<PAGE> 1
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
=========
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report (date of earliest event reported): September 23, 1997
CANDLEWOOD HOTEL COMPANY, INC.
(Exact name of Registrant as specified in charter)
<TABLE>
<CAPTION>
DELAWARE 0-12708 48-1188025
<S> <C> <C>
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) (Identification Number)
LAKEPOINT OFFICE PARK, 9342 EAST CENTRAL 67206
WICHITA, KANSAS (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (316) 631-1300
None
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS
In two closings, on September 23, 1997 and October 3, 1997, Candlewood
Hotel Company, Inc., a Delaware corporation (the "Company") completed a private
placement (the "Private Placement") whereby the Company issued 65,000 shares of
its Series A Cumulative Convertible Preferred Stock, par value $0.01 per share
(the "Preferred Stock"), at a price of $1,000 per share. The Preferred Stock
was issued pursuant to a Stock Purchase Agreement dated as of August 27, 1997
(the "Stock Purchase Agreement"). On September 23, 1997 the Company issued
25,000 shares of Preferred Stock and received proceeds of $25 million, and on
October 3, 1997, the Company issued 40,000 shares of Preferred Stock and
received proceeds of $40 million. The purchasers of the Preferred Stock (the
"Purchasers") consisted of a group of institutional investors and individuals
who are "accredited investors" within the meaning of Regulation D promulgated
under the Securities Act of 1933, as amended (the "Act"). In connection with
the Private Placement, the Company paid cash in the aggregate amount of
$3,152,500 to Donaldson, Lufkin & Jenrette Securities Corporation and
Schroder & Co. Inc. as a placement fee. The Company intends to use the net
proceeds of the Private Placement to support the Company's national expansion
through the development of Company-owned Candlewood hotels and for general
working capital purposes.
The rights of the Purchasers as holders of the Preferred Stock are set
forth in the Company's Certificate of Incorporation, as amended by the
Certificate of Designations of Series A Cumulative Convertible Preferred Stock
which was filed with the Secretary of State of Delaware on September 22, 1997.
The financial terms of the financing were established on August 27, 1997, the
commitment date. The holders of the Preferred Stock are entitled to a
preferential quarterly dividend equal to 7.5% of the Stated Value (initially
$1,000.00 per share, subject to adjustment), payable quarterly beginning on
August 31, 1998. The Certificate of Designation provides for conversion of the
Preferred Stock into Common Stock of the Company, upon the election of the
holders, at a price of $9.50 per share of Common Stock, subject to certain
anti-dilution adjustments (the "Conversion Price"). The Preferred Stock will
automatically convert into Common Stock subsequent to August 31, 1999 at the
then applicable Conversion Price if the Common Stock has traded for 20
consecutive days at not less than 200% of the Conversion Price and upon the
effectiveness of a registration statement for an underwritten offering covering
up to 50% of the shares of common stock issuable upon conversion of the then
outstanding Preferred Stock. Holders of Preferred Stock have a liquidation
preference equal to $1,000.00 per share (the "Liquidation Preference Price").
With certain limited exceptions, in the event of a change of control of the
Company, the Company shall offer to purchase all of the outstanding shares of
Preferred Stock at the greater of (i) 175% of the Stated Value or (ii) the
Liquidation Preference Price. The Purchasers have agreed that they will forfeit
their preferential rights if they are a member of a group which causes a change
of control of the Company prior to August 27, 1999. The Company is required to
redeem the Preferred Stock on August 31, 2004 for the Liquidation Preference
Price and may redeem after August 31, 1999, at its election, for 200% of the
Stated Value.
<PAGE> 3
Holders of Preferred Stock have the right to vote with the Common Stock
on an as-if-converted basis. Approval of the majority of the outstanding
Preferred Stock will be required for any change in the Company's Restated
Certificate of Incorporation which would (i) adversely affect the holders of
the Preferred Stock; (ii) create any class or series of stock which is senior
to or on parity with the Preferred Stock with respect to voting rights,
dividends or liquidation preference or (iii) affect any redemption or
repurchase of any capital stock of the Company junior to the Preferred Stock.
The Certificate of Designation also provides the Holders of the Preferred Stock
with protection from certain dilutive share issuances and other events.
In connection with the Private Placement, the Company entered into a
registration rights agreement. Pursuant to the terms of this agreement the
holders of the Preferred Stock have certain rights in respect of (i) demand
registrations with net offering proceeds exceeding $20,000,000 per demand
registration, (ii) shelf registrations with net offering proceeds exceeding
$2,500,000 per shelf registration, and (iii) "piggyback" registration rights in
connection with certain public distributions.
The Preferred Stock was issued pursuant to an exemption to the NASDAQ
stockholder approval requirements. With the consent of the NASDAQ, the Company
delivered written notice of the issuance of the Preferred Stock to its
stockholders ten days prior to the second closing. In addition, holders of in
excess of 50% of the Company's voting securities had previously entered into an
agreement pursuant to which they agreed to vote in favor of the issuance of the
Preferred Stock, if such stockholder approval was required by the NASDAQ.
In accordance with the Stock Purchase Agreement, the Board of Directors
voted on September 19, 1997 to amend the Bylaws so as to increase the size of
the Board of Directors from seven to ten members. Three nominees selected by
certain of the Purchasers have been elected as new Directors. The Purchasers of
the Preferred Stock shall continue to be entitled to nominate three individuals
to serve on the Company's Board of Directors. The Purchasers of the Preferred
Stock, Doubletree Corporation and certain members of management have agreed to
vote for each other's nominees for the Board of Directors pursuant to a
Stockholders Agreement dated as of September 22, 1997.
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description of Document
<S> <C>
4 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
10.1 Stock Purchase Agreement
10.2 Registration Rights Agreement
10.3 Stockholders Agreement
10.4a Press Release, dated July 23, 1997, announcing
commencement of the offering
10.4b Press Release, dated September 23, 1997, announcing
completion of the first closing
10.4c Press Release, dated October 6, 1997, announcing
completion of the second closing
</TABLE>
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: October 7, 1997 CANDLEWOOD HOTEL COMPANY, INC.
By: /s/ JACK P. DEBOER
-------------------------------
Name: Jack P. DeBoer
Title: Chief Executive Officer
<PAGE> 1
Exhibit 4
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:
(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. Rate, etc. The holders of shares of Series A
Preferred
<PAGE> 2
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.
(a) 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. 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 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
2
<PAGE> 3
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 subsidiary), 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).
3
<PAGE> 4
(iv) Redemption. (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").
(a) 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.
(b) 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 and circumstances of such Change of Control Event,
4
<PAGE> 5
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 he 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.
(c) 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.
(d) 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
5
<PAGE> 6
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 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.
(e) 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.
(f) 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.
(g) Funds for Redemption. No share of Series A Preferred
Stock may be redeemed except with funds legally available therefor.
(v) Voting Rights. 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
6
<PAGE> 7
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 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. 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
7
<PAGE> 8
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 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.
(a) 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)
8
<PAGE> 9
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.
(b) 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 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
9
<PAGE> 10
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.
(c) 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.
(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.
(d) 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
10
<PAGE> 11
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 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
11
<PAGE> 12
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 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
12
<PAGE> 13
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 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
13
<PAGE> 14
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
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
14
<PAGE> 15
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.
(e) 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 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.
(f) Subdivision or Combination of Stock. In case the
15
<PAGE> 16
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.
(g) 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 provisions of this subparagraph
shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers, or other dispositions.
(h) 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
16
<PAGE> 17
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).
(i) 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 he 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.
(j) 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 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
17
<PAGE> 18
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.
(k) 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.
(l) 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 ofsuch Series A Preferred Stock.
(m) 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 may be
included as part of a notice required to be mailed under the
18
<PAGE> 19
provisions of clause (vi)(o) below.
(n) 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.
(o) 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.
(p) 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.
(q) 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.
19
<PAGE> 20
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
<PAGE> 1
Exhibit 10.1
- --------------------------------------------------------------------------------
CANDLEWOOD HOTEL COMPANY, INC.
Series A Cumulative Convertible Preferred Stock
------------------
STOCK PURCHASE AGREEMENT
------------------
Dated as of August 27, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
(NOT PART OF AGREEMENT)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS 1
ARTICLE II ISSUE, PURCHASE AND SALE OF PREFERRED STOCK 4
ARTICLE III CONDITIONS OF CLOSING 5
ARTICLE IV CERTAIN COVENANTS 8
ARTICLE V REPRESENTATIONS, COVENANTS AND WARRANTIES 10
ARTICLE VI REPRESENTATIONS OF THE PURCHASERS 18
ARTICLE VII RESTRICTIONS ON TRANSFER 20
ARTICLE VIII MISCELLANEOUS 21
</TABLE>
i
<PAGE> 3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of August 27, 1997 (as the
same may be amended or modified from time to time, this "Agreement"), between
CANDLEWOOD HOTEL COMPANY, INC., a Delaware corporation (the "Company"), and the
Purchasers listed on Schedule I (each, a "Purchaser" and collectively, the
"Purchasers").
WITNESSETH:
WHEREAS, the Company desires to issue 65,000 shares of its Series A
Cumulative Convertible Preferred Stock, $.01 par value per share (the "Preferred
Stock");
WHEREAS, the Purchasers agreed to the material financial terms with
respect to the Preferred Stock on August 27, 1997 based on the provisions of a
term sheet agreed upon on that date; and
WHEREAS, the Company desires to sell the Preferred Stock to the
Purchasers, and the Purchasers desire, severally, to purchase the Preferred
Stock from the Company, on the financial terms of such term sheet, which terms
are as set forth herein, and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following terms shall have
the following respective meanings:
"Affiliate" shall mean, with respect to any Person, any person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Certificate of Designation" shall mean the Certificate of
Designation in the form set forth in Exhibit A with respect to the Preferred
Stock of the Company.
"Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Company, as amended.
"Closing Date" shall mean collectively, the Initial Closing Date and
the Second
<PAGE> 4
Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission or
any other governmental authority at the time administering the Securities Act or
the Exchange Act.
"Common Stock" shall mean and include the Company's currently
authorized common stock, $.01 par value per share, as constituted on the date
hereof (but without regard to the amount thereof authorized).
"Company Personnel" shall have the meaning set forth in Paragraph
5.0.
"Conversion Price" shall have the meaning set forth in the
Certificate of Designation.
"Employee Plans" shall have the meaning set forth in paragraph
5.0.
"Environmental Law" shall have the meaning set forth in paragraph
5.P.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar or successor Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Hazardous Substances" shall have the meaning set forth in
paragraph 5.P.
"Initial Closing Date" shall mean September 23, 1997.
"Intellectual Property" shall have the meaning set forth in
paragraph 5I.
"Lien" shall mean any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute or contract, and including,
but not limited to, the security interest lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting real
property, except any such usual or normal reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases or other title exceptions or encumbrances affecting real property,
including encumbrances for taxes not yet due and payable, that are not
materially disruptive to the use of such property in the ordinary course of
business. For the purposes of this Agreement, the Company or a Subsidiary shall
be deemed to be the owner of any property which it has acquired or holds subject
to a conditional sale agreement, financing lease or other arrangement pursuant
to which title to the property has been retained by or vested in some other
Person for security purposes.
"Liquidation Amount" shall have the meaning set forth in the
Certificate of
2
<PAGE> 5
Designation.
"Litigation" shall have the meaning set forth in paragraph
3.C.(b).
"Market Price" shall have the meaning set forth in the Certificate
of Designation; provided that with respect to paragraph 4.E., the Market Price
shall be calculated without reference to the last sentence of the definition as
set forth in the Certificate of Designation.
"NASDAQ Letter" shall mean the letter from NASDAQ exempting the
issuance of the Second Purchased Shares from certain rules of NASDAQ.
"Officers Certificate" shall mean a certificate of the Company
signed by the President, Chief Executive Officer or Chief Financial Officer.
"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.
"Preferred Stock" shall have the meaning set forth in the first
WHEREAS clause.
"Purchaser(s)" shall have the meaning set forth in the preamble.
"Registration Rights Agreement" shall mean the Amended and Restated
Registration Rights Agreement among the Company and the parties thereto dated as
of September 22, 1997.
"Release" shall have the meaning set forth in paragraph 5.P.
"Restricted Action" shall have the meaning set forth in paragraph
7A hereof.
"Restricted Securities" shall mean at any time (i) the Common Stock
previously issued or, unless the context otherwise requires, issuable upon
conversion of the Preferred Stock, (ii) any Common Stock issued subsequent to
the conversion of any of the Preferred Stock as a dividend or other distribution
with respect to, or in exchange for or in replacement of, the Common Stock
issued upon such conversion, and (iii) any Common Stock otherwise issued with
respect to the Preferred Stock; provided, however, that immediately after and
throughout the period during which the restrictions on the transferability of
such Common Stock shall have ceased and terminated in accordance with Article
VII hereof, the same shall cease to be Restricted Securities. Where the context
so requires, "holders of Restricted Securities" shall include holders of shares
of Preferred Stock convertible into Restricted Securities.
"Second Closing Date" shall mean the later of (i) October 3, 1997
and (ii) the date two Business Days following the date each of the Purchasers
has received evidence of satisfaction of the conditions of the NASDAQ Letter.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and any similar or successor Federal statute, and the rules and regulations of
the Commission thereunder,
3
<PAGE> 6
all as the same may be in effect at the time.
"Share Equivalents" of any Restricted Securities or the Preferred
Stock shall mean the number of shares of Common Stock included among such
Restricted Securities or that are issuable upon conversion of the Preferred
Stock.
"Significant Subsidiary" shall mean a Subsidiary which holds assets
with a value in excess of $10,000 or maintains employees.
"Stated Value" of the Preferred Stock shall be $1,000.00 per
share.
"Stockholders Agreement" shall mean the Stockholders Agreement,
substantially in the form of Exhibit B, with such changes therein as to which
the Purchasers may agree, among the Company, Doubletree Corporation, the Warren
D. Fix Family Partnership, Jack P. DeBoer and the Purchasers.
"Subsidiary" shall mean a corporation of which the Company owns,
directly or indirectly, more than 50% of the shares of capital stock and the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the directors.
"Taxes" means any federal, state, county, local or foreign taxes,
charges, fees, levies, or other assessments, including, without limitation, all
net income, gross income, sales and use, ad valorem, transfer, gains, profits,
excise, franchise, real and personal property, gross receipt, capital stock,
business and occupation, disability, employment, payroll, license estimated, or
withholding taxes or charges imposed by any governmental entity, and includes
any interest and penalties on or additions to any such taxes (and, in the case
of the Company and each of its Subsidiaries, Taxes for which the Company or any
Subsidiary thereof may be liable in its own right, or as the transferee of the
assets of, or as successor to, any other corporation, association, partnership,
joint venture, or other entity, or under Treasury Regulation Section 1.1502-6 or
any similar provision of state of local law).
"Tax Return" means a report, return or other information required to
be supplied to a governmental entity with respect to Taxes including, where
permitted or required, combined, unitary, group or consolidated returns for any
group of entities that includes the Company or any of its Subsidiaries.
ARTICLE II
ISSUE, PURCHASE AND SALE OF PREFERRED STOCK
2.A Authorization of Issue of Preferred Stock. The Company has
authorized the issue of 65,000 shares of its Preferred Stock, having the powers,
designations, preferences and relative rights and the qualifications,
limitations and restrictions set forth in the form of the Certificate of
Designation attached as Exhibit A hereto.
2.B Purchase and Sale of Preferred Stock. Subject to the terms and
conditions
4
<PAGE> 7
herein set forth, the Company hereby agrees to sell to the Purchasers and, the
Purchasers severally agree to purchase from the Company: (i) on the Initial
Closing Date, the number of shares of Preferred Stock set forth opposite their
names in the column entitled "Shares Purchased on the Initial Closing Date" on
Schedule I (the "Initial Purchased Shares") at a purchase price of $1,000.00 per
share and (ii) on the Second Closing Date, the number of shares of Preferred
Stock set forth opposite their names in the column entitled "Shares Purchased on
the Second Closing Date" on Schedule I (the "Second Purchased Shares") at a
purchase price of $1,000.00 per share. On the Initial Closing Date with respect
to the Initial Purchased Shares and on the Second Closing Date with respect to
the Second Purchased Shares, or at such other time and on such other date as the
Purchasers and the Company may agree, the Company will deliver to the Purchasers
at the offices of Dewey Ballantine, 1301 Avenue of the Americas, New York, New
York 10019, or at such other location as the Purchasers and the Company may
agree, one or more stock certificates, as each Purchaser may request, registered
in such Purchaser's name or otherwise as such Purchaser may direct, evidencing
such shares to be purchased by the Purchasers, against payment of the purchase
price thereof by wire transfer of immediately available funds to or upon the
order of the Company.
ARTICLE III
CONDITIONS OF CLOSING
3.A. Purchaser Closing Conditions for Initial Closing Date. Each
Purchaser's obligation to purchase and pay for the Initial Purchased Shares on
the Initial Closing Date is subject to the satisfaction, on or before the
Initial Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. On the Initial Closing Date the
Purchasers shall have received from Latham & Watkins, who are acting as special
counsel to the Company in connection with this transaction, an opinion, dated
the Initial Closing Date, in form and substance reasonably satisfactory to the
Purchasers.
(b) Opinion of Purchaser's Counsel. On the Initial Closing Date the
Purchasers shall have received from Dewey Ballantine, who are acting as special
counsel to the Purchasers in connection with this transaction, an opinion, dated
the Initial Closing Date, in form and substance reasonably satisfactory to the
Purchasers.
(c) Opinion of Delaware Counsel. On the Initial Closing Date the
Purchasers shall have received from Richards, Layton & Finger, who are acting as
special counsel to the Company in connection with this transaction, an opinion,
dated the Initial Closing Date, with respect to the enforceability of the
Stockholders Agreement and the Registration Rights Agreement, in form and
substance reasonably satisfactory to the Purchasers.
(d) Stockholders Agreement. The Stockholders Agreement shall have
been entered into by the parties thereto.
(e) Registration Rights Agreement. The Purchasers shall have become
parties to the Registration Rights Agreement.
5
<PAGE> 8
(f) Board Designees. The Board of Directors of the Company shall
have been increased from seven to ten members, and one designee for each of
Olympus Growth Fund II, L.P., Desai Capital and Pecks Management shall have been
elected to the Board of Directors of the Company.
(g) Expenses. On the Initial Closing Date, the Company shall have
paid (i) the reasonable out-of-pocket expenses of Purchasers incurred in
connection with this Agreement and (ii) the reasonable fees and expenses of
Dewey Ballantine as special counsel to the Purchasers incurred in connection
with this Agreement.
(h) Representations and Warranties. The representations and
warranties contained in Article V hereof shall be true on and as of the Initial
Closing Date with the same effect as though made on and as of the Initial
Closing Date; and the Company shall have delivered to the Purchasers an
Officer's Certificate, dated the Initial Closing Date, to such effect.
(i) Certificate of Designation. The Certificate of Designation
relating to the terms and conditions of the Preferred Stock shall have been
approved by the Board of Directors of the Company and filed with the Secretary
of State of the State of Delaware and shall be in full force and effect.
(j) Purchase of Preferred Stock. The Purchasers severally shall have
purchased shares of Preferred Stock in the amounts set forth opposite their
names on Schedule I under the column "Shares Purchased on the Initial Closing
Date."
(k) Issuance of Capital Stock. Neither the Company nor any
Subsidiary shall have issued any shares of capital stock or securities
exercisable for or convertible into shares of capital stock, or granted any
additional stock appreciation rights or altered the terms of any stock
appreciation rights existing on the date hereof, in either case subsequent to
the date hereof and prior to the Initial Closing Date.
(l) Investment Approvals. All necessary consents and approvals for
the issuance of the Preferred Stock and the execution and delivery of this
Agreement and performance of the terms hereunder shall have been obtained.
(m) Order. No order, decree, judgment or injunction shall be in
effect which restrains, enjoins or prevents the consummation of the transactions
contemplated by this Agreement.
(n) NASDAQ Letter. Prior to the Initial Closing Date, the Company
shall have delivered to each Purchaser a copy of the NASDAQ Letter and copies of
all items listed in such letter which have been delivered to the NASDAQ, which
letter shall be in form and substance reasonably acceptable to the Purchasers.
(o) Proceedings. On or prior to the Initial Closing Date, all
corporate and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to the
6
<PAGE> 9
Purchasers and their special counsel, and the Purchasers and their special
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
3.B. Company Closing Conditions for Initial Closing Date. The
Company's obligation to sell the Initial Purchased Shares on the Initial Closing
Date is subject to the satisfaction, on or before the Initial Closing Date, of
the following conditions:
(a) Receipt of Purchase Price. The Company shall have received
payment of the purchase price with respect to the Initial Purchased Shares
purchased hereunder.
(b) Certificate of Designation. The Certificate of Designation
relating to the terms and conditions of the Preferred Stock shall have been
approved by the Board of Directors of the Company and filed with the Secretary
of State of the State of Delaware and shall be in full force and effect.
(c) Representations and Warranties. The representations and
warranties contained in Article VI hereof shall be true and correct.
3.C. Purchaser Closing Conditions for Second Closing Date. Each
Purchaser's obligation to purchase and pay for the Second Purchased Shares on
the Second Closing Date is subject to the satisfaction, on or before the Second
Closing Date, of the following conditions:
(a) Purchase of Preferred Stock. The Purchasers shall have received
certificates representing the shares of Preferred Stock in the amounts set forth
opposite their names on Schedule I under the column "Shares Purchased on the
Second Closing Date."
(b) No Litigation; No Order. No action, suit or proceeding shall be
pending or, to the knowledge of the Company, threatened, which seeks to restrain
or prevent, or seeks changes in connection with, or seeks to require a vote of
shareholders in connection with, the consummation of the transactions
contemplated by this Agreement and no order (including, without limitation, a
temporary restraining order), decree, writ, judgment or injunction shall be in
effect which restrains, enjoins or prevents the consummation of the transactions
contemplated by this Agreement (collectively, "Litigation"), and the Company has
delivered an Officer's Certificate dated the Second Closing Date to such effect.
(c) NASDAQ Letter. The Company shall have delivered to each
Purchaser evidence reasonably satisfactory to the Purchasers that all conditions
in the NASDAQ Letter have been met.
3.D. Company Closing Condition for Second Closing Date. The
Company's obligation to sell Second Purchased Shares on the Second Closing Date
is subject to the satisfaction, on or before the Second Closing Date, of the
following condition:
(a) Receipt of Purchase Price. The Company shall have received
payment of the purchase price with respect to the Second Purchased Shares
purchased hereunder.
7
<PAGE> 10
ARTICLE IV
CERTAIN COVENANTS
4.A. Financial Statements and Other Reports. After the Closing Date,
the Company agrees to send the following reports to each holder of Series A
Preferred Stock (except with respect to any Purchaser that sends written notice
to the Company indicating that it does not wish to receive any such reports):
(a) so long as the Company is subject to the requirements of, or otherwise
making filings pursuant to, Section 13 or 15(d) of the Exchange Act, within
three (3) days after the filing with the SEC, a copy of its Annual Report on
Form 10-K, its Quarterly Reports on Form 10-Q, any proxy statements and any
Current Reports on Form 8-K; (b) within one (1) day after release, copies of all
press releases issued by the Company or any of its subsidiaries; (c) promptly
upon receipt thereof, copies of reports, if any, submitted to the Company by
independent accountants in connection with each annual or interim audit of the
books of the Company made by such accountants; (d) promptly upon transmission
thereof to the Board of Directors, copies of any material information prepared
in addition to that described in paragraph 4A(a) or (b); (e) if requested in
writing by such Purchaser, within 30 days of the month to which such report
relates, monthly financial forecasts for each hotel owned or operated by the
Company; (f) such additional financial and other information as any Purchaser
may from time to time reasonably request, promptly after such request; (g) to
all holders of Series A Preferred Stock of record on the books of the Company's
transfer agent, all information sent to holders of the Common Stock; and (h) if
the Company is not subject to the requirements of, or otherwise making filings
pursuant to Section 13 or 15(d) of the Exchange Act, the Company will deliver to
each Purchaser until such Purchaser transfers, assigns or sells all of its
Preferred Stock: (1) as soon as practicable and in any event within 45 days
after the end of each fiscal quarter, the following information: consolidated
statements of income, stockholders' equity and cash flows of the Company and its
consolidated Subsidiaries for such fiscal period and for the period from the
beginning of the then current fiscal year to the end of such fiscal period and a
comparison of each such item to the then current budget, and a consolidated
balance sheet of the Company and its consolidated Subsidiaries as at the end of
such fiscal period, setting forth in each case in comparative form consolidated
figures for the corresponding periods in the preceding fiscal year, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods involved, certified as
to fair presentation by the principal financial officer of the Company and
accompanied by a written discussion of operations in summary form; and (2) as
soon as practicable and in any event within 90 days after the end of each fiscal
year of the Company, the following information: consolidated statements of
income, stockholders' equity and cash flows of the Company and its consolidated
Subsidiaries for such year, and a consolidated balance sheet of the Company and
its consolidated Subsidiaries as at the end of such year, setting forth in each
case in comparative form corresponding consolidated figures from the preceding
fiscal year and to the then current budget, prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods involved, and accompanied by an opinion of KMPG Peat Marwick, LLP, or
another firm among the six largest independent public accountants of recognized
national standing selected by the Company, or another firm of independent public
accountants of national standing mutually agreeable to the Company and
Purchasers holding a majority of the Share Equivalents, to the effect that the
consolidated financial statements have been prepared in accordance with
generally
8
<PAGE> 11
accepted accounting principles consistently applied (except for changes in
application in which such accountants concur and as are noted therein) and
present fairly the financial condition of the Company and its Subsidiaries and,
unless independent public accountants are not generally making statements
substantially to the following effect, that the examination of such accountants
in connection with such financial statements has been made in accordance with
generally accepted auditing standards and accordingly included such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances; and accompanied by a written discussion of
operations in summary form with respect to such fiscal year; provided, that any
reports referenced in (d), (e) and (f) above shall be provided only to the
original Purchasers who are institutions and who have entered into a
confidentiality agreement with the Company with respect to such reports, which
agreement shall include such reasonable terms as the Company and the Purchaser
shall agree, and provided, further, that the Company shall be obligated to
provide the reports referenced in (d), (e) and (f) above only to one Purchaser
for each group of Purchasers constituting Affiliates and any such right to
receive such materials shall not be transferable.
Each Purchaser is hereby authorized to deliver a copy of any
financial statement delivered to it pursuant to this paragraph 4A (other than
reports referenced in (d), (e) and (f) above) to any regulatory body having
jurisdiction over it which requests such information and the National
Association of Insurance Commissioners. Each Purchaser is further authorized to
request information from and to have access to, the Company's independent public
accountants, and the Company will request such accountants to make available to
any Purchaser such information as such Purchaser may reasonably request.
4.B. Inspection of Property. So long as any Purchaser shall hold any
Preferred Stock, the Company will permit any Person designated in writing by any
Purchaser to visit and inspect any of the properties of the Company and its
Subsidiaries and to discuss the affairs, finances and accounts of the Company
and its Subsidiaries, all upon reasonable notice, at such reasonable times
(subject to the bona fide schedule constraints of the relevant officers) and as
often as such Purchaser may reasonably request.
4.C. Corporate Existence, Licenses and Permits; Maintenance of
Properties. So long as the Purchasers shall hold in excess of 20% of the
Preferred Stock purchased pursuant hereto, the Company will at all times use
commercially reasonable efforts to do or cause to be done all things necessary
to maintain, preserve and renew its existence as a corporation organized under
the laws of a state of the United States of America, preserve and keep in force
and effect, and cause each of its Subsidiaries to apply for on a timely basis,
all licenses and permits necessary and material to the conduct of the business
of the Company and its consolidated Subsidiaries, taken as a whole, and to
maintain and keep, and cause each of its Subsidiaries to maintain and keep, its
and their respective properties in good repair, working order and condition
(except for normal wear and tear), and from time to time to make all needful and
proper repairs, renewals and replacements, including, without limitation, all
trade name and trademark registration renewals, in each case so that any
business material to the Company carried on in connection therewith may be
properly and advantageously conducted.
9
<PAGE> 12
4.D. Transactions with Affiliates. So long as the Purchasers shall
hold in excess of 20% of the Preferred Stock purchased pursuant hereto, the
Company shall not directly or indirectly enter into any transaction including,
without limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service, with any Affiliate, except for transactions including
any investments, loans or advances by or to any Affiliates conducted in good
faith, on terms no less favorable to the Company than those that could be
obtained in a comparable arms-length transaction with a third-party (each an
"Affiliated Transaction"). In no event shall the Company (i) enter into an
Affiliated Transaction valued in excess of $200,000.00 or (ii) enter into an
Affiliated Transaction which, when added to the transaction value of all other
Affiliated Transactions, exceeds $500,000, without the approval of the Board of
Directors, including a majority of the disinterested Directors. Notwithstanding
the foregoing, any transactions approved by the Board of Directors prior to
August 27, 1997 and listed on Exhibit IV-D shall be deemed to be arms length
transactions for purposes hereof.
4.E. Options. The Company shall not issue any options, rights or
warrants to purchase Common Stock at a price less than 95 % of the Market Price
as of the date of the issuance of such options, rights or warrants.
4.F. Litigation. The Company covenants to use best efforts to
vigorously contest any Litigation and each Purchaser, severally, covenants to
use best efforts to cooperate with the Company in the Company's contest of any
such Litigation, provided, that such cooperation by each Purchaser shall not
require it to be in violation of any applicable law or regulation or require it
to retain counsel or to pay fees of any counsel associated with such Litigation
to bear any material expense, nor to agree to any settlement.
4.G. Securities Exchange. The Company shall use its best efforts to
maintain its listing with the NASDAQ or other national securities exchange,
including the AMEX, so long as it is subject to Section 13 or 15(d) of the
Exchange Act.
ARTICLE V
REPRESENTATIONS, COVENANTS AND WARRANTIES
The Company represents, covenants and warrants as of the Initial
Closing Date as follows:
5.A. Organization, Standing and Qualification of Company and
Subsidiaries; Corporate Authority. (a) The Company and each Significant
Subsidiary, if any, is a corporation or limited liability company duly organized
and existing in good standing under the laws of the jurisdiction of its
organization, and has the corporate or limited liability company power to own
its respective property and to carry on its respective business as now being
conducted, is duly qualified and in good standing as a foreign corporation or
limited liability company to do business in every jurisdiction where the
character of the properties owned or leased by it or the nature of any business
transacted by it makes such qualification necessary except where such
nonqualification or lack of good standing would not have a material adverse
effect on the business of the Company and its Significant Subsidiaries taken as
a whole. On the date hereof
10
<PAGE> 13
the Company has only those Subsidiaries listed on Exhibit V-A. The Company has
delivered to the Purchasers true, complete and correct copies of the Certificate
of Incorporation and its By-laws, as amended and in full force and effect on the
date hereof.
(b) The execution and delivery by the Company of this Agreement and
the Registration Rights Agreement and the performance by the Company of all
transactions and obligations contemplated hereby and thereby are within its
corporate authority. The execution, delivery and performance of this Agreement
and the Registration Rights Agreement and each other agreement contemplated by
the terms hereof, and the issuance of the Preferred Stock have been duly
authorized by all necessary corporate proceedings on the part of the Company.
Each of this Agreement and the Registration Rights Agreement constitutes the
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally. The Preferred Stock will, on or prior to the
Closing Date, be duly authorized and, when issued, will be fully paid and
nonassessable and subject to no preemptive rights. The shares of Common Stock
issuable upon the conversion of the Preferred Stock will, on or prior to the
Initial Closing Date, be duly authorized and reserved for issuance, will be
subject to no preemptive rights and, when issued upon such conversion, will be
validly issued, fully paid and nonassessable.
5.B. Financial Statements. The Company has furnished the Purchasers
with balance sheets of the Company as at December 31, 1996 and the related
statements of income, stockholders' equity and cash flows of the Company for the
fiscal year ended December 31, 1996, all certified by KPMG Peat Marwick, LLP
including in each case the related schedules and notes, and an unaudited balance
sheet of the Company as at March 31, 1997 and June 30, 1997 and statements of
income, stockholders' equity and cash flows of the Company for the period ended
on such date, prepared by the Company and certified by its principal financial
officer.
All such financial statements (including any related schedules
and/or notes) have been prepared in accordance with generally accepted
accounting principles consistently applied, except to the extent set forth in
the notes to such financial statements and except for the absence of footnotes
to the interim financial statements and except that the interim financial
statements are subject to adjustment made in the course of an audit that would
not in the aggregate be material, throughout the periods involved and to the
extent required by such principles show all liabilities, direct and contingent,
of the Company required to be shown thereon in accordance with generally
accepted accounting principles. The balance sheets and the related schedules and
notes fairly present the financial condition of the Company as at the respective
dates thereof and there are no undisclosed material liabilities since June 30,
1997, other than those incurred in the ordinary course; and the net income and
stockholders' equity statements and the related schedules and notes fairly
present the results of the operations of the Company for the respective periods
indicated.
There has been no material adverse change in the condition,
financial or other, of the Company and its Significant Subsidiaries, on a
consolidated basis, since June 30, 1997.
11
<PAGE> 14
5.C. Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Significant Subsidiaries before any court, arbitrator or
administrative or governmental body that (i) seeks to enjoin or otherwise
prevent the issuance of the Preferred Stock or the consummation of the sale of
stock contemplated hereby or (ii) materially and adversely affects, or as to
which there is a reasonable possibility of an adverse decision that would
materially and adversely affect, either individually or collectively, the
business or condition of the Company and its consolidated Significant
Subsidiaries taken as a whole. Neither the Company nor any Significant
Subsidiary is in violation of any judgment, order, writ, injunction, decree,
rule or regulation of any court or governmental department, commission, board,
bureau, agency or instrumentality, the violation of which reasonably could be
expected to, either individually or collectively, materially and adversely
affect the business, property, assets or financial position of the Company and
its consolidated Significant Subsidiaries taken as a whole.
5.D. No Defaults. Neither the Company nor any of its Significant
Subsidiaries is in violation of, or in default under, nor has there been any
waiver given with respect to, any term or provision of any charter, by-law,
mortgage, indenture, agreement, instrument, statute, rule, regulation, judgment,
decree, order, writ, or injunction applicable to it, such that such violations
and defaults in the aggregate could reasonably be expected to result in any
material adverse change in the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Significant
Subsidiaries taken as a whole, or materially adversely affect the ability of the
Company to perform in any material respect its obligations under this Agreement.
5.E. Taxes. The Company and each of its Significant Subsidiaries
have timely filed (or caused to be filed) all Tax Returns which are required to
be filed by (or with respect to) it on or before the date hereof and have paid
all Taxes due on or before the date hereof whether or not reflected on such
returns, including pursuant to any assessment received by the Company or any
Significant Subsidiary consolidated with the Company for Tax reporting purposes.
All such Tax Returns were true, correct and complete in all material respects.
None of such Tax Returns has been audited by the relevant taxing authority, and
no taxing authority has notified (or threatened) the Company or any Significant
Subsidiary, orally or in writing, that such taxing authority will or may audit
any such return. The Company and each of its Significant Subsidiaries have
complied with all requirements of the Code, the Treasury Regulations and any
state, local or foreign law relating to the payment and withholding of Taxes
relating to the Company or such Significant Subsidiary, and the Company, and
each Significant Subsidiary thereof, have, within the time and in the manner
prescribed by applicable law, paid over to the proper taxing authorities all
amounts required to be so withheld and paid over relating to the Company or such
Significant Subsidiary. The charges, accruals and reserves on the books of the
Company and its Significant Subsidiaries in respect of Taxes or other
governmental charges are adequate to cover any liability of the Company and each
Significant Subsidiary thereof for Taxes through the date hereof. There are no
liens for Taxes with respect to any asset of the Company or any Significant
Subsidiary thereof, except for liens with respect to Taxes that are not yet due
and payable. No taxing authority in a jurisdiction where the Company or any
Significant Subsidiary thereof, as the case may be, does not file tax returns
has made a claim, assertion or
12
<PAGE> 15
threat that the Company or any such Significant Subsidiary is or may be subject
to taxation in such jurisdiction.
5.F. Title, Liens. Except as set forth in Exhibit V-F, the Company
has, and each of its Significant Subsidiaries has, good and marketable title,
free and clear of all Liens, to its respective properties and assets reflected
in the consolidated balance sheet of the Company and its consolidated
Significant Subsidiaries as at June 30, 1997 (other than properties and assets
disposed of in the ordinary course of business).
5.G. Burdensome and Conflicting Agreements and Charter Provisions.
Neither the execution nor delivery of this Agreement and the Registration Rights
Agreement by the Company, nor the offering, issuance and sale of the Preferred
Stock by the Company, nor fulfillment of nor compliance with the terms and
provisions of this Agreement, the Registration Rights Agreement and of the
Preferred Stock by the Company, nor the issuance by the Company of shares of
Common Stock upon conversion of the Preferred Stock as provided in the
Certificate of Designation, will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or result in
any violation of, or result in the creation of any Lien upon any of the
properties or assets of the Company or any Significant Subsidiary pursuant to,
or require any consent, approval or other action by any court or administrative
or governmental body or any other Person pursuant to the Certificate of
Incorporation or By-laws of the Company or any Significant Subsidiary, any award
of any arbitrator or any material agreement (including any agreement with
stockholders), instrument, order, judgment, decree, statute, law, rule or
regulation any of which are material to which the Company or any Significant
Subsidiary is subject, except for such approvals as may be required in
connection with fulfillment of, or compliance with, the Registration Rights
Agreements and the approvals identified on Exhibit V-G, which shall have been
obtained by the Closing Date.
5.H. Leases. The Company and each of its Significant Subsidiaries
enjoys peaceful and undisturbed possession of all leases material to the Company
or any of its Significant Subsidiaries and necessary for the operation of its
respective properties and assets, none of which contains any non-market,
unusually burdensome provisions which materially or adversely affects or impairs
the operation of such properties or assets. All such leases are valid and
subsisting and are in full force and effect.
5.I. Intellectual Property. (a) The Company exclusively owns or
possesses the requisite licenses or rights (on reasonable commercial terms) to
use all trades secrets, trademarks, service marks, service names, trade names,
copyrights and other intellectual property rights necessary to enable it to
conduct its business as now operated (and, except as set forth in Exhibit V-I
hereof, to the best of the Company's knowledge, as presently contemplated to be
operated in the future (collectively, the "Company IP")), and Exhibit V-I sets
forth a full and complete list of all such rights; there is no claim or action
by any person pertaining to, or proceeding pending, or to the Company's
knowledge threatened, which challenges the right of the Company or of a
Significant Subsidiary with respect to any Company IP; to the Company's
knowledge, the Company's or its Significant Subsidiaries' current and intended
products and services do not infringe on any licenses, trademarks, service
marks, service names, trade names, copyrights or
13
<PAGE> 16
other rights held by any Person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing.
(b) Except as set forth in Exhibit V-I, no proceedings or claims in
which the Company alleges that any Person is infringing upon, or otherwise
violating, any Company IP are pending, and none have been served by, instituted
or asserted by the Company, nor are any proceedings threatened alleging any such
violation or infringement.
(c) To the extent determined appropriate by the Company, the Company
has taken and will take all commercially reasonable actions which are necessary
or advisable in order to fully protect the Company IP, and the Company will take
all actions which are necessary or advisable in order to acquire intellectual
property rights, in each case in a manner consistent with prudent commercial
practice in the hotel business.
5.J. Offering of Preferred Stock. Neither the Company, Donaldson,
Lufkin & Jenrette nor Schroder & Co., Inc. (the only agents authorized to act on
the Company's behalf) has, directly or indirectly, offered the Preferred Stock
or any similar security of the Company for sale to, or solicited any offers to
buy the Preferred Stock or any similar security of the Company from, or
otherwise approached or negotiated with respect thereto with, more than 101
Persons including the Purchasers (all of which Persons are "accredited
investors" within the meaning of Regulation D promulgated under the Securities
Act), and neither the Company nor any agent acting on the Company's behalf has
taken or will take any action which would subject the issuance or sale of the
Preferred Stock to the provisions of Section 5 of the Securities Act. The
Company has filed all notices, or satisfied all registration or qualification
requirements of any state securities or Blue Sky law of any applicable
jurisdiction.
5.K. Broker's or Finder's Commissions. Other than the fee payable to
Donaldson, Lufkin & Jenrette and Schroder & Co., Inc. (which will be paid by the
Company) no broker's or finder's or placement fee or commission will be payable
with respect to the issuance of the Preferred Stock or the sale of stock
contemplated hereby as a result of any act or omission by the Company, and the
Company will hold the Purchasers harmless from any claim, demand or liability
for broker's or finder's or placement fees or commissions alleged to have been
incurred in connection with the issuance of the Preferred Stock or such sale of
stock.
5.L. Application of Proceeds. The net proceeds of the sale of the
Preferred Stock will be used by the Company to finance the Company's hotel
development strategy and for general corporate purposes, including the
repayment, under certain circumstances, of outstanding debt.
5.M. Disclosure. Neither this Agreement nor any other document,
certificate or statement prepared by or on behalf of the Company by its
authorized representatives or agents and furnished to or made available to the
Purchasers in writing by or on behalf of the Company by its authorized
representatives or agents in connection herewith, together with publicly
available information, including that filed with the Commission, considered
together, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein, in the light of the circumstances under which made,
14
<PAGE> 17
not misleading.
5.N. Capital Stock. Upon the Initial Closing Date, the Company will
have authorized 100,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock and will have issued 9,025,000 issued and outstanding shares of
Common Stock, 25,000 shares of Preferred Stock convertible into 2,631,578 shares
of Common Stock (calculated based on a Conversion Price of $9.50 per share and
subject to adjustment as provided in the Certificate of Designation) and options
for 554,350 shares of Common Stock. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. The Company has also
authorized but has not issued options exercisable for 345,650 shares of Common
Stock. The Company has reserved such number of shares of Common Stock for
issuance pursuant to such instruments or agreements as are set forth in Exhibit
V-N.
Except as otherwise stated in this paragraph or in Exhibit V-N and
except for shares reserved for issuance in connection with this Agreement, the
Company has not granted or issued, or agreed to grant or issue, any options,
warrants or similar rights to acquire or receive any of the authorized but
unissued shares of its capital stock of any class or any securities convertible
into shares of its capital stock of any class or any stock appreciation rights.
Except as described above, the Company has not and will not have taken any
action after the date immediately preceding the date hereof and prior to the
Closing Date which, had the provisions of Exhibit A been in effect on and after
such date and to and including the Closing Date, would have required an
adjustment in the Conversion Price in accordance with the provisions of Exhibit
A.
5.O. ERISA. (a) Exhibit V-O sets forth each plan, agreement,
arrangement or commitment which is an employment or consulting agreement,
executive or incentive compensation plan, bonus plan, deferred compensation
agreement, employee pension, profit sharing, savings or retirement plan,
employee stock option or stock purchase plan, group life, health, or accident
insurance or other employee benefit plan, agreement, arrangement or commitment,
including, without limitation, any severance, holiday, vacation, Christmas or
other bonus plans (including, but not limited to, "employee benefit plans", as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), maintained by the Company for any present or former
employees, officers or directors of the Company ("Company Personnel") or with
respect to which the Company has liability or makes or has an obligation to make
contributions ("Employee Plans").
(b) The Company has provided the Purchasers with access to (i)
copies of all Employee Plans or, in the case of an unwritten plan, a written
description thereof, (ii) copies of any annual, financial or actuarial reports
and Internal Revenue Service determination letters relating to such Employee
Plans and (iii) copies of all summary plan descriptions (whether or not required
to be furnished under ERISA) and employee communications relating to such
Employee Plans which materially modify an existing summary plan description and
distributed to Company Personnel, in each case under this subsection (iii),
existing or in effect during or within the past five years.
15
<PAGE> 18
(c) Except as set forth on Exhibit V-O, no Employee Plan entitles
Company Personnel to (x) any pension benefit that is unfunded or (y) any pension
or other benefit to be paid after termination of employment other than required
by Section 601 of ERISA or pursuant to plans intending to be qualified under
Section 401(a) of the Code and listed on the Exhibit V-P, and no other benefits
whatsoever are payable to any Company Personnel after termination of employment
(including retiree medical and death benefits).
(d) Each Employee Plan that is an employee welfare benefit plan
under Section 3(1) of ERISA is either (x) funded through an insurance company
contract and is not a "welfare benefit fund" within the meaning of Section 419
of the Code or (y) is unfunded.
(e) Each Employee Plan by its terms and operation is in compliance
in all material respects with all applicable laws (including, but not limited
to, ERISA, the Code and the Age Discrimination in Employment Act of 1967, as
amended).
(f) There are no actions, suits or claims pending or threatened
against any Employee Plan or administrator or fiduciary of any such Employee
Plan (other than routine noncontested claims for benefits) nor, to Company's
knowledge, does any set of circumstances exist which may reasonably give rise to
such a claim. As to each Employee Plan for which an annual report is required to
be filed under ERISA or the Code, all such filings, including schedules, have
been made on a timely basis and with respect to the most recent report regarding
each such Employee Plan liabilities do not exceed assets, and no material
adverse change has occurred with respect to the financial materials covered
thereby.
(g) Neither the Company nor any entity that is or was at any time
treated as a single employer with the Company under Section 414(b), (c), (m) or
(o) of the Code has at any time (x) maintained, contributed to or been required
to contribute to any plan under which more than one employer makes contributions
(within the meaning of Section 4064(a) of ERISA) or any plan that is a
multiemployer plan, (y) incurred or expects to incur any liability to the
Pension Benefit Guaranty Corporation or otherwise under Title IV of ERISA or (z)
incurred or expects to incur liability in connection with an "accumulated
funding deficiency" within the meaning of Section 412 of the Code whether or not
waived.
(h) Each Employee Plan intended to be qualified under Section 401(a)
of the Code and, if applicable, Section 401(k) of the Code has received a
favorable determination letter from the Internal Revenue Service stating that
such Employee Plan is qualified under Section 401(a) and , if applicable,
Section 401(k) of the Code and the related trust is exempt from tax under
Section 501(a) and, to the knowledge of the Company, nothing has occurred since
the date of such letter to cause the letter to be no longer valid or effective.
(i) Neither the Company nor, to the best knowledge of the Company,
any other person, including any fiduciary, has engaged in any "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA),
which could subject any of the Employee Plans (or their trusts), the Company, or
any person who the Company has an obligation to indemnify, to any tax or penalty
imposed under Section 4975 of the Code or Section 502 of ERISA. No "reportable
event" (as such term is defined in Section 4043 of ERISA) for which the
16
<PAGE> 19
notice requirement has not been waived by the Pension Benefit Guaranty
Corporation has occurred or is expected to occur with respect to any Employee
Plan and the Company will provide any Purchaser notice of any reportable events.
(j) Except as set forth on Exhibit V-O, the events contemplated by
this Agreement (either alone or together with any other event) will not (w)
entitle any Company Personnel to severance pay, unemployment compensation, or
other similar payments under any Employee Plan or law, (x) accelerate the time
of payment or vesting or increase the amount of benefits due under any Employee
Plan or compensation to any Company Personnel, (y) result in any payments
(including parachute payments) under any Employee Plan or law becoming due to
any Company Personnel, or (z) terminate or modify or give a third party a right
to terminate or modify the provisions or terms of any Employee Plan.
5.P. Environmental. (a) Except as set forth on Exhibit V-P, the
Company and the Subsidiaries comply, and the Company, the Subsidiaries and their
respective predecessors at all times during their existence have complied, with
all applicable Environmental Laws (as defined below).
(b) There is not now pending or, to the knowledge of the Company or
any Significant Subsidiary, threatened, any action, claim, proceeding or
investigation, nor has the Company, any Significant Subsidiary, or any of their
respective predecessors received any notice, claim, demand letter or request for
information at any time, alleging that the Company, any Significant Subsidiary,
or any of their respective predecessors may be in violation of, or liable under,
any Environmental Law, nor does there exist any basis for any such action,
claim, proceeding or investigation.
(c) There are no Hazardous Substances (as defined below) located on
any of the properties currently or formerly owned or operated by the Company,
the Significant Subsidiaries or any of their respective predecessors (including
soil, groundwater and surface features and buildings and structures thereon)
(the "Properties"), and none of the Properties contain, or has contained, any
underground improvements, including , but not limited to, treatment or storage
tanks, sumps, water, gas or oil wells, or associated piping.
(d) The Company and each Significant Subsidiary does not have any
contingent liability in connection with a Release (as defined below) or
threatened Release of any Hazardous Substance at any location.
(e) To the knowledge of the Company and each Significant Subsidiary,
there are no present or past Environmental Conditions (as defined below) in any
way related to the Company, any Significant Subsidiary, or any of their
respective predecessors which have, or may have, individually or in the
aggregate, a material adverse effect with respect to any Property or the
business or condition of the Company or the Significant Subsidiaries, taken as a
whole.
(f) As used herein, "Environmental Law" means any federal, state,
local or foreign law, regulation, order, decree, judgment, opinion, common law
or binding equitable principle or agency requirement relating to pollution,
contamination, wastes, hazardous material
17
<PAGE> 20
or the protection of the environment, human health or safety.
(g) As used herein, "Hazardous Substance" means any substance that
is listed, classified under or regulated by any governmental authority pursuant
to any Environmental Law, including, without limitation, any petroleum product
or by-product, asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive material or radon.
(h) As used herein, "Release" means any release, spill, emission,
leaking, pumping, injection, deposit, discharge, dispersal, leaching or
migrating into the indoor or outdoor environment of any Hazardous Substance.
(i) As used herein, "Environmental Condition" means the Release or
threatened Release of any Hazardous Substance upon, under, in or about any of
the Properties, or any other circumstance involving any Property or the Company,
any Subsidiary, or any of their respective predecessors that could be expected
to result in any claim, liability, costs or losses, or any restriction on the
ownership, use or transfer of any Property pursuant to any Environmental Law.
5.Q. Insurance. The Company maintains and/or is covered by valid
policies of workers' compensation insurance and of insurance with respect to its
properties and business. The Company currently maintains in full force insurance
covering the respective risks of the Company and its Significant Subsidiaries of
such types and in such amounts, with such deductibles and with such insurance
companies as are customary for other companies engaged in similar lines of
business.
ARTICLE VI
REPRESENTATIONS OF THE PURCHASERS
Each Purchaser represents and warrants as to itself only as follows:
6.A. Investment Purpose. Purchaser is purchasing the Preferred Stock
for Purchaser's own account for investment only and not with a view toward or in
connection with the public sale or distribution thereof. Purchaser will not
resell the Preferred Stock or Restricted Securities except pursuant to sales
that are exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and/or sales registered under the Securities
Act and all applicable state securities laws. Purchaser understands that
Purchaser may bear the economic risk of this investment indefinitely, unless the
Restricted Securities are registered pursuant to the Securities Act and any
applicable state securities laws or an exemption from such registration is
available, and that the Company has no present intention of registering any
Restricted Securities other than as contemplated by the Registration Rights
Agreement.
6.B. Accredited Investor Status. Purchaser or its ultimate parent is
an "accredited investor" as that term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act. By reason of its business and financial
experience, sophistication and knowledge, Purchaser is capable of evaluating the
risks and merits of the investment made pursuant to this Agreement.
18
<PAGE> 21
6.C. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their terms.
6.D. Group. As of the date hereof, Purchaser has not formed or
agreed to form nor, as of the Closing Date, does Purchaser intend to form, with
the other Purchasers or other holders of the Company's securities a group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) for the
purpose of effecting a "Change of Control" as defined in the Certificate of
Designation.
19
<PAGE> 22
ARTICLE VII
RESTRICTIONS ON TRANSFER
7A. Applicability of Restrictions. In addition to any restrictions
contained in this Agreement, any Restricted Securities or the Company's
Certificate of Incorporation, the provisions of this Article VII shall apply to:
(a) the transfer of any share of Preferred Stock and (b) the transfer of any
Restricted Security (each such transfer being herein called a "Restricted
Action"); provided, however, that the transfer of any share of Preferred Stock
or any Restricted Security to a partner, shareholder, equity holder or officer
of any holder of Preferred Stock or Restricted Security or to an entity
controlled by or under common control with the transferor shall not be a
Restricted Action. The holder of any Preferred Stock or Restricted Security, by
its acceptance thereof, agrees that, unless otherwise permitted hereunder, it
will not take any Restricted Action prior to the delivery to the Company, if
requested, of the opinion of counsel referred to in, and to the effect described
in, clause (iii) of paragraph 7C, or until registration of the Restricted
Securities under the Securities Act has become effective.
7B. Restrictive Legends. Each share of Preferred Stock and
certificate for Restricted Securities and each share of Preferred Stock and
certificate issued upon the transfer or exchange of any such Preferred Stock or
certificate for Restricted Securities (except as otherwise permitted by this
Article VII), shall bear a legend in substantially the following form:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended, and
neither the securities nor any interest therein may be sold,
transferred, pledged or otherwise disposed of in the absence of such
registration or an exemption under such Act and the rules and
regulations thereunder. The transfer of such securities is subject
to the restrictions set forth in Article VII of that certain Stock
Purchase Agreement, dated as of August 27, 1997 between Candlewood
Hotel Company, Inc. and certain Purchasers, copies of which are
available for inspection at the offices of Candlewood Hotel Company,
Inc., and such securities may be transferred only in compliance with
the terms and conditions of said Article VII of said Stock Purchase
Agreement.
7C. Notice of Proposed Transfer; Opinion of Counsel; Certain
Restrictions. Each holder of any shares of Preferred Stock or of any Restricted
Securities, by its acceptance thereof, agrees that, except as otherwise
expressly provided below in this paragraph 7C, prior to the taking of any
Restricted Action, such holder will give written notice to the Company of such
holder's intention to take such Restricted Action and to comply in all other
respects with this paragraph 7C. Each such notice (i) shall describe the manner
and circumstances of the proposed Restricted Action in sufficient detail to
enable counsel to render the opinion referred to below, (ii) shall designate
counsel for the holder giving such notice (who may be house counsel for such
holder) and (iii) if requested by the Company, shall be promptly followed by an
opinion of such counsel to the effect that the proposed Restricted Action may be
effected without registration under the Securities Act or any applicable state
securities or Blue Sky laws governing such
20
<PAGE> 23
Restricted Action or any shares of Preferred Stock or Restricted Securities
involved in, or issuable upon conversion of any shares of Preferred Stock
involved in, such Restricted Action. The Company will promptly effect any
transfer of any shares of Preferred Stock or Restricted Securities involved in
such Restricted Action and either deliver new shares of Preferred Stock or
certificates for Restricted Securities bearing (or not bearing, if in the
opinion of such counsel such legend is no longer required to insure compliance
with the Securities Act) the legend set forth in paragraph 7B, or both, as the
case may be; provided, however, that (x) each such transferee shall represent in
writing that it is acquiring such Preferred Stock or Restricted Security for
investment and not with a view to the distribution thereof (subject, however, to
any requirement of law that the disposition thereof shall at all times be within
the control of such transferee) and (y) each such transferee shall agree in
writing to be bound by all the restrictions on transfer of such shares of
Preferred Stock or Restricted Securities contained in this Article VII. The
Company will pay the reasonable fees and disbursements of counsel (other than
house counsel) for any holder of shares of Preferred Stock or Restricted
Securities in connection with any opinion requested and rendered pursuant to
this paragraph 7C.
7D. Termination of Restrictions. All restrictions imposed by this
Article VII upon the transferability of Preferred Stock or Restricted Securities
shall cease and terminate as to any particular shares of Preferred Stock or
Restricted Securities, (a) when the offer and sale of such securities shall have
been effectively registered under the Securities Act and such securities
disposed of in accordance with the registration statement covering such
securities, or (b) when, in the reasonable opinion of counsel for the holder
thereof or counsel for the Company, such restrictions are no longer required in
order to insure compliance with the Securities Act. Whenever such restrictions
shall terminate as to any shares of Preferred Stock or Restricted Securities,
the holder thereof shall be entitled to receive from the Company without expense
a new certificate or certificates representing such securities not bearing the
legend set forth in paragraph 7B hereof.
ARTICLE VIII
MISCELLANEOUS
8.A Dividend Payments. The Company agrees that, so long as any
Purchaser shall hold any Preferred Stock, the Company will make payments with
respect thereto pursuant to the terms of the Certificate of Designation by wire
transfer of immediately available funds for credit to such Purchaser's account
set forth on Schedule I, or such other account in the United States of America
as such Purchaser may designate in writing, notwithstanding any contrary
provision herein or in any share of Preferred Stock with respect to the place of
payment. The Company agrees to afford the benefits of this paragraph to any
permitted transferee of any Preferred Stock purchased by any Purchaser
hereunder.
8.B Expenses. The Company agrees to pay, and save the Purchasers
harmless against liability for the payment of, all reasonable out-of-pocket
expenses arising in connection with (i) the negotiation and execution of this
Agreement and the issuance of the Preferred Stock, including all taxes
(including any intangible personal property tax, together in each case with
21
<PAGE> 24
interest and penalties, if any, and also including any filing fees payable to
any governmental authority, and any income tax payable by any Purchaser in
respect of any reimbursement for any such tax or fee) which may be payable in
respect of the execution and delivery of this Agreement or the issuance,
delivery or acquisition (but not the holding, ownership or transfer) of any
Preferred Stock issued under or pursuant to this Agreement or any Common Stock
issuable upon conversion of any such Preferred Stock, (ii) the reasonable fees
and expenses of Purchasers' special counsel in connection with this Agreement,
any subsequent modification thereof or consent thereunder (including any
proposed modification or consent, whether or not finalized) and (iii) the cost
and expenses, including reasonable attorney's fees, incurred by the Purchasers
in enforcing any of their rights hereunder, including, without limitation, costs
and expenses incurred in any bankruptcy case. The obligations of the Company
under this paragraph shall survive transfer by any Purchaser and payment or
conversion of any Preferred Stock and transfer by any Purchaser of any Common
Stock issuable upon the conversion of any shares thereof.
8.C Consent to Amendments. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act given by the holder or holders of
at least 66-2/3% of the shares of Preferred Stock at the time outstanding,
except that, without the written consent of the holder or holders of all the
Preferred Stock at the time outstanding, no amendment to this Agreement shall
affect the time or amount of any required payments, or adversely affect the
conversion rights or preference rights, or reduce the percentage of the
aggregate number of shares of the Preferred Stock required with respect to any
consent or amendment. Any consideration given to any holder to obtain his
consent under this Agreement or the Registration Rights Agreement or with
respect to the Preferred Stock shall be given pro rata to all holders of shares
of Preferred Stock whether or not they give consent. Each holder of any shares
of Preferred Stock at the time or thereafter outstanding (or of shares of Common
Stock entitled to any rights hereunder) shall be bound by any consent authorized
by this paragraph, whether or not such shares of Preferred Stock shall have been
marked to indicate such consent, but any shares of Preferred Stock issued
thereafter may bear a notation referring to any such consent. No course of
dealing between the Company and the holder of any shares of Preferred Stock nor
any delay in exercising any rights hereunder or under any shares of Preferred
Stock shall operate as a waiver of any rights of any holder of such shares of
Preferred Stock. As used herein, the term "this Agreement" and references
thereto shall mean this Agreement as it may from time to time be amended or
supplemented.
8.D Notices to Subsequent Holder. Except as otherwise provided
herein, if any shares of Preferred Stock shall have been transferred to another
holder and such holder shall have designated in writing the address to which
communications with respect to such shares of Preferred Stock shall be mailed,
all notices, certificates, requests, statements and other documents required to
be delivered to the Purchaser by any provision hereof shall also be delivered to
each such holder.
8.E Survival of Representations, Warranties and Indemnities. All
representations and warranties contained herein or made in writing by the
Company in connection herewith shall survive the execution and delivery of this
Agreement and of the
22
<PAGE> 25
Preferred Stock, regardless of any investigation made by any Purchaser or on
such Purchaser's behalf.
8.F Successors and Assigns. Except as otherwise provided herein, all
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not.
8.G Notices. All notices and other communications provided for or
given or made hereunder shall be effective upon receipt if delivered by hand or
if delivered by first class mail, registered mail, return receipt requested or
overnight courier and, if to a Purchaser, at the address set forth on Schedule
I, and if to the Company, at Candlewood Hotel Company, Lakepoint Office Park,
9342 East Central, Wichita, Kansas 67206, Attention: Chief Financial Officer, or
to such other address with respect to any party as such party shall notify the
other in writing.
8.H Accounting Terms. Unless otherwise set forth herein, all
accounting terms and provisions in this Agreement shall be construed to be as
determined in accordance with generally accepted accounting principles in the
United States then in effect.
8.I Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchasers, the determination of such
satisfaction shall be made by the Purchasers in their reasonable judgment
exercised in good faith.
8.J 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 New York. This Agreement may not be changed orally, but (subject to
the provisions of paragraph 8C) only by an agreement in writing signed by the
party against whom enforcement is sought.
8.K Headings; Table of Contents. The descriptive headings of the
several paragraphs of this Agreement and the table of contents are inserted for
convenience only and do not constitute a part of this Agreement.
8.L 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.
8.M Non Business Days. If the date for making any payment or the last
date for performance of any act or the exercising of any right, as provided in
this Agreement, shall not be a business day, such payment may be made or act
performed or right exercised on the next succeeding business day, with the same
force and effect as if done on the nominal date provided in this Agreement.
8.N Further Assurances. The Company shall from time to time and at
all times
23
<PAGE> 26
hereafter make, do, execute or cause or procure to be made, done and executed
such further acts, deeds, conveyances, consents and assurances, without further
consideration, which may reasonably be required to effect the transactions
contemplated by this Agreement.
8.O Integration. This Agreement, together with the exhibits hereto,
the Stockholders Agreement and the Registration Rights Agreement embody the
entire agreement by and among the parties hereto with respect to the matters set
forth herein and supersede any and all previous agreements, whether oral or
written on the same subject matter.
8.P Termination. All of the provisions of this Agreement shall
terminate (i) with respect to each Purchaser upon the conversion, redemption or
liquidation of the Preferred Stock held by such Purchaser, unless the Agreement
specifies otherwise and (ii) with respect to all of the Purchasers upon the
purchase or conversion of the Preferred Stock by the Company pursuant to clause
(vi)(r) of the Certificate of Designation.
24
<PAGE> 27
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
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
<PAGE> 28
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
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:
<PAGE> 29
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
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
<PAGE> 30
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
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> 31
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. CABEL WILLIAMS
------------------------------------------
Name: G. Cabel Williams
Title: Managing Director
ALLIED CAPITAL CORPORATION II
By /s/ G. CABEL WILLIAMS
------------------------------------------
Name: G. Cabel Williams
Title: Managing Director
THE FFJ 1997 NOMINEE TRUST
By /s/ SAMUEL T. BYRNE
------------------------------------------
Name: Samuel T. Byrne
Title: Trustee
<PAGE> 32
THE MUTUAL LIFE INSURANCE COMPANY OF NEW
YORK
By /s/ SUZANNE S. WALTON
------------------------------------------
Name: Suzanne S. 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> 33
/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> 34
/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
/s/ JACK P. DEBOER
--------------------------------------------
Jack P. DeBoer
/s/ WARREN D. FIX
--------------------------------------------
Warren D. Fix
<PAGE> 1
Exhibit 10.2
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 previously
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. 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 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
<PAGE> 2
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" 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 Registratio 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 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
2
<PAGE> 3
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 anyRegistration 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.
(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
<PAGE> 4
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 both (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 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
4
<PAGE> 5
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. Registration 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 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 the 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
5
<PAGE> 6
the judgment of respective counsel to such Holders and such underwriter or
underwriters, to conduct a reasonable investigation within the meaning 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 information 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 true 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 law, fact or circumstance, as a result of which such registration
statement, prospectus or 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;
6
<PAGE> 7
(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 counsel 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 in any jurisdiction
wherein it would not otherwise be required 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 certificates 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
7
<PAGE> 8
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 not 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.
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 shall 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
8
<PAGE> 9
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 laws. 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 furnished 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 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
9
<PAGE> 10
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 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
10
<PAGE> 11
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 from 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
party and the indemnifying party 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 party 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 party 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 when 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 nature contemplated by said indemnity
(i) in such proportion as is appropriate to reflect 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
prevent 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
11
<PAGE> 12
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 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, damages, 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
pursuant 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 entitled hereunder to specify the method of distribution of the
securities being registered and completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
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
12
<PAGE> 13
reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(1) 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 outstanding
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.
(ii) The Investors shall not be entitled 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 on 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
13
<PAGE> 14
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
Securities 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 other 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 terms
hereof. This Section 12(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.
(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)
631-1333, 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 by and construed in
accordance with the laws of the State of Delaware.
14
<PAGE> 15
(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 Party 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 shall 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.
(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 contained herein. There are no restrictions, promises, warranties or
undertakings other 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.
15
<PAGE> 16
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
/s/ JACK P. DEBOER
-----------------------------------------
16
<PAGE> 17
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
By: /s/ RONALD G. HODGE, II
--------------------------------------
<PAGE> 18
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> 19
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> 20
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> 21
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. CABEL WILLIAMS
--------------------------------------
Name: G. Cabel Williams
Title: Managing Director
ALLIED CAPITAL CORPORATION II
By: /s/ G. CABEL WILLIAMS
--------------------------------------
Name: G. Cabel Williams
Title: Managing Director
THE FFJ 1997 NOMINEE TRUST
By: /s/ SAMUEL T. BYRNE
--------------------------------------
Name: Samuel T. Byrne
Title: Trustee
<PAGE> 22
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> 23
/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> 24
/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> 1
EXHIBIT 10.3
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> 2
ARTICLE 1
DEFINITIONS
1.1 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.
"Fix Partnership Holders" means the Fix Partnership (so long as
it is a
2
<PAGE> 3
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.
3
<PAGE> 4
"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.
ARTICLE 2
VOTING AGREEMENT
2.1 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
4
<PAGE> 5
Holders shall be entitled, through a nominating committee or other procedure
adopted by 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.
2.2 Board of Directors of the Company. (a) 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.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
2.3 Holder Representation. Each Holder represents and warrants as
to itself that as of the date hereof (after giving effect to all transactions
occurring in
5
<PAGE> 6
connection with the sale of the Purchased Shares) such Holder is not a party
with any other Person to any 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.
2.4 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.
2.5 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.
2.6 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
6
<PAGE> 7
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
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.
7
<PAGE> 8
ARTICLE 3
GENERAL PROVISIONS
3.1 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.
ARTICLE 4
MISCELLANEOUS
4.1 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.
4.2 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 accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
4.3 Governing Law. This Agreement shall be construed and enforced
8
<PAGE> 9
in accordance with, and the rights of the parties shall be governed by, the laws
of the State of Delaware.
4.4 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.
4.5 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.
4.6 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.
4.7 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.
4.8 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.
4.9 Headings. The descriptive headings of the several paragraphs
of this Agreement are inserted for convenience only and do not constitute part
of this Agreement.
9
<PAGE> 10
4.10 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.
10
<PAGE> 11
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
/s/ JACK P. DEBOER
-----------------------------------------
<PAGE> 12
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
By: /s/ RONALD G. HODGE, II
--------------------------------------
<PAGE> 13
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> 14
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> 15
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> 16
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. CABEL WILLIAMS
--------------------------------------
Name: G. Cabel Williams
Title: Managing Director
ALLIED CAPITAL CORPORATION II
By: /s/ G. CABEL WILLIAMS
--------------------------------------
Name: G. Cabel Williams
Title: Managing Director
THE FFJ 1997 NOMINEE TRUST
By: /s/ SAMUEL T. BYRNE
--------------------------------------
Name: Samuel T. Byrne
Title: Trustee
<PAGE> 17
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> 18
/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> 19
/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> 1
EXHIBIT 10.4a
CANDLEWOOD HOTEL COMPANY ANNOUNCES PRIVATE PLACEMENT
WICHITA, Kan. -- (BUSINESS WIRE) -- July 23, 1997 -- Candlewood Hotel Company,
Inc., (Nasdaq:CNDL - news), the Wichita, Kansas-based owner, developer and
franchisor of value-oriented business extended-stay hotels, announced today
that it intends to raise approximately $50 million through a private placement
of convertible preferred stock or other equity-linked securities. The
transaction is expected to close in the third quarter of this year. Net proceeds
of the private placement will be used to finance the company's hotel
development strategy.
The securities to be offered in the private placement will not be registered
under the Securities Act of 1993, as amended, or applicable state securities
laws, and may not be offered or sold in the United Stated absent registration
or an applicable exemption from the registration requirements. This press
release shall not constitute an offer to sell or the solicitation of an offer
to buy, nor shall there be any sale of any securities referred to herein in any
state in which such offer, solicitation, or sale would be unlawful.
<PAGE> 1
EXHIBIT 10.4b
CANDLEWOOD HOTEL COMPANY COMPLETES INITIAL CLOSING OF
CONVERTIBLE PREFERRED STOCK
WICHITA, Kan. -- (BUSINESS WIRE) -- Sept. 23, 1997 -- Candlewood Hotel Company,
Inc. (Nasdaq NM:CNDL), the Wichita, Kan.-based owner, developer, manager and
franchisor of value-oriented business extended-stay hotels, today announced that
it has completed an initial closing of $25 million of its Series A Cumulative
Convertible Preferred Stock; the second closing of $40 million is expected to
occur on or before October 3, 1997.
The $65 million represents an increase from the Company's announcement in late
July of its intent to raise $50 million through a private placement of
"equity-linked" securities.
The Company intends to use the proceeds for the continued development of its
extended-stay hotels and other general corporate purposes.
The preferred stock is entitled to a 7.5 percent annual dividend and to convert
into common stock of the Company at $9.50 per share, which represents a 22
percent premium over the average closing price of Candlewood's common stock for
the 10 days prior to the commitment date, August 27, 1997. The Company will be
able to redeem the preferred stock after August 31, 1999, and will be required
to redeem the preferred stock on August 31, 2004. Donaldson, Lufkin & Jenrette
Securities Corporation and Schroder & Co., Inc. were the agents for the private
placement of the preferred stock.
The securities have not been registered under the Securities Act of 1933, as
amended, or applicable state securities laws, and may not be offered or sold in
the United States absent registration under such Act or an applicable exemption
from the registration requirements. This announcement does not constitute an
offer to sell or the solicitation of orders to buy any of the Series A
Preferred Stock.
<PAGE> 1
EXHIBIT 10.4c
CANDLEWOOD HOTEL COMPANY COMPLETES SECOND CLOSING OF
CONVERTIBLE PREFERRED STOCK
WICHITA, Kan. - (BUSINESS WIRE) - Oct. 6, 1997 - Candlewood Hotel Company, Inc.
(Nasdaq NM:CNDL), the Wichita, Kan.-based owner, developer, manager and
franchisor of value-oriented, business extended-stay hotels, today announced
that it has completed the private placement of $65 million of its Series A
Cumulative Convertible Preferred Stock; the first closing of $25 million was
completed on September 23, 1997 and the second closing of $40 million was
completed on October 3, 1997. The Company intends to use the proceeds for the
continued development of its extended-stay hotels and other general corporate
purposes.
The preferred stock is entitled to a 7.5 percent annual dividend and to convert
into common stock of the Company at $9.50 per share, which represents a 22
percent premium over the average closing price of Candlewood's common stock for
the 10 days prior to the commitment date, August 27, 1997. The Company will be
able to redeem the preferred stock after August 31, 1999, and will be required
to redeem the preferred stock on August 31, 2004.
The securities have not been registered under the Securities Act of 1933, as
amended, or applicable state securities laws, and may not be offered or sold in
the United States absent registration under such Act or an applicable exemption
from the registration requirements. This announcement does not constitute an
offer to sell or the solicitation of orders to buy any of the Series A Preferred
Stock.
