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UNITED STATES Estimated average burden
SECURITIES AND EXCHANGE COMMISSION hours per response . . . . . 14.90
Washington, D.C. 20549 ==================================
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __________)*
Candlewood Hotel Company, Inc.(Name of Issuer
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Common Stock, $.01 par value(Title of Class of Securities)
13741M 108
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(CUSIP Number)
Robert S. Morris, Managing Partner, Olympus Partners, Metro Center,
One Station Place, Stamford CT 06902 Phone: (203)353-5904
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(Name, Address and Telephone Number of Person Authorized to Receive Notes
and Communications)
October 3, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. / /
Check the following box if a fee is being paid with the statement. / / (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
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CUSIP No. 13741M 108 Page 2 of 92 Pages
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(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
Olypus Growth Fund II, L.P.
06-1406542
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(2) Check the Appropriate Box if a Member (a) / /
of a Group* (b) /X/
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(3) SEC Use Only
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(4) Source of Funds*
OO
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
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(6) Citizenship or Place of Organization
Delaware
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Number of Shares (7) Sole Voting Power
Beneficially Owned 1,042,105
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting Power
None
--------------------------------------------------
(9) Sole Dispositive Power
1,042,105
--------------------------------------------------
(10) Shared Dispositive Power
None
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,042,105
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(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares*
Not Applicable
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(13) Percent of Class Represented by Amount in Row (11)
10.3%, but approxiamtely 10.4% if considered together with Olympus
Executive Fund, L.P.
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(14) Type of Reporting Person*
PN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPO NSES TO ITEMS 1-7
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SCHEDULE 13D
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CUSIP No. 13741M 108 Page 3 of 92 Pages
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(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
Olympus Executive Fund, L.P.
06-1440917
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(2) Check the Appropriate Box if a Member (a) / /
of a Group* (b) /X/
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(3) SEC Use Only
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(4) Source of Funds*
OO
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
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(6) Citizenship or Place of Organization
Delaware
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Number of Shares (7) Sole Voting Power
Beneficially Owned 10,526
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting Power
None
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(9) Sole Dispositive Power
10,526
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(10) Shared Dispositive Power
None
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
10,526
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(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares*
Not Applicable
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(13) Percent of Class Represented by Amount in Row (11)
0/1%, but approximately 10.4% if considered together with Olympus Growth
Fund II, L.P.
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(14) Type of Reporting Person*
PN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPO NSES TO ITEMS 1-7
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Item I. Security and Issuer.
This statement relates to the common stock, par value $.01 per share
("Common Stock"), of Candlewood Hotel Company, Inc., a Delaware Corporation (the
"Issuer"), beneficially owned by Olympus Growth Fund II, L.P., a Delaware
limited partnership ("OGFII"), and Olympus Executive Fund, L.P., a Delaware
limited partnership ("OEF"), through their respective holdings of Series A
Cumulative Convertible Preferred Stock, par value $.01 per share ("Preferred
Stock") of the Issuer convertible into Common Stock at the option of the holder.
The Issuer's principal executive offices are at Lakepoint Office Park 9342 East
Central, Wichita, Kansas 67206-2555.
The entities identified in the first paragraph of the response to Item
2 (the "Reporting Persons") have entered into a Joint Filing Agreement, dated
October 21, 1997, a copy of which is attached hereto as Schedule I.
Item 2. Identity and Background.
The following information is provided for the Reporting Persons:
a). Names: Olympus Growth Fund II, L.P.
Olympus Executive Fund, L.P.
The persons listed in Schedule II are: (i) general partners of the
Reporting Persons; (ii) general partners of general partners of the Reporting
Persons; (iii) managing members of general partners of the general partner of
OGFII; and (iv) presidents of general partners of general partner of OEF.
b). Business Address: Metro Center, One Station Place, Stamford, CT
06430
c). Present principal occupation and related information: private
investment partnerships.
d). During the last five years, neither any Reporting Person nor, to
the best knowledge of each Reporting Person, any persons identified and listed
in Schedule II attached hereto has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors).
e). During the last five years, neither any Reporting Persons nor, to
the best knowledge of each Reporting Person, any persons identified in Schedule
II has been a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and, as a result of such proceeding was or is subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violations with respect to such laws.
f). Both Reporting Persons are Delaware limited partnerships.
Item 3. Source and Amount of Funds or Other Consideration.
The shares of Common Stock of the Issuer are beneficially owned by the
Reporting Persons through their respective purchases pursuant to the Stock
Purchase Agreement dated September 22, 1997 among the Issuer, the Reporting
Persons and certain other purchasers of the shares of Preferred Stock of the
Issuer. Funds in the amount of $10,000,000 necessary for the purchases were
provided by capital contributions of limited partners and general partners of
the Reporting Persons.
Page 4 of 92
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OGFII acquired 4,693 shares of Preferred Stock on September 23, 1997
for a purchase price of $4,693,000 and 5,207 shares of Preferred Stock on
October 3, 1997 for a purchase price of $5,207,000.
OEF acquired 47 shares of Preferred Stock on September 23, 1997 for a
purchase price of $47,000 and 53 shares of Preferred Stock on October 3, 1997
for a purchase price of $53,000.
Item 4. Purpose of Transaction.
The Reporting Persons hold Preferred Stock for the purpose of
investment, in view of capital appreciation of securities.
The Reporting Persons intend to reexamine their investment in the
Issuer from time to time and, depending on market considerations and other
factors, may purchase or sell shares of Common Stock, if appropriate
opportunities to do so are available, on such terms and at such time as they
consider advisable.
In connection with the issuance of Preferred Stock, the following
changes resulted:
a). The maximum number of the directors of the Issuer was increased
from seven (7) to ten (10) directors and three directors were added to the
Board. The three new directors, elected by a majority of the Board, are:
Messrs. Robert Cresci, Robert Morris and Frank Pados.
b). The Board of Directors authorized issuance of 65,000 shares of
Preferred Stock and reserved 6,842,105 shares of Common Stock to be issued upon
conversion of the Preferred Stock or such lesser or greater number of shares of
Common Stock as the then outstanding shares of Preferred Stock are convertible
into.
c). The Issuer's charter and bylaws were amended so as to reflect
changes in capitalization and in the structure of the Board of Directors of the
Issuer.
Subject to the foregoing, none of the following events has happened or
is contemplated by the Reporting Persons:
1). The acquisition by any person of additional securities of the
Issuer, or the disposition of securities of the Issuer;
2). An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Issuer or any of its subsidiaries;
3). A sale or transfer of a material amount of assets of the Issuer
or any of its subsidiaries;
4). Any other material change in the Issuer's business or corporate
structure;
5). Changes in the Issuer's charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Issuer by any person;
6). Causing a class of securities of the Issuer to be delisted from a
national securities exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities association;
Page 5 of 92
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7). A class of equity securities of the Issuer becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934; or
8). Any action similar to any of those enumerated above.
Item 5. Interest in the Securities of the Issuer.
a). and b). The Reporting Persons together beneficially own an
aggregate of 1,052,631 shares of Common Stock or approximately 10.4% of the
issued and outstanding shares of Common Stock through holding of an aggregate of
10,000 shares of Preferred Stock of the Issuer (preferences and special rights
of Preferred Stock are listed in the Certificate of Designation, Preferences and
Relative, Participating, Optional and Other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions Thereof (the "Certificate of
Designation") attached hereto as Exhibit D). Pursuant to the Certificate of
Designation, holders of the shares of Preferred Stock are entitled, upon the
failure of the Issuer to redeem the shares of Preferred Stock in accordance with
the mandatory redemption provisions of the Certificate of Designation, to
receive warrants to purchase additional Common Stock of the Issuer ("Warrants")
upon terms and conditions stated in the Form of Warrant attached hereto as
Exhibit E. The Reporting Persons, therefore, may be entitled to receive
Warrants to purchase additional Common Stock of the Issuer.
If the Issuer grants, issues or sells any rights or options to
purchase stock, warrants or other property ("Purchase Rights") pro rata to the
holders of Common Stock, the Reporting Persons are entitled, pursuant to the
Certificate of Designation, to a right, at their option, either to have the
conversion price of Preferred Stock adjusted, or to acquire such Purchase Rights
as they could have acquired if they held the number of shares of Common Stock
issuable upon conversion of Preferred Stock held by them immediately prior to
the time the Issuer granted, issued or sold such Purchase Rights.
(i) OGFII beneficially owns 1,042,105 shares of Common Stock of the
Issuer through its holdings of 9,900 shares of Preferred Stock of the Issuer,
with a face value of $1,000 per share. Preferred Stock is convertible at the
option of OGFII into Common Stock of the Issuer at a price of $9.50 per share.
If OGFII were to convert all its shares of Preferred Stock into shares of Common
Stock, it would own approximately 10.3% of the issued and outstanding shares of
Common Stock, based on information provided by the Issuer to the Reporting
Persons that the Issuer presently has 9,025,000 shares of Common Stock issued
and outstanding. Preferred Stock votes on an "as converted" basis on all
matters calling for a vote of Common Stock shareholders. To the best knowledge
of OGFII, no person other than OGFII has the power to vote or to direct the vote
or to dispose or direct the disposition of any of the securities which OGFII may
be deemed to beneficially own.
(ii) OEF beneficially owns 10,526 shares of Common Stock of the
Issuer through its holdings of 100 shares of Preferred Stock of the Issuer,
with a face value of $1,000 per share. Preferred Stock is convertible at
the option of OEF into Common Stock of the Issuer at a price of $9.50 per
share. If OEF were to convert all its shares of Preferred Stock into shares
of Common Stock, it would own approximately 0.1% of the issued and
outstanding shares of Common Stock, based on information provided by the
Issuer to the Reporting Persons that the Issuer presently has 9,025,000
shares of Common Stock issued and outstanding. Preferred Stock votes on an
"as converted" basis on all matters calling for a vote of Common Stock
shareholders. To the best knowledge of OEF, no person other than OEF has the
power to vote or to direct the vote or to dispose or direct the disposition
of any of the securities which OEF may be deemed to beneficially own.
Page 6 of 92
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c). On September 23, 1997, OGFII acquired 4,693 shares of Preferred
Stock of the Issuer for a purchase price of $4,693,000 and OEF acquired 47
shares of Preferred Stock of the Issuer for a purchase price of $47,000 .
On October 3, 1997, OGFII acquired 5,207 shares of Preferred Stock of
the Issuer for a purchase price of $5,207,000 and OEF acquired 53 shares of
Preferred Stock of the Issuer for a purchase price of $53,000.
Other than such acquisitions, the Reporting Persons have not effected
any transactions in the Preferred or Common Stock of the Issuer during the past
sixty days.
d). No other person is known to have the right to receive or the
power to direct the receipt of dividends from, or the proceeds from the sale of,
the shares of the Common Stock into which the shares of the Preferred Stock
beneficially owned by the Reporting Persons are convertible.
e). Not Applicable.
Item 6. Contracts, Arrangements, Undertakings or Relationships
with Respect to Securities of the Issuer.
The Reporting Persons are parties to a Stockholders Agreement dated
September 22, 1997 among the Issuer, Doubletree Corporation, the Warren D. Fix
Family Partnership, L.P., Jack P. DeBoer (on behalf of himself and as
representative of the Alexander John DeBoer Trust and the Christopher Scott
DeBoer Trust), and each of the Preferred Stockholders. This Stockholders
Agreement provides for the nominations and election of members of the Board of
Directors. OGFII is the recipient of one board seat, to be held by Robert S.
Morris. Stockholders Agreement is attached hereto as Exhibit B.
The Reporting Persons are parties to a Registration Rights Agreement
dated September 22, 1997 among the Issuer, Doubletree Corporation, the Warren D.
Fix Family Partnership, L.P., Jack P. DeBoer (on behalf of himself and as
representative of the Alexander John DeBoer Trust and the Christopher Scott
DeBoer Trust), and each of the Preferred Stockholders. Registration Rights
Agreement is attached hereto as Exhibit C.
Except as described therein, there are no contracts, arrangements,
understandings or relationships (legal or otherwise) among the Reporting Persons
and any other person with respect to the securities of the Issuer, including any
contract, arrangement, understanding or relationship concerning transfer or
voting of any securities of the Issuer, finder's fees, joint ventures, loan or
option arrangements, puts or calls, guarantees of profits, division of profits
or loss, or the giving or withholding of proxies.
Item 7. Material to Be Filed as Exhibits.
Exhibit A: Resolutions of Issuer's Board of Directors in connection with
issuance of the Preferred Stock.
Exhibit B: Stockholders Agreement dated September 22, 1997 among the Issuer,
Doubletree Corporation, the Warren D. Fix Family Partnership, L.P., Jack P.
DeBoer (on behalf of himself and as representative of the Alexander John DeBoer
Trust and the Christopher Scott DeBoer Trust), and each of the Preferred
Stockholders.
Exhibit C: Registration Rights Agreement dated September 22, 1997 among the
Issuer, Doubletree Corporation, the Warren D. Fix Family Partnership, L.P., Jack
P. DeBoer (on behalf of himself and as representative of the Alexander John
DeBoer Trust and the Christopher Scott DeBoer Trust), and each of the Preferred
Stockholders.
Page 7 of 92
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Exhibit D: Certificate of Designation, Preferences and Relative, Participating,
Optional and Other Special Rights of Preferred Stock and Qualifications,
Limitations and Restrictions Thereof of Series A Cumulative Convertible
Preferred Stock of the Issuer certified by the Office of the Secretary of State
of the State of Delaware on September 22, 1997.
Exhibit E: Form of Warrant.
Page 8 of 92
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SIGNATURE
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After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: October 22, 1997
OLYMPUS GROWTH FUND II, L.P.
By: OGP II, L.P., its General
Partner
By: RSM, L.L.C., its General
Partner
By: /s/Robert S. Morris
----------------------------
Name: Robert S. Morris
Title: Managing Member
Page 9 of 92
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SIGNATURE
---------
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: October 22, 1997
OLYMPUS EXECUTIVE FUND, L.P.
By: OEF, L.P., its General
Partner
By: RSM Corporation, its
General Partner
By: /s/Robert S. Morris
----------------------------
Name: Robert S. Morris
Title: President
Page 10 of 92
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JOINT FILING AGREEMENT
----------------------
The undersigned parties hereby agree that the Schedule 13D filed
herewith (and any amendments thereto) relating to the Stock of Candlewood Hotel
Company, Inc. is being filed jointly with the Securities and Exchange Commission
pursuant to Section 13-d-1(f) on behalf of each such person.
Dated: October 22, 1997
OLYMPUS GROWTH FUND II, L.P.
By: OGP II, L.P., its General
Partner
By: RSM, L.L.C., its General
Partner
By: /s/Robert S. Morris
----------------------------
Name: Robert S. Morris
Title: Managing Member
OLYMPUS EXECUTIVE FUND, L.P.
By: OEF, L.P., its General
Partner
By: RSM Corporation, its
General Partner
By: /s/Robert S. Morris
----------------------------
Name: Robert S. Morris
Title: President
Page 11 of 92
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OLYMPUS GROWTH FUND II, L.P.
The following information is provided for the general partner of
OGFII, its general partners and managing members of its general partners.
The business address of each of the persons listed below is Metro
Center, One Station Place, Stamford, CT 06430.
I. The general partner of OGFII is OGP II, L.P. ("OGP II"). OGP II is a
Delaware limited partnership and its principal occupation is to act as a general
partner of OGFII.
II. The general partners of OGP II are the following entities:
a). RSM, L.L.C. is a Delaware limited liability company and its
principal occupation is to act as a general partner of OGP II.
Managing member of RSM, L.L.C. is Robert S. Morris. Mr. Morris'
principal occupation is president of Olympus Advisory Partners, Inc. Mr. Morris
is a United States citizen.
b). Conroy, L.L.C. is a Delaware limited liability company and its
principal occupation is to act as a general partner of OGP II.
Managing member of Conroy, L.L.C. is James A. Conroy. Mr. Conroy's
principal occupation is partner of Olympus Advisory Partners, Inc. Mr. Conroy
is a United States citizen.
c). LJM, L.L.C. is a Delaware limited liability company and its
principal occupation is to act as a general partner of OGP II.
Managing member of LJM, L.L.C. is Louis J. Mischianti. Mr.
Mischianti's principal occupation is partner of Olympus Advisory Partners, Inc.
Mr. Mischianti is a United States citizen.
d). Nibur, L.L.C. is a Delaware limited liability company and its
principal occupation is to act as a general partner of OGP II.
Managing member of Nibur, L.L.C. is Paul A. Rubin, Mr. Rubin's
principal occupation is partner of Olympus Advisory Partners, Inc. Mr. Rubin is
a United States citizen.
OLYMPUS EXECUTIVE FUND, L.P.
The following information is provided for the general partner of OEF,
its general partners and presidents of its general partners.
The business address of each of the persons listed below is Metro
Center, One Station Place, Stamford, CT 06430.
I. The general partner of OEF is OEF, L.P. OEF, L.P. is a Delaware
limited partnership and its principal occupation is to act as a general partner
of OEF.
II. The general partners of OEF, L.P. are the following entities:
a). RSM Corporation is a Delaware Corporation and its principal
occupation is to act as a general partner of OEF, L.P.
Page 12 of 92
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President of RSM Corporation is Robert S. Morris. Mr. Morris'
principal occupation is president of Olympus Advisory Partners, Inc. Mr. Morris
is a United States citizen.
b). Conroy Corporation is a Delaware corporation and its principal
occupation is to act as a general partner of OEF, L.P.
President of Conroy Corporation is James A. Conroy. Mr. Conroy's
principal occupation is partner of Olympus Advisory Partners, Inc. Mr. Conroy
is a United States citizen.
c). LJM Corporation is a Delaware corporation and its principal
occupation is to act as a general partner of OEF, L.P.
President of LJM Corporation is Louis J. Mischianti. Mr. Mischianti's
principal occupation is partner of Olympus Advisory Partners, Inc. Mr.
Mischianti is a United States citizen.Exhibit A
Page 13 of 92
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Exhibit A
RESOLUTIONS
OF
CANDLEWOOD HOTEL COMPANY, INC,
a Delaware corporation
ADOPTED AT A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
ON SEPTEMBER 19, 1997
ISSUANCE AND SALE OF SERIES A PREFERRED STOCK
---------------------------------------------
ISSUANCE AND SALE OF SERIES A PREFERRED STOCK
WHEREAS, pursuant to the Company's Restated Certificate of
Incorporation, the Company is authorized to issue Five Million (5,000,000)
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock") with
such rights, preferences and powers as may be determined by the Board of
Directors; and
WHEREAS, the Board of Directors (the "Board") has determined that it
is in the best interests of the Company and the stockholders of the Company that
the Company raise additional capital through the private placement and sale of a
series of Preferred Stock of the Company with substantially such terms and
conditions as are set forth on the term sheet attached hereto as Exhibit A; and
WHEREAS, the Board has determined that it is in the best interests of
the Company and the stockholders of the Company that there be designated 65,000
shares of its Preferred Stock as "Series A Cumulative Convertible Preferred
Stock" (the "Series A Preferred Stock");
NOW, THEREFORE, BE IT RESOLVED, that subject to the filing of the
Certificate of Designations with the Secretary of State of the State of
Delaware, the Company hereby designates and is hereby authorized to issue up to
65,000 shares of Series A Preferred Stock at a price no less than $1,000 per
share, in one or more closings, pursuant to the terms and conditions as
substantially set forth on the term sheet attached hereto as Exhibit A.
STOCKHOLDER NOTIFICATION
WHEREAS, the NASDAQ Stock Market ("NASDAQ"), in lieu of stockholder
approval of the private placement offering at a stockholder meeting, has agreed
to accept, (i) written consent of a majority of the shares of the Company
(exclusive of shares issued in the private placement offering), (ii) approval of
the Board of Directors of the Company, and (iii) notification to the
stockholders of the Company of
Page 14 of 92
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the private placement transaction, the terms and conditions of the issuance of
the Series A Preferred Stock, and the closing procedures in connection with the
offering;
NOW, THEREFORE, BE IT RESOLVED, that, in conformance with the rules
and requirements of the NASDAQ, the officers of the Company are hereby
authorized and directed, for and on behalf of the Company, to send notification
to the stockholders of the Company describing the private placement transaction,
the terms and conditions of the issuance of the Series A Preferred Stock, and
the closing procedures in connection with the offering.
FILING OF CERTIFICATE OF DESIGNATIONS
RESOLVED FURTHER, that the Board hereby adopts, and officers of the
Company are hereby authorized and directed, for and on behalf of the Company, to
execute and file with the Secretary of State of the State of Delaware, the
resolutions set forth in the Certificate of Designations, Preferences and
Relative, Participating, Optional and Other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions Thereof (the '"Certificate of
Designations") the form attached hereto as Exhibit B.
APPROVAL OF TRANSACTIONAL AGREEMENTS
RESOLVED FURTHER, that the officers of the Company are hereby
authorized and directed, for and on behalf of the Company, to execute and
deliver a Stock Purchase Agreement, a Stockholders Agreement, a Registration
Rights Agreement and any and all other agreements to be entered into by the
Company and the purchasers of Series A Preferred Stock for the purpose of
consummating the issuance and sale of the Series A Preferred Stock to such
purchasers, which agreements shall be in the form and contain the terms and
conditions as the officer or officers of the Company executing the agreements on
behalf of the Company shall approve, the execution by such officer or officers
of any such agreements to be conclusive evidence of such approval and the
authorization of the Board granted hereby.
RESOLVED FURTHER, that the officers of the Company are hereby
authorized to execute and deliver to the purchasers temporary Series A Preferred
Stock certificates representing the number of shares of Series A Preferred Stock
purchased by such purchasers in the private placement offering until such
temporary stock certificates can be exchanged for permanent stock certificates
prepared by the Company's transfer agent.
RESOLVED FURTHER, that such shares of Series A Preferred Stock, when
issued, shall be duly authorized, validly issued, fully paid and nonassessable.
RESOLVED FURTHER, that the officers of the Company are hereby
authorized and directed, for and on behalf of the Company, to provide for the
issuance of the Series A Preferred Stock in two closings, the initial closing to
involve the sale of
Page 15 of 92
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25,000 shares of the Series A Preferred Stock and the second closing to occur on
the tenth day following the date of the notification to stockholders and to
involve the sale of 40,000 shares of the Series A Preferred Stock.
PREFERRED STOCK CERTIFICATE
RESOLVED FURTHER, that the form of stock certificate attached hereto
as Exhibit C be, and it hereby is, approved and adopted as the Series A
Cumulative Convertible Preferred Stock Certificate of the Company.
RESERVATION OF SHARES FOR ISSUANCE UPON CONVERSION
RESOLVED FURTHER, that effective upon the closing of the offering, the
Company hereby reserves for issuance upon conversion of the Series A Preferred
Stock 6,842, 105 of its duly authorized and unissued shares of Common Stock, par
value $.01 per share, or such lessor or greater number of shares of Common Stock
as the then outstanding shares of Series A Preferred Stock are convertible into.
RESOLVED FURTHER, that the shares of Common Stock issuable upon the
conversion of the Series A Preferred Stock, when so issued, shall be duly
authorized, validly issued, fully paid and nonassessable.
BLUE SKY
RESOLVED FURTHER, that the officers of the Company be, and each of
them hereby is, authorized in the name and on behalf of the Company, to take any
and all action which they deem necessary or advisable in order to effect the
registration or qualification (or exemption therefrom) of the Series A Preferred
Stock for issue, offer, sale or trade under the Blue Sky or securities laws of
any of the States or jurisdictions of the United States of America and in
connection therewith to execute, acknowledge, verify, deliver, file or cause to
be published any applications, reports, consents to service of process,
appointments of attorneys to receive service of process and other papers and
instruments which may be required under such laws, and to take any and all
further action which they may deem necessary or advisable in order to maintain
any such registration or qualification for as long as they deem necessary or as
required by law or by the underwriters of such securities.
RESOLVED FURTHER, that there is hereby adopted the form of any and all
resolutions required by any such authority or authorities to be filed in
connection with such papers and documents if (1) in the opinion of the officers
of the Company certifying the same the adoption of such resolutions is necessary
or advisable, and (2) the Secretary of the Company evidences such adoption by
inserting in the minutes of this meeting copies of such resolutions, which
resolutions shall thereupon be deemed to be adopted by the Board and
incorporated in the minutes of this meeting as a part of this resolution, with
the same force and effect as if presented at this meeting.
Page 16 of 92
<PAGE>
APPOINTMENT OF PRICING COMMITTEE
RESOLVED FURTHER, that pursuant to the Bylaws of the Company, the
Board hereby establishes a Pricing Committee comprised of the following Board
members and representing the entire membership of the Pricing Committee: Jack
P. DeBoer, Gary E. Costley, Warren D. Fix and Richard J. Ferris.
RESOLVED FURTHER, that the Pricing Committee is hereby authorized and
directed to negotiate the final terms and conditions of the offering of the
Series A Preferred Stock, to the extent such terms are materially different from
those approved by the Board of Directors, including, without limitation (i) the
final form of the Stock Purchase Agreement, (ii) the number of shares of Series
A Preferred Stock to be included in the offering on behalf of the Company,
subject to the limits of issuance authorized by the Board, and (iii) the price
to be received by the Company for the Series A Preferred Stock to be sold, net
of expenses and the discounts and commissions payable to the placement agent.
AMENDMENT TO BYLAWS
WHEREAS, it is deemed to be in the best interests of the Company and
its stockholders that Section 3.1 of Article III of the Bylaws of the Company be
amended to increase the authorized number of directors; and
WHEREAS, it is deemed to be the best interests of the Company and its
stockholders that Section 4.7 of Article IV of the Bylaws of the Company be
amended to provide for a Chief Executive Officer as a separate officer, if
necessary;
NOW, THEREFORE, BE IT RESOLVED, that Section 3.1 of Article III of the
Bylaws of the Company is hereby amended to read in its entirety as follows:
Section 3.1 NUMBER, ELECTION AND TENURE. The authorized number of
directors which shall constitute the Board shall not be less than seven (7) nor
more than ten (10). The exact number shall be determined from time to time by
resolution of the Board. Until otherwise determined by such resolution, the
Board shall consist of ten (10) persons. Directors shall be elected at the
annual meeting of stockholders and each director shall serve until such person's
successor is elected and qualified or until such person's death, retirement,
resignation or removal. The directors need not be stockholders. Subject to the
rights, if any, of the holders of shares of Preferred Stock then outstanding, if
any, any and all directors of the corporation may be removed from office by the
holders of the outstanding shares of Common Stock of the corporation at any
annual or special meeting of stockholders of the corporation, the notice of
which shall state that the removal of a director or directors is among the
purposes of the meeting.
Page 17 of 92
<PAGE>
RESOLVED FURTHER, that Section 4.7 of Article IV of the Bylaws of the
Company is hereby amended to read in its entirety as follows:
Section 4.7 President. Subject to such supervisory powers, if any,
as may be given by the Board of Directors to the Chairman of the Board, if
there be such an officer, the President shall be the Chief Executive
Officer of the corporation, unless such an officer is elected separately by
the Board of Directors, and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business
and officers of the corporation. He shall preside at all meetings of the
stockholders and, in the absence of the Chairman of the Board, or if there
be none, at all meetings of the Board of Directors. He shall be an
ex-officio member of all committees and shall have the general powers and
duties of management usually vested in the office of President and Chief
Executive Officer of corporations, and shall have such other powers and
duties as may be prescribed by the Board of Directors or these Bylaws.
RESOLVED FURTHER, that the above amendments to the Bylaws of the
Company are hereby adopted and approved.
ELECTION OF NEW DIRECTORS
-------------------------
WHEREAS, the Bylaws of the Company, as amended hereto, state that the
authorized number of directors which shall constitute the Board of Directors
shall not be less than seven (7) nor more than ten (10), with the exact number
to be determined from time to time by resolution of the Board. Until otherwise
determined by such resolution, the Board shall consist of ten (10) persons; and
WHEREAS, the amendment to the Bylaws setting the number of directors
at ten (10) has created three vacancies thereby; and
WHEREAS, the Bylaws of the Company provide that newly created
directorships resulting in any increase in the authorized number of directors
shall be filled solely by the affirmative vote of a majority of the directors
then in office;
NOW, THEREFORE, BE IT RESOLVED, that, subject to the closing of the
offering and purchase of the $65 million of Series A Preferred Stock, Robert
Cresci, Robert Morris and Frank Pados are unanimously elected to serve as
directors in accordance with the Bylaws of the Company and until their
successors are duly elected and qualified.
GENERAL AUTHORITY AND RATIFICATION OF PRIOR ACTS
------------------------------------------------
RESOLVED FURTHER, that any officer of the Company be, and each of them
hereby is, authorized and directed on behalf of the Company and in its name to
take such actions and to execute such other documents and instruments as such
officer may deem necessary or advisable to carry out the purposes of the
foregoing resolutions,
Page 18 of 92
<PAGE>
the taking of such actions or the execution of such instruments or documents to
be conclusive evidence of the necessity or desirability thereof.
RESOLVED FURTHER, that all acts and things heretofore done by any such
officer, or by any other employee or agent of the Company, on or prior to the
date hereof, in connection with the transactions contemplated by the foregoing
resolutions be, and the same hereby are, in all respects ratified, confirmed,
approved and adopted as acts on behalf of the Company.
Page 19 of 92
<PAGE>
Exhibit B
STOCKHOLDERS AGREEMENT
This Stockholders Agreement dated September 22, 1997 (this
"Agreement") by and among Candlewood Hotel Company, Inc. (the "Company"), a
Delaware corporation, Doubletree Corporation, a Delaware corporation (together
with its subsidiaries, "Doubletree"), the Warren D. Fix Family Partnership,
L.P., a Kansas limited partnership (the "Fix Partnership") and Jack P. DeBoer
("DeBoer"), on behalf of himself and as representative of the Alexander John
DeBoer Trust dated March 14, 1995 and the Christopher Scott DeBoer Trust dated
March 14, 1995 (collectively, the "Trusts") (collectively, the "Initial
Holders") and each of the individuals or entities set forth in Schedule A hereto
(each a "Preferred Holder" and together the "Preferred Holders") (collectively,
the parties to this Agreement other than the Company are referred to as the
"Holders").
W I T N E S S E T H:
WHEREAS, the Initial Holders had previously entered into that certain
Stockholders Agreement dated as of September 30, 1996 relating to the governance
of the Company, including procedures for the election of directors, the approval
of certain significant corporate actions and rights relating to the purchase of
capital stock of the Company and the Initial Holders desire to terminate the
former agreement and enter into this Agreement;
WHEREAS, pursuant to the terms and conditions of the Stock Purchase
Agreement (the "Stock Purchase Agreement") dated as of August 27, 1997 between
the Company and the Preferred Holders, the Company has agreed to issue and sell,
and the Purchasers have severally agreed to purchase, shares of Series A
Cumulative Convertible Preferred Stock of the Company (the "Purchased Shares")
in the aggregate amount of 65,000 shares for an aggregate purchase price of
$65,000,000;
WHEREAS, it is a condition precedent to the obligation of the
Preferred Holders to purchase the Purchased Shares pursuant to the Stock
Purchase Agreement that the parties hereto enter into this Agreement;
NOW, THEREFORE, in consideration of the agreement of the Preferred
Holders to purchase the Purchased Shares and other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
Page 20 of 92
<PAGE>
I.
DEFINITIONS
-----------
A. Defined Terms. All terms capitalized but not defined herein
shall have the meanings attributable to such terms in the Stock Purchase
Agreement, except where the context otherwise requires. The following
additional terms when used in this Agreement, including its preamble and
recitals, shall, except where the context otherwise requires, have the following
meanings, such meanings to be equally applicable to the singular and plural
forms thereof:
"Affiliate" of a Holder means any Person, other than the Company,
controlling, controlled by or under common control with such Holder.
"Board" means the Board of Directors of the Company.
"Common Stock" means and includes the Company's currently authorized
common stock, $.01 par value per share.
"DeBoer/Fix Holders" means DeBoer, the Trusts and the Fix Partnership
(so long as each is a Holder) and each Permitted Transferee, other than the
Company, who becomes a Holder.
"DeBoer/Fix Shares" means the shares of Common Stock owned of record
or beneficially by DeBoer, the Trusts and the Fix Partnership on the Effective
Date.
"DeBoer Holders" means DeBoer and the Trusts (so long as each is a
Holder) and each Permitted Transferee of DeBoer, other than the Company, who
becomes a Holder.
"DeBoer Shares" means the shares of Common Stock owned of record or
beneficially by DeBoer and the Trusts on the Effective Date.
"Director" means a director of the Company.
"Doubletree Holders" means Doubletree (so long as it is a Holder) and
each Permitted Transferee of Doubletree, other than the Company, who becomes a
Holder.
"Doubletree Shares" means the Shares of Common Stock owned of record
or beneficially by Doubletree on the Effective Date.
"Effective Date" means the date on which the Doubletree Shares, the
DeBoer Shares and the Fix Partnership Shares were issued to Doubletree, DeBoer,
the Trusts and the Fix Partnership.
Page 21 of 92
<PAGE>
"Fix Partnership Holders" means the Fix Partnership (so long as it is
a Holder) and each Permitted Transferee of the Fix Partnership, other than the
Company, who becomes a Holder.
"Fix Partnership Shares" means the shares of Common Stock owned of
record or beneficially by the Fix Partnership on the Effective Date.
"Holder" shall have the meaning set forth in the preamble hereto.
"Initial Holder" means a record or beneficial owner of any Subject
Shares.
"Permitted Transferee" of a Holder means (i) a successor to such
Holder by operation of law pursuant to a statutory merger, consolidation,
dissolution or liquidation, (ii) a purchaser of all or substantially all of such
Holder's assets, (iii) a Person owning, directly or indirectly, a majority of
the voting interests or other comparable equity interests of such Holder, a
Person under common control with such Person (including, in the case of an
individual, a family member or a trust controlled by a family member) or a
Person of which such Holder owns, directly or indirectly, a majority of the
outstanding voting securities or other comparable equity interests, (iv) a
successor to such Holder by will or through the laws of descent, or through a
gift or other contribution made in anticipation of the death of such Holder or
(v) as to any Series A Preferred Stock or Share Equivalent, any transferee
permitted by the terms of the Stock Purchase Agreement other than (x) a
competitor in the extended stay hotel business or (y) an entity owning more than
20% of the equity securities of such competitor or represented on the board of
directors of such competitor, including in each case in connection with this
clause (y), Affiliates of such competitor; provided, however, that in each case
the successor, purchaser or Person referred to in clauses (i), (ii) or (iii) of
this definition was an Affiliate of such Holder prior to such merger,
consolidation, dissolution, liquidation, purchase of assets or acquisition of
voting securities or other comparable equity interests and, in each case
referred to in clauses (i), (ii), (iii), (iv) or (v) of this definition, the
Permitted Transferee has become a party to and agreed to be bound by this
Agreement as to all Subject Shares or shares of Series A Preferred Stock then
being transferred to it. "Permitted Transferee" includes successive transferee
in transactions described in the preceding sentence.
"Person" means and includes an individual, a corporation, a limited
liability company, an association, a partnership, a trust or estate, a
government or any department or agency thereof.
"Preferred Holder" means each of the parties listed on Schedule A
hereto (so long as it is a Holder) and each Permitted Transferee of such
Preferred Holder, other than the Company, who becomes a Holder.
"Public Sale" means a sale of Subject Shares pursuant to an effective
registration statement in accordance with the rules and regulations of the
Securities and Exchange Commission (the "Commission") or a sale pursuant to Rule
144 thereof.
Page 22 of 92
<PAGE>
"Purchaser Group" means (i) Olympus Growth Fund II, L.P. with respect
to one nominee for director of the Company, (ii) Desai Capital with respect to
one nominee for director of the Company and (iii) Pecks Management with respect
to one nominee for director of the Company (each a "Significant Purchaser"), so
long as such Significant Purchaser shall hold at least 20% of the shares of
Series A Preferred Stock or Share Equivalents purchased by such Significant
Purchaser pursuant to the Stock Purchase Agreement, and, if at any time such
Significant Purchaser shall waive its rights hereunder or shall hold less than
20% of the shares of Series A Preferred Stock or Share Equivalents purchased by
such Significant Purchaser pursuant to the Stock Purchase Agreement, the
designee formerly designated by such Significant Purchaser shall henceforth be
designated by all of the Preferred Holders holding shares of Series A Preferred
Stock or Share Equivalents.
"Series A Preferred Stock" means the Series A Cumulative Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Share Equivalents" of the Series A Preferred Stock means the number
of shares of Common Stock that are issued or issuable upon conversion of the
Series A Preferred Stock but excluding any shares sold in a Public Sale.
"Stock Purchase Agreement" shall have the meaning set forth in the
first WHEREAS clause.
"Subject Shares" means the Doubletree Shares, the DeBoer Shares and
the Fix Partnership Shares; provided, however, that at all times, such term
shall include all Subject Shares that have been transferred by a Holder to a
Permitted Transferee of such Holder. Notwithstanding the foregoing, upon (A)
the disposition of any Subject Shares pursuant to a Public Sale to any Person,
or (B) the disposition of any Subject Shares other than pursuant to a Public
Sale to any Person other than a Permitted Transferee of the Holder thereof, the
shares so canceled or disposed of shall cease to be Subject Shares and
thereafter shall not be subject to any of the terms and conditions of this
Agreement.
II.
VOTING AGREEMENT
----------------
A. Board Nominations. The Company and the Holders have agreed (i)
that the Purchaser Group shall be entitled, through a nominating committee or
other procedure adopted by the Board, to designate for nomination by the Board
three nominees for election to the Board, (ii) that the Doubletree Holders shall
be entitled, through a nominating committee or other procedure adopted by the
Board, to designate for nomination by the Board two nominees for election to the
Board, (iii) that the DeBoer/Fix Holders shall be entitled, through a nominating
committee or other procedure adopted by the Board, to designate for nomination
by the Board two nominees for election to the Board and (iv) that the Doubletree
Holders together with the DeBoer/Fix Holders shall be entitled, through a
nominating committee or other procedure adopted by
Page 23 of 92
<PAGE>
the Board of Directors, to designate for nomination by the Board the President
of the Company and/or such number of independent directors for election to the
Board as shall constitute the remainder of the Board.
B. BOARD OF DIRECTORS OF THE COMPANY. 1. So long as it shall hold any
shares of Series A Preferred Stock, Share Equivalents or Subject Shares, each
Holder agrees to vote all of its shares of Series A Preferred Stock, Share
Equivalents or Subject Shares, as applicable, as to which it has voting rights
for the election of all directors nominated pursuant to the immediately
preceding paragraph hereof. The nominees designated by the Preferred Holders
shall be identified in a proxy statement delivered to the Company stockholders
in connection with an annual or special meeting.
2. The Holders shall appear in person or by proxy at any annual or
special meeting of stockholders for the purpose of obtaining a quorum and shall
vote or cause the vote of the Series A Preferred Stock, Share Equivalents or
Subject Shares, as applicable, owned by such Holder or by any Affiliate of such
Holder, either in person or by proxy, to be cast in accordance with the
provisions of this Article 2.
3. Each Holder further agrees to vote all the Series A Preferred
Stock, Share Equivalents or Subject Shares, as applicable, with respect to which
it has direct or indirect voting rights, in favor of removal from the Board,
upon notice by the DeBoer/Fix Holders, the Preferred Holders or the Doubletree
Holders that an individual designated by them pursuant to Section 2.1 should be
removed, and to use its best efforts to cause the Board to fill the vacancy so
vacated with another person designated by the party providing such notice. Each
Holder further agrees to cooperate fully in connection with the nomination of
Directors, the voting of its shares of Series A Preferred Stock, Share
Equivalents or Subject Shares, as applicable, the execution of written consents
(if then permissable under the Certificate of Incorporation of the Company), the
calling of meetings and other stockholder matters to effect the provisions of
this Article.
4. If any director is unable to serve, or once having commenced to
serve, is removed or withdraws from the Board, the party or parties who
designated such director will be entitled to designate a person to fill the
vacany on the Board so created and each Holder will use its best efforts to
cause the Board to fill the vacany so created with the person so designated, in
accordance with the Company's By-laws.
5. Each Holder agrees not to and not to permit any Affiliate to grant
any proxy or enter into or be bound by any voting trust with respect to its
Series A Preferred Stock, Share Equivalents or Subject Shares, as applicable, or
enter into any arrangements of any kind with any person with respect to its
Series A Preferred Stock, Share Equivalents or Subject Shares, as applicable, in
any such case in a manner that is inconsistent with the provisions of this
Agreement.
C. HOLDER REPRESENTATION. Each Holder represents and warrants as to
itself that as of the date hereof (after giving effect to all transactions
occurring in connection with the sale of the Purchased Shares) such Holder is
not a party with any other Person to any
Page 24 of 92
<PAGE>
other agreement with respect to the holding, voting, acquisition or disposition
of shares of Series A Preferred Stock, Share Equivalents or Subject Shares, as
applicable.
D. AGENT FOR AFFILIATED HOLDERS. If a portion or all of the Subject
Shares held by Doubletree, DeBoer, the Trusts or the Fix Partnership shall be
transferred to one or more Permitted Transferees, resulting in the Subject
Shares which were theretofore held by such Holder being held by more than one
Holder, then Doubletree, DeBoer, the Trusts or the Fix Partnership, as the case
may be, shall: (i) act, or shall cause one of such Holders, to act, as agent
and proxy for all purposes of this Agreement (including without limitation the
voting of Subject Shares, the nomination of Directors, the giving of consents,
the approval of amendments, the receipt of notices, etc.) for all of the
Doubletree Holders, DeBoer Holders or the Fix Partnership Holders, as the case
may be, and (ii) specify in writing to the other parties that it (or such other
Holder) is to act as such agent and proxy, and thereafter the other parties
shall be entitled to look solely to, and to deal solely with, the person so
specified for all purposes of this Agreement as if such Holder held all the
Subject Shares held by the party providing such notice and its Permitted
Transferees.
E. IRREVOCABLE PROXY. The Fix Partnership Holders and the Trusts hereby
appoint DeBoer as its and their proxy to exercise in DeBoer's sole discretion
all rights of the Fix Partnership Holders and the Trusts to designate persons
for nomination, removal or the filling of vacancies and to exercise all rights
pursuant to Article 2 hereof. This proxy is coupled with an interest in the
Company and shall be irrevocable. Except as set forth below in this paragraph,
this proxy may be invoked by DeBoer at any time by notice to the other Holders
but, unless and until invoked, such rights may be exercised by the Fix
Partnership Holders and the Trusts; provided, however, that upon the death of
Warren D. Fix all such rights shall automatically vest in DeBoer which shall
thereafter have the sole right to exercise all such rights of the Fix
Partnership Holders. Notwithstanding the foregoing, this proxy may not be
invoked or exercised after the death of Jack DeBoer.
F. TERMINATION. The rights and obligations of any holder of Series A
Preferred Stock, Share Equivalents or Subject Shares pursuant to this Agreement
shall terminate (a) as to any Significant Purchaser, if such Significant
Purchaser shall hold, beneficially or of record, less than 20% of the shares of
Series A Preferred Stock or Share Equivalents purchased by such Significant
Purchaser pursuant to the Stock Purchase Agreement, (b) as to any rights of any
holder of Series A Preferred Stock or Share Equivalents, upon waiver of such
rights in writing, (c) as to any holder of Share Equivalents, upon transfer of
such Share Equivalents pursuant to a registered public offering, block trade or
other public sale, including pursuant to Rule 144 under the Securities Act of
1933, as amended, (d) as to all holders of Series A Preferred Stock or Share
Equivalents, upon failure of such holders or their Permitted Transferees,
collectively, to hold, beneficially or of record, at least 20% of the shares of
Series A Preferred Stock or Share Equivalents, and (e) as to the holders of the
Doubletree Shares or the DeBoer/Fix Shares, upon both the failure of such
holders or their Permitted Transferees, collectively, to hold, beneficially or
Page 25 of 92
<PAGE>
of record, at least 20% of the outstanding voting interests of the Company and
the termination of the rights of the Preferred Holders pursuant to subsection
(d) hereof.
III.
GENERAL PROVISIONS
------------------
A. LEGEND ON SHARE CERTIFICATES. (a) All certificates for shares of
Series A Preferred Stock, Share Equivalents or Subject Shares which are
subject to the terms and provisions of Article 2, in addition to such other
legends as may be required by law, shall bear the legend set forth in
Article VII of the Stock Purchase Agreement and the following legend:
The shares represented by this certificate are also subject to certain
requirements as to voting contained in the Stockholders Agreement
dated September 22, 1997 among the Company, and certain stockholders,
a copy of which is on file with the Secretary of the Company.
(b) Upon the termination of this Agreement with respect to any shares
of Series A Preferred Stock, Share Equivalents or Subject Shares pursuant to
Section 2.6, each Holder shall be entitled to receive, in exchange for any
certificate bearing the legend described in subsection (a) of this Section 3.1,
a certificate only bearing the legend set forth in Article VII of the Stock
Agreement, unless the Company shall have determined (based upon advice of legal
counsel) that such legend is no longer required by law.
IV.
MISCELLANEOUS
-------------
A. INJUNCTIVE RELIEF. It is acknowledged that it will be impossible to
measure in money the damages that would be suffered if the parties fail to
comply with certain of the obligations imposed on them by this Agreement
and that, in the event of any such failure, an aggrieved Person will be
irreparably damaged and will not have an adequate remedy at law. Any such
Person shall, therefore, be entitled to injunctive relief and/or specific
performance to enforce such obligations, and if any action should be
brought in equity to enforce any of such provisions of this Agreement, none
of the parties hereto shall raise the defense that there is an adequate
remedy at law.
B. FURTHER ASSURANCES. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things and shall execute
and deliver all such other agreements, certificates, instruments and
documents as any other party hereto reasonably may request in order to
carry out the intent and
Page 26 of 92
<PAGE>
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
C. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
laws of the State of Delaware.
D. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (i) contains the
entire agreement among the parties hereto with respect to the subject
matter hereof, (ii) may not be amended or supplemented except by an
instrument or counterparts thereof in writing signed by at least 66-2/3% of
the Holders or their Agent or Proxy and, if such amendment or supplement
adversely affects any holder of Series A Preferred Stock or Share
Equivalents, 100% of the Preferred Holders and (iii) may not be discharged
except by such written instrument or by performance. Any such amendment so
approved shall be binding on all Holders. No waiver of any term or
provision shall be effective unless in writing signed by the party to be
charged. The Stockholders Agreement, as in existence prior to the
execution hereof, among the Initial Holders, is and shall be after the date
hereof null and void and of no further force and effect.
E. BINDING EFFECT. This Agreement shall be binding on and inure to the
benefit of the parties hereto and, subject to the terms and provisions
hereof, their respective legal representatives, successors and assigns.
F. INVALIDITY OF PROVISION. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including
that provision, in any other jurisdiction.
G. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, all of which shall be deemed but one and the same
instrument and 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.
H. NOTICES. All notices and other communications provided for or given
or made hereunder shall be in writing (including delivery by facsimile
transmission) and, unless otherwise provided herein, shall be deemed to
have been given when received by the party to whom such notice is to be
given at its address set forth in the Stock Purchase Agreement, or such
other address for the party as shall be specified by notice given pursuant
hereto.
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<PAGE>
I. HEADINGS. The descriptive headings of the several paragraphs of this
Agreement are inserted for convenience only and do not constitute part of
this Agreement.
J. TERMINATION. Notwithstanding any other provision of this Agreement,
the rights of the Preferred Holders to nominate and elect directors and the
obligations of the other parties related thereto shall terminate on the
date that the Purchased Shares are converted into Common Stock or purchased
by the Company pursuant to Section (vi)(r) of the Company's Certificate of
Designation filed September 22, 1997.
Page 28 of 92
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CANDLEWOOD HOTEL COMPANY, INC.
By: /s/Jack P. DeBoer
------------------------------
Name: Jack P. DeBoer
Title: Chief Executive Officer
DOUBLETREE CORPORATION
By: /s/David L. Stivers
------------------------------
Name: David L. Stivers
Title: Senior Vice President,
General Counsel and Secretary
WARREN D. FIX FAMILY PARTNERSHIP, L.P.
By: /s/ Warren D. Fix
------------------------------
Name: Warren D. Fix
Title: General Partner
/s/ Warren D. Fix
------------------------------
Warren D. Fix
JACK P. DeBOER, for himself and on
behalf of the ALEXANDER DeBOER TRUST
DATED MARCH 14, 1995 and the CHRISTOPHER
SCOTT DeBOER TRUST DATED MARCH 14, 1995
Page 29 of 92
<PAGE>
/s/Jack P. DeBoer
------------------------------
Name: Jack P. DeBoer
OLYMPUS GROWTH FUND II, L.P.
By: OGP II, L.P., its General Partner
By: Conroy, L.L.C., its General
Partner
By /s/James A. Conroy
------------------------------
Name: James A. Conroy
Title: General Partner
OLYMPUS EXECUTIVE FUND, L.P.
By: OEF, L.P., its General Partner
By: Conroy, L.L.C., its General
Partner
By: /s/James A. Conroy
------------------------------
Name: James A. Conroy
Title: General Partner
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, AS TRUSTEE OF THE COMMINGLED
PENSION TRUST FUND (MULTI-MARKET SPECIAL
INVESTMENT FUND II) OF MORGAN GUARANTY
TRUST COMPANY OF NEW YORK
By: /s/Ronald G. Hodge, II
------------------------------
Name: Ronald G. Hodge, II
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, AS TRUSTEE OF THE MULTI-MARKET
SPECIAL INVESTMENT TRUST FUND OF MORGAN
GUARANTY TRUST COMPANY OF NEW YORK
Page 30 of 92
<PAGE>
By: /s/Ronald G. Hodge, II
------------------------------
Name: Ronald G. Hodge, II
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, AS INVESTMENT MANAGER AND AGENT
FOR THE ALFRED P. SLOAN FOUNDATION
(MULTI-MARKET ACCOUNT)
By: /s/Ronald G. Hodge, II
------------------------------
Name: Ronald G. Hodge, II
Title: Vice President
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners, its General
Partner
By /s/James D. Kallman
------------------------------
Name: James D. Kallman
Title:
PRIVATE EQUITY
INVESTORS III, L.P.
By: Rohit M. Desai Associates III, LLC
General Partner
By: /s/Rohit M. Desai
------------------------------
Name: Rohit M. Desai
Title: Managing Member
Page 31 of 92
<PAGE>
EQUITY-LINKED INVESTORS-II
By: Rohit M. Desai Associates-II
General Partner
By: /s/Rohit M. Desai
------------------------------
Name: Rohit M. Desai
Title: Managing General Partner
LNR CANDLEWOOD HOLDINGS, INC.
By: /s/Margaret A. Jordan
------------------------------
Name: Margaret A. Jordan
Title: Treasurer
DELAWARE STATE EMPLOYEES' RETIREMENT
FUNDS
By: Pecks Management Partners Ltd.
its Investment Advisor
By: /s/Robert J. Cresci
------------------------------
Name: Robert J. Cresci
Title: Managing Director
DECLARATION OF TRUST FOR THE DEFINED
BENEFIT PLAN OF ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd.
its Investment Advisor
By: /s/Robert J. Cresci
------------------------------
Name: Robert J. Cresci
Title: Managing Director
Page 32 of 92
<PAGE>
DECLARATION OF TRUST FOR THE DEFINED
BENEFIT PLAN OF ICI AMERICAN HOLDINGS
INC.
By: Pecks Management Partners Ltd.
its Investment Advisor
By: /s/Robert J. Cresci
------------------------------
Name: Robert J. Cresci
Title: Managing Director
J.W. McCONNELL FAMILY TRUST
By: Pecks Management Partners Ltd.
its Investment Advisor
By: /s/Robert J. Cresci
------------------------------
Name: Robert J. Cresci
Title: Managing Director
ADVANCE CAPITAL PARTNERS, L.P.
By: Advance Capital Associates, L.P.
By: Advance Capital Management,
LLC
By /s/Robert A. Bernstein
------------------------------
Name: Robert A. Bernstein
Title: Principal
Page 33 of 92
<PAGE>
ADVANCE CAPITAL OFFSHORE PARTNERS, L.P.
By: Advance Capital Offshore Associates,
LDC
By: Advance Capital Associates,
L.P.
By: Advance Capital Management,
LLC
By /s/Robert A. Bernstein
------------------------------
Name: Robert A. Bernstein
Title: Principal
ALLIED CAPITAL CORPORATION
By /s/ G. Cabell Williams
------------------------------
Name: G. Cabell Williams
Title: Managing Director
ALLIED CAPITAL CORPORATION II
By /s/ G. Cabell Williams
------------------------------
Name: G. Cabell Williams
Title: Managing Director
THE FFJ 1997 NOMINEE TRUST
By /s/ William Kremer
------------------------------
Name: William Kremer
Title: Trustee
Page 34 of 92
<PAGE>
THE MUTUAL LIFE INSURANCE
COMPANY OF NEW YORK
By /s/Suzanne E. Walton
------------------------------
Name: Suzanne E. Walton
Title: Managing Director
HARBOR INVESTMENTS LTD.
By: Strong Capital Management, Inc.,
its Investment Advisor
By /s/ Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
STRONG SPECIAL INVESTMENT
LIMITED
PARTNERSHIP
By: Strong Capital Management, Inc.
its General Partner
By /s/ Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
STRONG QUEST LIMITED
PARTNERSHIP
By: Strong Capital Management, Inc.
its General Partner
By /s/ Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
Page 35 of 92
<PAGE>
/s/William J. Abrams
------------------------------
William J. Abrams
/s/Joseph P. Adams, Jr.
------------------------------
Joseph P. Adams, Jr.
/s/Eric Anderson
------------------------------
Eric Anderson
/s/Robert P. Brennan, Jr.
------------------------------
Robert P. Brennan, Jr.
/s/Robert Brody
------------------------------
Robert Brody
/s/Vanessa Burgess
------------------------------
Vanessa Burgess
/s/Craig Callen
------------------------------
Craig Callen
/s/Michael Dana
------------------------------
Michael Dana
/s/Peter Deeks
------------------------------
Peter Deeks
/s/Robert E. Diemar, Jr.
------------------------------
Robert E. Diemar, Jr.
/s/David Hurwitz
------------------------------
David Hurwitz
Page 36 of 92
<PAGE>
/s/Steve Kantor
------------------------------
Steve Kantor
/s/Louis Klevan
------------------------------
Louis Klevan
/s/Larry Lavine
------------------------------
Larry Lavine
/s/Daniel J. Mackell
------------------------------
Daniel J. Mackell
/s/Patrick McMullan
------------------------------
Patrick McMullan
/s/Andrew J. McSpadden
------------------------------
Andrew J. McSpadden
/s/David R. Smith
------------------------------
David R. Smith
/s/Phil Tager
------------------------------
Phil Tager
/s/Douglas M. Weill
------------------------------
Douglas M. Weill
Page 37 of 92
<PAGE>
SCHEDULE A
Olympus Growth Fund II, L.P.
Olympus Executive Fund, L.P.
Morgan Guaranty Trust Company of
New York, as Trustee of the Commingled
Pension Trust Fund (Multi-Market Special
Investment Fund II) of Morgan Guaranty Trust
Company of New York
Morgan Guaranty Trust Company of
New York, as Trustee of the Multi-Market
Special Investment Trust Fund of
Morgan Guaranty Trust Company of
New York
Morgan Guaranty Trust Company of
New York, as Investment Manager and
Agent for the Alfred P. Sloan Foundation
(Multi-Market Account)
Chase Venture Capital Associates, L.P.
Private Equity Investors III, L.P.
Equity-Linked Investors-II
LNR Candlewood Holdings, Inc.
Delaware State Employees' Retirement Funds
Declaration of Trust for the Defined Benefit Plan of Zeneca Holdings Inc.
Declaration of Trust for the Defined Benefit Plan of ICI American Holdings Inc.
J.W. McConnell Family Trust
Advance Capital Partners, L.P.
Advance Capital Offshore Partners, L.P.
Allied Capital Corporation
Page 38 of 92
<PAGE>
Allied Capital Corporation II
The FFJ 1997 Nominee Trust
The Mutual Life Insurance Company Of New York
Harbor Investments Ltd.
Strong Special Investment Limited Partnership
Strong Quest Limited Partnership
Page 39 of 92
<PAGE>
William J. Abrams
Joseph P. Adams, Jr.
Eric Anderson
Robert P. Brennan, Jr.
Robert Brody
Vanessa Burgess
Craig Callen
Michael Dana
Peter Deeks
Robert E. Diemar, Jr.
David Hurwitz
Steve Kantor
Louis Klevan
Larry Lavine
Daniel J. Mackell
Patrick McMullan
Andrew J. McSpadden
David R. Smith
Phil Tager
Douglas M. Weill
Page 40 of 92
<PAGE>
Exhibit C
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of September 22, 1997
(this "Agreement"), is made by and among Candlewood Hotel Company, Inc., a
Delaware corporation ("Candlewood" or the "Company"), Doubletree Corporation, a
Delaware corporation ("Doubletree"), Mr. Jack P. DeBoer ("DeBoer"), on behalf of
himself and as representative of the Alexander John DeBoer Trust dated March 14,
1995 and the Christopher Scott DeBoer Trust dated March 14, 1995 (collectively,
the "Trusts"), the Warren D. Fix Family Partnership, L.P. (the "Fix
Partnership") and each of the parties set forth on Schedule A attached hereto
(collectively, the "Investors", and, together with Candlewood, Doubletree,
DeBoer, the Trusts and the Fix Partnership, the "Parties").
BACKGROUND
A. DeBoer, Doubletree and the Fix Partnership had preciously entered
into that certain Incorporation and Registration Rights Agreement dated
September 1, 1996 (the "Original Agreement").
B. The Company completed an initial public offering of its Common
Stock, par value $0.01 per share (the "Common Stock"), on November 5, 1996 (the
"Initial Public Offering").
C. In connection with the issuance and sale of $65 million of its
Series A Cumulative Convertible Preferred Stock (the "Preferred Stock"), the
Company has agreed to grant certain registration rights with respect to the
shares of Common Stock issuable upon the conversion of the Preferred Stock.
D. The parties to the Original Agreement hereby terminate the
Original Agreement and enter into this Agreement on the terms and subject to the
conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound, the Parties agree as follows:
1. CERTAIN DEFINITIONS. SO. AS USED IN THIS AGREEMENT, THE
FOLLOWING TERMS SHALL HAVE THE FOLLOWING RESPECTIVE MEANINGS:
"Commission" means the United States Securities and Exchange
Commission.
"Certificate of Designation" means the Certificate of Designations,
Preferences and Relative, participating, Optional and Other Special Rights of
Preferred Stock and
Page 41 of 92
<PAGE>
Qualifications, Limitations and Restrictions Thereof, dated September 22, 1997,
relating to the Preferred Stock.
"Eligible Securities" means the shares of Common Stock (i) issued to
Doubletree, DeBoer, the Trusts and the Fix Partnership upon the reorganization
of the Company from Candlewood hotel Company, LLC to a Delaware corporation,
(ii) to be issued upon the conversion of the Preferred Stock into Common Stock,
stock dividends paid with respect to such shares or issued in exchange for or in
lieu of such shares, and (iii) issued or issuable upon exercise of any Purchase
Warrant (Eligible Securities described in clauses (ii) and (iii) being referred
to collectively as "Preferred Eligible Securities").
"Holder" means a registered holder of outstanding Eligible Securities
or securities convertible into or exercisable for Eligible Securities.
"Purchase Warrant" means any warrant for the purchase of Common Stock
issued to any holder of Series A Preferred Stock in accordance with the terms of
the Certificate of Designation establishing the preferences and rights of and
the qualifications, limitations and restrictions with respect to, the Preferred
Stock.
"Securities Act" the means the Securities Act of 1933 or any similar
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
2. REQUIRED REGISTRATION.
(a) At any time after 180 days from the date of the issuance and
sale of the Preferred Stock, (i) Doubletree, or (ii) Investors holding at least
50% of the shares of the Preferred Eligible Securities may deliver to the
Company a written request that the Company file and use its best efforts to
cause to become effective a registration statement under the Securities Act with
respect to such number of the Eligible Securities owned by Doubletree or the
Investors as shall be specified in such request (a "Registration Request");
provided, however, that the Company shall not be obligated to effect any such
registration pursuant to subsection (ii) on behalf of the Investors unless the
anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $20,000,000. Except as otherwise provided in Section
2(b)(iv) and 2(b)(v) hereof, the Company shall not be required to file and use
its best efforts to cause to become effective, pursuant to a Registration
Request under this Section 2, (a) more than two registration statements at the
demand of Doubletree, or (b) more than two registration statements at the demand
of the Investors. The party or parties delivering a Registration Request is
hereinafter referred to as the "Requesting Holder." The second Registration
Request made by the Investors may be identified by the Requesting Holder as a
"Priority Demand".
(b) As soon as practicable following the receipt of a
Registration Request, the Company will use its best efforts to register under
the Securities Act, for public sale in accordance with the method of disposition
specified in such Registration Request, the number of shares of Eligible
Securities specified in such Registration
Page 42 of 92
<PAGE>
Request (and the number of Eligible Securities specified in all notices received
from Holders within 20 days after their receipt of notice delivered pursuant to
Section 4 hereof). The Company will also be entitled to include in any
registration statement filed pursuant to a Registration Request, for sale in
accordance with the method of disposition specified in such Registration
Request, such number of shares of Common Stock as the Company shall desire to
sell for its own account. If the method of sale designated is an underwritten
public offering, the managing underwriter or underwriters must be reasonably
acceptable to both the Requesting Holder, or the holders of a majority of the
Eligible Securities held by all parties comprising the Requesting Holder if more
than one party is the Requesting Holder, and the Company, which acceptance shall
not be unreasonably withheld. Notwithstanding the foregoing provisions of this
paragraph (b), to the extent that, in the opinion of the underwriter or
underwriters (if the method of disposition shall be an underwritten public
offering), marketing considerations require the reduction of the number of
shares of Common Stock covered by any such registration, the number of shares of
Common Stock to be registered and sold pursuant to such registration shall be
reduced as follows:
(i) The number of shares of Eligible Securities to be registered
on behalf of the Company shall be reduced (to zero, if necessary);
(ii) The number of shares of Eligible Securities to be
registered on behalf of DeBoer, the Trusts and the Fix Partnership shall be
reduced (to zero, if necessary) pro rata according to the number of shares
of Eligible Securities held by each; and
(iii) The number of shares of Eligible Securities to be
registered on behalf of Doubletree and the Investors shall be reduced pro
rata according to the number of shares of Eligible Securities held by each;
provided, however, that in connection with a Priority Demand the number of
shares of Eligible Securities requested to be registered on behalf of the
Investors shall only be reduced after the number of shares requested to be
registered by Doubletree has been reduced to zero.
(iv) Notwithstanding the foregoing, if in connection with any
Registration Request made by Doubletree, the number of Eligible Securities
requested to be registered by Doubletree shall have been reduced, the
number of Registration Requests granted to Doubletree pursuant to clause
2(a) above shall be increased by one.
(v) Notwithstanding the foregoing, if in connection with any
Registration Request made by the Investors, the Investors requesting
inclusion of Eligible Securities in such registration shall experience a
reduction in the number of such Eligible Securities by 10% or more, the
number of Registration Requests granted to the Investors pursuant to clause
2(a) above shall be increased by one.
Page 43 of 92
<PAGE>
(vi) In no event shall any registration of Common Stock by the
Company pursuant to Section (vi)(a) of the Certificate of Designation
constitute a Registration Request allocable to any Holder pursuant to
clause 2(a) above.
(c) Notwithstanding the foregoing provisions of this Section 2, the
Company shall not be obligated to file a registration statement at the demand of
any Holder pursuant to this Section 2 within 180 days following any underwritten
public offering of Common Stock or of securities of the Company convertible into
or exercisable or exchangeable for Common Stock.
3. SHELF REGISTRATION ON FORM S-3.
(a) At any time after 180 days from the date of the issuance and sale
of the Preferred Stock, any Holder or Holders may deliver to the Company a
written request (a "Form S-3 Request") that the Company file and use its best
efforts to cause to become effective a "shelf" registration statement on Form
S-3 (or such equivalent successor form) under the Securities Act for an offering
to be made on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act (a "Shelf Registration Statement") with respect to such number of
Eligible Securities owned by the Holder or Holders as shall be specified in such
request (and the number of Eligible Securities specified in all notices received
from Holders within 20 days after their receipt of notice delivered pursuant to
Section 4 hereof); provided, however, that the Company shall not be obligated to
effect any such registration pursuant to this Section 3 unless the aggregate
value of the securities to be registered thereon would exceed $2,500,000. The
Company shall not be required to file and use its best efforts to cause to
become effective, pursuant to a Form S-3 Request under this Section 3, (a) more
than two Shelf Registration Statements on behalf of Doubletree, or (b) more than
two Shelf Registrations on behalf of the Investors.
(b) As soon as practicable following the receipt of a Form S-3
Request, the Company will use its best efforts to register under the Securities
Act, for an offering to be made on a delayed or continuous basis pursuant to
Rule 415 of the Securities Act, the number of shares of Eligible Securities
specified in such Form S-3 Request (and the number of Eligible Securities
specified in all notices received from Holders within 20 days after their
receipt of notice delivered pursuant to Section 4 hereof). The Company will
also be entitled to include in any Shelf Registration Statement filed pursuant
to this Section 3 such number of shares of Common Stock as the Company shall
desire to sell for its own account.
4. PIGGYBACK REGISTRATION.
(a) If the Company at any time proposes to register Common Stock
under the Securities Act for sale to the public (including registrations
pursuant to Section 2 or 3 hereof), whether for its own account or for the
account of other security holders or bow (except registration statements on Form
S-8, S-4 or another form not available for registering the Eligible Securities
for sale to the public), each such time it will give written notice to all
Holders of its intention to do so. Upon the written request of any Holder (a
"Piggyback Request"), given within 20 days after receipt of any such notice, to
Page 44 of 92
<PAGE>
register any of its Eligible Securities, the Company will use its best efforts
to cause the Eligible Securities as to which registration shall have been so
requested to be covered by the registration statement proposed to be filed by
the Company.
(b) In the event that any registration statement described in this
Section 4 shall relate, in whole or in part, to an underwritten public offering
of shares of Common Stock, the Eligible Securities to be registered must be sold
through the same underwriters as have been selected by the Company or agreed to
pursuant to Section 2(b) hereof. Otherwise, the method of distribution of the
Eligible Securities to be sold by any Holder making a Piggyback Request shall be
as specified therein. Except in the case of a registration statement filed
pursuant to a Registration Request under Section 2 hereof or a Form S-3 Request
made under Section 3 hereof, the number of shares of Common Stock to be included
in such registration statement on account of any person (other than the Company)
may be reduced if and to the extent that the underwriter or underwriters shall
be of the opinion that such inclusion would materially adversely affect the
marketing of the total number of shares of Common Stock proposed to be sold, and
the number of shares to be registered and sold by each person (other than the
Company) shall be reduced pro rata according to the relative number of
fully-diluted shares owned by such person. Notwithstanding the foregoing
provisions of this Section 4, the Company may withdraw any registration
statement referred to in this Section 4 without thereby incurring any liability
to any requesting Holder.
5. LEGISLATION PROCEDURES. If and whenever the Company is required
by the provisions of Section 2, 3 or 4 to effect the registration of any
Eligible Securities under the Securities Act, the Company shall:
(a) prepare and file with the Commission a registration statement
with respect to such securities which will permit the public sale thereof in
accordance with the method of distribution specified in the applicable
Registration Request, and the Company shall use its best efforts (i) to cause
such registration statement to be filed within 60 days of receipt of the
Registration Request, (ii) to cause such registration statement to be declared
effective as promptly as practicable and (iii) to maintain the effectiveness of
such registration statement for a period of not less than 90 days (or until such
time as all securities sold thereunder shall have been sold, in the case of a
registration on Form S-3);
(b) promptly prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to effect and maintain the
effectiveness of such registration statement for the period specified in Section
5(a) and as to comply with the provisions of the Securities Act with respect to
the disposition of all Eligible Securities covered by such registration
statement in accordance with the intended method of disposition set forth in
such registration statement for such period, including such amendments or
supplements as are necessary to cure any untrue statement or omission referred
to in Section 5(e)(vi);
(c) provide to the managing underwriter or underwriters and not more
than one counsel for all underwriters and to the Holders of Eligible Securities
to be
Page 45 of 92
<PAGE>
included in such registration statement and not more than one counsel for all
such Holders (such counsel to be reasonably acceptable to the Company) the
opportunity to participate in the preparation of (i) such registration
statement, (ii) each prospectus relating thereto and included therein or filed
with Commission and each amendment or supplement thereto;
(d) make available for inspection by the parties referred to in
Section 5(c) such financial and other information and books and records of the
Company, and cause the officers, directors and employees of the Company, and
counsel and independent certified public accountants of the Company, to respond
to such inquiries, as shall be reasonably necessary, in the judgment of
respective counsel to such Holders and such underwriter or underwriters, to
conduct a reasonable investigation within the of the Securities Act; provided,
however, that each such person shall be required to retain in confidence and not
to disclose to any other person any information or records reasonably designated
by the Company in writing as being confidential until such time as such
information becomes a matter of public record (whether by virtue of its
inclusion in such registration statement or otherwise), unless (i) such person
shall be required to disclose such information pursuant to the subpoena or order
of any court or other governmental agency or body having jurisdiction over the
matter or to the National Association of Insurance Commissioners or (ii) such
information is required to be set forth in such registration statement or the
prospectus included therein or in an amendment to such registration statement or
an amendment or supplement to such prospectus in order that such registration
statement, prospectus, amendment or supplement, as the case may be, shall not
contain an untrue statement of a material fact or omit to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and such information has not been so set forth after the
request by a Holder to such effect; and provided, further, that the Company need
not make such formation available, nor need it cause any officer, director or
employee to respond to such inquiry, unless each such Holder and such counsel,
upon the Company's request, execute and deliver to the Company an undertaking to
substantially the same effect contained in the immediately preceding proviso;
(e) immediately notify the persons referred to in Section 5(c) and
(if requested by any such person) confirm such advice in writing, (i) when such
registration statement or any prospectus included therein or any amendment or
supplement thereto has been filed and, with respect to such registration
statement or any such amendment, when the same has become effective, (ii) of any
material comments by the Commission with respect thereto or any request by the
Commission for amendments or supplements to such registration statement or
prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of such registration
statement or the initiation of any proceedings for that purpose, (iv) if at any
time the representations and warranties of the Company contemplated by Section
5(l)(i) cease to be due and correct in all material respects, (v) of the receipt
by the Company of any notification with respect to the suspension of the
qualification of any Eligible Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose or (vi) at any time
when a prospectus is required to be delivered under the Securities Act, of the
occurrence or failure to occur of any event, or any other change in
Page 46 of 92
<PAGE>
law, fact or circumstance, as a result of which such registration statement,
prospectus any amendment or supplement thereto, or any document incorporated by
reference in any of the foregoing, contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(f) take reasonable efforts to obtain the withdrawal at the earliest
practicable date of any order suspending the effectiveness of such registration
statement or any post-effective amendment thereto:
(g) if requested by the managing underwriter or underwriters or the
holders of at least a majority of the Eligible Securities being sold in
connection with an underwritten public offering, promptly incorporate in a
prospectus supplement or post-effective amendment such information as such
managing underwriter or underwriters or such Holders reasonably specify should
be included therein relating to the terms of the sale of such Eligible
Securities, including, without limitation, information with respect to the
number of Eligible Securities being sold to such underwriters, the names and
descriptions of such Holders, the purchase price being paid therefor by such
underwriters and any other terms of the underwritten (or best efforts
underwritten) offering of the Eligible Securities to be sold in such offering,
and make all required filings of such prospectus supplement or post-effective
amendment promptly after notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment;
(h) furnish to each Holder of Eligible Securities included in such
registration and each underwriter and compel for Holder, if any, thereof an
executed copy of such registration statement, each such amendment and supplement
thereto (in each case including all exhibits thereto, whether or not such
exhibits are incorporated by reference therein) and such number of copies of the
prospectus included in such registration statement (including each preliminary
prospectus and any summary prospectus) and each amendment or supplement thereto,
in conformity with the requirements of the Securities Act, as such Holder and
managing underwriter, if any, may reasonably request in order to facilitate the
disposition of such Eligible Securities by such Holder or by the participating
underwriters;
(i) use its best efforts to (i) register or qualify the Eligible
Securities to be included in such registration statement under such other
securities laws or blue sky laws of such jurisdictions as any Holder of such
Eligible Securities and each managing underwriter, if any, thereof shall
reasonably request, (ii) keep such registrations or qualifications in effect for
so long as is necessary to effect the disposition of such Eligible Securities in
the manner contemplated by the registration statement, the prospectus included
therein and any amendment or supplement thereto and (iii) take any and all such
actions as may be reasonably necessary or advisable to enable such Holder and
any participating underwriter or underwriters to consummate the disposition in
such jurisdictions of such Eligible Securities; provided, however, that the
Company shall not be required for any such purpose to (A) qualify generally to
do business as a foreign corporation or a broker-dealer any jurisdiction wherein
it would not otherwise be required
Page 47 of 92
<PAGE>
to qualify but for the requirements of this Section 5(i), (B) subject itself to
taxation in any such jurisdiction or (C) consent to general service of process
in any such jurisdiction;
(j) cooperate with the Holders of the Eligible Securities included in
such registration and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Eligible Securities
to be sold, which certificate shall be printed, lithographed or engraved, or
produced by any combination of such methods, on steel engraved borders and which
shall not bear any restrictive legends; and, in the case of an underwritten
public offering, enable such Eligible Securities to be registered in such names
as the underwriter or underwriters may request at least two business days prior
to any sale of such Eligible Securities;
(k) provide not later than the effective date of the registration
statement a CUSIP number for all Eligible Securities;
(l) enter into an underwriting agreement, engagement letter, agency
agreement, "best efforts" underwriting agreement or similar agreement, as
appropriate, and take such other actions in connection therewith as the Holders
of at least a majority of the Eligible Securities to be included in such
registration shall reasonably request in order to expedite or facilitate the
disposition of such Eligible Securities, and in connection therewith, whether or
not an underwriting agreement is entered into and whether or nor the
registration is an underwritten public offering, (i) make such representations
and warranties to the Holders of such Eligible Securities included in such
registration and the underwriters, if any, in form, substance and scope as are
customarily made in an underwritten public offering, (ii) obtain an opinion of
counsel to the Company in customary form and covering such matters as are
customarily covered by such an opinion as the Holders of at least a majority of
such Eligible Securities and the underwriters, if any, may reasonably request,
addressed to each participating Holder and the underwriters, if any, and dated
the effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement); (iii) obtain a "cold comfort" letter from the
independent certified public accountants of the Company addressed to the Holders
of the Eligible Securities included in such registration and the underwriters,
if any, dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, also dated the date of
the closing under the underwriting agreement), such letter to be in customary
form and covering such matters as are customarily covered by such letters; (iv)
deliver such documents and certificates as may be reasonably requested by the
Holders of at least a majority of the Eligible Securities included in such
registration and the managing underwriter or underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company, and
(v) undertake such obligations relating to expense reimbursement,
indemnification and contribution as are provided in Sections 6, 7 and 8 hereof;
and
(m) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
Page 48 of 92
<PAGE>
Notwithstanding the provisions of Section 5(a), the Company's obligation to
file a registration statement, or cause such registration statement to become
effective, shall be suspended, without incurring any liability to any Holder,
for a period not to exceed 90 days if there exists at the time material
non-public information relating to the Company that, in the reasonable opinion
of the Company, should not be disclosed, provided that any such suspension all
occur no more than once in any twelve (12)-month period. In such an event, the
Company shall promptly inform all Holders of the Company's decision to defer
filing of a registration statement and shall notify all Holders promptly (but in
any event not later than upon the expiration of the 90-day period specified in
the immediately preceding sentence) of the recommencement of the Company s
efforts to file the registration statement and to cause the registration
statement to become effective.
In connection with each registration of Eligible Securities hereunder, the
Holders thereof will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as shall be
reasonably necessary in order to assure compliance with applicable federal and
state securities law. Each such Holder also agrees to notify the Company as
promptly as practicable of any inaccuracy or change in information previously
furnished by such Holder to the Company or of the occurrence of any other event,
in either case as a result of which any prospectus relating to such registration
contains an untrue statement of a material fact regarding such Holder or the
distribution of such Eligible Securities or omits to state any material fact
regarding such Holder or the distribution of such Eligible Securities required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing, and promptly to furnish to the
Company any additional information required to correct and update such
previously famished information or required so that such prospectus shall not
contain, with respect to such Holder or the distribution of such Eligible
Securities, 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, in light of the circumstances then existing. Each such Holder
further agrees that upon giving any notice referred to in the immediately
preceding sentence, or upon receipt of any notice from the Company pursuant to
Section 5(e)(vi) hereof, such Holder shall forthwith discontinue the disposition
of Eligible Securities pursuant to the registration statement applicable to such
Eligible Securities until such Holder shall have received copies of an amended
or supplemented registration statement or prospectus, and if so directed by the
Company, such Holder shall deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the prospectus covering such Eligible Securities at the time of receipt of such
notice.
6. EXPENSES. The Company shall pay all expenses incurred in
complying with Sections 2, 3 and 4, including without limitation all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees and expenses of
one counsel for the selling Holders, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws
(other than those which by law must be paid by the selling security holders),
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars and stock exchange listing fees, but
excluding all underwriting discounts and selling commissions applicable to the
sale of Eligible
Page 49 of 92
<PAGE>
Securities. All expenses of participating sellers other than those assumed by
the Company in this Agreement shall be borne by such sellers in proportion to
the number of shares sold by each seller or as they may otherwise agree.
7. INDEMNIFICATION.
(a) In the event of a registration of Eligible Securities under the
Securities Act pursuant to Section 2, 3 or 4, the Company shall indemnify and
hold harmless each selling Holder, each underwriter of such Eligible Securities
thereunder and each other person, if any, who controls such selling Holder or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such selling Holder,
underwriter or controlling person may become subject under the Securities Act or
otherwise or in any action in respect thereof, and will reimburse each such
selling Holder, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, as such expenses
are incurred, insofar as such losses, claims, ties or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Eligible Securities were registered under the Securities Act
pursuant to Section 2, 3 or 4, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, 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, provided, however, that the Company shall not be liable to any such
selling Holder, underwriter or controlling person in any such case if and to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in conformity with information furnished by such selling Holder,
underwriter or controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the Eligible Securities
under the Securities Act pursuant to Section 2, 3 or 4, each selling Holder of
such Eligible Securities, severally and not jointly, will indemnify and hold
harmless the Company, each underwriter and each person, if any, who controls the
Company or any underwriter within the meaning of the Securities Act, each
officer of the Company who signs the registration statement, each director of
the Company, each other seller of securities registered by the registration
statement covering such Eligible Securities and each person, if any, who
controls such seller, against all losses, claims, damages or liabilities, joint
or several, to which the Company or any such officer, director, underwriter,
other seller or controlling person may become subject under the Securities Act
or otherwise, and shall reimburse the Company and each such officer, director,
underwriter, other seller and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, but only to the extent that any
such loss, claim, damage or liability (or action in respect thereof) arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such Holder furnished in writing to the Company by such
Page 50 of 92
<PAGE>
Holder specifically for use in the registration statement or prospectus relating
to such Eligible Securities. Notwithstanding the immediately preceding
sentence, the liability of each such Holder hereunder shall, not in any event
exceed the net proceeds received by such Holder from the sale of Eligible
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party, if a claim in
respect thereof is to be made against an indemnifying party hereunder, shall
notify such indemnifying party in writing thereof, but the omission so to notify
such indemnifying party shall not relieve such indemnifying party from any
liability that it may have to any indemnified party other than under this
Section 7 and, unless the failure to so provide notice materially adversely
affects or prejudices such indemnifying party's defense against any action,
shall not relieve such indemnifying party any liability that it may have to any
indemnified party under this Section 7. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and, after notice from such indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, such indemnifying party
shall not be liable to such indemnified party under this Section 7 for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected; provided, however, that, if the defendants in any such
action include both the indemnified parry and the indemnifying parry and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it that are different from or additional to those
available to the indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified parry shall have the right to select a
separate counsel and to assume and undertake the defense of such action, with
the expenses and fees of such separate counsel and other expenses related to
such defense to be reimbursed by the indemnifying parry as incurred.
(d) No indemnifying party shall be liable for any amounts paid in a
settlement effected without the consent of such indemnifying party, which
consent shall not be unreasonably withheld. No indemnifying party shall
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the plaintiff to the
indemnified party of a release from all liability in respect of such claim or
litigation.
(e) The reimbursements required by this Section 7 shall be made by
periodic payments during the course of the investigation or defense, as and
others bills are received and expenses incurred.
8. CONTRIBUTION. If for any reason the indemnity set forth in
Section 7 is unavailable or is insufficient to hold harmless an indemnified
party, then the indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the aggregate losses, claim,
damages, liabilities and expenses of the
Page 51 of 92
<PAGE>
nature contemplated by said indemnity (i) in such proportion as is appropriate
to renew the relative fault of the indemnifying party on the one hand and such
indemnified party on the other (determined by reference to, among other things,
whether the untrue statement of a material fact or omission to state a material
fact relates to information supplied by the indemnifying party or such
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or event such untrue statement or
omission), or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to such indemnified party
than the amount hereinafter calculated, in such proportion as is appropriate to
reflect not only the relative fault of the indemnifying party and such
indemnified party but also the relative benefits received by the indemnifying
party on the one hand and such indemnified party on the other, as well as any
other relevant equitable considerations.
The Company and the Parties agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other the method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damage., liabilities or expenses referred to in such
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section, a Holder shall not be required
to contribute any amount in excess of the amount by which the net proceeds of
the sale of Eligible Securities sold by such Holder and distributed to the
public exceeds the amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person which is not guilty of such fraudulent
misrepresentation.
9. UNDERWRITING AGREEMENT. If Eligible Securities are to be sold
pursuant to a registration statement in an underwritten offering pursuant to
Section 2, 3 or 4, the Company and each selling Holder of Eligible Securities
agrees to enter into a written agreement with the managing underwriter or
underwriters selected in the manner herein provided in such form and containing
such provisions as are reasonably satisfactory to the Company and each such
selling Holder and as are customary in the securities business for such an
arrangement among such underwriter or underwriters, each such selling Holder and
companies of the Company's size and investment stature. No Holder of Eligible
Securities may participate in any underwritten sale of Eligible Securities
pursuit to Section 2, 3 or 4 hereof unless such Holder agrees to sell such
Holder's securities in accordance with any underwriting arrangements approved by
the persons Settled hereunder to specify the method of distribution of the
securities being registered and completed and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
Page 52 of 92
<PAGE>
10. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. If, subsequent to
the date hereof, the Company grants to any holders or prospective holders of the
Company's securities the right to require that the Company register any
securities of the Company under the Securities Act, such registration rights
shall be granted subject to the rights of the Holders to include all or part of
their Eligible Securities in any such registration on the terms and conditions
set forth in Section 4.
11. RULE 144. The Company covenants with the Holders of Eligible
Securities that, if and to the extent the Company shall be required to do so
under the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, as the same may be amended and in effect at the time
(the "Exchange Act"), the Company shall timely file the reports required to be
filed by it under the Exchange Act or the Securities Act (including, but not
limited to, the reports under Sections 13 and 15(d) of the Exchange Act
referred to in subparagraph (c)(l) of Rule 144 adopted by the Commission under
the Securities Act), all to the extent required from time to time to enable such
Holder to sell Eligible Securities without registration under the Securities Act
within the limitations of the exemption provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission. Upon the request of any
Holder of Eligible Securities, the Company shall deliver to such Holder a
written statement as to whether it has complied with such requirements.
12. EFFECT OF FAILURE TO SELL AND PURCHASE PREFERRED STOCK. The
shares of Preferred Stock will be sold in two separate sales of shares pursuant
to the Stock Purchase Agreement. If the sale of such shares on the Second
Closing Date (as defined in the Stock Purchase Agreement) does not occur within
six months of the Initial Closing Date (as defined in the Stock Purchase
Agreement), on such six month anniversary date, pursuant to Section (vi)(r) of
the Certificate of Designation, all shares of Preferred Stock then outs shall,
at the option of each Holder, be converted into Common Stock at the then
applicable Conversion Price (as defined in the Certificate of Designation) or
purchased by the Company for the Liquidation Amount (as defined in the
Certificate of Designation).
(a) If all shares of Preferred Stock are purchased by the Company
pursuant to Section (vi)(r) of the Certificate of Designation, all rights of the
Holders pursuant to this Agreement shall terminate immediately upon such
purchase.
(b) In the event that any shares of Preferred Stock are converted
into Common Stock pursuant to Section (vi)(r) of the Certificate of Designation,
the rights of the Investors pursuant to this Agreement shall be modified as
follows:
(i) The number of Registration Requests to which the Investors
shall be entitled pursuant to Section 2(a) shall be reduced to one, and in
connection with such Registration Request, the Company shall not be
obligated to effect any such registration pursuant to Section 2(a) unless
the anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $10,000,000.
Page 53 of 92
<PAGE>
(ii) The Investors shall not be enabled to any Priority Demand
pursuant to Section 2(a).
(iii) The number of Form S-3 Requests to which the Investors
shall be entitled pursuant to Section 3(a) shall be reduced to one.
13. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by or
behalf of any of the signatories shall bind and inure to the benefit of the
respective successors and permitted assigns of the signatories, whether so
expressed or not. If any permitted transferee of any Holder of Eligible
Securities shall acquire Eligible Securities in any manner (other than by way of
a registered public offering), whether by operation of law or otherwise, such
Eligible Securities shall be held subject to all of the terms of this Agreement,
and by taking and holding such Eligible Securities such transferee shall be
entitled to receive the benefits of and be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement.
The benefits to which any such permitted transferee shall be entitled shall
include, without limitation, the rights to register Eligible Securities under
Sections 2, 3 and 4 hereof; provided, however, that any such permitted
transferee shall not be entitled to deliver to the Company a Registration
Request or a Form S-3 Request pursuant to Section 2 or 3 hereof unless such
permitted transferee acquired from its transferor (i) with respect to Eligible
Seventies issued upon the conversion of Preferred Stock, at least 100,000
Eligible Securities; provided, however, that the transfer of registration rights
held pursuant to this Agreement to a partner, shareholder, equity holder or
officer of any Investor shall be without restriction as to minimum shareholding;
or (ii) with respect to all over Eligible Securities, at least a majority of the
Eligible Securities owned by such transferor at the time of transfer. If the
Company shall so request, any such successor or permitted assign shall agree in
writing to acquire and hold the Eligible Securities subject to all of the terns
thereof. This Section 13(a) shall not be deemed to create any right on the part
of any Holder to transfer Eligible Securities in contravention of any
restriction thereon contained in any other agreement to which such Holder is a
party.
(b) All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) delivered by hand, (b) sent by telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by Express Mail, Federal Express or other
express delivery service (receipt requested) in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate as to itself by notice to the other
parties):
(i) If to Doubletree: 410 North 44th Street, Suite 700,
Phoenix, AZ 85008, Attention: General Counsel, telecopier no. (602)
220-6666.
Page 54 of 92
<PAGE>
(ii) If to the Company: Lakepoint Office Park, 9342 East
Central, Wichita, Kansas 67206, telecopier number (316) 631-1333,
Attention: President.
(iii) If to DeBoer or the Trusts: Lakepoint Office Park, 9342
East Central, Wichita, Kansas 67206, telecopier number (316) 631- I333,
Attention: Jack DeBoer.
(iv) If to the Fix Partnership: Lakepoint Office Park, 9342
East Central, Wichita, Kansas 67206, telecopier number (316) 631-1333,
Attention: Warren Fix.
(v) If to an Investor: at the address set forth on Schedule A
attached hereto.
(c) This Agreement shall be governed and construed in accordance with
the laws of the State of Delaware.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, except in writing, and any such writing shall only be
effective with respect to a Party who has executed such writing. The failure of
any of the Parties to insist upon strict adherence to any term of this Agreement
on any occasion shall not be considered a waiver of that term or deprive such
Party of the right thereafter to insist upon strict adherence to that term or
any other term of this Agreement.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) The Parties acknowledge that there may be no adequate remedy at
law if any Parry fails to perform any of its obligations hereunder and that each
Party may be irreparably harmed by any such failure, and accordingly agree that
each Party, in addition to any other remedy to which it may be entitled in law
or in equity, shall be entitled to compel specific performance of the
obligations of any other Party under this Agreement in accordance with the terms
and conditions of this Agreement in any court of the United States or any state
thereof having jurisdiction.
(g) The headings in this Agreement are for convenience of reference
only and shad not limit or otherwise affect the meaning hereof.
(h) In the event that any one or more of the provisions contained
herein or the application thereof in any circumstances, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the Holders shall be
enforceable to the fullest extent permitted by law.
Page 55 of 92
<PAGE>
(i) This Agreement is intended by the parties as a final expression
of their agreement and a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter confined
herein. There are no restrictions, promises, warranties or undertakings over
than those set forth or referred to herein or therein. This Agreement
supersedes all prior agreements and understandings between the Parties with
respect to such subject matter.
Page 56 of 92
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CANDLEWOOD HOTEL COMPANY, INC.
By: /s/Jack P. DeBoer
------------------------------
Name: Jack P. DeBoer
Title: Chief Executive Officer
DOUBLETREE CORPORATION
By: /s/David L. Stivers
------------------------------
Name: David L. Stivers
Title: Senior Vice President,
General Counsel and
Secretary
WARREN D. FIX FAMILY PARTNERSHIP, L.P.
By: /s/ Warren D. Fix
------------------------------
Name: Warren D. Fix
Title: General Partner
By: /s/ Warren D. Fix
------------------------------
Name: Warren D. Fix
JACK P. DeBOER, for himself and on
behalf of the ALEXANDER DeBOER TRUST
DATED MARCH 14, 1995 and the CHRISTOPHER
SCOTT DeBOER TRUST DATED MARCH 14, 1995
/s/Jack P. DeBoer
------------------------------
Name: Jack P. DeBoer
Page 57 of 92
<PAGE>
OLYMPUS GROWTH FUND II, L.P.
By: OGP II, L.P., its General Partner
By: Conroy, L.L.C., its General
Partner
By /s/James A. Conroy
------------------------------
Name: James A. Conroy
Title: General Partner
OLYMPUS EXECUTIVE FUND, L.P.
By: OEF, L.P., its General Partner
By: Conroy, L.L.C., its General
Partner
By: /s/James A. Conroy
------------------------------
Name: James A. Conroy
Title: General Partner
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, AS TRUSTEE OF THE COMMINGLED
PENSION TRUST FUND (MULTI-MARKET SPECIAL
INVESTMENT FUND II) OF MORGAN GUARANTY
TRUST COMPANY OF NEW YORK
By: /s/Ronald G. Hodge, II
------------------------------
Name: Ronald G. Hodge, II
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, AS TRUSTEE OF THE MULTI-MARKET
SPECIAL INVESTMENT TRUST FUND OF MORGAN
GUARANTY TRUST COMPANY OF NEW YORK
By: /s/Ronald G. Hodge, II
------------------------------
Name: Ronald G. Hodge, II
Title: Vice President
Page 58 of 92
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, AS INVESTMENT MANAGER AND AGENT
FOR THE ALFRED P. SLOAN FOUNDATION
(MULTI-MARKET ACCOUNT)
By: /s/Ronald G. Hodge, II
------------------------------
Name: Ronald G. Hodge, II
Title: Vice President
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners, its General
Partner
By /s/James D. Kallman
------------------------------
Name: James D. Kallman
Title:
PRIVATE EQUITY
INVESTORS III, L.P.
By: Rohit M. Desai Associates III, LLC
General Partner
By: /s/Rohit M. Desai
------------------------------
Name: Rohit M. Desai
Title: Managing Member
EQUITY-LINKED INVESTORS-II
By: Rohit M. Desai Associates-II
General Partner
By: /s/Rohit M. Desai
------------------------------
Name: Rohit M. Desai
Title: Managing General Partner
59 of 92
<PAGE>
LNR CANDLEWOOD HOLDINGS, INC.
By: /s/Margaret A. Jordan
------------------------------
Name: Margaret A. Jordan
Title: Treasurer
DELAWARE STATE EMPLOYEES' RETIREMENT
FUNDS
By: Pecks Management Partners Ltd. its
Investment Advisor
By: /s/Robert J. Cresci
------------------------------
Name: Robert J. Cresci
Title: Managing Director
DECLARATION OF TRUST FOR THE DEFINED
BENEFIT PLAN OF ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd. its
Investment Advisor
By: /s/Robert J. Cresci
------------------------------
Name: Robert J. Cresci
Title: Managing Director
Page 60 of 92
<PAGE>
DECLARATION OF TRUST FOR THE DEFINED
BENEFIT PLAN OF ICI AMERICAN HOLDINGS
INC.
By: Pecks Management Partners Ltd. its
Investment Advisor
By: /s/Robert J. Cresci
------------------------------
Name: Robert J. Cresci
Title: Managing Director
J.W. McCONNELL FAMILY TRUST
By: Pecks Management Partners Ltd. its
Investment Advisor
By: /s/Robert J. Cresci
------------------------------
Name: Robert J. Cresci
Title: Managing Director
ADVANCE CAPITAL PARTNERS, L.P.
By: Advance Capital Associates, L.P.
By: Advance Capital Management,
LLC
By /s/Robert A. Bernstein
------------------------------
Name: Robert A. Bernstein
Title: Principal
Page 61 of 92
<PAGE>
ADVANCE CAPITAL OFFSHORE PARTNERS, L.P.
By: Advance Capital Offshore
Associates, LDC
By: Advance Capital Associates,
L.P.
By: Advance Capital Management,
LLC
By /s/Robert A. Bernstein
------------------------------
Name: Robert A. Bernstein
Title: Principal
ALLIED CAPITAL CORPORATION
By /s/G. Cabell Williams
------------------------------
Name: G. Cabell Williams
Title: Managing Director
ALLIED CAPITAL CORPORATION II
By /s/G. Cabell Williams
------------------------------
Name: G. Cabell Williams
Title: Managing Director
THE FFJ 1997 NOMINEE TRUST
By /s/William Kremer
------------------------------
Name: William Kremer
Title: Trustee
Page 62 of 92
<PAGE>
THE MUTUAL LIFE INSURANCE COMPANY OF NEW
YORK
By /s/Suzanne E. Walton
------------------------------
Name: Suzanne E. Walton
Title: Managing Director
HARBOR INVESTMENTS LTD.
By: Strong Capital Management, Inc.,
its Investment Advisor
By /s/Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
STRONG SPECIAL INVESTMENT LIMITED
PARTNERSHIP
By: Strong Capital Management, Inc. its
General Partner
By /s/Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
STRONG QUEST LIMITED PARTNERSHIP
By: Strong Capital Management, Inc. its
General Partner
By /s/Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
Page 63 of 92
<PAGE>
/s/William J. Abrams
------------------------------
William J. Abrams
/s/Joseph P. Adams, Jr.
------------------------------
Joseph P. Adams, Jr.
/s/Eric Anderson
------------------------------
Eric Anderson
/s/Robert P. Brennan, Jr.
------------------------------
Robert P. Brennan, Jr.
/s/Robert Brody
------------------------------
Robert Brody
/s/Vanessa Burgess
------------------------------
Vanessa Burgess
/s/Craig Callen
------------------------------
Craig Callen
/s/Michael Dana
------------------------------
Michael Dana
/s/Peter Deeks
------------------------------
Peter Deeks
/s/Robert E. Diemar, Jr.
------------------------------
Robert E. Diemar, Jr.
/s/David Hurwitz
------------------------------
David Hurwitz
Page 64 of 92
<PAGE>
/s/Steve Kantor
------------------------------
Steve Kantor
/s/Louis Klevan
------------------------------
Louis Klevan
/s/Larry Lavine
------------------------------
Larry Lavine
/s/Daniel J. Mackell
------------------------------
Daniel J. Mackell
/s/Patrick McMullan
------------------------------
Patrick McMullan
/s/Andrew J. McSpadden
------------------------------
Andrew J. McSpadden
/s/David R. Smith
------------------------------
David R. Smith
/s/Phil Tager
------------------------------
Phil Tager
/s/Douglas M. Weill
------------------------------
Douglas M. Weill
Page 65 of 92
<PAGE>
Exhibit D
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES A CUMULATIVE CONVERTIBLE
PREFERRED STOCK
OF
CANDLEWOOD HOTEL COMPANY, INC.,
-----------------------------
pursuant to section 151 of the
general corporation law of the state of delaware
-----------------------------
Candlewood Hotel Company, Inc., a Delaware corporation (the
"Corporation") certifies that pursuant to the authority contained in Article
Fourth of its Restated Certificate of Incorporation (the "Certificate of
Incorporation") and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Corporation at a telephonic meeting called and held on September 19, 1997
adopted the following resolution, which resolution remains in full force and
effect on the date hereof:
RESOLVED, that there is hereby established a series of authorized
preferred stock having a par value of $.01 per share, which series shall be
designated as "Series A Cumulative Convertible Preferred Stock" (the "Series A
Preferred Stock"), shall consist of 65,000 shares and shall have the following
voting powers, preferences and relative, participating, optional and other
special rights, and qualifications, limitations and restrictions thereof as
follows:
Page 66 of 92
<PAGE>
(i) DESIGNATION AND AMOUNT. The designation of the series of the
Preferred Stock shall be "Series A Cumulative Convertible Preferred Stock", par
value $.01 per share (the "Series A Preferred Stock"). The number of shares of
Series A Preferred Stock shall be 65,000. The Series A Preferred Stock shall be
assigned a stated value of $1,000 per share (the "Stated Value").
(ii) DIVIDENDS. (a) Rate, etc. The holders of shares of Series A
Preferred Stock as of the related Dividend Record Date (as defined below) shall
be entitled to receive, when and if declared by the Board of Directors out of
funds legally available therefor, dividends from the date of issue thereof at
the rate of 7.5% per annum (calculated by reference to the Stated Value),
accruing on a daily basis, payable quarterly, in arrears, on the last day in
August, November, February and May of each year (each a "Dividend Payment
Date"), commencing on August 31, 1998 until such time as the Series A Preferred
Stock is redeemed or retired in full. Upon conversion of any shares of Series A
Preferred Stock, dividends shall be paid as provided in clause (vi). If any
Dividend Payment Date occurs on a day that is not a Business Day, any accrued
dividends otherwise payable on such Dividend Payment Date shall be paid on the
next succeeding Business Day with the same effect as though made on such
Dividend Payment Date. The term "Business Day" shall mean a day other than a
Saturday or Sunday, any federal holiday or any day on which banks in the City of
New York are closed. Such dividends shall be payable in cash. Such dividends
shall accrue and be cumulative with respect to each share from the date of
original issuance and shall compound on each Dividend Payment Date, beginning
November 30, 1998, with respect to any accrued dividends not paid on any such
Dividend Payment Date, whether or not earned or declared. Except as otherwise
required by law, the "Dividend Record Date" with respect to the next succeeding
Dividend Payment Date shall be the date 10 Business Days prior to such Dividend
Payment Date.
(b) RANK, etc. Unless full dividends, if applicable, on all
outstanding shares of Series A Preferred Stock which have previously become due
and payable, have been paid or are contemporaneously declared and paid (or
declared and a sum sufficient for the payment thereof is set apart for such
payment), the Corporation shall not (1) declare or pay any dividend on (A) the
common stock, $.01 par value per share (the "Common Stock"), of the Corporation
or (B) on any other class or series of stock ranking junior to the Series A
Preferred Stock as to dividends or upon liquidation (the Common Stock and any
such junior class or series being the "Junior Stock") or make any payment on
account of, or set apart money for, a sinking or other analogous fund for the
purchase, redemption or other retirement of, any Junior Stock or make any
distribution in respect thereof, either directly or indirectly and whether in
cash or property or in obligations or shares of the Corporation (other than in
shares of Junior Stock) or (2) purchase any shares of Series A Preferred Stock
(except for consideration payable in Junior Stock) or redeem fewer than all of
the shares of Series A Preferred Stock then outstanding.
(iii) LIQUIDATION. (a) PREFERENCE UPON LIQUIDATION, DISSOLUTION
OR WINDING UP. In the event of any liquidation, dissolution or winding up of
the affairs of the Corporation (any or all of such events, a "liquidation"),
whether voluntary or
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involuntary, subject to the prior preferences and other rights of any Senior
Stock (as defined below), if any, as to liquidation preferences, the holders of
shares of Series A Preferred Stock then outstanding shall be entitled pari passu
as if members of a single class of securities with the holders of any Parity
Stock (as defined below), if any, to be paid out of the assets of the
Corporation before any payment shall be made to the holders of the Junior Stock,
an amount equal to the Stated Value plus any accrued but unpaid dividends (the
"Liquidation Amount"). Except as provided in this paragraph, holders of Series
A Preferred Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation. The
term "Senior Stock" shall mean any class or series of stock of the Corporation
authorized after the date of issuance of the Series A Preferred Stock in
accordance with clause (v)(b) hereof ranking senior to the Series A Preferred
Stock in respect of the right to receive dividends or the right to participate
in any distribution upon liquidation and the term "Parity Stock" shall mean any
class or series of stock of the Corporation authorized after the date of
issuance of the Series A Preferred Stock in accordance with clause (v)(b) hereof
ranking on a parity with the Series A Preferred Stock in respect of the right to
receive dividends or the right to participate in any distribution upon
liquidation.
(b) PREFERENCE ON MERGER, CONSOLIDATION OR SALE OF ASSETS.
Alternatively, in the event of a liquidation pursuant to clause (iii)(e) of this
Certificate of Designation, a holder of shares of Series A Preferred Stock may
elect to convert any or all of such holder's shares of Series A Preferred Stock
into shares of Common Stock in accordance with clause (vi) of this Certificate
of Designation, in which event the holders electing to convert shall be entitled
to receive, together with the other holders of shares of Common Stock, pro rata
based on the number of shares of Common Stock then outstanding and the number of
shares of Common Stock into which the Series A Preferred Stock shall have been
converted pursuant to such election, the remaining cash and/or other property
distributable to holders of Common Stock if, as and when such remaining cash
and/or other properties is distributed by the Corporation.
(c) INSUFFICIENT ASSETS. If, upon any liquidation of the
Corporation, the assets of the Corporation are insufficient to pay the holders
of shares of the Series A Preferred Stock and any Parity Stock, if any, then
outstanding the full amount to which they shall be entitled, such assets shall
be distributed to each holder of the Series A Preferred Stock and Parity Stock,
if any, pro rata based on the number of shares of Series A Preferred Stock and
Parity Stock, if any, held by each.
(d) RIGHTS OF OTHER HOLDERS. In the event of any liquidation, after
payment shall have been made to the holders of the Series A Preferred Stock and
Parity Stock, if any, of all preferential amounts to which they shall be
entitled, the holders of shares of Junior Stock and other capital stock of the
Corporation shall receive such amounts as to which they are entitled by the
terms thereof.
(e) CONSOLIDATION, MERGER OR SALE OF ASSETS. A consolidation or
merger of the Corporation with or into any other corporation (excluding a merger
in which the Corporation is the surviving entity or a merger into a wholly-owned
subsi-
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diary), or a sale or transfer of all or substantially all of the Corporation's
assets for cash or securities shall be considered a liquidation within the
meaning of this clause (iii).
(iv) REDEMPTION. (a) (i) OPTIONAL REDEMPTION. The Series A
Preferred Stock shall be subject to redemption, at the option of the
Corporation, in whole or from time to time in part, at any time subsequent to
September 30, 1999 at a per share redemption price equal to 200% of the Stated
Value plus accrued but unpaid dividends to the date of such redemption, payable
in cash out of funds legally available therefor (an "Optional Redemption").
(ii) MANDATORY REDEMPTION. All outstanding shares of Series A Preferred Stock
shall be redeemed by the Corporation on September 30, 2004 (the "Mandatory
Redemption Date"), at a per share redemption price equal to the Liquidation
Amount, payable in cash out of funds legally available therefor (the "Mandatory
Redemption").
(b) CHANGE OF CONTROL. Upon the occurrence of a Change of Control
Event (as hereafter defined), the Corporation shall offer to redeem all
outstanding shares of Series A Preferred Stock for a price per share equal to
the greater of (i) 175% of the Stated Value or (ii) the Liquidation Amount,
payable in cash. A "Change of Control Event" shall mean (x) the acquisition by
any Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (other than a group comprised entirely of the Purchasers), of
beneficial ownership, direct or indirect, of securities of the Corporation
representing fifty percent (50%) or more of the combined voting power of the
Corporation's then outstanding equity securities or (y) the acquisition of the
Corporation, or all or substantially all of its assets, by, or the combination
of the Corporation or all or substantially all of its assets, with, another
Person, unless the acquiring or surviving Person shall be a corporation, limited
liability company, partnership or other entity more than 50% of the combined
voting power of which corporation's then outstanding equity securities, after
such acquisition or combination, are owned, immediately after such acquisition
or combination, by the owners of more than 50% of the voting securities of the
Corporation immediately prior to such acquisition or combination; provided,
however, that the Corporation shall not be required to redeem any shares of
Series A Preferred Stock held by a member of a group described in clause (x)
above (but including a group comprised entirely of the Purchasers) in connection
with a Change in Control occurring prior to August 27, 1999. When used herein
the term "Person" shall mean and include an individual, a corporation, a limited
liability company, an association, a partnership, a trust or estate, a
government or any department or agency thereof.
(c) NOTICE OF REDEMPTION. The Corporation shall give each holder of
Series A Preferred Stock written notice of any Optional Redemption not less than
thirty (30) days nor more than forty-five (45) days prior to the proposed
redemption date, specifying such redemption date (each, an "Optional Redemption
Date"), the per share redemption price and the number of such holder's shares to
be redeemed on such date. The Corporation shall give each holder of Series A
Preferred Stock written notice (a "Notice of Change of Control Event") within
five (5) days after the Corporation or any of its executive officers or
directors obtains knowledge of the occurrence of a Change of Control Event,
specifying that a Change of Control Event has occurred, the material facts
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and circumstances of such Change of Control Event, the redemption date, the per
share redemption price and instructions that a holder of Series A Preferred
Stock must follow in order to have his shares redeemed. The redemption date for
any Change of Control Event (each a "Change of Control Redemption Date") shall
be the twenty-fifth date following such Change of Control Event, PROVIDED that,
if such redemption date is not a Business Day, the redemption date shall be the
first Business Day thereafter. Upon receipt of a Notice of Change of Control
Event, a holder of shares of Series A Preferred Stock may, at his option, elect
to have the Corporation redeem all of such shares of Series A Preferred Stock by
providing written notice to the Corporation of such election not less than five
(5) days prior to the specified Change of Control Redemption Date. In the event
some or all of such shares of Preferred Stock are not tendered for redemption,
the holder of such shares not so tendered shall be deemed to have consented to
the redemption by the Corporation of any Junior Stock being prepaid, redeemed,
retired or exchanged pursuant to a Change of Control Event, notwithstanding any
approval rights of holders of Series A Preferred Stock pursuant to clause (v)
hereof. If the applicable redemption date is on or after a Dividend Record Date
and on or before the related Dividend Payment Date, the dividend payable shall
be paid to the holder in whose name the Series A Preferred Stock is registered
at the close of business on such record date. In the case of an Optional
Redemption of less than all shares of Series A Preferred Stock at the time
outstanding, the shares to be redeemed shall be selected pro rata, consistent
with Delaware law.
(d) FAILURE TO REDEEM. (A) If, upon the Mandatory Redemption Date,
the Corporation does not redeem all outstanding shares of Series A Preferred
Stock at the per share price specified in clause (iv)(a)(ii), the Corporation
shall issue to each holder of Series A Preferred Stock on such Redemption Date
and on each three month anniversary thereof (each a "Warrant Payment Date"),
warrants to purchase twenty-five percent (25%) of the number of shares of Common
Stock (rounded to the nearest whole share) into which such holder's outstanding
shares of Series A Preferred Stock would be convertible on such Warrant Payment
Date at the then current Conversion Price. Such warrants shall be immediately
exercisable with respect to each share of Common Stock for $.01. (B) If, upon
the Change of Control Redemption Date, the Corporation does not redeem all
shares of Series A Preferred Stock tendered for redemption pursuant to clause
(iv)(c) hereof, the Conversion Price (as defined below) shall be reduced to the
lower of (1) the then applicable Conversion Price or (2) the Market Price (as
defined below) per share of Common Stock on the Redemption Date divided by 1.75;
provided, however, that under no circumstances shall the Conversion Price be
reduced to a level that is less than the par value of the Common Stock.
(e) EFFECT OF REDEMPTION. On the date established for redemption
pursuant to clause (iv) hereof, all rights in respect of the shares of Series A
Preferred Stock to be redeemed, except the right to receive the applicable
redemption price, plus accrued dividends, if any, to the date of redemption,
shall cease and terminate (unless default shall be made by the Corporation in
the payment of the applicable redemption price, plus accrued dividends, if any,
in which event such rights shall be exercisable until such default is cured),
and such shares shall no longer be deemed to be outstanding, notwithstanding
that any certificates representing such shares shall not have
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been surrendered to the Corporation. All shares of Series A Preferred Stock
redeemed pursuant to this clause (iv) shall be retired and shall be restored to
the status of authorized and unissued shares of preferred stock, without
designation as to series or class and may thereafter be reissued, subject to
compliance with the terms hereof, as shares of any series of preferred stock
other than shares of Series A Preferred Stock.
(f) INSOLVENCY OF CORPORATION. If, upon the Mandatory Redemption
Date or any Change of Control Redemption Date, the payment of the full amount of
the redemption payments due on such date would render the Corporation insolvent
(as determined in accordance with either the then applicable definition in the
United States Bankruptcy Code or the then applicable definition of any state
fraudulent conveyance or fraudulent transfer statute), any liquidation of the
Corporation in connection with such redemption shall require the consent of the
holders of 66-2/3% of the Series A Preferred Stock and no other consent of any
holder of any other equity securities of the Corporation, except as otherwise
required by Delaware law, and in the event of such consent the Corporation shall
be liquidated and the assets of the Corporation distributed in accordance with
the provisions of clause (iii) of this Certificate of Designation.
(g) CONVERSION PRIOR TO REDEMPTION. Anything to the contrary in this
clause (iv) of this Certificate of Designation notwithstanding, the holders of
Series A Preferred Stock shall have the right, exercisable at any time prior to
the date set for redemption thereof, to convert all or any part of such Series A
Preferred Stock into shares of Common Stock pursuant to clause (vi) hereof.
(h) FUNDS FOR REDEMPTION. No share of Series A Preferred Stock may
be redeemed except with funds legally available therefor.
(v) VOTING RIGHTS. (a) VOTING AS A CLASS WITH THE COMMON STOCK. The
holders of the Series A Preferred Stock shall be entitled to vote together with
the holders of shares of Common Stock and any other class or series of capital
stock entitled to vote with the Common Stock as a single class on all matters to
be voted upon by the Common Stock, and shall not have any additional voting
rights other than the rights specified below in this clause (v) or otherwise
required by law. Each holder of Series A Preferred Stock shall be entitled to
such number (rounded to the nearest whole number) of votes as such holder would
be entitled if such holder had converted the shares of Series A Preferred Stock
held by such holder into shares of Common Stock pursuant to clause (vi) hereof
immediately prior to such vote.
(a) ADDITIONAL CAPITAL STOCK, etc. The Corporation shall not,
without the affirmative consent or approval of the holders of shares
representing 66 2/3% of the shares of Series A Preferred Stock then outstanding,
voting as a single class (such consent or approval to be given by written
consent in lieu of a meeting if allowable under the Corporation's Certificate of
Incorporation or by vote at a meeting called for such purpose for which notice
shall have been given to the holders of the Series A Preferred Stock): (i)
authorize the issuance of or issue any new, or increase the authorized number of
shares of any existing, class or series of capital stock of the Corporation
which would
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be senior or superior as to dividends or upon liquidation to the Series A
Preferred Stock, (ii) issue any shares of preferred stock authorized in the
Certificate of Incorporation or create any other class or series of stock
ranking on a parity with the Series A Preferred Stock as to dividends or upon
liquidation, (iii) authorize or issue shares of stock of any class or series or
any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase, any shares of stock of the
Corporation which would be senior or superior to, or rank on a parity with, the
Series A Preferred Stock as to dividends or upon liquidation, (iv) reissue any
shares of Series A Preferred Stock that have been redeemed or purchased by the
Corporation, (v) take any action, including, causing any amendment, alteration
or repeal of any of the provisions of the Corporation's Certificate of
Incorporation that may alter or change the powers, preferences or special rights
of the shares of Series A Preferred Stock so as to affect the holders thereof
adversely, (vi) effect any redemption or repurchase of any Junior Stock other
than in connection with the cashless exercise of options, or upon the exercise
by the Corporation of its repurchase rights (up to a maximum of $250,000 in the
aggregate) as to Common Stock issued to employees of the Corporation upon a
termination of such employment, (vii) increase the number of members on the
Board of Directors (except by one, in connection with the election of the
President to the Board of Directors as the eleventh member) or (viii) file a
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment of its debts, make an assignment for the benefit of creditors,
permit an involuntary petition seeking liquidation, reorganization, arrangement
or readjustment of its debts or seeking appointment of a receiver to remain
unchallenged or otherwise seek or permit remedies for insolvency.
Notwithstanding any other provision in this Certificate of Designation, (1) upon
the consent or approval of holders of shares representing 66 2/3% of the shares
of Series A Preferred Stock then outstanding, voting as a single class and (2)
with such other votes or consents as may be required by Delaware law, the rules
and regulations of the Securities and Exchange Commission, the regulations of
the NASDAQ or other securities exchange applicable to the Corporation or
pursuant to the Company's Certificate of Incorporation, the Corporation may take
any such action referenced in the preceding clauses (i) - (viii).
(vi) CONVERSION RIGHTS. (a) OPTIONAL CONVERSION OF SERIES A
PREFERRED STOCK. The holder of any shares of Series A Preferred Stock shall
have the right, at such holder's option, at any time or from time to time to
convert any or all of such holder's shares of Series A Preferred Stock into such
number of fully paid and nonassessable shares of Common Stock (the "Conversion
Shares") as determined for each share of Series A Preferred Stock by dividing
the Stated Value by the "Conversion Price" in effect at the time of such
conversion. The "Conversion Price" shall be $9.50 per share of Series A
Preferred Stock, subject to the adjustments set forth herein; provided, however,
that if the Corporation fails to pay, in cash, any and all dividends accrued,
for any two Dividend Payment Dates, whether consecutive or not (a "Dividend
Default"), the Conversion Price shall be reduced by $.50 for each such Dividend
Default; and PROVIDED, FURTHER, that if the Corporation fails to pay any and all
accrued dividends on August 31, 1998, the Conversion Price shall be reduced by
$1.00; in each case subject to adjustment as otherwise provided herein;
PROVIDED, HOWEVER, that a default in the payment of any dividends accrued and
unpaid as of August 31, 1998 shall not be combined with any other default to
constitute a Dividend Default. The Conversion Shares and the
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Conversion Price are subject to certain adjustments as set forth herein, and the
terms Conversion Shares and Conversion Price as used herein shall as of any time
be deemed to include all such adjustments to be given effect as of such time in
accordance with the terms hereof; provided, further, that under no circumstances
shall the Conversion Price be reduced to a level that is less than the par value
of the Common Stock.
Upon the exercise of the option of the holder of any shares of Series
A Preferred Stock to convert Series A Preferred Stock into Common Stock, the
holder of such shares of Series A Preferred Stock to be converted shall
surrender the certificates representing the shares of Series A Preferred Stock
so to be converted in the manner provided in clause (vi)(c) below. Immediately
following such conversion, the rights of the holders of converted Series A
Preferred Stock (other than the right to receive dividends accrued to the date
of such conversion) shall cease and the persons entitled to receive the Common
Stock upon the conversion of Series A Preferred Stock shall be treated for all
purposes (other than the right to receive dividends accrued to the date of such
conversion) as having become the owners of such Common Stock.
(b) AUTOMATIC CONVERSION. Subsequent to August 31, 1999, each share
of Series A Preferred Stock shall automatically be converted into shares of
Common Stock at the then applicable Conversion Price if (i) the Common Stock has
traded for a period of not less than twenty (20) consecutive days at not less
than 200% of the then applicable Conversion Price and (ii) the Corporation at
its sole expense shall have caused to become effective within 90 days of such
twenty (20) consecutive day period a registration statement under the Securities
Act with respect to at least the number of shares equal to 50% of the shares of
Common Stock into which the Series A Preferred Stock then outstanding is
convertible at the then applicable Conversion Price (or such lesser number as
shall have been requested to be registered by the holders of the Series A
Preferred Stock, following notice from the Company) and shall have caused all
such shares to be sold (allocated pro rata among holders of such Series A
Preferred Stock in relation to the number of shares requested to be registered
following notice from the Company) pursuant to an underwritten public offering
in accordance with the provisions of Section 5 of the Registration Rights
Agreement (the "Registration Rights Agreement") dated September 22, 1997 among
the Corporation and the parties thereto (or a registered but not underwritten
sale to one or more nationally recognized registered broker/dealers for resale
through a public distribution) at a per share price to each selling holder of
not less than 200% of the Conversion Price, less 1% of the then applicable
Market Price.
(c) DELIVERY OF STOCK CERTIFICATES; NO FRACTIONAL SHARES. The holder
of any shares of Series A Preferred Stock may exercise the optional conversion
right pursuant to clause (vi)(a) above by delivering to the Corporation or its
duly authorized transfer agent during regular business hours at the office of
the Corporation the certificate or certificates for the shares to be converted,
duly endorsed or assigned either in blank or to the Corporation (if required by
it), accompanied by written notice stating that such holder elects to convert
such shares and shall provide a certificate to the Corporation or its duly
authorized transfer agent as to the date of such conversion. Upon the
occurrence of an automatic conversion pursuant to clause (vi)(b) above, the
Corporation shall deliver notice to each holder of Series A Preferred Stock and
the holder
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of any shares of Series A Preferred Stock shall deliver to the Corporation at
the office of the Corporation the certificate or certificates for all shares of
Series A Preferred Stock then held by such holder, duly endorsed or assigned
either in blank or to the Corporation (if requested by it). Conversion shall be
deemed to have been effected (1) in the case of an optional conversion, on the
date when the aforesaid delivery of stock certificates is made if such day is a
Business Day and otherwise on the Business Day following the date of the
aforesaid delivery, and (2) in the case of an automatic conversion pursuant to
clause (vi)(b), upon the effective date of the registration statement (provided
that if the shares registered thereunder are not sold no Conversion Date shall
be deemed to have occurred) and in each case such date is referred to herein as
the "Conversion Date." As promptly as practicable thereafter, the Corporation,
through its transfer agent, shall issue and deliver to or upon the written order
of such holder, to the place designated by such holder, a certificate or
certificates for the number of full shares of Common Stock to which such holder
is entitled and a check or cash in respect of any fractional interest in a share
of Common Stock, as provided below; provided, however, that in the case of a
conversion in connection with liquidation, no such certificates need be issued.
The person in whose name the certificate or certificates for Common Stock are to
be issued shall be deemed to have become the stockholder of record in respect of
such Common Stock on the applicable Conversion Date unless the transfer books of
the Corporation are closed on that date, in which event such holder shall be
deemed to have become the stockholder of record in respect of such Common Stock
on the next succeeding date on which the transfer books are open, but the
Conversion Price shall be that in effect on the Conversion Date. Upon
conversion of only a portion of the number of shares covered by a stock
certificate representing shares of Series A Preferred Stock surrendered for
conversion, the Corporation shall issue and deliver to or upon the written order
of the holder of the stock certificate so surrendered for conversion, at the
expense of the Corporation, a new stock certificate covering the number of
shares of Series A Preferred Stock representing the unconverted portion of the
certificate so surrendered. Any transfer taxes applicable to the above
described transactions shall be paid by such transferee. The Corporation shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of Common Stock or the reissuance of the
Preferred Stock in a name other than that in which the shares of Series A
Preferred Stock so converted were registered, and no such issuance or delivery
shall be made unless and until the person requesting such issuance has paid to
the Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid.
(d) NO FRACTIONAL SHARES OF COMMON STOCK. (1) No fractional
shares of Common Stock shall be issued upon conversion of shares of Series A
Preferred Stock and in lieu thereof, the Corporation shall pay a cash adjustment
in respect of such fractional interest in an amount equal to the then current
Market Price (as defined in clause (vi)(e)(8) below) of a share of Common Stock
multiplied by such fractional interest. The holders of fractional interests
shall not be entitled to any rights as stockholders of the Corporation in
respect of such fractional interests. In determining the number of shares of
Common Stock and the payment, if any, in lieu of fractional shares that a holder
of Series A Preferred Stock shall receive, the total number of shares of Series
A Preferred Stock surrendered for conversion by such holder shall be aggregated.
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(2) On the first Dividend Payment Date on which accrued dividends are paid
in full to all holders of Series A Preferred Stock following the optional
conversion pursuant to clause (vi) (a) of all or any portion of the Series A
Preferred Stock, the Corporation shall pay (i) any dividends accrued on such
converted Series A Preferred Stock to the date of such conversion plus (ii) any
dividends accrued on any accrued and unpaid dividends (on which dividends shall
accrue at a rate of 7.5% per annum, compounded quarterly) other than dividends
accruing as of the last Dividend Payment Date. Accrued dividends with respect
to all shares converted pursuant to clause (vi) (b) hereof shall be paid in full
on the Conversion Date out of funds legally available therefor.
(e) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK. If
and whenever after the date hereof the Corporation shall issue or sell any
shares of its Common Stock (except upon conversion of the Series A Preferred
Stock) for a consideration per share less than, under certain circumstances
including those in paragraphs (1) through (9) below, the Conversion Price in
effect immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale, the Conversion Price shall be reduced (but not increased,
except as otherwise specifically provided in paragraph (3) below) to the price
(calculated to the nearest cent) determined by dividing (i) an amount equal to
the sum of (A) the aggregate number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing
Conversion Price and (B) the consideration, if any, received by the Corporation
upon such issue or sale, by (ii) the aggregate number of shares of Common Stock
of all classes outstanding immediately after such issue or sale.
No adjustment of the Conversion Price, however, shall be made in an
amount less than $.05 per share, but any such lesser adjustment shall be carried
forward and shall be made upon the time of and together with the next subsequent
adjustment, if any.
For the purposes of this clause (vi)(e), the following paragraphs (1)
through (9) shall also be applicable:
(1) Issuance of Rights or Options - In case at any time after the
date hereof the Corporation shall in any manner grant (whether directly or
by assumption in a merger or otherwise, except in the circumstances
described in clause (vi)(f) below) any rights to subscribe for or to
purchase, or any options or warrants for the purchase of, Common Stock or
any stock, notes or securities convertible into or exchangeable for Common
Stock (such convertible or exchangeable stock, notes or securities being
herein called "Convertible Securities"), whether or not such rights,
options or warrants or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such rights,
options or warrants or upon conversion or exchange of such Convertible
Securities (determined by dividing (i) the total amount, if any, received
or receivable by the Corporation as consideration for the granting of such
rights, options or warrants, plus the minimum aggregate amount of
additional consideration, if any, payable
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to the Corporation upon the exercise of such rights, options or warrants,
plus, in the case of such rights, options or warrants which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, options or warrants or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights, options
or warrants) shall be less than the Conversion Price in effect immediately
prior to the time of the granting of such rights, options or warrants, then
the total maximum number of shares of Common Stock issuable upon the
exercise of such rights, options or warrants or upon conversion or exchange
of all such Convertible Securities issuable upon the exercise of such
rights, options or warrants shall (as of the date of granting of such
rights or options) be deemed to be outstanding and to have been issued for
such price per share. Except as provided in paragraph (3), no further
adjustment of the Conversion Price shall be made upon the actual issue of
such Common Stock or of such Convertible Securities upon exercise of such
rights, options or warrants or upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities.
(2) ISSUANCE OF CONVERTIBLE SECURITIES - In case at any time after
the date hereof the Corporation shall in any manner issue (whether directly
or by assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the
total amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the
Conversion Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share; provided,
however, that (a) except as otherwise provided in paragraph (3), no further
adjustment of the Conversion Price shall be made upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any rights to subscribe for or to
purchase or any option to purchase any such Convertible Securities for
which adjustments of the Conversion Price have been or are to be made
pursuant to other provisions of this clause (vi)(e), no further adjustment
of the Conversion Price shall be made by reason of such issue or sale.
(3) CHANGE IN OPTION PRICE OR CONVERSION RATE - If the purchase price
provided for in any right or option referred to in paragraph (1), the
additional
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consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in paragraph (1) or (2), or the rate at
which any Convertible Securities referred to in paragraph (1) or (2) are
convertible into or exchangeable for Common Stock shall change (other than
under or by reason of provisions designed to protect against dilution), the
Conversion Price then in effect hereunder shall forthwith be readjusted
(increased or decreased, as the case may be) to the Conversion Price which
would have been in effect at such time had such rights, options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold. On the expiration of any such
option or right referred to in paragraph (1) or the termination of any such
right to convert or exchange any such Convertible Securities referred to in
paragraph (1) or (2), the Conversion Price then in effect hereunder shall
forthwith be readjusted (increased or decreased, as the case may be) to the
Conversion Price which would have been in effect at the time of such
expiration or termination had such right, option or Convertible Securities,
to the extent outstanding immediately prior to such expiration or
termination, never been granted, issued or sold, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such right or option referred to in
paragraph (1) or the rate at which any Convertible Securities referred to
in paragraph (1) or (2) are convertible into or exchangeable for Common
Stock shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of shares of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Securities,
the Conversion Price then in effect hereunder shall, if not already
adjusted, forthwith be adjusted to such amount as would have obtained had
such right, option or Convertible Securities never been issued as to such
shares of Common Stock and had adjustments been made upon the issuance of
the shares of Common Stock delivered as aforesaid, but only if as a result
of such adjustment the Conversion Price then in effect hereunder is thereby
reduced.
(4) STOCK DIVIDENDS - In case at any time (other than with respect to
the Series A Preferred Stock and, to the extent the holders of shares of
Series A Preferred Stock participate on an as-converted basis, the Common
Stock) the Corporation shall declare a dividend or make any other
distribution upon any class or series of stock of the Corporation payable
in shares of Common Stock or Convertible Securities, any shares of Common
Stock or Convertible Securities, as the case may be, issuable in payment of
such dividend or distribution shall be deemed to have been issued or sold
without consideration.
(5) CONSIDERATION FOR STOCK - Anything herein to the contrary
notwithstanding, in case at any time any shares of Common Stock or
Convertible Securities or any rights, options or warrants to purchase any
such Common Stock or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the amount
received by the Corporation therefor, without deduction therefrom of any
expenses incurred or any
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underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith.
In case at any time any shares of Common Stock or any class or
Convertible Securities or any rights or options to purchase any such shares of
Common Stock or Convertible Securities shall be issued or sold for a
consideration other than cash, in whole or in part, the amount of the
consideration other than cash received by the Corporation shall be deemed to be
the fair value of such consideration as determined reasonably and in good faith
by the Board of Directors of the Corporation, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case at any time any shares of Common
Stock or any class or Convertible Securities or any rights or options to
purchase such shares of Common Stock or Convertible Securities shall be issued
in connection with any merger or consolidation in which the Corporation is the
surviving corporation, the amount of consideration received therefor shall be
deemed to be the fair value as determined reasonably and in good faith by the
Board of Directors of the Corporation of such portion of the assets and business
of the nonsurviving corporation as such Board may determine to be attributable
to such shares of Common Stock, Convertible Securities, rights or options, as
the case may be. In case at any time any rights or options to purchase any
shares of Common Stock or Convertible Securities shall be issued in connection
with the issue and sale of other securities of the Corporation, together
comprising one integral transaction in which no consideration is allocated to
such rights or options by the parties thereto, such rights or options shall be
deemed to have been issued for an amount of consideration equal to the fair
value thereof as determined reasonably and in good faith by the Board of
Directors of the Corporation.
(6) RECORD DATE - In case the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in shares of Common Stock
or in Convertible Securities, or (B) to subscribe for or purchase shares of
Common Stock or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold as a result of the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
(7) TREASURY SHARES - The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Stock for the purposes of
this clause (vi)(e).
(8) DEFINITION OF MARKET PRICE - Unless otherwise set forth in this
Certificate of Designation, "Market Price" shall mean the last reported
sale price of the applicable security as reported by the National
Association of Securities Dealers, Inc. Automatic Quotations System,
National Market System, or, if the applicable security is listed or
admitted for trading on a securities exchange, the last reported sales
price of the applicable security on the principal exchange on
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which the applicable security is listed or admitted for trading (which
shall be for consolidated trading if applicable to such exchange), or if
neither so reported or listed or admitted for trading, the last reported
bid price of the applicable security in the over-the-counter market. In
the event that the Market Price cannot be determined as aforesaid, the
Board of Directors of the Corporation shall determine the Market Price on
the basis of such quotations as it in good faith considers appropriate, in
consultation with a nationally recognized investment bank. The Market
Price shall be such price averaged over a period of 20 consecutive business
days ending 2 days prior to the day as of which "Market Price" is being
determined.
(9) ADJUSTMENT TO DETERMINATION OF MARKET PRICE - When making the
calculations and determinations described in clause (vi)(e) hereof, there
shall not be taken into account (i) the issuance of Common Stock upon the
exercise of options outstanding on the date this Certificate of Designation
was filed with the State of Delaware for the purchase of up to 554,350
shares of Common Stock, and (ii) the issuance of any rights to subscribe
for or to purchase, or any options for the purchase of, up to 3.5% of the
fully diluted shares of Common Stock of the Corporation as of the date of
issuance of all shares of Series A Preferred Stock (subject to adjustment
as set forth herein) or any stock or securities convertible into or
exchangeable for Common Stock to officers, employees or directors ("Company
Securities"); provided, that all Common Stock issuable with respect to any
such Company Securities be issuable at or above the Market Price as of the
date of the grant.
(f) LIQUIDATING DIVIDENDS; PURCHASE RIGHTS. (1) In case at any time
after the date hereof the Corporation shall declare a dividend upon the shares
of Common Stock of any class payable otherwise than in shares of Common Stock or
Convertible Securities, otherwise than out of funds legally available therefor
(determined in accordance with generally accepted accounting principles,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries), and otherwise than in the securities to which the provisions
of clause (2) below apply, the Corporation shall pay over to each holder of
Series A Preferred Stock, upon conversion thereof on or after the dividend
payment date, the securities and other property (including cash) which such
holder would have received (together with all distributions thereon) if such
holder had converted the Series A Preferred Stock held by it on the record date
fixed in connection with such dividend, and the Corporation shall take whatever
steps are necessary or appropriate to keep in reserve at all times such
securities and other property as shall be required to fulfill its obligations
hereunder in respect of the shares issuable upon the exercise or conversion of
all the Series A Preferred Stock. For the purposes of the foregoing, a dividend
other than in cash shall be considered payable out of funds legally available
therefor, only to the extent that such earnings or retained earnings are charged
an amount equal to the fair value of such dividend as determined by the Board of
Directors of the Corporation.
(2) If at any time or from time to time on or after the date hereof,
the Corporation shall grant, issue or sell any options or rights (other than
Convertible
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Securities) to purchase stock, warrants, securities or other property pro rata
to the holders of Common Stock of all classes ("Purchase Rights"), and if the
holder shall be entitled to an adjustment pursuant to clause (vi)(e) above, then
in lieu of such adjustment, each holder of Series A Preferred Stock shall be
entitled, at such holder's option, to acquire (whether or not such holder's
Series A Preferred Stock shall have been converted), upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights which such holder could
have acquired if such holder had held the number of shares of Common Stock
issuable upon conversion of such Series A Preferred Stock immediately prior to
the time or times at which the Corporation granted, issued or sold such Purchase
Rights.
(g) SUBDIVISION OR COMBINATION OF STOCK. In case the Corporation
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced and, conversely, in case the
outstanding shares of Common Stock of the Corporation shall be combined into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased.
(h) CHANGES IN COMMON STOCK. If any capital reorganization or
reclassification of the capital stock of the Corporation, or consolidation or
merger of the Corporation with another corporation, or the sale, transfer or
other disposition of all or substantially all of its assets to another
corporation for cash or stock of such other corporation, shall be effected,
then, as a condition of such reorganization, reclassification, consolidation,
merger, sale, transfer or other disposition, lawful and adequate provision shall
be made whereby each holder of Series A Preferred Stock shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions herein specified and in lieu of the shares of the Common Stock of the
Corporation immediately theretofore issuable upon conversion of the Series A
Preferred Stock, such shares of stock, securities or properties as may be
issuable or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common Stock
immediately theretofore issuable upon conversion of the Series A Preferred Stock
had such reorganization, reclassification, consolidation, merger, sale, transfer
or other disposition not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of each holder
of Series A Preferred Stock to the end that the provisions hereof (including
without limitation provisions for adjustment of the Conversion Price) shall
thereafter be applicable, as nearly equivalent as may be practicable in relation
to any shares of stock, securities or properties thereafter deliverable upon the
exercise thereof. The Corporation shall not effect any such consolidation,
merger, sale, transfer or other disposition, unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing or otherwise acquiring such properties shall assume, by written
instrument executed and mailed or delivered to the holders of Series A Preferred
Stock at the last address of such holders appearing on the books of the
Corporation, the obligation to deliver to such holders such shares of stock,
securities or properties as, in accordance with the foregoing provisions, such
holders may be entitled to acquire. The above
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provisions of this subparagraph shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales, transfers,
or other dispositions.
(i) CERTAIN EVENTS. If any event occurs as to which in the opinion
of the Board of Directors of the Corporation the other provisions of this clause
(vi) are not strictly applicable or if strictly applicable would not fairly
protect the conversion rights of the holders of the Series A Preferred Stock in
accordance with the essential intent and principles of such provisions, then
such Board of Directors, acting by a vote of at least 75% of the members
thereof, shall provide for the benefit of holders of shares of Series A
Preferred Stock an adjustment, if any, on a basis consistent with such essential
intent and principles, necessary to preserve, without dilution, the rights of
the holders of the Series A Preferred Stock. Upon such vote by the Board of
Directors, the Corporation shall forthwith make the adjustments described
therein; provided, however, that no such adjustment shall have the effect of
increasing the Conversion Price as otherwise determined pursuant to this clause
(vi) except in the event of a combination of shares of the type contemplated in
clause (vi)(g) and then in no event to an amount larger than the conversion
price as adjusted pursuant to clause (vi)(g).
(j) PROHIBITION OF CERTAIN ACTIONS. The Corporation shall not,
without the affirmative consent or approval of the holders of shares
representing 66 2/3% of the shares of Series A Preferred Stock then outstanding,
voting as a single class (such consent or approval to be given by written
consent in lieu of a meeting (if allowable under the Corporation's Certificate
of Incorporation) or by vote at a meeting called for such purpose for which
notice shall have been given to the holders of the Series A Preferred Stock) (1)
authorize or issue, or agree to authorize or issue, any shares of its capital
stock of any class or series of preferred as to dividends or liquidation, unless
the rights of the holders thereof shall be limited to a fixed sum or percentage
of par value in respect of participation in dividends and in the distribution of
such assets or (2) authorize, issue or permit to remain outstanding any class or
series of its capital stock (including, without limitation, the Common Stock but
not including the Series A Preferred Stock) having the right to vote for the
election of directors or in respect of any other matter, which class or series
is entitled to more than one vote per share. The Corporation will not take any
action which would result in any adjustment of the Conversion Price if the total
number of shares of Common Stock issuable after such action upon conversion of
all of the Series A Preferred Stock would exceed the total number of shares of
Common Stock then authorized by the Corporation's Certificate of Incorporation.
(k) STOCK TO BE RESERVED. The Corporation will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon the conversion of Series A Preferred Stock as herein provided, such
number of shares of Common Stock as shall then be issuable upon the conversion
of all outstanding Series A Preferred Stock. The Corporation covenants that all
shares of Common Stock which shall be so issuable shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, free from preemptive
or similar rights on the part of the holders of any shares of capital stock or
securities of the Corporation, and free from all liens and charges with respect
to the issue thereof; and without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as
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may be requisite to assure that the par value, if any, per share of the Common
Stock is at all times equal to or less than the then effective Conversion Price.
The Corporation will take all such action as may be necessary to assure that
such shares of Common Stock may be so issued without violation by the
Corporation of any applicable law or regulation or agreement, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed. Without limiting the foregoing, the Corporation will take all such
action as may be necessary to assure that, upon conversion of any of the Series
A Preferred Stock, an amount equal to the lesser of (1) the par value of each
share of Common Stock outstanding immediately prior to such conversion, or (2)
the Conversion Price shall be credited to the Corporation's stated capital
account for each share of Common Stock issued upon such conversion, and that, if
clause (1) above is applicable, the balance of the Conversion Price of Series A
Preferred Stock converted shall be credited to the Corporation's capital surplus
account.
(l) REGISTRATION AND LISTING OF COMMON STOCK. If any shares of
Common Stock required to be reserved for purposes of conversion of Series A
Preferred Stock hereunder require registration with or approval of any
governmental authority under any Federal or state law (other than the Securities
Act) before such shares may be issued upon conversion, the Corporation will, at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered or approved, as the case may be. Shares of Common
Stock issuable upon conversion of the Series A Preferred Stock shall be
registered by the Corporation under the Securities Act or similar statute then
in force if required before such shares may be issued upon conversion. If and
so long as the Common Stock is listed on any national securities exchange, the
Corporation will, at its expense, obtain promptly and maintain the approval for
listing on each such exchange upon official notice of issuance, of shares of
Common Stock issuable upon conversion of the then outstanding Series A Preferred
Stock and maintain the listing of such shares after their issuance; and the
Corporation will also list on such national securities exchange, will register
under the Exchange Act and will maintain such listing of, any other securities
that at any time are issuable upon conversion of the Series A Preferred Stock,
if and at the time that any securities of the same class shall be listed on such
national securities exchange by the Corporation.
(m) CLOSING OF BOOKS. The Corporation will at no time close its
transfer books against the transfer of any Series A Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any Series A
Preferred Stock in any manner which interferes with the timely conversion of
such Series A Preferred Stock.
(n) STATEMENT OF ADJUSTMENT OF CONVERSION PRICE. Whenever the
Conversion Price shall be adjusted as provided in clause (vi)(e) above, the
Corporation shall forthwith file at its office a statement, signed by its
independent certified public accountants, showing in detail the facts requiring
such adjustment and the Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such statement to be
sent by certified mail, return receipt requested, to each holder of shares of
Series A Preferred Stock to such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and
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may be included as part of a notice required to be mailed under the provisions
of clause (vi)(o) below.
(o) NOTICE. In the event the Corporation shall propose to take any
action of the types described in clause (vi)(e) above, the Corporation shall
give notice to each holder of shares of Series A Preferred Stock which notice
shall specify the record date, if any, with respect to any such action and the
date on which such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Series A
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 20 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 30
days prior to the taking of such proposed action.
(p) TAXES. The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Series A
Preferred Stock. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of Common Stock or the reissuance of the Preferred Stock in a name
other than that in which the shares of Series A Preferred Stock so converted
were registered, and no such issuance or delivery shall be made unless and until
the person requesting such issuance has paid to the Corporation the amount of
any such tax or has established to the satisfaction of the Corporation that such
tax has been paid.
(q) EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required
by law, the shares of Series A Preferred Stock shall not have any voting powers,
preferences and relative, participating, optional or other special rights, other
than those specifically set forth in this resolution and in the Certificate of
Incorporation. The shares of Series A Preferred Stock shall have no preemptive
or subscription rights.
(r) FAILURE TO SELL AND PURCHASE SERIES A PREFERRED STOCK. The
shares of Series A Preferred Stock will be sold to certain purchasers in two
separate sales of shares pursuant to a Stock Purchase Agreement among the
Corporation and such purchasers (the "Stock Purchase Agreement"). If the sale
of such shares on the Second Closing Date (as defined in the Stock Purchase
Agreement) does not occur within six months of the Initial Closing Date (as
defined in the Stock Purchase Agreement) on such six month anniversary date, all
shares of Series A Preferred Stock then outstanding shall, at the option of each
holder, be converted into Common Stock at the then applicable Conversion Price
or purchased by the Corporation for the Liquidation Amount.
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IN WITNESS WHEREOF, Candlewood Hotel Company, Inc. has caused
these presents to be signed in its name and on its behalf by its Chief
Executive Officer on September 21, 1997.
CANDLEWOOD HOTEL COMPANY, INC.
By /s/Jack P. DeBoer
-------------------------------
Name: Jack P. DeBoer
Title: Chief Executive Officer
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Exhibit E
FORM OF WARRANT
The securities represented by this certificate have
not been registered under the Securities Act of
1933, as amended (the "Securities Act"). This
Securities have been issued or sold in reliance on
an exemption from the registration requirements of
the Securities Act and neither the securities nor
any interest therein may be sold, transferred,
pledged or otherwise disposed of except pursuant to
a registration statement effective under such Act
or in a transaction which is exempt from the
registration requirements of such Act and the rules
and regulations thereunder.
_________ Warrants to Purchase Date of Issuance: ______, ___
Common Stock
WARRANT CERTIFICATE REPRESENTING
WARRANTS TO PURCHASE COMMON STOCK OF
CANDLEWOOD HOTEL COMPANY, INC.
------------------------------------
FOR VALUE RECEIVED, Candlewood Hotel Company, Inc., a Delaware
corporation (the "Company"), hereby certifies that ____________________ (the
"Holder"), is the owner of the number of Warrants set forth above, each of which
represents the right to purchase, at any time, from the Company, one share of
Common Stock, par value $.01 per share (the "Common Stock"), of the Company
(subject to adjustment as provided herein at the purchase price (the "Exercise
Price") of $.01 per share of Common Stock, upon surrender hereof to the Company
or its duly authorized transfer agent of the purchase price for the shares as to
which the Warrant(s) represented by this Warrant Certificate are exercised, all
subject to the terms and conditions hereof.
These Warrants shall be subject to the following terms and conditions:
SECTION 1. ADJUSTMENTS. The number of shares of Common Stock
issuable upon exercise of each Warrant shall be subject to adjustment from time
to time as follows:
(a) STOCK DIVIDENDS; STOCK SPLITS; RESERVE STOCK SPLITS;
RECLASSIFICATIONS. In case the Company shall (i) pay a dividend or make any
other distribution with respect to its Common Stock in shares of any class or
series of its capital stock, (ii) subdivide its outstanding Common Stock, (iii)
combine its outstanding Common Stock into a smaller number of shares or (iv)
issue any shares of its capital
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stock in a reclassification of the Common Stock (other than a reclassification
in connection with a merger, consolidation or other business combination which
will be governed by Section 1(g)), the number of shares of Common Stock
purchasable upon exercise of each Warrant immediately prior to the record date
for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that the Holder of each
Warrant shall be entitled to receive the kind and number of shares of Common
Stock or other securities of the Company which such Holder would have been
entitled to receive after the happening of any of the events described above had
such Warrant been exercised immediately prior to the happening of such event or
any record date with respect thereto (with any record date requirement being
deemed to have been satisfied). An adjustment made pursuant to this Section
1(a) shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) RIGHTS; OPTIONS; WARRANTS
. In case the Company shall issue rights, options, warrants or convertible or
exchangeable securities (other than a convertible or exchangeable security
subject to Section 1(a)) to all holders of its Common Stock, entitling them to
subscribe for or purchase Common Stock (a "Right") at a price per share of
Common Stock (determined in the case of such rights, options, warrants or
convertible or exchangeable securities, by dividing (x) the total amount
receivable by the Company in consideration of the issuance of such rights,
options, warrants or convertible or exchangeable securities, if any, plus the
total consideration payable to the Company upon exercise, conversion or exchange
thereof, by (y) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities) which is
lower (at the record date for such issuance) than the then Market Value (as
defined herein) per share of Common Stock, the number of shares of Common Stock
thereafter purchasable upon exercise of each Warrant shall be determined by
multiplying the number of shares of Common Stock theretofore purchasable upon
exercise of each Warrant by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such rights, options, warrants or convertible or exchangeable securities plus
the number of additional shares of Common Stock offered for subscription or
purchase or issuable upon conversion or exchange, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
the issuance of such rights, options, warrants or convertible or exchangeable
securities plus the number of shares which the aggregate offering price of the
total number of shares of Common Stock so offered would purchase at the then
Market Value per share of Common Stock. Such adjustment shall be made whenever
such rights, options, warrants or convertible or exchangeable securities are
issued, and shall become effective retroactively immediately after the record
date for the determination of shareholders entitled to receive such rights,
options, warrants or convertible or exchangeable securities.
(c) ISSUANCE OF COMMON STOCK AT LOWER VALUES
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. In case the Company shall sell or issue any shares of Common Stock or Right
(excluding (i) any Right issued in any of the transactions described in Section
1(a) or (b) above and (ii) any Company Securities (as defined in the Company's
Certificate of Designation filed with the State of Delaware), then the number of
shares of Common Stock thereafter purchasable upon the exercise of each Warrant
shall be determined by multiplying the number of shares of Common Stock
theretofore purchasable upon exercise of such Warrant by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately after such sale or issuance and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such sale
or issuance plus the number of shares of Common Stock which the aggregate
consideration received (determined as provided below) for such sale or issuance
would purchase at such Market Value per share of Common Stock. For purposes of
this Section 1(c), the shares of Common Stock which the holder of any such Right
shall be entitled to subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of such sale and issuance and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such Right, plus the consideration or premiums
stated in such Right to be paid for the shares of Common Stock covered thereby.
(d) DISTRIBUTIONS OF DEBT, ASSETS, SUBSCRIPTION RIGHTS OR CONVERTIBLE
SECURITIES
. In case the Company shall fix a record date for the making of a distribution
to all holders of its Common Stock of evidences of its indebtedness, assets,
cash dividends or distributions (excluding dividends or distributions referred
to in Section 1(a) above and excluding distributions in connection with the
dissolution, liquidation or winding up of the Company which will be governed by
Section 1(g)(B) below) or securities (excluding those referred to in Section
1(a), Section 1(b) or Section 1(c) above), then in each case the number of
shares of Common Stock purchasable after such record date upon the exercise of
each Warrant shall be determined by multiplying the number of shares of Common
Stock purchasable upon the exercise of such Warrant immediately prior to such
record date by a fraction, the numerator of which shall be the Market Value per
share of Common Stock immediately prior to the record date for such distribution
and the denominator of which shall be the Market Value per share of Common Stock
immediately prior to the record date for such distribution less the then fair
value (as determined in good faith by the Board of Directors of the Company) of
the portion of the assets, evidence of indebtedness, cash dividends or
distributions or securities so distributed applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made,
and shall become effective on the date of distribution retroactive to the record
date for the determination of shareholders entitled to receive such
distribution.
(e) EXPIRATION OF RIGHTS, OPTIONS AND CONVERSION PRIVILEGES
. Upon the expiration of any rights, options, warrants or conversion or
exchange privileges that have previously resulted in an adjustment hereunder, if
any thereof shall not have been exercised, the number of shares of Common Stock
issuable upon the
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exercise of each Warrant shall, upon such expiration, be readjusted and shall
thereafter, upon any future exercise, be such as they would have been had they
been originally adjusted (or had the original adjustment not been required, as
the case may be) as if (i) the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion or exchange rights and (ii) such
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the consideration, if
any, actually received by the Company for issuance, sale or grant of all such
rights, options, warrants or conversion or exchange rights whether or not
exercised; provided, that no such readjustment shall have the effect of
decreasing the number of shares issuable upon exercise of each Warrant by a
number, in excess of the amount or number of the adjustment initially made in
respect to the issuance, sale or grant of such rights, options, warrants or
conversion or exchange rights.
(f) DE MINIMIS ADJUSTMENTS
. No adjustment in the number of shares of Common Stock purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least one percent (1%) in the number of shares of Common Stock purchasable
upon the exercise of each Warrant; provided, however, that any adjustments which
by reason of this Section 4.1(f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
shall be made to the nearest one-thousandth of a share.
(g) CONSOLIDATION, MERGER, ETC.
(A) Subject to the provisions of Subsection (B) below of this Section 1(g),
in case of the consolidation of the Company with, or merger of the Company with
or into, or of the sale of all or substantially all of the properties and assets
of the Company to, any Person and in connection therewith consideration is
payable to holders of Common Stock (or other securities or property purchasable
upon exercise of Warrants) in exchange therefor, the Warrants shall remain
subject to the terms and conditions set forth in this Warrant Certificate and
each Warrant shall, after such consolidation, merger or sale, entitle the Holder
to receive upon exercise the number of shares of capital stock or other
securities or property (including cash) of the Company, or of such Person
resulting from such consolidation or surviving such merger or to which such sale
shall be made, as the case may be, that would have been distributable or payable
on account of the shares of Common Stock (or other securities or properties
purchasable upon exercise of Warrants) if such Holder's Warrants had been
exercised immediately prior to such merger, consolidation or sale (or, if
applicable, the record date therefor); and in any such case the provisions of
this Agreement with respect to the rights and interests thereafter of the
Holders of Warrants shall be appropriately adjusted by the Board of Directors of
the Company in good faith so as to be applicable, as nearly as may reasonably
be, to any shares of stock or other securities or any property thereafter
deliverable on the exercise of the Warrants.
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(B) Notwithstanding the foregoing, (x) if the Company merges or
consolidates with, or sells all or substantially all of its property and assets
to, another Person and consideration is payable to holders of Common Stock in
exchange for their Common Stock in connection with such merger, consolidation or
sale which consists solely of cash, or (y) in the event of the dissolution,
liquidation or winding up of the Company, then the Holders of Warrants shall be
entitled to receive distributions on the date of such event on an equal basis
with holders of Common Stock (or other securities issuable upon exercise of the
Warrants) as if the Warrants had been exercised immediately prior to such event,
less the Exercise Price. Upon receipt of such payment, if any, the right of a
Holder shall terminate and cease and such Holder's Warrants shall expire.
(h) In addition to the foregoing adjustments, the Board of Directors
of the Company may make any other adjustment to increase the number of shares of
Common Stock or other securities or property issuable upon exercise of Warrants
as it may, in good faith, deem desirable to protect the rights and benefits of
Holders. In addition, the Company may from time to time increase the number of
shares of Common Stock or other securities or property issuable upon exercise of
Warrants, provided that any such increase must be effective for at least 30
calendar days, and must be preceded by written notice of such increase to the
Holders, which notice must be mailed at least 30 calendar days prior to the
effective date of such increase. Any such increase shall not alter or adjust
the Exercise Price.
SECTION 2. DEFINITION OF MARKET VALUE
. Unless otherwise set forth in this Warrant Certificate, "Market Value" shall
mean the last reported sale price of the applicable security as reported by
National Association of Securities Dealers, Inc. Automatic Quotation System,
National Market System, or, if the applicable security is listed or admitted for
trading on a securities exchange, the last reported sales price of the
applicable security on the principal exchange on which the applicable security
is listed or admitted for trading (which shall be for consolidated trading if
applicable to such exchange), or if neither so reported or listed or admitted
for trading, the last reported bid price of the applicable security in the
over-the-counter market. In the event that the Market Price cannot be
determined as aforesaid, the Board of Directors of the Corporation shall
determine the Market Price on the basis of such quotations as it in good faith
considers appropriate. The Market Value shall be such price averaged over a
period of 20 consecutive business days ending 2 days prior to the day as of
which "Market Value" is being determined.
SECTION 3. STOCK TO BE RESERVED
. The Company will at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue upon the exercise of
Warrants as herein provided, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be so issuable shall, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable, free
from preemptive or similar rights on the part of the holders of any
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shares of capital stock or securities of the Company, and free from all liens
and charges with respect to the issue thereof. The Company will take all such
action as may be necessary to assure that such shares of Common Stock may be so
issued without violation by the Company of any applicable law or regulation or
agreement, or of any requirements of any domestic securities exchange upon which
the Common Stock may be listed.
SECTION 4. CLOSING OF BOOKS
. The Company will at no time close its transfer books against the transfer of
any Warrants or of any shares of Common Stock issued or issuable upon the
exercise of any Warrants in any manner which interferes with the timely exercise
of such Warrants.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, as of the day and year first above written.
CANDLEWOOD HOTEL COMPANY, INC.
By
------------------------------
Name:
Title:
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FORM OF SUBSCRIPTION
--------------------
DATE: _______________, 19___
TO: CANDLEWOOD HOTEL COMPANY, INC.
The Undersigned, the holder of the within Warrants,
hereby irrevocably elects to exercise all or part of the purchase right
represented by such Warrants for, and to purchase thereunder, __________
shares of Common Stock of CANDLEWOOD HOTEL COMPANY, INC. (the "Company") and
herewith makes payment of $_______________ to the Company, and requests that
the certificate of such shares be issued in the name of, and be delivered to
________________________, whose address is
____________________________________________.
(Name of Holder)
(Authorized Signatory)
(Address)
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