner of cash or the fair market value of other
property and (ii) such Partner's allocable share of Net Loss of the Partnership
and expenditures of the Partnership described or treated under Section 704(b)
as described in Section 705(a)(2)(B) of the Code, and (c) otherwise maintained
in accordance with the provisions of the Code. Any other item which is
required to be reflected in a Partner's Capital Account under Section 704(b) of
the Code or otherwise under this Agreement shall be so reflected. Capital
Accounts
<PAGE> 49
45
shall be appropriately adjusted to reflect transfers of part (but not all) of a
Partner's interest in the Partnership. Interest shall not be payable on Capital
Account balances. Notwithstanding anything to the contrary contained in this
Agreement, the Partnership shall maintain the Capital Accounts of the Partners
in accordance with the principles and requirements set forth in section 704(b)
of the Code and Regulations section 1.704-1(b)(2)(iv).
SECTION 6.4 Allocations. (a) Net Income of the
Partnership shall be allocated to the Partners having deficit balances in their
Capital Accounts (computed after taking into account distributions pursuant to
Section 5.5 with respect to such fiscal year, and after adding back each
Partner's share of partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain, determined pursuant to Regulations sections 1.704-2(g)(1) and
1.704-2(i)(5)) in proportion to, and to the extent of, such deficits. Any
remaining Net Income and all Net Loss shall be allocated among the Partners
either 49% to the Blackstone Partners (pro rata in proportion to their Sharing
Percentages) and 51% to the Interstate Partners (pro rata in accordance with
their Sharing Percentages) or [______]% to the Blackstone Partners (pro rata in
proportion to their Sharing Percentages) and [_____]% to the Interstate
Partners pro rata in accordance with their Sharing Percentages) so as to
produce to the extent possible Capital Accounts for the Partners (computed in
the manner set forth in the preceding sentence) such that if an amount of cash
equal to such positive Capital Account balances were distributed in accordance
with such positive Capital Account balances, such distribution would be in the
amounts, sequence and priority set forth in Section 5.5 and to the extent Net
Loss exceeds the positive Adjusted Capital Account Balances of the Partners,
the excess shall be allocated first, to those Partners with positive Adjusted
Capital Account Balances, in proportion to, and to the extent of, such Adjusted
Capital Account Balances, and thereafter, to the General Partners, in the ratio
that the Sharing Percentage of each General Partner bears to the Sharing
Percentage of all General Partners. Notwithstanding the foregoing, if an
allocation of Net Loss in the ratio of [______]% to the Blackstone Partners and
[______]% to the Interstate Partners is in excess of amounts of Net Income
previously allocated in the ratio of [______]% to the Blackstone Partners and
[______]% to the Interstate Partners, then such allocation of Net Loss shall
instead be made 49% to the Blackstone Partners (pro rata in proportion to their
Sharing Percentages) and 51% to the Interstate Partners (pro rata in accordance
with their Sharing Percentages). Notwithstanding the foregoing, if an
allocation of Net Income or Net Loss would not result in Capital Accounts for
the Partners (computed in the manner set forth in the first sentence of this
paragraph (a)) being equal to cash distributions in the amounts, sequence and
priority set forth in Section 5.5, Net Income may be allocated 100% to the
Interstate Partners (pro rata in accordance with their Sharing Percentages) or
Net Loss may be allocated 100% to the Blackstone Partners (pro
<PAGE> 50
46
rata in accordance with their Sharing Percentages) if (and to the extent
necessary) to produce Capital Accounts equal (or in proportion) to the cash
distributions set forth in Section 5.5.
(b) Notwithstanding anything herein to the contrary, in
the event any Partner unexpectedly receives any adjustments, allocations or
distributions described in paragraphs (b)(2)(ii)(d)(4), (5) or (6) of Section
1.704-1 of the regulations under the Code, there shall be specially allocated
to such Partner such items of Partnership income and gain, at such times and in
such amounts as will eliminate as quickly as possible that portion of any
deficit in its Capital Account caused or increased by such adjustments,
allocations or distributions. To the extent permitted by the Code and the
regulations thereunder, any special allocations of items of income or gain
pursuant to this Section 6.4(c) shall be taken into account in computing
subsequent allocations of Net Income (Loss) pursuant to this Section 6.4 so
that the net amount of any items so allocated and the subsequent allocations of
Net Income (Loss) to the Partners pursuant to this Section 6.4 shall, to the
extent possible, be equal to the net amounts that would have been allocated to
each such Partner pursuant to the provisions of this Section 6.4 if such
unexpected adjustments, allocations or distributions had not occurred.
(c) All items of income, gain, loss, deduction and
credit of the Partnership shall be allocated among the Partners for Federal,
state and local income tax purposes consistent with the manner that the
corresponding constituent items of Net Income (Loss) shall be allocated among
the Partners pursuant to this Agreement, except as may otherwise be provided
herein or by the Code. To the extent Treasury Regulations promulgated pursuant
to Subchapter K of the Code (including under Sections 704(b) and (c) of the
Code) require allocations for tax purposes that differ from the foregoing
allocations, the General Partners may determine the manner in which such tax
allocations shall be made so as to comply more fully with such Treasury
Regulations or other applicable law and, at the same time to the extent
reasonably possible, preserve the economic relationships among the Partners as
set forth in this Agreement.
(d) Notwithstanding the provisions of this Section 6.4,
net income, net gain, and net loss of the Partnership (or items of income,
gain, loss, deduction, or credit, as the case may be) shall be allocated in
accordance with the following provisions of this Section 6.4 to the extent such
provisions shall be applicable.
(i) Nonrecourse Deductions of the Partnership for any
Fiscal Year shall be specially allocated to the Partners in the same
proportion as Net Income or Net Loss is allocated for such Fiscal
Year; provided that if an allocation of Nonrecourse Deductions in the
ratio of [______]% to the Blackstone Partners and [______]%
<PAGE> 51
47
to the Interstate Partners is in excess of amounts of Net Income
previously allocated in the ratio of [______]% to the Blackstone
Partners and [______]% to the Interstate Partners, then such
allocation of Nonrecourse Deductions shall instead be made 49% to the
Blackstone Partners (pro rata in proportion to their Sharing
Percentages) and 51% to the Interstate Partners (pro rata in
accordance with their Sharing Percentages). Partner Nonrecourse
Deductions of the Partnership for any Fiscal Year shall be specially
allocated to the Partner who bears the economic risk of loss for the
liability in question. The provisions of this Section 6.4(e)(i) are
intended to satisfy the requirements of Regulations sections
1.704-2(e)(2) and 1.704-2(i)(1) and shall be interpreted in accordance
therewith for all purposes under this Agreement.
(ii) If there is a net decrease in the Minimum Gain of
the Partnership during any Partnership Fiscal Year, each Partner shall
be specially allocated items of Partnership income and gain for such
year equal to that Partner's share of the net decrease in Minimum
Gain, within the meaning of Regulations section 1.704- 2(g)(2). The
provisions of this Section 6.4(e)(ii) are intended to comply with the
Minimum Gain chargeback requirements of Regulations section 1.704-2(f)
and shall be interpreted in accordance therewith for all purposes
under this Agreement.
(iii) If there is a net decrease in Partner Nonrecourse
Debt Minimum Gain during any Fiscal Year, each Partner that has a
share of such partner Nonrecourse Debt Minimum Gain, determined in
accordance with Regulations section 1.704-2(i)(5), as of the beginning
of such year shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, for succeeding years) equal
to such Partner's share of the net decrease in Partner Nonrecourse
Debt Minimum Gain. The provisions of this Section 6.4(e)(iii) are
intended to comply with the Partner Nonrecourse Debt Minimum Gain
chargeback requirement of Regulations section 1.704-2(i)(4) and shall
be interpreted in accordance therewith for all purposes under this
Agreement.
ARTICLE VII
Dissolution
SECTION 7.1 Dissolution. The Partnership shall be
dissolved and subsequently terminated upon the occurrence of the first of the
following events:
<PAGE> 52
48
(a) decision of all of the General Partners to dissolve
and subsequently terminate the Partnership;
(b) December 31, 2045;
(c) the occurrence of a Disabling Event with respect to
the sole remaining General Partner, provided that the Partnership
shall not be dissolved if, within 90 days after such Disabling Event,
all of the Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of the
Disabling Event, of another General Partner; or
(d) if, after the right of first opportunity under
Article 3 shall no longer be in effect, all of the Partnership Assets
are sold or otherwise disposed of.
SECTION 7.2 Winding-up. When the Partnership is dissolved,
the business and property of the Partnership shall be wound up and liquidated
by the General Partners or, in the event of a Disabling Event with respect
to any General Partner, by the remaining General Partners or, in the event
of a Disabling Event with respect to each of the General Partners, such
liquidating trustee as may be named by Limited Partners holding a majority
of the Sharing Percentages held by all Limited Partners (the party conducting
the liquidation being hereinafter referred to as the "Liquidator"). The
Liquidator shall use its best efforts to reduce to cash and cash equivalent
items such assets of the Partnership as the Liquidator shall deem it advisable
to sell, subject to obtaining fair value for such assets and any tax or other
legal considerations.
SECTION 7.3 Final Distribution. Within 90 calendar days
after the effective date of dissolution of the Partnership, the assets of the
Partnership shall be distributed in the following manner and order:
(a) to the payment of the expenses of the winding-up,
liquidation and dissolution of the Partnership;
(b) to pay all creditors of the Partnership, other than
Partners, either by the payment thereof or the making of reasonable
provision therefor;
(c) to establish reserves, in amounts established by the
Liquidator, to meet other liabilities of the Partnership; and
(d) to pay, in accordance with the provisions of this
Agreement applicable to such loans or in accordance with the terms
agreed among them and otherwise on a pro rata basis, all creditors of
the Partnership that are Partners, either by the payment thereof or
the making of reasonable provision therefor.
<PAGE> 53
49
The remaining assets of the Partnership shall be applied and
distributed in accordance with the positive balances of the
Partners' Capital Accounts, as determined after taking into
account all adjustments to Capital Accounts for the Partnership
taxable year during which the liquidation occurs.
ARTICLE VIII
Transfer of Partners' Interests
SECTION 8.1 Restrictions on Transfer of Partnership
Interests. (a) No Partner may, directly or indirectly, assign, sell,
exchange, transfer, pledge, hypothecate or otherwise dispose of all or any part
of its interest in the Partnership (a "Transfer") to any person, other than in
accordance with paragraphs (b), (c), (d), (e) and (f) below. A change in the
ultimate beneficial ownership of a Partner shall be deemed a Transfer for
purposes of this Agreement.
(b) Any Partner may Transfer all or part of its interest
in the Partnership to any person upon obtaining the prior written Consent of
the Blackstone General Partner, which Consent may be withheld in its sole and
absolute discretion; provided, however, that upon any Transfer of a Partner's
interest in accordance with this paragraph, the person (the "Transferee") to
whom the Partner's interest was Transferred shall not be admitted as a
substitute Partner without receiving the prior written Consent of the
Blackstone General Partner (which Consent may be withheld in its sole and
absolute discretion) and the Transferee has given written acceptance and
adoption of all of the terms and provisions of this Agreement; and provided,
further, that the prior written Consent of each of the General Partners shall
be required to admit the Transferee as a substitute Partner (which Consent may
be withheld in their sole and absolute discretion) (i) if the Transferee is not
an Affiliate of any member of the Blackstone Group or the Interstate Group, or
(ii) if the aggregate Sharing Percentages of the Interstate Partners is 20% or
less at the time of the Transfer.
(c) A Partner may mortgage, pledge, hypothecate or
otherwise encumber all or any portion of such Partner's rights to receive a
portion of the Non-Capital Proceeds, Capital Proceeds, Net Income and Net
Losses to any person; provided, however, that the holder of such mortgage,
pledge, hypothecation or encumbrance shall not be admitted as a substitute
Partner without the prior Consent of the Blackstone General Partner (which
Consent may be withheld in its sole and absolute discretion), provided that (i)
if the Transferee is not an Affiliate of any member of the Blackstone Group or
the Interstate Group or (ii) if the aggregate Sharing Percentages of the
Interstate Partners is 20% or less at the time of the Transfer, the prior
written Consent of each of the General Partners shall be required, which
Consent may be withheld in their sole and absolute discretion.
<PAGE> 54
50
(d) At any time, any Blackstone Partner may transfer its
interest in Non-Capital Proceeds, Capital Proceeds, Net Income and Net Losses
to any other Blackstone Partner or its Affiliates but the Transferee shall not
be admitted as a substitute Partner and the transferor shall not be permitted
to withdraw from the Partnership without, in each case, the Consent of the
Blackstone General Partner (which Consent may be withheld in its sole and
absolute discretion), or, if the aggregate Sharing Percentages of the
Interstate Partners is 20% or less at the time of the Transfer, the Consent of
each of the General Partners (which Consent may be withheld in their sole and
absolute discretion).
(e) At any time, any Interstate Partner may transfer its
interest in Non-Capital Proceeds, Capital Proceeds, Net Income and Net Losses
to any other Interstate Partner or their Affiliates, but the Transferee shall
not be admitted as a substitute Partner and the transferor shall not be
permitted to withdraw from the Partnership without, in each case, the Consent
of the Blackstone General Partner (which Consent may be withheld in its sole
and absolute discretion).
(f) At any time, the ultimate beneficial ownership of a
Partner may be changed without any requirement for Consent hereunder, provided
that day to day management of such Partner is, at all times thereafter,
directly or indirectly controlled by the Blackstone General Partner or an
Affiliate thereof or by the Interstate General Partner or an Affiliate thereof.
SECTION 8.2 Other Transfer Provisions. (a) Any purported
Transfer by a Partner of all or any part of its interest in the Partnership in
violation of this Article VIII shall be null and void and of no force or
effect.
(b) Except as provided in this Article VIII, no Partner
shall have the right to withdraw from the Partnership prior to its termination
and no additional Partner may be admitted to the Partnership without the prior
written consent of the General Partners. In the event of any withdrawal of a
General Partner in violation of this Agreement, including as a result of a
Disabling Event, such General Partner shall be liable to the Partnership as
provided in Section 17-602 of the Partnership Act.
(c) Notwithstanding any provision of this Agreement to
the contrary, a Partner may not Transfer all or any part of its interest in the
Partnership if such Transfer would jeopardize the status of the Partnership as
a partnership for federal income tax purposes, cause a dissolution of the
Partnership under the Partnership Act or would violate, or would cause the
Partnership to violate, any applicable law or regulation (including any
applicable federal or state securities laws) or contract to which the
Partnership is a party.
<PAGE> 55
51
(d) Concurrently with the admission of any substitute or
additional Partner, the General Partners shall forthwith cause any necessary
papers to be filed and recorded and notice to be given wherever and to the
extent required showing the substitution of a Transferee as a substitute
Partner in place of the Partner Transferring its interest, or the admission of
an additional Partner, all at the expense, including payment of any
professional and filing fees incurred, of such substituted or additional
Partner. The admission of any person as a substitute or additional Partner
shall be conditioned upon such person's written acceptance and adoption of all
the terms and provisions of this Agreement.
(e) If any interest in the Partnership is Transferred
during any accounting period in compliance with the provisions of this Article
VIII, each item of income, gain, loss, expense, deduction and credit and all
other items attributable to such interest for such period shall be divided and
allocated between the transferor and the transferee by taking into account
their varying interests during such period in accordance with Section 706(d) of
the Code, using any conventions permitted by law and selected by the General
Partners. All distributions on or before the date of such Transfer shall be
made to the transferor, and all distributions thereafter shall be made to the
transferee. Solely for purposes of making such allocations and distributions,
the Partnership shall recognize a Transfer on the date that the General
Partners receive notice of the Transfer which complies with this Article VIII
from the Partner Transferring its interest.
ARTICLE IX
Miscellaneous
SECTION 9.1 Equitable Relief. The Partners hereby
confirm that damages at law may be an inadequate remedy for a breach or
threatened breach of this Agreement and agree that, in the event of a breach or
threatened breach of any provision hereof, the respective rights and
obligations hereunder shall be enforceable by specific performance, injunction
or other equitable remedy, but, nothing herein contained is intended to, nor
shall it, limit or affect any right or rights at law or by statute or otherwise
of a Partner aggrieved as against the other for a breach or threatened breach
of any provision hereof, it being the intention by this Section 9.1 to make
clear the agreement of the Partners that the respective rights and obligations
of the Partners hereunder shall be enforceable in equity as well as at law or
otherwise and that the mention herein of any particular remedy shall not
preclude a Partner from any other remedy it or he might have, either in law or
in equity.
SECTION 9.2 Ownership and Use of Names. Rights to the
name "Blackstone" shall belong solely to the designated Blackstone Partners.
Rights to the name "Interstate" and
<PAGE> 56
52
"Interstate Hotels" shall belong solely to the designated Interstate Partners.
The ownership of, and the right to use, sell or otherwise dispose of, the name,
Interstone Three Partners I L.P. or any abbreviation or modification thereof,
shall belong to the Partnership. The Interstate General Partner agrees to take
all actions and to approve, execute and file any document or instrument proposed
by any Blackstone Partner to protect the rights of the Blackstone Partners to
the name "Blackstone". The Blackstone General Partner agrees to take all
actions and to approve, execute and file any document or instrument proposed by
any Interstate Partner to protect the rights of the Interstate Partners to the
name "Interstate" and "Interstate Hotels". The Partners each agree to take all
actions and to approve, execute and file any document or instrument proposed by
the General Partners to protect the rights of the Partnership to the name
"Interstone Three Partners I L.P.".
SECTION 9.3 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.
In particular, the Partnership is formed pursuant to the Partnership Act, and
the rights and liabilities of the General Partners and Limited Partners shall
be as provided therein, except as herein otherwise expressly provided.
SECTION 9.4 Successors and Assigns. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto, their
respective successors and assigns.
SECTION 9.5 Access; Confidentiality. By executing this
Agreement, each Partner expressly agrees, at all times during the term of the
Partnership and thereafter and whether or not at the time a Partner of the
Partnership (i) not to issue any press release or advertisement or take any
similar action concerning the Partnership's business or affairs without first
obtaining the Consent of all of the General Partners, (ii) not to publicize
detailed financial information concerning the Partnership without the Consent
of all of the General Partners and (iii) not to disclose the Partnership's
affairs generally without using reasonable efforts to consult with the other
Partners prior to such disclosure; provided, however, the foregoing shall not
restrict any Partner from disclosing information concerning such Partner's
investment in the Partnership to its officers, directors, employees, agents,
legal counsel, accountants, other professional advisors, limited partners and
Affiliates, or to prospective or existing investors in such Partner or its
Affiliates or to prospective or existing lenders to such Partner or its
Affiliates, or to prospective purchasers of any property owned by the
Partnership. The provisions of this Section 9.5 shall survive the termination
of the Partnership.
SECTION 9.6 Notices. Whenever notice is required or
permitted by this Agreement to be given, such notice need not be in writing
unless otherwise required herein or requested by the
<PAGE> 57
53
receiving Partner. If in writing, such notice shall be given to any Partner at
its address or facsimile number shown in the Partnership's books and records
(including Schedule A hereto). Each such notice shall be effective (i) if given
by facsimile, upon oral confirmation of receipt, (ii) if given by mail, on the
fourth day after deposit in the mails (certified or registered return receipt
requested) addressed as aforesaid and (iii) if given by any other means, when
delivered to and receipted for at the address of such Partner specified as
aforesaid.
SECTION 9.7 Counterparts. This Agreement may be executed
in any number of counterparts, all of which together shall constitute a single
instrument.
SECTION 9.8 Entire Agreement. This Agreement embodies
the entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter hereof.
SECTION 9.9 Amendments. Any amendment to this Agreement
shall be effective only if such amendment is evidenced by a written instrument
duly executed by and delivered to the General Partners; provided, however, no
such amendment shall be effective or binding against a Partner unless executed
by such Partner if such amendment materially and adversely affects such Partner
in a specific manner separate and distinct from the amendment's treatment of
other Partners; and provided, further that any amendment which would have a
material adverse effect on any Partner's economic interest in the Partnership
shall require the Consent of all of the General Partners.
SECTION 9.10 Section Titles. Section titles are for
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text hereof.
SECTION 9.11 Representations and Warranties. (a) Each
Partner represents, warrants and covenants to each other Partner and to the
Partnership that:
(i) such Partner, if not a natural person, is duly
formed and validly existing under the laws of the jurisdiction of its
organization with full power and authority to conduct its business to
the extent contemplated in this Agreement;
(ii) this Agreement has been duly authorized, executed
and delivered by such Partner and constitutes the valid and legally
binding agreement of such Partner enforceable in accordance with its
terms against such Partner except as enforceability hereof may be
limited by bankruptcy,
<PAGE> 58
54
insolvency, moratorium and other similar laws relating to creditors'
rights generally and by general equitable principles;
(iii) the execution and delivery of this Agreement by such
Partner and the performance of its duties and obligations hereunder do
not result in a breach of any of the terms, conditions or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, credit agreement, note or other evidence of indebtedness, or
any lease or other agreement, or any license, permit, franchise or
certificate, to which such Partner is a party or by which it is bound
or to which its properties are subject, or require any authorization
or approval under or pursuant to any of the foregoing, or violate any
statute, regulation, law, order, writ, injunction, judgment or decree
to which such Partner is subject;
(iv) such Partner is not in default (nor has any event
occurred which with notice, lapse of time, or both, would constitute a
default) in the performance of any obligation, agreement or condition
contained in any indenture, mortgage, deed of trust, credit agreement,
note or other evidence of indebtedness or any lease or other
agreement, or any license, permit, franchise or certificate, to which
it is a party or by which it is bound or to which the properties of it
are subject, nor is it in violation of any statute, regulation, law,
order, writ, injunction, judgment or decree to which it is subject,
which default or violation would materially adversely affect such
Partner's ability to carry out its obligations under this Agreement;
(v) except as disclosed to the Partners prior to the
date hereof, there is no litigation, investigation or other proceeding
pending or, to the knowledge of such Partner, threatened against such
Partner or any of its Affiliates which, if adversely determined, would
materially adversely affect such Partner's ability to carry out its
obligations under this Agreement; and
(vi) no consent, approval or authorization of, or filing,
registration or qualification with, any court or governmental
authority on the part of such Partner is required for the execution
and delivery of this Agreement by such Partner and the performance of
its obligations and duties hereunder.
(b) IHC/Interstone Partnership II, L.P. represents that
not less than 90% of its interests are owned by Interstate Hotels Company.
<PAGE> 59
55
IN WITNESS WHEREOF, the parties have executed this Amended
and Restated Limited Partnership Agreement of Interstone Three Partners I L.P.
as of the day and year first above written.
GENERAL PARTNERS:
BJS INTERSTONE MANAGEMENT
ASSOCIATES
By: Blackstone Real Estate Inc.,
general partner
By: ________________________
Name:
Title:
IHC/INTERSTONE CORPORATION
By: _____________________________
Name:
Title:
LIMITED PARTNERS:
BLACKSTONE REAL ESTATE
PARTNERS I L.P.
By: Blackstone Real Estate
Associates L.P., general
partner
By: BREA L.L.C., general
partner
By: _______________
Name:
Title:
IHC/INTERSTONE PARTNERSHIP II, L.P.
By: IHC Member Corporation,
general partner
By:________________________
Name:
Title:
<PAGE> 60
SCHEDULE A
PARTNERS OF THE PARTNERSHIP
Sharing
Percentage as
General of June __,
Partners Address 1996
- - -------- --------- -------------
BJS Interstone 345 Park Avenue 0.5%
Management New York, NY 10154
Associates
IHC/Interstone c/o Interstate Hotels 0.5%
Corporation Corporation
Foster Plaza X
680 Anderson Drive
Pittsburgh, PA 15220-8126
Limited
Partners
- - --------
Blackstone Real 345 Park Avenue
Estate Partners New York, NY 10154 48.5%
I L.P.
IHC/Interstone c/o Interstate Hotels
Partnership II, Corporation
L.P. Foster Plaza X 50.5%
680 Anderson Drive
Pittsburgh, PA 15220-8126
<PAGE> 61
EXHIBIT A
Form of Management Agreement
<PAGE> 62
EXHIBIT B
Form of Project Partnership Agreement
<PAGE> 63
1
EXHIBIT C
FORM OF CONFIRMATION AND ACKNOWLEDGMENT
OF RIGHT OF FIRST OPPORTUNITY
This Confirmation and Acknowledgment of Right of First
Opportunity ("Confirmation") is made and entered into as of the ____ day of
________, 19__ by and among THE BLACKSTONE GROUP HOLDINGS L.P. ("Blackstone")
and INTERSTATE HOTELS COMPANY ("Interstate").
RECITALS
A. Sections 3.6 through 3.8 of that certain Amended and
Restated Limited Partnership Agreement of Interstone Three Partners I L.P.,
dated as of the date hereof (as amended, supplemented or otherwise modified
from time to time, the "Partnership Agreement") sets forth the scope,
operation, duration, termination and other terms relating to a right of first
opportunity provided by the Blackstone Group and the Interstate Group in favor
of the Partnership with respect to certain Target Investments identified for
investment by the Blackstone Group and the Interstate Group. Except as
otherwise expressly provided herein, any defined term used in this Confirmation
shall have the meaning prescribed for that term in the Partnership Agreement.
B. The parties wish to enter into this Confirmation in order
to confirm and acknowledge their obligations to each other with respect to the
foregoing matters and any other obligations each may have to the other pursuant
to the express terms of Sections 3.6 through 3.8 of the Partnership Agreement.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto, intending to be legally bound,
do hereby agree as follow:
1. The provisions of Sections 3.6 through 3.8 of the
Partnership Agreement are hereby incorporated by reference as though set forth
in full herein. Each party hereto hereby confirms its obligation to comply
with all terms, provisions, covenants, conditions and restrictions and perform
all obligations applicable to such party under said Sections 3.6 through 3.8 of
the Partnership Agreement. Without limiting the generality of the foregoing,
Blackstone and Interstate hereby agree to comply, and to cause the Blackstone
Related Parties and the Interstate Related Parties, respectively, to comply,
with their obligations pertaining to the right of first opportunity set forth
in said Sections of the Partnership Agreement in accordance with the terms
applicable thereto.
<PAGE> 64
2
2. This Confirmation confirms and acknowledges the terms,
provisions, covenants, conditions, obligations and restrictions set forth in
Sections 3.6 through 3.8 of the Partnership Agreement. It shall not be
construed or understood to modify, in any way, such terms, provisions,
covenants, conditions, obligations and restrictions, and, in the event of any
conflict between this Confirmation and the Partnership Agreement, the
provisions of Sections 3.6 through 3.8 of the Partnership Agreement shall
control. In no event shall this Confirmation be construed or understood to
extend the duration of the restrictions on Blackstone, Interstate and the
Related Parties arising from the right of first opportunity, which shall
terminate as set forth in the Partnership Agreement. The provisions of
Sections 9.1, 9.3, and 9.5 through 9.10 of the Partnership Agreement are
incorporated herein, except that all references therein to the "Agreement"
shall be deemed to be references to this Confirmation, all references therein
to the "Partners" shall be deemed to be references to the parties hereto and
delivery of notices to Blackstone hereunder or under the Partnership Agreement
shall be delivered to the same address as the Blackstone General Partner, and
delivery of notices to Interstate hereunder shall be delivered to the same
address as the Interstate General Partner, unless any such parties shall change
the address for delivery of notice in accordance with the procedures
established under Section 9.6 of the Partnership Agreement. Nothing in this
Confirmation shall be understood or construed to render the parties hereto
joint venturers or partners for any purposes. Nothing in this Confirmation
shall be understood or construed to modify or expand the extent of any recourse
between the Partners beyond that expressly provided by the Partnership
Agreement.
THE BLACKSTONE GROUP HOLDINGS, L.P.
By: ____________________________
INTERSTATE HOTELS COMPANY
By: _____________________________
<PAGE> 65
EXHIBIT D
Pre-Existing Projects
NONE
<PAGE> 66
EXHIBIT E
Excluded Projects
Blackstone Excluded Projects
1. Any business activities with the Davidson Hotel Company
("Davidson"), including a merger or a combination of Davidson
or its assets with any other entity or with the assets of any
other entity, a REIT involving Davidson or some or all of its
assets, an initial public offering or other capital event
involving Davidson; provided, that this exclusion shall not
include the acquisition of other hotels by Davidson (other
than through a combination with another entity or a
combination with the assets of another entity) which were
first identified by the affiliates of the Blackstone Group
which are investors in Davidson (as opposed to acquisitions
first identified by the non- affiliated Davidson investors).
Interstate Excluded Projects
1. Four to six hotel acquisitions from an institutional owner
only in conjunction with the Carlyle Group or The Apollo
Group
2. Acquisition of Checkers Hotel in Los Angeles, California only
in conjunction with The Apollo Group
3. Any investment in a hotel which is incidental to Interstate
taking over management of such hotel such as those currently
under consideration by Interstate in Farmington, Connecticut,
Irvine, California, Warner Center, California and Burlington,
Massachusetts.
With respect to Interstate's investment
opportunities described in clauses 1 and 2 above, if The
Apollo Group or The Carlyle Group decides not to participate
in such investment or is willing to admit additional partners
or participants other than Interstate, Interstate will
present such opportunity to the Partnership in the manner
prescribed in Section 3.6 of the Partnership Agreement.
With respect to Interstate's investment
opportunities described in clauses 1 and 2 above, Interstate
(i) shall exercise best efforts to increase its equity stake
in such investments (up to the maximum
<PAGE> 67
2
of 50% of the total equity invested), and (ii) shall offer
the Blackstone Group (outside of the Partnership) an
opportunity to acquire 50% of whatever interest is available
to Interstate on terms and conditions acceptable to
Interstate and the Blackstone Group.
<PAGE> 1
Exhibit 10.9(b)(2)
================================================================================
INTERSTONE THREE PARTNERS II L.P.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
Dated as of June __, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C> <C>
ARTICLE I
Definitions................................................. 2
SECTION 1.1 Definitions................................................................... 2
SECTION 1.2 Terms Generally............................................................... 12
ARTICLE II
General Provisions.............................................. 13
SECTION 2.1 Continuation of Partnership................................................... 13
SECTION 2.2 Partners...................................................................... 13
SECTION 2.3 Name.......................................................................... 13
SECTION 2.4 Term.......................................................................... 13
SECTION 2.5 Purpose; Powers............................................................... 13
SECTION 2.6 Place of Business............................................................. 15
SECTION 2.7 Alternative Investment Structure.............................................. 15
SECTION 2.8 Parallel Partnerships......................................................... 16
ARTICLE III
Management and Operation of the
Partnership; Identification and Approval of
Investments; Partner Services........................................ 16
SECTION 3.1 Management.................................................................... 16
SECTION 3.2 Joint Control by the General Partners......................................... 18
SECTION 3.3 Blackstone Partners Rights.................................................... 20
SECTION 3.4 Certain Duties and Obligations of the
Partners...................................................................... 21
SECTION 3.5 Restrictions on Authority of the General
Partners...................................................................... 22
SECTION 3.6 Right of First Opportunity.................................................... 23
SECTION 3.7 Right of First Opportunity; Exclusive
Rights; Investment Parameters................................................. 27
SECTION 3.8 Termination of Right of First
Opportunity................................................................... 30
SECTION 3.9 Financing..................................................................... 30
SECTION 3.10 Financial Advisory Services................................................... 31
SECTION 3.11 Other Partner Services........................................................ 32
SECTION 3.12 Marketing Rights.............................................................. 33
ARTICLE IV
Other Activities Permitted.......................................... 36
ARTICLE V
Capital Contributions;
Distributions................................................ 36
SECTION 5.1 Capital Contributions......................................................... 36
SECTION 5.2 Partner Loans for Failure to Fund
Committed Capital............................................................. 37
SECTION 5.3 Dilution for Failure to Fund Capital.......................................... 37
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 5.4 Distributions Generally....................................................... 38
SECTION 5.5 Distributions of Proceeds..................................................... 38
SECTION 5.6 Restricted Payments........................................................... 40
SECTION 5.7 Partnership Expenses.......................................................... 40
ARTICLE VI
Books and Reports; Tax Matters;
Capital Accounts; Allocations........................................ 41
SECTION 6.1 General Accounting Matters.................................................... 41
SECTION 6.2 Certain Tax Matters........................................................... 42
SECTION 6.3 Capital Accounts.............................................................. 44
SECTION 6.4 Allocations................................................................... 45
ARTICLE VII
Dissolution................................................. 47
SECTION 7.1 Dissolution................................................................... 47
SECTION 7.2 Winding-up.................................................................... 48
SECTION 7.3 Final Distribution............................................................ 48
ARTICLE VIII
Transfer of Partners' Interests....................................... 49
SECTION 8.1 Restrictions on Transfer of Partnership
Interests..................................................................... 49
SECTION 8.2 Other Transfer Provisions..................................................... 50
ARTICLE IX
Miscellaneous................................................ 51
SECTION 9.1 Equitable Relief.............................................................. 51
SECTION 9.2 Ownership and Use of Names.................................................... 51
SECTION 9.3 Governing Law................................................................. 52
SECTION 9.4 Successors and Assigns........................................................ 52
SECTION 9.5 Access; Confidentiality....................................................... 52
SECTION 9.6 Notices....................................................................... 52
SECTION 9.7 Counterparts.................................................................. 53
SECTION 9.8 Entire Agreement.............................................................. 53
SECTION 9.9 Amendments.................................................................... 53
SECTION 9.10 Section Titles................................................................ 53
SECTION 9.11 Representations and Warranties................................................ 53
</TABLE>
ii
<PAGE> 4
Schedules
SCHEDULE A Name, Address and Sharing Percentages
Exhibits
Exhibit A Form of Management Agreement
Exhibit B Form of Project Partnership Agreement
Exhibit C Form of Confirmation and Acknowledgment
of Right of First Opportunity Exhibit D
Pre-Existing Projects Exhibit E Excluded Projects
iii
<PAGE> 5
INTERSTONE THREE PARTNERS II L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT,
dated as of June __, 1996 by and among BJS INTERSTONE
MANAGEMENT ASSOCIATES, a Delaware general partnership, as a
general partner, IHC/INTERSTONE CORPORATION, a Delaware
corporation, as a general partner, and BLACKSTONE REAL ESTATE
PARTNERS II L.P. and IHC/INTERSTONE PARTNERSHIP II, L.P.,
each a Delaware limited partnership, as limited partners.
Preliminary Statement
A. The Blackstone Group and the Interstate Group each have the
capability for identifying, acquiring, improving, operating and disposing of
individual hotel, motel and other lodging properties and groups of hotel, motel
and other lodging properties, hotel and motel management companies (for which
the ownership of hotels and motels is a significant part of their business) and
public and private companies whose primary holdings are comprised of such
assets or operations ("Target Investment" or "Target Investments").
B. The Blackstone Partners and the Interstate Partners,
individually and acting through the Partnership, in each case in accordance
with the terms of this Agreement, wish to continue an exclusive arrangement
with each other under which, for the duration thereof and subject to the terms
set forth below, the Partnership, the Blackstone Partners and the Interstate
Partners through the Partnership and the Parallel Partnerships, will have the
first opportunity to acquire, operate and dispose of certain Target Investments
which are hereafter identified by the Blackstone Group and/or the Interstate
Group, as the case may be, and approved for investment in accordance with this
Agreement (each Target Investment proposed or approved, as the context
indicates, for acquisition pursuant to this Agreement is referred to as a
"Project").
C. In order to effect the foregoing, the parties hereto entered
into a limited partnership agreement dated as of December 15, 1995 (the
"Existing Agreement") and formed a partnership under the laws of the State of
Delaware with the name Interstone Three Partners II L.P. (the "Partnership").
D. Each of the Partners of the Partnership have agreed to
amend and restate the Existing Agreement in its entirety as set forth herein.
Agreement
Accordingly, in consideration of the mutual promises and
agreements herein made and intending to be legally bound
<PAGE> 6
2
hereby, the parties hereto agree to amend and restate the
Existing Agreement to read as follows:
ARTICLE I
Definitions
SECTION 1.1 Definitions. Unless the context otherwise
requires, the following terms shall have the following meanings for purposes of
this Agreement:
"Acknowledgement" has the meaning set forth in Section
3.6(a).
"Adjusted Capital Account Balance" shall mean, with respect
to any Partner, the balance in such Partner's Capital Account adjusted
(i) by taking into account the adjustments, allocations and
distributions described in Regulations section
1.704-1(b)(2)(ii)(d)(4), (5), and (6); and (ii) by adding to such
balance such Partner's share of partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, determined pursuant to Regulations
section 1.704-2(g)(1) and 1.704-2(i)(5).
"Affiliate" with respect to any person means (i) any other
person who controls, is controlled by or is under common control with
such person, (ii) any director, officer, partner or employee of such
person or any person specified in clause (i) above or (iii) any
immediate family member of any person specified in clause (i) or (ii)
above. Notwithstanding the foregoing, for the purposes of this
Agreement, none of the Blackstone Partners nor their Affiliates shall
be deemed to be Affiliates of any of the Interstone Partners or the
Interstone Related Parties, none of the Interstate Partners nor their
Affiliates shall be deemed to be Affiliates of any of the Blackstone
Partners or the Blackstone Related Parties, and no officer or director
of any member of the Blackstone Group which is also an officer or
director of any member of the Interstone Group shall be deemed to be
an Affiliate of any of the Interstate Partners or Interstate Related
Parties,
and no member of the Interstone Group shall be deemed an
Affiliate of any member of the Blackstone Group.
"Agreement" means this Amended and Restated Limited
Partnership Agreement, as it may be amended, supplemented, modified or
restated from time to time.
"Asset Management Agreement" has the meaning set forth in
Section 3.6(f).
<PAGE> 7
3
"Authorized Representatives" of a General Partner shall be those
representatives designated by notice to all Partners by each General
Partner from time to time to represent such General Partner in
connection with the Partnership. The term "Authorized Representative"
shall refer to any one of the Authorized Representatives of a Partner.
The initial Authorized Representatives of the General Partners are set
forth in Section 3.1(e) below.
"Blackstone General Partner" means BJS Interstone Management
Associates, a Delaware general partnership, or any Affiliate of any
member of the Blackstone Group who replaces BJS Interstone Management
Associates as a general partner hereunder, or is admitted as an
additional general partner hereunder.
"Blackstone Group" means the Blackstone Partners, Affiliates
of the Blackstone Partners and the Blackstone Related Parties;
provided, that the Blackstone Group shall not include investors in the
Blackstone Partners who are not Affiliates of Blackstone Group
Holdings L.P., to the extent such investors are not investing through
any Affiliate of Blackstone Group Holdings L.P.
"Blackstone Limited Partner" means Blackstone Real Estate
Partners II L.P., a Delaware limited partnership, or any Affiliate of
any member of the Blackstone Group who replaces Blackstone Real Estate
Partners II L.P. as a limited partner hereunder, or is admitted as an
additional limited partner hereunder.
"Blackstone Partners" means collectively, the Blackstone
General Partner and the Blackstone Limited Partners and any other
Partner admitted to the Partnership which is an Affiliate of any of
the foregoing and any permitted assigns of such Partners.
"Blackstone Related Parties" means (i) Blackstone Group
Holdings L.P., (ii) each of the general partners of Blackstone Group
Holdings L.P. and his immediate family members, for so long as he is
such a partner and (iii) any corporation, partnership, limited
liability company, joint venture or other like entity in which the
Blackstone Partners or the parties referred to in (i) and (ii) above
individually or collectively, hold a fifty percent (50%) or greater,
direct or indirect (through one or more business entities), ownership
interest, but shall not include any such entity in which the
collective ownership interest of these parties is less than fifty
percent (50%) or which is a publicly traded company.
"Broken Deal" shall mean a proposed Project that is not
ultimately acquired by the Partnership.
<PAGE> 8
4
"Business Day" shall mean any day on which commercial banks
are authorized to do business and are not required by law or executive
order to close in New York, New York.
"Capital Account" has the meaning set forth in Section#6.3.
"Capital Contributions" means the net fair market value of
any capital contributions made by the Partners to the Partnership and
shall include (i)#the contributions of such Partner made pursuant to
Sections 3.6, 3.9, 3.10, 5.1 and 5.7 and (ii)#such Partner's payments
made to third party creditors of the Partnership with respect to
Partnership obligations to the extent such Partner is authorized by
this Agreement to make any such payment, unless and until reimbursed
by the Partnership.
"Capital Proceeds" means (A) the cash or other consideration
received by the Partnership (including interest on installment sales
when received) as a result of (i) any sale, exchange, abandonment,
foreclosure, insurance award, condemnation, easement sale or other
similar transaction relating to any property of the Partnership, (ii)
any financing or refinancing (to the extent such refinancing is deemed
a Disposition hereunder) relating to any property of the Partnership,
(iii) capital contributions to the Partnership upon admission of new
partners, (iv) any other transaction which, in accordance with
generally accepted accounting principles, would be treated as a
capital event, in each case less (B) any such cash which is applied to
(i) the payment of transaction costs and expenses, (ii) the repayment
of debt of the Partnership which is required under the terms of any
indebtedness of the Partnership or has been authorized by the General
Partners, (iii) the repair, restoration or other improvement of
Partnership Assets which is required under any contractual obligation
of the Partnership or has been authorized by the General Partners and
(iv) the establishment of reserves by the General Partners. "Capital
Proceeds" shall also mean any of the foregoing which are received by a
partnership or other vehicle in which the Partnership is a partner or
investor or in which the Partnership otherwise has an interest, to the
extent received by the Partnership as dividends or distributions.
"Carrying Value" shall mean, with respect to any Partnership
Asset, the asset's adjusted basis for U.S. federal income tax
purposes, except that the Carrying Values of all Partnership Assets
shall be adjusted to equal their respective fair market values, in
accordance with the rules set forth in Regulations Section
1.704-1(b)(2)(iv)(f), except as otherwise provided herein, as of: (a)
the date of the acquisition of any additional Partnership interest by
any new or existing Partner in exchange for more than a de
<PAGE> 9
5
minimis Capital Contribution, other than pursuant to the initial
formation of the Partnership; (b) the date of the distribution of more
than a de minimis amount of Partnership property to a Partner; (c) the
date a Partnership interest is relinquished to the Partnership or (d)
the date of the termination of the Partnership under Section
708(b)(i)(B) of the Code; provided, however, that adjustments pursuant
to clauses (a), (b) and (c) above shall be made only if the General
Partners determine that such adjustments are necessary or appropriate
to reflect the relative economic interests of the Partners. The
Carrying Value of any Partnership Asset distributed to any Partner
shall be adjusted immediately prior to such distribution to equal its
fair market value. Depreciation shall be calculated by reference to
Carrying Value, instead of tax basis once Carrying Value differs from
tax basis.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute. Any reference herein to
a particular provision of the Code shall mean, where appropriate, the
corresponding provision in any successor statute.
"Committed Capital" shall mean, the aggregate amount of
$29,400,000 for the Blackstone Partners and the Blackstone Partners of
the Parallel Partnerships, and the aggregate amount of $30,600,000 for
the Interstate Partners and the Interstate Partners of the Parallel
Partnership.
"Competitive Rate" shall mean, with respect to a particular
service at a Target Investment, the lower of (i) the rate charged on
an arm's length basis for the same or similar service for comparable
properties in the geographic area in which the relevant Target
Investment is located by unaffiliated persons providing or performing
such service on an ongoing basis and (ii) the lowest rate charged by
any Affiliates of the Interstate General Partner for the same or
similar service for comparable properties in the geographic area in
which the relevant Target Investment is located.
"Consent" shall mean the approval, direction or
determination, as the case may be, of a Partner, given as provided in
Section 3.1, to do the act or thing for which the approval is
solicited or with respect to which the direction or determination is
given or made, or the act of granting such approval or giving such
direction or making such determination, as the context may require.
Any Consent required to be given by the Blackstone General Partner
shall be given by any one Authorized Representative of the Blackstone
General Partner. Any Consent to be given by the Interstate General
Partner shall be given by any two Authorized Representatives of the
Interstate General Partner.
<PAGE> 10
6
"Consideration" means the gross value of all cash, securities
and other properties paid or payable, directly or indirectly, in one
transaction or in a series or combination of transactions, in
connection with an acquisition or disposition of a Target Investment
or a transaction related thereto (including, without limitation,
amounts paid (A) pursuant to covenants not to compete, employment
contracts, employee benefit plans or other similar arrangements and
(B) to holders of any warrants, stock purchase rights, convertible
securities or similar rights and to holders of any options or stock
appreciation rights, whether or not vested). Consideration shall also
include the value of any long-term liabilities (including the
principal amount of any mortgage indebtedness or other indebtedness
for borrowed money, preferred stock obligations, any pension
liabilities and guarantees) indirectly or directly assumed or
acquired, or otherwise repaid or retired, in connection with or
anticipation of such acquisition. If an acquisition takes the form of
a purchase of assets, to the extent applicable Consideration shall
also include (i) the value of any current assets not purchased, minus
(ii) the value of any current liabilities not assumed. If the
Consideration to be paid is computed in any foreign currency, the
value of such foreign currency shall, for purposes hereof, be
converted into U.S. dollars at the prevailing exchange rate on the
date or dates on which such Consideration is paid. In this Agreement,
the value of any securities (whether debt or equity) or other property
paid or payable as part of the Consideration shall be determined as
follows: (1) the value of securities that are freely tradable in an
established public market will be determined on the basis of the last
market closing price prior to the public announcement of the
acquisition; and (2) the value of the securities that are not freely
tradable or have no established public market or, if the Consideration
utilized consists of property other than securities, the value of such
other property shall be the fair market value thereof as reasonably
determined by the General Partners.
"Contributing Partner" has the meaning set forth in Section
5.2.
"Disabling Event" means any event which would cause a General
Partner to cease to be a general partner of the Partnership pursuant
to Section 17-402 of the Partnership Act.
"Disposition" of a Project shall mean the sale, exchange or
other disposition by the Partnership of all or any portion of such
Project for cash, and shall include the receipt by the Partnership of
a liquidating dividend or other like distribution in cash. A
refinancing of a Project shall be deemed a Disposition of such Project
unless the General Partners agree otherwise. Whenever a portion of a
<PAGE> 11
7
Project (but not the entire Project) is the subject of a Disposition,
that portion shall be treated as having been a separate project from
that portion of the Project that is retained by the Partnership, and
the Capital Contributions for such Project and the Proceeds (other
than the Proceeds of such Disposition of a portion of a Project)
distributed to the Partners with respect to such Project shall be
treated as having been divided between the portion subject to the
Disposition and the retained portion on a pro rata basis. For
purposes of calculating the Internal Rate of Return, a Broken Deal
shall be considered a Project subject to a Disposition that did not
yield any Proceeds.
"Fair Market Value" of a Project as of a specific date shall
mean the fair market value of such project on such date as reasonably
determined by the General Partners (taking into consideration all
factors which may reasonably affect the sales price of the Project),
less the principal amount of any debt and other similar liabilities
secured by or otherwise related to such Project, and less a reasonable
estimate of transaction costs and expenses which would be incurred
upon a Disposition of such Project on such date. If the General
Partners can not reach agreement on the Fair Market Value of a
Project, the matter shall be settled by arbitration in New York, New
York in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except that the
number and method of selection of the arbitrators shall be as follows:
each General Partner shall select one qualified real estate investment
banker or MAI appraiser who is experienced in valuing assets and
liabilities of the type in question; the average of the Fair Market
Values of such Project determined by such arbitrators shall be the
Fair Market Value of such Project, and shall be final, conclusive and
binding on the Partners.
"Fiscal Period" means each fiscal quarter or such other
period as may be established by the General Partners.
"Fiscal Year" means the calendar year ending on December 31
of each year.
"General Partners" mean the Blackstone General Partner, the
Interstate General Partner and any other person admitted to the
Partnership as an additional or substitute general partner of the
Partnership in accordance with the provisions of this Agreement, until
such time as such person ceases to be a general partner of the
Partnership as provided herein.
"Internal Rate of Return" shall mean with respect to any
Partner as of the date of a cash distribution of Proceeds to such
Partner, the rate of return (calculated as provided below, taking into
account the time value of money) which (x) the Proceeds for which the
return is being
<PAGE> 12
8
calculated represent on (y) all Capital Contributions made by such
Partner as of such date with respect to the Project or Projects for
which the return is being calculated.
In determining the Internal Rate of Return, the following
shall apply:
(i) subject to the provisions of clause (ii) of
this definition, all present value calculations are to be
made as of the date such Capital Contributions were
contributed to the Partnership;
(ii) all Capital Contributions shall be treated
as having been contributed to the Partnership on the first
day of the month during which a Partner's funds were actually
delivered to the Partnership;
(iii) all distributions shall be treated as if
received on the last day of the month in which the
distribution was made;
(iv) all distribution amounts shall be based on
the amount of the distribution prior to the application of
any federal, state or local taxation to Partners (including
any withholding or deduction requirements); and
(v) the rates of return shall be per annum
rates and all amounts shall be calculated on a compounded
annual basis, and on the basis of a 365-day year.
When calculating the Internal Rate of Return (and for such
purpose only), a Partner's Capital Contribution to a Project shall not
be deemed to include 60% of such Partner's share of any amounts paid
to the Blackstone General Partner or its Affiliates pursuant to
Sections 3.9 and 3.10 below for such Project. When calculating the
Internal Rate of Return, a Partner's initial Capital Contributions
shall be deemed given on the date of admission of such Partner to the
Partnership, not on the date that the transferor of such Partner's
interest in the Partnership made its Capital Contributions; such
Capital Contributions shall be deemed Capital Contributions of the
transferor for the period from when made until the transfer to the new
Partner.
"Interstate General Partner" means IHC/Interstone
Corporation, a Delaware corporation, or any Affiliate of any member of
the Interstate Group who replaces IHC/Interstone Corporation as a
general partner hereunder or is admitted as an additional general
partner hereunder.
"Interstate Group" means the Interstate Partners, Affiliates
of the Interstate Partners and the Interstate Related Parties.
<PAGE> 13
9
"Interstate Limited Partner" means IHC/Interstone Partnership
II, L.P., a Delaware limited partnership, or any Affiliate of any
member of the Interstate Group who replaces IHC/Interstone Partnership
II, L.P. as a limited partner hereunder or is admitted as an
additional limited partner hereunder.
"Interstate Partners" means collectively, the Interstate
General Partner, the Interstate Limited Partner and any other Partner
admitted to the Partnership which is an Affiliate of any of the
foregoing and any permitted assigns of such Partners.
"Interstate Related Parties" means (i) Interstate Hotels
Company, (ii) each of the senior executives of Interstate Hotels
Company and his immediate family members, for so long as he is
employed by Interstate Hotels Company, (iii) Milton Fine and his
immediate family members and (iv) any corporation, partnership,
limited liability company, joint venture or other like entity in which
the Interstate Partners or the parties referred to in (i), (ii) and
(iii) above individually or collectively, hold a fifty percent (50%)
or greater, direct or indirect (through one or more business
entities), ownership interest but shall not include any such entity in
which the collective ownership interest of these parties is less than
fifty percent (50%) or which is a publicly traded company.
"Limited Partners" means the Blackstone Limited Partners, the
Interstate Limited Partner and any person admitted to the Partnership
as an additional or substitute limited partner of the Partnership in
accordance with the provisions of this Agreement.
"Liquidator" has the meaning set forth in Section 7.2.
"Management Agreement" shall mean a Management Agreement in
the form attached hereto as Exhibit#A, as such agreement may be
amended from time to time in accordance with the terms thereof and
hereof.
"Minimum Gain" shall have the meaning set forth in
Regulations section 1.704-2(d)(1) and shall mean the amount determined
by (i) computing for each nonrecourse liability of the Partnership any
gain the Partnership would realize if it disposed of the property
subject to that liability for no consideration other than full
satisfaction of the liability and (ii) aggregating the separately
computed gains. If the Carrying Value of any Partnership Asset
differs from the adjusted tax basis of such property, the calculation
of Minimum Gain pursuant to the preceding sentence shall be made by
reference to the Carrying Value. For purposes hereof, a liability of
the Partnership is a nonrecourse liability to the extent that no
Partner or related person
<PAGE> 14
10
bears the economic risk of loss for that liability within the meaning
of Regulations section 1.752-1.
"Net Income (Loss)" shall mean for each Fiscal Year or other
period, the taxable income or loss of the Partnership, or particular
items thereof, determined in accordance with the accounting method
used by the Partnership for U.S. federal income tax purposes with the
following adjustments: (i) all items of income, gain, loss or
deduction allocated pursuant to Section 6.4(c) through (e) shall not
be taken into account in computing such taxable income or loss; (ii)
any income of the Partnership that is exempt from U.S. federal income
taxation and not otherwise taken into account in computing Net Income
and Net Loss shall be added to such taxable income or loss; (iii) if
the Carrying Value of any asset differs from its adjusted tax basis
for U.S. federal income tax purposes, any depreciation, amortization
or gain resulting from a disposition of such asset shall be calculated
with reference to such Carrying Value; (iv) upon an adjustment to the
Carrying Value of any asset, pursuant to the definition of Carrying
Value, the amount of the adjustment shall be included as gain or loss
in computing such taxable income or loss; and (v) except for items in
(i) above, any expenditures of the Partnership not deductible in
computing taxable income or loss, not properly capitalizable and not
otherwise taken into account in computing Net Income and Net Loss
pursuant to this definition shall be treated as deductible items.
"Non-Capital Proceeds" means (x) any cash or other
consideration received by the Partnership other than Capital Proceeds
less (y) any such cash that is applied to the establishment of
reserves which have been established by the General Partners and to
expenses of the Partnership.
"Non-Contributing Partner" has the meaning set forth in
Section 5.2.
"Nonrecourse Deductions" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(1).
"Organizational Expenses" means all reasonable third- party
costs and expenses pertaining to the organization of the Partnership
and the registration, qualification or exemption of the Partnership
under any applicable federal, state or foreign laws, including fees of
counsel to the Partnership and the Partners.
"Parallel Partnerships" has the meaning set forth in Section
2.8.
"Partner" means any person who is a partner of the
Partnership, whether a General Partner, a Limited Partner or both.
<PAGE> 15
11
"Partner Nonrecourse Debt" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" shall have the
meaning ascribed to such term in Regulations section 1.704- 2(i)(2).
"Partner Nonrecourse Deductions" shall mean any item of
partnership loss, deduction, or expenditure under section 705(a)(2)(B)
of the Code that is attributable to a Partner Nonrecourse Debt, as
determined pursuant to Regulations section 1.704-2(i)(2).
"Partnership" means Interstone Three Partners II L.P.
"Partnership Act" means the Delaware Revised Uniform Limited
Partnership Act, 6 Del. C. ## 17-101, et seq., as it may be amended
from time to time, and any successor to such statute.
"Partnership Assets" means all right, title and interest of
the Partnership in and to all or any portion of the assets of the
Partnership and any property (real or personal) or estate acquired in
exchange therefor or in connection therewith.
"Pre-Existing Projects" has the meaning set forth in Section
3.6(a).
"Proceeds" means the collective reference to Capital Proceeds
and Non-Capital Proceeds.
"Project" has the meaning set forth in the Preliminary
Statement.
"Project Limited Liability Company Agreement" shall mean a
limited liability company agreement in a form to be agreed upon by the
General Partners, as such agreement may be amended from time to time
in accordance with the terms thereof and hereof, formed pursuant to
this Agreement to own Projects purchased hereunder.
"Project Partnership Agreement" shall mean a partnership
agreement in the form attached hereto as Exhibit B, as such agreement
may be amended from time to time in accordance with the terms thereof
and hereof, formed pursuant to this Agreement to own Projects
purchased hereunder.
"Regulations" means the regulations promulgated under the
Code.
"Related Parties" means the Blackstone Related Parties and
the Interstate Related Parties.
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"Request for Preliminary Approval" has the meaning set forth
in Section 3.6(b).
"Request for Final Approval" has the meaning set forth in
Section 3.6(f).
"Sharing Percentage" means the percentage interest of a
Partner as set forth on Schedule A hereto, as amended from time to
time in accordance herewith.
"Target Investment" has the meaning set forth in the
Preliminary Statement.
"Tax Matters Partner" has the meaning set forth in Section
6.2.
"Transfer" has the meaning set forth in Section 8.1(a).
"Transferee" has the meaning set forth in Section 8.1(b).
"Unrealized Loss" with respect to a Project on a date of a
distribution of Capital Proceeds shall mean the excess of the total
Capital Contributions with respect to such Project as of such date
over the Fair Market Value of such Project as of such date. A Project
shall not have any Unrealized Loss on a date of a distribution if the
calculation pursuant to this definition for such Project on such date
equals zero or less.
SECTION 1.2 Terms Generally. The definitions in Section 1.1
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The term "person" includes individuals,
partnerships, joint ventures, corporations, trusts, governments (or agencies or
political subdivisions thereof) and other associations and entities. Unless
the context requires otherwise, the words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The term
"hereunder" shall mean this entire Agreement as a whole unless reference to a
specific section of this Agreement is made.
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13
ARTICLE II
General Provisions
SECTION 2.1 Continuation of Partnership. The Blackstone
General Partner and the Interstate General Partner, as the General Partners,
and the Blackstone Limited Partners and the Interstate Limited Partner, as
limited partners, hereby agree to continue the Partnership and the Partners
agree that the Partnership shall continue for the limited purposes set forth
and on the other terms and conditions set forth in this Agreement. The
Blackstone General Partner hereby represents that each of the Blackstone
Limited Partners is an Affiliate of the Blackstone General Partner or its
Affiliates.
SECTION 2.2 Partners. Schedule A hereto contains the name,
address and Sharing Percentage of each Partner as of the date of this
Agreement. Schedule A shall be revised by the General Partners from time to
time to reflect the admission or withdrawal of a Partner or the transfer or
assignment of interests in the Partnership in accordance with the terms of this
Agreement and other modifications to or changes in the information set forth
therein.
SECTION 2.3 Name. The Partnership shall conduct its
activities under the name of Interstone Three Partners II L.P. The General
Partners shall have the power at any time to change the name of the
Partnership; provided, that the name shall always contain the words "Limited
Partnership" or the letters "L.P." The General Partners shall give prompt
notice of any such change to each Partner.
SECTION 2.4 Term. The term of the Partnership shall
commence on the date of this Agreement and shall continue until December 31,
2045, unless sooner dissolved, wound up and terminated in accordance with
Article VII of this Agreement.
SECTION 2.5 Purpose; Powers. (a) The purpose of the
Partnership shall be (i) to implement the right of first opportunity with the
Blackstone Group and the Interstate Group, including review and approval or
disapproval by the General Partners of due diligence investigation of proposed
Target Investments, and, upon final approval by the General Partners, causing
the acquisition by the Partnership of such Target Investments either by itself
or directly or indirectly through entities in which the Partnership shall have
a direct or indirect ownership interest; (ii) operating, managing and disposing
of any Target Investments approved for acquisition pursuant to this Agreement;
and (iii) to do all things necessary or incidental to any of the foregoing.
(b) In furtherance of its purposes, the Partnership shall
have all powers necessary, suitable or convenient for the
<PAGE> 18
14
accomplishment of its purposes, alone or with others, including
the following:
(i) to invest and reinvest the cash assets of the
Partnership in money-market or other short-term investments;
(ii) to have and maintain one or more offices within or
without the State of Delaware, and, in connection therewith, to rent
or acquire office space, engage personnel and compensate them and do
such other acts and things as may be advisable or necessary in
connection with the maintenance of such office or offices;
(iii) to open, maintain and close bank accounts and draw
checks and other orders for the payment of moneys;
(iv) to engage employees (with such titles and delegated
responsibilities as may be determined), accountants, consultants,
auditors, custodians, investment advisers, attorneys and any and all
other agents and assistants, both professional and nonprofessional,
and to compensate them as may be necessary or advisable;
(v) to form or cause to be formed and to own the stock
of one or more corporations, whether foreign or domestic, and to form
or cause to be formed and to participate in partnerships, joint
ventures and limited liability companies, whether foreign or domestic;
(vi) to enter into, make and perform all contracts,
agreements and other undertakings as may be necessary or advisable or
incident to carrying out its purposes;
(vii) to sue, prosecute, settle or compromise all claims
against third parties, to compromise, settle or accept judgment of
claims against the Partnership, and to execute all documents and make
all representations, admissions and waivers in connection therewith;
(viii) to distribute, subject to the terms of this
Agreement, at any time and from time to time to Partners cash or
investments or other property of the Partnership, or any combination
thereof;
(ix) to borrow money, whether secured or unsecured, and
to make, issue, accept, endorse and execute promissory notes, drafts,
bills of exchange and other instruments and evidences of indebtedness,
all without limit as to amount, and to secure the payment thereof by
mortgage, pledge, or assignment of, or security interest in, the
assets then owned or thereafter acquired by the Partnership;
(x) to buy, sell, operate and otherwise deal with Target
Investments;
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15
(xi) to hold, receive, mortgage, pledge, lease, transfer,
exchange or otherwise dispose of, grant options with respect to, and
otherwise deal in and exercise all rights, powers, privileges and
other incidents of ownership or possession with respect to, all
property held or owned by the Partnership; and
(xii) to take such other actions necessary or incidental
thereto as may be permitted under applicable law.
SECTION 2.6 Place of Business. The Partnership shall
maintain a registered office at The Corporation Trust Company, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801, or such other office
within the State of Delaware as is chosen by the General Partners. The
Partnership shall maintain an office and principal place of business at 345
Park Avenue, New York, New York 10154, or at such other place as may from time
to time be determined as its principal place of business by the General
Partners; the General Partners shall give notice to the other Partners of any
change in the Partnership's principal place of business. The name and address
of the Partnership's registered agent as of the date of this Agreement is The
Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801.
SECTION 2.7 Alternative Investment Structure. If the
Blackstone General Partner determines that for legal, tax, regulatory or other
reasons it is in the best interests of the Partners that a Target Investment be
made through an alternative investment structure, and all of the other General
Partners unanimously Consent to such alternative structure (which Consent shall
not be unreasonably withheld), the Blackstone General Partner shall structure
the making of all or any portion of such Target Investment outside of the
Partnership by requiring any Partner or Partners to make such Target Investment
either directly or indirectly through a partnership or other vehicle (such as
the purchase of stock, the purchase of partnership interests, or the formation
of another partnership or as tenants in common) that will invest on a parallel
basis with or in lieu of the Partnership, as the case may be. The Partners
shall be required to make capital contributions directly to each such vehicle
to the same extent, for the same purposes and on the same terms and conditions
as Partners are required to make Capital Contributions to the Partnership, and
such capital contributions shall reduce the unused Committed Capital of the
Partners to the same extent as if Capital Contributions were made to the
Partnership with respect thereto. Each Partner shall have the same economic
interest in all material respects in Target Investments made pursuant to this
Section 2.7 as such Partner would have if such Target Investment had been made
solely by the Partnership, and the other terms of such vehicle shall be
substantially identical in all material respects to those of the Partnership,
to the maximum extent applicable; provided, that such vehicle (or the entity in
which such vehicle invests) shall
<PAGE> 20
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provide for the limited liability of the Limited Partners as a
matter of the organizational documents of such vehicle (or the
entity in which such vehicle invests) and as a matter of local
law; and provided, further, that the General Partners or
Affiliates thereof will serve as the general partners or in some
other similar fiduciary capacity with respect to such vehicle.
SECTION 2.8 Parallel Partnerships. The General
Partners have established one or more additional collective partnerships (the
"Parallel Partnerships") organized pursuant to partnership agreements in
substantially the same form as this Agreement for certain types of investors to
invest in Target Investments together with the Partnership. The Blackstone
General Partner, or an Affiliate thereof, shall be a general partner of any
such Parallel Partnerships, and the Blackstone Limited Partners, or Affiliates
thereof, shall be limited partners of any such Parallel Partnerships. The
Interstate General Partner, or an Affiliate thereof, shall be a general partner
of any such Parallel Partnerships and the Interstate Limited Partner, or an
Affiliate thereof, shall be a limited partner of any such Parallel
Partnerships. The economic terms of each Parallel Partnership shall be the
same as those of the Partnership.
ARTICLE III
Management and Operation of the
Partnership; Identification and Approval of
Investments; Partner Services
SECTION 3.1 Management. (a) The General Partners shall
have the full and complete responsibility for managing the business of the
Partnership and shall make all of the decisions affecting the business of the
Partnership. Except as otherwise set forth in this Agreement, the Limited
Partners shall have no right of Consent with respect to such decisions. The
General Partners shall have all of the rights, powers and authorities permitted
to be exercised by a general partner of a limited partnership formed under the
Partnership Act. The General Partners shall exercise all powers necessary and
convenient for the purposes of the Partnership, including those enumerated in
Section 2.5, on behalf and in the name of the Partnership.
(b) Except as otherwise provided herein, the Limited
Partners as such shall not have the right to, and shall not, take part in the
management or affairs of the Partnership, nor in any event shall any Limited
Partner have the power to act for or bind the Partnership unless delegated such
power by the General Partners. The exercise by any Limited Partner of any
right or power conferred herein shall not be construed to constitute
participation by such Limited Partner in the control of the business of the
Partnership so as to make such Limited Partner
<PAGE> 21
17
liable as a general partner for the debts and obligations of the
Partnership for purposes of the Partnership Act.
(c) Any Consent required by this Agreement may be given as
follows:
(1) by a written Consent given by the approving Partner
at or prior to the doing of the act or thing of which the Consent is
solicited, provided that such Consent shall not have been nullified by
notice to all of the General Partners by the approving Partner at or
prior to the time, or by the negative vote by such approving Partner
at any meeting held to consider the doing, of such act or thing; or
(2) by the Consent given by the approving Partner to the
doing of the act or thing for which the Consent is solicited at any
meeting called or held to consider the doing of such act or thing.
(d) Unless the General Partners agree on a different
procedure, any matter requiring the Consent of all or any of the Partners
pursuant to this Agreement may be considered at a meeting of the Partners held
not less than three (3) nor more than fifteen (15) Business Days after notice
thereof shall have been given by a General Partner to all Partners. Such
notice (i) may be given by any General Partner, in its discretion, at any time.
Any such notice shall state briefly the purpose, time and place of the meeting.
All such meetings shall be held within or outside the State of Delaware at such
reasonable place as the General Partners shall designate and during normal
business hours. Unless otherwise provided by the General Partners, meetings
may be held telephonically.
(e) The written statements and representations of an
Authorized Representative for a General Partner shall be the only authorized
statements and representations of such General Partner with respect to the
matter covered by this Agreement. The initial Authorized Representatives are
(i) Kenneth C. Whitney, Thomas Saylak and John Schreiber for the Blackstone
General Partner and (ii) W. Thomas Parrington, J. William Richardson and Marvin
I. Droz for the Interstate General Partner. The written statement or
representation of any one Authorized Representative of the Blackstone General
Partner shall be sufficient to bind the Blackstone General Partner with respect
to all matters pertaining to the Partnership and addressed in such statement or
representation. The written statement or representation of any two Authorized
Representatives of the Interstate General Partner shall be sufficient to bind
the Interstate General Partner with respect to all matters pertaining to the
Partnership and addressed in such statement or representation.
(f) The failure to vote by any Partner on any matter
requiring such Partner's Consent within five business days after
<PAGE> 22
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such vote is requested shall be deemed to be a negative vote with
respect to such matter.
(g) A Partner shall not be obligated to abstain from voting
on any matter (or vote in any particular manner) because of any interest (or
conflict of interest) of such Partner (or any Affiliate thereof) in such
matter.
(h) Each Partner agrees that, except as otherwise expressly
provided herein and to the fullest extent permitted by applicable law, the
approval of any proposed action of or relating to the Partnership by all of the
General Partners as provided herein (or if this Agreement grants one General
Partner sole approval rights over a certain action, the approval of such action
by such General Partner) shall bind each Partner and shall have the same legal
effect as the approval of each Partner of such action.
SECTION 3.2 Joint Control by the General Partners. Except
as specifically provided in this Agreement, the business, affairs and
operations of the Partnership shall be managed, and all Partnership decisions
shall be jointly made, by both General Partners, and no single General Partner,
acting alone, shall have the authority to bind or make any decision for the
Partnership or to conduct or manage the Partnership's business or affairs.
Without limiting the foregoing in any way, the following are examples of
decisions of the Partnership which shall be made jointly by the General
Partners:
(a) the reorganization of the Partnership as a corporation
or other entity, or the creation of a holding corporation, partnership
or limited liability company to own all or any substantial portion of
the assets of or all the equity interests in the Partnership, provided
that the surviving entity remains a pass-through entity for taxation
purposes;
(b) the termination or settlement of any litigation by the
Partnership;
(c) the making of any change in the Fiscal Period, any
determination of reserves under this Agreement, any distribution of
cash or investments or other property of the Partnership to the
Partners, or any withdrawals of capital from the Partnership;
(d) the making of any change in the name of the Partnership
or the use of another name by the Partnership to carry on any business
of the Partnership;
(e) the making of the determination and approval of such tax
matters as are specified in Section 6.2;
<PAGE> 23
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(f) the making of the allocation of amounts in respect of an
interest in the Partnership Transferred pursuant to Section 8.2(e);
(g) the authorization of a Partner to disclose information
agreed to be held confidential under Sections#9.5;
(h) the admission of an additional Partner to the
Partnership pursuant to the terms of this Agreement if such additional
Partner is not an Affiliate of either any member of the Blackstone
Group or any member of the Interstate Group;
(i) (A) the sale, exchange or other transfer of any
Partnership Asset, (B) the merger or consolidation of the Partnership
with or into any other business entity provided that the surviving
entity remains a pass-through entity for taxation purposes, and (C)
the right to require each of the Partners to exchange, transfer or
otherwise convey some or all of its partnership interest in the
Partnership as part of an exit or disposition strategy for the
Partnership;
(j) the making of any expenditure incurred in connection
with the administration of the Partnership;
(k) the entering into of any lease by the Partnership as
lessor;
(l) the engagement of any independent accountant, counsel,
actuary or consultant to the Partnership, or any change in or
termination of any engaged independent accountant, counsel, actuary or
consultant to the Partnership;
(m) the maintenance of a registered office in Delaware other
than that specified in Section 2.6;
(n) the determination of any titles and responsibilities of
employees of the Partner pursuant to Section 2.5(b)(iv);
(o) the approval of budgets;
(p) the expenditure by the Partnership of any funds in
connection with the disposition of a Target Investment or the
expenditure by the Partnership of any funds required in connection
with the operation of any Target Investments which are not included
within the approved budget for such Target Investment;
(q) any termination, replacement or other change in the
franchisor of any Target Investment in accordance with the terms of
the franchise agreement, or the execution,
<PAGE> 24
20
modification or termination of any agreement which is material to the
Partnership;
(r) the dissolution, termination and winding up of the
Partnership as provided in Section 7.1(a);
(s) any amendment to this Agreement which would have a
material adverse effect on any Partner's economic interest in the
Partnership;
(t) extending the term of the Partnership beyond December
31, 2045;
(u) in accordance with Section 3.6 below, the decision for
the Partnership to investigate a Target Investment and the decision
for the Partnership to acquire a Target Investment, or the decision
for the Partnership to acquire any other asset;
(v) the borrowing of money;
(w) the filing of a petition under any bankruptcy or other
insolvency law by the Partnership, or the admission in writing by the
Partnership of its bankruptcy, insolvency or general inability to pay
its debts;
(x) the commencement of any litigation by the Partnership;
(y) a transaction or other matter involving any actual or
potential conflict of interest affecting any Partner or Affiliate
thereof other than the entering into of any agreements or the payment
of any amounts provided for in this Agreement; and
(z) a change in the business of the Partnership to include
any business other than that specified in Section 2.5 which takes the
focus of the Partnership's business away from the lodging industry.
Notwithstanding the foregoing and without limiting the foregoing in any way,
any General Partner may delegate in writing to (i) the other General Partner,
its right to make any decisions concerning the Partnership or take any actions
on behalf of the Partnership and/or (ii) to any manager of any Target
Investment, the day to day administrative duties in connection with the
operation of such property.
SECTION 3.3 Blackstone Partners Rights. Notwithstanding any
other provision of this Agreement, the Blackstone General Partner may take any
of the following actions with out the Consent of any of the Interstate
Partners:
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(a) with respect to any Target Investment in which an
Affiliate of the Interstate General Partner is the manager, any
termination, replacement or other change in such manager in accordance
with the terms of the management agreement, the declaration of a
default or event of default under any management agreement for such
manager, and the exercise of any remedies under such management
agreement;
(b) the approval of a transfer of any partner's interest in
the Partnership and the approval of the admission of any additional
partner to the Partnership if such additional partner is an Affiliate
of any member of the Blackstone Group or any member of the Interstate
Group; and
(c) such other actions and decisions which are expressly
given solely to the Blackstone General Partner pursuant to the terms
of this Agreement.
SECTION 3.4 Certain Duties and Obligations of the Partners.
(a) Subject to the terms of this Agreement, the General Partners shall take
all action which may be reasonably necessary or appropriate (i) for the
formation and continuation of the Partnership as a limited partnership under
the laws of the State of Delaware and (ii) for the development, maintenance,
preservation and operation of the business of the Partnership in accordance
with the provisions of this Agreement and applicable laws and regulations.
(b) No Partner shall take any action so as to cause the
Partnership to be classified for Federal income tax purposes as an association
taxable as a corporation and not as a partnership.
(c) The General Partners shall take (and each Partner agrees
to cooperate with the General Partners and approves of the General Partners
taking on its behalf) all action which is necessary to form or qualify the
Partnership to conduct the business in which the Partnership is engaged under
the laws of any jurisdiction in which the Partnership is doing business and to
continue in effect such formation or qualification.
(d) The General Partners shall not take, or cause to be
taken, any action that would result in any Limited Partner having any personal
liability for the obligations of the Partnership. The General Partners shall
be under a duty as described herein to conduct the affairs of the Partnership
in the best interests of the Partnership and of the Partners including the
safekeeping and use of all Partnership funds and assets and the use thereof for
the exclusive benefit of the Partnership. Neither any Partner nor any
Affiliate of any Partner shall enter into any transaction with the Partnership
unless the transaction (i) is expressly permitted hereunder, (ii) is entered
into on arm's-length terms in the ordinary course of Partnership business or
(iii) is approved by all of the General Partners upon
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disclosure of any direct or indirect interest such Partner or any
Affiliate thereof may have in the transaction.
(e) No General Partner shall be liable, responsible or
accountable in damages or otherwise to the Partnership or to any Partner for
(a) any act performed within the scope of the authority conferred on such
General Partner by this Agreement except for the gross negligence or willful
misconduct of such General Partner in carrying out its obligations hereunder,
(b) such General Partner's failure or refusal to perform any act, except those
expressly required by or pursuant to the terms of this Agreement, (c) such
General Partner's performance of, or failure to perform, any act on the
reasonable reliance on advice of legal counsel to the Partnership or (d) the
negligence, dishonesty or bad faith of any agent, consultant or broker of the
Partnership selected, engaged or retained and monitored with reasonable care.
In any threatened, pending or completed action, suit or proceeding, each
General Partner shall be fully protected and indemnified and held harmless by
the Partnership against all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, proceedings, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable attorneys' fees, costs of investigation, fines, judgments and
amounts paid in settlement, actually incurred by such General Partner in
connection with such action, suit or proceeding) by virtue of its status as a
General Partner or with respect to any action or omission taken or suffered in
good faith, other than liabilities and losses resulting from the gross
negligence or willful misconduct of such General Partner; provided, however,
that a General Partner shall not be so indemnified for any acts determined to
be in contravention of this Agreement or in breach of its fiduciary duties.
The indemnification provided by this paragraph shall be recoverable only out of
the assets of the Partnership, and no Partner shall have any personal liability
on account thereof.
SECTION 3.5 Restrictions on Authority of the General
Partners. The General Partners shall not have the authority to:
(a) do any act in contravention of this Agreement (including
under Section 3.2 or Section 3.3);
(b) do any act which would make it impossible to carry on
the ordinary business of the Partnership, except in connection with
the dissolution, winding up and termination of the Partnership as
provided by Article VII;
(c) possess Partnership property, or assign their respective
rights in specific Partnership property, for other than a Partnership
purpose;
(d) admit a person as a Partner except as provided in this
Agreement; or
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(e) knowingly perform any act that would subject any Limited
Partner to liability as a general partner in any jurisdiction.
SECTION 3.6 Right of First Opportunity. (a) Subject to
Section 3.7(b) below, and until expiration or termination of the right of first
opportunity in favor of the Partnership set forth below (which right has been
confirmed and acknowledged in the Confirmation and Acknowledgment of Right of
First Opportunity ("Acknowledgment"), in the form attached hereto as Exhibit C,
which has been executed simultaneously herewith), each member of the Blackstone
Group and the Interstate Group shall offer to the Partnership (along with the
Parallel Partnerships) a right of first opportunity to invest in each Target
Investment which (x) is identified by such member after the date of this
Agreement or (y) which is identified on the list of Projects attached hereto as
Exhibit D (the "Pre-Existing Projects"), in each case, upon and subject to the
terms set forth in the remainder of this Section 3.6.
(b) Except as provided in Section 3.7(b) below, promptly
upon its identification of a Target Investment as a potential investment, each
member of the Blackstone Group and the Interstate Group shall notify each of
the General Partners about such Target Investment (such notification, a
"Request for Preliminary Approval") and shall provide each of the General
Partners with such information reasonably necessary to evaluate such
investment.
(c) Within five (5) Business Days after delivery to the
General Partners of the Request for Preliminary Approval and the accompanying
information pursuant to paragraph (b) above with respect to a proposed Target
Investment, and provided that notice shall have first been given from the party
requesting such action that approval is being sought under this Section, the
General Partners shall either approve or disapprove pursuit of such proposed
Target Investment (including the incurring of due diligence costs and
expenditures, the negotiation and documentation of the terms of purchase and
financing, and the posting of deposits). If the General Partners, having first
been notified that approval under this Section is being sought, fail to
unanimously approve the investigation of a proposed Target Investment within
such five (5) Business Day period, the proposed Target Investment shall be
deemed disapproved. Any General Partner shall have the right to reasonably
request additional information regarding the proposed Project within three (3)
Business Days after receipt of the Request for Preliminary Approval and the
accompanying information. If any General Partner requests such additional
information, the five (5) Business Day period referred to above shall commence
on the day such General Partner receives all such additional information. The
General Partners shall each have the right to approve or disapprove
investigation of any proposed Project in their sole and absolute discretion.
Once investigation of a Target
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Investment is approved, the due diligence costs and expenditures
reasonably incurred by the Partnership and within the scope
approved by the General Partners with respect to such Project
shall become the obligation of the Partnership.
(1) All due diligence costs and expenditures reasonably
incurred by the Partnership pursuant to this Section and within the
scope of the approved due diligence shall be funded if and when
required for payment, and shall be funded solely from, and shall
constitute, Capital Contributions to the Partnership by the Partners.
In no event shall due diligence expenses be funded from operating
revenues of the Partnership. The due diligence expenses incurred by
the Partnership shall be allocated for book and tax accounting
purposes between and among each Project in such manner as the General
Partners may reasonably approve. Due diligence expenses from a
Project shall be allocated among the Parallel Partnerships in such a
manner as the Blackstone General Partner shall determine, in its sole
discretion. Each Partner shall contribute its pro rata share of such
due diligence expenses, based upon such Partner's Sharing Percentage.
(2) The Partners intend that all due diligence will be
conducted through the Partnership in accordance with any Consent given
by the General Partners; however, a General Partner may elect to
perform its own due diligence in addition to that being performed by
the Partnership. In the event a General Partner so elects to perform
its own due diligence, such General Partner shall use its best efforts
to minimize duplication of efforts and costs with that of the
Partnership. The expenses (including legal fees) reasonably incurred
by such General Partner shall be payable by the Partnership as
Partnership expenses.
(d) If the General Partners approve investigation of a
Project, the Partnership shall promptly undertake due diligence investigation
and at appropriate times during and, in any event, prior to the conclusion of
that due diligence investigation, the Partnership shall make available to each
Partner copies of the material due diligence information obtained by the
Partnership with respect to the applicable Target Investment.
(e) If any General Partner has elected to participate in the
due diligence investigation of a proposed Project pursuant to Section 3.6(c)(2)
above, then all due diligence activities shall be coordinated with such General
Partner as reasonably necessary to facilitate such participation.
(f) At such time, if any, as any member of the Blackstone
Group or the Interstate Group determines that a request for final authority to
proceed with acquisition of a Project is required because such party reasonably
believes that a binding commitment (i.e. a letter of intent which is, or could
<PAGE> 29
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become binding or a contract for purchase and sale) to proceed with the
acquisition must be executed by the Partnership or the opportunity to acquire
such interest would be lost, such party shall request the General Partners to
give their final approval to proceed with such acquisition (such notification,
a "Request for Final Approval"). Upon the request of any General Partner, a
Request for Final Approval shall be made in writing. In connection with any
Request for Final Approval, such party shall, to the extent applicable, (i)
submit to the General Partners the form of any purchase agreement and/or other
relevant documents pursuant to which the Partnership may acquire an interest in
a Project, and (ii) notify the General Partners of whether an Affiliate of the
Interstate General Partner is being proposed as the property manager for the
Project. Within five (5) Business Days after delivery of the Request for Final
Approval, the General Partners shall meet and either approve or disapprove, in
writing, the proposed Project, including a timetable for closing of the
acquisition, the posting of any non-refundable deposits, if applicable, and the
terms of engagement of any Affiliate of the Interstate General Partner for
property or asset management of the Project, as applicable. Each General
Partner shall have the right to grant final approval or disapproval of the
Project in its sole and absolute discretion. However, unless all of the
General Partners agree to extend the five (5) Business Day decision period set
forth above, the General Partners shall either approve or disapprove the
Project within that period without exception, and any failure to act within
that period, as it may be extended by the General Partners in their sole
discretion, shall constitute a disapproval of the Project. The Blackstone
Partners specifically acknowledge that, unless transfer of management is not
feasible or practical, the Interstate General Partner contemplates the
engagement by the Partnership of an Affiliate of the Interstate General Partner
on an arm's length basis in connection with the property management of one or
more of the Projects and contemplates that one or more of the Project proposals
may propose such engagement. If transfer of management is not feasible or
practical, then, unless such engagement is not feasible or practical, the
Partnership shall engage an Affiliate of the Interstate General Partner as an
asset manager for such Project pursuant to an Asset Management Agreement in
form and substance satisfactory to the parties thereto (the "Asset Management
Agreement"), and the fees payable by the Partnership under such Asset
Management Agreement shall be at Competitive Rates. Unless the General
Partners unanimously agree otherwise, no nonrefundable deposit shall be posted
with respect to a Project until that Project has received final Project
approval pursuant to this subsection 3.6(f) and the General Partners have had
the opportunity to review the purchase agreement and/or the other documents
pursuant to which the Partnership may acquire an interest in such Project. The
final Project approval shall specify the amount of each remaining funding
obligation with respect to the applicable Project and the date(s) by which each
such amount is to be funded, it being the intent of the Partners that they not
fund to the Partnership
<PAGE> 30
26
those amounts due to the seller of (or if applicable, escrow agent for the
transfer of) the Project more than three (3) Business Days prior to the date
such amounts are due to the Seller or escrow agent, as applicable. The funding
obligations with respect to a Project shall be allocated among the Parallel
Partnerships in such a manner as the Blackstone General Partner shall
determine, in its sole discretion. By each funding date, the Partners shall
fund to the Partnership their pro rata portion of the funding obligation then
due, based upon each Partner's Sharing Percentage, including any purchase
deposits contemplated in connection with the Consent to such Project. In no
event shall final Project approval funding requirements be funded from
operating revenues of the Partnership. All such contributions to the
Partnership shall constitute Capital Contributions. Each of the General
Partners will consult with the other General Partners in connection with the
negotiation of any documents necessary for the acquisition of a Target
Investment.
(g) If the General Partners approve a proposed Project
pursuant to subsection 3.6(f) above, unless the Project shall be purchased
through another form, the Partnership shall promptly finalize the form of the
Project Partnership Agreement or Project Limited Liability Company Agreement,
as applicable, for the ownership of the proposed Project (with such Project
specific modifications as are necessary to address any Project specific
characteristics not addressed by the form of Project Partnership Agreement or
Project Limited Liability Company Agreement, as applicable), and promptly
finalize the form of a Management Agreement or an Asset Management Agreement,
as applicable, to be entered into (with such Project specific modifications as
are necessary to address any Project specific characteristics not addressed by
the form of Management Agreement or Asset Management Agreement, as applicable,
and which the Manager and the Blackstone General Partner may approve), which
Management Agreement (if applicable) shall provide for aggregate fees not
greater than 2.8% of Gross Operating Revenues (as defined in the Management
Agreement). In no event shall any party hereunder have any liability to the
other party for failure to finalize or enter into any Management Agreement or
Asset Management Agreement, as applicable, so long as the parties have
proceeded in good faith to attempt to consummate such documentation following
approval of the General Partners of any proposed Project pursuant to Section
3.6.
(h) The General Partners agree that in the event that (A)
material facts or circumstances or a material change in any facts or
circumstances regarding a Target Investment which was approved for acquisition
by the General Partners become known to any General Partner which were not
previously known by such General Partner and (B) with the knowledge of such new
or changed facts or circumstances, such General Partner no longer desires to
proceed with such acquisition and (C) at the time of the occurrence of the
event or events referred to in clause (A) above, (x) the Partnership is not
irrevocably committed to
<PAGE> 31
27
consummate the acquisition of such Target Investment pursuant to a binding
legal agreement and (y) the Partnership's obligations under such agreement
would not be breached by the failure to consummate such acquisition, then such
General Partner may, by written notice to the other General Partners, revoke
its Consent to consummate such acquisition at which time such Target Investment
shall no longer be deemed approved.
(i) Notwithstanding anything in this Section to the
contrary, if, with respect to a Project, a member of the Blackstone Group or
the Interstate Group reasonably believes it must take some action to retain the
opportunity to purchase such Project before it has sufficient time to follow
the procedures for approval set forth in this Section, such party may take such
action (including the making of a deposit or the entering into a binding
agreement if assignable to the Partnership) in its own name only and at its own
risk without violating the terms of this Agreement, provided such party
promptly submits such Project to the Partnership for its consideration. If the
General Partners subsequently approve such Project, such party shall assign all
of its rights in the Project to the Partnership and the Parallel Partnerships,
as appropriate. If the General Partners subsequently disapprove such Project,
the Partnership shall not be bound in any way to such Project, and the party
who proposed the Project may proceed with such Project only if the conditions
of Section 3.7(b) and Section 3.7(c) have been met.
(j) Any General Partner may request that any of the time
periods set forth herein be reduced or extended, if reasonably necessary.
(k) Notwithstanding anything in this Section to the
contrary, none of the Interstate Partners shall be deemed in default hereunder
for failure to notify the Blackstone Group as required herein if notice has
been given to the Blackstone General Partner of any of the Parallel
Partnerships.
(l) Notwithstanding anything contained in this Agreement to
the contrary, unless all of the Partners unanimously agree otherwise, each
Project in which the Partnership invests shall secure mortgage debt financing
in principal amounts and with terms that are consistent with the then currently
prevailing market conditions, but in any event in principal amounts between 60%
and 75% of the total acquisition cost of such Project.
SECTION 3.7 Right of First Opportunity; Exclusive Rights;
Investment Parameters. (a) Subject to the terms of this Agreement as set
forth above, the Blackstone Partners and the Interstate Partners each covenant
to provide to the Partnership, and each other, during the term of this
Agreement, the right of first opportunity as provided in Section 3.6 above to
invest in (x) those Target Investments which are hereafter identified by them
and (y) the Pre-Existing Projects. By their previous execution of the
Acknowledgement, Interstate Hotels Company (in
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the case of (A) below) and Blackstone Group Holdings L.P. (in the case of (B)
below) have agreed and hereby ratify and confirm that they agree, and agree to
cause (A) the Interstate Group and (B) the Blackstone Group, respectively, to
submit any Target Investments in which they or the Interstate Group and the
Blackstone Group would otherwise wish to invest independent of the Partnership
to the right of first opportunity set forth herein, and, in connection
therewith, they shall, and shall cause the Interstate Group and the Blackstone
Group to, subject to Section 3.7(b) below, refer all such investment
opportunities to the Interstate General Partner or the Blackstone General
Partner, as applicable, for submission to the Partnership pursuant to the terms
set forth above.
(b) Notwithstanding anything herein to the contrary, the
Interstate Group and the Blackstone Group expressly retain the right to
undertake acquisition or development of any Target Investment or any other
investment whatsoever, without the consent of the others, and free of any right
of first opportunity hereunder, at such time, in such form and upon such terms
as they, acting in their sole discretion, may determine appropriate, where any
one of the following conditions is satisfied:
(i) such Project is a Project that was disapproved or
deemed disapproved solely by action or inaction of the General
Partners after proper notice; provided, that if a Project is
disapproved or deemed disapproved by a General Partner who is a member
of the same group (i.e., the Blackstone Group or the Interstate Group)
as the party who submitted the Request for Preliminary Approval or
Request for Final Approval, as applicable, then the condition
contained in this clause (i) shall not be deemed satisfied for any
member of such group;
(ii) such Project fails to meet the definition of a
Target Investment;
(iii) except as expressly provided below, such Project is
listed on Exhibit E hereto, subject to the qualifications and
agreements described in such Exhibit;
(iv) such Project is identified or undertaken after the
termination of the right of first opportunity pursuant to the terms of
this Agreement;
(v) such party is acquiring, directly or indirectly, the
stock or assets of an entity which owns one or more Target Investments
but whose assets and/or operations are not primarily composed of
Target Investments;
(vi) such party is acquiring, directly or indirectly, the
stock or assets of an entity which primarily owns and/or operates
hotel or motel franchise systems or hotel or motel reservations
systems;
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29
(vii) the Consideration being paid for such Target
Investment in the aggregate is less than $10,000,000 or the equity
portion of the Consideration being paid for such Target Investment in
the aggregate is less than $5,000,000; or
(viii) with respect to a Target Investment, the Interstate
Group or the Blackstone Group, as applicable, certifies, at any time
(whether or not such Project has been submitted to the Partners and
the Partnership under Section 3.6 above), that in its good faith
judgment, involvement with the Blackstone Group or the Interstate
Group, as applicable, in such Target Investment would be prohibited
by, or otherwise interfere with, its other business arrangements or
would otherwise not be appropriate, feasible or practical.
(c) Notwithstanding anything in Section 3.7(b) above to the
contrary, the right of first opportunity set forth herein will apply to any
acquisition undertaken by any member of the Blackstone Group or the Interstate
Group during the term of this right of first opportunity with respect to the
Pre-Existing Projects. In the event that a party is undertaking the
acquisition of a Target Investment free of the right of first opportunity
pursuant to Section 3.7(b)(i), such party shall acquire such Target Investment
upon terms that are no more favorable than the terms presented to the General
Partners with respect to such Target Investment.
(d) The Partners acknowledge that, without limiting the
definition of Target Investment, it is their intent that the Target Investments
ultimately acquired by the Partnership will be Target Investments which (i) are
mid to high quality (3-4 stars), (ii) are located in growing markets, (iii) are
well positioned vis-a-vis the competition and, (iv) provide significant
opportunity for enhanced performance through intensive management repositioning
and/or redevelopment. Additionally, there is a preference for multi-asset
acquisitions over single properties in order to provide for the most efficient
and cost effective underwriting and investment process. Further, such
acquisitions should provide minimum going-in free and clear returns of 11%
(after management and FF&E reserve), unless immediate opportunity for enhanced
performance can be demonstrated. Nevertheless, certain Target Investments may
be approved hereunder even if they do not fall within the above-referenced
investment parameters. Accordingly, except as otherwise provided herein
(including without limitation Section 3.7(b) below), all Target Investments,
including, those that do not fall within the above-referenced investment
parameters, shall be subject to the right of first opportunity set forth in
Section 3.6 above.
<PAGE> 34
30
SECTION 3.8 Termination of Right of First Opportunity.
(a) The Blackstone General Partner shall have the right to
terminate the right of first opportunity set forth in Section 3.6 if any member
of the Interstate Group defaults in the performance of any of its obligations
hereunder or under the Acknowledgement after the Blackstone General Partner has
given such Partner or any other such party notice of such default and such
Partner or other party has failed to cure such default within 30 days after
receipt of such notice.
(b) The Interstate General Partner shall have the right to
terminate the right of first opportunity set forth in Section 3.6 if any member
of the Blackstone Group defaults in the performance of any of its obligations
hereunder or under the Acknowledgement after the Interstate General Partner has
given such Partner or any other such party notice of such default and such
Partner or other party has failed to cure such default within 30 days after
receipt of such notice.
(c) The right of first opportunity set forth in Section 3.6
shall automatically terminate upon the earlier to occur of (i) December 15,
1997 or (ii) the date upon which the members of the Blackstone Group in the
Partnership and in the Parallel Partnerships shall have contributed an
aggregate of $29,400,000 to the Partnership and the Parallel Partnerships and
the members of the Interstate Group in the Partnership and the Parallel
Partnerships shall have contributed an aggregate of $30,600,000 to the
Partnership and the Parallel Partnerships.
(d) At any time after $54,000,000 has been invested (either
through acquisitions that are closed or through binding commitments to close
acquisitions) in the aggregate by the Partnership and the Parallel
Partnerships, then any Partner may elect to terminate the right of first
opportunity set forth in Section 3.6 upon three (3) Business Days notice to all
the other Partners.
(e) The General Partners may, in their discretion, extend
the right of first opportunity set forth in Section 3.6 for such period of time
as they may mutually agree.
SECTION 3.9 Financing. The Blackstone General Partner,
acting directly or through one or more of its Affiliates, shall endeavor to
secure an acquisition financing facility for the Partnership and the Parallel
Partnerships in an initial amount between $60,000,000 and $80,000,000, such
facility to be subject to borrowings by the Partnership and the Parallel
Partnerships to acquire Target Investments in the event that sufficient seller
financing is not available in connection with the acquisition of any such
Target Investment and for other related purposes. If needed, the Blackstone
General Partner may secure additional debt facilities for the Partnership and
the
<PAGE> 35
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Parallel Partnerships up to an aggregate amount (including the initial
$60,000,000 to $80,000,000) between $140,000,000 and $180,000,000. The General
Partners must unanimously approve the terms and conditions of such financing.
In the event such financing is obtained, in addition to any other fees,
expenses or other compensation payable to the Blackstone General Partner and/or
its Affiliates hereunder or any fees payable to third parties in connection
with such financing, the Partnership and the Parallel Partnerships shall pay to
the Blackstone General Partner and/or its Affiliates, as the case may be, a fee
for placing such debt facilities in an amount equal to one percent (1%) of the
maximum principal amount of each such debt facility. The portion of such fee
allocated to the Partnership shall be determined by the Blackstone General
Partner, in its sole discretion. At the time such fee is payable, each Partner
shall fund to the Partnership, as a Capital Contribution, its pro rata portion
of such fee, based upon such Partner's Sharing Percentage, to the extent not
financed as part of the overall transaction. No fee shall be payable under
this Section in connection with the refinancing of any such debt facilities.
SECTION 3.10 Financial Advisory Services. (a) Each time
that the Partnership acquires a Target Investment, the Partnership and any
Parallel Partnerships invested in such Target Investment shall pay to whichever
of the Blackstone General Partner (and/or its Affiliates) or the Interstate
General Partners (and/or its Affiliates) proposed such Target Investment to the
Partnership, an aggregate advisory fee equal to one percent (1%) of the amount
of the Consideration for the acquisition of such Target Investment; provided
that the Blackstone General Partner or its Affiliates shall not be entitled to
such a fee after the occurrence and during the continuance of a default
hereunder by any of the Blackstone Partners (after any notice and opportunity
to cure); and provided further that the Interstate General Partner or its
Affiliates shall not be entitled to such a fee after the occurrence and during
the continuance of a default hereunder by any of the Interstate Partners (after
any notice and opportunity to cure). The portion of such fee allocated to the
Partnership shall be determined by the Blackstone General Partner. At the time
such fee is payable, each Partner shall fund to the Partnership, as a Capital
Contribution, its pro rata portion of such fee, based upon such Partner's
Sharing Percentage, to the extent not financed as part of the overall
transaction.
(b) Each time that the Partnership disposes (including,
without limitation, in exchange for stock of a corporation, partnership
interests in a partnership or interests in a limited liability company) of a
Target Investment, the Partnership and any Parallel Partnerships invested in
such Target Investment shall pay to the Blackstone General Partner (and/or its
Affiliates) an aggregate advisory fee equal to one percent (1%) of the amount
of the Consideration for the disposition of such Target Investment; provided
that the Blackstone General Partner
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32
or its Affiliates shall not be entitled to such a fee after the occurrence and
during the continuance of a default hereunder by any of the Blackstone Partners
(after any notice and opportunity to cure). The portion of such fee allocated
to the Partnership shall be determined by the Blackstone General Partner. At
the time such fee is payable, each Partner shall fund to the Partnership, as a
Capital Contribution, its pro rata portion of such fee, based upon such
Partner's Sharing Percentage, to the extent not financed as part of the overall
transaction.
SECTION 3.11 Other Partner Services.
(a) Until such time as the General Partners hire, as an
employee or employees of the Partnership, a portfolio manager, a controller
and/or an administrative staff to conduct and oversee the overall
administration of the Partnership, the Interstate General Partner shall conduct
all the administrative affairs of the Partnership at the then Competitive Rate;
provided, however, that the General Partners agree to hire an employee or
employees of the Partnership to perform such tasks promptly after the needs of
the Partnership so require. Any such employee may be employed jointly by the
Parallel Partnerships. The Interstate General Partner shall also, at no cost
to the Partnership (except where otherwise provided in this Agreement),
conduct, oversee and/or manage all (i) pre-acquisition due diligence, (ii)
property-level management, (iii) performance tracking, (iv) the making of
capital improvements to any Project, (v) overall portfolio management of the
Partnership Assets and (vi) negotiation of franchise fee arrangements. The
Interstate General Partner shall also be responsible for preparing
administrative, operating and capital budgets for the Partnership. The
Interstate General Partner shall submit to the General Partners all relevant
information regarding all proposed budgets, proposed franchise fee arrangements
and related financial matters, and the General Partners shall have the right to
Consent to all such materials before they are implemented by the Partnership.
(b) The Blackstone General Partner shall, at no cost to the
Partnership (except where otherwise provided in this Agreement), conduct,
oversee and/or manage all the acquisition and disposition activities of the
Partnership, including overseeing acquisitions and dispositions of Target
Investments, arranging debt financings on individual Target Investments and
conducting and/or overseeing all mergers and public securities offerings.
(c) The Partners acknowledge that Affiliates of the
Interstate General Partner have the capability of providing to the Partnership
various insurance and purchasing services. At the direction of the Blackstone
General Partner acting in its sole discretion (including, as to insurance,
approval by the Blackstone General Partner of the financial soundness of any
proposed insurance company and its reinsurers), the Partnership
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33
may engage such Affiliates of the Interstate General Partner to perform such
services (in which case such services shall be performed at Competitive Rates)
or the Partnership may engage independent third parties to perform such
services, provided, that if the Partnership has received an offer from any such
independent third party to perform such services, Affiliates of the Interstate
General Partner shall have the right to match such offer and, if such offer is
matched, the Partnership will engage such Affiliates on the terms of such
offer.
(d) In performance of the services pursuant to this Section
3.11 and otherwise, the Partners agree that they shall cooperate and consult
with each other in an effort to minimize duplication of efforts and costs.
SECTION 3.12 Marketing Rights. At any time after December __,
1997 [18 months from the execution hereof], the Blackstone Partners, acting
jointly, or the Interstate Partners, acting jointly, may propose the sale of a
Project or Projects (but not a portion of any Project) in accordance with the
following terms:
(a) All of the Blackstone Partners may jointly serve upon all
of the Interstate Partners, or all of the Interstate Partners may
jointly serve upon the all of the Blackstone Partners, a notice (an
"Offering Notice") as described below. The partners serving an
Offering Notice shall be referred to in this Section as the "Offering
Group". The partners receiving an Offering Notice shall be referred
to in this Section as the "Offeree Group". Each Offering Notice shall
specify one or more Projects (the "Offered Projects") that the Offeror
Group proposes to be sold (either by causing the Property Partnerships
which own such Offered Projects to sell such Offered Projects or by
selling all of the partnership interests in such Property
Partnerships) and designate a price for the sale of each Offered
Project (the "Offer Price"). The Offeree Group with respect to a
Project may not deliver an Offering Notice with respect to such
Project until the expiration of the Sale Option Period (as defined
below) for such Project with respect to the Offering Notice of the
Offeror Group with respect to such Project. The Offering Notice may
not propose to sell a portion of any Project. An Offering Notice
delivered under this Agreement must be simultaneously delivered under
the partnership agreement of each of the Parallel Partnerships, and
for the purposes of this Section 3.12, the Offeror Group shall consist
of all of the members of the Offeror Groups in each of the Parallel
Partnerships, the Offeree Group shall consist of all of the members of
the Offeree Groups in each of the Parallel Partnerships, the Offered
Projects shall consist of the interest of all of the Parallel
Partnerships in such Offered Projects, and the Offeree Deposit (as
defined below) shall be delivered in the aggregate by all of the
Parallel Partnerships,
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(b) Within 30 days after the receipt by the Offeree Group of
an Offering Notice (an "Offeree Option Period"), the Offeree Group may
in a writing to the Offeror Group (an "Offeree Reply Notice") (i)
elect to purchase all of the Offered Projects listed in such Offering
Notice (an "Offeror Group Interest") at a price equal to the aggregate
Offer Price for the Offered Projects, or (ii) decline to purchase such
Offered Projects. With respect to each Offering Notice, if the
Offeree Group fails to deliver an Offeree Reply Notice to the Offeror
Group prior to the expiration of the Offeree Option Period, the
Offeree Group shall for all purposes be conclusively deemed to have
declined to purchase the Offered Projects listed in such Offering
Notice. If the Offeree Group elects to purchase all of the Offered
Projects, the Offeree Group shall deliver to a mutually acceptable
escrow agent, a nonrefundable deposit in an amount equal to 5% of the
aggregate Offer Price for the Offered Projects (the "Offeree
Deposit"); in such case, the Offeree Reply Notice shall not be deemed
delivered until such time as the escrow agent has received the Offeree
Deposit. The Offeror Group and the Offeree Group shall endeavor to
structure any sale of the Offered Projects to the Offeree Group in a
tax efficient manner.
(c) If, with respect to an Offering Notice, the Offeree
Group elects to purchase the Offered Projects, the closing of the
purchase of such Offered Projects (the "Closing") will be held on a
date selected by the Offeree Group upon five Business Days' notice to
the Offeror Group but no later than 90 days after the Offeror Group's
receipt of the Offeree Reply Notice (the "Outside Purchase Date").
Each Closing shall be held in New York City at a location designated
by the General Partner in the Offeror Group. At the Closing, the
Partnership (or the Property Partnership, as applicable) shall execute
such transfer documents as the Offeree Group shall reasonably require
to transfer the Offered Projects to the Offeree Group, as is, where
is, and the Offeree Group shall pay to the Offeror Group, in
immediately available funds, the aggregate Offeror Price for all of
the Offered Projects listed in such Offering Notice. To the extent
the execution by a member or Affiliate of a member of the Offeree
Group is required on behalf of the Partnership or Property
Partnership, each member or Affiliate of a member of the Offeree Group
shall promptly execute and deliver any such document or instrument,
and each Partner of the Offeree Group hereby constitutes and appoints
each Partner in the Offeror Group its attorney in fact to execute,
acknowledge and deliver any such documents or instruments in its
stead.
(d) An Offeree Reply Notice shall be an irrevocable binding
obligation of the Offeree Group. If the Offeree Group elects in an
Offeree Reply Notice to purchase the Offered Projects, and the Offeree
Group fails to purchase
<PAGE> 39
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such Offered Projects by the applicable Offeree Outside Purchase Date,
(i) the Offeree Group shall immediately forfeit all of its rights
under this Section 3.12 with respect to any Projects, including
without limitation the right to send out Offering Notices with respect
to any Projects, (ii) the Offeror Group shall be entitled to retain
the Offeree Deposit as liquidated damages, and (iii) the Offeror Group
shall be entitled to exercise any and all other remedies available at
law and equity, including specific performance since the parties
hereto recognize that damages alone would be inadequate.
(e) With respect to an Offering Notice, if the Offeree Group
declines (or is deemed to have declined) to purchase the Offered
Projects listed therein, the Offeror Group shall have the right,
without the consent of any Partner of the Offeree Group, within 90
days after the earlier of (i) the Offeror Group's receipt of an
Offeree Reply Notice in which the Offeree Group declines to purchase
the Offered Projects, and (ii) the expiration of the Offeree Option
Period (such 90 day period, the "Sale Option Period"), to cause the
sale of any or all of the Offered Projects listed in such Offering
Notice (including the sale to any member of the Offeror Group). Each
Partner of the Offeree Group shall promptly execute and deliver any
document or instrument the Offeror Group reasonably requires in order
to consummate the sale of such Offered Projects during the Sale Option
Period, and each Partner of the Offeree Group hereby constitutes and
appoints each Partner in the Offeror Group its attorney in fact to
execute, acknowledge and deliver any such documents or instruments in
its stead. Notwithstanding the foregoing, the Offeror Group shall not
be entitled to cause the sale of an Offered Project during the Sale
Option Period for a sales price of less than 90% of the Offer Price
for such Offered Project listed in such Offering Notice (or 100% of
the Offer Price for such Offered Project if the purchaser is any
member of the Offeror Group or any affiliate of any member of the
Offeror Group). If an Offered Project is not sold prior to the
expiration of the Sale Option Period, the Offeror Group may not cause
the sale of such Offered Project without again complying with all of
the provisions of this Section (unless all of the other Partners
consent). No Partner may exercise its rights under this Section with
respect to any particular Project more than once in any twelve month
period (but such Partner may exercise its rights under this Section
with respect to other Projects). The Offeror Group and the Offeree
Group shall endeavor to structure any sale of the Offered Projects to
the Offeror Group (or any member thereof) in a tax efficient manner.
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ARTICLE IV
Other Activities Permitted
Except as expressly provided hereunder, this Agreement shall
not be construed in any manner to preclude any Partner or any of its Affiliates
from engaging in any activity whatsoever permitted by applicable law (whether
or not such activity might compete, or constitute a conflict of interest, with
the Partnership), including, without limitation, the provision of financial or
investment advisory services to any person, managing investments or receiving
compensation or profit from any of the foregoing.
ARTICLE V
Capital Contributions; Distributions
SECTION 5.1 Capital Contributions. (a) No Partner shall be
required to make a Capital Contribution except as provided in this Section.
Each Partner agrees to make Capital Contributions (i) as required by this
Agreement, including, without limitation, Sections 3.6, 3.9, 3.10 and 5.7 of
this Agreement, (ii) to pay for costs and expenses under approved budgets and
for fees, costs and expenses specifically payable by the Partnership pursuant
to this Agreement or (iii) in the event that the General Partners determine
that the Partnership requires additional funds to meet its then existing
obligations, including to cover operating shortfalls, and funds are not
otherwise available from Partnership revenues or from loans to the Partnership
for such purposes. Each of the Partners shall be required to make Capital
Contributions to the Partnership in accordance with such Partner's Sharing
Percentage (as determined in accordance with Section 3.6(f) above); provided
that, except for amounts to be contributed under clause (iii) above (for which
no limit shall apply), the aggregate amount of Capital Contributions made by
the Blackstone Partners hereof and by the Blackstone Partners in the Parallel
Partnerships shall not exceed $29,400,000, and the aggregate amount of Capital
Contributions made by the Interstate Partners hereof and by the Interstate
Partners in the Parallel Partnerships shall not exceed $30,600,000. It is
understood and agreed that the commitment by the Blackstone Partners and the
Interstate Partners to fund their respective Committed Capital is not revolving
in nature and at such time as the date such Partner's Committed Capital shall
have been funded in full, such commitment will expire and be of no further
force or effect.
(b) No Partner shall have any obligation to restore any
negative balance in the Partner's Capital Account upon
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37
liquidation of the Partnership. No Partner shall be entitled to withdraw all
or any part of its Capital Contributions except as expressly provided in this
Partnership Agreement. No interest shall be payable by the Partnership on the
Capital Contributions of any Partner except as otherwise provided herein. In
no event shall any Partner be entitled to demand any property from the
Partnership other than cash.
(c) When Capital Contributions are required under paragraph
(a) above from the Partners, the General Partners shall give notice to all of
the Partners of the amount of funds required and the date such funds shall be
due, which due date shall be, unless otherwise provided in this Agreement, no
less than 10 Business Days from the date such notice is given.
SECTION 5.2 Partner Loans for Failure to Fund Committed
Capital. If any Partner shall fail to timely make a Capital Contribution
required in Section 5.1 (such Partner is hereinafter referred to as a
"Non-Contributing Partner") and such default is not cured within 10 days of the
date such Capital Contribution was due, then any other Partner (a "Contributing
Partner") may fund all or part of such Capital Contribution and, unless the
Contributing Partner otherwise elects the remedy of the dilution of such
Non-Contributing Partner's Interest in the Partnership as set forth in Section
5.3 below, any amounts funded by a Contributing Partner on behalf of a
Non-Contributing Partner shall be made directly to the Partnership but shall be
treated as (i) a recourse demand loan made by the Contributing Partner to the
Non-Contributing Partner (bearing interest at a fluctuating rate of interest
equal to 10% per annum in excess of the prime rate of interest publicly
announced by Citibank, N.A. from time to time, but not less than 15% per annum,
but in no event in excess of the maximum rate permitted by applicable law),
followed by (ii) a Capital Contribution by such Non-Contributing Partner to the
Partnership. Any such recourse loan (to the extent of unpaid principal and
interest) shall be payable on demand by the Contributing Partner and shall be
repaid directly by the Partnership on behalf of the Non-Contributing Partner to
the Contributing Partner from Non-Capital Proceeds and Capital Proceeds
otherwise distributable to the Non-Contributing Partner. Amounts paid directly
by the Partnership to the Contributing Partner on account of the loan shall be
deemed distributions to the Non-Contributing Partner. Any Non-Capital Proceeds
and Capital Proceeds used to repay such loan shall be applied first to interest
and then to principal thereof.
SECTION 5.3 Dilution for Failure to Fund Capital. (a) If a
Non-Contributing Partner fails to contribute any amounts required to be
contributed pursuant to Section 5.1 above as and when required to be
contributed and such funds are contributed to the Partnership by a Contributing
Partner, the Non-Contributing Partner's Sharing Percentage shall be, if the
Contributing Partner elects to apply the provisions of this Section 5.3 in lieu
of the loan mechanism provided in Section
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38
5.2, adjusted pursuant to Section 5.3(b) below as of the day on which the
Contributing Partner contributes such funds. In such an event the contribution
of such funds shall be treated as a Capital Contribution to the Partnership by
the Contributing Partner.
(b) The Sharing Percentage of a Non-Contributing Partner may
be reduced (but not below zero), upon the election described in Section 5.3(a)
above, by an amount equal to the product of (i) 1.6 times (ii) a fraction
expressed as a percentage, (A) the numerator of which is the amount of the
Capital Contribution which such Non-Contributing Partner fails to contribute
and (B) the denominator of which is the aggregate of the Capital Contributions
made by the Partners up to and including such time, including the Capital
Contribution which such Non-Contributing Partner fails to make. The Sharing
Percentage of the Contributing Partner shall be increased by the amount of the
reduction in the Sharing Percentage of the Non- Contributing Partner.
Notwithstanding the foregoing, if within 90 days after the reduction of the
Non-Contributing Partner's Sharing Percentage described herein, the
Non-Contributing Partner pays to the Contributing Partner the amount which the
Non- Contributing Partner failed to contribute and such Contributing Partner
contributed, together with interest thereon (at a rate equal to 10% per annum
in excess of the prime rate of interest publicly announced by Citibank, N.A.
from time to time, but not less than 15% per annum, and in no event in excess
of the maximum rate permitted by applicable law), the Non-Contributing
Partner's Sharing Percentage and the Contributing Partner's Sharing Percentage
shall be reinstated as if the Non-Contributing Partner had timely made such
Capital Contribution.
SECTION 5.4 Distributions Generally. Capital Proceeds shall
be distributed as soon as practicable but in any event within 45 days after the
date that such Proceeds are received by the Partnership. Non-Capital Proceeds
shall be distributed at such times and intervals as the General Partners shall
determine, but in no event later than 30 days after the end of each calendar
quarter. The Partnership shall make such distributions in cash among the
Partners in accordance with this Article V.
SECTION 5.5 Distributions of Proceeds.
(a) Each distribution of Non-Capital Proceeds from a Project
shall be made to the Partners to the extent of, and pro rata in accordance
with, each of their Sharing Percentages (as the same may be adjusted
hereunder). Notwithstanding the foregoing, Non-Capital Proceeds from a Project
otherwise distributable to a Blackstone Partner shall be distributed as
follows:
(i) First, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from
<PAGE> 43
39
such Project in an amount equal to the Capital Contributions made by
such Partner with respect to such Project; and
(ii) Second, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from such Project,
in excess of any amounts distributed under Section 5.5(a)(i) above, in
an amount which generates a 20% Internal Rate of Return on the Capital
Contributions made by such Partner with respect to such Project; and
(iii) Thereafter, 86.532% to such Blackstone Partner and
13.468% to the Interstate Partners (pro rata in accordance with their
Sharing Percentages).
(b) Each distribution of Capital Proceeds from a Project
shall be made to the Partners to the extent of, and pro rata in accordance
with, each of their Sharing Percentages (as the same may be adjusted
hereunder). Notwithstanding the foregoing, Capital Proceeds from a Project
otherwise distributable to a Blackstone Partner shall be distributed as
follows:
(i) First, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in an amount equal to the sum of the Capital
Contributions made by such Partner as of such date with respect to all
Projects which have been subject to a Disposition on or prior to such
date; and
(ii) Second, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in excess of any amounts distributed under
Section 5.5(b)(i) above, in an amount which generates a 20% Internal
Rate of Return on the Capital Contributions made by such Partner as of
such date with respect to all Projects which have been subject to a
Disposition on or prior to such date and all Projects for which an
Unrealized Loss exists on such date; and
(iii) Third, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in excess of any amounts distributed under
Sections 5.5(b)(i) and (ii) above, in an amount equal to the total of
such Partner's pro rata shares of Unrealized Loss from all Projects
for which an Unrealized Loss exists on such date (based on such
Partner's Sharing Percentage); and
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40
(iv) Thereafter, 86.532% to such Blackstone Partner and
13.468% to the Interstate Partners (pro rata in accordance with their
Sharing Percentages).
SECTION 5.6 Restricted Payments. Notwithstanding any
provisions to the contrary in this Agreement, neither the Partnership nor the
General Partners on behalf of the Partnership shall make a distribution if such
distribution would violate the Partnership Act.
SECTION 5.7 Partnership Expenses. (a) Promptly after the
date of this Agreement, the Partnership, to the extent it does not pay such
costs and expenses directly, will reimburse each Partner for Organizational
Expenses incurred by such Partner.
(b) The following expenses shall be borne by the
Partnership:
(i) To the extent not reimbursed, all expenses (other
than any Partner's overhead) reasonably incurred in the operation of
the Partnership (and approved by the General Partners if required
hereunder), including without limitation, any taxes imposed on the
Partnership, fees and expenses for attorneys and accountants, the
costs and expenses of any insurance purchased by the Partnership, and
the costs and expenses of any litigation involving the Partnership and
the amount of any judgments or settlements paid in connection
therewith; and
(ii) All third party professional services which have
been approved by the General Partners and incurred in connection with
a proposed Target Investment that is not ultimately made or a proposed
disposition of a Project which is not actually consummated, including,
without limitation, (i) commitment fees that become payable in
connection with a proposed Target Investment that is not ultimately
made, (ii) legal fees, accounting fees and other third party
professional due diligence costs and expenses and (iii) all travel and
similar out of pocket costs and expenses of employees of the Partners
in connection with approved due diligence.
Partnership expenses shall be paid directly by the
Partnership or the Partnership shall reimburse the Partner who incurred such
expenses for the payment thereof, as the case may be.
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ARTICLE VI
Books and Reports; Tax Matters;
Capital Accounts; Allocations
SECTION 6.1 General Accounting Matters. (a) Allocations of
Net Income (Loss) pursuant to Section 6.4 shall be made by or under the
direction of the General Partners at the end of each Fiscal Period.
(b) Each Partner shall be supplied with the Partnership
information necessary to enable such Partner to prepare in a timely manner its
Federal, state and local income tax returns and such other financial or other
statements and reports that are approved by the General Partners.
(c) The Blackstone General Partner shall keep or cause to
be kept books and records pertaining to the Partnership's business showing all
of its assets and liabilities, receipts and disbursements, realized profits and
losses, Partners' Capital Accounts and all transactions entered into by the
Partnership. Such books and records of the Partnership shall be kept at the
office of the Blackstone General Partner and the Partners and their
representatives shall at all reasonable times have free access thereto for the
purpose of inspecting or copying the same. The Partnership's books of account
shall be kept on an accrual basis or as otherwise provided by the General
Partners, and otherwise in accordance with generally accepted accounting
principles, except that for income tax purposes such books shall be kept in
accordance with applicable tax accounting principles.
(d) Except as otherwise provided herein, all
determinations, valuations and other matters of judgment required to be made
for accounting and tax purposes under this Agreement shall be made by or under
the direction of the General Partners and shall be conclusive and binding on
all Partners, former Partners, their successors or legal representatives and
any other person except for computational errors or fraud, and to the fullest
extent permitted by law no such person shall have the right to an accounting or
an appraisal of the assets of the Partnership or any successor thereto except
for computational errors or fraud.
(e) The books of the Partnership shall be examined,
certified and audited annually as of the end of each Fiscal Year, by such
recognized firm of independent certified public accountants that is designated
by the General Partners. For each Fiscal Year of the Partnership, such
accountants shall determine and prepare full financial statements, including,
without limitation, a balance sheet, an income statement, a statement of
changes in financial position and a statement of the Non-Capital Proceeds and
Capital Proceeds of the Partnership. The General Partners shall promptly upon
receipt of such financial statements, and in any event within 90 days after the
end of each
<PAGE> 46
42
such Fiscal Year, transmit copies thereof to each Partner, together with the
report and management letter of such accountants covering the results of such
audit. The cost of all audits and reports provided to the Partners pursuant to
this Section shall be an expense of the Partnership.
SECTION 6.2 Certain Tax Matters.
The taxable year of the Partnership shall be the same as its
Fiscal Year. The Tax Matters Partner (as defined below) shall cause to be
prepared all Federal, state and local tax returns of the Partnership for each
year for which such returns are required to be filed and, after approval of
such returns by the General Partners, shall cause such returns to be timely
filed. The General Partners shall determine the appropriate treatment of each
item of income, gain, loss, deduction and credit of the Partnership and the
accounting methods and conventions under the tax laws of the United States, the
several states and other relevant jurisdictions as to the treatment of any such
item or any other method or procedure related to the preparation of such tax
returns. The Tax Matters Partner shall make the election provided for in
Section 754 of the Code, if, and only if the Partner who or which has acquired
an interest in the Partnership or a distribution of Partnership property with
respect to which the election is made will have provided to the Tax Matters
Partner concurrently, or within 30 days after the Transfer of such interest,
its undertaking to the effect that it, and its successors in interest
hereunder, will reimburse the Partnership annually for its additional
administrative costs incurred by reason of such election as determined by the
auditor of the Partnership. The Tax Matters Partner shall also make the
election to amortize Organizational Expenses pursuant to Code Section 709 and
the regulation promulgated thereunder. In addition, the General Partners may
cause the Partnership to make or refrain from making any and all other
elections permitted by the tax laws of the United States, the several states
and other relevant jurisdictions. The Tax Matters Partner for purposes of
Section#6231(a)(7) of the Code (the "Tax Matters Partner") shall be the
Blackstone General Partner. The Tax Matters Partner shall have all of the
rights, duties, powers and obligations provided for in Sections 6221 through
6232 of the Code with respect to the Partnership provided, however, that the
following provisions shall apply with respect to the Tax Matters Partner:
(a) The Tax Matters Partner shall be responsible for the
filing of the Partnership information returns required under Section
6031 of the Code. Within thirty (30) days after the end of each
Fiscal Year, the Tax Matters Partner shall furnish to the
Partnership's accountants sufficient information for the preparation
of all required Partnership tax returns.
(b) A Partner shall provide notice to the Tax Matters Partner
of its intent to file an original or an amended
<PAGE> 47
43
income tax return of which such Partner will take a position with
respect to a partnership item that is inconsistent with the position
taken by the Tax Matters Partner on the Partnership return. Such
notice must be given at least thirty (30) days prior to the filing of
such return. At such time, such Partner shall provide the Tax Matters
Partner with a statement detailing the inconsistent item or items
contained in such return. Within ten (10) days of receipt of such
statement, the Tax Matters Partner shall provide a copy of such
statement to each Partner.
(c) The Tax Matters Partner shall include in each Partnership
return sufficient information to entitle each eligible Partner and any
indirect partner (at its request) to notice from the Internal Revenue
Service pursuant to Section 6223(a) of the Code.
(d) Each Partner reserves the right to participate in an
audit proceeding.
(e) Each Partner reserves the right to enter into a separate
settlement agreement with the Internal Revenue Service. A Partner who
enters into a settlement agreement with the Internal Revenue Service
concerning a partnership item shall notify the Tax Matters Partner of
its terms within ten (10) days of such agreement, and the Tax Matters
Partner shall notify the other Partners of the terms of such agreement
within ten (10) days after receiving such notice. The Tax Matters
Partner shall notify each other Partner of the terms of any settlement
offer received by it within ten (10) days of receiving such offer.
(f) The Tax Matters Partner shall not file an administrative
adjustment request without the Consent of all of the General Partners.
Each Partner, other than the Tax Matter partner, reserves the right to
file an administrative adjustment request under Section 6227 of the
Code. Any Partner filing an administrative adjustment request shall
notify the Tax Matters Partner of its contents within ten (10) days
after filing such request. The Tax Matters Partner shall notify each
Partner of the contents of such request within ten (10) days of the
receipt of such notice.
(g) All Partners shall report to the Tax Matters Partner the
conversion of a partnership item to a nonpartnership item under
Section 6231(b) or any other provision of the Code within ten (10)
days of learning of the conversion.
(h) Each Partner reserves the right to file a petition for
judicial review and to participate in a judicial proceeding under
Section 6226 and 6228 of the Code. If the Tax Matters Partner files a
petition for judicial review or an appeal under Section 6226 of the
Code, it shall notify
<PAGE> 48
44
each Partner of such petition or appeal within ten (10) days of such
filing. Any other Partner filing a petition for judicial review or
any appeal under Sections 6226 or 6228 of the Code shall notify the
Tax Matters Partner of such petition or appeal on or before the date
of filing. The Tax Matters Partner shall notify each Partner of such
filing within ten (10) days of receipt of such notice from the filing
partner.
(i) The Tax Matters Partner shall not agree to extend the
statute of limitations for assessment without the Consent of all of
the General Partners.
(j) The Tax Matters Partner shall be authorized to incur
expenses in the performance of its duties pursuant to this Agreement.
Notwithstanding any other provision of this Agreement, such expenses
shall be borne by the persons who were Partners of the Partnership at
any time during the applicable taxable year without regard to whether
such persons are Partners at the time the expense is incurred. Such
expenses shall be allocated to the Partners and former Partners having
an interest in the proceeding at the time the cost is incurred in
proportion to their relative Sharing Percentages for the applicable
taxable year.
(k) The provisions of this Section shall govern the conduct
of all parties who are currently Partners and all parties who were
Partners during the applicable Partnership taxable year. A Partner
shall not be relieved of any duties or responsibilities imposed under
this Section by the termination or transfer of its interest in the
Partnership.
(l) All terms used in this Section that are defined in
Section 6231(a) of the Code shall have the meanings set forth therein.
SECTION 6.3 Capital Accounts. There shall be established
for each Partner on the books of the Partnership as of the date hereof, or such
later date on which such Partner is admitted to the Partnership, a capital
account (each being a "Capital Account"). Each Capital Contribution shall be
credited to the Capital Account of such Partner on the date such contribution
of capital is paid to the Partnership. In addition, each Partner's Capital
Account shall be (a) credited with such Partner's allocable share of any Net
Income of the Partnership, (b) debited with (i) distributions to such Partner
of cash or the fair market value of other property and (ii) such Partner's
allocable share of Net Loss of the Partnership and expenditures of the
Partnership described or treated under Section 704(b) as described in Section
705(a)(2)(B) of the Code, and (c) otherwise maintained in accordance with the
provisions of the Code. Any other item which is required to be reflected in a
Partner's Capital Account under Section 704(b) of the Code or otherwise under
this Agreement shall be so reflected. Capital Accounts
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45
shall be appropriately adjusted to reflect transfers of part (but not all) of a
Partner's interest in the Partnership. Interest shall not be payable on
Capital Account balances. Notwithstanding anything to the contrary contained
in this Agreement, the Partnership shall maintain the Capital Accounts of the
Partners in accordance with the principles and requirements set forth in
section 704(b) of the Code and Regulations section 1.704-1(b)(2)(iv).
SECTION 6.4 Allocations. (a) Net Income of the Partnership
shall be allocated to the Partners having deficit balances in their Capital
Accounts (computed after taking into account distributions pursuant to Section
5.5 with respect to such fiscal year, and after adding back each Partner's
share of partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain,
determined pursuant to Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5)) in
proportion to, and to the extent of, such deficits. Any remaining Net Income
and all Net Loss shall be allocated among the Partners either 49% to the
Blackstone Partners (pro rata in proportion to their Sharing Percentages) and
51% to the Interstate Partners (pro rata in accordance with their Sharing
Percentages) or [______]% to the Blackstone Partners (pro rata in proportion to
their Sharing Percentages) and [______]% to the Interstate Partners pro rata in
accordance with their Sharing Percentages) so as to produce to the extent
possible Capital Accounts for the Partners (computed in the manner set forth in
the preceding sentence) such that if an amount of cash equal to such positive
Capital Account balances were distributed in accordance with such positive
Capital Account balances, such distribution would be in the amounts, sequence
and priority set forth in Section 5.5 and to the extent Net Loss exceeds the
positive Adjusted Capital Account Balances of the Partners, the excess shall be
allocated first, to those Partners with positive Adjusted Capital Account
Balances, in proportion to, and to the extent of, such Adjusted Capital Account
Balances, and thereafter, to the General Partners, in the ratio that the
Sharing Percentage of each General Partner bears to the Sharing Percentage of
all General Partners. Notwithstanding the foregoing, if an allocation of Net
Loss in the ratio of [______]% to the Blackstone Partners and [______]% to the
Interstate Partners is in excess of amounts of Net Income previously allocated
in the ratio of [______]% to the Blackstone Partners and [______]% to the
Interstate Partners, then such allocation of Net Loss shall instead be made 49%
to the Blackstone Partners (pro rata in proportion to their Sharing
Percentages) and 51% to the Interstate Partners (pro rata in accordance with
their Sharing Percentages). Notwithstanding the foregoing, if an allocation of
Net Income or Net Loss would not result in Capital Accounts for the Partners
(computed in the manner set forth in the first sentence of this paragraph (a))
being equal to cash distributions in the amounts, sequence and priority set
forth in Section 5.5, Net Income may be allocated 100% to the Interstate
Partners (pro rata in accordance with their Sharing Percentages) or Net Loss
may be allocated 100% to the Blackstone Partners (pro
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46
rata in accordance with their Sharing Percentages) if (and to the
extent necessary) to produce Capital Accounts equal (or in
proportion) to the cash distributions set forth in Section 5.5.
(b) Notwithstanding anything herein to the contrary, in the
event any Partner unexpectedly receives any adjustments, allocations or
distributions described in paragraphs (b)(2)(ii)(d)(4), (5) or (6) of Section
1.704-1 of the regulations under the Code, there shall be specially allocated
to such Partner such items of Partnership income and gain, at such times and in
such amounts as will eliminate as quickly as possible that portion of any
deficit in its Capital Account caused or increased by such adjustments,
allocations or distributions. To the extent permitted by the Code and the
regulations thereunder, any special allocations of items of income or gain
pursuant to this Section 6.4(c) shall be taken into account in computing
subsequent allocations of Net Income (Loss) pursuant to this Section 6.4 so
that the net amount of any items so allocated and the subsequent allocations of
Net Income (Loss) to the Partners pursuant to this Section 6.4 shall, to the
extent possible, be equal to the net amounts that would have been allocated to
each such Partner pursuant to the provisions of this Section 6.4 if such
unexpected adjustments, allocations or distributions had not occurred.
(c) All items of income, gain, loss, deduction and credit
of the Partnership shall be allocated among the Partners for Federal, state and
local income tax purposes consistent with the manner that the corresponding
constituent items of Net Income (Loss) shall be allocated among the Partners
pursuant to this Agreement, except as may otherwise be provided herein or by
the Code. To the extent Treasury Regulations promulgated pursuant to
Subchapter K of the Code (including under Sections 704(b) and (c) of the Code)
require allocations for tax purposes that differ from the foregoing
allocations, the General Partners may determine the manner in which such tax
allocations shall be made so as to comply more fully with such Treasury
Regulations or other applicable law and, at the same time to the extent
reasonably possible, preserve the economic relationships among the Partners as
set forth in this Agreement.
(d) Notwithstanding the provisions of this Section 6.4, net
income, net gain, and net loss of the Partnership (or items of income, gain,
loss, deduction, or credit, as the case may be) shall be allocated in
accordance with the following provisions of this Section 6.4 to the extent such
provisions shall be applicable.
(i) Nonrecourse Deductions of the Partnership for any
Fiscal Year shall be specially allocated to the Partners in the same
proportion as Net Income or Net Loss is allocated for such Fiscal
Year; provided that if an allocation of Nonrecourse Deductions in the
ratio of [______]% to the Blackstone Partners and [______]%
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to the Interstate Partners is in excess of amounts of Net Income
previously allocated in the ratio of [______]% to the Blackstone
Partners and [______]% to the Interstate Partners, then such
allocation of Nonrecourse Deductions shall instead be made 49% to the
Blackstone Partners (pro rata in proportion to their Sharing
Percentages) and 51% to the Interstate Partners (pro rata in
accordance with their Sharing Percentages). Partner Nonrecourse
Deductions of the Partnership for any Fiscal Year shall be specially
allocated to the Partner who bears the economic risk of loss for the
liability in question. The provisions of this Section 6.4(e)(i) are
intended to satisfy the requirements of Regulations sections
1.704-2(e)(2) and 1.704-2(i)(1) and shall be interpreted in accordance
therewith for all purposes under this Agreement.
(ii) If there is a net decrease in the Minimum Gain of
the Partnership during any Partnership Fiscal Year, each Partner shall
be specially allocated items of Partnership income and gain for such
year equal to that Partner's share of the net decrease in Minimum
Gain, within the meaning of Regulations section 1.704- 2(g)(2). The
provisions of this Section 6.4(e)(ii) are intended to comply with the
Minimum Gain chargeback requirements of Regulations section 1.704-2(f)
and shall be interpreted in accordance therewith for all purposes
under this Agreement.
(iii) If there is a net decrease in Partner Nonrecourse
Debt Minimum Gain during any Fiscal Year, each Partner that has a
share of such partner Nonrecourse Debt Minimum Gain, determined in
accordance with Regulations section 1.704-2(i)(5), as of the beginning
of such year shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, for succeeding years) equal
to such Partner's share of the net decrease in Partner Nonrecourse
Debt Minimum Gain. The provisions of this Section 6.4(e)(iii) are
intended to comply with the Partner Nonrecourse Debt Minimum Gain
chargeback requirement of Regulations section 1.704-2(i)(4) and shall
be interpreted in accordance therewith for all purposes under this
Agreement.
ARTICLE VII
Dissolution
SECTION 7.1 Dissolution. The Partnership shall be dissolved
and subsequently terminated upon the occurrence of the first of the following
events:
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(a) decision of all of the General Partners to dissolve and
subsequently terminate the Partnership;
(b) December 31, 2045;
(c) the occurrence of a Disabling Event with respect to the
sole remaining General Partner, provided that the Partnership shall
not be dissolved if, within 90 days after such Disabling Event, all of
the Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of the
Disabling Event, of another General Partner; or
(d) if, after the right of first opportunity under Article
3 shall no longer be in effect, all of the Partnership Assets are sold
or otherwise disposed of.
SECTION 7.2 Winding-up. When the Partnership is dissolved,
the business and property of the Partnership shall be wound up and liquidated
by the General Partners or, in the event of a Disabling Event with respect to
any General Partner, by the remaining General Partners or, in the event of a
Disabling Event with respect to each of the General Partners, such liquidating
trustee as may be named by Limited Partners holding a majority of the Sharing
Percentages held by all Limited Partners (the party conducting the liquidation
being hereinafter referred to as the "Liquidator"). The Liquidator shall use
its best efforts to reduce to cash and cash equivalent items such assets of the
Partnership as the Liquidator shall deem it advisable to sell, subject to
obtaining fair value for such assets and any tax or other legal considerations.
SECTION 7.3 Final Distribution. Within 90 calendar days
after the effective date of dissolution of the Partnership, the assets of the
Partnership shall be distributed in the following manner and order:
(a) to the payment of the expenses of the winding-up,
liquidation and dissolution of the Partnership;
(b) to pay all creditors of the Partnership, other than
Partners, either by the payment thereof or the making of reasonable
provision therefor;
(c) to establish reserves, in amounts established by the
Liquidator, to meet other liabilities of the Partnership; and
(d) to pay, in accordance with the provisions of this
Agreement applicable to such loans or in accordance with the terms
agreed among them and otherwise on a pro rata basis, all creditors of
the Partnership that are Partners, either by the payment thereof or
the making of reasonable provision therefor.
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The remaining assets of the Partnership shall be applied and distributed in
accordance with the positive balances of the Partners' Capital Accounts, as
determined after taking into account all adjustments to Capital Accounts for
the Partnership taxable year during which the liquidation occurs.
ARTICLE VIII
Transfer of Partners' Interests
SECTION 8.1 Restrictions on Transfer of Partnership
Interests. (a) No Partner may, directly or indirectly, assign, sell,
exchange, transfer, pledge, hypothecate or otherwise dispose of all or any part
of its interest in the Partnership (a "Transfer") to any person, other than in
accordance with paragraphs (b), (c), (d), (e) and (f) below. A change in the
ultimate beneficial ownership of a Partner shall be deemed a Transfer for
purposes of this Agreement.
(b) Any Partner may Transfer all or part of its interest in
the Partnership to any person upon obtaining the prior written Consent of the
Blackstone General Partner, which Consent may be withheld in its sole and
absolute discretion; provided, however, that upon any Transfer of a Partner's
interest in accordance with this paragraph, the person (the "Transferee") to
whom the Partner's interest was Transferred shall not be admitted as a
substitute Partner without receiving the prior written Consent of the
Blackstone General Partner (which Consent may be withheld in its sole and
absolute discretion) and the Transferee has given written acceptance and
adoption of all of the terms and provisions of this Agreement; and provided,
further, that the prior written Consent of each of the General Partners shall
be required to admit the Transferee as a substitute Partner (which Consent may
be withheld in their sole and absolute discretion) (i) if the Transferee is not
an Affiliate of any member of the Blackstone Group or the Interstate Group, or
(ii) if the aggregate Sharing Percentages of the Interstate Partners is 20% or
less at the time of the Transfer.
(c) A Partner may mortgage, pledge, hypothecate or
otherwise encumber all or any portion of such Partner's rights to receive a
portion of the Non-Capital Proceeds, Capital Proceeds, Net Income and Net
Losses to any person; provided, however, that the holder of such mortgage,
pledge, hypothecation or encumbrance shall not be admitted as a substitute
Partner without the prior Consent of the Blackstone General Partner (which
Consent may be withheld in its sole and absolute discretion), provided that (i)
if the Transferee is not an Affiliate of any member of the Blackstone Group or
the Interstate Group or (ii) if the aggregate Sharing Percentages of the
Interstate Partners is 20% or less at the time of the Transfer, the prior
written Consent of each of the General Partners shall be required, which
Consent may be withheld in their sole and absolute discretion.
<PAGE> 54
50
(d) At any time, any Blackstone Partner may transfer its
interest in Non-Capital Proceeds, Capital Proceeds, Net Income and Net Losses
to any other Blackstone Partner or its Affiliates but the Transferee shall not
be admitted as a substitute Partner and the transferor shall not be permitted
to withdraw from the Partnership without, in each case, the Consent of the
Blackstone General Partner (which Consent may be withheld in its sole and
absolute discretion), or, if the aggregate Sharing Percentages of the
Interstate Partners is 20% or less at the time of the Transfer, the Consent of
each of the General Partners (which Consent may be withheld in their sole and
absolute discretion).
(e) At any time, any Interstate Partner may transfer its
interest in Non-Capital Proceeds, Capital Proceeds, Net Income and Net Losses
to any other Interstate Partner or their Affiliates, but the Transferee shall
not be admitted as a substitute Partner and the transferor shall not be
permitted to withdraw from the Partnership without, in each case, the Consent
of the Blackstone General Partner (which Consent may be withheld in its sole
and absolute discretion).
(f) At any time, the ultimate beneficial ownership of a
Partner may be changed without any requirement for Consent hereunder, provided
that day to day management of such Partner is, at all times thereafter,
directly or indirectly controlled by the Blackstone General Partner or an
Affiliate thereof or by the Interstate General Partner or an Affiliate thereof.
SECTION 8.2 Other Transfer Provisions. (a) Any purported
Transfer by a Partner of all or any part of its interest in the Partnership in
violation of this Article VIII shall be null and void and of no force or
effect.
(b) Except as provided in this Article VIII, no Partner
shall have the right to withdraw from the Partnership prior to its termination
and no additional Partner may be admitted to the Partnership without the prior
written consent of the General Partners. In the event of any withdrawal of a
General Partner in violation of this Agreement, including as a result of a
Disabling Event, such General Partner shall be liable to the Partnership as
provided in Section 17-602 of the Partnership Act.
(c) Notwithstanding any provision of this Agreement to the
contrary, a Partner may not Transfer all or any part of its interest in the
Partnership if such Transfer would jeopardize the status of the Partnership as
a partnership for federal income tax purposes, cause a dissolution of the
Partnership under the Partnership Act or would violate, or would cause the
Partnership to violate, any applicable law or regulation (including any
applicable federal or state securities laws) or contract to which the
Partnership is a party.
<PAGE> 55
51
(d) Concurrently with the admission of any substitute or
additional Partner, the General Partners shall forthwith cause any necessary
papers to be filed and recorded and notice to be given wherever and to the
extent required showing the substitution of a Transferee as a substitute
Partner in place of the Partner Transferring its interest, or the admission of
an additional Partner, all at the expense, including payment of any
professional and filing fees incurred, of such substituted or additional
Partner. The admission of any person as a substitute or additional Partner
shall be conditioned upon such person's written acceptance and adoption of all
the terms and provisions of this Agreement.
(e) If any interest in the Partnership is Transferred
during any accounting period in compliance with the provisions of this Article
VIII, each item of income, gain, loss, expense, deduction and credit and all
other items attributable to such interest for such period shall be divided and
allocated between the transferor and the transferee by taking into account
their varying interests during such period in accordance with Section 706(d) of
the Code, using any conventions permitted by law and selected by the General
Partners. All distributions on or before the date of such Transfer shall be
made to the transferor, and all distributions thereafter shall be made to the
transferee. Solely for purposes of making such allocations and distributions,
the Partnership shall recognize a Transfer on the date that the General
Partners receive notice of the Transfer which complies with this Article VIII
from the Partner Transferring its interest.
ARTICLE IX
Miscellaneous
SECTION 9.1 Equitable Relief. The Partners hereby confirm
that damages at law may be an inadequate remedy for a breach or threatened
breach of this Agreement and agree that, in the event of a breach or threatened
breach of any provision hereof, the respective rights and obligations hereunder
shall be enforceable by specific performance, injunction or other equitable
remedy, but, nothing herein contained is intended to, nor shall it, limit or
affect any right or rights at law or by statute or otherwise of a Partner
aggrieved as against the other for a breach or threatened breach of any
provision hereof, it being the intention by this Section 9.1 to make clear the
agreement of the Partners that the respective rights and obligations of the
Partners hereunder shall be enforceable in equity as well as at law or
otherwise and that the mention herein of any particular remedy shall not
preclude a Partner from any other remedy it or he might have, either in law or
in equity.
SECTION 9.2 Ownership and Use of Names. Rights to the name
"Blackstone" shall belong solely to the designated Blackstone Partners. Rights
to the name "Interstate" and
<PAGE> 56
52
"Interstate Hotels" shall belong solely to the designated Interstate Partners.
The ownership of, and the right to use, sell or otherwise dispose of, the name,
Interstone Three Partners#II L.P. or any abbreviation or modification thereof,
shall belong to the Partnership. The Interstate General Partner agrees to take
all actions and to approve, execute and file any document or instrument
proposed by any Blackstone Partner to protect the rights of the Blackstone
Partners to the name "Blackstone". The Blackstone General Partner agrees to
take all actions and to approve, execute and file any document or instrument
proposed by any Interstate Partner to protect the rights of the Interstate
Partners to the name "Interstate" and "Interstate Hotels". The Partners each
agree to take all actions and to approve, execute and file any document or
instrument proposed by the General Partners to protect the rights of the
Partnership to the name "Interstone Three Partners II L.P.".
SECTION 9.3 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware. In
particular, the Partnership is formed pursuant to the Partnership Act, and the
rights and liabilities of the General Partners and Limited Partners shall be as
provided therein, except as herein otherwise expressly provided.
SECTION 9.4 Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
respective successors and assigns.
SECTION 9.5 Access; Confidentiality. By executing this
Agreement, each Partner expressly agrees, at all times during the term of the
Partnership and thereafter and whether or not at the time a Partner of the
Partnership (i) not to issue any press release or advertisement or take any
similar action concerning the Partnership's business or affairs without first
obtaining the Consent of all of the General Partners, (ii) not to publicize
detailed financial information concerning the Partnership without the Consent
of all of the General Partners and (iii) not to disclose the Partnership's
affairs generally without using reasonable efforts to consult with the other
Partners prior to such disclosure; provided, however, the foregoing shall not
restrict any Partner from disclosing information concerning such Partner's
investment in the Partnership to its officers, directors, employees, agents,
legal counsel, accountants, other professional advisors, limited partners and
Affiliates, or to prospective or existing investors in such Partner or its
Affiliates or to prospective or existing lenders to such Partner or its
Affiliates, or to prospective purchasers of any property owned by the
Partnership. The provisions of this Section 9.5 shall survive the termination
of the Partnership.
SECTION 9.6 Notices. Whenever notice is required or
permitted by this Agreement to be given, such notice need not be in writing
unless otherwise required herein or requested by the
<PAGE> 57
53
receiving Partner. If in writing, such notice shall be given to any Partner at
its address or facsimile number shown in the Partnership's books and records
(including Schedule A hereto). Each such notice shall be effective (i) if
given by facsimile, upon oral confirmation of receipt, (ii) if given by mail,
on the fourth day after deposit in the mails (certified or registered return
receipt requested) addressed as aforesaid and (iii) if given by any other
means, when delivered to and receipted for at the address of such Partner
specified as aforesaid.
SECTION 9.7 Counterparts. This Agreement may be executed in
any number of counterparts, all of which together shall constitute a single
instrument.
SECTION 9.8 Entire Agreement. This Agreement embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter hereof.
SECTION 9.9 Amendments. Any amendment to this Agreement
shall be effective only if such amendment is evidenced by a written instrument
duly executed by and delivered to the General Partners; provided, however, no
such amendment shall be effective or binding against a Partner unless executed
by such Partner if such amendment materially and adversely affects such Partner
in a specific manner separate and distinct from the amendment's treatment of
other Partners; and provided, further that any amendment which would have a
material adverse effect on any Partner's economic interest in the Partnership
shall require the Consent of all of the General Partners.
SECTION 9.10 Section Titles. Section titles are for
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text hereof.
SECTION 9.11 Representations and Warranties. (a) Each
Partner represents, warrants and covenants to each other Partner and to the
Partnership that:
(i) such Partner, if not a natural person, is duly formed
and validly existing under the laws of the jurisdiction of its
organization with full power and authority to conduct its business to
the extent contemplated in this Agreement;
(ii) this Agreement has been duly authorized, executed and
delivered by such Partner and constitutes the valid and legally
binding agreement of such Partner enforceable in accordance with its
terms against such Partner except as enforceability hereof may be
limited by bankruptcy,
<PAGE> 58
54
insolvency, moratorium and other similar laws relating to creditors'
rights generally and by general equitable principles;
(iii) the execution and delivery of this Agreement by such
Partner and the performance of its duties and obligations hereunder do
not result in a breach of any of the terms, conditions or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, credit agreement, note or other evidence of indebtedness, or
any lease or other agreement, or any license, permit, franchise or
certificate, to which such Partner is a party or by which it is bound
or to which its properties are subject, or require any authorization
or approval under or pursuant to any of the foregoing, or violate any
statute, regulation, law, order, writ, injunction, judgment or decree
to which such Partner is subject;
(iv) such Partner is not in default (nor has any event
occurred which with notice, lapse of time, or both, would constitute a
default) in the performance of any obligation, agreement or condition
contained in any indenture, mortgage, deed of trust, credit agreement,
note or other evidence of indebtedness or any lease or other
agreement, or any license, permit, franchise or certificate, to which
it is a party or by which it is bound or to which the properties of it
are subject, nor is it in violation of any statute, regulation, law,
order, writ, injunction, judgment or decree to which it is subject,
which default or violation would materially adversely affect such
Partner's ability to carry out its obligations under this Agreement;
(v) except as disclosed to the Partners prior to the date
hereof, there is no litigation, investigation or other proceeding
pending or, to the knowledge of such Partner, threatened against such
Partner or any of its Affiliates which, if adversely determined, would
materially adversely affect such Partner's ability to carry out its
obligations under this Agreement; and
(vi) no consent, approval or authorization of, or filing,
registration or qualification with, any court or governmental
authority on the part of such Partner is required for the execution
and delivery of this Agreement by such Partner and the performance of
its obligations and duties hereunder.
(b) IHC/Interstone Partnership II, L.P. represents that not
less than 90% of its interests are owned by Interstate Hotels Company.
<PAGE> 59
55
IN WITNESS WHEREOF, the parties have executed this Amended
and Restated Limited Partnership Agreement of Interstone Three Partners II L.P.
as of the day and year first above written.
GENERAL PARTNERS:
BJS INTERSTONE MANAGEMENT
ASSOCIATES
By: Blackstone Real Estate Inc.,
general partner
By: ________________________
Name:
Title:
IHC/INTERSTONE CORPORATION
By: _____________________________
Name:
Title:
LIMITED PARTNERS:
BLACKSTONE REAL ESTATE
PARTNERS II L.P.
By: Blackstone Real Estate
Associates L.P., general
partner
By: BREA L.L.C., general
partner
By: _______________
Name:
Title:
IHC/INTERSTONE PARTNERSHIP II, L.P.
By: IHC Member Corporation,
general partner
By:________________________
Name:
Title:
<PAGE> 60
SCHEDULE A
PARTNERS OF THE PARTNERSHIP
General
Partners
Address
Sharing
Percentage as
of June __,
1996
BJS Interstone
Management
Associates
IHC/Interstone
Corporation
345 Park Avenue
New York, NY 10154
c/o Interstate Hotels
Corporation
Foster Plaza X
680 Anderson Drive
Pittsburgh, PA 15220-8126
0.5%
0.5%
Limited
Partners
Blackstone Real
Estate Partners
II L.P.
345 Park Avenue
New York, NY 10154
48.5%
IHC/Interstone
Partnership II,
L.P.
c/o Interstate Hotels
Corporation
Foster Plaza X
680 Anderson Drive
Pittsburgh, PA 15220-8126
50.5%
<PAGE> 61
EXHIBIT A
Form of Management Agreement
<PAGE> 62
EXHIBIT B
Form of Project Partnership Agreement
<PAGE> 63
EXHIBIT C
FORM OF CONFIRMATION AND ACKNOWLEDGMENT
OF RIGHT OF FIRST OPPORTUNITY
This Confirmation and Acknowledgment of Right of First
Opportunity ("Confirmation") is made and entered into as of the ____ day of
________, 19__ by and among THE BLACKSTONE GROUP HOLDINGS L.P. ("Blackstone")
and INTERSTATE HOTELS COMPANY ("Interstate").
RECITALS
A. Sections 3.6 through 3.8 of that certain Amended and
Restated Limited Partnership Agreement of Interstone Three Partners II L.P.,
dated as of the date hereof (as amended, supplemented or otherwise modified
from time to time, the "Partnership Agreement") sets forth the scope,
operation, duration, termination and other terms relating to a right of first
opportunity provided by the Blackstone Group and the Interstate Group in favor
of the Partnership with respect to certain Target Investments identified for
investment by the Blackstone Group and the Interstate Group. Except as
otherwise expressly provided herein, any defined term used in this Confirmation
shall have the meaning prescribed for that term in the Partnership Agreement.
B. The parties wish to enter into this Confirmation in
order to confirm and acknowledge their obligations to each other with respect
to the foregoing matters and any other obligations each may have to the other
pursuant to the express terms of Sections 3.6 through 3.8 of the Partnership
Agreement.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto, intending to be legally bound,
do hereby agree as follow:
1. The provisions of Sections 3.6 through 3.8 of the
Partnership Agreement are hereby incorporated by reference as though set forth
in full herein. Each party hereto hereby confirms its obligation to comply
with all terms, provisions, covenants, conditions and restrictions and perform
all obligations applicable to such party under said Sections 3.6 through 3.8 of
the Partnership Agreement. Without limiting the generality of the foregoing,
Blackstone and Interstate hereby agree to comply, and to cause the Blackstone
Related Parties and the Interstate Related Parties, respectively, to comply,
with their obligations pertaining to the right of first opportunity set forth
in said Sections of the Partnership Agreement in accordance with the terms
applicable thereto.
<PAGE> 64
2
2. This Confirmation confirms and acknowledges the
terms, provisions, covenants, conditions, obligations and restrictions set
forth in Sections 3.6 through 3.8 of the Partnership Agreement. It shall not
be construed or understood to modify, in any way, such terms, provisions,
covenants, conditions, obligations and restrictions, and, in the event of any
conflict between this Confirmation and the Partnership Agreement, the
provisions of Sections 3.6 through 3.8 of the Partnership Agreement shall
control. In no event shall this Confirmation be construed or understood to
extend the duration of the restrictions on Blackstone, Interstate and the
Related Parties arising from the right of first opportunity, which shall
terminate as set forth in the Partnership Agreement. The provisions of
Sections 9.1, 9.3, and 9.5 through 9.10 of the Partnership Agreement are
incorporated herein, except that all references therein to the "Agreement"
shall be deemed to be references to this Confirmation, all references therein
to the "Partners" shall be deemed to be references to the parties hereto and
delivery of notices to Blackstone hereunder or under the Partnership Agreement
shall be delivered to the same address as the Blackstone General Partner, and
delivery of notices to Interstate hereunder shall be delivered to the same
address as the Interstate General Partner, unless any such parties shall change
the address for delivery of notice in accordance with the procedures
established under Section 9.6 of the Partnership Agreement. Nothing in this
Confirmation shall be understood or construed to render the parties hereto
joint venturers or partners for any purposes. Nothing in this Confirmation
shall be understood or construed to modify or expand the extent of any recourse
between the Partners beyond that expressly provided by the Partnership
Agreement.
THE BLACKSTONE GROUP HOLDINGS, L.P.
By: ____________________________
INTERSTATE HOTELS COMPANY
By: _____________________________
<PAGE> 65
EXHIBIT D
Pre-Existing Projects
NONE
<PAGE> 66
EXHIBIT E
Excluded Projects
Blackstone Excluded Projects
1. Any business activities with the Davidson Hotel Company
("Davidson"), including a merger or a combination of Davidson
or its assets with any other entity or with the assets of any
other entity, a REIT involving Davidson or some or all of its
assets, an initial public offering or other capital event
involving Davidson; provided, that this exclusion shall not
include the acquisition of other hotels by Davidson (other
than through a combination with another entity or a
combination with the assets of another entity) which were
first identified by the affiliates of the Blackstone Group
which are investors in Davidson (as opposed to acquisitions
first identified by the non- affiliated Davidson investors).
Interstate Excluded Projects
1. Four to six hotel acquisitions from an institutional owner
only in conjunction with the Carlyle Group or The Apollo
Group
2. Acquisition of Checkers Hotel in Los Angeles, California only
in conjunction with The Apollo Group
3. Any investment in a hotel which is incidental to Interstate
taking over management of such hotel such as those currently
under consideration by Interstate in Farmington, Connecticut,
Irvine, California, Warner Center, California and Burlington,
Massachusetts.
With respect to Interstate's investment
opportunities described in clauses 1 and 2 above, if The
Apollo Group or The Carlyle Group decides not to participate
in such investment or is willing to admit additional partners
or participants other than Interstate, Interstate will
present such opportunity to the Partnership in the manner
prescribed in Section 3.6 of the Partnership Agreement.
With respect to Interstate's investment
opportunities described in clauses 1 and 2 above, Interstate
(i) shall exercise best efforts to increase its equity stake
in such investments (up to the maximum
<PAGE> 67
2
of 50% of the total equity invested), and (ii) shall offer
the Blackstone Group (outside of the Partnership) an
opportunity to acquire 50% of whatever interest is available
to Interstate on terms and conditions acceptable to
Interstate and the Blackstone Group.
<PAGE> 1
Exhibit 10.9(c)(2)
================================================================================
INTERSTONE THREE PARTNERS III L.P.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
Dated as of June __, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions.......................... 2
SECTION 1.1 Definitions............................................ 2
SECTION 1.2 Terms Generally........................................ 12
ARTICLE II
General Provisions....................... 13
SECTION 2.1 Continuation of Partnership............................ 13
SECTION 2.2 Partners............................................... 13
SECTION 2.3 Name................................................... 13
SECTION 2.4 Term................................................... 13
SECTION 2.5 Purpose; Powers........................................ 13
SECTION 2.6 Place of Business...................................... 15
SECTION 2.7 Alternative Investment Structure....................... 15
SECTION 2.8 Parallel Partnerships.................................. 16
ARTICLE III
Management and Operation of the
Partnership; Identification and Approval of
Investments; Partner Services................. 16
SECTION 3.1 Management............................................. 16
SECTION 3.2 Joint Control by the General Partners.................. 18
SECTION 3.3 Blackstone Partners Rights............................. 20
SECTION 3.4 Certain Duties and Obligations of the
Partners............................................... 21
SECTION 3.5 Restrictions on Authority of the General
Partners............................................... 22
SECTION 3.6 Right of First Opportunity............................. 23
SECTION 3.7 Right of First Opportunity; Exclusive
Rights; Investment Parameters.......................... 28
SECTION 3.8 Termination of Right of First
Opportunity............................................ 30
SECTION 3.9 Financing.............................................. 31
SECTION 3.10 Financial Advisory Services............................ 32
SECTION 3.11 Other Partner Services................................. 33
SECTION 3.12 Marketing Rights....................................... 34
ARTICLE IV
Other Activities Permitted................... 36
ARTICLE V
Capital Contributions;
Distributions......................... 37
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.1 Capital Contributions.................................. 37
SECTION 5.2 Partner Loans for Failure to Fund
Committed Capital...................................... 38
SECTION 5.3 Dilution for Failure to Fund Capital................... 38
SECTION 5.4 Distributions Generally................................ 39
SECTION 5.5 Distributions of Proceeds.............................. 39
SECTION 5.6 Restricted Payments.................................... 40
SECTION 5.7 Partnership Expenses................................... 41
ARTICLE VI
Books and Reports; Tax Matters;
Capital Accounts; Allocations................. 41
SECTION 6.1 General Accounting Matters............................. 41
SECTION 6.2 Certain Tax Matters.................................... 42
SECTION 6.3 Capital Accounts....................................... 45
SECTION 6.4 Allocations............................................ 45
ARTICLE VII
Dissolution.......................... 48
SECTION 7.1 Dissolution............................................ 48
SECTION 7.2 Winding-up............................................. 49
SECTION 7.3 Final Distribution..................................... 49
ARTICLE VIII
Transfer of Partners' Interests................ 49
SECTION 8.1 Restrictions on Transfer of Partnership
Interests.............................................. 49
SECTION 8.2 Other Transfer Provisions.............................. 51
ARTICLE IX
Miscellaneous......................... 52
SECTION 9.1 Equitable Relief....................................... 52
SECTION 9.2 Ownership and Use of Names............................. 52
SECTION 9.3 Governing Law.......................................... 53
SECTION 9.4 Successors and Assigns................................. 53
SECTION 9.5 Access; Confidentiality................................ 53
SECTION 9.6 Notices................................................ 53
SECTION 9.7 Counterparts........................................... 53
SECTION 9.8 Entire Agreement....................................... 54
SECTION 9.9 Amendments............................................. 54
SECTION 9.10 Section Titles......................................... 54
SECTION 9.11 Representations and Warranties......................... 54
</TABLE>
ii
<PAGE> 4
Schedules
SCHEDULE A Name and Address
Exhibits
Exhibit A Form of Management Agreement
Exhibit B Form of Project Partnership Agreement
Exhibit C Form of Confirmation and Acknowledgment
of Right of First Opportunity
Exhibit D Pre-Existing Projects
Exhibit E Excluded Projects
iii
<PAGE> 5
INTERSTONE THREE PARTNERS III L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT,
dated as of June __, 1996 by and among BJS INTERSTONE
MANAGEMENT ASSOCIATES, a Delaware general partnership, as a
general partner, IHC/INTERSTONE CORPORATION, a Delaware
corporation, as a general partner, and BLACKSTONE REAL ESTATE
PARTNERS III L.P., BLACKSTONE REAL ESTATE HOLDINGS L.P.,
BLACKSTONE RE CAPITAL PARTNERS L.P., BLACKSTONE RE OFFSHORE
CAPITAL PARTNERS L.P., and IHC/INTERSTONE PARTNERSHIP II,
L.P., each a Delaware limited partnership, as limited
partners.
Preliminary Statement
A. The Blackstone Group and the Interstate Group each have the
capability for identifying, acquiring, improving, operating and disposing of
individual hotel, motel and other lodging properties and groups of hotel, motel
and other lodging properties, hotel and motel management companies (for which
the ownership of hotels and motels is a significant part of their business) and
public and private companies whose primary holdings are comprised of such assets
or operations ("Target Investment" or "Target Investments").
B. The Blackstone Partners and the Interstate Partners,
individually and acting through the Partnership, in each case in accordance with
the terms of this Agreement, wish to continue an exclusive arrangement with each
other under which, for the duration thereof and subject to the terms set forth
below, the Partnership, the Blackstone Partners and the Interstate Partners
through the Partnership and the Parallel Partnerships, will have the first
opportunity to acquire, operate and dispose of certain Target Investments which
are hereafter identified by the Blackstone Group and/or the Interstate Group, as
the case may be, and approved for investment in accordance with this Agreement
(each Target Investment proposed or approved, as the context indicates, for
acquisition pursuant to this Agreement is referred to as a "Project").
C. In order to effect the foregoing, the parties hereto
entered into a limited partnership agreement dated as of December 15, 1995 (the
"Existing Agreement") and formed a partnership under the laws of the State of
Delaware with the name Interstone Three Partners III L.P. (the "Partnership").
D. Each of the Partners of the Partnership have
agreed to amend and restate the Existing Agreement in its
entirety as set forth herein.
<PAGE> 6
2
Agreement
Accordingly, in consideration of the mutual promises and
agreements herein made and intending to be legally bound hereby, the parties
hereto agree to amend and restate the Existing Agreement to read as follows:
ARTICLE I
Definitions
SECTION 1.1 Definitions. Unless the context otherwise
requires, the following terms shall have the following meanings for purposes of
this Agreement:
"Acknowledgement" has the meaning set forth in Section
3.6(a).
"Adjusted Capital Account Balance" shall mean, with respect to
any Partner, the balance in such Partner's Capital Account adjusted (i)
by taking into account the adjustments, allocations and distributions
described in Regulations section 1.704-1(b)(2)(ii)(d)(4), (5), and (6);
and (ii) by adding to such balance such Partner's share of partnership
Minimum Gain and Partner Nonrecourse Debt Minimum Gain, determined
pursuant to Regulations section 1.704-2(g)(1) and 1.704-2(i)(5).
"Affiliate" with respect to any person means (i) any other
person who controls, is controlled by or is under common control with
such person, (ii) any director, officer, partner or employee of such
person or any person specified in clause (i) above or (iii) any
immediate family member of any person specified in clause (i) or (ii)
above. Notwithstanding the foregoing, for the purposes of this
Agreement, none of the Blackstone Partners nor their Affiliates shall
be deemed to be Affiliates of any of the Interstone Partners or the
Interstone Related Parties, none of the Interstate Partners nor their
Affiliates shall be deemed to be Affiliates of any of the Blackstone
Partners or the Blackstone Related Parties, and no officer or director
of any member of the Blackstone Group which is also an officer or
director of any member of the Interstone Group shall be deemed to be an
Affiliate of any of the Interstate Partners or Interstate Related
Parties,
and no member of the Interstone Group shall be deemed an
Affiliate of any member of the Blackstone Group.
"Agreement" means this Amended and Restated Limited
Partnership Agreement, as it may be amended, supplemented, modified or
restated from time to time.
<PAGE> 7
3
"Asset Management Agreement" has the meaning set forth
in Section 3.6(f).
"Authorized Representatives" of a General Partner shall be
those representatives designated by notice to all Partners by each
General Partner from time to time to represent such General Partner in
connection with the Partnership. The term "Authorized Representative"
shall refer to any one of the Authorized Representatives of a Partner.
The initial Authorized Representatives of the General Partners are set
forth in Section 3.1(e) below.
"Blackstone General Partner" means BJS Interstone Management
Associates, a Delaware general partnership, or any Affiliate of any
member of the Blackstone Group who replaces BJS Interstone Management
Associates as a general partner hereunder, or is admitted as an
additional general partner hereunder.
"Blackstone Group" means the Blackstone Partners, Affiliates
of the Blackstone Partners and the Blackstone Related Parties;
provided, that the Blackstone Group shall not include investors in the
Blackstone Partners who are not Affiliates of Blackstone Group Holdings
L.P., to the extent such investors are not investing through any
Affiliate of Blackstone Group Holdings L.P.
"Blackstone Limited Partners" mean collectively Blackstone
Real Estate Partners III L.P., Blackstone Real Estate Holdings L.P.,
Blackstone RE Capital Partners L.P., Blackstone RE Offshore Capital
Partners L.P., each a Delaware limited partnership, and any Affiliate
of any member of the Blackstone Group who replaces any of the foregoing
as a limited partner hereunder, or is admitted as an additional limited
partner hereunder.
"Blackstone Partners" means collectively, the Blackstone
General Partner and the Blackstone Limited Partners and any other
Partner admitted to the Partnership which is an Affiliate of any of the
foregoing and any
permitted assigns of such Partners.
"Blackstone Related Parties" means (i) Blackstone Group
Holdings L.P., (ii) each of the general partners of Blackstone Group
Holdings L.P. and his immediate family members, for so long as he is
such a partner and (iii) any corporation, partnership, limited
liability company, joint venture or other like entity in which the
Blackstone Partners or the parties referred to in (i) and (ii) above
individually or collectively, hold a fifty percent (50%) or greater,
direct or indirect (through one or more business entities), ownership
interest, but shall not include any such entity in which the collective
ownership interest of
<PAGE> 8
4
these parties is less than fifty percent (50%) or which is a publicly
traded company.
"Broken Deal" shall mean a proposed Project that is not
ultimately acquired by the Partnership.
"Business Day" shall mean any day on which commercial banks
are authorized to do business and are not required by law or executive
order to close in New York, New York.
"Capital Account" has the meaning set forth in
Section 6.3.
"Capital Contributions" means the net fair market value of any
capital contributions made by the Partners to the Partnership and shall
include (i) the contributions of such Partner made pursuant to Sections
3.6, 3.9, 3.10, 5.1 and 5.7 and (ii) such Partner's payments made to
third party creditors of the Partnership with respect to Partnership
obligations to the extent such Partner is authorized by this Agreement
to make any such payment, unless and until reimbursed by the
Partnership.
"Capital Proceeds" means (A) the cash or other consideration
received by the Partnership (including interest on installment sales
when received) as a result of (i) any sale, exchange, abandonment,
foreclosure, insurance award, condemnation, easement sale or other
similar transaction relating to any property of the Partnership, (ii)
any financing or refinancing (to the extent such refinancing is deemed
a Disposition hereunder) relating to any property of the Partnership,
(iii) capital contributions to the Partnership upon admission of new
partners, (iv) any other transaction which, in accordance with
generally accepted accounting principles, would be treated as a capital
event, in each case less (B) any such cash which is applied to (i) the
payment of transaction costs and expenses, (ii) the repayment of debt
of the Partnership which is required under the terms of any
indebtedness of the Partnership or has been authorized by the General
Partners, (iii) the repair, restoration or other improvement of
Partnership Assets which is required under any contractual obligation
of the Partnership or has been authorized by the General Partners and
(iv) the establishment of reserves by the General Partners. "Capital
Proceeds" shall also mean any of the foregoing which are received by a
partnership or other vehicle in which the Partnership is a partner or
investor or in which the Partnership otherwise has an interest, to the
extent received by the Partnership as dividends or distributions.
"Carrying Value" shall mean, with respect to any
Partnership Asset, the asset's adjusted basis for U.S.
federal income tax purposes, except that the Carrying Values
<PAGE> 9
5
of all Partnership Assets shall be adjusted to equal their respective
fair market values, in accordance with the rules set forth in
Regulations Section 1.704-1(b)(2)(iv)(f), except as otherwise provided
herein, as of: (a) the date of the acquisition of any additional
Partnership interest by any new or existing Partner in exchange for
more than a de minimis Capital Contribution, other than pursuant to the
initial formation of the Partnership; (b) the date of the distribution
of more than a de minimis amount of Partnership property to a Partner;
(c) the date a Partnership interest is relinquished to the Partnership
or (d) the date of the termination of the Partnership under Section
708(b)(i)(B) of the Code; provided, however, that adjustments pursuant
to clauses (a), (b) and (c) above shall be made only if the General
Partners determine that such adjustments are necessary or appropriate
to reflect the relative economic interests of the Partners. The
Carrying Value of any Partnership Asset distributed to any Partner
shall be adjusted immediately prior to such distribution to equal its
fair market value. Depreciation shall be calculated by reference to
Carrying Value, instead of tax basis once Carrying Value differs from
tax basis.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute. Any reference herein to a
particular provision of the Code shall mean, where appropriate, the
corresponding provision in any successor statute.
"Committed Capital" shall mean, the aggregate amount of
$29,400,000 for the Blackstone Partners and the Blackstone Partners of
the Parallel Partnerships, and the aggregate amount of $30,600,000 for
the Interstate Partners and the Interstate Partners of the Parallel
Partnership.
"Competitive Rate" shall mean, with respect to a particular
service at a Target Investment, the lower of (i) the rate charged on an
arm's length basis for the same or similar service for comparable
properties in the geographic area in which the relevant Target
Investment is located by unaffiliated persons providing or performing
such service on an ongoing basis and (ii) the lowest rate charged by
any Affiliates of the Interstate General Partner for the same or
similar service for comparable properties in the geographic area in
which the relevant Target Investment is located.
"Consent" shall mean the approval, direction or determination,
as the case may be, of a Partner, given as provided in Section 3.1, to
do the act or thing for which the approval is solicited or with respect
to which the direction or determination is given or made, or the act of
granting such approval or giving such direction or making such
determination, as the context may require. Any Consent required to be
given by the Blackstone General Partner shall
<PAGE> 10
6
be given by any one Authorized Representative of the
Blackstone General Partner. Any Consent to be given by the
Interstate General Partner shall be given by any two
Authorized Representatives of the Interstate General
Partner.
"Consideration" means the gross value of all cash, securities
and other properties paid or payable, directly or indirectly, in one
transaction or in a series or combination of transactions, in
connection with an acquisition or disposition of a Target Investment or
a transaction related thereto (including, without limitation, amounts
paid (A) pursuant to covenants not to compete, employment contracts,
employee benefit plans or other similar arrangements and (B) to holders
of any warrants, stock purchase rights, convertible securities or
similar rights and to holders of any options or stock appreciation
rights, whether or not vested). Consideration shall also include the
value of any long-term liabilities (including the principal amount of
any mortgage indebtedness or other indebtedness for borrowed money,
preferred stock obligations, any pension liabilities and guarantees)
indirectly or directly assumed or acquired, or otherwise repaid or
retired, in connection with or anticipation of such acquisition. If an
acquisition takes the form of a purchase of assets, to the extent
applicable Consideration shall also include (i) the value of any
current assets not purchased, minus (ii) the value of any current
liabilities not assumed. If the Consideration to be paid is computed in
any foreign currency, the value of such foreign currency shall, for
purposes hereof, be converted into U.S. dollars at the prevailing
exchange rate on the date or dates on which such Consideration is paid.
In this Agreement, the value of any securities (whether debt or equity)
or other property paid or payable as part of the Consideration shall be
determined as follows: (1) the value of securities that are freely
tradable in an established public market will be determined on the
basis of the last market closing price prior to the public announcement
of the acquisition; and (2) the value of the securities that are not
freely tradable or have no established public market or, if the
Consideration utilized consists of property other than securities, the
value of such other property shall be the fair market value thereof as
reasonably determined by the General Partners.
"Contributing Partner" has the meaning set forth in
Section 5.2.
"Disabling Event" means any event which would cause a General
Partner to cease to be a general partner of the Partnership pursuant to
Section 17-402 of the Partnership Act.
<PAGE> 11
7
"Disposition" of a Project shall mean the sale, exchange or
other disposition by the Partnership of all or any portion of such
Project for cash, and shall include the receipt by the Partnership of a
liquidating dividend or other like distribution in cash. A refinancing
of a Project shall be deemed a Disposition of such Project unless the
General Partners agree otherwise. Whenever a portion of a Project (but
not the entire Project) is the subject of a Disposition, that portion
shall be treated as having been a separate project from that portion of
the Project that is retained by the Partnership, and the Capital
Contributions for such Project and the Proceeds (other than the
Proceeds of such Disposition of a portion of a Project) distributed to
the Partners with respect to such Project shall be treated as having
been divided between the portion subject to the Disposition and the
retained portion on a pro rata basis. For purposes of calculating the
Internal Rate of Return, a Broken Deal shall be considered a Project
subject to a Disposition that did not yield any Proceeds.
"Fair Market Value" of a Project as of a specific date shall
mean the fair market value of such project on such date as reasonably
determined by the General Partners (taking into consideration all
factors which may reasonably affect the sales price of the Project),
less the principal amount of any debt and other similar liabilities
secured by or otherwise related to such Project, and less a reasonable
estimate of transaction costs and expenses which would be incurred upon
a Disposition of such Project on such date. If the General Partners can
not reach agreement on the Fair Market Value of a Project, the matter
shall be settled by arbitration in New York, New York in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association then in effect, except that the number and method of
selection of the arbitrators shall be as follows: each General Partner
shall select one qualified real estate investment banker or MAI
appraiser who is experienced in valuing assets and liabilities of the
type in question; the average of the Fair Market Values of such Project
determined by such arbitrators shall be the Fair Market Value of such
Project, and shall be final, conclusive and binding on the Partners.
"Fiscal Period" means each fiscal quarter or such other period
as may be established by the General Partners.
"Fiscal Year" means the calendar year ending on December 31 of
each year.
"General Partners" mean the Blackstone General Partner, the
Interstate General Partner and any other person admitted to the
Partnership as an additional or substitute general partner of the
Partnership in accordance with the provisions
<PAGE> 12
8
of this Agreement, until such time as such person ceases to be a
general partner of the Partnership as provided herein.
"Internal Rate of Return" shall mean with respect to any
Partner as of the date of a cash distribution of Proceeds to such
Partner, the rate of return (calculated as provided below, taking into
account the time value of money) which (x) the Proceeds for which the
return is being calculated represent on (y) all Capital Contributions
made by such Partner as of such date with respect to the Project or
Projects for which the return is being calculated.
In determining the Internal Rate of Return, the following
shall apply:
(i) subject to the provisions of clause (ii) of
this definition, all present value calculations are to be made
as of the date such Capital Contributions were contributed to
the Partnership;
(ii) all Capital Contributions shall be treated as
having been contributed to the Partnership on the first day of
the month during which a Partner's funds were actually
delivered to the Partnership;
(iii) all distributions shall be treated as if
received on the last day of the month in which the
distribution was made;
(iv) all distribution amounts shall be based on
the amount of the distribution prior to the application of any
federal, state or local taxation to Partners (including any
withholding or deduction requirements); and
(v) the rates of return shall be per annum rates
and all amounts shall be calculated on a compounded annual
basis, and on the basis of a 365-day year.
When calculating the Internal Rate of Return (and for such
purpose only), a Partner's Capital Contribution to a Project shall not
be deemed to include 60% of such Partner's share of any amounts paid to
the Blackstone General Partner or its Affiliates pursuant to Sections
3.9 and 3.10 below for such Project. When calculating the Internal Rate
of Return, a Partner's initial Capital Contributions shall be deemed
given on the date of admission of such Partner to the Partnership, not
on the date that the transferor of such Partner's interest in the
Partnership made its Capital Contributions; such Capital Contributions
shall be deemed Capital Contributions of the transferor for the period
from when made until the transfer to the new Partner.
<PAGE> 13
9
"Interstate General Partner" means IHC/Interstone Corporation,
a Delaware corporation, or any Affiliate of any member of the
Interstate Group who replaces IHC/Interstone Corporation as a general
partner hereunder or is admitted as an additional general partner
hereunder.
"Interstate Group" means the Interstate Partners,
Affiliates of the Interstate Partners and the Interstate
Related Parties.
"Interstate Limited Partner" means IHC/Interstone Partnership
II, L.P., a Delaware limited partnership, or any Affiliate of any
member of the Interstate Group who replaces IHC/Interstone Partnership
II, L.P. as a limited partner hereunder or is admitted as an additional
limited partner hereunder.
"Interstate Partners" means collectively, the Interstate
General Partner, the Interstate Limited Partner and any other Partner
admitted to the Partnership which is an Affiliate of any of the
foregoing and any permitted
assigns of such Partners.
"Interstate Related Parties" means (i) Interstate Hotels
Company, (ii) each of the senior executives of Interstate Hotels
Company and his immediate family members, for so long as he is employed
by Interstate Hotels Company, (iii) Milton Fine and his immediate
family members and (iv) any corporation, partnership, limited liability
company, joint venture or other like entity in which the Interstate
Partners or the parties referred to in (i), (ii) and (iii) above
individually or collectively, hold a fifty percent (50%) or greater,
direct or indirect (through one or more business entities), ownership
interest but shall not include any such entity in which the collective
ownership interest of these parties is less than fifty percent (50%) or
which is a publicly traded company.
"Limited Partners" means the Blackstone Limited Partners, the
Interstate Limited Partner and any person admitted to the Partnership
as an additional or substitute limited partner of the Partnership in
accordance with the provisions of this Agreement.
"Liquidator" has the meaning set forth in Section 7.2.
"Management Agreement" shall mean a Management Agreement in
the form attached hereto as Exhibit A, as such agreement may be amended
from time to time in accordance with the terms thereof and hereof.
"Minimum Gain" shall have the meaning set forth in Regulations
section 1.704-2(d)(1) and shall mean the amount determined by (i)
computing for each nonrecourse liability
<PAGE> 14
10
of the Partnership any gain the Partnership would realize if it
disposed of the property subject to that liability for no consideration
other than full satisfaction of the liability and (ii) aggregating the
separately computed gains. If the Carrying Value of any Partnership
Asset differs from the adjusted tax basis of such property, the
calculation of Minimum Gain pursuant to the preceding sentence shall be
made by reference to the Carrying Value. For purposes hereof, a
liability of the Partnership is a nonrecourse liability to the extent
that no Partner or related person bears the economic risk of loss for
that liability within the meaning of Regulations section 1.752-1.
"Net Income (Loss)" shall mean for each Fiscal Year or other
period, the taxable income or loss of the Partnership, or particular
items thereof, determined in accordance with the accounting method used
by the Partnership for U.S. federal income tax purposes with the
following adjustments: (i) all items of income, gain, loss or deduction
allocated pursuant to Section 6.4(c) through (e) shall not be taken
into account in computing such taxable income or loss; (ii) any income
of the Partnership that is exempt from U.S. federal income taxation and
not otherwise taken into account in computing Net Income and Net Loss
shall be added to such taxable income or loss; (iii) if the Carrying
Value of any asset differs from its adjusted tax basis for U.S. federal
income tax purposes, any depreciation, amortization or gain resulting
from a disposition of such asset shall be calculated with reference to
such Carrying Value; (iv) upon an adjustment to the Carrying Value of
any asset, pursuant to the definition of Carrying Value, the amount of
the adjustment shall be included as gain or loss in computing such
taxable income or loss; and (v) except for items in (i) above, any
expenditures of the Partnership not deductible in computing taxable
income or loss, not properly capitalizable and not otherwise taken into
account in computing Net Income and Net Loss pursuant to this
definition shall be treated as deductible items.
"Non-Capital Proceeds" means (x) any cash or other
consideration received by the Partnership other than Capital Proceeds
less (y) any such cash that is applied to the establishment of reserves
which have been established by the General Partners and to expenses of
the Partnership.
"Non-Contributing Partner" has the meaning set forth in
Section 5.2.
"Nonrecourse Deductions" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(1).
"Organizational Expenses" means all reasonable third-
party costs and expenses pertaining to the organization of
the Partnership and the registration, qualification or
<PAGE> 15
11
exemption of the Partnership under any applicable federal, state or
foreign laws, including fees of counsel to the Partnership and the
Partners.
"Parallel Partnerships" has the meaning set forth in
Section 2.8.
"Partner" means any person who is a partner of the
Partnership, whether a General Partner, a Limited Partner or both.
"Partner Nonrecourse Debt" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" shall have the meaning
ascribed to such term in Regulations section 1.704- 2(i)(2).
"Partner Nonrecourse Deductions" shall mean any item of
partnership loss, deduction, or expenditure under section 705(a)(2)(B)
of the Code that is attributable to a Partner Nonrecourse Debt, as
determined pursuant to Regulations section 1.704-2(i)(2).
"Partnership" means Interstone Three Partners III L.P.
"Partnership Act" means the Delaware Revised Uniform Limited
Partnership Act, 6 Del. C. Sections 17-101, et seq., as it may be amended
from time to time, and any successor to such statute.
"Partnership Assets" means all right, title and interest of
the Partnership in and to all or any portion of the assets of the
Partnership and any property (real or personal) or estate acquired in
exchange therefor or in connection therewith.
"Pre-Existing Projects" has the meaning set forth in
Section 3.6(a).
"Proceeds" means the collective reference to Capital
Proceeds and Non-Capital Proceeds.
"Project" has the meaning set forth in the Preliminary
Statement.
"Project Limited Liability Company Agreement" shall mean a
limited liability company agreement in a form to be agreed upon by the
General Partners, as such agreement may be amended from time to time in
accordance with the terms thereof and hereof, formed pursuant to this
Agreement to own Projects purchased hereunder.
<PAGE> 16
12
"Project Partnership Agreement" shall mean a partnership
agreement in the form attached hereto as Exhibit B, as such agreement
may be amended from time to time in accordance with the terms thereof
and hereof, formed pursuant to this Agreement to own Projects purchased
hereunder.
"Regulations" means the regulations promulgated under
the Code.
"Related Parties" means the Blackstone Related Parties
and the Interstate Related Parties.
"Request for Preliminary Approval" has the meaning set
forth in Section 3.6(b).
"Request for Final Approval" has the meaning set forth
in Section 3.6(f).
"Sharing Percentage" means the percentage interest of a
Partner with respect to each Project, determined in accordance with
Section 3.6(f) of this Agreement, as amended from time to time in
accordance herewith.
"Target Investment" has the meaning set forth in the
Preliminary Statement.
"Tax Matters Partner" has the meaning set forth in
Section 6.2.
"Transfer" has the meaning set forth in Section 8.1(a).
"Transferee" has the meaning set forth in Section
8.1(b).
"Unrealized Loss" with respect to a Project on a date of a
distribution of Capital Proceeds shall mean the excess of the total
Capital Contributions with respect to such Project as of such date over
the Fair Market Value of such Project as of such date. A Project shall
not have any Unrealized Loss on a date of a distribution if the
calculation pursuant to this definition for such Project on such date
equals zero or less.
SECTION 1.2 Terms Generally. The definitions in Section 1.1
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The term "person" includes individuals,
partnerships, joint ventures, corporations, trusts, governments (or agencies or
political subdivisions thereof) and other associations and entities. Unless the
context requires otherwise, the words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The
<PAGE> 17
13
term "hereunder" shall mean this entire Agreement as a whole unless reference to
a specific section of this Agreement is made.
ARTICLE II
General Provisions
SECTION 2.1 Continuation of Partnership. The Blackstone
General Partner and the Interstate General Partner, as the General Partners, and
the Blackstone Limited Partners and the Interstate Limited Partner, as limited
partners, hereby agree to continue the Partnership and the Partners agree that
the Partnership shall continue for the limited purposes set forth and on the
other terms and conditions set forth in this Agreement. The Blackstone General
Partner hereby represents that each of the Blackstone Limited Partners is an
Affiliate of the Blackstone General Partner or its Affiliates.
SECTION 2.2 Partners. Schedule A hereto contains the name and
address of each Partner as of the date of this Agreement. Schedule A shall be
revised by the General Partners from time to time to reflect the admission or
withdrawal of a Partner or the transfer or assignment of interests in the
Partnership in accordance with the terms of this Agreement and other
modifications to or changes in the information set forth therein.
SECTION 2.3 Name. The Partnership shall conduct its activities
under the name of Interstone Three Partners III L.P. The General Partners shall
have the power at any time to change the name of the Partnership; provided, that
the name shall always contain the words "Limited Partnership" or the letters
"L.P." The General Partners shall give prompt notice of any such change to each
Partner.
SECTION 2.4 Term. The term of the Partnership shall commence
on the date of this Agreement and shall continue until December 31, 2045, unless
sooner dissolved, wound up and terminated in accordance with Article VII of this
Agreement.
SECTION 2.5 Purpose; Powers. (a) The purpose of the
Partnership shall be (i) to implement the right of first opportunity with the
Blackstone Group and the Interstate Group, including review and approval or
disapproval by the General Partners of due diligence investigation of proposed
Target Investments, and, upon final approval by the General Partners, causing
the acquisition by the Partnership of such Target Investments either by itself
or directly or indirectly through entities in which the Partnership shall have a
direct or indirect ownership interest; (ii) operating, managing and disposing of
any Target Investments approved for acquisition pursuant to this Agreement; and
(iii) to do all things necessary or incidental to any of the foregoing.
<PAGE> 18
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(b) In furtherance of its purposes, the Partnership shall have
all powers necessary, suitable or convenient for the accomplishment of its
purposes, alone or with others, including the following:
(i) to invest and reinvest the cash assets of the
Partnership in money-market or other short-term investments;
(ii) to have and maintain one or more offices within or
without the State of Delaware, and, in connection therewith, to rent or
acquire office space, engage personnel and compensate them and do such
other acts and things as may be advisable or necessary in connection
with the maintenance of such office or offices;
(iii) to open, maintain and close bank accounts and draw
checks and other orders for the payment of moneys;
(iv) to engage employees (with such titles and delegated
responsibilities as may be determined), accountants, consultants,
auditors, custodians, investment advisers, attorneys and any and all
other agents and assistants, both professional and nonprofessional, and
to compensate them as may be necessary or advisable;
(v) to form or cause to be formed and to own the stock of
one or more corporations, whether foreign or domestic, and to form or
cause to be formed and to participate in partnerships, joint ventures
and limited liability companies, whether foreign or domestic;
(vi) to enter into, make and perform all contracts,
agreements and other undertakings as may be necessary or advisable or
incident to carrying out its purposes;
(vii) to sue, prosecute, settle or compromise all claims
against third parties, to compromise, settle or accept judgment of
claims against the Partnership, and to execute all documents and make
all representations, admissions and waivers in connection therewith;
(viii) to distribute, subject to the terms of this
Agreement, at any time and from time to time to Partners cash or
investments or other property of the Partnership, or any combination
thereof;
(ix) to borrow money, whether secured or unsecured, and to
make, issue, accept, endorse and execute promissory notes, drafts,
bills of exchange and other instruments and evidences of indebtedness,
all without limit as to amount, and to secure the payment thereof by
mortgage, pledge, or assignment of, or security interest in, the assets
then owned or thereafter acquired by the Partnership;
<PAGE> 19
15
(x) to buy, sell, operate and otherwise deal with Target
Investments;
(xi) to hold, receive, mortgage, pledge, lease, transfer,
exchange or otherwise dispose of, grant options with respect to, and
otherwise deal in and exercise all rights, powers, privileges and other
incidents of ownership or possession with respect to, all property held
or owned by the Partnership; and
(xii) to take such other actions necessary or incidental
thereto as may be permitted under applicable law.
SECTION 2.6 Place of Business. The Partnership shall maintain
a registered office at The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, or such other office within the
State of Delaware as is chosen by the General Partners. The Partnership shall
maintain an office and principal place of business at 345 Park Avenue, New York,
New York 10154, or at such other place as may from time to time be determined as
its principal place of business by the General Partners; the General Partners
shall give notice to the other Partners of any change in the Partnership's
principal place of business. The name and address of the Partnership's
registered agent as of the date of this Agreement is The Corporation Trust
Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
SECTION 2.7 Alternative Investment Structure. If the
Blackstone General Partner determines that for legal, tax, regulatory or other
reasons it is in the best interests of the Partners that a Target Investment be
made through an alternative investment structure, and all of the other General
Partners unanimously Consent to such alternative structure (which Consent shall
not be unreasonably withheld), the Blackstone General Partner shall structure
the making of all or any portion of such Target Investment outside of the
Partnership by requiring any Partner or Partners to make such Target Investment
either directly or indirectly through a partnership or other vehicle (such as
the purchase of stock, the purchase of partnership interests, or the formation
of another partnership or as tenants in common) that will invest on a parallel
basis with or in lieu of the Partnership, as the case may be. The Partners shall
be required to make capital contributions directly to each such vehicle to the
same extent, for the same purposes and on the same terms and conditions as
Partners are required to make Capital Contributions to the Partnership, and such
capital contributions shall reduce the unused Committed Capital of the Partners
to the same extent as if Capital Contributions were made to the Partnership with
respect thereto. Each Partner shall have the same economic interest in all
material respects in Target Investments made pursuant to this Section 2.7 as
such Partner would have if such Target Investment had been made solely by the
Partnership, and the other terms of such vehicle shall be
<PAGE> 20
16
substantially identical in all material respects to those of the Partnership, to
the maximum extent applicable; provided, that such vehicle (or the entity in
which such vehicle invests) shall provide for the limited liability of the
Limited Partners as a matter of the organizational documents of such vehicle (or
the entity in which such vehicle invests) and as a matter of local law; and
provided, further, that the General Partners or Affiliates thereof will serve as
the general partners or in some other similar fiduciary capacity with respect to
such vehicle.
SECTION 2.8 Parallel Partnerships. The General Partners have
established one or more additional collective partnerships (the "Parallel
Partnerships") organized pursuant to partnership agreements in substantially the
same form as this Agreement for certain types of investors to invest in Target
Investments together with the Partnership. The Blackstone General Partner, or an
Affiliate thereof, shall be a general partner of any such Parallel Partnerships,
and the Blackstone Limited Partners, or Affiliates thereof, shall be limited
partners of any such Parallel Partnerships. The Interstate General Partner, or
an Affiliate thereof, shall be a general partner of any such Parallel
Partnerships and the Interstate Limited Partner, or an Affiliate thereof, shall
be a limited partner of any such Parallel Partnerships. The economic terms of
each Parallel Partnership shall be the same as those of the Partnership.
ARTICLE III
Management and Operation of the
Partnership; Identification and Approval of
Investments; Partner Services
SECTION 3.1 Management. (a) The General Partners shall have
the full and complete responsibility for managing the business of the
Partnership and shall make all of the decisions affecting the business of the
Partnership. Except as otherwise set forth in this Agreement, the Limited
Partners shall have no right of Consent with respect to such decisions. The
General Partners shall have all of the rights, powers and authorities permitted
to be exercised by a general partner of a limited partnership formed under the
Partnership Act. The General Partners shall exercise all powers necessary and
convenient for the purposes of the Partnership, including those enumerated in
Section 2.5, on behalf and in the name of the Partnership.
(b) Except as otherwise provided herein, the Limited Partners
as such shall not have the right to, and shall not, take part in the management
or affairs of the Partnership, nor in any event shall any Limited Partner have
the power to act for or bind the Partnership unless delegated such power by the
General Partners. The exercise by any Limited Partner of any right or power
conferred herein shall not be construed to constitute
<PAGE> 21
17
participation by such Limited Partner in the control of the business of the
Partnership so as to make such Limited Partner liable as a general partner for
the debts and obligations of the Partnership for purposes of the Partnership
Act.
(c) Any Consent required by this Agreement may be
given as follows:
(1) by a written Consent given by the approving Partner at
or prior to the doing of the act or thing of which the Consent is
solicited, provided that such Consent shall not have been nullified by
notice to all of the General Partners by the approving Partner at or
prior to the time, or by the negative vote by such approving Partner at
any meeting held to consider the doing, of such act or thing; or
(2) by the Consent given by the approving Partner to the
doing of the act or thing for which the Consent is solicited at any
meeting called or held to consider the doing of such act or thing.
(d) Unless the General Partners agree on a different
procedure, any matter requiring the Consent of all or any of the Partners
pursuant to this Agreement may be considered at a meeting of the Partners held
not less than three (3) nor more than fifteen (15) Business Days after notice
thereof shall have been given by a General Partner to all Partners. Such notice
(i) may be given by any General Partner, in its discretion, at any time. Any
such notice shall state briefly the purpose, time and place of the meeting. All
such meetings shall be held within or outside the State of Delaware at such
reasonable place as the General Partners shall designate and during normal
business hours. Unless otherwise provided by the General Partners, meetings may
be held telephonically.
(e) The written statements and representations of an
Authorized Representative for a General Partner shall be the only authorized
statements and representations of such General Partner with respect to the
matter covered by this Agreement. The initial Authorized Representatives are (i)
Kenneth C. Whitney, Thomas Saylak and John Schreiber for the Blackstone General
Partner and (ii) W. Thomas Parrington, J. William Richardson and Marvin I. Droz
for the Interstate General Partner. The written statement or representation of
any one Authorized Representative of the Blackstone General Partner shall be
sufficient to bind the Blackstone General Partner with respect to all matters
pertaining to the Partnership and addressed in such statement or representation.
The written statement or representation of any two Authorized Representatives of
the Interstate General Partner shall be sufficient to bind the Interstate
General Partner with respect to all matters pertaining to the Partnership and
addressed in such statement or representation.
<PAGE> 22
18
(f) The failure to vote by any Partner on any matter requiring
such Partner's Consent within five business days after such vote is requested
shall be deemed to be a negative vote with respect to such matter.
(g) A Partner shall not be obligated to abstain from voting on
any matter (or vote in any particular manner) because of any interest (or
conflict of interest) of such Partner (or any Affiliate thereof) in such matter.
(h) Each Partner agrees that, except as otherwise expressly
provided herein and to the fullest extent permitted by applicable law, the
approval of any proposed action of or relating to the Partnership by all of the
General Partners as provided herein (or if this Agreement grants one General
Partner sole approval rights over a certain action, the approval of such action
by such General Partner) shall bind each Partner and shall have the same legal
effect as the approval of each Partner of such action.
SECTION 3.2 Joint Control by the General Partners. Except as
specifically provided in this Agreement, the business, affairs and operations of
the Partnership shall be managed, and all Partnership decisions shall be jointly
made, by both General Partners, and no single General Partner, acting alone,
shall have the authority to bind or make any decision for the Partnership or to
conduct or manage the Partnership's business or affairs. Without limiting the
foregoing in any way, the following are examples of decisions of the Partnership
which shall be made jointly by the General Partners:
(a) the reorganization of the Partnership as a corporation or
other entity, or the creation of a holding corporation, partnership or
limited liability company to own all or any substantial portion of the
assets of or all the equity interests in the Partnership, provided that
the surviving entity remains a pass-through entity for taxation
purposes;
(b) the termination or settlement of any litigation by
the Partnership;
(c) the making of any change in the Fiscal Period, any
determination of reserves under this Agreement, any distribution of
cash or investments or other property of the Partnership to the
Partners, or any withdrawals of capital from the Partnership;
(d) the making of any change in the name of the
Partnership or the use of another name by the Partnership to
carry on any business of the Partnership;
(e) the making of the determination and approval of
such tax matters as are specified in Section 6.2;
<PAGE> 23
19
(f) the making of the allocation of amounts in respect
of an interest in the Partnership Transferred pursuant to
Section 8.2(e);
(g) the authorization of a Partner to disclose
information agreed to be held confidential under
Sections 9.5;
(h) the admission of an additional Partner to the Partnership
pursuant to the terms of this Agreement if such additional Partner is
not an Affiliate of either any member of the Blackstone Group or any
member of the Interstate Group;
(i) (A) the sale, exchange or other transfer of any
Partnership Asset, (B) the merger or consolidation of the Partnership
with or into any other business entity provided that the surviving
entity remains a pass-through entity for taxation purposes, and (C) the
right to require each of the Partners to exchange, transfer or
otherwise convey some or all of its partnership interest in the
Partnership as part of an exit or disposition strategy for the
Partnership;
(j) the making of any expenditure incurred in connection with
the administration of the Partnership;
(k) the entering into of any lease by the Partnership as
lessor;
(l) the engagement of any independent accountant, counsel,
actuary or consultant to the Partnership, or any change in or
termination of any engaged independent accountant, counsel, actuary or
consultant to the Partnership;
(m) the maintenance of a registered office in Delaware other
than that specified in Section 2.6;
(n) the determination of any titles and responsibilities of
employees of the Partner pursuant to Section 2.5(b)(iv);
(o) the approval of budgets;
(p) the expenditure by the Partnership of any funds in
connection with the disposition of a Target Investment or the
expenditure by the Partnership of any funds required in connection with
the operation of any Target Investments which are not included within
the approved budget for such Target Investment;
(q) any termination, replacement or other change in the
franchisor of any Target Investment in accordance with the terms of the
franchise agreement, or the execution,
<PAGE> 24
20
modification or termination of any agreement which is
material to the Partnership;
(r) the dissolution, termination and winding up of the
Partnership as provided in Section 7.1(a);
(s) any amendment to this Agreement which would have a
material adverse effect on any Partner's economic interest in the
Partnership;
(t) extending the term of the Partnership beyond December 31,
2045;
(u) in accordance with Section 3.6 below, the decision for the
Partnership to investigate a Target Investment and the decision for the
Partnership to acquire a Target Investment, or the decision for the
Partnership to acquire any other asset;
(v) the borrowing of money;
(w) the filing of a petition under any bankruptcy or other
insolvency law by the Partnership, or the admission in writing by the
Partnership of its bankruptcy, insolvency or general inability to pay
its debts;
(x) the commencement of any litigation by the Partnership;
(y) a transaction or other matter involving any actual or
potential conflict of interest affecting any Partner or Affiliate
thereof other than the entering into of any agreements or the payment
of any amounts provided for in this Agreement; and
(z) a change in the business of the Partnership to include any
business other than that specified in Section 2.5 which takes the focus
of the Partnership's business away from the lodging industry.
Notwithstanding the foregoing and without limiting the foregoing in any way, any
General Partner may delegate in writing to (i) the other General Partner, its
right to make any decisions concerning the Partnership or take any actions on
behalf of the Partnership and/or (ii) to any manager of any Target Investment,
the day to day administrative duties in connection with the operation of such
property.
SECTION 3.3 Blackstone Partners Rights. Notwithstanding any
other provision of this Agreement, the Blackstone General Partner may take any
of the following actions with out the Consent of any of the Interstate Partners:
<PAGE> 25
21
(a) with respect to any Target Investment in which an
Affiliate of the Interstate General Partner is the manager, any
termination, replacement or other change in such manager in accordance
with the terms of the management agreement, the declaration of a
default or event of default under any management agreement for such
manager, and the exercise of any remedies under such management
agreement;
(b) the approval of a transfer of any partner's interest in
the Partnership and the approval of the admission of any additional
partner to the Partnership if such additional partner is an Affiliate
of any member of the Blackstone Group or any member of the Interstate
Group; and
(c) such other actions and decisions which are expressly given
solely to the Blackstone General Partner pursuant to the terms of this
Agreement.
SECTION 3.4 Certain Duties and Obligations of the Partners.
(a) Subject to the terms of this Agreement, the General Partners shall take all
action which may be reasonably necessary or appropriate (i) for the formation
and continuation of the Partnership as a limited partnership under the laws of
the State of Delaware and (ii) for the development, maintenance, preservation
and operation of the business of the Partnership in accordance with the
provisions of this Agreement and applicable laws and regulations.
(b) No Partner shall take any action so as to cause the
Partnership to be classified for Federal income tax purposes as an association
taxable as a corporation and not as a partnership.
(c) The General Partners shall take (and each Partner agrees
to cooperate with the General Partners and approves of the General Partners
taking on its behalf) all action which is necessary to form or qualify the
Partnership to conduct the business in which the Partnership is engaged under
the laws of any jurisdiction in which the Partnership is doing business and to
continue in effect such formation or qualification.
(d) The General Partners shall not take, or cause to be taken,
any action that would result in any Limited Partner having any personal
liability for the obligations of the Partnership. The General Partners shall be
under a duty as described herein to conduct the affairs of the Partnership in
the best interests of the Partnership and of the Partners including the
safekeeping and use of all Partnership funds and assets and the use thereof for
the exclusive benefit of the Partnership. Neither any Partner nor any Affiliate
of any Partner shall enter into any transaction with the Partnership unless the
transaction (i) is expressly permitted hereunder, (ii) is entered into on
arm's-length terms in the ordinary course of Partnership business or (iii) is
approved by all of the General Partners upon
<PAGE> 26
22
disclosure of any direct or indirect interest such Partner or any Affiliate
thereof may have in the transaction.
(e) No General Partner shall be liable, responsible or
accountable in damages or otherwise to the Partnership or to any Partner for (a)
any act performed within the scope of the authority conferred on such General
Partner by this Agreement except for the gross negligence or willful misconduct
of such General Partner in carrying out its obligations hereunder, (b) such
General Partner's failure or refusal to perform any act, except those expressly
required by or pursuant to the terms of this Agreement, (c) such General
Partner's performance of, or failure to perform, any act on the reasonable
reliance on advice of legal counsel to the Partnership or (d) the negligence,
dishonesty or bad faith of any agent, consultant or broker of the Partnership
selected, engaged or retained and monitored with reasonable care. In any
threatened, pending or completed action, suit or proceeding, each General
Partner shall be fully protected and indemnified and held harmless by the
Partnership against all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, proceedings, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable attorneys' fees, costs of investigation, fines, judgments and amounts
paid in settlement, actually incurred by such General Partner in connection with
such action, suit or proceeding) by virtue of its status as a General Partner or
with respect to any action or omission taken or suffered in good faith, other
than liabilities and losses resulting from the gross negligence or willful
misconduct of such General Partner; provided, however, that a General Partner
shall not be so indemnified for any acts determined to be in contravention of
this Agreement or in breach of its fiduciary duties. The indemnification
provided by this paragraph shall be recoverable only out of the assets of the
Partnership, and no Partner shall have any personal liability on account
thereof.
SECTION 3.5 Restrictions on Authority of the General Partners.
The General Partners shall not have the authority to:
(a) do any act in contravention of this Agreement (including
under Section 3.2 or Section 3.3);
(b) do any act which would make it impossible to carry on the
ordinary business of the Partnership, except in connection with the
dissolution, winding up and termination of the Partnership as provided
by Article VII;
(c) possess Partnership property, or assign their respective
rights in specific Partnership property, for other than a Partnership
purpose;
(d) admit a person as a Partner except as provided in this
Agreement; or
<PAGE> 27
23
(e) knowingly perform any act that would subject any
Limited Partner to liability as a general partner in any
jurisdiction.
SECTION 3.6 Right of First Opportunity. (a) Subject to Section
3.7(b) below, and until expiration or termination of the right of first
opportunity in favor of the Partnership set forth below (which right has been
confirmed and acknowledged in the Confirmation and Acknowledgment of Right of
First Opportunity ("Acknowledgment"), in the form attached hereto as Exhibit C,
which has been executed simultaneously herewith), each member of the Blackstone
Group and the Interstate Group shall offer to the Partnership (along with the
Parallel Partnerships) a right of first opportunity to invest in each Target
Investment which (x) is identified by such member after the date of this
Agreement or (y) which is identified on the list of Projects attached hereto as
Exhibit D (the "Pre-Existing Projects"), in each case, upon and subject to the
terms set forth in the remainder of this Section 3.6.
(b) Except as provided in Section 3.7(b) below, promptly upon
its identification of a Target Investment as a potential investment, each member
of the Blackstone Group and the Interstate Group shall notify each of the
General Partners about such Target Investment (such notification, a "Request for
Preliminary Approval") and shall provide each of the General Partners with such
information reasonably necessary to evaluate such investment.
(c) Within five (5) Business Days after delivery to the
General Partners of the Request for Preliminary Approval and the accompanying
information pursuant to paragraph (b) above with respect to a proposed Target
Investment, and provided that notice shall have first been given from the party
requesting such action that approval is being sought under this Section, the
General Partners shall either approve or disapprove pursuit of such proposed
Target Investment (including the incurring of due diligence costs and
expenditures, the negotiation and documentation of the terms of purchase and
financing, and the posting of deposits). If the General Partners, having first
been notified that approval under this Section is being sought, fail to
unanimously approve the investigation of a proposed Target Investment within
such five (5) Business Day period, the proposed Target Investment shall be
deemed disapproved. Any General Partner shall have the right to reasonably
request additional information regarding the proposed Project within three (3)
Business Days after receipt of the Request for Preliminary Approval and the
accompanying information. If any General Partner requests such additional
information, the five (5) Business Day period referred to above shall commence
on the day such General Partner receives all such additional information. The
General Partners shall each have the right to approve or disapprove
investigation of any proposed Project in their sole and absolute discretion.
Once investigation of a Target
<PAGE> 28
24
Investment is approved, the due diligence costs and expenditures reasonably
incurred by the Partnership and within the scope approved by the General
Partners with respect to such Project shall become the obligation of the
Partnership.
(1) All due diligence costs and expenditures reasonably
incurred by the Partnership pursuant to this Section and within the
scope of the approved due diligence shall be funded if and when
required for payment, and shall be funded solely from, and shall
constitute, Capital Contributions to the Partnership by the Partners.
In no event shall due diligence expenses be funded from operating
revenues of the Partnership. The due diligence expenses incurred by the
Partnership shall be allocated for book and tax accounting purposes
between and among each Project in such manner as the General Partners
may reasonably approve. Due diligence expenses from a Project shall be
allocated among the Parallel Partnerships in such a manner as the
Blackstone General Partner shall determine, in its sole discretion. The
Interstate General Partner and the Blackstone General Partner shall
each make a Capital Contribution equal to 0.5% of the due diligence
expenses allocated to the Partnership. The Interstate Limited Partner
shall make a Capital Contribution equal to 50.5% of the due diligence
expenses allocated to the Partnership. The remaining 48.5% of the due
diligence expenses allocated to the Partnership shall be funded from
Capital Contributions of the Blackstone Limited Partners, with each
Blackstone Limited Partner contributing a percentage of the total due
diligence expenses to be determined by the Blackstone General Partner,
in its sole discretion.
(2) The Partners intend that all due diligence will be
conducted through the Partnership in accordance with any Consent given
by the General Partners; however, a General Partner may elect to
perform its own due diligence in addition to that being performed by
the Partnership. In the event a General Partner so elects to perform
its own due diligence, such General Partner shall use its best efforts
to minimize duplication of efforts and costs with that of the
Partnership. The expenses (including legal fees) reasonably incurred by
such General Partner shall be payable by the Partnership as Partnership
expenses.
(d) If the General Partners approve investigation of a
Project, the Partnership shall promptly undertake due diligence investigation
and at appropriate times during and, in any event, prior to the conclusion of
that due diligence investigation, the Partnership shall make available to each
Partner copies of the material due diligence information obtained by the
Partnership with respect to the applicable Target Investment.
(e) If any General Partner has elected to participate in the
due diligence investigation of a proposed Project pursuant
<PAGE> 29
25
to Section 3.6(c)(2) above, then all due diligence activities shall be
coordinated with such General Partner as reasonably necessary to facilitate such
participation.
(f) At such time, if any, as any member of the Blackstone
Group or the Interstate Group determines that a request for final authority to
proceed with acquisition of a Project is required because such party reasonably
believes that a binding commitment (i.e. a letter of intent which is, or could
become binding or a contract for purchase and sale) to proceed with the
acquisition must be executed by the Partnership or the opportunity to acquire
such interest would be lost, such party shall request the General Partners to
give their final approval to proceed with such acquisition (such notification, a
"Request for Final Approval"). Upon the request of any General Partner, a
Request for Final Approval shall be made in writing. In connection with any
Request for Final Approval, such party shall, to the extent applicable, (i)
submit to the General Partners the form of any purchase agreement and/or other
relevant documents pursuant to which the Partnership may acquire an interest in
a Project, and (ii) notify the General Partners of whether an Affiliate of the
Interstate General Partner is being proposed as the property manager for the
Project. Within five (5) Business Days after delivery of the Request for Final
Approval, the General Partners shall meet and either approve or disapprove, in
writing, the proposed Project, including a timetable for closing of the
acquisition, the posting of any non-refundable deposits, if applicable, and the
terms of engagement of any Affiliate of the Interstate General Partner for
property or asset management of the Project, as applicable. Each General Partner
shall have the right to grant final approval or disapproval of the Project in
its sole and absolute discretion. However, unless all of the General Partners
agree to extend the five (5) Business Day decision period set forth above, the
General Partners shall either approve or disapprove the Project within that
period without exception, and any failure to act within that period, as it may
be extended by the General Partners in their sole discretion, shall constitute a
disapproval of the Project. The Blackstone Partners specifically acknowledge
that, unless transfer of management is not feasible or practical, the Interstate
General Partner contemplates the engagement by the Partnership of an Affiliate
of the Interstate General Partner on an arm's length basis in connection with
the property management of one or more of the Projects and contemplates that one
or more of the Project proposals may propose such engagement. If transfer of
management is not feasible or practical, then, unless such engagement is not
feasible or practical, the Partnership shall engage an Affiliate of the
Interstate General Partner as an asset manager for such Project pursuant to an
Asset Management Agreement in form and substance satisfactory to the parties
thereto (the "Asset Management Agreement"), and the fees payable by the
Partnership under such Asset Management Agreement shall be at Competitive Rates.
Unless the General Partners unanimously agree otherwise, no nonrefundable
deposit shall be posted with
<PAGE> 30
26
respect to a Project until that Project has received final Project approval
pursuant to this subsection 3.6(f) and the General Partners have had the
opportunity to review the purchase agreement and/or the other documents pursuant
to which the Partnership may acquire an interest in such Project. The final
Project approval shall specify the amount of each remaining funding obligation
with respect to the applicable Project and the date(s) by which each such amount
is to be funded, it being the intent of the Partners that they not fund to the
Partnership those amounts due to the seller of (or if applicable, escrow agent
for the transfer of) the Project more than three (3) Business Days prior to the
date such amounts are due to the Seller or escrow agent, as applicable. The
funding obligations with respect to a Project shall be allocated among the
Parallel Partnerships in such a manner as the Blackstone General Partner shall
determine, in its sole discretion. By each funding date, the Partners shall fund
to the Partnership a portion of the funding obligation then due, including any
purchase deposits contemplated in connection with the Consent to such Project.
The Interstate General Partner and the Blackstone General Partner shall each
make a Capital Contribution equal to 0.5% of the funding obligations allocated
to the Partnership (which percentage shall be such Partner's Sharing Percentage
in such Project). The Interstate Limited Partner shall make a Capital
Contribution equal to 50.5% of the funding obligations allocated to the
Partnership (which percentage shall be such Partner's Sharing Percentage in such
Project). The Blackstone Limited Partners shall, in the aggregate, make Capital
Contributions equal to 48.5% of the funding obligations allocated to the
Partnership, and each Blackstone Limited Partner's share thereof shall be
determined by the Blackstone General Partner, in its sole discretion, and
recorded in the books and records of the Partnership (each Blackstone Limited
Partner's share thereof, as determined by the Blackstone General Partner, shall
be such Partner's Sharing Percentage in such Project). In no event shall final
Project approval funding requirements be funded from operating revenues of the
Partnership. All such contributions to the Partnership shall constitute Capital
Contributions. Each of the General Partners will consult with the other General
Partners in connection with the negotiation of any documents necessary for the
acquisition of a Target Investment.
(g) If the General Partners approve a proposed Project
pursuant to subsection 3.6(f) above, unless the Project shall be purchased
through another form, the Partnership shall promptly finalize the form of the
Project Partnership Agreement or Project Limited Liability Company Agreement, as
applicable, for the ownership of the proposed Project (with such Project
specific modifications as are necessary to address any Project specific
characteristics not addressed by the form of Project Partnership Agreement or
Project Limited Liability Company Agreement, as applicable), and promptly
finalize the form of a Management Agreement or an Asset Management Agreement, as
applicable, to be entered into (with such Project specific modifications as are
<PAGE> 31
27
necessary to address any Project specific characteristics not addressed by the
form of Management Agreement or Asset Management Agreement, as applicable, and
which the Manager and the Blackstone General Partner may approve), which
Management Agreement (if applicable) shall provide for aggregate fees not
greater than 2.8% of Gross Operating Revenues (as defined in the Management
Agreement). In no event shall any party hereunder have any liability to the
other party for failure to finalize or enter into any Management Agreement or
Asset Management Agreement, as applicable, so long as the parties have proceeded
in good faith to attempt to consummate such documentation following approval of
the General Partners of any proposed Project pursuant to Section 3.6.
(h) The General Partners agree that in the event that (A)
material facts or circumstances or a material change in any facts or
circumstances regarding a Target Investment which was approved for acquisition
by the General Partners become known to any General Partner which were not
previously known by such General Partner and (B) with the knowledge of such new
or changed facts or circumstances, such General Partner no longer desires to
proceed with such acquisition and (C) at the time of the occurrence of the event
or events referred to in clause (A) above, (x) the Partnership is not
irrevocably committed to consummate the acquisition of such Target Investment
pursuant to a binding legal agreement and (y) the Partnership's obligations
under such agreement would not be breached by the failure to consummate such
acquisition, then such General Partner may, by written notice to the other
General Partners, revoke its Consent to consummate such acquisition at which
time such Target Investment shall no longer be deemed approved.
(i) Notwithstanding anything in this Section to the contrary,
if, with respect to a Project, a member of the Blackstone Group or the
Interstate Group reasonably believes it must take some action to retain the
opportunity to purchase such Project before it has sufficient time to follow the
procedures for approval set forth in this Section, such party may take such
action (including the making of a deposit or the entering into a binding
agreement if assignable to the Partnership) in its own name only and at its own
risk without violating the terms of this Agreement, provided such party promptly
submits such Project to the Partnership for its consideration. If the General
Partners subsequently approve such Project, such party shall assign all of its
rights in the Project to the Partnership and the Parallel Partnerships, as
appropriate. If the General Partners subsequently disapprove such Project, the
Partnership shall not be bound in any way to such Project, and the party who
proposed the Project may proceed with such Project only if the conditions of
Section 3.7(b) and Section 3.7(c) have been met.
(j) Any General Partner may request that any of the time
periods set forth herein be reduced or extended, if reasonably necessary.
<PAGE> 32
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(k) Notwithstanding anything in this Section to the contrary,
none of the Interstate Partners shall be deemed in default hereunder for failure
to notify the Blackstone Group as required herein if notice has been given to
the Blackstone General Partner of any of the Parallel Partnerships.
(l) Notwithstanding anything contained in this Agreement to
the contrary, unless all of the Partners unanimously agree otherwise, each
Project in which the Partnership invests shall secure mortgage debt financing in
principal amounts and with terms that are consistent with the then currently
prevailing market conditions, but in any event in principal amounts between 60%
and 75% of the total acquisition cost of such Project.
SECTION 3.7 Right of First Opportunity; Exclusive Rights;
Investment Parameters. (a) Subject to the terms of this Agreement as set forth
above, the Blackstone Partners and the Interstate Partners each covenant to
provide to the Partnership, and each other, during the term of this Agreement,
the right of first opportunity as provided in Section 3.6 above to invest in (x)
those Target Investments which are hereafter identified by them and (y) the
Pre-Existing Projects. By their previous execution of the Acknowledgement,
Interstate Hotels Company (in the case of (A) below) and Blackstone Group
Holdings L.P. (in the case of (B) below) have agreed and hereby ratify and
confirm that they agree, and agree to cause (A) the Interstate Group and (B) the
Blackstone Group, respectively, to submit any Target Investments in which they
or the Interstate Group and the Blackstone Group would otherwise wish to invest
independent of the Partnership to the right of first opportunity set forth
herein, and, in connection therewith, they shall, and shall cause the Interstate
Group and the Blackstone Group to, subject to Section 3.7(b) below, refer all
such investment opportunities to the Interstate General Partner or the
Blackstone General Partner, as applicable, for submission to the Partnership
pursuant to the terms set forth above.
(b) Notwithstanding anything herein to the contrary, the
Interstate Group and the Blackstone Group expressly retain the right to
undertake acquisition or development of any Target Investment or any other
investment whatsoever, without the consent of the others, and free of any right
of first opportunity hereunder, at such time, in such form and upon such terms
as they, acting in their sole discretion, may determine appropriate, where any
one of the following conditions is satisfied:
(i) such Project is a Project that was disapproved or
deemed disapproved solely by action or inaction of the General Partners
after proper notice; provided, that if a Project is disapproved or
deemed disapproved by a General Partner who is a member of the same
group (i.e., the Blackstone Group or the Interstate Group) as the party
who submitted the Request for Preliminary Approval or Request for Final
Approval, as applicable, then the condition
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contained in this clause (i) shall not be deemed satisfied
for any member of such group;
(ii) such Project fails to meet the definition of a Target
Investment;
(iii) except as expressly provided below, such Project is
listed on Exhibit E hereto, subject to the qualifications and
agreements described in such Exhibit;
(iv) such Project is identified or undertaken after the
termination of the right of first opportunity pursuant to the terms of
this Agreement;
(v) such party is acquiring, directly or indirectly, the
stock or assets of an entity which owns one or more Target Investments
but whose assets and/or operations are not primarily composed of Target
Investments;
(vi) such party is acquiring, directly or indirectly, the
stock or assets of an entity which primarily owns and/or operates hotel
or motel franchise systems or hotel or motel reservations systems;
(vii) the Consideration being paid for such Target
Investment in the aggregate is less than $10,000,000 or the equity
portion of the Consideration being paid for such Target Investment in
the aggregate is less than $5,000,000; or
(viii) with respect to a Target Investment, the Interstate
Group or the Blackstone Group , as applicable, certifies, at any time
(whether or not such Project has been submitted to the Partners and the
Partnership under Section 3.6 above), that in its good faith judgment,
involvement with the Blackstone Group or the Interstate Group, as
applicable, in such Target Investment would be prohibited by, or
otherwise interfere with, its other business arrangements or would
otherwise not be appropriate, feasible or practical.
(c) Notwithstanding anything in Section 3.7(b) above to the
contrary, the right of first opportunity set forth herein will apply to any
acquisition undertaken by any member of the Blackstone Group or the Interstate
Group during the term of this right of first opportunity with respect to the
Pre-Existing Projects. In the event that a party is undertaking the acquisition
of a Target Investment free of the right of first opportunity pursuant to
Section 3.7(b)(i), such party shall acquire such Target Investment upon terms
that are no more favorable than the terms presented to the General Partners with
respect to such Target Investment.
<PAGE> 34
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(d) The Partners acknowledge that, without limiting the
definition of Target Investment, it is their intent that the Target Investments
ultimately acquired by the Partnership will be Target Investments which (i) are
mid to high quality (3-4 stars), (ii) are located in growing markets, (iii) are
well positioned vis-a-vis the competition and, (iv) provide significant
opportunity for enhanced performance through intensive management repositioning
and/or redevelopment. Additionally, there is a preference for multi-asset
acquisitions over single properties in order to provide for the most efficient
and cost effective underwriting and investment process. Further, such
acquisitions should provide minimum going-in free and clear returns of 11%
(after management and FF&E reserve), unless immediate opportunity for enhanced
performance can be demonstrated. Nevertheless, certain Target Investments may be
approved hereunder even if they do not fall within the above-referenced
investment parameters. Accordingly, except as otherwise provided herein
(including without limitation Section 3.7(b) below), all Target Investments,
including, those that do not fall within the above-referenced investment
parameters, shall be subject to the right of first opportunity set forth in
Section 3.6 above.
SECTION 3.8 Termination of Right of First Opportunity.
(a) The Blackstone General Partner shall have the right to
terminate the right of first opportunity set forth in Section 3.6 if any member
of the Interstate Group defaults in the performance of any of its obligations
hereunder or under the Acknowledgement after the Blackstone General Partner has
given such Partner or any other such party notice of such default and such
Partner or other party has failed to cure such default within 30 days after
receipt of such notice.
(b) The Interstate General Partner shall have the right to
terminate the right of first opportunity set forth in Section 3.6 if any member
of the Blackstone Group defaults in the performance of any of its obligations
hereunder or under the Acknowledgement after the Interstate General Partner has
given such Partner or any other such party notice of such default and such
Partner or other party has failed to cure such default within 30 days after
receipt of such notice.
(c) The right of first opportunity set forth in Section 3.6
shall automatically terminate upon the earlier to occur of (i) December 15, 1997
or (ii) the date upon which the members of the Blackstone Group in the
Partnership and in the Parallel Partnerships shall have contributed an aggregate
of $29,400,000 to the Partnership and the Parallel Partnerships and the members
of the Interstate Group in the Partnership and the Parallel Partnerships shall
have contributed an aggregate of $30,600,000 to the Partnership and the Parallel
Partnerships.
<PAGE> 35
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(d) At any time after $54,000,000 has been invested (either
through acquisitions that are closed or through binding commitments to close
acquisitions) in the aggregate by the Partnership and the Parallel Partnerships,
then any Partner may elect to terminate the right of first opportunity set forth
in Section 3.6 upon three (3) Business Days notice to all the other Partners.
(e) The General Partners may, in their discretion, extend the
right of first opportunity set forth in Section 3.6 for such period of time as
they may mutually agree.
SECTION 3.9 Financing. The Blackstone General Partner, acting
directly or through one or more of its Affiliates, shall endeavor to secure an
acquisition financing facility for the Partnership and the Parallel Partnerships
in an initial amount between $60,000,000 and $80,000,000, such facility to be
subject to borrowings by the Partnership and the Parallel Partnerships to
acquire Target Investments in the event that sufficient seller financing is not
available in connection with the acquisition of any such Target Investment and
for other related purposes. If needed, the Blackstone General Partner may secure
additional debt facilities for the Partnership and the Parallel Partnerships up
to an aggregate amount (including the initial $60,000,000 to $80,000,000)
between $140,000,000 and $180,000,000. The General Partners must unanimously
approve the terms and conditions of such financing. In the event such financing
is obtained, in addition to any other fees, expenses or other compensation
payable to the Blackstone General Partner and/or its Affiliates hereunder or any
fees payable to third parties in connection with such financing, the Partnership
and the Parallel Partnerships shall pay to the Blackstone General Partner and/or
its Affiliates, as the case may be, a fee for placing such debt facilities in an
amount equal to one percent (1%) of the maximum principal amount of each such
debt facility. The portion of such fee allocated to the Partnership shall be
determined by the Blackstone General Partner, in its sole discretion. At the
time such fee is payable, each Partner shall fund to the Partnership, as a
Capital Contribution, a portion of such fee, to the extent not financed as part
of the overall transaction. The Interstate General Partner and the Blackstone
General Partner shall each make a Capital Contribution equal to 0.5% of such fee
allocated to the Partnership. The Interstate Limited Partner shall make a
Capital Contribution equal to 50.5% of such fee allocated to the Partnership.
The Blackstone Limited Partners shall, in the aggregate, make Capital
Contributions equal to 48.5% of such fee allocated to the Partnership, and each
Blackstone Limited Partner's share thereof shall be determined by the Blackstone
General Partner, in its sole discretion, and recorded in the books and records
of the Partnership. No fee shall be payable under this Section in connection
with the refinancing of any such debt facilities.
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SECTION 3.10 Financial Advisory Services. (a) Each time that
the Partnership acquires a Target Investment, the Partnership and any Parallel
Partnerships invested in such Target Investment shall pay to whichever of the
Blackstone General Partner (and/or its Affiliates) or the Interstate General
Partners (and/or its Affiliates) proposed such Target Investment to the
Partnership, an aggregate advisory fee equal to one percent (1%) of the amount
of the Consideration for the acquisition of such Target Investment; provided
that the Blackstone General Partner or its Affiliates shall not be entitled to
such a fee after the occurrence and during the continuance of a default
hereunder by any of the Blackstone Partners (after any notice and opportunity to
cure); and provided further that the Interstate General Partner or its
Affiliates shall not be entitled to such a fee after the occurrence and during
the continuance of a default hereunder by any of the Interstate Partners (after
any notice and opportunity to cure). The portion of such fee allocated to the
Partnership shall be determined by the Blackstone General Partner. At the time
such fee is payable, each Partner shall fund to the Partnership, as a Capital
Contribution, a portion of such fee, to the extent not financed as part of the
overall transaction. The Interstate General Partner and the Blackstone General
Partner shall each make a Capital Contribution equal to 0.5% of such fee
allocated to the Partnership. The Interstate Limited Partner shall make a
Capital Contribution equal to 50.5% of such fee allocated to the Partnership.
The Blackstone Limited Partners shall, in the aggregate, make Capital
Contributions equal to 48.5% of such fee allocated to the Partnership, and each
Blackstone Limited Partner's share thereof shall be determined by the Blackstone
General Partner, in its sole discretion, and recorded in the books and records
of the Partnership.
(b) Each time that the Partnership disposes (including,
without limitation, in exchange for stock of a corporation, partnership
interests in a partnership or interests in a limited liability company) of a
Target Investment, the Partnership and any Parallel Partnerships invested in
such Target Investment shall pay to the Blackstone General Partner (and/or its
Affiliates) an aggregate advisory fee equal to one percent (1%) of the amount of
the Consideration for the disposition of such Target Investment; provided that
the Blackstone General Partner or its Affiliates shall not be entitled to such a
fee after the occurrence and during the continuance of a default hereunder by
any of the Blackstone Partners (after any notice and opportunity to cure). The
portion of such fee allocated to the Partnership shall be determined by the
Blackstone General Partner. At the time such fee is payable, each Partner shall
fund to the Partnership, as a Capital Contribution, its pro rata portion of such
fee, based upon such Partner's Sharing Percentage, to the extent not financed as
part of the overall transaction.
<PAGE> 37
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SECTION 3.11 Other Partner Services.
(a) Until such time as the General Partners hire, as an
employee or employees of the Partnership, a portfolio manager, a controller
and/or an administrative staff to conduct and oversee the overall administration
of the Partnership, the Interstate General Partner shall conduct all the
administrative affairs of the Partnership at the then Competitive Rate;
provided, however, that the General Partners agree to hire an employee or
employees of the Partnership to perform such tasks promptly after the needs of
the Partnership so require. Any such employee may be employed jointly by the
Parallel Partnerships. The Interstate General Partner shall also, at no cost to
the Partnership (except where otherwise provided in this Agreement), conduct,
oversee and/or manage all (i) pre-acquisition due diligence, (ii) property-level
management, (iii) performance tracking, (iv) the making of capital improvements
to any Project, (v) overall portfolio management of the Partnership Assets and
(vi) negotiation of franchise fee arrangements. The Interstate General Partner
shall also be responsible for preparing administrative, operating and capital
budgets for the Partnership. The Interstate General Partner shall submit to the
General Partners all relevant information regarding all proposed budgets,
proposed franchise fee arrangements and related financial matters, and the
General Partners shall have the right to Consent to all such materials before
they are implemented by the Partnership.
(b) The Blackstone General Partner shall, at no cost to the
Partnership (except where otherwise provided in this Agreement), conduct,
oversee and/or manage all the acquisition and disposition activities of the
Partnership, including overseeing acquisitions and dispositions of Target
Investments, arranging debt financings on individual Target Investments and
conducting and/or overseeing all mergers and public securities offerings.
(c) The Partners acknowledge that Affiliates of the Interstate
General Partner have the capability of providing to the Partnership various
insurance and purchasing services. At the direction of the Blackstone General
Partner acting in its sole discretion (including, as to insurance, approval by
the Blackstone General Partner of the financial soundness of any proposed
insurance company and its reinsurers), the Partnership may engage such
Affiliates of the Interstate General Partner to perform such services (in which
case such services shall be performed at Competitive Rates) or the Partnership
may engage independent third parties to perform such services, provided, that if
the Partnership has received an offer from any such independent third party to
perform such services, Affiliates of the Interstate General Partner shall have
the right to match such offer and, if such offer is matched, the Partnership
will engage such Affiliates on the terms of such offer.
<PAGE> 38
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(d) In performance of the services pursuant to this Section
3.11 and otherwise, the Partners agree that they shall cooperate and consult
with each other in an effort to minimize duplication of efforts and costs.
SECTION 3.12 Marketing Rights. At any time after December __,
1997 [18 MONTHS FROM THE EXECUTION HEREOF], the Blackstone Partners, acting
jointly, or the Interstate Partners, acting jointly, may propose the sale of a
Project or Projects (but not a portion of any Project) in accordance with the
following terms:
(a) All of the Blackstone Partners may jointly serve upon all
of the Interstate Partners, or all of the Interstate Partners may
jointly serve upon the all of the Blackstone Partners, a notice (an
"Offering Notice") as described below. The partners serving an Offering
Notice shall be referred to in this Section as the "Offering Group".
The partners receiving an Offering Notice shall be referred to in this
Section as the "Offeree Group". Each Offering Notice shall specify one
or more Projects (the "Offered Projects") that the Offeror Group
proposes to be sold (either by causing the Property Partnerships which
own such Offered Projects to sell such Offered Projects or by selling
all of the partnership interests in such Property Partnerships) and
designate a price for the sale of each Offered Project (the "Offer
Price"). The Offeree Group with respect to a Project may not deliver an
Offering Notice with respect to such Project until the expiration of
the Sale Option Period (as defined below) for such Project with respect
to the Offering Notice of the Offeror Group with respect to such
Project. The Offering Notice may not propose to sell a portion of any
Project. An Offering Notice delivered under this Agreement must be
simultaneously delivered under the partnership agreement of each of the
Parallel Partnerships, and for the purposes of this Section 3.12, the
Offeror Group shall consist of all of the members of the Offeror Groups
in each of the Parallel Partnerships, the Offeree Group shall consist
of all of the members of the Offeree Groups in each of the Parallel
Partnerships, the Offered Projects shall consist of the interest of all
of the Parallel Partnerships in such Offered Projects, and the Offeree
Deposit (as defined below) shall be delivered in the aggregate by all
of the Parallel Partnerships,
(b) Within 30 days after the receipt by the Offeree Group of
an Offering Notice (an "Offeree Option Period"), the Offeree Group may
in a writing to the Offeror Group (an "Offeree Reply Notice") (i) elect
to purchase all of the Offered Projects listed in such Offering Notice
(an "Offeror Group Interest") at a price equal to the aggregate Offer
Price for the Offered Projects, or (ii) decline to purchase such
Offered Projects. With respect to each Offering Notice, if the Offeree
Group fails to deliver an Offeree
<PAGE> 39
35
Reply Notice to the Offeror Group prior to the expiration of the
Offeree Option Period, the Offeree Group shall for all purposes be
conclusively deemed to have declined to purchase the Offered Projects
listed in such Offering Notice. If the Offeree Group elects to purchase
all of the Offered Projects, the Offeree Group shall deliver to a
mutually acceptable escrow agent, a nonrefundable deposit in an amount
equal to 5% of the aggregate Offer Price for the Offered Projects (the
"Offeree Deposit"); in such case, the Offeree Reply Notice shall not be
deemed delivered until such time as the escrow agent has received the
Offeree Deposit. The Offeror Group and the Offeree Group shall endeavor
to structure any sale of the Offered Projects to the Offeree Group in a
tax efficient manner.
(c) If, with respect to an Offering Notice, the Offeree Group
elects to purchase the Offered Projects, the closing of the purchase of
such Offered Projects (the "Closing") will be held on a date selected
by the Offeree Group upon five Business Days' notice to the Offeror
Group but no later than 90 days after the Offeror Group's receipt of
the Offeree Reply Notice (the "Outside Purchase Date"). Each Closing
shall be held in New York City at a location designated by the General
Partner in the Offeror Group. At the Closing, the Partnership (or the
Property Partnership, as applicable) shall execute such transfer
documents as the Offeree Group shall reasonably require to transfer the
Offered Projects to the Offeree Group, as is, where is, and the Offeree
Group shall pay to the Offeror Group, in immediately available funds,
the aggregate Offeror Price for all of the Offered Projects listed in
such Offering Notice. To the extent the execution by a member or
Affiliate of a member of the Offeree Group is required on behalf of the
Partnership or Property Partnership, each member or Affiliate of a
member of the Offeree Group shall promptly execute and deliver any such
document or instrument, and each Partner of the Offeree Group hereby
constitutes and appoints each Partner in the Offeror Group its attorney
in fact to execute, acknowledge and deliver any such documents or
instruments in its stead.
(d) An Offeree Reply Notice shall be an irrevocable binding
obligation of the Offeree Group. If the Offeree Group elects in an
Offeree Reply Notice to purchase the Offered Projects, and the Offeree
Group fails to purchase such Offered Projects by the applicable Offeree
Outside Purchase Date, (i) the Offeree Group shall immediately forfeit
all of its rights under this Section 3.12 with respect to any Projects,
including without limitation the right to send out Offering Notices
with respect to any Projects, (ii) the Offeror Group shall be entitled
to retain the Offeree Deposit as liquidated damages, and (iii) the
Offeror Group shall be entitled to exercise any and all other remedies
available at law and equity, including
<PAGE> 40
36
specific performance since the parties hereto recognize that damages
alone would be inadequate.
(e) With respect to an Offering Notice, if the Offeree Group
declines (or is deemed to have declined) to purchase the Offered
Projects listed therein, the Offeror Group shall have the right,
without the consent of any Partner of the Offeree Group, within 90 days
after the earlier of (i) the Offeror Group's receipt of an Offeree
Reply Notice in which the Offeree Group declines to purchase the
Offered Projects, and (ii) the expiration of the Offeree Option Period
(such 90 day period, the "Sale Option Period"), to cause the sale of
any or all of the Offered Projects listed in such Offering Notice
(including the sale to any member of the Offeror Group). Each Partner
of the Offeree Group shall promptly execute and deliver any document or
instrument the Offeror Group reasonably requires in order to consummate
the sale of such Offered Projects during the Sale Option Period, and
each Partner of the Offeree Group hereby constitutes and appoints each
Partner in the Offeror Group its attorney in fact to execute,
acknowledge and deliver any such documents or instruments in its stead.
Notwithstanding the foregoing, the Offeror Group shall not be entitled
to cause the sale of an Offered Project during the Sale Option Period
for a sales price of less than 90% of the Offer Price for such Offered
Project listed in such Offering Notice (or 100% of the Offer Price for
such Offered Project if the purchaser is any member of the Offeror
Group or any affiliate of any member of the Offeror Group). If an
Offered Project is not sold prior to the expiration of the Sale Option
Period, the Offeror Group may not cause the sale of such Offered
Project without again complying with all of the provisions of this
Section (unless all of the other Partners consent). No Partner may
exercise its rights under this Section with respect to any particular
Project more than once in any twelve month period (but such Partner may
exercise its rights under this Section with respect to other Projects).
The Offeror Group and the Offeree Group shall endeavor to structure any
sale of the Offered Projects to the Offeror Group (or any member
thereof) in a tax efficient manner.
ARTICLE IV
Other Activities Permitted
Except as expressly provided hereunder, this Agreement shall
not be construed in any manner to preclude any Partner or any of its Affiliates
from engaging in any activity whatsoever permitted by applicable law (whether or
not such activity might compete, or constitute a conflict of interest, with the
Partnership), including, without limitation, the provision of financial or
investment advisory services to any person, managing
<PAGE> 41
37
investments or receiving compensation or profit from any of the
foregoing.
ARTICLE V
Capital Contributions;
Distributions
SECTION 5.1 Capital Contributions. (a) No Partner shall be
required to make a Capital Contribution except as provided in this Section. Each
Partner agrees to make Capital Contributions (i) as required by this Agreement,
including, without limitation, Sections 3.6, 3.9, 3.10 and 5.7 of this
Agreement, (ii) to pay for costs and expenses under approved budgets and for
fees, costs and expenses specifically payable by the Partnership pursuant to
this Agreement or (iii) in the event that the General Partners determine that
the Partnership requires additional funds to meet its then existing obligations,
including to cover operating shortfalls, and funds are not otherwise available
from Partnership revenues or from loans to the Partnership for such purposes.
With respect to each Project, each of the Partners shall be required to make
Capital Contributions to the Partnership in accordance with such Partner's
Sharing Percentage in such Project (as determined in accordance with Section
3.6(f) above); provided that, except for amounts to be contributed under clause
(iii) above (for which no limit shall apply), the aggregate amount of Capital
Contributions made by the Blackstone Partners hereof and by the Blackstone
Partners in the Parallel Partnerships shall not exceed $29,400,000, and the
aggregate amount of Capital Contributions made by the Interstate Partners hereof
and by the Interstate Partners in the Parallel Partnerships shall not exceed
$30,600,000. It is understood and agreed that the commitment by the Blackstone
Partners and the Interstate Partners to fund their respective Committed Capital
is not revolving in nature and at such time as the date such Partner's Committed
Capital shall have been funded in full, such commitment will expire and be of no
further force or effect.
(b) No Partner shall have any obligation to restore any
negative balance in the Partner's Capital Account upon liquidation of the
Partnership. No Partner shall be entitled to withdraw all or any part of its
Capital Contributions except as expressly provided in this Partnership
Agreement. No interest shall be payable by the Partnership on the Capital
Contributions of any Partner except as otherwise provided herein. In no event
shall any Partner be entitled to demand any property from the Partnership other
than cash.
(c) When Capital Contributions are required under paragraph
(a) above from the Partners, the General Partners shall give notice to all of
the Partners of the amount of funds required and the date such funds shall be
due, which due date
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38
shall be, unless otherwise provided in this Agreement, no less than 10 Business
Days from the date such notice is given.
SECTION 5.2 Partner Loans for Failure to Fund Committed
Capital. If any Partner shall fail to timely make a Capital Contribution
required in Section 5.1 (such Partner is hereinafter referred to as a
"Non-Contributing Partner") and such default is not cured within 10 days of the
date such Capital Contribution was due, then any other Partner (a "Contributing
Partner") may fund all or part of such Capital Contribution and, unless the
Contributing Partner otherwise elects the remedy of the dilution of such
Non-Contributing Partner's Interest in the Partnership as set forth in Section
5.3 below, any amounts funded by a Contributing Partner on behalf of a
Non-Contributing Partner shall be made directly to the Partnership but shall be
treated as (i) a recourse demand loan made by the Contributing Partner to the
Non-Contributing Partner (bearing interest at a fluctuating rate of interest
equal to 10% per annum in excess of the prime rate of interest publicly
announced by Citibank, N.A. from time to time, but not less than 15% per annum,
but in no event in excess of the maximum rate permitted by applicable law),
followed by (ii) a Capital Contribution by such Non-Contributing Partner to the
Partnership. Any such recourse loan (to the extent of unpaid principal and
interest) shall be payable on demand by the Contributing Partner and shall be
repaid directly by the Partnership on behalf of the Non-Contributing Partner to
the Contributing Partner from Non-Capital Proceeds and Capital Proceeds
otherwise distributable to the Non-Contributing Partner. Amounts paid directly
by the Partnership to the Contributing Partner on account of the loan shall be
deemed distributions to the Non-Contributing Partner. Any Non-Capital Proceeds
and Capital Proceeds used to repay such loan shall be applied first to interest
and then to principal thereof.
SECTION 5.3 Dilution for Failure to Fund Capital. (a) With
respect to a Project, if a Non-Contributing Partner fails to contribute any
amounts required to be contributed pursuant to Section 5.1 above as and when
required to be contributed and such funds are contributed to the Partnership by
a Contributing Partner, the Non-Contributing Partner's Sharing Percentage in
such Project shall be, if the Contributing Partner elects to apply the
provisions of this Section 5.3 in lieu of the loan mechanism provided in Section
5.2, adjusted pursuant to Section 5.3(b) below as of the day on which the
Contributing Partner contributes such funds. In such an event the contribution
of such funds shall be treated as a Capital Contribution to the Partnership by
the Contributing Partner.
(b) With respect to a Project, the Sharing Percentage in such
Project of a Non-Contributing Partner may be reduced (but not below zero), upon
the election described in Section 5.3(a) above, by an amount equal to the
product of (i) 1.6 times (ii) a fraction expressed as a percentage, (A) the
numerator of which is the amount of the Capital Contribution which such Non-
<PAGE> 43
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Contributing Partner fails to contribute with respect to such Project and (B)
the denominator of which is the aggregate of the Capital Contributions made by
the Partners with respect to such Project up to and including such time,
including the Capital Contribution which such Non-Contributing Partner fails to
make. The Sharing Percentage of the Contributing Partner in such Project shall
be increased by the amount of the reduction in the Sharing Percentage of the
Non-Contributing Partner in such Project. Notwithstanding the foregoing, if
within 90 days after the reduction of the Non-Contributing Partner's Sharing
Percentage described herein, the Non-Contributing Partner pays to the
Contributing Partner the amount which the Non-Contributing Partner failed to
contribute and such Contributing Partner contributed, together with interest
thereon (at a rate equal to 10% per annum in excess of the prime rate of
interest publicly announced by Citibank, N.A. from time to time, but not less
than 15% per annum, and in no event in excess of the maximum rate permitted by
applicable law), the Non-Contributing Partner's Sharing Percentage in such
Project and the Contributing Partner's Sharing Percentage in such Project shall
be reinstated as if the Non-Contributing Partner had timely made such Capital
Contribution.
SECTION 5.4 Distributions Generally. Capital Proceeds shall be
distributed as soon as practicable but in any event within 45 days after the
date that such Proceeds are received by the Partnership. Non-Capital Proceeds
shall be distributed at such times and intervals as the General Partners shall
determine, but in no event later than 30 days after the end of each calendar
quarter. The Partnership shall make such distributions in cash among the
Partners in accordance with this Article V.
SECTION 5.5 Distributions of Proceeds.
(a) Each distribution of Non-Capital Proceeds from a Project
shall be made to the Partners to the extent of, and pro rata in accordance with,
each of their Sharing Percentages in such Project (as the same may be adjusted
hereunder). Notwithstanding the foregoing, Non-Capital Proceeds from a Project
otherwise distributable to a Blackstone Partner shall be distributed as follows:
(i) First, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from such Project
in an amount equal to the Capital Contributions made by such Partner
with respect to such Project; and
(ii) Second, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from such Project,
in excess of any amounts distributed under Section 5.5(a)(i) above, in
an amount which generates a 20% Internal Rate of Return on the Capital
Contributions made by such Partner with respect to such Project; and
<PAGE> 44
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(iii) Thereafter, 86.532% to such Blackstone Partner and
13.468% to the Interstate Partners (pro rata in accordance with their
Sharing Percentages in such Project).
(b) Each distribution of Capital Proceeds from a Project shall
be made to the Partners to the extent of, and pro rata in accordance with, each
of their Sharing Percentages (as the same may be adjusted hereunder).
Notwithstanding the foregoing, Capital Proceeds from a Project otherwise
distributable to a Blackstone Partner shall be distributed as follows:
(i) First, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in an amount equal to the sum of the Capital
Contributions made by such Partner as of such date with respect to all
Projects which have been subject to a Disposition on or prior to such
date; and
(ii) Second, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in excess of any amounts distributed under
Section 5.5(b)(i) above, in an amount which generates a 20% Internal
Rate of Return on the Capital Contributions made by such Partner as of
such date with respect to all Projects which have been subject to a
Disposition on or prior to such date and all Projects for which an
Unrealized Loss exists on such date; and
(iii) Third, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in excess of any amounts distributed under
Sections 5.5(b)(i) and (ii) above, in an amount equal to the total of
such Partner's pro rata shares of Unrealized Loss from all Projects for
which an Unrealized Loss exists on such date (based on such Partner's
Sharing Percentage in each such Project); and
(iv) Thereafter, 86.532% to such Blackstone Partner and
13.468% to the Interstate Partners (pro rata in accordance with their
Sharing Percentages in each such Project).
SECTION 5.6 Restricted Payments. Notwithstanding any
provisions to the contrary in this Agreement, neither the Partnership nor the
General Partners on behalf of the Partnership shall make a distribution if such
distribution would violate the Partnership Act.
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SECTION 5.7 Partnership Expenses. (a) Promptly after the date
of this Agreement, the Partnership, to the extent it does not pay such costs and
expenses directly, will reimburse each Partner for Organizational Expenses
incurred by such Partner.
(b) The following expenses shall be borne by the
Partnership:
(i) To the extent not reimbursed, all expenses (other than
any Partner's overhead) reasonably incurred in the operation of the
Partnership (and approved by the General Partners if required
hereunder), including without limitation, any taxes imposed on the
Partnership, fees and expenses for attorneys and accountants, the costs
and expenses of any insurance purchased by the Partnership, and the
costs and expenses of any litigation involving the Partnership and the
amount of any judgments or settlements paid in connection therewith;
and
(ii) All third party professional services which have been
approved by the General Partners and incurred in connection with a
proposed Target Investment that is not ultimately made or a proposed
disposition of a Project which is not actually consummated, including,
without limitation, (i) commitment fees that become payable in
connection with a proposed Target Investment that is not ultimately
made, (ii) legal fees, accounting fees and other third party
professional due diligence costs and expenses and (iii) all travel and
similar out of pocket costs and expenses of employees of the Partners
in connection with approved due diligence.
Partnership expenses shall be paid directly by the Partnership
or the Partnership shall reimburse the Partner who incurred such expenses for
the payment thereof, as the case may be.
ARTICLE VI
Books and Reports; Tax Matters;
Capital Accounts; Allocations
SECTION 6.1 General Accounting Matters. (a) Allocations of Net
Income (Loss) pursuant to Section 6.4 shall be made by or under the direction of
the General Partners at the end of each Fiscal Period.
(b) Each Partner shall be supplied with the Partnership
information necessary to enable such Partner to prepare in a timely manner its
Federal, state and local income tax returns and such other financial or other
statements and reports that are approved by the General Partners.
<PAGE> 46
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(c) The Blackstone General Partner shall keep or cause to be
kept books and records pertaining to the Partnership's business showing all of
its assets and liabilities, receipts and disbursements, realized profits and
losses, Partners' Capital Accounts and all transactions entered into by the
Partnership. Such books and records of the Partnership shall be kept at the
office of the Blackstone General Partner and the Partners and their
representatives shall at all reasonable times have free access thereto for the
purpose of inspecting or copying the same. The Partnership's books of account
shall be kept on an accrual basis or as otherwise provided by the General
Partners, and otherwise in accordance with generally accepted accounting
principles, except that for income tax purposes such books shall be kept in
accordance with applicable tax accounting principles.
(d) Except as otherwise provided herein, all determinations,
valuations and other matters of judgment required to be made for accounting and
tax purposes under this Agreement shall be made by or under the direction of the
General Partners and shall be conclusive and binding on all Partners, former
Partners, their successors or legal representatives and any other person except
for computational errors or fraud, and to the fullest extent permitted by law no
such person shall have the right to an accounting or an appraisal of the assets
of the Partnership or any successor thereto except for computational errors or
fraud.
(e) The books of the Partnership shall be examined, certified
and audited annually as of the end of each Fiscal Year, by such recognized firm
of independent certified public accountants that is designated by the General
Partners. For each Fiscal Year of the Partnership, such accountants shall
determine and prepare full financial statements, including, without limitation,
a balance sheet, an income statement, a statement of changes in financial
position and a statement of the Non-Capital Proceeds and Capital Proceeds of the
Partnership. The General Partners shall promptly upon receipt of such financial
statements, and in any event within 90 days after the end of each such Fiscal
Year, transmit copies thereof to each Partner, together with the report and
management letter of such accountants covering the results of such audit. The
cost of all audits and reports provided to the Partners pursuant to this Section
shall be an expense of the Partnership.
SECTION 6.2 Certain Tax Matters.
The taxable year of the Partnership shall be the same as its
Fiscal Year. The Tax Matters Partner (as defined below) shall cause to be
prepared all Federal, state and local tax returns of the Partnership for each
year for which such returns are required to be filed and, after approval of such
returns by the General Partners, shall cause such returns to be timely filed.
The General Partners shall determine the appropriate treatment of each item of
income, gain, loss, deduction and
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43
credit of the Partnership and the accounting methods and conventions under the
tax laws of the United States, the several states and other relevant
jurisdictions as to the treatment of any such item or any other method or
procedure related to the preparation of such tax returns. The Tax Matters
Partner shall make the election provided for in Section 754 of the Code, if, and
only if the Partner who or which has acquired an interest in the Partnership or
a distribution of Partnership property with respect to which the election is
made will have provided to the Tax Matters Partner concurrently, or within 30
days after the Transfer of such interest, its undertaking to the effect that it,
and its successors in interest hereunder, will reimburse the Partnership
annually for its additional administrative costs incurred by reason of such
election as determined by the auditor of the Partnership. The Tax Matters
Partner shall also make the election to amortize Organizational Expenses
pursuant to Code Section 709 and the regulation promulgated thereunder. In
addition, the General Partners may cause the Partnership to make or refrain from
making any and all other elections permitted by the tax laws of the United
States, the several states and other relevant jurisdictions. The Tax Matters
Partner for purposes of Section 6231(a)(7) of the Code (the "Tax Matters
Partner") shall be the Blackstone General Partner. The Tax Matters Partner shall
have all of the rights, duties, powers and obligations provided for in Sections
6221 through 6232 of the Code with respect to the Partnership provided, however,
that the following provisions shall apply with respect to the Tax Matters
Partner:
(a) The Tax Matters Partner shall be responsible for the
filing of the Partnership information returns required under Section
6031 of the Code. Within thirty (30) days after the end of each Fiscal
Year, the Tax Matters Partner shall furnish to the Partnership's
accountants sufficient information for the preparation of all required
Partnership tax returns.
(b) A Partner shall provide notice to the Tax Matters Partner
of its intent to file an original or an amended income tax return of
which such Partner will take a position with respect to a partnership
item that is inconsistent with the position taken by the Tax Matters
Partner on the Partnership return. Such notice must be given at least
thirty (30) days prior to the filing of such return. At such time, such
Partner shall provide the Tax Matters Partner with a statement
detailing the inconsistent item or items contained in such return.
Within ten (10) days of receipt of such statement, the Tax Matters
Partner shall provide a copy of such statement to each Partner.
(c) The Tax Matters Partner shall include in each Partnership
return sufficient information to entitle each eligible Partner and any
indirect partner (at its request) to notice from the Internal Revenue
Service pursuant to Section 6223(a) of the Code.
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44
(d) Each Partner reserves the right to participate in
an audit proceeding.
(e) Each Partner reserves the right to enter into a separate
settlement agreement with the Internal Revenue Service. A Partner who
enters into a settlement agreement with the Internal Revenue Service
concerning a partnership item shall notify the Tax Matters Partner of
its terms within ten (10) days of such agreement, and the Tax Matters
Partner shall notify the other Partners of the terms of such agreement
within ten (10) days after receiving such notice. The Tax Matters
Partner shall notify each other Partner of the terms of any settlement
offer received by it within ten (10) days of receiving such offer.
(f) The Tax Matters Partner shall not file an administrative
adjustment request without the Consent of all of the General Partners.
Each Partner, other than the Tax Matter partner, reserves the right to
file an administrative adjustment request under Section 6227 of the
Code. Any Partner filing an administrative adjustment request shall
notify the Tax Matters Partner of its contents within ten (10) days
after filing such request. The Tax Matters Partner shall notify each
Partner of the contents of such request within ten (10) days of the
receipt of such notice.
(g) All Partners shall report to the Tax Matters Partner the
conversion of a partnership item to a nonpartnership item under Section
6231(b) or any other provision of the Code within ten (10) days of
learning of the conversion.
(h) Each Partner reserves the right to file a petition for
judicial review and to participate in a judicial proceeding under
Section 6226 and 6228 of the Code. If the Tax Matters Partner files a
petition for judicial review or an appeal under Section 6226 of the
Code, it shall notify each Partner of such petition or appeal within
ten (10) days of such filing. Any other Partner filing a petition for
judicial review or any appeal under Sections 6226 or 6228 of the Code
shall notify the Tax Matters Partner of such petition or appeal on or
before the date of filing. The Tax Matters Partner shall notify each
Partner of such filing within ten (10) days of receipt of such notice
from the filing partner.
(i) The Tax Matters Partner shall not agree to extend the
statute of limitations for assessment without the Consent of all of the
General Partners.
(j) The Tax Matters Partner shall be authorized to incur
expenses in the performance of its duties pursuant to this Agreement.
Notwithstanding any other provision of this Agreement, such expenses
shall be borne by the persons who
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45
were Partners of the Partnership at any time during the applicable
taxable year without regard to whether such persons are Partners at the
time the expense is incurred. Such expenses shall be allocated to the
Partners and former Partners having an interest in the proceeding at
the time the cost is incurred in proportion to their relative Sharing
Percentages for the applicable taxable year.
(k) The provisions of this Section shall govern the conduct of
all parties who are currently Partners and all parties who were
Partners during the applicable Partnership taxable year. A Partner
shall not be relieved of any duties or responsibilities imposed under
this Section by the termination or transfer of its interest in the
Partnership.
(l) All terms used in this Section that are defined in Section
6231(a) of the Code shall have the meanings set forth therein.
SECTION 6.3 Capital Accounts. There shall be established for
each Partner on the books of the Partnership as of the date hereof, or such
later date on which such Partner is admitted to the Partnership, a capital
account (each being a "Capital Account"). Each Capital Contribution shall be
credited to the Capital Account of such Partner on the date such contribution of
capital is paid to the Partnership. In addition, each Partner's Capital Account
shall be (a) credited with such Partner's allocable share of any Net Income of
the Partnership, (b) debited with (i) distributions to such Partner of cash or
the fair market value of other property and (ii) such Partner's allocable share
of Net Loss of the Partnership and expenditures of the Partnership described or
treated under Section 704(b) as described in Section 705(a)(2)(B) of the Code,
and (c) otherwise maintained in accordance with the provisions of the Code. Any
other item which is required to be reflected in a Partner's Capital Account
under Section 704(b) of the Code or otherwise under this Agreement shall be so
reflected. Capital Accounts shall be appropriately adjusted to reflect transfers
of part (but not all) of a Partner's interest in the Partnership. Interest shall
not be payable on Capital Account balances. Notwithstanding anything to the
contrary contained in this Agreement, the Partnership shall maintain the Capital
Accounts of the Partners in accordance with the principles and requirements set
forth in section 704(b) of the Code and Regulations section 1.704-1(b)(2)(iv).
SECTION 6.4 Allocations. (a) Net Income of the Partnership
shall be allocated to the Partners having deficit balances in their Capital
Accounts (computed after taking into account distributions pursuant to Section
5.5 with respect to such fiscal year, and after adding back each Partner's share
of partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain,
determined pursuant to Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5)) in
proportion to, and to the extent of, such
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46
deficits. Any remaining Net Income and all Net Loss shall be allocated among the
Partners either 49% to the Blackstone Partners (pro rata in proportion to their
Sharing Percentages) and 51% to the Interstate Partners (pro rata in accordance
with their Sharing Percentages) or [______]% to the Blackstone Partners (pro
rata in proportion to their Sharing Percentages) and [______]% to the Interstate
Partners pro rata in accordance with their Sharing Percentages) so as to produce
to the extent possible Capital Accounts for the Partners (computed in the manner
set forth in the preceding sentence) such that if an amount of cash equal to
such positive Capital Account balances were distributed in accordance with such
positive Capital Account balances, such distribution would be in the amounts,
sequence and priority set forth in Section 5.5 and to the extent Net Loss
exceeds the positive Adjusted Capital Account Balances of the Partners, the
excess shall be allocated first, to those Partners with positive Adjusted
Capital Account Balances, in proportion to, and to the extent of, such Adjusted
Capital Account Balances, and thereafter, to the General Partners, in the ratio
that the Sharing Percentage of each General Partner bears to the Sharing
Percentage of all General Partners. Notwithstanding the foregoing, if an
allocation of Net Loss in the ratio of [______]% to the Blackstone Partners and
[______]% to the Interstate Partners is in excess of amounts of Net Income
previously allocated in the ratio of [______]% to the Blackstone Partners and
[______]% to the Interstate Partners, then such allocation of Net Loss shall
instead be made 49% to the Blackstone Partners (pro rata in proportion to their
Sharing Percentages) and 51% to the Interstate Partners (pro rata in accordance
with their Sharing Percentages). Notwithstanding the foregoing, if an allocation
of Net Income or Net Loss would not result in Capital Accounts for the Partners
(computed in the manner set forth in the first sentence of this paragraph (a))
being equal to cash distributions in the amounts, sequence and priority set
forth in Section 5.5, Net Income may be allocated 100% to the Interstate
Partners (pro rata in accordance with their Sharing Percentages) or Net Loss may
be allocated 100% to the Blackstone Partners (pro rata in accordance with their
Sharing Percentages) if (and to the extent necessary) to produce Capital
Accounts equal (or in proportion) to the cash distributions set forth in Section
5.5.
(b) Notwithstanding anything herein to the contrary, in the
event any Partner unexpectedly receives any adjustments, allocations or
distributions described in paragraphs (b)(2)(ii)(d)(4), (5) or (6) of Section
1.704-1 of the regulations under the Code, there shall be specially allocated to
such Partner such items of Partnership income and gain, at such times and in
such amounts as will eliminate as quickly as possible that portion of any
deficit in its Capital Account caused or increased by such adjustments,
allocations or distributions. To the extent permitted by the Code and the
regulations thereunder, any special allocations of items of income or gain
pursuant to this Section 6.4(c) shall be taken into account in computing
subsequent allocations of Net Income
<PAGE> 51
47
(Loss) pursuant to this Section 6.4 so that the net amount of any items so
allocated and the subsequent allocations of Net Income (Loss) to the Partners
pursuant to this Section 6.4 shall, to the extent possible, be equal to the net
amounts that would have been allocated to each such Partner pursuant to the
provisions of this Section 6.4 if such unexpected adjustments, allocations or
distributions had not occurred.
(c) All items of income, gain, loss, deduction and credit of
the Partnership shall be allocated among the Partners for Federal, state and
local income tax purposes consistent with the manner that the corresponding
constituent items of Net Income (Loss) shall be allocated among the Partners
pursuant to this Agreement, except as may otherwise be provided herein or by the
Code. To the extent Treasury Regulations promulgated pursuant to Subchapter K of
the Code (including under Sections 704(b) and (c) of the Code) require
allocations for tax purposes that differ from the foregoing allocations, the
General Partners may determine the manner in which such tax allocations shall be
made so as to comply more fully with such Treasury Regulations or other
applicable law and, at the same time to the extent reasonably possible, preserve
the economic relationships among the Partners as set forth in this Agreement.
(d) Notwithstanding the provisions of this Section 6.4, net
income, net gain, and net loss of the Partnership (or items of income, gain,
loss, deduction, or credit, as the case may be) shall be allocated in accordance
with the following provisions of this Section 6.4 to the extent such provisions
shall be applicable.
(i) Nonrecourse Deductions of the Partnership for any
Fiscal Year shall be specially allocated to the Partners in the same
proportion as Net Income or Net Loss is allocated for such Fiscal Year;
provided that if an allocation of Nonrecourse Deductions in the ratio
of [______]% to the Blackstone Partners and [______]% to the Interstate
Partners is in excess of amounts of Net Income previously allocated in
the ratio of [______]% to the Blackstone Partners and [______]% to the
Interstate Partners, then such allocation of Nonrecourse Deductions
shall instead be made 49% to the Blackstone Partners (pro rata in
proportion to their Sharing Percentages) and 51% to the Interstate
Partners (pro rata in accordance with their Sharing Percentages).
Partner Nonrecourse Deductions of the Partnership for any Fiscal Year
shall be specially allocated to the Partner who bears the economic risk
of loss for the liability in question. The provisions of this Section
6.4(e)(i) are intended to satisfy the requirements of Regulations
sections 1.704-2(e)(2) and 1.704-2(i)(1) and shall be interpreted in
accordance therewith for all purposes under this Agreement.
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(ii) If there is a net decrease in the Minimum Gain of the
Partnership during any Partnership Fiscal Year, each Partner shall be
specially allocated items of Partnership income and gain for such year
equal to that Partner's share of the net decrease in Minimum Gain,
within the meaning of Regulations section 1.704- 2(g)(2). The
provisions of this Section 6.4(e)(ii) are intended to comply with the
Minimum Gain chargeback requirements of Regulations section 1.704-2(f)
and shall be interpreted in accordance therewith for all purposes under
this Agreement.
(iii) If there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Fiscal Year, each Partner that has a share of
such partner Nonrecourse Debt Minimum Gain, determined in accordance
with Regulations section 1.704-2(i)(5), as of the beginning of such
year shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, for succeeding years) equal to such
Partner's share of the net decrease in Partner Nonrecourse Debt Minimum
Gain. The provisions of this Section 6.4(e)(iii) are intended to comply
with the Partner Nonrecourse Debt Minimum Gain chargeback requirement
of Regulations section 1.704-2(i)(4) and shall be interpreted in
accordance therewith for all purposes under this Agreement.
ARTICLE VII
Dissolution
SECTION 7.1 Dissolution. The Partnership shall be dissolved
and subsequently terminated upon the occurrence of the first of the following
events:
(a) decision of all of the General Partners to dissolve and
subsequently terminate the Partnership;
(b) December 31, 2045;
(c) the occurrence of a Disabling Event with respect to the
sole remaining General Partner, provided that the Partnership shall not
be dissolved if, within 90 days after such Disabling Event, all of the
Partners agree in writing to continue the business of the Partnership
and to the appointment, effective as of the date of the Disabling
Event, of another General Partner; or
(d) if, after the right of first opportunity under Article 3
shall no longer be in effect, all of the Partnership Assets are sold or
otherwise disposed of.
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49
SECTION 7.2 Winding-up. When the Partnership is dissolved, the
business and property of the Partnership shall be wound up and liquidated by the
General Partners or, in the event of a Disabling Event with respect to any
General Partner, by the remaining General Partners or, in the event of a
Disabling Event with respect to each of the General Partners, such liquidating
trustee as may be named by Limited Partners holding a majority of the Sharing
Percentages (with respect to all of the Projects) held by all Limited Partners
(the party conducting the liquidation being hereinafter referred to as the
"Liquidator"). The Liquidator shall use its best efforts to reduce to cash and
cash equivalent items such assets of the Partnership as the Liquidator shall
deem it advisable to sell, subject to obtaining fair value for such assets and
any tax or other legal considerations.
SECTION 7.3 Final Distribution. Within 90 calendar days after
the effective date of dissolution of the Partnership, the assets of the
Partnership shall be distributed in the following manner and order:
(a) to the payment of the expenses of the winding-up,
liquidation and dissolution of the Partnership;
(b) to pay all creditors of the Partnership, other
than Partners, either by the payment thereof or the making
of reasonable provision therefor;
(c) to establish reserves, in amounts established by
the Liquidator, to meet other liabilities of the
Partnership; and
(d) to pay, in accordance with the provisions of this
Agreement applicable to such loans or in accordance with the terms
agreed among them and otherwise on a pro rata basis, all creditors of
the Partnership that are Partners, either by the payment thereof or the
making of reasonable provision therefor.
The remaining assets of the Partnership shall be applied and distributed in
accordance with the positive balances of the Partners' Capital Accounts, as
determined after taking into account all adjustments to Capital Accounts for the
Partnership taxable year during which the liquidation occurs.
ARTICLE VIII
Transfer of Partners' Interests
SECTION 8.1 Restrictions on Transfer of Partnership Interests.
(a) No Partner may, directly or indirectly, assign, sell, exchange, transfer,
pledge, hypothecate or otherwise dispose of all or any part of its interest in
the Partnership (a
<PAGE> 54
50
"Transfer") to any person, other than in accordance with paragraphs (b), (c),
(d), (e) and (f) below. A change in the ultimate beneficial ownership of a
Partner shall be deemed a Transfer for purposes of this Agreement.
(b) Any Partner may Transfer all or part of its interest in
the Partnership to any person upon obtaining the prior written Consent of the
Blackstone General Partner, which Consent may be withheld in its sole and
absolute discretion; provided, however, that upon any Transfer of a Partner's
interest in accordance with this paragraph, the person (the "Transferee") to
whom the Partner's interest was Transferred shall not be admitted as a
substitute Partner without receiving the prior written Consent of the Blackstone
General Partner (which Consent may be withheld in its sole and absolute
discretion) and the Transferee has given written acceptance and adoption of all
of the terms and provisions of this Agreement; and provided, further, that the
prior written Consent of each of the General Partners shall be required to admit
the Transferee as a substitute Partner (which Consent may be withheld in their
sole and absolute discretion) (i) if the Transferee is not an Affiliate of any
member of the Blackstone Group or the Interstate Group, or (ii) if the aggregate
Sharing Percentages of the Interstate Partners (with respect to all of the
Projects) is 20% or less at the time of the Transfer.
(c) A Partner may mortgage, pledge, hypothecate or otherwise
encumber all or any portion of such Partner's rights to receive a portion of the
Non-Capital Proceeds, Capital Proceeds, Net Income and Net Losses to any person;
provided, however, that the holder of such mortgage, pledge, hypothecation or
encumbrance shall not be admitted as a substitute Partner without the prior
Consent of the Blackstone General Partner (which Consent may be withheld in its
sole and absolute discretion), provided that (i) if the Transferee is not an
Affiliate of any member of the Blackstone Group or the Interstate Group or (ii)
if the aggregate Sharing Percentages of the Interstate Partners (with respect to
all of the Projects) is 20% or less at the time of the Transfer, the prior
written Consent of each of the General Partners shall be required, which Consent
may be withheld in their sole and absolute discretion.
(d) At any time, any Blackstone Partner may transfer its
interest in Non-Capital Proceeds, Capital Proceeds, Net Income and Net Losses to
any other Blackstone Partner or its Affiliates but the Transferee shall not be
admitted as a substitute Partner and the transferor shall not be permitted to
withdraw from the Partnership without, in each case, the Consent of the
Blackstone General Partner (which Consent may be withheld in its sole and
absolute discretion), or, if the aggregate Sharing Percentages of the Interstate
Partners (with respect to all of the Projects) is 20% or less at the time of the
Transfer, the Consent of each of the General Partners (which Consent may be
withheld in their sole and absolute discretion).
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51
(e) At any time, any Interstate Partner may transfer its
interest in Non-Capital Proceeds, Capital Proceeds, Net Income and Net Losses to
any other Interstate Partner or their Affiliates, but the Transferee shall not
be admitted as a substitute Partner and the transferor shall not be permitted to
withdraw from the Partnership without, in each case, the Consent of the
Blackstone General Partner (which Consent may be withheld in its sole and
absolute discretion).
(f) At any time, the ultimate beneficial ownership of a
Partner may be changed without any requirement for Consent hereunder, provided
that day to day management of such Partner is, at all times thereafter, directly
or indirectly controlled by the Blackstone General Partner or an Affiliate
thereof or by the Interstate General Partner or an Affiliate thereof.
SECTION 8.2 Other Transfer Provisions. (a) Any purported
Transfer by a Partner of all or any part of its interest in the Partnership in
violation of this Article VIII shall be null and void and of no force or effect.
(b) Except as provided in this Article VIII, no Partner shall
have the right to withdraw from the Partnership prior to its termination and no
additional Partner may be admitted to the Partnership without the prior written
consent of the General Partners. In the event of any withdrawal of a General
Partner in violation of this Agreement, including as a result of a Disabling
Event, such General Partner shall be liable to the Partnership as provided in
Section 17-602 of the Partnership Act.
(c) Notwithstanding any provision of this Agreement to the
contrary, a Partner may not Transfer all or any part of its interest in the
Partnership if such Transfer would jeopardize the status of the Partnership as a
partnership for federal income tax purposes, cause a dissolution of the
Partnership under the Partnership Act or would violate, or would cause the
Partnership to violate, any applicable law or regulation (including any
applicable federal or state securities laws) or contract to which the
Partnership is a party.
(d) Concurrently with the admission of any substitute or
additional Partner, the General Partners shall forthwith cause any necessary
papers to be filed and recorded and notice to be given wherever and to the
extent required showing the substitution of a Transferee as a substitute Partner
in place of the Partner Transferring its interest, or the admission of an
additional Partner, all at the expense, including payment of any professional
and filing fees incurred, of such substituted or additional Partner. The
admission of any person as a substitute or additional Partner shall be
conditioned upon such person's written acceptance and adoption of all the terms
and provisions of this Agreement.
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52
(e) If any interest in the Partnership is Transferred during
any accounting period in compliance with the provisions of this Article VIII,
each item of income, gain, loss, expense, deduction and credit and all other
items attributable to such interest for such period shall be divided and
allocated between the transferor and the transferee by taking into account their
varying interests during such period in accordance with Section 706(d) of the
Code, using any conventions permitted by law and selected by the General
Partners. All distributions on or before the date of such Transfer shall be made
to the transferor, and all distributions thereafter shall be made to the
transferee. Solely for purposes of making such allocations and distributions,
the Partnership shall recognize a Transfer on the date that the General Partners
receive notice of the Transfer which complies with this Article VIII from the
Partner Transferring its interest.
ARTICLE IX
Miscellaneous
SECTION 9.1 Equitable Relief. The Partners hereby confirm that
damages at law may be an inadequate remedy for a breach or threatened breach of
this Agreement and agree that, in the event of a breach or threatened breach of
any provision hereof, the respective rights and obligations hereunder shall be
enforceable by specific performance, injunction or other equitable remedy, but,
nothing herein contained is intended to, nor shall it, limit or affect any right
or rights at law or by statute or otherwise of a Partner aggrieved as against
the other for a breach or threatened breach of any provision hereof, it being
the intention by this Section 9.1 to make clear the agreement of the Partners
that the respective rights and obligations of the Partners hereunder shall be
enforceable in equity as well as at law or otherwise and that the mention herein
of any particular remedy shall not preclude a Partner from any other remedy it
or he might have, either in law or in equity.
SECTION 9.2 Ownership and Use of Names. Rights to the name
"Blackstone" shall belong solely to the designated Blackstone Partners. Rights
to the name "Interstate" and "Interstate Hotels" shall belong solely to the
designated Interstate Partners. The ownership of, and the right to use, sell or
otherwise dispose of, the name, Interstone Three Partners III L.P. or any
abbreviation or modification thereof, shall belong to the Partnership. The
Interstate General Partner agrees to take all actions and to approve, execute
and file any document or instrument proposed by any Blackstone Partner to
protect the rights of the Blackstone Partners to the name "Blackstone". The
Blackstone General Partner agrees to take all actions and to approve, execute
and file any document or instrument proposed by any Interstate Partner to
protect the rights of the Interstate Partners to the name "Interstate" and
"Interstate Hotels". The Partners each agree to take all actions
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53
and to approve, execute and file any document or instrument proposed by the
General Partners to protect the rights of the Partnership to the name
"Interstone Three Partners III L.P.".
SECTION 9.3 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware. In
particular, the Partnership is formed pursuant to the Partnership Act, and the
rights and liabilities of the General Partners and Limited Partners shall be as
provided therein, except as herein otherwise expressly provided.
SECTION 9.4 Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
respective successors and assigns.
SECTION 9.5 Access; Confidentiality. By executing this
Agreement, each Partner expressly agrees, at all times during the term of the
Partnership and thereafter and whether or not at the time a Partner of the
Partnership (i) not to issue any press release or advertisement or take any
similar action concerning the Partnership's business or affairs without first
obtaining the Consent of all of the General Partners, (ii) not to publicize
detailed financial information concerning the Partnership without the Consent of
all of the General Partners and (iii) not to disclose the Partnership's affairs
generally without using reasonable efforts to consult with the other Partners
prior to such disclosure; provided, however, the foregoing shall not restrict
any Partner from disclosing information concerning such Partner's investment in
the Partnership to its officers, directors, employees, agents, legal counsel,
accountants, other professional advisors, limited partners and Affiliates, or to
prospective or existing investors in such Partner or its Affiliates or to
prospective or existing lenders to such Partner or its Affiliates, or to
prospective purchasers of any property owned by the Partnership. The provisions
of this Section 9.5 shall survive the termination of the Partnership.
SECTION 9.6 Notices. Whenever notice is required or permitted
by this Agreement to be given, such notice need not be in writing unless
otherwise required herein or requested by the receiving Partner. If in writing,
such notice shall be given to any Partner at its address or facsimile number
shown in the Partnership's books and records (including Schedule A hereto). Each
such notice shall be effective (i) if given by facsimile, upon oral confirmation
of receipt, (ii) if given by mail, on the fourth day after deposit in the mails
(certified or registered return receipt requested) addressed as aforesaid and
(iii) if given by any other means, when delivered to and receipted for at the
address of such Partner specified as aforesaid.
SECTION 9.7 Counterparts. This Agreement may be executed in
any number of counterparts, all of which together shall constitute a single
instrument.
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SECTION 9.8 Entire Agreement. This Agreement embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter hereof.
SECTION 9.9 Amendments. Any amendment to this Agreement shall
be effective only if such amendment is evidenced by a written instrument duly
executed by and delivered to the General Partners; provided, however, no such
amendment shall be effective or binding against a Partner unless executed by
such Partner if such amendment materially and adversely affects such Partner in
a specific manner separate and distinct from the amendment's treatment of other
Partners; and provided, further that any amendment which would have a material
adverse effect on any Partner's economic interest in the Partnership shall
require the Consent of all of the General Partners.
SECTION 9.10 Section Titles. Section titles are for
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text hereof.
SECTION 9.11 Representations and Warranties. (a) Each Partner
represents, warrants and covenants to each other Partner and to the Partnership
that:
(i) such Partner, if not a natural person, is duly formed and
validly existing under the laws of the jurisdiction of its organization
with full power and authority to conduct its business to the extent
contemplated in this Agreement;
(ii) this Agreement has been duly authorized, executed and
delivered by such Partner and constitutes the valid and legally binding
agreement of such Partner enforceable in accordance with its terms
against such Partner except as enforceability hereof may be limited by
bankruptcy, insolvency, moratorium and other similar laws relating to
creditors' rights generally and by general equitable principles;
(iii) the execution and delivery of this Agreement by such
Partner and the performance of its duties and obligations hereunder do
not result in a breach of any of the terms, conditions or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, credit agreement, note or other evidence of indebtedness, or any
lease or other agreement, or any license, permit, franchise or
certificate, to which such Partner is a party or by which it is bound
or to which its properties are subject, or require any authorization or
approval under or
<PAGE> 59
55
pursuant to any of the foregoing, or violate any statute, regulation,
law, order, writ, injunction, judgment or decree to which such Partner
is subject;
(iv) such Partner is not in default (nor has any event
occurred which with notice, lapse of time, or both, would constitute a
default) in the performance of any obligation, agreement or condition
contained in any indenture, mortgage, deed of trust, credit agreement,
note or other evidence of indebtedness or any lease or other agreement,
or any license, permit, franchise or certificate, to which it is a
party or by which it is bound or to which the properties of it are
subject, nor is it in violation of any statute, regulation, law, order,
writ, injunction, judgment or decree to which it is subject, which
default or violation would materially adversely affect such Partner's
ability to carry out its obligations under this Agreement;
(v) except as disclosed to the Partners prior to the date
hereof, there is no litigation, investigation or other proceeding
pending or, to the knowledge of such Partner, threatened against such
Partner or any of its Affiliates which, if adversely determined, would
materially adversely affect such Partner's ability to carry out its
obligations under this Agreement; and
(vi) no consent, approval or authorization of, or filing,
registration or qualification with, any court or governmental authority
on the part of such Partner is required for the execution and delivery
of this Agreement by such Partner and the performance of its
obligations and duties hereunder.
(b) IHC/Interstone Partnership II, L.P. represents that not
less than 90% of its interests are owned by Interstate Hotels Company.
<PAGE> 60
56
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Limited Partnership Agreement of Interstone Three Partners III L.P. as
of the day and year first above
written.
GENERAL PARTNERS:
BJS INTERSTONE MANAGEMENT
ASSOCIATES
By: Blackstone Real Estate Inc.,
general partner
By:
-----------------------
Name:
Title:
IHC/INTERSTONE CORPORATION
By:
-------------------------------
Name:
Title:
LIMITED PARTNERS:
BLACKSTONE REAL ESTATE
PARTNERS III L.P.
By: Blackstone Real Estate
Associates L.P., general
partner
By: BREA L.L.C., general
partner
By:
--------------
Name:
Title:
BLACKSTONE REAL ESTATE
HOLDINGS L.P.
By: BREA L.L.C., general partner
By:
-----------------------
Name:
Title:
<PAGE> 61
57
BLACKSTONE RE CAPITAL PARTNERS L.P.
By: Blackstone Real Estate
Associates L.P., general
partner
By: BREA L.L.C., general
partner
By:
--------------------
Name:
Title:
BLACKSTONE RE OFFSHORE CAPITAL
PARTNERS L.P.
By: Blackstone Real Estate
Associates L.P., general
partner
By: BREA L.L.C., general
partner
By:
---------------------
Name:
Title:
IHC/INTERSTONE PARTNERSHIP II, L.P.
By: IHC Member Corporation,
general partner
By:
--------------------------------
Name:
Title:
<PAGE> 62
SCHEDULE A
PARTNERS OF THE PARTNERSHIP
General
Partners Address
- - -------- -------
BJS Interstone Management 345 Park Avenue
Associates New York, NY 10154
c/o Interstate Hotels Corporation
IHC/Interstone Corporation Foster Plaza X
680 Anderson Drive
Pittsburgh, PA 15220-8126
Limited Partners
- - -----------------
Blackstone Real Estate 345 Park Avenue
Partners III L.P. New York, NY 10154
Blackstone Real Estate 345 Park Avenue
Holdings L.P. New York, NY 10154
Blackstone RE Capital Partners 345 Park Avenue
L.P. New York, NY 10154
Blackstone RE Offshore Capital 345 Park Avenue
Partners L.P. New York, NY 10154
IHC/Interstone Partnership II, c/o Interstate Hotels Corporation
L.P. Foster Plaza X
680 Anderson Drive
Pittsburgh, PA 15220-8126
<PAGE> 63
EXHIBIT A
Form of Management Agreement
<PAGE> 64
EXHIBIT B
Form of Project Partnership Agreement
<PAGE> 65
EXHIBIT C
FORM OF CONFIRMATION AND ACKNOWLEDGMENT
OF RIGHT OF FIRST OPPORTUNITY
This Confirmation and Acknowledgment of Right of First
Opportunity ("Confirmation") is made and entered into as of the ____ day of
________, 19__ by and among THE BLACKSTONE GROUP HOLDINGS L.P. ("Blackstone")
and INTERSTATE HOTELS COMPANY ("Interstate").
RECITALS
A. Sections 3.6 through 3.8 of that certain Amended and
Restated Limited Partnership Agreement of Interstone Three Partners III L.P.,
dated as of the date hereof (as amended, supplemented or otherwise modified from
time to time, the "Partnership Agreement") sets forth the scope, operation,
duration, termination and other terms relating to a right of first opportunity
provided by the Blackstone Group and the Interstate Group in favor of the
Partnership with respect to certain Target Investments identified for investment
by the Blackstone Group and the Interstate Group. Except as otherwise expressly
provided herein, any defined term used in this Confirmation shall have the
meaning prescribed for that term in the Partnership Agreement.
B. The parties wish to enter into this Confirmation in order
to confirm and acknowledge their obligations to each other with respect to the
foregoing matters and any other obligations each may have to the other pursuant
to the express terms of Sections 3.6 through 3.8 of the Partnership Agreement.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto, intending to be legally bound,
do hereby agree as follow:
1. The provisions of Sections 3.6 through 3.8 of the
Partnership Agreement are hereby incorporated by reference as though set forth
in full herein. Each party hereto hereby confirms its obligation to comply with
all terms, provisions, covenants, conditions and restrictions and perform all
obligations applicable to such party under said Sections 3.6 through 3.8 of the
Partnership Agreement. Without limiting the generality of the foregoing,
Blackstone and Interstate hereby agree to comply, and to cause the Blackstone
Related Parties and the Interstate Related Parties, respectively, to comply,
with their obligations pertaining to the right of first opportunity set forth in
said Sections of the Partnership Agreement in accordance with the terms
applicable thereto.
<PAGE> 66
2
2. This Confirmation confirms and acknowledges the terms,
provisions, covenants, conditions, obligations and restrictions set forth in
Sections 3.6 through 3.8 of the Partnership Agreement. It shall not be construed
or understood to modify, in any way, such terms, provisions, covenants,
conditions, obligations and restrictions, and, in the event of any conflict
between this Confirmation and the Partnership Agreement, the provisions of
Sections 3.6 through 3.8 of the Partnership Agreement shall control. In no event
shall this Confirmation be construed or understood to extend the duration of the
restrictions on Blackstone, Interstate and the Related Parties arising from the
right of first opportunity, which shall terminate as set forth in the
Partnership Agreement. The provisions of Sections 9.1, 9.3, and 9.5 through 9.10
of the Partnership Agreement are incorporated herein, except that all references
therein to the "Agreement" shall be deemed to be references to this
Confirmation, all references therein to the "Partners" shall be deemed to be
references to the parties hereto and delivery of notices to Blackstone hereunder
or under the Partnership Agreement shall be delivered to the same address as the
Blackstone General Partner, and delivery of notices to Interstate hereunder
shall be delivered to the same address as the Interstate General Partner, unless
any such parties shall change the address for delivery of notice in accordance
with the procedures established under Section 9.6 of the Partnership Agreement.
Nothing in this Confirmation shall be understood or construed to render the
parties hereto joint venturers or partners for any purposes. Nothing in this
Confirmation shall be understood or construed to modify or expand the extent of
any recourse between the Partners beyond that expressly provided by the
Partnership Agreement.
THE BLACKSTONE GROUP HOLDINGS, L.P.
By:
---------------------------
INTERSTATE HOTELS COMPANY
By:
---------------------------
<PAGE> 67
EXHIBIT D
Pre-Existing Projects
NONE
<PAGE> 68
EXHIBIT E
Excluded Projects
Blackstone Excluded Projects
1. Any business activities with the Davidson Hotel Company
("Davidson"), including a merger or a combination of Davidson
or its assets with any other entity or with the assets of any
other entity, a REIT involving Davidson or some or all of its
assets, an initial public offering or other capital event
involving Davidson; provided, that this exclusion shall not
include the acquisition of other hotels by Davidson (other
than through a combination with another entity or a
combination with the assets of another entity) which were
first identified by the affiliates of the Blackstone Group
which are investors in Davidson (as opposed to acquisitions
first identified by the non- affiliated Davidson investors).
Interstate Excluded Projects
1. Four to six hotel acquisitions from an institutional owner
only in conjunction with the Carlyle Group or The Apollo Group
2. Acquisition of Checkers Hotel in Los Angeles, California only
in conjunction with The Apollo Group
3. Any investment in a hotel which is incidental to Interstate
taking over management of such hotel such as those currently
under consideration by Interstate in Farmington, Connecticut,
Irvine, California, Warner Center, California and Burlington,
Massachusetts.
With respect to Interstate's investment opportunities
described in clauses 1 and 2 above, if The Apollo Group or The
Carlyle Group decides not to participate in such investment or
is willing to admit additional partners or participants other
than Interstate, Interstate will present such opportunity to
the Partnership in the manner prescribed in Section 3.6 of the
Partnership Agreement.
With respect to Interstate's investment opportunities
described in clauses 1 and 2 above, Interstate (i) shall
exercise best efforts to increase its equity stake in such
investments (up to the maximum
<PAGE> 69
2
of 50% of the total equity invested), and (ii) shall offer the
Blackstone Group (outside of the Partnership) an opportunity
to acquire 50% of whatever interest is available to Interstate
on terms and conditions acceptable to Interstate and the
Blackstone Group.
<PAGE> 1
Exhibit 10.9 (D)(2)
================================================================================
INTERSTONE THREE PARTNERS IV L.P.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
Dated as of June __, 1996
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I
<S> <C> <C>
Definitions................................ 2
SECTION 1.1 Definitions.................................................. 2
SECTION 1.2 Terms Generally.............................................. 12
ARTICLE II
General Provisions............................. 13
SECTION 2.1 Continuation of Partnership.................................. 13
SECTION 2.2 Partners..................................................... 13
SECTION 2.3 Name......................................................... 13
SECTION 2.4 Term......................................................... 13
SECTION 2.5 Purpose; Powers.............................................. 13
SECTION 2.6 Place of Business............................................ 15
SECTION 2.7 Alternative Investment Structure............................. 15
SECTION 2.8 Parallel Partnerships........................................ 16
ARTICLE III
Management and Operation of the
Partnership; Identification and Approval of
Investments; Partner Services....................... 16
SECTION 3.1 Management................................................... 16
SECTION 3.2 Joint Control by the General Partners........................ 18
SECTION 3.3 Blackstone Partners Rights................................... 20
SECTION 3.4 Certain Duties and Obligations of the
Partners..................................................... 21
SECTION 3.5 Restrictions on Authority of the General
Partners..................................................... 22
SECTION 3.6 Right of First Opportunity................................... 23
SECTION 3.7 Right of First Opportunity; Exclusive
Rights; Investment Parameters................................ 27
SECTION 3.8 Termination of Right of First
Opportunity.................................................. 30
SECTION 3.9 Financing.................................................... 30
SECTION 3.10 Financial Advisory Services.................................. 31
SECTION 3.11 Other Partner Services....................................... 32
SECTION 3.12 Marketing Rights............................................. 33
ARTICLE IV
Other Activities Permitted................................... 36
ARTICLE V
Capital Contributions;
Distributions............................... 36
SECTION 5.1 Capital Contributions........................................ 36
SECTION 5.2 Partner Loans for Failure to Fund
Committed Capital............................................ 37
SECTION 5.3 Dilution for Failure to Fund Capital......................... 37
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 5.4 Distributions Generally...................................... 38
SECTION 5.5 Distributions of Proceeds.................................... 38
SECTION 5.6 Restricted Payments.......................................... 40
SECTION 5.7 Partnership Expenses......................................... 40
ARTICLE VI
Books and Reports; Tax Matters;
Capital Accounts; Allocations....................... 41
SECTION 6.1 General Accounting Matters................................... 41
SECTION 6.2 Certain Tax Matters.......................................... 42
SECTION 6.3 Capital Accounts............................................. 44
SECTION 6.4 Allocations.................................................. 45
ARTICLE VII
Dissolution................................ 47
SECTION 7.1 Dissolution.................................................. 47
SECTION 7.2 Winding-up................................................... 48
SECTION 7.3 Final Distribution........................................... 48
ARTICLE VIII
Transfer of Partners' Interests...................... 49
SECTION 8.1 Restrictions on Transfer of Partnership
Interests.................................................... 49
SECTION 8.2 Other Transfer Provisions.................................... 50
ARTICLE IX
Miscellaneous............................... 51
SECTION 9.1 Equitable Relief............................................. 51
SECTION 9.2 Ownership and Use of Names................................... 51
SECTION 9.3 Governing Law................................................ 52
SECTION 9.4 Successors and Assigns....................................... 52
SECTION 9.5 Access; Confidentiality...................................... 52
SECTION 9.6 Notices...................................................... 52
SECTION 9.7 Counterparts................................................. 53
SECTION 9.8 Entire Agreement............................................. 53
SECTION 9.9 Amendments................................................... 53
SECTION 9.10 Section Titles............................................... 53
SECTION 9.11 Representations and Warranties............................... 53
</TABLE>
ii
<PAGE> 4
Schedules
SCHEDULE A Name, Address and Sharing Percentages
Exhibits
Exhibit A Form of Management Agreement
Exhibit B Form of Project Partnership Agreement
Exhibit C Form of Confirmation and Acknowledgment
of Right of First Opportunity
Exhibit D Pre-Existing Projects
Exhibit E Excluded Projects
iii
<PAGE> 5
INTERSTONE THREE PARTNERS IV L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT,
dated as of June __, 1996 by and among BJS INTERSTONE
MANAGEMENT ASSOCIATES, a Delaware general partnership, as a
general partner, IHC/INTERSTONE CORPORATION, a Delaware
corporation, as a general partner, and BLACKSTONE REAL ESTATE
PARTNERS IV L.P., BLACKSTONE RE CAPITAL PARTNERS II L.P., and
IHC/INTERSTONE PARTNERSHIP II, L.P., each a Delaware limited
partnership, as limited partners.
PRELIMINARY STATEMENT
---------------------
A. The Blackstone Group and the Interstate Group each have the
capability for identifying, acquiring, improving, operating and disposing of
individual hotel, motel and other lodging properties and groups of hotel, motel
and other lodging properties, hotel and motel management companies (for which
the ownership of hotels and motels is a significant part of their business) and
public and private companies whose primary holdings are comprised of such assets
or operations ("TARGET INVESTMENT" or "TARGET INVESTMENTS").
B. The Blackstone Partners and the Interstate Partners,
individually and acting through the Partnership, in each case in accordance with
the terms of this Agreement, wish to continue an exclusive arrangement with each
other under which, for the duration thereof and subject to the terms set forth
below, the Partnership, the Blackstone Partners and the Interstate Partners
through the Partnership and the Parallel Partnerships, will have the first
opportunity to acquire, operate and dispose of certain Target Investments which
are hereafter identified by the Blackstone Group and/or the Interstate Group, as
the case may be, and approved for investment in accordance with this Agreement
(each Target Investment proposed or approved, as the context indicates, for
acquisition pursuant to this Agreement is referred to as a "PROJECT").
C. In order to effect the foregoing, the parties hereto
entered into a limited partnership agreement dated as of December 15, 1995 (the
"EXISTING AGREEMENT") and formed a partnership under the laws of the State of
Delaware with the name Interstone Three Partners IV L.P. (the "PARTNERSHIP").
D. Each of the Partners of the Partnership have
agreed to amend and restate the Existing Agreement in its
entirety as set forth herein.
<PAGE> 6
2
AGREEMENT
Accordingly, in consideration of the mutual promises and
agreements herein made and intending to be legally bound hereby, the parties
hereto agree to amend and restate the Existing Agreement to read as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. Unless the context otherwise
requires, the following terms shall have the following meanings for purposes of
this Agreement:
"ACKNOWLEDGEMENT" has the meaning set forth in Section
3.6(a).
"ADJUSTED CAPITAL ACCOUNT BALANCE" shall mean, with respect to
any Partner, the balance in such Partner's Capital Account adjusted (i)
by taking into account the adjustments, allocations and distributions
described in Regulations section 1.704-1(b)(2)(ii)(d)(4), (5), and (6);
and (ii) by adding to such balance such Partner's share of partnership
Minimum Gain and Partner Nonrecourse Debt Minimum Gain, determined
pursuant to Regulations section 1.704-2(g)(1) and 1.704-2(i)(5).
"AFFILIATE" with respect to any person means (i) any other
person who controls, is controlled by or is under common control with
such person, (ii) any director, officer, partner or employee of such
person or any person specified in clause (i) above or (iii) any
immediate family member of any person specified in clause (i) or (ii)
above. Notwithstanding the foregoing, for the purposes of this
Agreement, none of the Blackstone Partners nor their Affiliates shall
be deemed to be Affiliates of any of the Interstone Partners or the
Interstone Related Parties, none of the Interstate Partners nor their
Affiliates shall be deemed to be Affiliates of any of the Blackstone
Partners or the Blackstone Related Parties, and no officer or director
of any member of the Blackstone Group which is also an officer or
director of any member of the Interstone Group shall be deemed to be an
Affiliate of any of the Interstate Partners or Interstate Related
Parties,
and no member of the Interstone Group shall be deemed an
Affiliate of any member of the Blackstone Group.
"AGREEMENT" means this Amended and Restated Limited
Partnership Agreement, as it may be amended, supplemented, modified or
restated from time to time.
<PAGE> 7
3
"ASSET MANAGEMENT AGREEMENT" has the meaning set forth
in Section 3.6(f).
"AUTHORIZED REPRESENTATIVES" of a General Partner shall be
those representatives designated by notice to all Partners by each
General Partner from time to time to represent such General Partner in
connection with the Partnership. The term "AUTHORIZED REPRESENTATIVE"
shall refer to any one of the Authorized Representatives of a Partner.
The initial Authorized Representatives of the General Partners are set
forth in Section 3.1(e) below.
"BLACKSTONE GENERAL PARTNER" means BJS Interstone Management
Associates, a Delaware general partnership, or any Affiliate of any
member of the Blackstone Group who replaces BJS Interstone Management
Associates as a general partner hereunder, or is admitted as an
additional general partner hereunder.
"BLACKSTONE GROUP" means the Blackstone Partners, Affiliates
of the Blackstone Partners and the Blackstone Related Parties;
provided, that the Blackstone Group shall not include investors in the
Blackstone Partners who are not Affiliates of Blackstone Group Holdings
L.P., to the extent such investors are not investing through any
Affiliate of Blackstone Group Holdings L.P.
"BLACKSTONE LIMITED PARTNER" means Blackstone Real Estate
Partners IV L.P., Blackstone RE Capital Partners II L.P., each a
Delaware limited partnership, or any Affiliate of any member of the
Blackstone Group who replaces Blackstone Real Estate Partners IV L.P.
or Blackstone RE Capital Partners II L.P. as a limited partner
hereunder, or is admitted as an additional limited partner hereunder.
"BLACKSTONE PARTNERS" means collectively, the Blackstone
General Partner and the Blackstone Limited Partners and any other
Partner admitted to the Partnership which is an Affiliate of any of the
foregoing and any
permitted assigns of such Partners.
"BLACKSTONE RELATED PARTIES" means (i) Blackstone Group
Holdings L.P., (ii) each of the general partners of Blackstone Group
Holdings L.P. and his immediate family members, for so long as he is
such a partner and (iii) any corporation, partnership, limited
liability company, joint venture or other like entity in which the
Blackstone Partners or the parties referred to in (i) and (ii) above
individually or collectively, hold a fifty percent (50%) or greater,
direct or indirect (through one or more business entities), ownership
interest, but shall not include any such entity in which the collective
ownership interest of these parties is less than fifty percent (50%) or
which is a publicly traded company.
<PAGE> 8
4
"BROKEN DEAL" shall mean a proposed Project that is not
ultimately acquired by the Partnership.
"BUSINESS DAY" shall mean any day on which commercial banks
are authorized to do business and are not required by law or executive
order to close in New York, New York.
"CAPITAL ACCOUNT" has the meaning set forth in
Section 6.3.
"CAPITAL CONTRIBUTIONS" means the net fair market value of any
capital contributions made by the Partners to the Partnership and shall
include (i) the contributions of such Partner made pursuant to Sections
3.6, 3.9, 3.10, 5.1 and 5.7 and (ii) such Partner's payments made to
third party creditors of the Partnership with respect to Partnership
obligations to the extent such Partner is authorized by this Agreement
to make any such payment, unless and until reimbursed by the
Partnership.
"CAPITAL PROCEEDS" means (A) the cash or other consideration
received by the Partnership (including interest on installment sales
when received) as a result of (i) any sale, exchange, abandonment,
foreclosure, insurance award, condemnation, easement sale or other
similar transaction relating to any property of the Partnership, (ii)
any financing or refinancing (to the extent such refinancing is deemed
a Disposition hereunder) relating to any property of the Partnership,
(iii) capital contributions to the Partnership upon admission of new
partners, (iv) any other transaction which, in accordance with
generally accepted accounting principles, would be treated as a capital
event, in each case less (B) any such cash which is applied to (i) the
payment of transaction costs and expenses, (ii) the repayment of debt
of the Partnership which is required under the terms of any
indebtedness of the Partnership or has been authorized by the General
Partners, (iii) the repair, restoration or other improvement of
Partnership Assets which is required under any contractual obligation
of the Partnership or has been authorized by the General Partners and
(iv) the establishment of reserves by the General Partners. "Capital
Proceeds" shall also mean any of the foregoing which are received by a
partnership or other vehicle in which the Partnership is a partner or
investor or in which the Partnership otherwise has an interest, to the
extent received by the Partnership as dividends or distributions.
"CARRYING VALUE" shall mean, with respect to any Partnership
Asset, the asset's adjusted basis for U.S. federal income tax purposes,
except that the Carrying Values of all Partnership Assets shall be
adjusted to equal their respective fair market values, in accordance
with the rules set forth in Regulations Section 1.704-1(b)(2)(iv)(f),
<PAGE> 9
5
except as otherwise provided herein, as of: (a) the date of the
acquisition of any additional Partnership interest by any new or
existing Partner in exchange for more than a DE MINIMIS Capital
Contribution, other than pursuant to the initial formation of the
Partnership; (b) the date of the distribution of more than a DE MINIMIS
amount of Partnership property to a Partner; (c) the date a Partnership
interest is relinquished to the Partnership or (d) the date of the
termination of the Partnership under Section 708(b)(i)(B) of the Code;
PROVIDED, HOWEVER, that adjustments pursuant to clauses (a), (b) and
(c) above shall be made only if the General Partners determine that
such adjustments are necessary or appropriate to reflect the relative
economic interests of the Partners. The Carrying Value of any
Partnership Asset distributed to any Partner shall be adjusted
immediately prior to such distribution to equal its fair market value.
Depreciation shall be calculated by reference to Carrying Value,
instead of tax basis once Carrying Value differs from tax basis.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute. Any reference herein to a
particular provision of the Code shall mean, where appropriate, the
corresponding provision in any successor statute.
"COMMITTED CAPITAL" shall mean, the aggregate amount of
$29,400,000 for the Blackstone Partners and the Blackstone Partners of
the Parallel Partnerships, and the aggregate amount of $30,600,000 for
the Interstate Partners and the Interstate Partners of the Parallel
Partnership.
"COMPETITIVE RATE" shall mean, with respect to a particular
service at a Target Investment, the lower of (i) the rate charged on an
arm's length basis for the same or similar service for comparable
properties in the geographic area in which the relevant Target
Investment is located by unaffiliated persons providing or performing
such service on an ongoing basis and (ii) the lowest rate charged by
any Affiliates of the Interstate General Partner for the same or
similar service for comparable properties in the geographic area in
which the relevant Target Investment is located.
"CONSENT" shall mean the approval, direction or determination,
as the case may be, of a Partner, given as provided in Section 3.1, to
do the act or thing for which the approval is solicited or with respect
to which the direction or determination is given or made, or the act of
granting such approval or giving such direction or making such
determination, as the context may require. Any Consent required to be
given by the Blackstone General Partner shall be given by any one
Authorized Representative of the Blackstone General Partner. Any
Consent to be given by the Interstate General Partner shall be given by
any two
<PAGE> 10
6
Authorized Representatives of the Interstate General
Partner.
"CONSIDERATION" means the gross value of all cash, securities
and other properties paid or payable, directly or indirectly, in one
transaction or in a series or combination of transactions, in
connection with an acquisition or disposition of a Target Investment or
a transaction related thereto (including, without limitation, amounts
paid (A) pursuant to covenants not to compete, employment contracts,
employee benefit plans or other similar arrangements and (B) to holders
of any warrants, stock purchase rights, convertible securities or
similar rights and to holders of any options or stock appreciation
rights, whether or not vested). Consideration shall also include the
value of any long-term liabilities (including the principal amount of
any mortgage indebtedness or other indebtedness for borrowed money,
preferred stock obligations, any pension liabilities and guarantees)
indirectly or directly assumed or acquired, or otherwise repaid or
retired, in connection with or anticipation of such acquisition. If an
acquisition takes the form of a purchase of assets, to the extent
applicable Consideration shall also include (i) the value of any
current assets not purchased, minus (ii) the value of any current
liabilities not assumed. If the Consideration to be paid is computed in
any foreign currency, the value of such foreign currency shall, for
purposes hereof, be converted into U.S. dollars at the prevailing
exchange rate on the date or dates on which such Consideration is paid.
In this Agreement, the value of any securities (whether debt or equity)
or other property paid or payable as part of the Consideration shall be
determined as follows: (1) the value of securities that are freely
tradable in an established public market will be determined on the
basis of the last market closing price prior to the public announcement
of the acquisition; and (2) the value of the securities that are not
freely tradable or have no established public market or, if the
Consideration utilized consists of property other than securities, the
value of such other property shall be the fair market value thereof as
reasonably determined by the General Partners.
"CONTRIBUTING PARTNER" has the meaning set forth in
Section 5.2.
"DISABLING EVENT" means any event which would cause a General
Partner to cease to be a general partner of the Partnership pursuant to
Section 17-402 of the Partnership Act.
"DISPOSITION" of a Project shall mean the sale, exchange or
other disposition by the Partnership of all or any portion of such
Project for cash, and shall include the receipt by the Partnership of a
liquidating dividend or
<PAGE> 11
7
other like distribution in cash. A refinancing of a Project shall be
deemed a Disposition of such Project unless the General Partners agree
otherwise. Whenever a portion of a Project (but not the entire Project)
is the subject of a Disposition, that portion shall be treated as
having been a separate project from that portion of the Project that is
retained by the Partnership, and the Capital Contributions for such
Project and the Proceeds (other than the Proceeds of such Disposition
of a portion of a Project) distributed to the Partners with respect to
such Project shall be treated as having been divided between the
portion subject to the Disposition and the retained portion on a pro
rata basis. For purposes of calculating the Internal Rate of Return, a
Broken Deal shall be considered a Project subject to a Disposition that
did not yield any Proceeds.
"FAIR MARKET VALUE" of a Project as of a specific date shall
mean the fair market value of such project on such date as reasonably
determined by the General Partners (taking into consideration all
factors which may reasonably affect the sales price of the Project),
less the principal amount of any debt and other similar liabilities
secured by or otherwise related to such Project, and less a reasonable
estimate of transaction costs and expenses which would be incurred upon
a Disposition of such Project on such date. If the General Partners can
not reach agreement on the Fair Market Value of a Project, the matter
shall be settled by arbitration in New York, New York in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association then in effect, except that the number and method of
selection of the arbitrators shall be as follows: each General Partner
shall select one qualified real estate investment banker or MAI
appraiser who is experienced in valuing assets and liabilities of the
type in question; the average of the Fair Market Values of such Project
determined by such arbitrators shall be the Fair Market Value of such
Project, and shall be final, conclusive and binding on the Partners.
"FISCAL PERIOD" means each fiscal quarter or such other period
as may be established by the General Partners.
"FISCAL YEAR" means the calendar year ending on December 31 of
each year.
"GENERAL PARTNERS" mean the Blackstone General Partner, the
Interstate General Partner and any other person admitted to the
Partnership as an additional or substitute general partner of the
Partnership in accordance with the provisions of this Agreement, until
such time as such person ceases to be a general partner of the
Partnership as provided herein.
"INTERNAL RATE OF RETURN" shall mean with respect to
any Partner as of the date of a cash distribution of
<PAGE> 12
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Proceeds to such Partner, the rate of return (calculated as provided
below, taking into account the time value of money) which (x) the
Proceeds for which the return is being calculated represent on (y) all
Capital Contributions made by such Partner as of such date with respect
to the Project or Projects for which the return is being calculated.
In determining the Internal Rate of Return, the following
shall apply:
(i) subject to the provisions of clause (ii) of
this definition, all present value calculations are to be made
as of the date such Capital Contributions were contributed to
the Partnership;
(ii) all Capital Contributions shall be treated as
having been contributed to the Partnership on the first day of
the month during which a Partner's funds were actually
delivered to the Partnership;
(iii) all distributions shall be treated as if
received on the last day of the month in which the
distribution was made;
(iv) all distribution amounts shall be based on
the amount of the distribution prior to the application of any
federal, state or local taxation to Partners (including any
withholding or deduction requirements); and
(v) the rates of return shall be per annum rates
and all amounts shall be calculated on a compounded annual
basis, and on the basis of a 365-day year.
When calculating the Internal Rate of Return (and for such
purpose only), a Partner's Capital Contribution to a Project shall not
be deemed to include 60% of such Partner's share of any amounts paid to
the Blackstone General Partner or its Affiliates pursuant to Sections
3.9 and 3.10 below for such Project. When calculating the Internal Rate
of Return, a Partner's initial Capital Contributions shall be deemed
given on the date of admission of such Partner to the Partnership, not
on the date that the transferor of such Partner's interest in the
Partnership made its Capital Contributions; such Capital Contributions
shall be deemed Capital Contributions of the transferor for the period
from when made until the transfer to the new Partner.
"INTERSTATE GENERAL PARTNER" means IHC/Interstone Corporation,
a Delaware corporation, or any Affiliate of any member of the
Interstate Group who replaces IHC/Interstone Corporation as a general
partner hereunder or is admitted as an additional general partner
hereunder.
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"INTERSTATE GROUP" means the Interstate Partners,
Affiliates of the Interstate Partners and the Interstate
Related Parties.
"INTERSTATE LIMITED PARTNER" means IHC/Interstone Partnership
II, L.P., a Delaware limited partnership, or any Affiliate of any
member of the Interstate Group who replaces IHC/Interstone Partnership
II, L.P. as a limited partner hereunder or is admitted as an additional
limited partner hereunder.
"INTERSTATE PARTNERS" means collectively, the Interstate
General Partner, the Interstate Limited Partner and any other Partner
admitted to the Partnership which is an Affiliate of any of the
foregoing and any permitted
assigns of such Partners.
"INTERSTATE RELATED PARTIES" means (i) Interstate Hotels
Company, (ii) each of the senior executives of Interstate Hotels
Company and his immediate family members, for so long as he is employed
by Interstate Hotels Company, (iii) Milton Fine and his immediate
family members and (iv) any corporation, partnership, limited liability
company, joint venture or other like entity in which the Interstate
Partners or the parties referred to in (i), (ii) and (iii) above
individually or collectively, hold a fifty percent (50%) or greater,
direct or indirect (through one or more business entities), ownership
interest but shall not include any such entity in which the collective
ownership interest of these parties is less than fifty percent (50%) or
which is a publicly traded company.
"LIMITED PARTNERS" means the Blackstone Limited Partners, the
Interstate Limited Partner and any person admitted to the Partnership
as an additional or substitute limited partner of the Partnership in
accordance with the provisions of this Agreement.
"LIQUIDATOR" has the meaning set forth in Section 7.2.
"MANAGEMENT AGREEMENT" shall mean a Management Agreement in
the form attached hereto as EXHIBIT A, as such agreement may be amended
from time to time in accordance with the terms thereof and hereof.
"MINIMUM GAIN" shall have the meaning set forth in Regulations
section 1.704-2(d)(1) and shall mean the amount determined by (i)
computing for each nonrecourse liability of the Partnership any gain
the Partnership would realize if it disposed of the property subject to
that liability for no consideration other than full satisfaction of the
liability and (ii) aggregating the separately computed gains. If the
Carrying Value of any Partnership Asset differs from the adjusted tax
basis of such property, the calculation of
<PAGE> 14
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Minimum Gain pursuant to the preceding sentence shall be made by
reference to the Carrying Value. For purposes hereof, a liability of
the Partnership is a nonrecourse liability to the extent that no
Partner or related person bears the economic risk of loss for that
liability within the meaning of Regulations section 1.752-1.
"NET INCOME (LOSS)" shall mean for each Fiscal Year or other
period, the taxable income or loss of the Partnership, or particular
items thereof, determined in accordance with the accounting method used
by the Partnership for U.S. federal income tax purposes with the
following adjustments: (i) all items of income, gain, loss or deduction
allocated pursuant to Section 6.4(c) through (e) shall not be taken
into account in computing such taxable income or loss; (ii) any income
of the Partnership that is exempt from U.S. federal income taxation and
not otherwise taken into account in computing Net Income and Net Loss
shall be added to such taxable income or loss; (iii) if the Carrying
Value of any asset differs from its adjusted tax basis for U.S. federal
income tax purposes, any depreciation, amortization or gain resulting
from a disposition of such asset shall be calculated with reference to
such Carrying Value; (iv) upon an adjustment to the Carrying Value of
any asset, pursuant to the definition of Carrying Value, the amount of
the adjustment shall be included as gain or loss in computing such
taxable income or loss; and (v) except for items in (i) above, any
expenditures of the Partnership not deductible in computing taxable
income or loss, not properly capitalizable and not otherwise taken into
account in computing Net Income and Net Loss pursuant to this
definition shall be treated as deductible items.
"NON-CAPITAL PROCEEDS" means (x) any cash or other
consideration received by the Partnership other than Capital Proceeds
less (y) any such cash that is applied to the establishment of reserves
which have been established by the General Partners and to expenses of
the Partnership.
"NON-CONTRIBUTING PARTNER" has the meaning set forth in
Section 5.2.
"NONRECOURSE DEDUCTIONS" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(1).
"ORGANIZATIONAL EXPENSES" means all reasonable third-party
costs and expenses pertaining to the organization of the Partnership
and the registration, qualification or exemption of the Partnership
under any applicable federal, state or foreign laws, including fees of
counsel to the Partnership and the Partners.
"PARALLEL PARTNERSHIPS" has the meaning set forth in
Section 2.8.
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"PARTNER" means any person who is a partner of the
Partnership, whether a General Partner, a Limited Partner or both.
"PARTNER NONRECOURSE DEBT" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(4).
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" shall have the meaning
ascribed to such term in Regulations section 1.704- 2(i)(2).
"PARTNER NONRECOURSE DEDUCTIONS" shall mean any item of
partnership loss, deduction, or expenditure under section 705(a)(2)(B)
of the Code that is attributable to a Partner Nonrecourse Debt, as
determined pursuant to Regulations section 1.704-2(i)(2).
"PARTNERSHIP" means Interstone Three Partners IV L.P.
"PARTNERSHIP ACT" means the Delaware Revised Uniform
Limited Partnership Act, 6 DEL. C. ss.ss. 17-101, ET SEQ., as it
may be amended from time to time, and any successor to such
statute.
"PARTNERSHIP ASSETS" means all right, title and interest of
the Partnership in and to all or any portion of the assets of the
Partnership and any property (real or personal) or estate acquired in
exchange therefor or in connection therewith.
"PRE-EXISTING PROJECTS" has the meaning set forth in
Section 3.6(a).
"PROCEEDS" means the collective reference to Capital
Proceeds and Non-Capital Proceeds.
"PROJECT" has the meaning set forth in the Preliminary
Statement.
"PROJECT LIMITED LIABILITY COMPANY AGREEMENT" shall mean a
limited liability company agreement in a form to be agreed upon by the
General Partners, as such agreement may be amended from time to time in
accordance with the terms thereof and hereof, formed pursuant to this
Agreement to own Projects purchased hereunder.
"PROJECT PARTNERSHIP AGREEMENT" shall mean a partnership
agreement in the form attached hereto as EXHIBIT B, as such agreement
may be amended from time to time in accordance with the terms thereof
and hereof, formed pursuant to this Agreement to own Projects purchased
hereunder.
<PAGE> 16
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"REGULATIONS" means the regulations promulgated under
the Code.
"RELATED PARTIES" means the Blackstone Related Parties
and the Interstate Related Parties.
"REQUEST FOR PRELIMINARY APPROVAL" has the meaning set
forth in Section 3.6(b).
"REQUEST FOR FINAL APPROVAL" has the meaning set forth
in Section 3.6(f).
"SHARING PERCENTAGE" means the percentage interest of a
Partner as set forth on SCHEDULE A hereto, as amended from time to time
in accordance herewith.
"TARGET INVESTMENT" has the meaning set forth in the
Preliminary Statement.
"TAX MATTERS PARTNER" has the meaning set forth in
Section 6.2.
"TRANSFER" has the meaning set forth in Section 8.1(a).
"TRANSFEREE" has the meaning set forth in Section
8.1(b).
"UNREALIZED LOSS" with respect to a Project on a date of a
distribution of Capital Proceeds shall mean the excess of the total
Capital Contributions with respect to such Project as of such date over
the Fair Market Value of such Project as of such date. A Project shall
not have any Unrealized Loss on a date of a distribution if the
calculation pursuant to this definition for such Project on such date
equals zero or less.
SECTION 1.2 TERMS GENERALLY. The definitions in Section 1.1
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The term "person" includes individuals,
partnerships, joint ventures, corporations, trusts, governments (or agencies or
political subdivisions thereof) and other associations and entities. Unless the
context requires otherwise, the words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The term
"hereunder" shall mean this entire Agreement as a whole unless reference to a
specific section of this Agreement is made.
<PAGE> 17
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ARTICLE II
GENERAL PROVISIONS
SECTION 2.1 CONTINUATION OF PARTNERSHIP. The Blackstone
General Partner and the Interstate General Partner, as the General Partners, and
the Blackstone Limited Partners and the Interstate Limited Partner, as limited
partners, hereby agree to continue the Partnership and the Partners agree that
the Partnership shall continue for the limited purposes set forth and on the
other terms and conditions set forth in this Agreement. The Blackstone General
Partner hereby represents that each of the Blackstone Limited Partners is an
Affiliate of the Blackstone General Partner or its Affiliates.
SECTION 2.2 PARTNERS. SCHEDULE A hereto contains the name,
address and Sharing Percentage of each Partner as of the date of this Agreement.
SCHEDULE A shall be revised by the General Partners from time to time to reflect
the admission or withdrawal of a Partner or the transfer or assignment of
interests in the Partnership in accordance with the terms of this Agreement and
other modifications to or changes in the information set forth therein.
SECTION 2.3 NAME. The Partnership shall conduct its activities
under the name of Interstone Three Partners IV L.P. The General Partners shall
have the power at any time to change the name of the Partnership; PROVIDED, that
the name shall always contain the words "Limited Partnership" or the letters
"L.P." The General Partners shall give prompt notice of any such change to each
Partner.
SECTION 2.4 TERM. The term of the Partnership shall commence
on the date of this Agreement and shall continue until December 31, 2045, unless
sooner dissolved, wound up and terminated in accordance with Article VII of this
Agreement.
SECTION 2.5 PURPOSE; POWERS. (a) The purpose of the
Partnership shall be (i) to implement the right of first opportunity with the
Blackstone Group and the Interstate Group, including review and approval or
disapproval by the General Partners of due diligence investigation of proposed
Target Investments, and, upon final approval by the General Partners, causing
the acquisition by the Partnership of such Target Investments either by itself
or directly or indirectly through entities in which the Partnership shall have a
direct or indirect ownership interest; (ii) operating, managing and disposing of
any Target Investments approved for acquisition pursuant to this Agreement; and
(iii) to do all things necessary or incidental to any of the foregoing.
(b) In furtherance of its purposes, the Partnership
shall have all powers necessary, suitable or convenient for the
<PAGE> 18
14
accomplishment of its purposes, alone or with others, including
the following:
(i) to invest and reinvest the cash assets of the
Partnership in money-market or other short-term investments;
(ii) to have and maintain one or more offices within or
without the State of Delaware, and, in connection therewith, to rent or
acquire office space, engage personnel and compensate them and do such
other acts and things as may be advisable or necessary in connection
with the maintenance of such office or offices;
(iii) to open, maintain and close bank accounts and draw
checks and other orders for the payment of moneys;
(iv) to engage employees (with such titles and delegated
responsibilities as may be determined), accountants, consultants,
auditors, custodians, investment advisers, attorneys and any and all
other agents and assistants, both professional and nonprofessional, and
to compensate them as may be necessary or advisable;
(v) to form or cause to be formed and to own the stock of
one or more corporations, whether foreign or domestic, and to form or
cause to be formed and to participate in partnerships, joint ventures
and limited liability companies, whether foreign or domestic;
(vi) to enter into, make and perform all contracts,
agreements and other undertakings as may be necessary or
advisable or incident to carrying out its purposes;
(vii) to sue, prosecute, settle or compromise all claims
against third parties, to compromise, settle or accept judgment of
claims against the Partnership, and to execute all documents and make
all representations, admissions and waivers in connection therewith;
(viii) to distribute, subject to the terms of this Agreement,
at any time and from time to time to Partners cash or investments or
other property of the Partnership, or any combination thereof;
(ix) to borrow money, whether secured or unsecured, and to
make, issue, accept, endorse and execute promissory notes, drafts,
bills of exchange and other instruments and evidences of indebtedness,
all without limit as to amount, and to secure the payment thereof by
mortgage, pledge, or assignment of, or security interest in, the assets
then owned or thereafter acquired by the Partnership;
(x) to buy, sell, operate and otherwise deal with
Target Investments;
<PAGE> 19
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(xi) to hold, receive, mortgage, pledge, lease, transfer,
exchange or otherwise dispose of, grant options with respect to, and
otherwise deal in and exercise all rights, powers, privileges and other
incidents of ownership or possession with respect to, all property held
or owned by the Partnership; and
(xii) to take such other actions necessary or incidental
thereto as may be permitted under applicable law.
SECTION 2.6 PLACE OF BUSINESS. The Partnership shall maintain
a registered office at The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, or such other office within the
State of Delaware as is chosen by the General Partners. The Partnership shall
maintain an office and principal place of business at 345 Park Avenue, New York,
New York 10154, or at such other place as may from time to time be determined as
its principal place of business by the General Partners; the General Partners
shall give notice to the other Partners of any change in the Partnership's
principal place of business. The name and address of the Partnership's
registered agent as of the date of this Agreement is The Corporation Trust
Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
SECTION 2.7 ALTERNATIVE INVESTMENT STRUCTURE. If the
Blackstone General Partner determines that for legal, tax, regulatory or other
reasons it is in the best interests of the Partners that a Target Investment be
made through an alternative investment structure, and all of the other General
Partners unanimously Consent to such alternative structure (which Consent shall
not be unreasonably withheld), the Blackstone General Partner shall structure
the making of all or any portion of such Target Investment outside of the
Partnership by requiring any Partner or Partners to make such Target Investment
either directly or indirectly through a partnership or other vehicle (such as
the purchase of stock, the purchase of partnership interests, or the formation
of another partnership or as tenants in common) that will invest on a parallel
basis with or in lieu of the Partnership, as the case may be. The Partners shall
be required to make capital contributions directly to each such vehicle to the
same extent, for the same purposes and on the same terms and conditions as
Partners are required to make Capital Contributions to the Partnership, and such
capital contributions shall reduce the unused Committed Capital of the Partners
to the same extent as if Capital Contributions were made to the Partnership with
respect thereto. Each Partner shall have the same economic interest in all
material respects in Target Investments made pursuant to this Section 2.7 as
such Partner would have if such Target Investment had been made solely by the
Partnership, and the other terms of such vehicle shall be substantially
identical in all material respects to those of the Partnership, to the maximum
extent applicable; PROVIDED, that such vehicle (or the entity in which
such vehicle invests) shall
<PAGE> 20
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provide for the limited liability of the Limited Partners as a matter of the
organizational documents of such vehicle (or the entity in which such vehicle
invests) and as a matter of local law; and PROVIDED, FURTHER, that the General
Partners or Affiliates thereof will serve as the general partners or in some
other similar fiduciary capacity with respect to such vehicle.
SECTION 2.8 PARALLEL PARTNERSHIPS. The General Partners have
established one or more additional collective partnerships (the "Parallel
Partnerships") organized pursuant to partnership agreements in substantially the
same form as this Agreement for certain types of investors to invest in Target
Investments together with the Partnership. The Blackstone General Partner, or an
Affiliate thereof, shall be a general partner of any such Parallel Partnerships,
and the Blackstone Limited Partners, or Affiliates thereof, shall be limited
partners of any such Parallel Partnerships. The Interstate General Partner, or
an Affiliate thereof, shall be a general partner of any such Parallel
Partnerships and the Interstate Limited Partner, or an Affiliate thereof, shall
be a limited partner of any such Parallel Partnerships. The economic terms of
each Parallel Partnership shall be the same as those of the Partnership.
ARTICLE III
MANAGEMENT AND OPERATION OF THE
PARTNERSHIP; IDENTIFICATION AND APPROVAL OF
INVESTMENTS; PARTNER SERVICES
SECTION 3.1 MANAGEMENT. (a) The General Partners shall have
the full and complete responsibility for managing the business of the
Partnership and shall make all of the decisions affecting the business of the
Partnership. Except as otherwise set forth in this Agreement, the Limited
Partners shall have no right of Consent with respect to such decisions. The
General Partners shall have all of the rights, powers and authorities permitted
to be exercised by a general partner of a limited partnership formed under the
Partnership Act. The General Partners shall exercise all powers necessary and
convenient for the purposes of the Partnership, including those enumerated in
Section 2.5, on behalf and in the name of the Partnership.
(b) Except as otherwise provided herein, the Limited Partners
as such shall not have the right to, and shall not, take part in the management
or affairs of the Partnership, nor in any event shall any Limited Partner have
the power to act for or bind the Partnership unless delegated such power by the
General Partners. The exercise by any Limited Partner of any right or power
conferred herein shall not be construed to constitute participation by such
Limited Partner in the control of the business of the Partnership so as to make
such Limited Partner
<PAGE> 21
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liable as a general partner for the debts and obligations of the
Partnership for purposes of the Partnership Act.
(c) Any Consent required by this Agreement may be
given as follows:
(1) by a written Consent given by the approving Partner at
or prior to the doing of the act or thing of which the Consent is
solicited, provided that such Consent shall not have been nullified by
notice to all of the General Partners by the approving Partner at or
prior to the time, or by the negative vote by such approving Partner at
any meeting held to consider the doing, of such act or thing; or
(2) by the Consent given by the approving Partner to the
doing of the act or thing for which the Consent is solicited at any
meeting called or held to consider the doing of such act or thing.
(d) Unless the General Partners agree on a different
procedure, any matter requiring the Consent of all or any of the Partners
pursuant to this Agreement may be considered at a meeting of the Partners held
not less than three (3) nor more than fifteen (15) Business Days after notice
thereof shall have been given by a General Partner to all Partners. Such notice
(i) may be given by any General Partner, in its discretion, at any time. Any
such notice shall state briefly the purpose, time and place of the meeting. All
such meetings shall be held within or outside the State of Delaware at such
reasonable place as the General Partners shall designate and during normal
business hours. Unless otherwise provided by the General Partners, meetings may
be held telephonically.
(e) The written statements and representations of an
Authorized Representative for a General Partner shall be the only authorized
statements and representations of such General Partner with respect to the
matter covered by this Agreement. The initial Authorized Representatives are (i)
Kenneth C. Whitney, Thomas Saylak and John Schreiber for the Blackstone General
Partner and (ii) W. Thomas Parrington, J. William Richardson and Marvin I. Droz
for the Interstate General Partner. The written statement or representation of
any one Authorized Representative of the Blackstone General Partner shall be
sufficient to bind the Blackstone General Partner with respect to all matters
pertaining to the Partnership and addressed in such statement or representation.
The written statement or representation of any two Authorized Representatives of
the Interstate General Partner shall be sufficient to bind the Interstate
General Partner with respect to all matters pertaining to the Partnership and
addressed in such statement or representation.
(f) The failure to vote by any Partner on any matter
requiring such Partner's Consent within five business days after
<PAGE> 22
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such vote is requested shall be deemed to be a negative vote with respect to
such matter.
(g) A Partner shall not be obligated to abstain from voting on
any matter (or vote in any particular manner) because of any interest (or
conflict of interest) of such Partner (or any Affiliate thereof) in such matter.
(h) Each Partner agrees that, except as otherwise expressly
provided herein and to the fullest extent permitted by applicable law, the
approval of any proposed action of or relating to the Partnership by all of the
General Partners as provided herein (or if this Agreement grants one General
Partner sole approval rights over a certain action, the approval of such action
by such General Partner) shall bind each Partner and shall have the same legal
effect as the approval of each Partner of such action.
SECTION 3.2 JOINT CONTROL BY THE GENERAL PARTNERS. Except as
specifically provided in this Agreement, the business, affairs and operations of
the Partnership shall be managed, and all Partnership decisions shall be jointly
made, by both General Partners, and no single General Partner, acting alone,
shall have the authority to bind or make any decision for the Partnership or to
conduct or manage the Partnership's business or affairs. Without limiting the
foregoing in any way, the following are examples of decisions of the Partnership
which shall be made jointly by the General Partners:
(a) the reorganization of the Partnership as a corporation or
other entity, or the creation of a holding corporation, partnership or
limited liability company to own all or any substantial portion of the
assets of or all the equity interests in the Partnership, provided that
the surviving entity remains a pass-through entity for taxation
purposes;
(b) the termination or settlement of any litigation by
the Partnership;
(c) the making of any change in the Fiscal Period, any
determination of reserves under this Agreement, any distribution of
cash or investments or other property of the Partnership to the
Partners, or any withdrawals of capital from the Partnership;
(d) the making of any change in the name of the
Partnership or the use of another name by the Partnership to
carry on any business of the Partnership;
(e) the making of the determination and approval of
such tax matters as are specified in Section 6.2;
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(f) the making of the allocation of amounts in respect
of an interest in the Partnership Transferred pursuant to
Section 8.2(e);
(g) the authorization of a Partner to disclose
information agreed to be held confidential under
Sections 9.5;
(h) the admission of an additional Partner to the Partnership
pursuant to the terms of this Agreement if such additional Partner is
not an Affiliate of either any member of the Blackstone Group or any
member of the Interstate Group;
(i) (A) the sale, exchange or other transfer of any
Partnership Asset, (B) the merger or consolidation of the Partnership
with or into any other business entity provided that the surviving
entity remains a pass-through entity for taxation purposes, and (C) the
right to require each of the Partners to exchange, transfer or
otherwise convey some or all of its partnership interest in the
Partnership as part of an exit or disposition strategy for the
Partnership;
(j) the making of any expenditure incurred in
connection with the administration of the Partnership;
(k) the entering into of any lease by the Partnership as
lessor;
(l) the engagement of any independent accountant,
counsel, actuary or consultant to the Partnership, or any
change in or termination of any engaged independent
accountant, counsel, actuary or consultant to the
Partnership;
(m) the maintenance of a registered office in Delaware
other than that specified in Section 2.6;
(n) the determination of any titles and
responsibilities of employees of the Partner pursuant to
Section 2.5(b)(iv);
(o) the approval of budgets;
(p) the expenditure by the Partnership of any funds in
connection with the disposition of a Target Investment or the
expenditure by the Partnership of any funds required in connection with
the operation of any Target Investments which are not included within
the approved budget for such Target Investment;
(q) any termination, replacement or other change in
the franchisor of any Target Investment in accordance with
the terms of the franchise agreement, or the execution,
<PAGE> 24
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modification or termination of any agreement which is
material to the Partnership;
(r) the dissolution, termination and winding up of the
Partnership as provided in Section 7.1(a);
(s) any amendment to this Agreement which would have a
material adverse effect on any Partner's economic interest
in the Partnership;
(t) extending the term of the Partnership beyond
December 31, 2045;
(u) in accordance with Section 3.6 below, the decision for the
Partnership to investigate a Target Investment and the decision for the
Partnership to acquire a Target Investment, or the decision for the
Partnership to acquire any other asset;
(v) the borrowing of money;
(w) the filing of a petition under any bankruptcy or
other insolvency law by the Partnership, or the admission in
writing by the Partnership of its bankruptcy, insolvency or
general inability to pay its debts;
(x) the commencement of any litigation by the Partnership;
(y) a transaction or other matter involving any actual or
potential conflict of interest affecting any Partner or Affiliate
thereof other than the entering into of any agreements or the payment
of any amounts provided for in this Agreement; and
(z) a change in the business of the Partnership to include any
business other than that specified in Section 2.5 which takes the focus
of the Partnership's business away from the lodging industry.
Notwithstanding the foregoing and without limiting the foregoing in any way, any
General Partner may delegate in writing to (i) the other General Partner, its
right to make any decisions concerning the Partnership or take any actions on
behalf of the Partnership and/or (ii) to any manager of any Target Investment,
the day to day administrative duties in connection with the operation of such
property.
SECTION 3.3 BLACKSTONE PARTNERS RIGHTS. Notwithstanding any
other provision of this Agreement, the Blackstone General Partner may take any
of the following actions with out the Consent of any of the Interstate Partners:
<PAGE> 25
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(a) with respect to any Target Investment in which an
Affiliate of the Interstate General Partner is the manager, any
termination, replacement or other change in such manager in accordance
with the terms of the management agreement, the declaration of a
default or event of default under any management agreement for such
manager, and the exercise of any remedies under such management
agreement;
(b) the approval of a transfer of any partner's interest in
the Partnership and the approval of the admission of any additional
partner to the Partnership if such additional partner is an Affiliate
of any member of the Blackstone Group or any member of the Interstate
Group; and
(c) such other actions and decisions which are expressly given
solely to the Blackstone General Partner pursuant to the terms of this
Agreement.
SECTION 3.4 CERTAIN DUTIES AND OBLIGATIONS OF THE PARTNERS.
(a) Subject to the terms of this Agreement, the General Partners shall take all
action which may be reasonably necessary or appropriate (i) for the formation
and continuation of the Partnership as a limited partnership under the laws of
the State of Delaware and (ii) for the development, maintenance, preservation
and operation of the business of the Partnership in accordance with the
provisions of this Agreement and applicable laws and regulations.
(b) No Partner shall take any action so as to cause the
Partnership to be classified for Federal income tax purposes as an association
taxable as a corporation and not as a partnership.
(c) The General Partners shall take (and each Partner agrees
to cooperate with the General Partners and approves of the General Partners
taking on its behalf) all action which is necessary to form or qualify the
Partnership to conduct the business in which the Partnership is engaged under
the laws of any jurisdiction in which the Partnership is doing business and to
continue in effect such formation or qualification.
(d) The General Partners shall not take, or cause to be taken,
any action that would result in any Limited Partner having any personal
liability for the obligations of the Partnership. The General Partners shall be
under a duty as described herein to conduct the affairs of the Partnership in
the best interests of the Partnership and of the Partners including the
safekeeping and use of all Partnership funds and assets and the use thereof for
the exclusive benefit of the Partnership. Neither any Partner nor any Affiliate
of any Partner shall enter into any transaction with the Partnership unless the
transaction (i) is expressly permitted hereunder, (ii) is entered into on
arm's-length terms in the ordinary course of Partnership business or (iii) is
approved by all of the General Partners upon
<PAGE> 26
22
disclosure of any direct or indirect interest such Partner or any Affiliate
thereof may have in the transaction.
(e) No General Partner shall be liable, responsible or
accountable in damages or otherwise to the Partnership or to any Partner for (a)
any act performed within the scope of the authority conferred on such General
Partner by this Agreement except for the gross negligence or willful misconduct
of such General Partner in carrying out its obligations hereunder, (b) such
General Partner's failure or refusal to perform any act, except those expressly
required by or pursuant to the terms of this Agreement, (c) such General
Partner's performance of, or failure to perform, any act on the reasonable
reliance on advice of legal counsel to the Partnership or (d) the negligence,
dishonesty or bad faith of any agent, consultant or broker of the Partnership
selected, engaged or retained and monitored with reasonable care. In any
threatened, pending or completed action, suit or proceeding, each General
Partner shall be fully protected and indemnified and held harmless by the
Partnership against all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, proceedings, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable attorneys' fees, costs of investigation, fines, judgments and amounts
paid in settlement, actually incurred by such General Partner in connection with
such action, suit or proceeding) by virtue of its status as a General Partner or
with respect to any action or omission taken or suffered in good faith, other
than liabilities and losses resulting from the gross negligence or willful
misconduct of such General Partner; provided, however, that a General Partner
shall not be so indemnified for any acts determined to be in contravention of
this Agreement or in breach of its fiduciary duties. The indemnification
provided by this paragraph shall be recoverable only out of the assets of the
Partnership, and no Partner shall have any personal liability on account
thereof.
SECTION 3.5 RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNERS.
The General Partners shall not have the authority to:
(a) do any act in contravention of this Agreement
(including under Section 3.2 or Section 3.3);
(b) do any act which would make it impossible to carry on the
ordinary business of the Partnership, except in connection with the
dissolution, winding up and termination of the Partnership as provided
by Article VII;
(c) possess Partnership property, or assign their
respective rights in specific Partnership property, for
other than a Partnership purpose;
(d) admit a person as a Partner except as provided in
this Agreement; or
<PAGE> 27
23
(e) knowingly perform any act that would subject any
Limited Partner to liability as a general partner in any
jurisdiction.
SECTION 3.6 RIGHT OF FIRST OPPORTUNITY. (a) Subject to
Section 3.7(b) below, and until expiration or termination of the right of first
opportunity in favor of the Partnership set forth below (which right has been
confirmed and acknowledged in the Confirmation and Acknowledgment of Right of
First Opportunity ("ACKNOWLEDGMENT"), in the form attached hereto as EXHIBIT C,
which has been executed simultaneously herewith), each member of the Blackstone
Group and the Interstate Group shall offer to the Partnership (along with the
Parallel Partnerships) a right of first opportunity to invest in each Target
Investment which (x) is identified by such member after the date of this
Agreement or (y) which is identified on the list of Projects attached hereto as
EXHIBIT D (the "PRE-EXISTING PROJECTS"), in each case, upon and subject to the
terms set forth in the remainder of this Section 3.6.
(b) Except as provided in Section 3.7(b) below, promptly upon
its identification of a Target Investment as a potential investment, each member
of the Blackstone Group and the Interstate Group shall notify each of the
General Partners about such Target Investment (such notification, a "REQUEST FOR
PRELIMINARY APPROVAL") and shall provide each of the General Partners with such
information reasonably necessary to evaluate such investment.
(c) Within five (5) Business Days after delivery to the
General Partners of the Request for Preliminary Approval and the accompanying
information pursuant to paragraph (b) above with respect to a proposed Target
Investment, and provided that notice shall have first been given from the party
requesting such action that approval is being sought under this Section, the
General Partners shall either approve or disapprove pursuit of such proposed
Target Investment (including the incurring of due diligence costs and
expenditures, the negotiation and documentation of the terms of purchase and
financing, and the posting of deposits). If the General Partners, having first
been notified that approval under this Section is being sought, fail to
unanimously approve the investigation of a proposed Target Investment within
such five (5) Business Day period, the proposed Target Investment shall be
deemed disapproved. Any General Partner shall have the right to reasonably
request additional information regarding the proposed Project within three (3)
Business Days after receipt of the Request for Preliminary Approval and the
accompanying information. If any General Partner requests such additional
information, the five (5) Business Day period referred to above shall commence
on the day such General Partner receives all such additional information. The
General Partners shall each have the right to approve or disapprove
investigation of any proposed Project in their sole and absolute discretion.
Once investigation of a Target
<PAGE> 28
24
Investment is approved, the due diligence costs and expenditures reasonably
incurred by the Partnership and within the scope approved by the General
Partners with respect to such Project shall become the obligation of the
Partnership.
(1) All due diligence costs and expenditures reasonably
incurred by the Partnership pursuant to this Section and within the
scope of the approved due diligence shall be funded if and when
required for payment, and shall be funded solely from, and shall
constitute, Capital Contributions to the Partnership by the Partners.
In no event shall due diligence expenses be funded from operating
revenues of the Partnership. The due diligence expenses incurred by the
Partnership shall be allocated for book and tax accounting purposes
between and among each Project in such manner as the General Partners
may reasonably approve. Due diligence expenses from a Project shall be
allocated among the Parallel Partnerships in such a manner as the
Blackstone General Partner shall determine, in its sole discretion.
Each Partner shall contribute its PRO RATA share of such due diligence
expenses, based upon such Partner's Sharing Percentage.
(2) The Partners intend that all due diligence will be
conducted through the Partnership in accordance with any Consent given
by the General Partners; however, a General Partner may elect to
perform its own due diligence in addition to that being performed by
the Partnership. In the event a General Partner so elects to perform
its own due diligence, such General Partner shall use its best efforts
to minimize duplication of efforts and costs with that of the
Partnership. The expenses (including legal fees) reasonably incurred by
such General Partner shall be payable by the Partnership as Partnership
expenses.
(d) If the General Partners approve investigation of a
Project, the Partnership shall promptly undertake due diligence investigation
and at appropriate times during and, in any event, prior to the conclusion of
that due diligence investigation, the Partnership shall make available to each
Partner copies of the material due diligence information obtained by the
Partnership with respect to the applicable Target Investment.
(e) If any General Partner has elected to participate in the
due diligence investigation of a proposed Project pursuant to Section 3.6(c)(2)
above, then all due diligence activities shall be coordinated with such General
Partner as reasonably necessary to facilitate such participation.
(f) At such time, if any, as any member of the Blackstone
Group or the Interstate Group determines that a request for final authority to
proceed with acquisition of a Project is required because such party reasonably
believes that a binding commitment (i.e. a letter of intent which is, or could
<PAGE> 29
25
become binding or a contract for purchase and sale) to proceed with the
acquisition must be executed by the Partnership or the opportunity to acquire
such interest would be lost, such party shall request the General Partners to
give their final approval to proceed with such acquisition (such notification, a
"REQUEST FOR FINAL APPROVAL"). Upon the request of any General Partner, a
Request for Final Approval shall be made in writing. In connection with any
Request for Final Approval, such party shall, to the extent applicable, (i)
submit to the General Partners the form of any purchase agreement and/or other
relevant documents pursuant to which the Partnership may acquire an interest in
a Project, and (ii) notify the General Partners of whether an Affiliate of the
Interstate General Partner is being proposed as the property manager for the
Project. Within five (5) Business Days after delivery of the Request for Final
Approval, the General Partners shall meet and either approve or disapprove, in
writing, the proposed Project, including a timetable for closing of the
acquisition, the posting of any non-refundable deposits, if applicable, and the
terms of engagement of any Affiliate of the Interstate General Partner for
property or asset management of the Project, as applicable. Each General Partner
shall have the right to grant final approval or disapproval of the Project in
its sole and absolute discretion. However, unless all of the General Partners
agree to extend the five (5) Business Day decision period set forth above, the
General Partners shall either approve or disapprove the Project within that
period without exception, and any failure to act within that period, as it may
be extended by the General Partners in their sole discretion, shall constitute a
disapproval of the Project. The Blackstone Partners specifically acknowledge
that, unless transfer of management is not feasible or practical, the Interstate
General Partner contemplates the engagement by the Partnership of an Affiliate
of the Interstate General Partner on an arm's length basis in connection with
the property management of one or more of the Projects and contemplates that one
or more of the Project proposals may propose such engagement. If transfer of
management is not feasible or practical, then, unless such engagement is not
feasible or practical, the Partnership shall engage an Affiliate of the
Interstate General Partner as an asset manager for such Project pursuant to an
Asset Management Agreement in form and substance satisfactory to the parties
thereto (the "ASSET MANAGEMENT AGREEMENT"), and the fees payable by the
Partnership under such Asset Management Agreement shall be at Competitive Rates.
Unless the General Partners unanimously agree otherwise, no nonrefundable
deposit shall be posted with respect to a Project until that Project has
received final Project approval pursuant to this subsection 3.6(f) and the
General Partners have had the opportunity to review the purchase agreement
and/or the other documents pursuant to which the Partnership may acquire an
interest in such Project. The final Project approval shall specify the amount of
each remaining funding obligation with respect to the applicable Project and the
date(s) by which each such amount is to be funded, it being the intent of the
Partners that they not fund to the Partnership
<PAGE> 30
26
those amounts due to the seller of (or if applicable, escrow agent for the
transfer of) the Project more than three (3) Business Days prior to the date
such amounts are due to the Seller or escrow agent, as applicable. The funding
obligations with respect to a Project shall be allocated among the Parallel
Partnerships in such a manner as the Blackstone General Partner shall determine,
in its sole discretion. By each funding date, the Partners shall fund to the
Partnership their PRO RATA portion of the funding obligation then due, based
upon each Partner's Sharing Percentage, including any purchase deposits
contemplated in connection with the Consent to such Project. In no event shall
final Project approval funding requirements be funded from operating revenues of
the Partnership. All such contributions to the Partnership shall constitute
Capital Contributions. Each of the General Partners will consult with the other
General Partners in connection with the negotiation of any documents necessary
for the acquisition of a Target Investment.
(g) If the General Partners approve a proposed Project
pursuant to subsection 3.6(f) above, unless the Project shall be purchased
through another form, the Partnership shall promptly finalize the form of the
Project Partnership Agreement or Project Limited Liability Company Agreement, as
applicable, for the ownership of the proposed Project (with such Project
specific modifications as are necessary to address any Project specific
characteristics not addressed by the form of Project Partnership Agreement or
Project Limited Liability Company Agreement, as applicable), and promptly
finalize the form of a Management Agreement or an Asset Management Agreement, as
applicable, to be entered into (with such Project specific modifications as are
necessary to address any Project specific characteristics not addressed by the
form of Management Agreement or Asset Management Agreement, as applicable, and
which the Manager and the Blackstone General Partner may approve), which
Management Agreement (if applicable) shall provide for aggregate fees not
greater than 2.8% of Gross Operating Revenues (as defined in the Management
Agreement). In no event shall any party hereunder have any liability to the
other party for failure to finalize or enter into any Management Agreement or
Asset Management Agreement, as applicable, so long as the parties have proceeded
in good faith to attempt to consummate such documentation following approval of
the General Partners of any proposed Project pursuant to Section 3.6.
(h) The General Partners agree that in the event that (A)
material facts or circumstances or a material change in any facts or
circumstances regarding a Target Investment which was approved for acquisition
by the General Partners become known to any General Partner which were not
previously known by such General Partner and (B) with the knowledge of such new
or changed facts or circumstances, such General Partner no longer desires to
proceed with such acquisition and (C) at the time of the occurrence of the event
or events referred to in clause (A) above, (x) the Partnership is not
irrevocably committed to
<PAGE> 31
27
consummate the acquisition of such Target Investment pursuant to a binding legal
agreement and (y) the Partnership's obligations under such agreement would not
be breached by the failure to consummate such acquisition, then such General
Partner may, by written notice to the other General Partners, revoke its Consent
to consummate such acquisition at which time such Target Investment shall no
longer be deemed approved.
(i) Notwithstanding anything in this Section to the contrary,
if, with respect to a Project, a member of the Blackstone Group or the
Interstate Group reasonably believes it must take some action to retain the
opportunity to purchase such Project before it has sufficient time to follow the
procedures for approval set forth in this Section, such party may take such
action (including the making of a deposit or the entering into a binding
agreement if assignable to the Partnership) in its own name only and at its own
risk without violating the terms of this Agreement, provided such party promptly
submits such Project to the Partnership for its consideration. If the General
Partners subsequently approve such Project, such party shall assign all of its
rights in the Project to the Partnership and the Parallel Partnerships, as
appropriate. If the General Partners subsequently disapprove such Project, the
Partnership shall not be bound in any way to such Project, and the party who
proposed the Project may proceed with such Project only if the conditions of
Section 3.7(b) and Section 3.7(c) have been met.
(j) Any General Partner may request that any of the
time periods set forth herein be reduced or extended, if
reasonably necessary.
(k) Notwithstanding anything in this Section to the contrary,
none of the Interstate Partners shall be deemed in default hereunder for failure
to notify the Blackstone Group as required herein if notice has been given to
the Blackstone General Partner of any of the Parallel Partnerships.
(l) Notwithstanding anything contained in this Agreement to
the contrary, unless all of the Partners unanimously agree otherwise, each
Project in which the Partnership invests shall secure mortgage debt financing in
principal amounts and with terms that are consistent with the then currently
prevailing market conditions, but in any event in principal amounts between 60%
and 75% of the total acquisition cost of such Project.
SECTION 3.7 RIGHT OF FIRST OPPORTUNITY; EXCLUSIVE RIGHTS;
INVESTMENT PARAMETERS. (a) Subject to the terms of this Agreement as set forth
above, the Blackstone Partners and the Interstate Partners each covenant to
provide to the Partnership, and each other, during the term of this Agreement,
the right of first opportunity as provided in Section 3.6 above to invest in (x)
those Target Investments which are hereafter identified by them and (y) the
Pre-Existing Projects. By their previous execution of the Acknowledgement,
Interstate Hotels Company (in
<PAGE> 32
28
the case of (A) below) and Blackstone Group Holdings L.P. (in the case of (B)
below) have agreed and hereby ratify and confirm that they agree, and agree to
cause (A) the Interstate Group and (B) the Blackstone Group, respectively, to
submit any Target Investments in which they or the Interstate Group and the
Blackstone Group would otherwise wish to invest independent of the Partnership
to the right of first opportunity set forth herein, and, in connection
therewith, they shall, and shall cause the Interstate Group and the Blackstone
Group to, subject to Section 3.7(b) below, refer all such investment
opportunities to the Interstate General Partner or the Blackstone General
Partner, as applicable, for submission to the Partnership pursuant to the terms
set forth above.
(b) Notwithstanding anything herein to the contrary, the
Interstate Group and the Blackstone Group expressly retain the right to
undertake acquisition or development of any Target Investment or any other
investment whatsoever, without the consent of the others, and free of any right
of first opportunity hereunder, at such time, in such form and upon such terms
as they, acting in their sole discretion, may determine appropriate, where any
one of the following conditions is satisfied:
(i) such Project is a Project that was disapproved or
deemed disapproved solely by action or inaction of the General Partners
after proper notice; PROVIDED, that if a Project is disapproved or
deemed disapproved by a General Partner who is a member of the same
group (i.e., the Blackstone Group or the Interstate Group) as the party
who submitted the Request for Preliminary Approval or Request for Final
Approval, as applicable, then the condition contained in this clause
(i) shall not be deemed satisfied for any member of such group;
(ii) such Project fails to meet the definition of a
Target Investment;
(iii) except as expressly provided below, such Project is
listed on EXHIBIT E hereto, subject to the qualifications and
agreements described in such Exhibit;
(iv) such Project is identified or undertaken after the
termination of the right of first opportunity pursuant to
the terms of this Agreement;
(v) such party is acquiring, directly or indirectly, the
stock or assets of an entity which owns one or more Target Investments
but whose assets and/or operations are not primarily composed of Target
Investments;
(vi) such party is acquiring, directly or indirectly, the
stock or assets of an entity which primarily owns and/or operates hotel
or motel franchise systems or hotel or motel reservations systems;
<PAGE> 33
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(vii) the Consideration being paid for such Target
Investment in the aggregate is less than $10,000,000 or the equity
portion of the Consideration being paid for such Target Investment in
the aggregate is less than $5,000,000; or
(viii) with respect to a Target Investment, the
Interstate Group or the Blackstone Group , as applicable,
certifies, at any time (whether or not such Project has been
submitted to the Partners and the Partnership under Section
3.6 above), that in its good faith judgment, involvement
with the Blackstone Group or the Interstate Group, as
applicable, in such Target Investment would be prohibited
by, or otherwise interfere with, its other business
arrangements or would otherwise not be appropriate, feasible
or practical.
(c) Notwithstanding anything in Section 3.7(b) above to the
contrary, the right of first opportunity set forth herein will apply to any
acquisition undertaken by any member of the Blackstone Group or the Interstate
Group during the term of this right of first opportunity with respect to the
Pre-Existing Projects. In the event that a party is undertaking the acquisition
of a Target Investment free of the right of first opportunity pursuant to
Section 3.7(b)(i), such party shall acquire such Target Investment upon terms
that are no more favorable than the terms presented to the General Partners with
respect to such Target Investment.
(d) The Partners acknowledge that, without limiting the
definition of Target Investment, it is their intent that the Target Investments
ultimately acquired by the Partnership will be Target Investments which (i) are
mid to high quality (3-4 stars), (ii) are located in growing markets, (iii) are
well positioned vis-a-vis the competition and, (iv) provide significant
opportunity for enhanced performance through intensive management repositioning
and/or redevelopment. Additionally, there is a preference for multi-asset
acquisitions over single properties in order to provide for the most efficient
and cost effective underwriting and investment process. Further, such
acquisitions should provide minimum going-in free and clear returns of 11%
(after management and FF&E reserve), unless immediate opportunity for enhanced
performance can be demonstrated. Nevertheless, certain Target Investments may be
approved hereunder even if they do not fall within the above-referenced
investment parameters. Accordingly, except as otherwise provided herein
(including without limitation Section 3.7(b) below), all Target Investments,
including, those that do not fall within the above-referenced investment
parameters, shall be subject to the right of first opportunity set forth in
Section 3.6 above.
<PAGE> 34
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SECTION 3.8 TERMINATION OF RIGHT OF FIRST
-----------------------------
OPPORTUNITY.
- - -----------
(a) The Blackstone General Partner shall have the right to
terminate the right of first opportunity set forth in Section 3.6 if any member
of the Interstate Group defaults in the performance of any of its obligations
hereunder or under the Acknowledgement after the Blackstone General Partner has
given such Partner or any other such party notice of such default and such
Partner or other party has failed to cure such default within 30 days after
receipt of such notice.
(b) The Interstate General Partner shall have the right to
terminate the right of first opportunity set forth in Section 3.6 if any member
of the Blackstone Group defaults in the performance of any of its obligations
hereunder or under the Acknowledgement after the Interstate General Partner has
given such Partner or any other such party notice of such default and such
Partner or other party has failed to cure such default within 30 days after
receipt of such notice.
(c) The right of first opportunity set forth in Section 3.6
shall automatically terminate upon the earlier to occur of (i) December 15, 1997
or (ii) the date upon which the members of the Blackstone Group in the
Partnership and in the Parallel Partnerships shall have contributed an aggregate
of $29,400,000 to the Partnership and the Parallel Partnerships and the members
of the Interstate Group in the Partnership and the Parallel Partnerships shall
have contributed an aggregate of $30,600,000 to the Partnership and the Parallel
Partnerships.
(d) At any time after $54,000,000 has been invested (either
through acquisitions that are closed or through binding commitments to close
acquisitions) in the aggregate by the Partnership and the Parallel Partnerships,
then any Partner may elect to terminate the right of first opportunity set forth
in Section 3.6 upon three (3) Business Days notice to all the other Partners.
(e) The General Partners may, in their discretion, extend the
right of first opportunity set forth in Section 3.6 for such period of time as
they may mutually agree.
SECTION 3.9 FINANCING. The Blackstone General Partner, acting
directly or through one or more of its Affiliates, shall endeavor to secure an
acquisition financing facility for the Partnership and the Parallel Partnerships
in an initial amount between $60,000,000 and $80,000,000, such facility to be
subject to borrowings by the Partnership and the Parallel Partnerships to
acquire Target Investments in the event that sufficient seller financing is not
available in connection with the acquisition of any such Target Investment and
for other related purposes. If needed, the Blackstone General Partner may secure
additional debt facilities for the Partnership and the
<PAGE> 35
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Parallel Partnerships up to an aggregate amount (including the initial
$60,000,000 to $80,000,000) between $140,000,000 and $180,000,000. The General
Partners must unanimously approve the terms and conditions of such financing. In
the event such financing is obtained, in addition to any other fees, expenses or
other compensation payable to the Blackstone General Partner and/or its
Affiliates hereunder or any fees payable to third parties in connection with
such financing, the Partnership and the Parallel Partnerships shall pay to the
Blackstone General Partner and/or its Affiliates, as the case may be, a fee for
placing such debt facilities in an amount equal to one percent (1%) of the
maximum principal amount of each such debt facility. The portion of such fee
allocated to the Partnership shall be determined by the Blackstone General
Partner, in its sole discretion. At the time such fee is payable, each Partner
shall fund to the Partnership, as a Capital Contribution, its PRO RATA portion
of such fee, based upon such Partner's Sharing Percentage, to the extent not
financed as part of the overall transaction. No fee shall be payable under this
Section in connection with the refinancing of any such debt facilities.
SECTION 3.10 FINANCIAL ADVISORY SERVICES. (a) Each
time that the Partnership acquires a Target Investment, the Partnership and any
Parallel Partnerships invested in such Target Investment shall pay to whichever
of the Blackstone General Partner (and/or its Affiliates) or the Interstate
General Partners (and/or its Affiliates) proposed such Target Investment to the
Partnership, an aggregate advisory fee equal to one percent (1%) of the amount
of the Consideration for the acquisition of such Target Investment; provided
that the Blackstone General Partner or its Affiliates shall not be entitled to
such a fee after the occurrence and during the continuance of a default
hereunder by any of the Blackstone Partners (after any notice and opportunity to
cure); and provided further that the Interstate General Partner or its
Affiliates shall not be entitled to such a fee after the occurrence and during
the continuance of a default hereunder by any of the Interstate Partners (after
any notice and opportunity to cure). The portion of such fee allocated to the
Partnership shall be determined by the Blackstone General Partner. At the time
such fee is payable, each Partner shall fund to the Partnership, as a Capital
Contribution, its PRO RATA portion of such fee, based --- ---- upon such
Partner's Sharing Percentage, to the extent not financed as part of the overall
transaction.
(b) Each time that the Partnership disposes (including,
without limitation, in exchange for stock of a corporation, partnership
interests in a partnership or interests in a limited liability company) of a
Target Investment, the Partnership and any Parallel Partnerships invested in
such Target Investment shall pay to the Blackstone General Partner (and/or its
Affiliates) an aggregate advisory fee equal to one percent (1%) of the amount of
the Consideration for the disposition of such Target Investment; provided that
the Blackstone General Partner
<PAGE> 36
32
or its Affiliates shall not be entitled to such a fee after the occurrence and
during the continuance of a default hereunder by any of the Blackstone Partners
(after any notice and opportunity to cure). The portion of such fee allocated to
the Partnership shall be determined by the Blackstone General Partner. At the
time such fee is payable, each Partner shall fund to the Partnership, as a
Capital Contribution, its PRO RATA portion of such fee, based upon such
Partner's Sharing Percentage, to the extent not financed as part of the overall
transaction.
SECTION 3.11 OTHER PARTNER SERVICES.
(a) Until such time as the General Partners hire, as an
employee or employees of the Partnership, a portfolio manager, a controller
and/or an administrative staff to conduct and oversee the overall administration
of the Partnership, the Interstate General Partner shall conduct all the
administrative affairs of the Partnership at the then Competitive Rate;
provided, however, that the General Partners agree to hire an employee or
employees of the Partnership to perform such tasks promptly after the needs of
the Partnership so require. Any such employee may be employed jointly by the
Parallel Partnerships. The Interstate General Partner shall also, at no cost to
the Partnership (except where otherwise provided in this Agreement), conduct,
oversee and/or manage all (i) pre-acquisition due diligence, (ii) property-level
management, (iii) performance tracking, (iv) the making of capital improvements
to any Project, (v) overall portfolio management of the Partnership Assets and
(vi) negotiation of franchise fee arrangements. The Interstate General Partner
shall also be responsible for preparing administrative, operating and capital
budgets for the Partnership. The Interstate General Partner shall submit to the
General Partners all relevant information regarding all proposed budgets,
proposed franchise fee arrangements and related financial matters, and the
General Partners shall have the right to Consent to all such materials before
they are implemented by the Partnership.
(b) The Blackstone General Partner shall, at no cost to the
Partnership (except where otherwise provided in this Agreement), conduct,
oversee and/or manage all the acquisition and disposition activities of the
Partnership, including overseeing acquisitions and dispositions of Target
Investments, arranging debt financings on individual Target Investments and
conducting and/or overseeing all mergers and public securities offerings.
(c) The Partners acknowledge that Affiliates of the Interstate
General Partner have the capability of providing to the Partnership various
insurance and purchasing services. At the direction of the Blackstone General
Partner acting in its sole discretion (including, as to insurance, approval by
the Blackstone General Partner of the financial soundness of any proposed
insurance company and its reinsurers), the Partnership
<PAGE> 37
33
may engage such Affiliates of the Interstate General Partner to perform such
services (in which case such services shall be performed at Competitive Rates)
or the Partnership may engage independent third parties to perform such
services, provided, that if the Partnership has received an offer from any such
independent third party to perform such services, Affiliates of the Interstate
General Partner shall have the right to match such offer and, if such offer is
matched, the Partnership will engage such Affiliates on the terms of such offer.
(d) In performance of the services pursuant to this Section
3.11 and otherwise, the Partners agree that they shall cooperate and consult
with each other in an effort to minimize duplication of efforts and costs.
SECTION 3.12 MARKETING RIGHTS. At any time after
December __, 1997 [18 MONTHS FROM THE EXECUTION HEREOF], the Blackstone
Partners, acting jointly, or the Interstate Partners, acting jointly, may
propose the sale of a Project or Projects (but not a portion of any Project) in
accordance with the following terms:
(a) All of the Blackstone Partners may jointly serve upon all
of the Interstate Partners, or all of the Interstate Partners may
jointly serve upon the all of the Blackstone Partners, a notice (an
"Offering Notice") as described below. The partners serving an Offering
Notice shall be referred to in this Section as the "Offering Group".
The partners receiving an Offering Notice shall be referred to in this
Section as the "Offeree Group". Each Offering Notice shall specify one
or more Projects (the "Offered Projects") that the Offeror Group
proposes to be sold (either by causing the Property Partnerships which
own such Offered Projects to sell such Offered Projects or by selling
all of the partnership interests in such Property Partnerships) and
designate a price for the sale of each Offered Project (the "Offer
Price"). The Offeree Group with respect to a Project may not deliver an
Offering Notice with respect to such Project until the expiration of
the Sale Option Period (as defined below) for such Project with respect
to the Offering Notice of the Offeror Group with respect to such
Project. The Offering Notice may not propose to sell a portion of any
Project. An Offering Notice delivered under this Agreement must be
simultaneously delivered under the partnership agreement of each of the
Parallel Partnerships, and for the purposes of this Section 3.12, the
Offeror Group shall consist of all of the members of the Offeror Groups
in each of the Parallel Partnerships, the Offeree Group shall consist
of all of the members of the Offeree Groups in each of the Parallel
Partnerships, the Offered Projects shall consist of the interest of all
of the Parallel Partnerships in such Offered Projects, and the Offeree
Deposit (as defined below) shall be delivered in the aggregate by all
of the Parallel Partnerships,
<PAGE> 38
34
(b) Within 30 days after the receipt by the Offeree Group of
an Offering Notice (an "Offeree Option Period"), the Offeree Group may
in a writing to the Offeror Group (an "Offeree Reply Notice") (i) elect
to purchase all of the Offered Projects listed in such Offering Notice
(an "Offeror Group Interest") at a price equal to the aggregate Offer
Price for the Offered Projects, or (ii) decline to purchase such
Offered Projects. With respect to each Offering Notice, if the Offeree
Group fails to deliver an Offeree Reply Notice to the Offeror Group
prior to the expiration of the Offeree Option Period, the Offeree Group
shall for all purposes be conclusively deemed to have declined to
purchase the Offered Projects listed in such Offering Notice. If the
Offeree Group elects to purchase all of the Offered Projects, the
Offeree Group shall deliver to a mutually acceptable escrow agent, a
nonrefundable deposit in an amount equal to 5% of the aggregate Offer
Price for the Offered Projects (the "Offeree Deposit"); in such case,
the Offeree Reply Notice shall not be deemed delivered until such time
as the escrow agent has received the Offeree Deposit. The Offeror Group
and the Offeree Group shall endeavor to structure any sale of the
Offered Projects to the Offeree Group in a tax efficient manner.
(c) If, with respect to an Offering Notice, the Offeree Group
elects to purchase the Offered Projects, the closing of the purchase of
such Offered Projects (the "Closing") will be held on a date selected
by the Offeree Group upon five Business Days' notice to the Offeror
Group but no later than 90 days after the Offeror Group's receipt of
the Offeree Reply Notice (the "Outside Purchase Date"). Each Closing
shall be held in New York City at a location designated by the General
Partner in the Offeror Group. At the Closing, the Partnership (or the
Property Partnership, as applicable) shall execute such transfer
documents as the Offeree Group shall reasonably require to transfer the
Offered Projects to the Offeree Group, as is, where is, and the Offeree
Group shall pay to the Offeror Group, in immediately available funds,
the aggregate Offeror Price for all of the Offered Projects listed in
such Offering Notice. To the extent the execution by a member or
Affiliate of a member of the Offeree Group is required on behalf of the
Partnership or Property Partnership, each member or Affiliate of a
member of the Offeree Group shall promptly execute and deliver any such
document or instrument, and each Partner of the Offeree Group hereby
constitutes and appoints each Partner in the Offeror Group its attorney
in fact to execute, acknowledge and deliver any such documents or
instruments in its stead.
(d) An Offeree Reply Notice shall be an irrevocable binding
obligation of the Offeree Group. If the Offeree Group elects in an
Offeree Reply Notice to purchase the Offered Projects, and the Offeree
Group fails to purchase
<PAGE> 39
35
such Offered Projects by the applicable Offeree Outside Purchase Date,
(i) the Offeree Group shall immediately forfeit all of its rights under
this Section 3.12 with respect to any Projects, including without
limitation the right to send out Offering Notices with respect to any
Projects, (ii) the Offeror Group shall be entitled to retain the
Offeree Deposit as liquidated damages, and (iii) the Offeror Group
shall be entitled to exercise any and all other remedies available at
law and equity, including specific performance since the parties hereto
recognize that damages alone would be inadequate.
(e) With respect to an Offering Notice, if the Offeree Group
declines (or is deemed to have declined) to purchase the Offered
Projects listed therein, the Offeror Group shall have the right,
without the consent of any Partner of the Offeree Group, within 90 days
after the earlier of (i) the Offeror Group's receipt of an Offeree
Reply Notice in which the Offeree Group declines to purchase the
Offered Projects, and (ii) the expiration of the Offeree Option Period
(such 90 day period, the "Sale Option Period"), to cause the sale of
any or all of the Offered Projects listed in such Offering Notice
(including the sale to any member of the Offeror Group). Each Partner
of the Offeree Group shall promptly execute and deliver any document or
instrument the Offeror Group reasonably requires in order to consummate
the sale of such Offered Projects during the Sale Option Period, and
each Partner of the Offeree Group hereby constitutes and appoints each
Partner in the Offeror Group its attorney in fact to execute,
acknowledge and deliver any such documents or instruments in its stead.
Notwithstanding the foregoing, the Offeror Group shall not be entitled
to cause the sale of an Offered Project during the Sale Option Period
for a sales price of less than 90% of the Offer Price for such Offered
Project listed in such Offering Notice (or 100% of the Offer Price for
such Offered Project if the purchaser is any member of the Offeror
Group or any affiliate of any member of the Offeror Group). If an
Offered Project is not sold prior to the expiration of the Sale Option
Period, the Offeror Group may not cause the sale of such Offered
Project without again complying with all of the provisions of this
Section (unless all of the other Partners consent). No Partner may
exercise its rights under this Section with respect to any particular
Project more than once in any twelve month period (but such Partner may
exercise its rights under this Section with respect to other Projects).
The Offeror Group and the Offeree Group shall endeavor to structure any
sale of the Offered Projects to the Offeror Group (or any member
thereof) in a tax efficient manner.
<PAGE> 40
36
ARTICLE IV
OTHER ACTIVITIES PERMITTED
--------------------------
Except as expressly provided hereunder, this Agreement shall
not be construed in any manner to preclude any Partner or any of its Affiliates
from engaging in any activity whatsoever permitted by applicable law (whether or
not such activity might compete, or constitute a conflict of interest, with the
Partnership), including, without limitation, the provision of financial or
investment advisory services to any person, managing investments or receiving
compensation or profit from any of the foregoing.
ARTICLE V
CAPITAL CONTRIBUTIONS;
----------------------
DISTRIBUTIONS
-------------
SECTION 5.1 CAPITAL CONTRIBUTIONS. (a) No Partner
shall be required to make a Capital Contribution except as provided in this
Section. Each Partner agrees to make Capital Contributions (i) as required by
this Agreement, including, without limitation, Sections 3.6, 3.9, 3.10 and 5.7
of this Agreement, (ii) to pay for costs and expenses under approved budgets and
for fees, costs and expenses specifically payable by the Partnership pursuant to
this Agreement or (iii) in the event that the General Partners determine that
the Partnership requires additional funds to meet its then existing obligations,
including to cover operating shortfalls, and funds are not otherwise available
from Partnership revenues or from loans to the Partnership for such purposes.
Each of the Partners shall be required to make Capital Contributions to the
Partnership in accordance with such Partner's Sharing Percentage (as determined
in accordance with Section 3.6(f) above); provided that, except for amounts to
be contributed under clause (iii) above (for which no limit shall apply), the
aggregate amount of Capital Contributions made by the Blackstone Partners hereof
and by the Blackstone Partners in the Parallel Partnerships shall not exceed
$29,400,000, and the aggregate amount of Capital Contributions made by the
Interstate Partners hereof and by the Interstate Partners in the Parallel
Partnerships shall not exceed $30,600,000. It is understood and agreed that the
commitment by the Blackstone Partners and the Interstate Partners to fund their
respective Committed Capital is not revolving in nature and at such time as the
date such Partner's Committed Capital shall have been funded in full, such
commitment will expire and be of no further force or effect.
(b) No Partner shall have any obligation to restore
any negative balance in the Partner's Capital Account upon
<PAGE> 41
37
liquidation of the Partnership. No Partner shall be entitled to withdraw all or
any part of its Capital Contributions except as expressly provided in this
Partnership Agreement. No interest shall be payable by the Partnership on the
Capital Contributions of any Partner except as otherwise provided herein. In no
event shall any Partner be entitled to demand any property from the Partnership
other than cash.
(c) When Capital Contributions are required under paragraph
(a) above from the Partners, the General Partners shall give notice to all of
the Partners of the amount of funds required and the date such funds shall be
due, which due date shall be, unless otherwise provided in this Agreement, no
less than 10 Business Days from the date such notice is given.
SECTION 5.2 PARTNER LOANS FOR FAILURE TO FUND COMMITTED
CAPITAL. If any Partner shall fail to timely make a Capital Contribution
required in Section 5.1 (such Partner is hereinafter referred to as a
"NON-CONTRIBUTING PARTNER") and such default is not cured within 10 days of the
date such Capital Contribution was due, then any other Partner (a "CONTRIBUTING
PARTNER") may fund all or part of such Capital Contribution and, unless the
Contributing Partner otherwise elects the remedy of the dilution of such
Non-Contributing Partner's Interest in the Partnership as set forth in Section
5.3 below, any amounts funded by a Contributing Partner on behalf of a
Non-Contributing Partner shall be made directly to the Partnership but shall be
treated as (i) a recourse demand loan made by the Contributing Partner to the
Non-Contributing Partner (bearing interest at a fluctuating rate of interest
equal to 10% per annum in excess of the prime rate of interest publicly
announced by Citibank, N.A. from time to time, but not less than 15% per annum,
but in no event in excess of the maximum rate permitted by applicable law),
followed by (ii) a Capital Contribution by such Non-Contributing Partner to the
Partnership. Any such recourse loan (to the extent of unpaid principal and
interest) shall be payable on demand by the Contributing Partner and shall be
repaid directly by the Partnership on behalf of the Non-Contributing Partner to
the Contributing Partner from Non-Capital Proceeds and Capital Proceeds
otherwise distributable to the Non-Contributing Partner. Amounts paid directly
by the Partnership to the Contributing Partner on account of the loan shall be
deemed distributions to the Non-Contributing Partner. Any Non-Capital Proceeds
and Capital Proceeds used to repay such loan shall be applied first to interest
and then to principal thereof.
SECTION 5.3 DILUTION FOR FAILURE TO FUND CAPITAL. (a) If a
Non-Contributing Partner fails to contribute any amounts required to be
contributed pursuant to Section 5.1 above as and when required to be contributed
and such funds are contributed to the Partnership by a Contributing Partner, the
Non-Contributing Partner's Sharing Percentage shall be, if the Contributing
Partner elects to apply the provisions of this Section 5.3 in lieu of the loan
mechanism provided in Section
<PAGE> 42
38
5.2, adjusted pursuant to Section 5.3(b) below as of the day on which the
Contributing Partner contributes such funds. In such an event the contribution
of such funds shall be treated as a Capital Contribution to the Partnership by
the Contributing Partner.
(b) The Sharing Percentage of a Non-Contributing Partner may
be reduced (but not below zero), upon the election described in Section 5.3(a)
above, by an amount equal to the product of (i) 1.6 TIMES (ii) a fraction
expressed as a percentage, (A) the numerator of which is the amount of the
Capital Contribution which such Non-Contributing Partner fails to contribute and
(B) the denominator of which is the aggregate of the Capital Contributions made
by the Partners up to and including such time, including the Capital
Contribution which such Non-Contributing Partner fails to make. The Sharing
Percentage of the Contributing Partner shall be increased by the amount of the
reduction in the Sharing Percentage of the NonContributing Partner.
Notwithstanding the foregoing, if within 90 days after the reduction of the
Non-Contributing Partner's Sharing Percentage described herein, the
Non-Contributing Partner pays to the Contributing Partner the amount which the
NonContributing Partner failed to contribute and such Contributing Partner
contributed, together with interest thereon (at a rate equal to 10% per annum in
excess of the prime rate of interest publicly announced by Citibank, N.A. from
time to time, but not less than 15% per annum, and in no event in excess of the
maximum rate permitted by applicable law), the Non-Contributing Partner's
Sharing Percentage and the Contributing Partner's Sharing Percentage shall be
reinstated as if the Non-Contributing Partner had timely made such Capital
Contribution.
SECTION 5.4 DISTRIBUTIONS GENERALLY. Capital
Proceeds shall be distributed as soon as practicable but in any event within 45
days after the date that such Proceeds are received by the Partnership.
Non-Capital Proceeds shall be distributed at such times and intervals as the
General Partners shall determine, but in no event later than 30 days after the
end of each calendar quarter. The Partnership shall make such distributions in
cash among the Partners in accordance with this Article V.
SECTION 5.5 DISTRIBUTIONS OF PROCEEDS.
(a) Each distribution of Non-Capital Proceeds from a Project
shall be made to the Partners to the extent of, and PRO RATA in accordance with,
each of their Sharing Percentages (as the same may be adjusted hereunder).
Notwithstanding the foregoing, Non-Capital Proceeds from a Project otherwise
distributable to a Blackstone Partner shall be distributed as follows:
(i) First, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from
<PAGE> 43
39
such Project in an amount equal to the Capital Contributions
made by such Partner with respect to such Project; and
(ii) Second, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from such Project,
in excess of any amounts distributed under Section 5.5(a)(i) above, in
an amount which generates a 20% Internal Rate of Return on the Capital
Contributions made by such Partner with respect to such Project; and
(iii) Thereafter, 86.532% to such Blackstone Partner and
13.468% to the Interstate Partners (PRO RATA in accordance with their
Sharing Percentages).
(b) Each distribution of Capital Proceeds from a Project shall
be made to the Partners to the extent of, and PRO RATA in accordance with, each
of their Sharing Percentages (as the same may be adjusted hereunder).
Notwithstanding the foregoing, Capital Proceeds from a Project otherwise
distributable to a Blackstone Partner shall be distributed as follows:
(i) First, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in an amount equal to the sum of the Capital
Contributions made by such Partner as of such date with respect to all
Projects which have been subject to a Disposition on or prior to such
date; and
(ii) Second, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in excess of any amounts distributed under
Section 5.5(b)(i) above, in an amount which generates a 20% Internal
Rate of Return on the Capital Contributions made by such Partner as of
such date with respect to all Projects which have been subject to a
Disposition on or prior to such date and all Projects for which an
Unrealized Loss exists on such date; and
(iii) Third, 100% to such Blackstone Partner until such
Blackstone Partner has received cumulative Proceeds from (x) all
Projects which have been subject to a Disposition on or prior to the
date of such distribution and (y) all Projects for which an Unrealized
Loss exists on such date, in excess of any amounts distributed under
Sections 5.5(b)(i) and (ii) above, in an amount equal to the total of
such Partner's PRO RATA shares of Unrealized Loss from all Projects for
which an Unrealized Loss exists on such date (based on such Partner's
Sharing Percentage); and
<PAGE> 44
40
(iv) Thereafter, 86.532% to such Blackstone Partner and
13.468% to the Interstate Partners (PRO RATA in accordance with their
Sharing Percentages).
SECTION 5.6 RESTRICTED PAYMENTS. Notwithstanding any
provisions to the contrary in this Agreement, neither the Partnership nor the
General Partners on behalf of the Partnership shall make a distribution if such
distribution would violate the Partnership Act.
SECTION 5.7 PARTNERSHIP EXPENSES. (a) Promptly after the date
of this Agreement, the Partnership, to the extent it does not pay such costs and
expenses directly, will reimburse each Partner for Organizational Expenses
incurred by such Partner.
(b) The following expenses shall be borne by the
Partnership:
(i) To the extent not reimbursed, all expenses (other than
any Partner's overhead) reasonably incurred in the operation of the
Partnership (and approved by the General Partners if required
hereunder), including without limitation, any taxes imposed on the
Partnership, fees and expenses for attorneys and accountants, the costs
and expenses of any insurance purchased by the Partnership, and the
costs and expenses of any litigation involving the Partnership and the
amount of any judgments or settlements paid in connection therewith;
and
(ii) All third party professional services which have been
approved by the General Partners and incurred in connection with a
proposed Target Investment that is not ultimately made or a proposed
disposition of a Project which is not actually consummated, including,
without limitation, (i) commitment fees that become payable in
connection with a proposed Target Investment that is not ultimately
made, (ii) legal fees, accounting fees and other third party
professional due diligence costs and expenses and (iii) all travel and
similar out of pocket costs and expenses of employees of the Partners
in connection with approved due diligence.
Partnership expenses shall be paid directly by the Partnership
or the Partnership shall reimburse the Partner who incurred such expenses for
the payment thereof, as the case may be.
<PAGE> 45
41
ARTICLE VI
BOOKS AND REPORTS; TAX MATTERS;
-------------------------------
CAPITAL ACCOUNTS; ALLOCATIONS
-----------------------------
SECTION 6.1 GENERAL ACCOUNTING MATTERS. (a) Allocations
of Net Income (Loss) pursuant to Section 6.4 shall be made by or under the
direction of the General Partners at the end of each Fiscal Period.
(b) Each Partner shall be supplied with the Partnership
information necessary to enable such Partner to prepare in a timely manner its
Federal, state and local income tax returns and such other financial or other
statements and reports that are approved by the General Partners.
(c) The Blackstone General Partner shall keep or cause to be
kept books and records pertaining to the Partnership's business showing all of
its assets and liabilities, receipts and disbursements, realized profits and
losses, Partners' Capital Accounts and all transactions entered into by the
Partnership. Such books and records of the Partnership shall be kept at the
office of the Blackstone General Partner and the Partners and their
representatives shall at all reasonable times have free access thereto for the
purpose of inspecting or copying the same. The Partnership's books of account
shall be kept on an accrual basis or as otherwise provided by the General
Partners, and otherwise in accordance with generally accepted accounting
principles, except that for income tax purposes such books shall be kept in
accordance with applicable tax accounting principles.
(d) Except as otherwise provided herein, all determinations,
valuations and other matters of judgment required to be made for accounting and
tax purposes under this Agreement shall be made by or under the direction of the
General Partners and shall be conclusive and binding on all Partners, former
Partners, their successors or legal representatives and any other person except
for computational errors or fraud, and to the fullest extent permitted by law no
such person shall have the right to an accounting or an appraisal of the assets
of the Partnership or any successor thereto except for computational errors or
fraud.
(e) The books of the Partnership shall be examined, certified
and audited annually as of the end of each Fiscal Year, by such recognized firm
of independent certified public accountants that is designated by the General
Partners. For each Fiscal Year of the Partnership, such accountants shall
determine and prepare full financial statements, including, without limitation,
a balance sheet, an income statement, a statement of changes in financial
position and a statement of the Non-Capital Proceeds and Capital Proceeds of the
Partnership. The General Partners shall promptly upon receipt of such financial
statements, and in any event within 90 days after the end of each
<PAGE> 46
42
such Fiscal Year, transmit copies thereof to each Partner, together with the
report and management letter of such accountants covering the results of such
audit. The cost of all audits and reports provided to the Partners pursuant to
this Section shall be an expense of the Partnership.
SECTION 6.2 CERTAIN TAX MATTERS.
The taxable year of the Partnership shall be the same as its
Fiscal Year. The Tax Matters Partner (as defined below) shall cause to be
prepared all Federal, state and local tax returns of the Partnership for each
year for which such returns are required to be filed and, after approval of such
returns by the General Partners, shall cause such returns to be timely filed.
The General Partners shall determine the appropriate treatment of each item of
income, gain, loss, deduction and credit of the Partnership and the accounting
methods and conventions under the tax laws of the United States, the several
states and other relevant jurisdictions as to the treatment of any such item or
any other method or procedure related to the preparation of such tax returns.
The Tax Matters Partner shall make the election provided for in Section 754 of
the Code, if, and only if the Partner who or which has acquired an interest in
the Partnership or a distribution of Partnership property with respect to which
the election is made will have provided to the Tax Matters Partner concurrently,
or within 30 days after the Transfer of such interest, its undertaking to the
effect that it, and its successors in interest hereunder, will reimburse the
Partnership annually for its additional administrative costs incurred by reason
of such election as determined by the auditor of the Partnership. The Tax
Matters Partner shall also make the election to amortize Organizational Expenses
pursuant to Code Section 709 and the regulation promulgated thereunder. In
addition, the General Partners may cause the Partnership to make or refrain from
making any and all other elections permitted by the tax laws of the United
States, the several states and other relevant jurisdictions. The Tax Matters
Partner for purposes of Section 6231(a)(7) of the Code (the "TAX MATTERS
PARTNER") shall be the Blackstone General Partner. The Tax Matters Partner shall
have all of the rights, duties, powers and obligations provided for in Sections
6221 through 6232 of the Code with respect to the Partnership PROVIDED, HOWEVER,
that the following provisions shall apply with respect to the Tax Matters
Partner:
(a) The Tax Matters Partner shall be responsible for the
filing of the Partnership information returns required under Section
6031 of the Code. Within thirty (30) days after the end of each Fiscal
Year, the Tax Matters Partner shall furnish to the Partnership's
accountants sufficient information for the preparation of all required
Partnership tax returns.
(b) A Partner shall provide notice to the Tax Matters
Partner of its intent to file an original or an amended
<PAGE> 47
43
income tax return of which such Partner will take a position with
respect to a partnership item that is inconsistent with the position
taken by the Tax Matters Partner on the Partnership return. Such notice
must be given at least thirty (30) days prior to the filing of such
return. At such time, such Partner shall provide the Tax Matters
Partner with a statement detailing the inconsistent item or items
contained in such return. Within ten (10) days of receipt of such
statement, the Tax Matters Partner shall provide a copy of such
statement to each Partner.
(c) The Tax Matters Partner shall include in each Partnership
return sufficient information to entitle each eligible Partner and any
indirect partner (at its request) to notice from the Internal Revenue
Service pursuant to Section 6223(a) of the Code.
(d) Each Partner reserves the right to participate in
an audit proceeding.
(e) Each Partner reserves the right to enter into a separate
settlement agreement with the Internal Revenue Service. A Partner who
enters into a settlement agreement with the Internal Revenue Service
concerning a partnership item shall notify the Tax Matters Partner of
its terms within ten (10) days of such agreement, and the Tax Matters
Partner shall notify the other Partners of the terms of such agreement
within ten (10) days after receiving such notice. The Tax Matters
Partner shall notify each other Partner of the terms of any settlement
offer received by it within ten (10) days of receiving such offer.
(f) The Tax Matters Partner shall not file an administrative
adjustment request without the Consent of all of the General Partners.
Each Partner, other than the Tax Matter partner, reserves the right to
file an administrative adjustment request under Section 6227 of the
Code. Any Partner filing an administrative adjustment request shall
notify the Tax Matters Partner of its contents within ten (10) days
after filing such request. The Tax Matters Partner shall notify each
Partner of the contents of such request within ten (10) days of the
receipt of such notice.
(g) All Partners shall report to the Tax Matters Partner the
conversion of a partnership item to a nonpartnership item under Section
6231(b) or any other provision of the Code within ten (10) days of
learning of the conversion.
(h) Each Partner reserves the right to file a petition for
judicial review and to participate in a judicial proceeding under
Section 6226 and 6228 of the Code. If the Tax Matters Partner files a
petition for judicial review or an appeal under Section 6226 of the
Code, it shall notify
<PAGE> 48
44
each Partner of such petition or appeal within ten (10) days of such
filing. Any other Partner filing a petition for judicial review or any
appeal under Sections 6226 or 6228 of the Code shall notify the Tax
Matters Partner of such petition or appeal on or before the date of
filing. The Tax Matters Partner shall notify each Partner of such
filing within ten (10) days of receipt of such notice from the filing
partner.
(i) The Tax Matters Partner shall not agree to extend the
statute of limitations for assessment without the Consent of all of the
General Partners.
(j) The Tax Matters Partner shall be authorized to incur
expenses in the performance of its duties pursuant to this Agreement.
Notwithstanding any other provision of this Agreement, such expenses
shall be borne by the persons who were Partners of the Partnership at
any time during the applicable taxable year without regard to whether
such persons are Partners at the time the expense is incurred. Such
expenses shall be allocated to the Partners and former Partners having
an interest in the proceeding at the time the cost is incurred in
proportion to their relative Sharing Percentages for the applicable
taxable year.
(k) The provisions of this Section shall govern the conduct of
all parties who are currently Partners and all parties who were
Partners during the applicable Partnership taxable year. A Partner
shall not be relieved of any duties or responsibilities imposed under
this Section by the termination or transfer of its interest in the
Partnership.
(l) All terms used in this Section that are defined in Section
6231(a) of the Code shall have the meanings set forth therein.
SECTION 6.3 CAPITAL ACCOUNTS. There shall be established for
each Partner on the books of the Partnership as of the date hereof, or such
later date on which such Partner is admitted to the Partnership, a capital
account (each being a "CAPITAL ACCOUNT"). Each Capital Contribution shall be
credited to the Capital Account of such Partner on the date such contribution of
capital is paid to the Partnership. In addition, each Partner's Capital Account
shall be (a) credited with such Partner's allocable share of any Net Income of
the Partnership, (b) debited with (i) distributions to such Partner of cash or
the fair market value of other property and (ii) such Partner's allocable share
of Net Loss of the Partnership and expenditures of the Partnership described or
treated under Section 704(b) as described in Section 705(a)(2)(B) of the Code,
and (c) otherwise maintained in accordance with the provisions of the Code. Any
other item which is required to be reflected in a Partner's Capital Account
under Section 704(b) of the Code or otherwise under this Agreement shall be so
reflected. Capital Accounts
<PAGE> 49
45
shall be appropriately adjusted to reflect transfers of part (but not all) of a
Partner's interest in the Partnership. Interest shall not be payable on Capital
Account balances. Notwithstanding anything to the contrary contained in this
Agreement, the Partnership shall maintain the Capital Accounts of the Partners
in accordance with the principles and requirements set forth in section 704(b)
of the Code and Regulations section 1.704-1(b)(2)(iv).
SECTION 6.4 ALLOCATIONS. (a) Net Income of the Partnership
shall be allocated to the Partners having deficit balances in their Capital
Accounts (computed after taking into account distributions pursuant to Section
5.5 with respect to such fiscal year, and after adding back each Partner's share
of partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain,
determined pursuant to Regulations sections 1.704-2(g)(1) and 1.704-2(i)(5)) in
proportion to, and to the extent of, such deficits. Any remaining Net Income and
all Net Loss shall be allocated among the Partners either 49% to the Blackstone
Partners (PRO RATA in proportion to their Sharing Percentages) and 51%to the
Interstate Partners (PRO RATA in accordance with their Sharing Percentages) or
[______]% to the Blackstone Partners (PRO RATA in proportion to their Sharing
Percentages) and [______]% to the Interstate Partners PRO RATA in accordance
with their Sharing Percentages) so as to produce to the extent possible Capital
Accounts for the Partners (computed in the manner set forth in the preceding
sentence) such that if an amount of cash equal to such positive Capital Account
balances were distributed in accordance with such positive Capital Account
balances, such distribution would be in the amounts, sequence and priority set
forth in Section 5.5 and to the extent Net Loss exceeds the positive Adjusted
Capital Account Balances of the Partners, the excess shall be allocated first,
to those Partners with positive Adjusted Capital Account Balances, in proportion
to, and to the extent of, such Adjusted Capital Account Balances, and
thereafter, to the General Partners, in the ratio that the Sharing Percentage of
each General Partner bears to the Sharing Percentage of all General Partners.
Notwithstanding the foregoing, if an allocation of Net Loss in the ratio of
[______]% to the Blackstone Partners and [______]% to the Interstate Partners is
in excess of amounts of Net Income previously allocated in the ratio of
[______]% to the Blackstone Partners and [______]% to the Interstate Partners,
then such allocation of Net Loss shall instead be made 49% to the Blackstone
Partners (PRO RATA in proportion to their Sharing Percentages) and 51% to the
Interstate Partners (PRO RATA in accordance with their Sharing Percentages).
Notwithstanding the foregoing, if an allocation of Net Income or Net Loss would
not result in Capital Accounts for the Partners (computed in the manner set
forth in the first sentence of this paragraph (a)) being equal to cash
distributions in the amounts, sequence and priority set forth in Section 5.5,
Net Income may be allocated 100% to the Interstate Partners (pro rata in
accordance with their Sharing Percentages) or Net Loss may be allocated 100% to
the Blackstone Partners (pro
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46
rata in accordance with their Sharing Percentages) if (and to the extent
necessary) to produce Capital Accounts equal (or in proportion) to the cash
distributions set forth in Section 5.5.
(b) Notwithstanding anything herein to the contrary, in the
event any Partner unexpectedly receives any adjustments, allocations or
distributions described in paragraphs (b)(2)(ii)(d)(4), (5) or (6) of Section
1.704-1 of the regulations under the Code, there shall be specially allocated to
such Partner such items of Partnership income and gain, at such times and in
such amounts as will eliminate as quickly as possible that portion of any
deficit in its Capital Account caused or increased by such adjustments,
allocations or distributions. To the extent permitted by the Code and the
regulations thereunder, any special allocations of items of income or gain
pursuant to this Section 6.4(c) shall be taken into account in computing
subsequent allocations of Net Income (Loss) pursuant to this Section 6.4 so that
the net amount of any items so allocated and the subsequent allocations of Net
Income (Loss) to the Partners pursuant to this Section 6.4 shall, to the extent
possible, be equal to the net amounts that would have been allocated to each
such Partner pursuant to the provisions of this Section 6.4 if such unexpected
adjustments, allocations or distributions had not occurred.
(c) All items of income, gain, loss, deduction and credit of
the Partnership shall be allocated among the Partners for Federal, state and
local income tax purposes consistent with the manner that the corresponding
constituent items of Net Income (Loss) shall be allocated among the Partners
pursuant to this Agreement, except as may otherwise be provided herein or by the
Code. To the extent Treasury Regulations promulgated pursuant to Subchapter K of
the Code (including under Sections 704(b) and (c) of the Code) require
allocations for tax purposes that differ from the foregoing allocations, the
General Partners may determine the manner in which such tax allocations shall be
made so as to comply more fully with such Treasury Regulations or other
applicable law and, at the same time to the extent reasonably possible, preserve
the economic relationships among the Partners as set forth in this Agreement.
(d) Notwithstanding the provisions of this Section 6.4, net
income, net gain, and net loss of the Partnership (or items of income, gain,
loss, deduction, or credit, as the case may be) shall be allocated in accordance
with the following provisions of this Section 6.4 to the extent such provisions
shall be applicable.
(i) Nonrecourse Deductions of the Partnership for any
Fiscal Year shall be specially allocated to the Partners in the same
proportion as Net Income or Net Loss is allocated for such Fiscal Year;
PROVIDED THAT if an allocation of Nonrecourse Deductions in the ratio
of [______]% to the Blackstone Partners and [______]%
<PAGE> 51
47
to the Interstate Partners is in excess of amounts of Net Income
previously allocated in the ratio of [______]% to the Blackstone
Partners and [______]% to the Interstate Partners, then such allocation
of Nonrecourse Deductions shall instead be made 49% to the Blackstone
Partners (PRO RATA in proportion to their Sharing Percentages) and 51%
to the Interstate Partners (PRO RATA in accordance with their Sharing
Percentages). Partner Nonrecourse Deductions of the Partnership for any
Fiscal Year shall be specially allocated to the Partner who bears the
economic risk of loss for the liability in question. The provisions of
this Section 6.4(e)(i) are intended to satisfy the requirements of
Regulations sections 1.704-2(e)(2) and 1.704-2(i)(1) and shall be
interpreted in accordance therewith for all purposes under this
Agreement.
(ii) If there is a net decrease in the Minimum Gain of the
Partnership during any Partnership Fiscal Year, each Partner shall be
specially allocated items of Partnership income and gain for such year
equal to that Partner's share of the net decrease in Minimum Gain,
within the meaning of Regulations section 1.704- 2(g)(2). The
provisions of this Section 6.4(e)(ii) are intended to comply with the
Minimum Gain chargeback requirements of Regulations section 1.704-2(f)
and shall be interpreted in accordance therewith for all purposes under
this Agreement.
(iii) If there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Fiscal Year, each Partner that has a share of
such partner Nonrecourse Debt Minimum Gain, determined in accordance
with Regulations section 1.704-2(i)(5), as of the beginning of such
year shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, for succeeding years) equal to such
Partner's share of the net decrease in Partner Nonrecourse Debt Minimum
Gain. The provisions of this Section 6.4(e)(iii) are intended to comply
with the Partner Nonrecourse Debt Minimum Gain chargeback requirement
of Regulations section 1.704-2(i)(4) and shall be interpreted in
accordance therewith for all purposes under this Agreement.
ARTICLE VII
DISSOLUTION
-----------
SECTION 7.1 DISSOLUTION. The Partnership shall be dissolved
and subsequently terminated upon the occurrence of the first of the following
events:
<PAGE> 52
48
(a) decision of all of the General Partners to
dissolve and subsequently terminate the Partnership;
(b) December 31, 2045;
(c) the occurrence of a Disabling Event with respect to the
sole remaining General Partner, provided that the Partnership shall not
be dissolved if, within 90 days after such Disabling Event, all of the
Partners agree in writing to continue the business of the Partnership
and to the appointment, effective as of the date of the Disabling
Event, of another General Partner; or
(d) if, after the right of first opportunity under Article 3
shall no longer be in effect, all of the Partnership Assets are sold or
otherwise disposed of.
SECTION 7.2 WINDING-UP. When the Partnership is dissolved, the
business and property of the Partnership shall be wound up and liquidated by the
General Partners or, in the event of a Disabling Event with respect to any
General Partner, by the remaining General Partners or, in the event of a
Disabling Event with respect to each of the General Partners, such liquidating
trustee as may be named by Limited Partners holding a majority of the Sharing
Percentages held by all Limited Partners (the party conducting the liquidation
being hereinafter referred to as the "LIQUIDATOR"). The Liquidator shall use its
best efforts to reduce to cash and cash equivalent items such assets of the
Partnership as the Liquidator shall deem it advisable to sell, subject to
obtaining fair value for such assets and any tax or other legal considerations.
SECTION 7.3 FINAL DISTRIBUTION. Within 90 calendar days after
the effective date of dissolution of the Partnership, the assets of the
Partnership shall be distributed in the following manner and order:
(a) to the payment of the expenses of the winding-up,
liquidation and dissolution of the Partnership;
(b) to pay all creditors of the Partnership, other
than Partners, either by the payment thereof or the making
of reasonable provision therefor;
(c) to establish reserves, in amounts established by
the Liquidator, to meet other liabilities of the
Partnership; and
(d) to pay, in accordance with the provisions of this
Agreement applicable to such loans or in accordance with the terms
agreed among them and otherwise on a PRO RATA basis, all creditors of
the Partnership that are Partners, either by the payment thereof or the
making of reasonable provision therefor.
<PAGE> 53
49
The remaining assets of the Partnership shall be applied and distributed in
accordance with the positive balances of the Partners' Capital Accounts, as
determined after taking into account all adjustments to Capital Accounts for the
Partnership taxable year during which the liquidation occurs.
ARTICLE VIII
TRANSFER OF PARTNERS' INTERESTS
-------------------------------
SECTION 8.1 RESTRICTIONS ON TRANSFER OF PARTNERSHIP INTERESTS.
(a) No Partner may, directly or indirectly, assign, sell, exchange, transfer,
pledge, hypothecate or otherwise dispose of all or any part of its interest in
the Partnership (a "TRANSFER") to any person, other than in accordance with
paragraphs (b), (c), (d), (e) and (f) below. A change in the ultimate beneficial
ownership of a Partner shall be deemed a Transfer for purposes of this
Agreement.
(b) Any Partner may Transfer all or part of its interest in
the Partnership to any person upon obtaining the prior written Consent of the
Blackstone General Partner, which Consent may be withheld in its sole and
absolute discretion; provided, however, that upon any Transfer of a Partner's
interest in accordance with this paragraph, the person (the "TRANSFEREE") to
whom the Partner's interest was Transferred shall not be admitted as a
substitute Partner without receiving the prior written Consent of the Blackstone
General Partner (which Consent may be withheld in its sole and absolute
discretion) and the Transferee has given written acceptance and adoption of all
of the terms and provisions of this Agreement; and provided, further, that the
prior written Consent of each of the General Partners shall be required to admit
the Transferee as a substitute Partner (which Consent may be withheld in their
sole and absolute discretion) (i) if the Transferee is not an Affiliate of any
member of the Blackstone Group or the Interstate Group, or (ii) if the aggregate
Sharing Percentages of the Interstate Partners is 20% or less at the time of the
Transfer.
(c) A Partner may mortgage, pledge, hypothecate or otherwise
encumber all or any portion of such Partner's rights to receive a portion of the
Non-Capital Proceeds, Capital Proceeds, Net Income and Net Losses to any person;
PROVIDED, HOWEVER, that the holder of such mortgage, pledge, hypothecation or
encumbrance shall not be admitted as a substitute Partner without the prior
Consent of the Blackstone General Partner (which Consent may be withheld in its
sole and absolute discretion), provided that (i) if the Transferee is not an
Affiliate of any member of the Blackstone Group or the Interstate Group or (ii)
if the aggregate Sharing Percentages of the Interstate Partners is 20% or less
at the time of the Transfer, the prior written Consent of each of the General
Partners shall be required, which Consent may be withheld in their sole and
absolute discretion.
<PAGE> 54
50
(d) At any time, any Blackstone Partner may transfer its
interest in Non-Capital Proceeds, Capital Proceeds, Net Income and Net Losses to
any other Blackstone Partner or its Affiliates but the Transferee shall not be
admitted as a substitute Partner and the transferor shall not be permitted to
withdraw from the Partnership without, in each case, the Consent of the
Blackstone General Partner (which Consent may be withheld in its sole and
absolute discretion), or, if the aggregate Sharing Percentages of the Interstate
Partners is 20% or less at the time of the Transfer, the Consent of each of the
General Partners (which Consent may be withheld in their sole and absolute
discretion).
(e) At any time, any Interstate Partner may transfer its
interest in Non-Capital Proceeds, Capital Proceeds, Net Income and Net Losses to
any other Interstate Partner or their Affiliates, but the Transferee shall not
be admitted as a substitute Partner and the transferor shall not be permitted to
withdraw from the Partnership without, in each case, the Consent of the
Blackstone General Partner (which Consent may be withheld in its sole and
absolute discretion).
(f) At any time, the ultimate beneficial ownership of a
Partner may be changed without any requirement for Consent hereunder, provided
that day to day management of such Partner is, at all times thereafter, directly
or indirectly controlled by the Blackstone General Partner or an Affiliate
thereof or by the Interstate General Partner or an Affiliate thereof.
SECTION 8.2 OTHER TRANSFER PROVISIONS. (a) Any purported
Transfer by a Partner of all or any part of its interest in the Partnership in
violation of this Article VIII shall be null and void and of no force or effect.
(b) Except as provided in this Article VIII, no Partner shall
have the right to withdraw from the Partnership prior to its termination and no
additional Partner may be admitted to the Partnership without the prior written
consent of the General Partners. In the event of any withdrawal of a General
Partner in violation of this Agreement, including as a result of a Disabling
Event, such General Partner shall be liable to the Partnership as provided in
Section 17-602 of the Partnership Act.
(c) Notwithstanding any provision of this Agreement to the
contrary, a Partner may not Transfer all or any part of its interest in the
Partnership if such Transfer would jeopardize the status of the Partnership as a
partnership for federal income tax purposes, cause a dissolution of the
Partnership under the Partnership Act or would violate, or would cause the
Partnership to violate, any applicable law or regulation (including any
applicable federal or state securities laws) or contract to which the
Partnership is a party.
<PAGE> 55
51
(d) Concurrently with the admission of any substitute or
additional Partner, the General Partners shall forthwith cause any necessary
papers to be filed and recorded and notice to be given wherever and to the
extent required showing the substitution of a Transferee as a substitute Partner
in place of the Partner Transferring its interest, or the admission of an
additional Partner, all at the expense, including payment of any professional
and filing fees incurred, of such substituted or additional Partner. The
admission of any person as a substitute or additional Partner shall be
conditioned upon such person's written acceptance and adoption of all the terms
and provisions of this Agreement.
(e) If any interest in the Partnership is Transferred during
any accounting period in compliance with the provisions of this Article VIII,
each item of income, gain, loss, expense, deduction and credit and all other
items attributable to such interest for such period shall be divided and
allocated between the transferor and the transferee by taking into account their
varying interests during such period in accordance with Section 706(d) of the
Code, using any conventions permitted by law and selected by the General
Partners. All distributions on or before the date of such Transfer shall be made
to the transferor, and all distributions thereafter shall be made to the
transferee. Solely for purposes of making such allocations and distributions,
the Partnership shall recognize a Transfer on the date that the General Partners
receive notice of the Transfer which complies with this Article VIII from the
Partner Transferring its interest.
ARTICLE IX
MISCELLANEOUS
-------------
SECTION 9.1 EQUITABLE RELIEF. The Partners hereby confirm that
damages at law may be an inadequate remedy for a breach or threatened breach of
this Agreement and agree that, in the event of a breach or threatened breach of
any provision hereof, the respective rights and obligations hereunder shall be
enforceable by specific performance, injunction or other equitable remedy, but,
nothing herein contained is intended to, nor shall it, limit or affect any right
or rights at law or by statute or otherwise of a Partner aggrieved as against
the other for a breach or threatened breach of any provision hereof, it being
the intention by this Section 9.1 to make clear the agreement of the Partners
that the respective rights and obligations of the Partners hereunder shall be
enforceable in equity as well as at law or otherwise and that the mention herein
of any particular remedy shall not preclude a Partner from any other remedy it
or he might have, either in law or in equity.
SECTION 9.2 OWNERSHIP AND USE OF NAMES. Rights to the
name "Blackstone" shall belong solely to the designated Blackstone Partners.
Rights to the name "Interstate" and
<PAGE> 56
52
"Interstate Hotels" shall belong solely to the designated Interstate Partners.
The ownership of, and the right to use, sell or otherwise dispose of, the name,
Interstone Three Partners IV L.P. or any abbreviation or modification thereof,
shall belong to the Partnership. The Interstate General Partner agrees to take
all actions and to approve, execute and file any document or instrument proposed
by any Blackstone Partner to protect the rights of the Blackstone Partners to
the name "Blackstone". The Blackstone General Partner agrees to take all actions
and to approve, execute and file any document or instrument proposed by any
Interstate Partner to protect the rights of the Interstate Partners to the name
"Interstate" and "Interstate Hotels". The Partners each agree to take all
actions and to approve, execute and file any document or instrument proposed by
the General Partners to protect the rights of the Partnership to the name
"Interstone Three Partners IV L.P.".
SECTION 9.3 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware. In
particular, the Partnership is formed pursuant to the Partnership Act, and the
rights and liabilities of the General Partners and Limited Partners shall be as
provided therein, except as herein otherwise expressly provided.
SECTION 9.4 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
respective successors and assigns.
SECTION 9.5 ACCESS; CONFIDENTIALITY. By executing this
Agreement, each Partner expressly agrees, at all times during the term of the
Partnership and thereafter and whether or not at the time a Partner of the
Partnership (i) not to issue any press release or advertisement or take any
similar action concerning the Partnership's business or affairs without first
obtaining the Consent of all of the General Partners, (ii) not to publicize
detailed financial information concerning the Partnership without the Consent of
all of the General Partners and (iii) not to disclose the Partnership's affairs
generally without using reasonable efforts to consult with the other Partners
prior to such disclosure; PROVIDED, HOWEVER, the foregoing shall not restrict
any Partner from disclosing information concerning such Partner's investment in
the Partnership to its officers, directors, employees, agents, legal counsel,
accountants, other professional advisors, limited partners and Affiliates, or to
prospective or existing investors in such Partner or its Affiliates or to
prospective or existing lenders to such Partner or its Affiliates, or to
prospective purchasers of any property owned by the Partnership. The provisions
of this Section 9.5 shall survive the termination of the Partnership.
SECTION 9.6 NOTICES. Whenever notice is required or permitted
by this Agreement to be given, such notice need not be in writing unless
otherwise required herein or requested by the
<PAGE> 57
53
receiving Partner. If in writing, such notice shall be given to any Partner at
its address or facsimile number shown in the Partnership's books and records
(including Schedule A hereto). Each such notice shall be effective (i) if given
by facsimile, upon oral confirmation of receipt, (ii) if given by mail, on the
fourth day after deposit in the mails (certified or registered return receipt
requested) addressed as aforesaid and (iii) if given by any other means, when
delivered to and receipted for at the address of such Partner specified as
aforesaid.
SECTION 9.7 COUNTERPARTS. This Agreement may be executed in
any number of counterparts, all of which together shall constitute a single
instrument.
SECTION 9.8 ENTIRE AGREEMENT. This Agreement embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter hereof.
SECTION 9.9 AMENDMENTS. Any amendment to this Agreement shall
be effective only if such amendment is evidenced by a written instrument duly
executed by and delivered to the General Partners; PROVIDED, HOWEVER, no such
amendment shall be effective or binding against a Partner unless executed by
such Partner if such amendment materially and adversely affects such Partner in
a specific manner separate and distinct from the amendment's treatment of other
Partners; and PROVIDED, FURTHER that any amendment which would have a material
adverse effect on any Partner's economic interest in the Partnership shall
require the Consent of all of the General Partners.
SECTION 9.10 SECTION TITLES. Section titles are for
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text hereof.
SECTION 9.11 REPRESENTATIONS AND WARRANTIES. (a) Each Partner
represents, warrants and covenants to each other Partner and to the Partnership
that:
(i) such Partner, if not a natural person, is duly formed and
validly existing under the laws of the jurisdiction of its organization
with full power and authority to conduct its business to the extent
contemplated in this Agreement;
(ii) this Agreement has been duly authorized, executed and
delivered by such Partner and constitutes the valid and legally binding
agreement of such Partner enforceable in accordance with its terms
against such Partner except as enforceability hereof may be limited by
bankruptcy,
<PAGE> 58
54
insolvency, moratorium and other similar laws relating to creditors'
rights generally and by general equitable principles;
(iii) the execution and delivery of this Agreement by such
Partner and the performance of its duties and obligations hereunder do
not result in a breach of any of the terms, conditions or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, credit agreement, note or other evidence of indebtedness, or any
lease or other agreement, or any license, permit, franchise or
certificate, to which such Partner is a party or by which it is bound
or to which its properties are subject, or require any authorization or
approval under or pursuant to any of the foregoing, or violate any
statute, regulation, law, order, writ, injunction, judgment or decree
to which such Partner is subject;
(iv) such Partner is not in default (nor has any event
occurred which with notice, lapse of time, or both, would constitute a
default) in the performance of any obligation, agreement or condition
contained in any indenture, mortgage, deed of trust, credit agreement,
note or other evidence of indebtedness or any lease or other agreement,
or any license, permit, franchise or certificate, to which it is a
party or by which it is bound or to which the properties of it are
subject, nor is it in violation of any statute, regulation, law, order,
writ, injunction, judgment or decree to which it is subject, which
default or violation would materially adversely affect such Partner's
ability to carry out its obligations under this Agreement;
(v) except as disclosed to the Partners prior to the date
hereof, there is no litigation, investigation or other proceeding
pending or, to the knowledge of such Partner, threatened against such
Partner or any of its Affiliates which, if adversely determined, would
materially adversely affect such Partner's ability to carry out its
obligations under this Agreement; and
(vi) no consent, approval or authorization of, or filing,
registration or qualification with, any court or governmental authority
on the part of such Partner is required for the execution and delivery
of this Agreement by such Partner and the performance of its
obligations and duties hereunder.
(b) IHC/Interstone Partnership II, L.P. represents
that not less than 90% of its interests are owned by Interstate
Hotels Company.
<PAGE> 59
55
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Limited Partnership Agreement of Interstone Three Partners IV L.P. as
of the day and year first above
written.
GENERAL PARTNERS:
-----------------
BJS INTERSTONE MANAGEMENT
ASSOCIATES
By: Blackstone Real Estate Inc.,
general partner
By: ________________________
Name:
Title:
IHC/INTERSTONE CORPORATION
By: _____________________________
Name:
Title:
LIMITED PARTNERS:
-----------------
BLACKSTONE REAL ESTATE
PARTNERS IV L.P.
By: Blackstone Real Estate
Associates L.P., general
partner
By: BREA L.L.C., general
partner
By: _______________
Name:
Title:
BLACKSTONE RE CAPITAL
PARTNERS II L.P.
By: Blackstone Real Estate
Associates L.P., general
partner
By: BREA L.L.C., general
partner
By: _______________
Name:
Title:
<PAGE> 60
56
IHC/INTERSTONE PARTNERSHIP II, L.P.
By: IHC Member Corporation,
general partner
By:________________________
Name:
Title:
<PAGE> 61
SCHEDULE A
PARTNERS OF THE PARTNERSHIP
<TABLE>
<CAPTION>
Sharing
Percentage as
General of June __,
PARTNERS ADDRESS 1996
- - -------- ------- -------------
<S> <C> <C>
BJS Interstone 345 Park Avenue
Management New York, NY 10154 0.5%
Associates
IHC/Interstone c/o Interstate Hotels
Corporation Corporation
Foster Plaza X
680 Anderson Drive 0.5%
Pittsburgh, PA 15220-8126
Limited
PARTNERS
- - --------
Blackstone Real 345 Park Avenue
Estate Partners New York, NY 10154 29.76%
IV L.P.
Blackstone RE 345 Park Avenue
Capital New York, NY 10154 18.74%
Partners II
L.P.
IHC/Interstone c/o Interstate Hotels
Partnership II, Corporation
L.P. Foster Plaza X
680 Anderson Drive 50.50%
Pittsburgh, PA 15220-8126
</TABLE>
<PAGE> 62
EXHIBIT A
---------
FORM OF MANAGEMENT AGREEMENT
----------------------------
<PAGE> 63
EXHIBIT B
---------
FORM OF PROJECT PARTNERSHIP AGREEMENT
-------------------------------------
<PAGE> 64
EXHIBIT C
---------
FORM OF CONFIRMATION AND ACKNOWLEDGMENT
OF RIGHT OF FIRST OPPORTUNITY
---------------------------------------
This CONFIRMATION AND ACKNOWLEDGMENT OF RIGHT OF FIRST
OPPORTUNITY ("CONFIRMATION") is made and entered into as of the ____ day of
________, 19__ by and among THE BLACKSTONE GROUP HOLDINGS L.P. ("Blackstone")
and INTERSTATE HOTELS COMPANY ("Interstate").
RECITALS
A. Sections 3.6 through 3.8 of that certain Amended and
Restated Limited Partnership Agreement of Interstone Three Partners IV L.P.,
dated as of the date hereof (as amended, supplemented or otherwise modified from
time to time, the "PARTNERSHIP AGREEMENT") sets forth the scope, operation,
duration, termination and other terms relating to a right of first opportunity
provided by the Blackstone Group and the Interstate Group in favor of the
Partnership with respect to certain Target Investments identified for investment
by the Blackstone Group and the Interstate Group. Except as otherwise expressly
provided herein, any defined term used in this Confirmation shall have the
meaning prescribed for that term in the Partnership Agreement.
B. The parties wish to enter into this Confirmation in order
to confirm and acknowledge their obligations to each other with respect to the
foregoing matters and any other obligations each may have to the other pursuant
to the express terms of Sections 3.6 through 3.8 of the Partnership Agreement.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto, intending to be legally bound,
do hereby agree as follow:
1. The provisions of Sections 3.6 through 3.8 of the
Partnership Agreement are hereby incorporated by reference as though set forth
in full herein. Each party hereto hereby confirms its obligation to comply with
all terms, provisions, covenants, conditions and restrictions and perform all
obligations applicable to such party under said Sections 3.6 through 3.8 of the
Partnership Agreement. Without limiting the generality of the foregoing,
Blackstone and Interstate hereby agree to comply, and to cause the Blackstone
Related Parties and the Interstate Related Parties, respectively, to comply,
with their obligations pertaining to the right of first opportunity set forth in
said Sections of the Partnership Agreement in accordance with the terms
applicable thereto.
<PAGE> 65
2
2. This Confirmation confirms and acknowledges the terms,
provisions, covenants, conditions, obligations and restrictions set forth in
Sections 3.6 through 3.8 of the Partnership Agreement. It shall not be construed
or understood to modify, in any way, such terms, provisions, covenants,
conditions, obligations and restrictions, and, in the event of any conflict
between this Confirmation and the Partnership Agreement, the provisions of
Sections 3.6 through 3.8 of the Partnership Agreement shall control. In no event
shall this Confirmation be construed or understood to extend the duration of the
restrictions on Blackstone, Interstate and the Related Parties arising from the
right of first opportunity, which shall terminate as set forth in the
Partnership Agreement. The provisions of Sections 9.1, 9.3, and 9.5 through 9.10
of the Partnership Agreement are incorporated herein, except that all references
therein to the "Agreement" shall be deemed to be references to this
Confirmation, all references therein to the "Partners" shall be deemed to be
references to the parties hereto and delivery of notices to Blackstone hereunder
or under the Partnership Agreement shall be delivered to the same address as the
Blackstone General Partner, and delivery of notices to Interstate hereunder
shall be delivered to the same address as the Interstate General Partner, unless
any such parties shall change the address for delivery of notice in accordance
with the procedures established under Section 9.6 of the Partnership Agreement.
Nothing in this Confirmation shall be understood or construed to render the
parties hereto joint venturers or partners for any purposes. Nothing in this
Confirmation shall be understood or construed to modify or expand the extent of
any recourse between the Partners beyond that expressly provided by the
Partnership Agreement.
THE BLACKSTONE GROUP HOLDINGS, L.P.
By: ____________________________
INTERSTATE HOTELS COMPANY
By: _____________________________
<PAGE> 66
EXHIBIT D
---------
PRE-EXISTING PROJECTS
---------------------
NONE
<PAGE> 67
EXHIBIT E
---------
EXCLUDED PROJECTS
-----------------
BLACKSTONE EXCLUDED PROJECTS
- - ----------------------------
1. Any business activities with the Davidson Hotel Company
("DAVIDSON"), including a merger or a combination of
Davidson or its assets with any other entity or with
the assets of any other entity, a REIT involving
Davidson or some or all of its assets, an initial
public offering or other capital event involving
Davidson; PROVIDED, that this exclusion shall not
include the acquisition of other hotels by Davidson
(other than through a combination with another entity
or a combination with the assets of another entity)
which were first identified by the affiliates of the
Blackstone Group which are investors in Davidson (as
opposed to acquisitions first identified by the non-
affiliated Davidson investors).
INTERSTATE EXCLUDED PROJECTS
- - ----------------------------
1. Four to six hotel acquisitions from an institutional
owner only in conjunction with the Carlyle Group or The
Apollo Group
2. Acquisition of Checkers Hotel in Los Angeles,
California only in conjunction with The Apollo Group
3. Any investment in a hotel which is incidental to Interstate
taking over management of such hotel such as those currently
under consideration by Interstate in Farmington, Connecticut,
Irvine, California, Warner Center, California and Burlington,
Massachusetts.
With respect to Interstate's investment opportunities
described in clauses 1 and 2 above, if The Apollo Group or The
Carlyle Group decides not to participate in such investment or
is willing to admit additional partners or participants other
than Interstate, Interstate will present such opportunity to
the Partnership in the manner prescribed in Section 3.6 of the
Partnership Agreement.
With respect to Interstate's investment opportunities
described in clauses 1 and 2 above, Interstate (i) shall
exercise best efforts to increase its equity stake in such
investments (up to the maximum
<PAGE> 68
2
of 50% of the total equity invested), and (ii) shall offer the
Blackstone Group (outside of the Partnership) an opportunity
to acquire 50% of whatever interest is available to Interstate
on terms and conditions acceptable to Interstate and the
Blackstone Group.
<PAGE> 1
EXHIBIT 10.13
INTERSTATE HOTELS COMPANY
MANAGEMENT BONUS PLAN
ARTICLE 1. Purpose
1.1 Purpose. The purpose of the Interstate Hotels Company Bonus
Compensation Plan ("Plan") is to promote the interests of Interstate Hotels
Company and its shareholders, and to offer as additional incentive to key
Employees who are the most responsible for the growth and success of the
Company and its Subsidiaries, the opportunity to receive bonus compensation
under conditions that will encourage their continued employment in the service
of the Company and its Subsidiaries. The Plan provides for Bonuses in
accordance with the terms and conditions set forth below.
1.2 Effective Date. The Plan will be effective as of June 17,
1996.
ARTICLE 2. Definitions
2.1 Adjusted EBITDA means, with respect to a year, the Company's
net earnings from operations before interest, taxes, depreciation, and
amortization, reduced by the Company's interest expense, the Company's
depreciation and amortization expenses, and forty-five and six tenths percent
(45.6%) (or, in the event that tax rates change, an equivalent percentage
taking into account such change) of the Company's book income (using the
Company's internal and unaudited financial statements), and calculated
excluding any earnings, interest expenses, depreciation and amortization
expenses and book income attributable to investments by the Company in real
estate or real property. Adjusted EBITDA will be determined using the
Company's audited financial statements prepared in accordance with generally
accepted accounting principles.
2.2 Base Salary means a Participant's annual yearly salary,
exclusive of Bonuses under this plan or other forms of incentive compensation
for the year, and exclusive of car allowances and similar perquisites whether
payable in cash or otherwise.
2.3 Board means the Board of Directors of the Company.
2.4 Bonus means the total compensation that a Participant receives
under this Plan.
2.5 Cap means, with respect to a Participant for a particular
year, from fifty percent (50%) to one hundred twenty percent (120%) of such
Participant's Base Salary for such year as specified by the Committee or, if
applicable, in the
<PAGE> 2
Participant's employment agreement with the Company or any Subsidiary.
2.6 Committee means the Compensation Committee of the Board or
such other committee as the Board may appoint.
2.7 Common Stock means the Common Stock of the Company.
2.8 Company means Interstate Hotels Company, a Pennsylvania
corporation, and its successors and assigns, including any entity to which it
transfers substantially all of its assets and any successor thereto.
2.9 Division Performance Bonus means, with respect to a
Participant who the Committee deems has departmental or divisional
responsibilities for a particular year, a percentage of such Participant's Base
Salary as specified for such year by the Committee or, if applicable, in the
Participant's employment agreement with the Company or any Subsidiary.
2.10 EBITDA Bonus means, with respect to a Participant for a
particular year, a percentage of Adjusted EBITDA as specified for such year by
the Committee or, if applicable, in the Participant's employment agreement with
the Company or any Subsidiary.
2.11 Employee means an employee of the Company or any Subsidiary.
2.12 Individual Performance Bonus means, with respect to a
Participant for a particular year, a percentage of such Participant's Base
Salary as specified for such year by the Committee or, if applicable, in the
Participant's employment agreement with the Company or any Subsidiary.
2.13 Participant means an Employee who receives any Bonus under the
Plan.
2.14 Permanent Disability means a permanent incapacity which
results in a Participant being unable to engage in his regular employment by
reason of any medically demonstrable physical or mental condition.
2.15 Plan means the Interstate Hotels Corporation Management Bonus
Plan and any amendments thereto.
2.16 Retirement means termination of employment which, for purposes
of this Plan only, has been approved by the Committee and which constitutes a
"retirement" under any applicable qualified retirement plan maintained by the
Company or any Subsidiary.
2.17 Subsidiary means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the
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<PAGE> 3
outstanding securities entitled to vote generally in the election of directors
or, if a partnership, limited liability company or similar entity, at least 50%
of the equity capital interests thereof.
ARTICLE 3. Eligibility
3.1 Persons Eligible. Bonuses will be granted only to key
Employees who are directly involved in the growth and success of the Company
and its Subsidiaries. Unless otherwise provided in this plan, a Participant
must be an Employee in good standing at the time of the payment of the Bonus.
ARTICLE 4. Administration
4.1 Committee. The Plan will be administered by the Committee,
which will have full authority to construe and interpret the Plan, to
establish, amend, and rescind rules and regulations relating to the Plan, and
to grant and make all such determinations in connection with the Plan as it may
deem necessary or advisable. Any interpretation, determination, or other
action made or taken by the Committee will be final, binding, and conclusive on
all parties.
4.2 Liability and Indemnification. Each member of the Committee,
while acting in connection with the Plan, will be considered to be acting in
his capacity as a Director of the Company. Members of the Committee acting
under the Plan will be fully protected in relying in good faith upon the advice
of counsel and will incur no liability except for willful misconduct in the
performance of their duties. Current and past members of the Committee will be
indemnified and held harmless by the Company against and from any and all loss,
cost, liability or expense that may be imposed upon or reasonably incurred by
such member in connection with or resulting from any claim, action, suit or
proceeding to which such member may be or become a party or in which such
member may be or become involved by reason of any action taken or failure to
act under the Plan and against and from any and all amounts paid by such member
in settlement thereof (with the Company's written approval) or paid by such
member in satisfaction of a judgment in any such action, suit or proceeding,
except a judgment in favor of the Company based upon a finding of such member's
gross negligence or willful misconduct.
4.3 Actions of Committee. Subject to the provisions of the Plan,
the Committee will (a) determine and designate from time to time those key
Employees to whom Bonuses are to be granted; (b) authorize the grant of
Bonuses; (c) determine, with respect to a year, the EBITDA Bonus for a
Participant by March 15 of the following year; (d) determine, with respect to a
year, the Individual Performance Bonus for a Participant by March 15 of the
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<PAGE> 4
following year; (e) determine, with respect to a year, the Division Performance
Bonus for a Participant by March 15 of the following year; (f) determine, with
respect to a particular year, whether a Participant's performance during such
year was satisfactory; (g) determine the terms and conditions of any
substantial risk of forfeiture or restrictions on transfer applicable to the
portion of a Bonus paid in shares of Common Stock and (h) determine such other
terms relating to each Bonus as the Committee, in its sole discretion, deems
necessary or advisable. In making these determinations, the Committee may take
into account the nature of the services rendered by respective Employees, their
present and potential contributions to the success of the Company and its
Subsidiaries and such other factors as the Committee in its discretion may deem
relevant.
4.4 Agents. In administering the Plan, the Committee may employ
accountants and counsel (who may be the independent auditors and outside
counsel for the Company) and other persons to assist or render advice to it,
all at the expense of the Company.
ARTICLE 5. Bonuses
5.1 Participants with Company-Wide Responsibilities. Each
Participant that the Committee deems to have company-wide responsibilities may
receive an EBITDA Bonus and an Individual Performance Bonus, as determined by
the Committee under Section 4.3 of this Plan and, if applicable, as specified
in such Participant's employment agreement with the Company or any Subsidiary.
5.2 Participants with Departmental or Divisional Responsibilities.
Each Participant that the Committee deems to have departmental or divisional
responsibilities may receive an EBITDA Bonus, an Individual Performance Bonus,
and a Division Performance Bonus, as determined by the Committee under Section
4.3 of this Plan and, if applicable, as specified in such Participant's
employment agreement with the Company or any Subsidiary.
5.3 Unsatisfactory Performances. A Participant's performance
during a particular year must be satisfactory, as determined by the Committee
under Section 4.3, regardless of Company or Subsidiary performance, before he
may be granted a Bonus for such year.
5.4 Maximum Amount of Bonus. A Participant may not receive a
Bonus for a particular year in excess of the Cap applicable to that Participant
for such year.
5.5 Payment of Bonuses. Each Bonus will be paid by March 15 of
the year following the grant of such Bonus, provided that the Participant is an
Employee in good standing at the time of
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<PAGE> 5
payment. Subject to Section 7.4, 80% of the amount of the Bonus will be paid
in cash, and the remaining 20% of the amount of the Bonus will be paid in
shares of Common Stock; provided, however, that, subject to adjustment as
provided in Section 7.5, the number of shares of Common Stock that may be
transferred pursuant to this Section 5.5 will not in the aggregate exceed
250,000, which may be shares of Common Stock of original issuance or shares of
Common Stock held in treasury or a combination thereof. The transfer of such
shares of Common Stock will be subject to such restrictions, terms and
conditions as the Committee may determine in accordance with the following
provisions:
(a) Each transfer will constitute an immediate transfer
of the ownership of the shares of Common Stock to the Participant in
consideration of the performance of services, entitling such Participant to
dividend, voting and other ownership rights, subject to the substantial risk of
forfeiture and restrictions on transfer hereinafter referred to.
(b) Each transfer may provide that such shares are
subject to a "substantial risk of forfeiture" within the meaning of Section 83
of the Code for a period to be determined by the Committee.
(c) Each transfer may provide that, during the period for
which such substantial risk of forfeiture is to continue, the transferability
of such shares will be prohibited or restricted in the manner and to the extent
prescribed by the Committee. Such restrictions may include without limitation
rights of repurchase or first refusal in the Company or provisions subjecting
the shares to a continuing substantial risk of forfeiture in the hands of any
transferee.
(d) Each transfer may require that any or all dividends
or other distributions paid on such shares during the period of such
restrictions will be automatically sequestered and reinvested on an immediate
or deferred basis in additional shares of Common Stock, which may be subject to
the same restrictions as the underlying award or such other restrictions as the
Committee may determine.
(e) Each transfer will be evidenced by an agreement,
which will be executed on behalf of the Company by any officer thereof and
delivered to and accepted by the Participant and will contain such terms and
provisions as the Committee may determine consistent with this Plan. Unless
otherwise directed by the Committee, all certificates representing such shares,
together with a stock power that will be endorsed in blank by the Participant
with respect to the shares, will be held in custody by the Company until all
restrictions thereon lapse.
5.6 New Employee, or Retirement, Disability, Death, or Termination
of Employment. The Committee, in its discretion, may grant all or such portion
of a Bonus for the year as it deems
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<PAGE> 6
advisable to a Participant (or his beneficiary in the case of death) who is
employed or who is promoted to a position eligible under this Plan, or whose
employment is terminated due to death, retirement, permanent disability,
resignation, or discharge during the year or prior to the payment of a Bonus
for the year.
5.7 Unfunded Obligation. The Bonus compensation in this Plan is
an unfunded obligation of the Company. The Company is not required to
segregate any moneys from its general funds, or to create any trusts, or to
make any special deposits with respect to these obligations.
ARTICLE 6. Amendment and Termination
6.1 Amendment. The Board from time to time, and without further
approval of the stockholders, may amend the Plan in such respects as the Board
may deem advisable; provided, however, that no amendment will become effective
without prior approval of the stockholders which would materially increase the
benefits accruing to Participants or materially modify the requirements as to
eligibility for participation in the Plan. No amendment will, without the
Participant's consent, alter or impair any of the rights or obligations under
any Bonus previously granted to him under the Plan.
6.2 Termination. Unless terminated sooner, the Plan will remain
in effect until ten years after its effective date. The Board, without further
approval of the stockholders, may terminate the Plan at any time, but no
termination may, without the Participant's consent, alter or impair any of his
rights to any Bonus previously granted to him under the Plan.
ARTICLE 7. General Provisions
7.1 No Rights to Continued Employment. The Plan and any Bonus
granted under the Plan will not confer upon any Participant any right with
respect to continued employment by the Company or any Subsidiary, nor will they
interfere in any way with the right of the Company or any Subsidiary, or the
right of the Participant, to terminate the employment of the Participant at any
time.
7.2 No Right to Bonuses. The adoption of this Plan will not be
deemed to give any person any right to be granted a Bonus, except as
specifically stated in the Plan and upon such terms and conditions as may be
determined by the Committee.
7.3 Effect of Bonuses on Other Plans. Each Participant agrees
that Bonuses granted under this Plan constitute special compensation, and that
such Bonuses will not affect (a) the amount of any pension entitlement or
profit sharing contribution under any pension or retirement plan in which the
Participant
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<PAGE> 7
participates; (b) the amount of coverage under any group life insurance plan in
which the Participant participates; or (c) the benefits under any other benefit
plan of any kind heretofore or hereafter in effect, under which the
availability or amount of benefits is related to compensation.
7.4 Withholding. It shall be a condition of the Company's payment
of a Bonus that the Participant must pay, or make provision satisfactory to the
Company for the payment of, any federal, state, local or other taxes which the
Company is obligated to withhold or collect with respect to such Bonus. The
Company will be entitled to withhold such amounts from any compensation or
other payments then or thereafter due to the Participant.
7.5 Adjustment. The Committee may, but will not be required to,
make or provide for such adjustments in the number of shares of Common Stock
that are to be issued or transferred by the Company pursuant to Section 5.5 of
this Plan, and the kind of shares (including shares of another issuer), as the
Committee may determine to be required in order to prevent dilution or
expansion of the rights of Participants that otherwise would result from (a)
any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of the Company, (b) any merger,
consolidation, spin-off, split-off, spin-out, split-up, separation,
reorganization, partial or complete liquidation or other distribution of
assets, issuance of warrants or other rights to purchase securities or (c) any
other corporate transaction or event that the Committee determines has or may
have an effect similar to any of the foregoing. In the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding awards under this Plan such alternative consideration as it may
determine to be equitable under the circumstances and may require in connection
therewith the surrender of all awards so replaced. The Committee may also make
or provide for such adjustments in the maximum number of shares of Common Stock
specified in Section 5.5 of this Plan as the Committee may determine to be
appropriate in order to reflect any transaction or event described in this
Section 7.5.
7.6 Pronouns. The use of the masculine gender will be extended to
include the feminine gender wherever appropriate.
7.7 Sunday and Holiday. In the event that the time for the
performance of any action or the giving of any notice is called for under the
Plan within a period of time which ends or falls on a Sunday or legal holiday,
such period will be deemed to end or fall on the next date following such
Sunday or legal holiday which is not a Sunday or legal holiday.
7.8 Governing Law. All rights under this Plan will be governed by
and construed in accordance with the internal laws (and not the laws relating
to the conflict of laws) of the Commonwealth of Pennsylvania.
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<PAGE> 8
7.9 Severability. The unenforceability or invalidity of any
provision of this Plan will not effect the enforceability or validity of any
other provision of this Plan.
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<PAGE> 1
EXHIBIT 10.14
INTERSTATE HOTELS COMPANY
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
<PAGE> 2
INTERSTATE HOTELS COMPANY
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
Table of Contents
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
Common Shares Available under the Plan . . . . . . . . . . . 2
Grants of Option Rights . . . . . . . . . . . . . . . . . . . 2
Vesting of Option Rights . . . . . . . . . . . . . . . . . . 3
Termination of Option Rights . . . . . . . . . . . . . . . . 3
Payment of Option Price. . . . . . . . . . . . . . . . . . . 4
Transferability . . . . . . . . . . . . . . . . . . . . . . . 4
Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 4
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . 5
Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . 5
Administration of the Plan . . . . . . . . . . . . . . . . . 5
Amendments and Other Matters . . . . . . . . . . . . . . . . 6
Termination of the Plan . . . . . . . . . . . . . . . . . . . 6
</TABLE>
<PAGE> 3
INTERSTATE HOTELS COMPANY
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE. The purpose of this Plan is to attract and retain
qualified individuals to serve as directors of Interstate Hotels Company, a
Pennsylvania corporation (the "Company"), and to provide such persons with
incentives and rewards for superior performance. This Plan is effective as of
June 17, 1996 (the "Effective Date").
2. DEFINITIONS. As used in this Plan:
"AFFILIATE" means a corporation, partnership, joint venture,
unincorporated association or other entity that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with, the Company.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
"COMMITTEE" means the committee described in Section 16(a) of
this Plan.
"COMMON SHARES" means (i) shares of the Common Stock of the
Company and (ii) any security into which Common Shares may be converted by
reason of any transaction or event of the type referred to in Section 10 of
this Plan.
"DATE OF GRANT" means the date on which a grant of Option
Rights is made pursuant to Section 4.
"MARKET VALUE PER SHARE" means the fair market value of the
Common Shares as determined by the Committee from time to time. Upon the
listing of the Common Shares on the New York Stock Exchange, such fair market
value will equal the arithmetic mean of the highest and lowest sales prices of
such shares as reported on the Composite Transactions tape of such exchange on
the date an Option Right is granted or, if there are no sales on such date, on
the most recent preceding date on which sales occurred.
"OPTIONEE" means the person so designated in an agreement
evidencing an outstanding Option Right.
"OPTION PRICE" means the purchase price payable upon the
exercise of an Option Right.
"OPTION RIGHT" means the right to purchase Common Shares from
the Company upon the exercise of an option granted
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<PAGE> 4
pursuant to Section 4 of this Plan. Such Option Rights will constitute
non-qualified stock options, and no Option Rights granted pursuant to Section 4
will constitute incentive stock options within the meaning of Section 422 of
the Code.
"PARTICIPANT" means any person who, on the Effective Date, is
a member of the Board and is not an officer or employee of the Company or any
Affiliate. Any person who is subsequently elected to the Board and is not then
an officer or employee of the Company or any Affiliate will become a
Participant on the date of such election. A person will cease to be a
Participant on the earlier of the date on which he or she ceases to be a member
of the Board or the date on which he or she becomes an officer or employee of
the Company or any Affiliate.
"RULE 16B-3" means Rule 16b-3, as promulgated and amended from
time to time by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, or any successor rule to the same effect.
3. COMMON SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment
as provided in Section 10 of this Plan, the number of Common Shares issued or
transferred and covered by outstanding awards granted under this Plan will not
in the aggregate exceed 100,000, which may be Common Shares of original
issuance or Common Shares held in treasury or a combination thereof. For the
purposes of this Section 3(a), Common Shares covered by any award granted under
this Plan will be deemed to have been issued or transferred, and will cease to
be available for future issuance or transfer in respect of any other award
granted hereunder, at the time when they are actually issued or transferred.
4. GRANTS OF OPTION RIGHTS. Grants of options to purchase Common
Shares will automatically be made to Participants from time to time in
accordance with the following provisions:
(a) On the Effective Date, each person who is then a
Participant will receive a grant of Option Rights to purchase 5,000 Common
Shares.
(b) Each person who becomes a Participant after the
Effective Date and before an annual meeting of the Company's shareholders will
receive, on the date he or she becomes a Participant, a grant of Option Rights
to purchase 5,000 Common Shares.
(c) On the date of the Company's annual meeting of
shareholders each year, commencing with the 1997 annual meeting, each person
who becomes a Participant at such meeting or continues as a Participant after
such meeting will receive a grant of Option Rights to purchase 5,000 Common
Shares.
2
<PAGE> 5
(d) The Option Price per Common Share of each grant under
the Plan will equal the Market Value per Share on the Date of Grant.
(e) Successive grants may be made to the same Participant
regardless of whether any Option Rights previously granted to the Participant
remain unexercised.
(f) Each grant will be evidenced by an agreement, which
will be executed on behalf of the Company by any officer thereof and delivered
to and accepted by Participant and will contain such terms and provisions as
may be required consistent with this Plan.
5. VESTING OF OPTION RIGHTS. Unless terminated as hereinafter
provided, Option Rights will become exercisable from time to time in accordance
with the following provisions:
(a) Each grant of Option Rights to a Participant will
become exercisable cumulatively to the extent of 34% of the Common Shares
covered thereby on the date of the annual meeting of the Company's shareholders
next following the Date of Grant, provided that the Participant remains in
continuous service as a member of the Board through the date of such meeting.
Each such grant of Option Rights will become exercisable cumulatively to the
extent of an additional 33% of the Common Shares covered thereby (until 100%
exercisable) on the date of each of the next following annual meetings of the
Company's shareholders, provided that the Participant remains in continuous
service as a member of the Board through the date of such meeting.
(b) Notwithstanding the provisions of Section 5(a)
hereof, if a Participant's continuous service as a member of the Board
terminates by reason of his or her death or disability, each grant of Option
Rights to the Participant will become exercisable cumulatively to the extent
that the Option Rights would have become exercisable had the Participant
remained in continuous service as a member of the Board through the date of the
next annual meeting of the Company's shareholders.
(c) To the extent that an Option Right becomes
exercisable in accordance with the terms of this Section 5, it may be exercised
in whole or in part from time to time thereafter.
6. TERMINATION OF OPTION RIGHTS. Option Rights will terminate
automatically and without further notice on the earliest of the following
dates:
(a) three months after the termination of the
Participant's service as a member of the Board for any reason other than his or
her death or disability;
3
<PAGE> 6
(b) one year after the termination of the Participant's
service as a member of the Board by reason of his or her death or disability;
or
(c) five years after the date on which the Option Rights
become exercisable.
7. PAYMENT OF OPTION PRICE. Upon the exercise of an Option
Right, the Option Price may be paid (a) in cash or check or other cash
equivalent acceptable to the Company, (b) by actual or constructive transfer to
the Company of nonforfeitable, nonrestricted shares of Common Stock that have
been owned by the Participant for at least six months prior to the date of
exercise or (c) by any combination of the foregoing. Nonforfeitable,
nonrestricted Common Shares that are transferred by the Participant in payment
of all or any part of the Option Price will be valued on the basis of their
fair market value as determined by the Committee from time to time. The
requirement of payment in cash will be deemed satisfied if the Participant
makes arrangements that are satisfactory to the Company with a broker that is a
member of the National Association of Securities Dealers, Inc. to sell a
sufficient number of the Common Shares that are being purchased pursuant to the
exercise of the Option Rights so that the net proceeds of the sale transaction
will at least equal the amount of the aggregate Option Price and pursuant to
which the broker undertakes to deliver to the Company the amount of the
aggregate Option Price not later than the date on which the sale transaction
settles in the ordinary course of business.
8. TRANSFERABILITY. No Option Right or other derivative security
(as that term is used in Rule 16b-3) granted under this Plan may be transferred
by a Participant except by will or the laws of descent and distribution.
Option Rights granted under this Plan may not be exercised during a
Participant's lifetime except by the Participant or, in the event of the
Participant's legal incapacity, by his guardian or legal representative.
9. ADJUSTMENTS. The Committee may, but will not be required to,
make or provide for such adjustments in the number of Common Shares covered by
outstanding Option Rights, granted hereunder, the Option Prices per Common
Share, and the kind of shares (including shares of another issuer) covered
thereby, as the Committee may determine to be equitably required in order to
prevent dilution or expansion of the rights of Participants that otherwise
would result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company or (b)
any merger, consolidation, spin-off, spin-out, split-off, split-up,
reorganization, partial or complete liquidation or other distribution of
assets, issuance of warrants or other rights to purchase securities or any
other corporate transaction or event that the Committee determines has or may
have an effect similar to any of the foregoing. In the event of any such
transaction or
4
<PAGE> 7
event, the Committee may provide in substitution for any or all outstanding
awards under this Plan such alternative consideration as it may determine to be
equitable under the circumstances and may require in connection therewith the
surrender of all awards so replaced. Moreover, the Committee may on or after
the Date of Grant provide in the agreement evidencing any award under this Plan
that the holder of the award may elect to receive an equivalent award in
respect of securities of the surviving entity of any merger, consolidation or
other transaction or event having a similar effect, or the Committee may
provide that the holder will automatically be entitled to receive such an
equivalent award. The Committee may also make or provide for such adjustments
in the maximum number of Common Shares specified in Section 3 of this Plan as
the Committee may in good faith determine to be appropriate in order to reflect
any transaction or event described in this Section 10.
10. FRACTIONAL SHARES. The Company will not be required to issue
any fractional Common Shares pursuant to this Plan, and the Committee will
provide for the settlement thereof in cash.
11. WITHHOLDING TAXES. To the extent that the Company is required
to withhold federal, state, local or foreign taxes in connection with any
payment made or benefit realized by a Participant or other person under this
Plan, and the amounts available to the Company for the withholding are
insufficient, it will be a condition to the receipt of any such payment or the
realization of any such benefit that the Participant or such other person make
arrangements satisfactory to the Company for payment of the balance of any
taxes required to be withheld. At the discretion of the Committee, any such
arrangements may include relinquishment of a portion of any such payment or
benefit. The Company and any Participant or such other person may also make
similar arrangements with respect to the payment of any taxes with respect to
which withholding is not required.
12. ADMINISTRATION OF THE PLAN. (a) This Plan initially will be
administered by the Board, and all references herein to the Committee will be
deemed to refer to the Board. However, if award hereunder become subject to
Rule 16b-3, this Plan will thereupon be administered by the Compensation
Committee of the Board, which will be composed of not less than two members of
the Board, each of whom will be a "disinterested person" within the meaning of
Rule 16b-3. A majority of the Committee will constitute a quorum, and the acts
of the members of the Committee who are present at any meeting thereof at which
a quorum is present, or acts unanimously approved by the members of the
Committee in writing, will be the acts of the Committee.
(b) The interpretation and construction by the Committee
of any provision of this Plan or any agreement, notification or document
evidencing the grant of Option Rights, and any determination by the Committee
pursuant to any provision of this Plan or any such agreement, notification or
document,
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<PAGE> 8
will be final and conclusive. No member of the Committee will be liable for
any such action taken or determination made in good faith. Notwithstanding the
foregoing, the Committee will have no authority, discretion or power to
determine the terms or timing of any grants under the Plan.
13. AMENDMENTS AND OTHER MATTERS. (a) This Plan may be amended
from time to time by the Committee; provided, however, except as expressly
authorized by this Plan, no such amendment will increase the number of Common
Shares specified in Section 3(a) hereof or increase the number of Performance
Units specified in Section 3(b) hereof without the further approval of the
stockholders of the Company; and provided, further, that if the awards
hereunder become subject to Rule 16b-3, this Plan may not be amended in any
manner that violates any applicable requirements of such rule.
(b) This Plan will not confer upon any Participant any
right with respect to continuance of service as a member of the Board and will
not interfere in any way with any rights that any party may have to terminate
any Participant's service.
14. TERMINATION OF THE PLAN. No further awards will be granted
under this Plan after June 16, 2006.
6
<PAGE> 1
EXHIBIT 10.15(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of May 28, 1996, is
made and entered into by and between Interstate Hotels Company, a Pennsylvania
corporation (the "Company"), and Milton Fine (the "Executive").
RECITALS
A. The Company desires to obtain the services of the Executive as
the Chairman of the Board of the Company;
B. Concurrently herewith, the Company and the Executive have
entered into a Shareholder Agreement pursuant to which the Company, the
Executive and certain other shareholders of the Company will impose certain
restrictions on the transfer of shares of the common stock of the Company held
thereby (the "Shareholder Agreement") and a Severance Agreement pursuant to
which the Company may provide certain severance benefits to the Executive (the
"Severance Agreement"); and
C. The Executive desires to provide his services to the Company
on the terms and conditions herein provided.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement
with initial capital letters:
(a) "BASE PAY" means the salary provided for in Section
4(a), as such amount may be adjusted hereunder.
(b) "BOARD" means the Board of Directors of the Company
or an authorized committee thereof.
(c) "CAUSE" means that the Executive shall have
committed:
(i) an intentional act of fraud, embezzlement or
theft in connection with his duties or in the course of his employment
with the Company or any Subsidiary;
(ii) intentional wrongful damage to property of
the Company or any Subsidiary;
(iii) intentional Unauthorized Disclosure, Use or
Solicitation; or
(iv) intentional wrongful engagement in any
Competitive Activity;
<PAGE> 2
and any such act shall have been materially harmful to the Company. For
purposes of this Agreement, no act or failure to act on the part of the
Executive will be deemed "intentional" if it was due primarily to an error in
judgment or negligence, but will be deemed "intentional" only if done or
omitted to be done by the Executive not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive will not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the full Board of Directors
then in office at a meeting of the Board of Directors called and held for such
purpose, after reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel (if the Executive chooses to have counsel
present at such meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Executive had committed an act
constituting "Cause" as herein defined and specifying the particulars thereof
in detail, provided, however, that nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or propriety of any such
determination and such determination, albeit a condition to any termination for
"Cause" as aforesaid, will not create any presumption that "Cause" in fact
exists.
(d) "COMPETITIVE ACTIVITY" means any act by the Executive
that is prohibited under Section 6(a).
(e) "DISABILITY" means the Executive's inability, as a
result of mental or physical illness, injury or disease, substantially to
perform his material duties and responsibilities under this Agreement for a
period of 180 consecutive calendar days within any 12-month period.
(f) "EMPLOYEE BENEFITS" means the perquisites, benefits
and service credit for benefits as provided under any and all employee welfare
benefit policies, plans, programs or arrangements in which Executive is
entitled to participate, including without limitation any group or other life,
health, medical/hospital or other insurance (whether funded by actual insurance
or self-insured by the Company), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies, plans,
programs or arrangements that may be adopted hereafter by the Company.
(g) "SUBSIDIARY" means an entity in which the Company
directly or indirectly beneficially owns 50% or more of the outstanding Voting
Stock or, if a partnership, limited liability company or similar entity, at
least 50% of the equity capital interests thereof.
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<PAGE> 3
(h) "TERM OF EMPLOYMENT" means the period specified in
Section 2.
(i) "UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION" means
any violation or breach by the Executive of any provision of Section 7.
2. TERM OF EMPLOYMENT. The Company hereby employs the Executive
and the Executive hereby accepts such employment, effective as of January 1,
1996 and ending at the close of business on April 30, 1999; provided, however,
that commencing May 1, 1999 and each May 1st thereafter the Term of Employment
will automatically be extended for successive one-year periods unless either
party gives written notice to the other, not less than 90 calendar days prior
to the otherwise scheduled expiration of the Term of Employment, that it or he
does not want the Term of Employment so to extend; and provided, further, that
the Executive may terminate the Term of Employment at any time upon not less
than 90 calendar days prior notice to the Company. Notwithstanding any other
provision hereof, this Agreement will terminate without further action
effective as of immediately prior to the payment by the Company to the
Executive of the amount specified in Section 4(a)(i) of the Severance
Agreement. The Executive will devote substantially all of his business time to
the business and affairs of the Company and its Subsidiaries (excluding
reasonable amounts of time devoted to charitable purposes, passive investments
and directorships and periods in which he is physically or mentally ill,
injured or otherwise disabled).
3. DUTIES AND RESPONSIBILITIES. During the Term of Employment,
the Executive will report solely to the Board and will have and perform such
duties and responsibilities as the Board may from time to time assign to him.
4. COMPENSATION AND BENEFITS. (a) BASE PAY. During the Term of
Employment, the Executive will receive Base Pay of not less than $500,000 per
year; subject to review by the Board for increase (but not decrease) at the end
of each fiscal year during the Term of Employment. Such Base Pay will be
payable by the Company in accordance with its regular compensation practices
and policies applicable to senior executives of the Company.
(b) ANNUAL PERFORMANCE BONUS. During the Term of
Employment, the Executive will not be eligible for any bonuses under the
Company's Management Bonus Plan. Notwithstanding the foregoing, the Board, in
its sole discretion, may award the Executive a performance bonus for any fiscal
year during the Term of Empoyment.
(c) EMPLOYEE BENEFITS. During the Term of Employment,
the Executive will be entitled to (i) participate in all employee benefit
plans, programs, policies and arrangements sponsored, maintained or contributed
to by the Company, subject to and in
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<PAGE> 4
accordance with the terms and conditions of such plans, programs, policies and
arrangements as they relate to senior executives of the Company, (ii)
participate in all equity and long-term incentive plans sponsored or maintained
by the Company at a level commensurate with his position, subject to and in
accordance with the terms and conditions of such plans as they relate to senior
executives of the Company, and (iii) receive all other benefits and perquisites
provided or made available by the Company to its senior executives, subject to
and in accordance with the terms and conditions of such benefits and
perquisites as they relate to senior executives of the Company.
(d) EXPENSES. During the Term of Employment, the
Executive will be entitled to reimbursement of all documented reasonable travel
and entertainment expenses incurred by him on behalf of the Company in the
course of the performance of his duties hereunder, subject to and in accordance
with the terms and conditions of the Company's expense reimbursement policies
as they relate to senior executives of the Company.
(e) VACATION. During the Term of Employment, the
Executive will be entitled to not less than four weeks of vacation, in addition
to paid public holidays as observed by the Company from year to year, subject
to and in accordance with the terms and conditions of the Company's regular
compensation practices and policies as they relate to senior executives of the
Company.
(f) OTHER AGREEMENTS. The rights and obligations of the
parties under the Shareholder Agreement and the Severance Agreement will be
governed by the terms and conditions of each such agreement and will not be
enlarged or affected hereby.
5. TERMINATION OF EMPLOYMENT. (a) TERMINATION BY NOTICE.
Subject to the provisions of Section 2 and this Section 5, the Executive's
employment hereunder will be for the Term of Employment specified in Section 2.
(b) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE. The
Company may, with or without notice, terminate the Executive's employment
hereunder for Cause. If the Executive's employment is terminated by the
Company effective during the Term of Employment for Cause, or is terminated by
the Executive, the Executive will not be entitled to any compensation or
benefits provided herein, and nothing herein will limit the Company's rights
against the Executive or the rights and obligations of the parties under
Sections 6 and 7.
(c) TERMINATION FOR ANY REASON OTHER THAN CAUSE OR
DISABILITY. Subject to Section 5(g), if the Executive's employment is
terminated by the Company during the Term of Employment for any reason other
than Cause or Disability:
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<PAGE> 5
(i) The Executive will be entitled to receive the greater
of (A) the sum of his Base Pay and annual performance bonus for the
fiscal year immediately preceding the effective date of his
termination of employment and (B) his Base Pay (at the rate in effect
on the effective date of his termination of employment) for the
remainder of the Term of Employment, in either case payable in
accordance with the Company's regular compensation practices and
policies applicable to senior executives; and
(ii) For 12 months following the effective date of the
Executive's termination of employment or, if longer, the remainder of
the Term of Employment (the "Continuation Period"), the Company will
arrange to provide the Executive and his eligible dependents with
Employee Benefits (excluding retirement, deferred compensation and
stock option, stock purchase, stock appreciation or similar
compensatory benefits) that are substantially similar to those that
the Executive and such dependents were receiving or entitled to
receive immediately prior to the effective date of the Executive's
termination of employment, except that the level of any such Employee
Benefits to be provided to the Executive and such dependents may be
reduced in the event of a corresponding reduction generally applicable
to all senior executives. If and to the extent that any benefit
described in this Section 5(c)(ii) is not or cannot be paid or
provided under any policy, plan, program or arrangement of the Company
or any Subsidiary, as the case may be, then the Company will itself
pay or provide for the payment of such Employee Benefits to the
Executive, his dependents and his beneficiaries. Employee Benefits
otherwise receivable by the Executive pursuant to this Section
5(c)(ii) will be reduced to the extent comparable welfare benefits are
actually received by the Executive from another employer during the
Continuation Period following the effective date of the Executive's
termination of employment, and any such benefits actually received by
the Executive must be reported by the Executive to the Company.
(d) DEATH OR DISABILITY. If the Executive's employment
is terminated effective during the Term of Employment as a result of his death
or by the Company as a result of his Disability, the Executive (or, in the
event of his death, his designated beneficiary) will be entitled to receive his
Base Pay (at the rate in effect on the effective date of his termination of
employment) for a period of 12 months following such effective date, payable in
accordance with the Company's regular compensation practices and policies
applicable to senior executives but less any amounts paid to the Executive
under any long-term disability plan, program, policy or arrangement of the
Company or any Subsidiary.
(e) COMPENSATION AND BENEFITS ON TERMINATION. Except as
otherwise provided in Section 5(c) or (d):
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<PAGE> 6
(i) All compensation and benefits payable to the
Executive pursuant to Section 4 (other than compensation and benefits
previously earned and, if applicable, vested under the terms of this
Agreement or any other applicable employee benefit plan, program,
policy, arrangement or agreement) will terminate as of the effective
date of the Executive's termination of employment; and
(ii) The Executive will not be entitled to, and
hereby waives, any claims for compensation or benefits (other than
compensation and benefits previously earned and, if applicable, vested
under the terms of this Agreement, the Severance Agreement or any
other applicable employee benefit plan, program, policy, arrangement
or agreement) payable after such effective date and for damages
arising in connection with his termination of employment pursuant to
this Agreement.
(f) NO MITIGATION OBLIGATION. The Company hereby
acknowledges that it will be difficult and may be impossible for the Executive
to find reasonably comparable employment following the Termination Date and
that the non- competition covenant contained in Section 6 will further limit
the employment opportunities for the Executive. Accordingly, the payment of
the compensation by the Company to the Executive in accordance with the terms
of this Agreement is hereby acknowledged by the Company to be reasonable, and
the Executive will not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
will any profits, income, earnings or other benefits from any source whatsoever
create any mitigation, offset, reduction or any other obligation on the part of
the Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 5(c)(ii).
6. COMPETITIVE ACTIVITY. (a) During the Term of Employment and
the period ending two years following the effective date of the Executive's
termination of employment, the Executive will not:
(i) enter into or engage in any business which
competes with the Company's business within
the Restricted Territory (as defined below);
or
(ii) solicit customers, business patronage or
orders for, or sell, any product or products,
or service or services, in competition with,
or for any business, wherever located, that
competes with the Company's business within
the Restricted Territory; or
(iii) divert, entice or otherwise take away any
customers, business or patronage or orders of
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<PAGE> 7
the Company within the Restricted Territory,
or attempt to do so; or
(iv) promote or assist, financially or otherwise,
any firm, person, association, partnership,
corporation or other entity engaged in any
business which competes with the Company's
business within the Restricted Territory.
Notwithstanding the foregoing, "Competitive Activity" will not include: (i)
the Executive's mere ownership of not more than 5% of any publicly-traded class
of securities of any business entity (including any business entity described
in Section 6(b) hereof) and the exercise of rights appurtenant thereto; or (ii)
following the effective date of the Executive's termination of employment, the
Executive's complete or partial purchase, acquisition or development of,
investment in, or provision of financing or other financial assistance to, any
business entity or property that derives revenue from hotel ownership or owner
management (excluding any business entity engaging in third-party hotel
management).
(b) For the purposes of this Section 6, the Restricted
Territory will be defined as and limited to:
(i) the geographic areas within a 25 mile radius
of any and all Company locations in, to or
for which the Executive worked, was assigned
or had any responsibility (either direct or
supervisory) at the time of the termination
of his employment or at any time during the
two year period prior to such termination;
(ii) any customer, whether within or outside of
the geographic area described in paragraph
(i) above, for or to which the Executive
worked, was assigned or had any direct
responsibility at the time of the termination
of his employment or at any time during the
two year period prior to such termination; or
(iii) the following hotel chains, their
subsidiaries and affiliates, and the
following real estate management companies,
their subsidiaries and affiliates, whether
within or outside of the geographic area
described in paragraph (i) above: Bristol
Hotel Company, Carnival Hotels and Resorts,
Doubletree Corporation, Hilton Inns, Inc.,
Hyatt Corporation, Marriott International,
Inc., Patriot American Hospitality, Radisson
Hotels International, Inc., Starwood Lodging
Corporation, Westin Hotels and Resorts and
Wyndham Hotel Corporation.
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<PAGE> 8
7. UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION. (a) Executive
will keep in strict confidence, and will not, directly or indirectly, at any
time during or after his employment with the Company, disclose, furnish,
disseminate, make available or, except in the course of performing his duties
of employment hereunder, use any trade secrets or confidential business and
technical information of the Company or its customers, vendors or property
owners or managers, without limitation as to when or how Executive may have
acquired such information. Such confidential information will include, without
limitation, the Company's unique selling methods and trade techniques,
management, training, marketing and selling manuals, promotional materials,
training courses and other training and instructional materials, vendor, owner,
manager and product information, customer lists, other customer information and
other trade information. Executive specifically acknowledges that all such
confidential information including, without limitation, customer lists, other
customer information and other trade information, whether reduced to writing,
maintained on any form of electronic media, or maintained in the mind or memory
of Executive and whether compiled by the Company, and/or Executive, derives
independent economic value from not being readily known to or ascertainable by
proper means by others who can obtain economic value from its disclosure or
use, that reasonable efforts have been made by the Company to maintain the
secrecy of such information, that such information is the sole property of the
Company and that any retention and use of such information by Executive during
his employment with the Company (except in the course of performing his duties
and obligations hereunder) or after the termination of his employment will
constitute a misappropriation of the Company's trade secrets.
(b) Executive agrees that upon termination of Executive's
employment with the Company, for any reason, Executive will return to the
Company, in good condition, all property of the Company, including without
limitation, the originals and all copies of all management, training, marketing
and selling manuals, promotional materials, other training and instructional
materials, vendor, owner, manager and product information, customer lists,
other customer information and all other selling, service and trade information
and equipment. In the event that such items are not so returned, the Company
will have the right to charge Executive for all reasonable damages, costs,
attorneys' fees and other expenses incurred in searching for, taking, removing
and/or recovering such property.
(c) Executive acknowledges that to the extent permitted
by law, all work papers, reports, documentation, drawing, photographs,
negatives, tapes and masters therefor, prototypes and other materials
(hereinafter, "items"), including, without limitation, any and all such items
generated and maintained on any form of electronic media, generated by
Executive during his employment with the Company will be considered a "work
made for hire" and that ownership of any and
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<PAGE> 9
all copyrights in any and all such items will belong to the Company. The item
will recognize the Company as the copyright owner, will contain all proper
copyright notices, e.g., "(year of creation" Interstate Hotels Corporation.
All rights reserved," and will be in condition to be registered or otherwise
placed in compliance with registration or other statutory requirements
throughout the world.
(d) Executive hereby assigns and agrees to assign to the
Company, its successors, assigns or nominees, all of his rights to any
discoveries, inventions and improvements, whether patentable or note, made,
conceived or suggested, either solely or jointly with others, by Executive
while in the Company's employ, whether in the course of his employment with the
use of the Company's time, materials or facilities or in any way within or
related to the existing or contemplated scope of the Company's business. Any
discovery, invention or improvement relating to any subject matter with which
the Company was concerned during Executive's employment and made, conceived or
suggested by Executive, either solely or jointly with others, within one year
following termination of Executive's employment under this Agreement or any
successor agreements will be irrebuttably presumed to have been so made,
conceived or suggested in the course of such employment with the use of the
Company's time, materials or facilities. Upon request by the Company with
respect to any such discoveries, inventions or improvements, Executive will
execute and deliver to the Company, at any time during or after his employment,
all appropriate documents for use in applying for, obtaining and maintaining
such domestic and foreign patents as the Company may desire, and all proper
assignments therefor, when so requested, at the expense of the Company, but
without further or additional consideration.
(e) Executive may use the Company's trade names,
trademarks and/or service marks in connection with the sale of the Company's
products and services, but only in such manner and for such purposes as may be
authorized by the Company. Upon any termination of this Agreement, Executive
immediately will cease the use of such trade names, trademarks and/or service
marks and eliminate them wherever they have been used or incorporated by
Executive.
(f) The Executive will not directly or indirectly (i)
solicit or endeavor to cause any employee of the Company or any Subsidiary to
leave his employment or induce or attempt to induce any such employee to breach
any employment agreement with the Company or any Subsidiary or otherwise
interfere with the employment of any such employee or (ii) solicit, endeavor to
cause, induce or attempt to induce any agent who engages in the business of
marketing the services of the Company or any Subsidiary to terminate, reduce or
modify its agency relationship with the Company or any Subsidiary.
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<PAGE> 10
8. SUCCESSORS AND BINDING AGREEMENT. (a) The Company
will require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance
reasonably satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent the Company
would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or assets of
the Company whether by purchase, merger, consolidation, reorganization or
otherwise (and such successor will thereafter be deemed the "Company" for the
purposes of this Agreement), but will not otherwise be assignable, transferable
or delegable by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of
the parties hereto will, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 8(a) and (b). Without limiting the generality
or effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by Executive's
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 8(c), the Company
will have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
9. LEGAL FEES AND EXPENSES. It is the intent of the Company that
the Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's
rights under this Agreement by litigation or otherwise because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Executive hereunder. Accordingly, if it should appear to the
Executive that the Company has failed to comply with any of its obligations
under this Agreement or in the event that the Company or any other person takes
or threatens to take any action to declare this Agreement void or
unenforceable, or institutes any litigation, arbitration or other action or
proceeding designed to deny, or to recover from, the Executive the benefits
provided or intended to be provided to the Executive hereunder, the Company
irrevocably authorizes the Executive from time to time to retain counsel of
Executive's choice, at the expense of the Company as hereafter provided, to
advise and
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<PAGE> 11
represent the Executive in connection with any such interpretation, enforcement
or defense, including without limitation the initiation or defense of any
litigation, arbitration or other legal action, whether by or against the
Company or any Director, officer, stockholder or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Executive's entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
Executive and such counsel. Without respect to whether the Executive prevails,
in whole or in part, in connection with any of the foregoing, the Company will
pay and be solely financially responsible for any and all attorneys' and
related fees and expenses incurred by the Executive in connection with any of
the foregoing.
10. ADDITIONAL REMEDIES. (a) Notwithstanding any other remedy
herein provided for or available, if the Executive should be in breach of any
of the provisions of Section 6 or 7, the Executive expressly acknowledges and
agrees that the Company will be entitled to injunctive relief or specific
performance, without the necessity of proving damages, in addition to any other
remedies it may have.
(b) Notwithstanding any of the foregoing, in the event of
any disputes regarding the interpretation or application of any provision of
this Agreement, either the Executive or the Company, or both parties, may
request in writing that such dispute be resolved through final and binding
arbitration. The parties will jointly select the arbitrator who will hear such
dispute. If the parties cannot agree on the selection of an arbitrator, the
parties will request that one be appointed by the American Arbitration
Association. The arbitration will be conducted in Pittsburgh, Pennsylvania (or
in any other location mutually agreed upon by the parties) in accordance with
the rules of the American Arbitration Association. The parties acknowledge and
agree that time will be of the essence throughout such procedure. The decision
of the arbitrator may be entered in any court having subject matter and
personal jurisdiction over the dispute and the Executive. The Company will pay
any costs and expenses in connection with any such dispute or procedure.
11. REPRESENTATION. Each party represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person or entity.
12. SEVERABILITY. In the event that any provision or portion of
this Agreement is determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement will be unaffected
thereby and will
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<PAGE> 12
remain in full force and effect to the fullest extent permitted by law.
13. NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or three business
days after having been sent by a nationally recognized overnight courier
service such as Federal Express or UPS, addressed to the Company (to the
attention of the Secretary of the Company) at its principal executive office
and to the Executive at his principal residence (with a copy to any counsel
designated by the Executive), or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address will be effective only upon receipt.
14. DISCLOSURE. During the Term of Employment and for one year
thereafter, Executive will communicate the contents of this Agreement to any
person, firm, association, partnership, corporation or other entity which he or
she intends to be employed by, associated with, or represent and which is
engaged in a business that is competitive to the business of the Company.
15. MODIFICATIONS AND WAIVERS. No provision of this Agreement may
be modified or discharged unless such modification or discharge is authorized
by the Board and is agreed to in writing, signed by the Executive and by an
officer of the Company duly authorized by the Board. No waiver by either party
hereto of any breach by the other party hereto of any condition or provision of
this Agreement to be performed by such other party will be deemed a waiver of
similar or dissimilar provisions or conditions at the time or at any prior or
subsequent time.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties hereto with respect to its subject matter, except
as such parties may otherwise agree in a writing which specifies that it is an
exception to the foregoing. This Agreement supersedes all prior agreements
between the parties hereto with respect to its subject matter and,
notwithstanding any other provision hereof, will become effective upon the
execution of this Agreement by the parties.
17. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the Commonwealth of Pennsylvania, without giving
effect to the principles of conflict of laws of such Commonwealth.
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<PAGE> 13
18. COUNTERPARTS. This Agreement may be executed simultaneously
in one or more counterparts, each of which will be deemed to be an original but
all of which together will constitute one and the same instrument.
19. HEADINGS, ETC. The section headings contained in this
Agreement are for convenience of reference only and will not be deemed to
control or affect the meaning or construction of any provision of this
Agreement. References to Sections are to Sections in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INTERSTATE HOTELS COMPANY
By: /s/ Marvin I. Droz
--------------------------------
/s/ Milton Fine
--------------------------------------
Milton Fine
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<PAGE> 1
EXHIBIT 10.17
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of June __, 1996 (this
"Agreement"), is made by and between Interstate Hotels Company, a Pennsylvania
corporation (the "Company"), and __________________ ("Indemnitee").
RECITALS
A. It is important to the Company to retain and attract as
directors and officers the most capable persons available.
B. Indemnitee is a director and/or officer of the Company.
C. Both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
companies in today's environment.
D. The Company's By-Laws (the "By-Laws") provide that the Company
will indemnify its directors and officers to the full extent permitted by law
and will advance expenses in connection therewith, and Indemnitee's willingness
to serve as a director and/or officer of the Company is based in part on
Indemnitee's reliance on such provisions.
E. In recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service
to the Company in an effective manner, and Indemnitee's reliance on the
aforesaid provisions of the By-Laws, and to provide Indemnitee with specific
contractual assurance that the protection promised by such provisions will be
available to Indemnitee (regardless of, among other things, any amendment to or
revocation of such provisions or any change in the composition of the Company's
Board of Directors or any acquisition or business combination transaction
relating to the Company), the Company wishes to provide in this Agreement for
the indemnification of and the advancement of expenses to Indemnitee as set
forth in this Agreement, and, to the extent insurance is maintained, for the
continued coverage of Indemnitee under the Company's directors' and officers'
liability insurance policies.
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "CLAIM" means any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation, whether
instituted, made or conducted by the Company or any other party, that
Indemnitee determines might lead to the institution of any such action, suit or
proceeding, whether civil, criminal, administrative, investigative or other.
(b) "EXPENSES" includes attorney's fees and all other
costs, expenses, and obligations paid or incurred in connection
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with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any Claim relating to any Indemnifiable Event.
(c) "INDEMNIFIABLE EVENT" means any actual or asserted
event or occurrence related to the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
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 Indemnitee in any such capacity.
(d) "INDEMNIFIABLE LOSSES" means any and all Expenses,
judgments, fines, penalties and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or
in respect of such Expenses, judgments, fines, penalties or amounts paid in
settlement).
2. BASIC INDEMNIFICATION ARRANGEMENT. In the event Indemnitee
was, is or becomes a party to or witness or other participant in, or is
threatened to be made a party to or witness or other participant in, a Claim by
reason of (or arising in whole or in part out of) an Indemnifiable Event, the
Company will indemnify Indemnitee to the fullest extent permitted by law as
soon as practicable but in any event no later than 60 calendar days after
written notice to the Company, against all Indemnifiable Losses relating to,
resulting from or arising out of such Claim. Notwithstanding anything in this
Agreement to the contrary, Indemnitee will not be entitled to indemnification
pursuant to this Agreement in connection with any Claim initiated by Indemnitee
against the Company or any director or officer of the Company unless the
Company has joined in or consented to the initiation of such Claim. If so
requested by Indemnitee, the Company will advance (within two business days of
such request) any and all Expenses to Indemnitee.
3. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company will
indemnify Indemnitee against, and, if requested by Indemnitee, will (within two
business days of such request) advance to Indemnitee, any and all attorneys'
fees and other costs, expenses, and obligations paid or incurred by Indemnitee
in connection with any claim, action, suit or proceeding asserted or brought by
Indemnitee for (i) indemnification or advance payment of Expenses by the
Company under this Agreement or any other agreement or under any provision of
the Company's Articles of Incorporation (the "Articles") or the By-Laws now or
hereafter in effect relating to Claims for Indemnifiable Events and/or (ii)
recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such
<PAGE> 3
indemnification, advance expense payment, or insurance recovery, as the case
may be.
4. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Identifiable Loss but not for all of the total amount thereof,
the Company will nevertheless indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the merits
or otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
without limitation dismissal without prejudice, Indemnitee will be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination as to whether Indemnitee is entitled to be indemnified hereunder,
the burden of proof will be on the Company to establish that Indemnitee is not
so entitled.
5. NO PRESUMPTION. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere or its equivalent, will not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
6. NON-EXCLUSIVITY, ETC. The rights of Indemnitee hereunder will
be in addition to any other rights Indemnitee may have under the Articles, the
By-Laws, or the Pennsylvania Business Corporation Law or otherwise; provided,
however, that to the extent that Indemnitee otherwise would have any greater
right to indemnification under any provision of the Articles or the By-Laws as
in effect on the date hereof, Indemnitee will be deemed to have such greater
right hereunder; and, provided further, however, that to the extent that any
change is made to the Pennsylvania Business Corporation Law (whether by
legislative action or judicial decision), the Articles and/or the By-Laws which
permit any greater right to indemnification than that provided under this
Agreement as of the date hereof, Indemnitee will be deemed to have such greater
right hereunder. The Company will not adopt any amendment to the Articles or
the By-Laws the effect of which would be to deny, diminish or encumber
Indemnitee's right to indemnification under the Articles, the By-Laws, the
Pennsylvania Business Corporation Law or otherwise as applied to any act or
failure to act occurring in whole or in part prior to the date upon which the
amendment was approved by the Company's Board of Directors and/or its
shareholders, as the case may be.
7. LIABILITY INSURANCE AND FUNDING. To the extent the Company
maintains an insurance policy or policies providing
3
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directors' and officers' liability insurance, Indemnitee will be covered by
such policy or policies, in accordance with its or their terms, to the maximum
extent of the coverage available for any director or officer of the Company.
The Company may, but will not be required to, 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 satisfy
its obligations to indemnify and advance expenses pursuant to this Agreement.
8. PERIOD OF LIMITATIONS. No legal action may be brought and no
cause of action will be asserted by or on behalf of the Company or any
affiliate of the Company against Indemnitee or Indemnitee's spouse, personal or
legal representatives, executors, administrators, successors, heirs,
distributees or legatees after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company or its affiliates will be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, such shorter period will govern.
9. SUBROGATION. In the event of payment under this Agreement,
the Company will be subrogated to the extent of such payment to all of the
related rights of recovery of Indemnitee against other persons or entities.
The Indemnitee will execute all papers reasonably required and will do
everything that may be reasonably necessary to secure such rights and enable
the Company effectively to bring suit to enforce such rights (all of
Indemnitee's reasonable costs and expenses, including attorneys' fees and
disbursements, to be reimbursed by or, at the option of Indemnitee, advanced by
the Company).
10. NO DUPLICATION OF PAYMENTS. The Company will not be liable
under this Agreement to make any payment in connection with any claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, the Articles, the By-Laws or otherwise) of
the amounts otherwise indemnifiable hereunder.
11. JOINT DEFENSE. Notwithstanding anything to the contrary
herein contained, if (a) Indemnitee elects to retain counsel in connection with
any Claim in respect of which indemnification may be sought by Indemnitee
against the Company pursuant to this Agreement and (b) any other director or
officer of the Company may also be subject to liability arising out of such
Claim and in connection with such Claim may seek indemnification against the
Company pursuant to an agreement similar to this Agreement, Indemnitee,
together with such other persons, will employ counsel to represent jointly
Indemnitee and such other persons unless the Company's Board of Directors, upon
the written request of Indemnitee delivered to the Company (to the attention of
the Secretary) setting forth in reasonable
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detail the basis for such request, determines that such joint representation
would be precluded under the applicable standards of professional conduct then
prevailing under the law of the Commonwealth of Pennsylvania, in which event
Indemnitee will be entitled to be represented by separate counsel. In the
event that the Company's Board of Directors fails to act on such request within
30 calendar days after receipt thereof by the Company, Indemnitee will be
deemed to be entitled to be represented by separate counsel in connection with
such Claim.
12. SUCCESSORS AND BINDING AGREEMENT. (a) The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization, or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to
the Company, including without limitation any person acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization, or otherwise (and
such successor will thereafter be deemed the "Company" for purposes of this
Agreement), but will not otherwise be assignable, transferable or delegatable
by the Company.
(b) This Agreement will inure to the benefit of and be enforceable
by the Indemnitee's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto will, without the consent of the other, assign or delegate this
Agreement or any rights or obligations hereunder except as expressly provided
in Sections 12(a) and 12(b). Without limiting the generality or effect of the
foregoing, Indemnitee's right to receive payments hereunder will not be
assignable, whether by pledge, creation of a security interest or otherwise,
other than by a transfer by the Indemnitee's will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer contrary
to this Section 12(c), the Company will have no liability to pay any amount so
attempted to be assigned or transferred.
13. NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests, or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid or one business day
after having been sent for next-day
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delivery by a nationally recognized overnight courier service, addressed to the
Company (to the attention of the Secretary of the Company) at its principal
executive office and to the Indemnitee at the Indemnitee's principal residence
as shown in the Company's most current records, or to such other address as any
party may have furnished to the other in writing and in accordance herewith,
except that notices of changes of address will be effective only upon receipt.
14. GOVERNING LAW. The validity, interpretation, construction,
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the Commonwealth of Pennsylvania,
without giving effect to the principles of conflict of laws of such
Commonwealth.
15. VALIDITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstance is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement
and the application of such provision to any other person or circumstance will
not be affected, and the provision so held to be invalid, unenforceable or
otherwise illegal will be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid or legal.
16. MISCELLANEOUS. No provision of this Agreement may be waived,
modified, or discharged unless such waiver, modification, or discharge is
agreed to in writing signed by Indemnitee and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto or compliance
with any condition or provision of this Agreement to be performed by such other
party will be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. References to Sections are to references to
Sections of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.
18. LEGAL FEES AND EXPENSES. It is the intent of the Company that
the Indemnitee not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Indemnitee's
rights under this Agreement by litigation or otherwise because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Indemnitee hereunder. Accordingly, subject to Section 11, if
it should appear to the Indemnitee that the Company has failed to comply with
any of its obligations under this Agreement or in the event that the Company or
any other person takes or threatens to take any action to declare this
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<PAGE> 7
Agreement void or unenforceable, or institutes any litigation or other action
or proceeding designed to deny, or to recover from, the Indemnitee the benefits
provided or intended to be provided to the Indemnitee hereunder, the Company
irrevocably authorizes the Indemnitee from time to time to retain counsel of
Indemnitee's choice, at the expense of the Company as hereafter provided, to
advise and represent the Indemnitee in connection with any such interpretation,
enforcement or defense, including without limitation the initiation or defense
of any litigation or other legal action, whether by or against the Company or
any Director, officer, stockholder or other person affiliated with the Company,
in any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Indemnitee's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Indemnitee agree that
a confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Indemnitee prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and
expenses incurred by the Indemnitee in connection with any of the foregoing.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the date first above written.
INTERSTATE HOTELS COMPANY
By:
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EXHIBIT 21.1
INTERSTATE HOTELS COMPANY
LIST OF SUBSIDIARIES
STATE OF
SUBSIDIARY INFORMATION
- - ---------- -----------
CHR Consulting Company, L.L.C. Delaware
CHR Services Company, L.L.C. Delaware
Colony Hotels and Resorts Company Delaware
Colony International Management Company, L.L.C. Delaware
Continental Design & Supplies Company, L.L.C. Delaware
Crossroads Hospitality Company, L.L.C. Delaware
Crossroads Hospitality Tenant Company, L.L.C. Delaware
Hilltop Equipment Leasing Company, L.P. Delaware
Host/Interstate Partnership, L.P. Delaware
Huntington Hotel Partners, L.P. Delaware
IHC/Atlanta Corporation Delaware
IHC Capital Corporation Delaware
IHC/CG Portfolio Corporation Delaware
IHC/Colorado Springs Corporation Delaware
IHC/Conshohocken Corporation Delaware
IHC/Denver Corporation Delaware
IHC/Houston Corporation Delaware
IHC/Huntington Corporation Delaware
IHC/Interstone Corporation Delaware
IHC/Interstone Partnership, L.P. Delaware
IHC/Interstone Partnership II, L.P. Delaware
IHC/Lisle Corporation Delaware
IHC Member Corporation Delaware
IHC/Pittsburgh Partnership, L.P. Delaware
IHC Services Company, L.L.C. Delaware
IHC/Williamsburg Corporation Delaware
Interstate Hotels Corporation Pennsylvania
Interstone/Atlanta Partnership, L.P. Delaware
Interstone/CGL Partners, L.P. Delaware
Interstone/Colorado Springs Partnership, L.P. Delaware
Interstone/Conshohocken Partnership, L.P. Delaware
Interstone/Denver Partnership, L.P. Delaware
Interstone/Houston Partnership, L.P. Delaware
Interstone/Huntington Partnership, L.P. Delaware
Interstone/Lisle Partnership, L.P. Delaware
Interstone Partners I L.P. Delaware
Interstone Three Partners I L.P. Delaware
Interstone Three Partners II L.P. Delaware
Interstone Three Partners III L.P. Delaware
Interstone Three Partners IV L.P. Delaware
Interstone/Williamsburg Partnership, L.P. Delaware
Northridge Insurance Company Cayman Islands
Cambridge Hotel Associates Pennsylvania
HMG Beverage, Inc. Texas
DFW/H&R, Inc. Texas
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 3 to the Registration
Statement on Form S-1 (Registration No. 333-03958) of our report on the Balance
Sheet of Interstate Hotels Company as of April 23, 1996, dated April 23, 1996;
the Combined Financial Statements of Interstate Hotels Corporation and
Affiliates as of December 31, 1994 and 1995 and for the three years ended
December 31, 1995, dated April 10, 1996, except for the third paragraph of Note
9, which is dated April 22, 1996; the Combined Financial Statements of
Interstone I Property Partnerships and Predecessor Entities as of December 31,
1994 and 1995 and for the three years ended December 31, 1995, dated April 10,
1996; the Combined Financial Statements of Interstone/CGL Partners, L.P. and
Predecessor Entity as of December 31, 1994, December 14, 1995 and December 31,
1995 and for the years ended December 31, 1993 and 1994, for the period from
January 1, 1995 to December 14, 1995 and for the period from December 15, 1995
to December 31, 1995 dated April 10, 1996; and the Financial Statements of
Boston Marriott Westborough Hotel as of December 31, 1994 and 1995 and for the
three years ended December 31, 1995, dated May 2, 1996. We also consent to the
reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Pittsburgh, PA
June 18, 1996
