<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
------------------------
INTERSTATE HOTELS CORPORATION
FOSTER PLAZA TEN
680 ANDERSEN DRIVE
PITTSBURGH, PENNSYLVANIA 15220
(412) 937-0600
<TABLE>
<S> <C> <C>
MARYLAND 0-26805 75-2767215
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification Number)
</TABLE>
The Company (1) has filed all reports to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the period that the Company was
required to file such reports, but (2) has not been subject to such filing
requirements for the past 90 days.
The total number of shares of the Company's Common Stock, par value $0.01
per share, outstanding at August 5, 1999 was 6,063,079.
- - --------------------------------------------------------------------------------
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<PAGE> 2
INDEX
INTERSTATE HOTELS CORPORATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)............................ 2
Consolidated Balance Sheets - December 31, 1998 and June 30,
1999........................................................ 2
Consolidated Statements of Operations - Historical Periods
from April 1, 1998 to June 1, 1998 and from June 2, 1998 to
June 30, 1998, Combined Three Months Ended June 30, 1998 and
Historical Three Months Ended June 30, 1999................. 3
Consolidated Statements of Operations - Historical Periods
from January 1, 1998 to June 1, 1998 and from June 2, 1998
to June 30, 1998, Combined Six Months Ended June 30, 1998
and Historical Six Months Ended June 30, 1999............... 4
Consolidated Statements of Cash Flows - Historical Periods
from January 1, 1998 to June 1, 1998 and from June 2, 1998
to June 30, 1998, Combined Six Months Ended June 30, 1998
and Historical Six Months Ended June 30, 1999............... 5
Consolidated Statements of Operations - Pro Forma Three
Months and Six Months Ended June 30, 1998 and June 30,
1999........................................................ 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds................... 19
Item 6. Exhibits and Reports on Form 8-K............................ 19
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
INTERSTATE HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
(A) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,652 $ 38,164
Accounts receivable, net.................................. 16,816 16,990
Deferred income taxes..................................... 615 1,562
Net investment in direct financing leases................. 827 671
Prepaid expenses and other assets......................... 741 1,664
Related party receivables--management contracts........... 1,085 790
-------- --------
Total current assets.................................... 21,736 59,841
Restricted cash............................................. 2,201 1,639
Marketable securities....................................... 2,609 2,880
Property and equipment, net................................. 4,076 3,673
Officers and employees notes receivable..................... 2,803 2,691
Affiliate receivables....................................... 3,381 9,404
Net investment in direct financing leases................... 1,680 1,302
Investment in hotel real estate............................. 22,150 300
Intangibles and other assets................................ 100,521 91,099
-------- --------
Total assets............................................ $161,157 $172,829
======== ========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable--trade................................... 2,413 1,534
Accounts payable--health trust............................ 1,785 4,505
Accounts payable--related parties......................... 18,597 3,462
Accrued payroll and related benefits...................... 6,120 5,911
Accrued rent.............................................. 5,043 9,970
Accrued merger costs...................................... 9,344 1,042
Other accrued liabilities................................. 9,236 15,003
-------- --------
Total current liabilities............................... 52,538 41,427
Deferred income taxes....................................... 11,053 6,659
Deferred compensation....................................... 2,609 2,880
-------- --------
Total liabilities....................................... 66,200 50,966
Minority interest........................................... 2,350 56,508
Commitments and contingencies............................... -- --
Owners' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; no shares
issued or outstanding................................... -- --
Common stock, $.01 par value; 65,000,000 shares
authorized; 6,063,079
shares issued and outstanding as of June 30, 1999....... -- 61
Paid-in capital........................................... -- 65,630
Retained deficit.......................................... -- (336)
Owners' equity............................................ 92,607 --
-------- --------
Total owners' equity.................................... 92,607 65,355
-------- --------
Total liabilities and owners' equity.................... $161,157 $172,829
======== ========
</TABLE>
- - ---------------
(A) The year-end balance sheet information was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 4
INTERSTATE HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR COMBINED SUCCESSOR
------------- ------------- -------- ---------
PERIOD FROM
----------------------------- THREE MONTHS ENDED
APRIL 1, 1998 JUNE 2, 1998 JUNE 30,
TO TO --------------------
JUNE 1, 1998 JUNE 30, 1998 1998 1999
------------- ------------- -------- ---------
<S> <C> <C> <C> <C>
Lodging revenues:
Rooms........................................... $32,896 $17,202 $50,098 $48,854
Other departmental.............................. 1,981 931 2,912 2,734
Net management fees............................... 7,684 3,881 11,565 8,753
Other fees........................................ 4,442 1,823 6,265 3,200
------- ------- ------- -------
47,003 23,837 70,840 63,541
------- ------- ------- -------
Lodging expenses:
Rooms........................................... 7,435 3,831 11,266 11,085
Other departmental.............................. 1,196 563 1,759 1,769
Property costs.................................. 8,371 4,270 12,641 13,905
General and administrative........................ 2,105 771 2,876 3,510
Payroll and related benefits...................... 4,239 1,412 5,651 5,048
Lease expense..................................... 15,744 8,424 24,168 23,612
Depreciation and amortization..................... 841 1,555 2,396 5,434
------- ------- ------- -------
39,931 20,826 60,757 64,363
------- ------- ------- -------
Operating income (loss)........................... 7,072 3,011 10,083 (822)
Other income (expense):
Interest, net................................... 80 35 115 96
Other, net...................................... 172 101 273 1,181
Loss on sale of investment in hotel real
estate....................................... -- -- -- (876)
------- ------- ------- -------
Income (loss) before income tax expense........... 7,324 3,147 10,471 (421)
Income tax expense................................ 2,926 1,256 4,182 249
------- ------- ------- -------
Income (loss) before minority interest............ 4,398 1,891 6,289 (670)
Minority interest................................. 10 5 15 (1,045)
------- ------- ------- -------
Net income........................................ $ 4,388 $ 1,886 $ 6,274 $ 375
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 5
INTERSTATE HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR COMBINED SUCCESSOR
--------------- ------------- -------- ---------
PERIOD FROM
------------------------------- SIX MONTHS ENDED
JANUARY 1, 1998 JUNE 2, 1998 JUNE 30,
TO TO --------------------
JUNE 1, 1998 JUNE 30, 1998 1998 1999
--------------- ------------- -------- ---------
<S> <C> <C> <C> <C>
Lodging revenues:
Rooms......................................... $74,265 $17,202 $91,467 $89,124
Other departmental............................ 4,504 931 5,435 5,059
Net management fees............................. 18,018 3,881 21,899 17,322
Other fees...................................... 9,976 1,823 11,799 6,180
------- ------- ------- -------
106,763 23,837 130,600 117,685
------- ------- ------- -------
Lodging expenses:
Rooms......................................... 17,173 3,831 21,004 20,820
Other departmental............................ 2,674 563 3,237 3,275
Property costs................................ 19,987 4,270 24,257 26,722
General and administrative...................... 6,115 771 6,886 7,588
Payroll and related benefits.................... 10,982 1,412 12,394 9,956
Lease expense................................... 34,515 8,424 42,939 44,509
Depreciation and amortization................... 2,152 1,555 3,707 10,092
------- ------- ------- -------
93,598 20,826 114,424 122,962
------- ------- ------- -------
Operating income (loss)......................... 13,165 3,011 16,176 (5,277)
Other income (expense):
Interest, net................................. 204 35 239 155
Other, net.................................... 474 101 575 1,563
Loss on sale of investment in hotel real
estate..................................... -- -- -- (876)
------- ------- ------- -------
Income (loss) before income tax expense
(benefit)..................................... 13,843 3,147 16,990 (4,435)
Income tax expense (benefit).................... 5,528 1,256 6,784 (1,376)
------- ------- ------- -------
Income (loss) before minority interest.......... 8,315 1,891 10,206 (3,059)
Minority interest............................... 24 5 29 (996)
------- ------- ------- -------
Net income (loss)............................... $ 8,291 $ 1,886 $10,177 $(2,063)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 6
INTERSTATE HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR COMBINED SUCCESSOR
--------------- ------------- -------- ---------
PERIOD FROM
------------------------------- SIX MONTHS ENDED
JANUARY 1, 1998 JUNE 2, 1998 JUNE 30,
TO TO --------------------
JUNE 1, 1998 JUNE 30, 1998 1998 1999
--------------- ------------- -------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 8,291 $ 1,886 $10,177 $ (2,063)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................. 2,152 1,555 3,707 10,092
Equity in earnings from unconsolidated
subsidiaries............................... (513) (101) (614) (1,525)
Deferred income taxes......................... (1,555) 1,106 (449) (52)
Other......................................... 200 32 232 (160)
Cash (used) provided by assets and liabilities:
Accounts receivable, net...................... (3,661) (3,100) (6,761) (174)
Prepaid expenses and other assets............. 307 (609) (302) (923)
Related party receivables..................... (341) (44) (385) 295
Accounts payable.............................. 1,053 (3,226) (2,173) 1,632
Accrued liabilities........................... 12,426 814 13,240 12,178
-------- -------- ------- --------
Net cash provided by (used in) operating
activities............................... 18,359 (1,687) 16,672 19,300
-------- -------- ------- --------
Cash flows from investing activities:
Net investment in direct financing leases....... 145 (797) (652) 534
Change in restricted cash....................... 540 (576) (36) 562
Purchase of property and equipment, net......... (709) (19) (728) (75)
Purchases of marketable securities.............. -- -- -- (1,324)
Proceeds from sale of marketable securities..... -- -- -- 1,113
Proceeds from sale of investment in hotel real
estate........................................ -- -- -- 13,654
Net cash received from unconsolidated
subsidiaries.................................. 1,085 67 1,152 1,176
Net investment in management contracts.......... (666) (27) (693) (176)
Merger-related acquisition costs................ -- (10,159) (10,159) (8,303)
Change in affiliate receivables, net............ 2,043 231 2,274 (623)
Other........................................... 236 (141) 95 96
-------- -------- ------- --------
Net cash provided by (used in) investing
activities................................. 2,674 (11,421) (8,747) 6,634
-------- -------- ------- --------
Cash flows from financing activities:
Repayment of long-term debt..................... (180) -- (180) --
Proceeds from sale of common stock.............. -- -- -- 2,120
Net (distributions to) contributions from
minority interests............................ (44) 15 (29) 6,934
Related party payables.......................... (9,234) 5,290 (3,944) (15,135)
Net (distributions to) contributions from
owners........................................ (9,840) 8,473 (1,367) 16,659
-------- -------- ------- --------
Net cash (used in) provided by financing
activities............................... (19,298) 13,778 (5,520) 10,578
-------- -------- ------- --------
Net increase in cash and cash equivalents......... 1,735 670 2,405 36,512
Cash and cash equivalents at beginning of
period.......................................... 2,432 4,167 2,432 1,652
-------- -------- ------- --------
Cash and cash equivalents at end of period........ $ 4,167 $ 4,837 $ 4,837 $ 38,164
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 7
INTERSTATE HOTELS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA (NOTE 3)
--------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Lodging revenues:
Rooms....................................... $50,098 $48,854 $91,467 $89,124
Other departmental.......................... 2,912 2,734 5,435 5,059
Net management fees........................... 8,122 7,014 15,166 13,702
Other fees.................................... 4,977 2,776 9,237 5,550
------- ------- ------- -------
66,109 61,378 121,305 113,435
------- ------- ------- -------
Lodging expenses:
Rooms....................................... 11,266 11,085 21,004 20,820
Other departmental.......................... 1,759 1,769 3,237 3,275
Property costs.............................. 12,641 13,905 24,257 26,722
General and administrative.................... 2,859 3,704 6,858 8,032
Payroll and related benefits.................. 4,645 5,198 10,287 10,256
Lease expense................................. 24,168 23,612 42,939 42,509
Depreciation and amortization................. 4,532 5,434 9,086 10,092
------- ------- ------- -------
61,870 64,707 117,668 121,706
------- ------- ------- -------
Operating income (loss)....................... 4,239 (3,329) 3,637 (8,271)
Other income (expense):
Interest, net............................... 259 219 527 422
Other, net.................................. (40) 38 (40) 38
------- ------- ------- -------
Income (loss) before income tax expense
(benefit)................................... 4,458 (3,072) 4,124 (7,811)
Income tax expense (benefit).................. 835 (522) 806 (1,343)
------- ------- ------- -------
Income (loss) before minority interest........ 3,623 (2,550) 3,318 (6,468)
Minority interest............................. 2,373 (1,768) 2,110 (4,454)
------- ------- ------- -------
Net income (loss)............................. $ 1,250 $ (782) $ 1,208 $(2,014)
======= ======= ======= =======
Pro forma earnings per common share and common
share equivalent:
Basic....................................... $ .20 $ (.12) $ .19 $ (.31)
======= ======= ======= =======
Diluted..................................... $ .20 $ (.12) $ .19 $ (.31)
======= ======= ======= =======
Pro forma weighted average number of common
share and common share equivalents
outstanding:
Basic....................................... 6,394,996 6,394,996 6,394,996 6,394,996
========= ========= ========= =========
Diluted..................................... 6,394,996 6,394,996 6,394,996 6,394,996
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 8
INTERSTATE HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Interstate Hotels Company (together with its subsidiaries, "Old
Interstate") was merged into Wyndham International, Inc., formerly Patriot
American Hospitality, Inc. ("Wyndham"), on June 2, 1998 (the "Merger"). Prior to
the Merger, Marriott International, Inc. ("Marriott") filed a lawsuit to stop
the closing of the Merger as a result of a dispute over certain franchise
agreements between Marriott and Old Interstate. On June 18, 1999, pursuant to a
settlement agreement with Marriott with respect to the lawsuit, Wyndham
transferred the third-party hotel management business of Old Interstate, equity
interests in The Charles Hotel Complex, a hotel, retail and office complex
located in Cambridge, Massachusetts, and long-term leasehold interests in
hotels, as well as certain other assets and liabilities of Old Interstate, to a
new entity, Interstate Hotels Corporation (together with its subsidiaries, the
"Company"), which Wyndham then spun-off to its shareholders (the "Spin-off"). As
a result of the Spin-off, 92% of the common shares of the Company were
distributed to Wyndham's shareholders, Marriott was issued a 4% ownership
interest in the Company's common stock and Wyndham retained a 4% interest in the
Company's common stock.
The financial statements have been prepared using the predecessor basis of
accounting for the period from January 1, 1998 to June 1, 1998, and the
successor basis of accounting for the period from June 2, 1998 to December 31,
1998, as well as for the periods presented in 1999, to coincide with the periods
before and after the Merger. The Merger was accounted for using the purchase
method of accounting, and the Merger consideration was allocated by Wyndham on
the basis of the fair market value of the assets of Old Interstate. The Spin-off
was accounted for using the historical basis of accounting. The statements of
operations and cash flows contain columns for the three and six months ended
June 30, 1998 that combine the predecessor and successor periods, as the Company
deems this presentation to be informative to the reader of such financial
statements. When used herein, "consolidated financial statements" refers to the
historical combined financial statements of the Company prior to the Spin-off
and the historical consolidated financial statements of the Company thereafter.
Prior to the Spin-off, the Company was not a separate legal entity.
Therefore, the accompanying consolidated financial statements of the Company
have been carved out of Old Interstate's financial statements prior to the
Merger using the predecessor basis of accounting, and from Wyndham's financial
statements subsequent to the Merger using the successor basis of accounting,
which gives effect to the allocation of Merger consideration. The financial
statements include only those assets, liabilities, revenues and expenses
directly attributable to the third-party hotel management business, the equity
interests in The Charles Hotel Complex and the leased hotels which were spun-off
with the Company. These consolidated financial statements have been prepared as
if the Company had operated as a separate entity for all periods presented.
The Company has two principal subsidiaries. Interstate Hotels, LLC ("IH
LLC") has assumed the third-party hotel management business previously conducted
by Old Interstate and holds the leasehold interests in the Company's leased
hotels, as well as provides ancillary services such as centralized purchasing,
equipment leasing and insurance services. The Company owns a 45% managing member
interest and Wyndham owns a 55% non-controlling ownership interest in IH LLC.
The other subsidiary, IHC II, LLC, has entered into management contracts to
manage eleven Wyndham-owned hotels and subcontracted the management under these
contracts to Marriott. The Company owns a 99.99% interest and Marriott owns a
.01% interest in this subsidiary.
In accordance with IH LLC's limited liability company agreement, the
Company is required to distribute 55% of IH LLC's cash flows from operations to
Wyndham and allocate between IH LLC and the Company the costs and expenses
relating to services provided by one party for the benefit of the other in
accordance with generally accepted accounting principles, on the basis of which
party benefited from the expenditure. To the extent that the allocation of any
such costs and expenses, including general and administrative expenses, cannot
be fairly apportioned, IH LLC and the Company will allocate such costs and
expenses based upon their respective gross revenues, so that each party's profit
margins are substantially the same for similar services.
7
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED, DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION--CONTINUED
The Company includes the revenues and expenses and assets and liabilities
of leased hotels in the financial statements because the risk of operating these
hotels is borne by the Company, as lessee, under the terms of the leases.
Revenues and expenses from the operation of managed hotels are not included in
the financial statements because the hotel management contracts are generally
cancellable, not transferable and do not shift the risks of operation to the
Company. Therefore, the Company records revenues from management fees only for
its managed hotels.
2. INTERIM FINANCIAL STATEMENTS:
The accompanying consolidated interim financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. These consolidated interim financial
statements should be read in conjunction with the financial statements, notes
thereto and other information included in the Company's Registration Statement
on Form S-1 (No. 333-67065) filed with the SEC on November 10, 1998, as amended
(the "Registration Statement").
The accompanying consolidated interim financial statements reflect, in the
opinion of management, all adjustments necessary for a fair presentation, in all
material respects, of the financial position and results of operations for the
periods presented. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
3. PRO FORMA INFORMATION:
The unaudited pro forma consolidated statements of operations for the three
and six-month periods ended June 30, 1998 and 1999 include the effects of the
Spin-off, the sale of equity interests in The Charles Hotel Complex and certain
other adjustments as if all of the transactions had occurred on January 1, 1998.
Such other adjustments principally include the elimination and addition of
certain management fee and other fee revenues related to Wyndham-owned hotels,
the management of which was transferred to Wyndham, Marriott or the Company as a
result of the Spin-off. The adjustments also include the elimination of a $2,000
one-time charge for additional incentive lease expense for 1999 resulting from
the settlement of a dispute with Equity Inns, Inc. resulting from the Merger,
and the addition of minority interest to reflect Wyndham's 55% non-controlling
interest in IH LLC prior to the Spin-off. The Company has elected to present
comparative pro forma consolidated statements of operations for the three and
six-month periods ended June 30, 1998 and 1999 due to the significance of the
pro forma adjustments on the historical operating results.
The pro forma information is based in part upon information contained in,
and should be read in conjunction with, the Company's Registration Statement. In
management's opinion, all material pro forma adjustments necessary to reflect
the effects of these transactions have been made. The pro forma information does
not include earnings on the Company's pro forma cash and cash equivalents or
certain one-time charges to income, and does not purport to present what the
actual results of operations of the Company would have been if the previously
mentioned transactions had occurred on such dates or to project what the results
of operations of the Company will be for any future period.
8
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED, DOLLARS IN THOUSANDS)
4. EARNINGS PER SHARE:
Prior to the Spin-off, the Company was not a separate legal entity.
Therefore, the accompanying consolidated financial statements of the Company
have been carved out of the financial statements of Old Interstate and Wyndham,
and principally include those assets, liabilities, revenues and expenses
directly attributable to the third-party hotel management and leasing businesses
conducted by the Company. The Company believes that the historical earnings per
share calculations required in accordance with Statement of Financial Accounting
Standard No. 128 are not meaningful for periods prior to the Spin-off and,
therefore, have not been provided. In addition, the Company does not believe
that a historical earnings per share calculation for the partial 12-day period
between the date of the Spin-off through June 30, 1999 is meaningful. Rather,
pro forma earnings per share is a more meaningful measure of the Company's
results of operations for the periods presented.
The pro forma earnings per share for the three and six-month periods ended
June 30, 1998 and 1999 have been calculated by dividing pro forma net income by
the pro forma weighted average number of common shares deemed to be outstanding,
which includes certain restricted common shares that are expected to be issued
in the third quarter of 1999, pursuant to employment agreements that were
entered into during the first half of 1999. Pro forma net income reflects the
transactions discussed in Note 1 and other required adjustments discussed in
Note 3 as if all of the transactions had occurred on January 1, 1998.
5. PREFERRED AND COMMON STOCK:
The Company has the authority to issue up to 10,000,000 shares of preferred
stock having such rights, preferences and privileges as designated by the Board
of Directors of the Company without shareholder approval. The rights of the
holders of the Company's common stock will be subject to, and may be affected
by, the rights of the holders of any such preferred stock that may be issued in
the future.
The following table represents the number of shares of common stock
authorized, issued and outstanding as of June 30, 1999.
<TABLE>
<CAPTION>
ISSUED AND
PAR VALUE AUTHORIZED OUTSTANDING
--------- ---------- -----------
<S> <C> <C> <C>
Class A common stock..................................... $.01 62,000,000 5,759,885
Class B common stock..................................... $.01 1,500,000 242,555
Class C common stock..................................... $.01 1,500,000 60,639
---------- ---------
65,000,000 6,063,079
========== =========
</TABLE>
6. SALE OF INVESTMENT IN HOTEL REAL ESTATE:
On June 18, 1999, the Company completed the previously announced sale of
substantially all of its equity interests in The Charles Hotel Complex. The
Company sold a 1% general partnership interest and an 82.9% limited partnership
interest in Intercarp Limited Partnership, which is a general partner in Charles
Square Associates, the managing partner in CH&S Limited Partnership, which is
the owner of The Charles Hotel Complex. The Company, through IH LLC, received
$13,500 in cash and a $5,750 secured non-recourse promissory note in connection
with the sale. The promissory note pays quarterly interest only, at a rate of
10% per annum, until maturity in 2002. The loss of $876 on the sale is included
in "loss on sale of investment in hotel real estate" in the consolidated
statements of operations and is allocated 100% to Wyndham in "minority interest"
in the consolidated statements of operations in accordance with IH LLC's limited
liability company agreement. This agreement also requires that the proceeds and
interest from the promissory note be allocated entirely to the Company.
The Company is the sole general partner of Cambridge Hotel Associates, the
manager of The Charles Hotel. The management contract for The Charles Hotel was
amended in connection with the sale to provide for a
9
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED, DOLLARS IN THOUSANDS)
6. SALE OF INVESTMENT IN HOTEL REAL ESTATE--CONTINUED
reduction in management fees payable to the Company in exchange for an extension
of the term of the management contract to ten years and IH LLC's agreement to
cause the Company to loan the owner of the hotel up to $2,500.
7. INCOME TAXES:
Prior to the Spin-off, the entities that comprised the Company were
included in the consolidated federal income tax returns of Old Interstate or
Wyndham and all tax liabilities were paid by either Old Interstate or Wyndham.
The income tax provision presented in the consolidated financial statements
through the Spin-off date has been calculated as if the Company had prepared and
filed separate income tax returns for those periods. The income tax liability
for all current income taxes for purposes of these consolidated financial
statements through the Spin-off date have been settled with either Old
Interstate or Wyndham through owners' equity. Effective with the Spin-off, the
Company will file a separate tax return. Such return will include an allocation
of the operating results of IH LLC based on its 45% share of the taxable
operating results of IH LLC, except for the loss on the sale of equity interests
in The Charles Hotel Complex, which is allocated 100% to Wyndham, as discussed
in Note 6.
The effective tax rate used after the Spin-off is based on the Company's
expected effective tax rate for the period ended December 31, 1999, and varies
from the statutory tax rate as a result of the allocations of the taxable
operating results of IH LLC to minority interests, as discussed above.
8. SUPPLEMENTAL CASH FLOW INFORMATION:
In connection with the Merger, in the period from June 2, 1998 to June 30,
1998, the Company excluded from the consolidated statements of cash flows a
non-cash step-up in basis of $52,002 arising from the allocation of Merger
consideration, which includes an increase to management contract costs of
$59,702, a decrease in other assets related to hotel leases of $7,700 and a
deferred tax liability of $5,458.
In 1999, as a result of the Spin-off, the Company excluded from the
consolidated statements of cash flows non-cash equity transfers of $57,614 to
minority interests, representing the net book value of Wyndham's 55%
non-controlling ownership interest in IH LLC, a transfer of Wyndham's share of
the net deferred tax liability of $5,289, and the net book value of the common
stock distributed to the shareholders of the Company of $65,456. Prior to the
Spin-off, the Company excluded from the consolidated statements of cash flows
the contribution of Wyndham stock valued at $2,172 that was used to reduce
accrued liabilities recorded in connection with the Merger. In addition, as a
result of the sale of the equity interests in The Charles Hotel Complex, the
Company excluded from the consolidated statements of cash flows the receipt of a
$5,750 secured non-recourse promissory note, which were received as proceeds
from the sale, and the elimination of $2,409 of third-party minority interests
of Intercarp Limited Partnership.
9. SEGMENT INFORMATION:
The Company's reportable segments are: operations of luxury and upscale
hotels, operations of mid-scale, upper economy and budget hotels and The Charles
Hotel (hotel ownership). The luxury and upscale hotels segment derives revenues
from management fees and other services which directly relate to providing
management services, including revenues from insurance, purchasing and equipment
leasing. The mid-scale, upper economy and budget segment derives revenues from
managing and leasing hotels and certain specialized support services. The
Charles Hotel segment consisted principally of an equity investment in The
Charles Hotel Complex, which was sold during the second quarter, as discussed in
Note 6. The operations of this segment differ from those of the other segments
and the results are separately reviewed by the Company's chief operating
decision maker.
10
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED, DOLLARS IN THOUSANDS)
9. SEGMENT INFORMATION--CONTINUED
The table below presents revenue and operating income information for each
reportable segment for the three and six-month periods ended June 30, 1998 and
1999.
<TABLE>
<CAPTION>
PERIOD FROM
----------------------------- THREE MONTHS ENDED
APRIL 1, 1998 JUNE 2, 1998 JUNE 30,
TO TO -------------------
JUNE 1, 1998 JUNE 30, 1998 1998 1999
------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Luxury and Upscale Hotels......................... $11,256 $ 5,258 $16,514 $10,909
Mid-Scale, Upper Economy and Budget Hotels........ 35,747 18,579 54,326 52,632
------- ------- ------- -------
Consolidated totals............................... $47,003 $23,837 $70,840 $63,541
======= ======= ======= =======
Operating income (loss):
Luxury and Upscale Hotels......................... 5,947 2,551 8,498 279
Mid-Scale, Upper Economy and Budget Hotels........ 1,125 460 1,585 (1,101)
------- ------- ------- -------
Consolidated totals............................... $ 7,072 $ 3,011 $10,083 $ (822)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
------------------------------- SIX MONTHS ENDED
JANUARY 1, 1998 JUNE 2, 1998 JUNE 30,
TO TO -------------------
JUNE 1, 1998 JUNE 30, 1998 1998 1999
--------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Luxury and Upscale Hotels..................... $ 26,010 $ 5,258 $ 31,268 $ 21,618
Mid-Scale, Upper Economy and Budget Hotels.... 80,753 18,579 99,332 96,067
-------- ------- -------- --------
Consolidated totals........................... $106,763 $23,837 $130,600 $117,685
======== ======= ======== ========
Operating income (loss):
Luxury and Upscale Hotels..................... 11,887 2,551 14,438 764
Mid-Scale, Upper Economy and Budget Hotels*... 1,278 460 1,738 (6,041)
-------- ------- -------- --------
Consolidated totals........................... $ 13,165 $ 3,011 $ 16,176 $ (5,277)
======== ======= ======== ========
</TABLE>
- - ---------------
* The 1999 amount includes a $2,000 one-time charge in the first quarter of 1999
for additional incentive rent resulting from the settlement of a dispute with
Equity Inns, Inc. resulting from the Merger.
Depreciation and amortization included in segment operating income for the
three and six-month periods ended June 30, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
----------------------------- ENDED
APRIL 1, 1998 JUNE 2, 1998 JUNE 30,
TO TO ---------------
JUNE 1, 1998 JUNE 30, 1998 1998 1999
------------- ------------- ------ ------
<S> <C> <C> <C> <C>
Luxury and Upscale Hotels........................... $291 $1,096 $1,387 $4,157
Mid-Scale, Upper Economy and Budget Hotels.......... 550 459 1,009 1,277
---- ------ ------ ------
Consolidated totals................................. $841 $1,555 $2,396 $5,434
==== ====== ====== ======
</TABLE>
11
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED, DOLLARS IN THOUSANDS)
9. SEGMENT INFORMATION--CONTINUED
<TABLE>
<CAPTION>
PERIOD FROM
------------------------------- SIX MONTHS ENDED
JANUARY 1, 1998 JUNE 2, 1998 JUNE 30,
TO TO ----------------
JUNE 1, 1998 JUNE 30, 1998 1998 1999
--------------- ------------- ------ -------
<S> <C> <C> <C> <C>
Luxury and Upscale Hotels........................ $ 776 $1,096 $1,872 $ 7,502
Mid-Scale, Upper Economy and Budget Hotels....... 1,376 459 1,835 2,590
------ ------ ------ -------
Consolidated totals.............................. $2,152 $1,555 $3,707 $10,092
====== ====== ====== =======
</TABLE>
The net book value of intangible and other assets by segment as of June 30,
1998 and 1999 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Luxury and Upscale Hotels................................... $ 61,425 $49,751
Mid-Scale, Upper Economy and Budget Hotels.................. 47,597 41,348
-------- -------
Consolidated totals......................................... $109,022 $91,099
======== =======
</TABLE>
The following table reconciles the Company's measure of segment profit to
consolidated net income for the three and six-month periods ended June 30, 1998
and 1999.
<TABLE>
<CAPTION>
PERIOD FROM
----------------------------- THREE MONTHS ENDED
APRIL 1, 1998 JUNE 2, 1998 JUNE 30,
TO TO -------------------
JUNE 1, 1998 JUNE 30, 1998 1998 1999
------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Total after-tax operating income (loss)............ $4,243 $1,807 $ 6,050 $ (341)
Unallocated amounts, net of tax:
Interest, net.................................... 48 21 69 44
Other, net....................................... 103 61 164 709
Minority interest................................ (6) (3) (9) (37)
------ ------ ------- -------
Consolidated net income............................ $4,388 $1,886 $ 6,274 $ 375
====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
------------------------------- SIX MONTHS ENDED
JANUARY 1, 1998 JUNE 2, 1998 JUNE 30,
TO TO -----------------
JUNE 1, 1998 JUNE 30, 1998 1998 1999
--------------- ------------- ------- -------
<S> <C> <C> <C> <C>
Total after-tax operating income (loss).......... $7,899 $1,807 $ 9,706 $(3,014)
Unallocated amounts, net of tax:
Interest, net.................................. 122 21 143 79
Other, net..................................... 284 61 345 938
Minority interest.............................. (14) (3) (17) (66)
------ ------ ------- -------
Consolidated net income (loss)................... $8,291 $1,886 $10,177 $(2,063)
====== ====== ======= =======
</TABLE>
12
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
PRO FORMA THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO PRO FORMA THREE
AND SIX MONTHS ENDED JUNE 30, 1999
Pro forma total revenues decreased by $4.7 million, or 7.2%, from $66.1
million in the three months ended June 30, 1998 (the "1998 Three Months") to
$61.4 million in the three months ended June 30, 1999 (the "1999 Three Months")
and by $7.9 million, or 6.5%, from $121.3 million in the six months ended June
30, 1998 (the "1998 Six Months") to $113.4 million in the six months ended June
30, 1999 (the "1999 Six Months"). A portion of this decrease related to lodging
revenues, which consist of rooms, food and beverage and other departmental
revenues from the leased hotels. Pro forma lodging revenues decreased by $1.4
million, or 2.7%, from $53.0 million in the 1998 Three Months to $51.6 million
in the 1999 Three Months and by $2.7 million, or 2.8%, from $96.9 million in the
1998 Six Months to $94.2 million in the 1999 Six Months. This decrease was due
to the net loss of nine hotel operating leases since April 1, 1998 due to the
divestiture of these hotels by Equity Inns, Inc., increased competition and the
general negative trends in the limited-service hotel sector. In addition, some
of the Company's leased hotels have been undergoing renovations which reduced
rooms available and impacted operating results negatively.
The average daily room rate for the leased hotels increased by 7.3%, from
$72.15 during the 1998 Three Months to $77.44 during the 1999 Three Months, and
the average occupancy rate decreased to 69.8% during the 1999 Three Months from
73.3% during the 1998 Three Months. This resulted in an increase in room revenue
per available room of 2.2% to $54.08 during the 1999 Three Months. During the
six-month periods, the average daily room rate for the leased hotels increased
by 6.3%, from $71.11 during the 1998 Six Months to $75.56 during the 1999 Six
Months, and the average occupancy rate decreased to 65.6% during the 1999 Six
Months from 68.9% during the 1998 Six Months. This resulted in an increase in
room revenue per available room of 1.2% to $49.59 during the 1999 Six Months.
The statistical results of our leased hotels reflect the current trends within
the lodging industry. As such, the increase in the average daily room rate
resulted from inflation and improvement resulting from our management expertise.
The decrease in the average occupancy rate resulted from both an increase of new
supply within the lodging industry and the renovations noted above.
Pro forma net management fees decreased by $1.1 million, or 13.6%, from
$8.1 million in the 1998 Three Months to $7.0 million in the 1999 Three Months
and by $1.5 million, or 9.7%, from $15.2 million in the 1998 Six Months to $13.7
million in the 1999 Six Months. This decrease was due to the net loss of 14
management contracts since April 1, 1998, primarily due to the divestiture of
hotels by third-party owners. Contributing to the net loss of management
contracts was the uncertainty surrounding the timing and completion of the
Merger and subsequent Spin-off, which impaired the Company from adding new
management contracts. Pro forma other fees decreased by $2.2 million, or 44.2%,
from $5.0 million in the 1998 Three Months to $2.8 million in the 1999 Three
Months and by $3.6 million, or 39.9%, from $9.2 million in the 1998 Six Months
to $5.6 million in the 1999 Six Months. This decrease was due to a decrease in
the total number of hotels operated in the 1999 periods as compared to the 1998
periods. A significant portion of this decrease resulted from a decrease in pro
forma insurance revenues, which decreased by $1.0 million from the 1998 Three
Months to the 1999 Three Months and by $1.8 million from the 1998 Six Months to
the 1999 Six Months. This decrease is primarily due to the decrease in the total
number of hotels operated in 1999 compared to 1998 and a reduction in the amount
of financial indemnity for the Company's self-insured health and welfare plan.
Lodging expenses consist of rooms, food and beverage, property costs and
other departmental expenses from the leased hotels. Pro forma lodging expenses
increased by $1.1 million, or 4.3%, from $25.7 million in the 1998 Three Months
to $26.8 million in the 1999 Three Months and by $2.3 million, or 4.8%, from
$48.5 million in the 1998 Six Months to $50.8 million in the 1999 Six Months.
This increase was partially due to increased costs associated with the
third-party reservation system for many of the leased hotels. The operating
margin of the leased hotels decreased from 51.6% during the 1998 Three Months to
48.1% during the 1999 Three Months and from 50.0% during the 1998 Six Months to
46.0% during the 1999 Six Months.
General and administrative expenses are associated with the management of
hotels and consist primarily of centralized management expenses such as
operations management, sales and marketing, finance and other hotel support
services, as well as general corporate expenses. Pro forma general and
administrative expenses increased
13
<PAGE> 15
by $0.8 million, or 29.6%, from $2.9 million in the 1998 Three Months to $3.7
million in the 1999 Three Months and by $1.1 million, or 17.1%, from $6.9
million in the 1998 Six Months to $8.0 million in the 1999 Six Months. This
increase resulted from increased costs of $1.4 million during the 1999 Six
Months associated with a deficiency between actual claims and the amount of
premiums received under the Company's self-insured health and welfare plan,
offset by reductions in development expenses and legal and accounting costs. Pro
forma general and administrative expenses as a percentage of pro forma revenues
increased to 6.0% during the 1999 Three Months compared to 4.3% during the 1998
Three Months and to 7.1% during the 1999 Six Months compared to 5.7% during the
1998 Six Months. This increase was primarily due to the decrease in total
revenues and the increase in general and administrative expenses.
Pro forma operating income decreased by $7.5 million from $4.2 million in
the 1998 Three Months to a pro forma operating loss of $3.3 million in the 1999
Three Months. For the six-month periods, pro forma operating income decreased by
$11.9 million from $3.6 million in 1998 to a pro forma operating loss of $8.3
million in 1999. This decrease is primarily due to the decrease in total
revenues and constant or increased operating expenses from 1998 to 1999.
Pro forma income tax expense (benefit) for both 1998 and 1999 was computed
based on an effective tax rate of 40% after reduction of minority interest.
Pro forma minority interest reflects Wyndham's 55% non-controlling interest
in IH LLC, the successor to the third-party hotel management and leasing
businesses previously conducted by Old Interstate prior to the Merger.
As a result of the changes noted above, a pro forma net loss of $0.8
million was incurred in the 1999 Three Months as compared to pro forma net
income of $1.3 million in the 1998 Three Months. For the six-month periods, a
pro forma net loss of $2.0 million was incurred in 1999 as compared to pro forma
net income of $1.2 million in 1998.
HISTORICAL THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO HISTORICAL THREE
AND SIX MONTHS ENDED JUNE 30, 1999
Total revenues decreased by $7.3 million, or 10.3%, from $70.8 million in
the 1998 Three Months to $63.5 million in the 1999 Three Months and by $12.9
million, or 9.9%, from $130.6 million in the 1998 Six Months to $117.7 million
in the 1999 Six Months. A portion of this decrease related to lodging revenues.
Lodging revenues decreased by $1.4 million, or 2.7%, from $53.0 million in the
1998 Three Months to $51.6 million in the 1999 Three Months and by $2.7 million,
or 2.8%, from $96.9 million in the 1998 Six Months to $94.2 million in the 1999
Six Months. This decrease was due to the net loss of nine hotel operating leases
since April 1, 1998 due to the divestiture of these hotels by Equity Inns, Inc.,
increased competition and the general negative trends in the limited-service
hotel sector. In addition, some of the Company's leased hotels have been
undergoing renovations which reduced rooms available and impacted operating
results negatively.
Net management fees decreased by $2.8 million, or 24.3%, from $11.6 million
in the 1998 Three Months to $8.8 million in the 1999 Three Months and by $4.6
million, or 20.9%, from $21.9 million in the 1998 Six Months to $17.3 million in
the 1999 Six Months. This decrease was due to the net loss of 31 management
contracts since April 1, 1998, which includes 18 hotels whose management was
transferred to a subsidiary of Wyndham subsequent to the Merger. Contributing to
the net loss of management contracts was the uncertainty surrounding the timing
and completion of the Merger and subsequent Spin-off, which impaired the Company
from adding new management contracts. Other fees decreased by $3.1 million, or
48.9%, from $6.3 million in the 1998 Three Months to $3.2 million in the 1999
Three Months and by $5.6 million, or 47.6%, from $11.8 million in the 1998 Six
Months to $6.2 million in the 1999 Six Months. This decrease was due to a
decrease in the total number of hotels operated in the 1999 periods as compared
to the 1998 periods. A significant portion of this decrease resulted from a
decrease in insurance revenues, which decreased by $1.4 million from the 1998
Three Months to the 1999 Three Months and by $2.8 million from the 1998 Six
Months to the 1999 Six Months. This decrease is primarily due to the decrease in
the total number of hotels operated in 1999 compared to 1998 and a reduction in
the amount of financial indemnity for the Company's self-insured health and
welfare plan.
14
<PAGE> 16
Lodging expenses increased by $1.1 million, or 4.3%, from $25.7 million in
the 1998 Three Months to $26.8 million in the 1999 Three Months and by $2.3
million, or 4.8%, from $48.5 million in the 1998 Six Months to $50.8 million in
the 1999 Six Months. This increase was partially due to increased costs
associated with the third-party reservation system for many of the leased
hotels. The operating margin of the leased hotels decreased from 51.6% during
the 1998 Three Months to 48.1% during the 1999 Three Months and from 50.0%
during the 1998 Six Months to 46.0% during the 1999 Six Months.
General and administrative expenses increased by $0.6 million, or 22.0%,
from $2.9 million in the 1998 Three Months to $3.5 million in the 1999 Three
Months and by $0.7 million, or 10.2%, from $6.9 million in the 1998 Six Months
to $7.6 million in the 1999 Six Months. This increase resulted from increased
costs of $1.4 million during the 1999 Six Months associated with a deficiency
between actual claims and the amount of premiums received under the Company's
self-insured health and welfare plan, offset by reductions in development
expenses and legal and accounting costs. General and administrative expenses as
a percentage of revenues increased to 5.5% during the 1999 Three Months compared
to 4.1% during the 1998 Three Months and to 6.4% during the 1999 Six Months
compared to 5.3% during the 1998 Six Months. This increase was primarily due to
the decrease in total revenues and the increase in general and administrative
expenses.
Payroll and related benefits decreased by $0.7 million, or 10.7%, from $5.7
million in the 1998 Three Months to $5.0 million in the 1999 Three Months and by
$2.4 million, or 19.7%, from $12.4 million in the 1998 Six Months to $10.0
million in the 1999 Six Months. This decrease was due to elimination of salaries
and related benefits of employees who were terminated subsequent to the Merger
and whose positions have been eliminated. Payroll and related benefits as a
percentage of revenues decreased slightly to 7.9% during the 1999 Three Months
compared to 8.0% during the 1998 Three Months and decreased to 8.5% during the
1999 Six Months compared to 9.5% during the 1998 Six Months.
Lease expense represents base rent and participating rent that is based on
a percentage of rooms and food and beverage revenues from the leased hotels.
Lease expense decreased by $0.6 million, or 2.3%, from $24.2 million in the 1998
Three Months to $23.6 million in the 1999 Three Months due to a decrease in
lodging revenues from 1998 to 1999. However, lease expense increased by $1.6
million, or 3.7%, from $42.9 million in the 1998 Six Months to $44.5 million in
the 1999 Six Months. This increase resulted from a $2.0 million one-time charge
in the first quarter for additional incentive rent for 1999 resulting from the
settlement of a dispute with Equity Inns, Inc. resulting from to the Merger.
Depreciation and amortization increased by $3.0 million from $2.4 million
in the 1998 Three Months to $5.4 million in the 1999 Three Months and by $6.4
million from $3.7 million in the 1998 Six Months to $10.1 million in the 1999
Six Months. This increase was due to incremental amortization of management
contract costs associated with the step-up in basis arising from the allocation
of Merger consideration. The management contract costs have been stated at their
estimated fair market values and are being amortized using the straight-line
method over five years.
Operating income decreased by $10.9 million from $10.1 million in the 1998
Three Months to an operating loss of $0.8 million in the 1999 Three Months. For
the six-month periods, operating income decreased by $21.5 million from $16.2
million in 1998 to an operating loss of $5.3 million in 1999. This decrease is
primarily due to the decrease in total revenues and the increase in depreciation
and amortization from 1998 to 1999.
Other income in the three and six-month periods increased by approximately
$1.0 million from 1998 to 1999 primarily due to an increase in equity in
earnings from The Charles Hotel Complex, which resulted from the Company's
acquisition of additional equity interests in The Charles Hotel Complex during
the latter half of 1998.
Loss on sale of investment in hotel real estate resulted from the sale of
the Company's equity interests in The Charles Hotel Complex on June 18, 1999.
Income tax expense (benefit) for both 1998 and 1999 was computed based on
an effective tax rate of 40% after reduction of minority interest, except for
the $0.9 million loss on the sale of equity interests in The Charles Hotel
Complex in 1999, which was allocated 100% to Wyndham.
15
<PAGE> 17
Minority interest in 1999 primarily reflects Wyndham's 55% non-controlling
interest in IH LLC retained in the Spin-off. In addition, the $0.9 million loss
on the sale of equity interests in The Charles Hotel Complex was allocated 100%
to Wyndham.
As a result of the changes noted above, net income decreased by $5.9
million from $6.3 million in the 1998 Three Months to $0.4 million in the 1999
Three Months. For the six-month periods, a net loss of $2.1 million was incurred
in 1999 as compared to net income of $10.2 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalent assets were $38.2 million at June
30, 1999 compared to $1.7 million at December 31, 1998, and current assets
exceeded current liabilities by $18.4 million at June 30, 1999. In connection
with the Spin-off, Wyndham agreed to ensure that IH LLC did not have a working
capital deficit as of April 30, 1999. In addition, Wyndham agreed to provide
working capital to the Company in the amount of $16.3 million, less positive
working capital, if any, of IH LLC. Currently, the Company and Wyndham have not
finalized the reconciliation of the working capital, as well as other related
matters. In addition, Wyndham agreed to reimburse the Company for potential
expenditures relating to such things as year 2000 compliance, loan forgiveness
and pending litigation, which are expected to approximate $5.7 million.
The Company's principal source of liquidity during the 1999 Six Months was
cash from operations. Net cash provided by operating activities was $19.3
million during the 1999 Six Months compared to $16.7 million during the 1998 Six
Months. The increase primarily resulted from higher earnings and lower
amortization in the 1998 Six Months compared to lower earnings with higher
amortization in the 1999 Six Months, as well as an increase in accounts
receivable of $6.8 million during the 1998 Six Months with a corresponding
increase of only $0.2 million during the 1999 Six Months. Net cash of $6.6
million was provided from investing activities during the 1999 Six Months
compared to net cash of $8.7 million used in investing activities during the
1998 Six Months. The increase was primarily related to the receipt of $13.5
million of proceeds from the sale of equity interests in The Charles Hotel
Complex during the 1999 Six Months and a decrease of $1.9 million in amounts
paid in connection with the Merger during the 1999 Six Months compared to the
1998 Six Months. The Company's capital expenditure budget through December 31,
1999 relating to current operations is approximately $2.7 million, consisting
primarily of expenditures for computer and related equipment. The Company
intends to fund these expenditures from its cash and cash equivalents and from
payments from Wyndham, as discussed above. Net cash of $10.6 million was
provided by financing activities during the 1999 Six Months compared to net cash
of $5.5 million used in financing activities during the 1998 Six Months. During
the 1999 Six Months, $35.5 million was received from Wyndham in connection with
the Spin-off and $2.1 million was received from Marriott in exchange for a 4%
ownership interest in the Company. These amounts were offset by the use of $11.9
million for net distributions to Wyndham and the repayment of $15.1 million that
was borrowed from related entities to meet short-term cash requirements.
In accordance with IH LLC's limited liability company agreement, the
Company is required to distribute 55% of IH LLC's cash flows from operations to
Wyndham and allocate between IH LLC and the Company the costs and expenses
relating to services provided by one party for the benefit of the other in
accordance with generally accepted accounting principles, on the basis of which
party benefited from the expenditure. To the extent that the allocation of any
such costs and expenses, including general and administrative expenses, cannot
be fairly apportioned, IH LLC and the Company will allocate such costs and
expenses based upon their respective gross revenues, so that each party's profit
margins are substantially the same for similar services.
The Company intends to pursue future opportunities to manage or lease
hotels on behalf of third-party owners, as well as pursue other business
opportunities, such as selective hotel investments and the formation of
strategic alliances. The Company believes that the cash that was provided by
Wyndham at the time of the Spin-off and future cash flow provided by operations
may be insufficient to fully fund the execution of its business and growth
strategy. As a result, the Company will be required to obtain debt or equity
financing or modify its business plan. While the Company presently intends to
seek to obtain additional debt or equity financing, there can be no assurance
that any such financing will be available to the Company on acceptable terms, or
at all. If the Company does not obtain additional financing, its pursuit of its
business strategy and growth may be impaired.
16
<PAGE> 18
YEAR 2000 COMPLIANCE
The year 2000 issue relates to computer programs written using two digits
rather than four to define the applicable year. Computer programs written this
way may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in systems failures or miscalculations causing disruptions of
hotel operations or a temporary inability to process transactions, prepare
financial statements or engage in similar normal business activities.
We have developed and begun implementing a comprehensive plan (i) to
address potential year 2000 problems both at our corporate offices and at the
hotels we manage and lease, and (ii) to minimize the impact on operations to the
extent possible. Our plan, which is designed to identify and address potential
problems in the most critical operational systems first in order to minimize any
disruption in service to hotel guests, consists of the following four steps:
<TABLE>
<S> <C>
Step 1 - Inventory: Conduct an inventory to identify (a) all computer
hardware and software systems and building systems in
use and (b) any potential year 2000 problems that may
exist in such systems
Step 2 - Vendor Survey: Identify and contact third-party vendors to determine
whether their systems or services are or will be made
year 2000 compliant
Step 3 - Planning and Cost Estimation: Prepare a prioritized year 2000 compliance plan for
remediation or replacement of non-compliance systems
Step 4 - Implementation and Testing: Implement the year 2000 compliance plan prepared in
Step 3 and test all systems to ensure maximum possible
compliance and develop contingency plans for
continuing operations in the event problems arise
</TABLE>
We engaged a consultant to complete Steps 1 and 2, at an estimated cost of
$13,500 per hotel for upscale hotels and $7,500 for midscale and economy hotels.
We have instructed the hotels that we operate to increase their capital budgets
for 1999 to accommodate this cost. The inventories at the hotels and our
corporate offices have been completed. In addition, we are currently reviewing
and cataloguing the responses to the year 2000 readiness questionnaires that we
sent out to our third-party vendors.
Step 3 is being performed through a joint effort between management and
hotel owner representatives and a year 2000 consultant. At this time, we cannot
identify the total costs that will be incurred to complete Steps 3 and 4. Our
management and information systems department has substantially completed the
written assessments, however, which prioritize the corporate and hotel year 2000
compliance plans for remediation and estimate the costs of such remediation.
Once each written assessment is finalized, we are able to provide an estimate of
those costs for each hotel. On the corporate level, the implementation process
described in Step 4 above is already in progress based on the completed
inventory and written assessment. In addition, many of the hotels we manage are
also in the process of implementing their remediation and testing plans. We have
instructed all hotels that we manage and lease to include in their capital
budgets an amount ranging from $10,000 to $50,000, depending on the size of the
hotel, to be utilized for these purposes. As specific costs become known, the
budgets will be adjusted as necessary.
We believe that the expenses incurred to complete the year 2000 compliance
program at each managed hotel are the responsibility of the hotel owner, and we
believe that the terms of our management contracts provide adequate basis for
this position. Nonetheless, it is possible that some third-party hotel owners
may challenge this position. With respect to the hotels leased by us, we also
believe that the expenses associated with year 2000 compliance with respect to
our leased hotels are the responsibility of the hotel owner. To the extent that
such expense is not considered a capital expenditure, however, it may be deemed
to be our responsibility. Further, we will be responsible for funding the year
2000 compliance expenses for corporate operations. The costs incurred to date
have not been material. We have provided for approximately $2.7 million in
capital expenditures in our 1999 management and information systems capital
budget, approximately $2.4 million of which is expected to be spent addressing
our year 2000 issues.
17
<PAGE> 19
In connection with the Spin-off, Wyndham agreed to pay up to $929,000 of
the corporate level year 2000 compliance related expenses, and this amount was
funded into an escrow account at the time of the Spin-off. In addition, to the
extent that we are responsible for any year 2000 compliance related expenses
with respect to our leased hotels, Wyndham is obligated to indemnify us for up
to $1.2 million of such expenses. Any remaining expenses not funded by Wyndham
will be funded by us through operating cash flow.
Our time and cost estimates for year 2000 compliance are based on currently
available information. These estimates could be affected by unforeseen
developments including the availability and cost of trained personnel, the
ability to locate and correct problems in all relevant systems, and the year
2000 compliance efforts of our third-party vendors. We believe the most likely
"worst-case" scenario is that our third-party vendors may not be year 2000
compliant, which could potentially cause disruptions in operations at hotels
which use the services of such third-party vendors. In addition, operations at
our hotels outside the United States may be adversely affected by failures of
businesses in those countries to take adequate steps to address the year 2000
problem. While such failures could affect critical operations at our hotels in a
significant manner, we cannot at present estimate either the likelihood or the
potential cost of such failures. The contingency plans for continuing operations
referenced in Step 4 described above are being developed to address these
failures, using existing disaster contingency plans in place at our hotels. In
addition, while we believe the indemnification provisions in our management
contracts and leases provide adequate protection from liability that may arise
from a failure to be year 2000 compliant, such failure could result in lower
hotel revenues (and, as a result, lower management fee revenues) because of
general adverse economic conditions and lower profits caused by expenses
incurred with contingency plans.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and information based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. When used herein,
words such as "anticipate," "believe," "estimate," "expect," "intend" and
similar expressions, as they relate to the Company or the Company's management,
are intended to identify these forward-looking statements. Such statements are
subject to certain risks and uncertainties that could cause the Company's
business and results of operations to differ materially from those reflected in
the Company's forward-looking statements.
Forward-looking statements are not guarantees of future performance. The
Company's forward-looking statements are based on trends that the Company's
management anticipates in the lodging industry and the effect on those trends of
such factors as industry capacity, the seasonal nature of the lodging industry
and product demand and pricing. In addition, such forward-looking statements are
subject to the Company's reversing the current negative trend in its business
and financial results.
18
<PAGE> 20
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) In connection with the Spin-off, on June 18, 1999 the Company issued
242,555 shares of Class B common stock, par value $0.01 per share, to Marriott
in consideration for $2.1 million and 181,916 shares of Class A common stock and
60,639 shares of Class C common stock, each with a par value $0.01 per share, to
Wyndham in exchange for the cancellation of 100 shares of Class C common stock
and 9,900 shares of Class B common stock of the Company held by Wyndham. The
shares were issued without registration under the Securities Act of 1933
pursuant to the exemption afforded by Section 4(2) thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<S> <C>
2.1 Distribution Agreement, dated June 18, 1999, among Patriot
American Hospitality, Inc., Wyndham International, Inc., the
Company and Interstate Hotels, LLC
3.1 Articles of Amendment and Restatement
3.2 Articles Supplementary Classifying and Designating Series A
Junior Participating Cumulative Preferred Stock
3.3 Amended and Restated Bylaws
10.1 Amended and Restated Limited Liability Company Agreement,
dated June 18, 1999, of Interstate Hotels, LLC
10.2 Voting Agreement, dated June 18, 1999, among the Company and
the identified stockholders of the Company
10.3 Fifth Amendment, dated April 23, 1999, to the Settlement
Agreement, dated May 27, 1998, among Marriott International,
Inc., Interstate Hotels Corporation, Interstate Hotels
Company, Patriot American Hospitality, Inc. and Wyndham
International, Inc. (the "Settlement Agreement")(1)
10.4 Sixth Amendment, dated May 14, 1999, to the Settlement
Agreement(1)
10.5 Asset Purchase Agreement, dated May 7, 1999, among IHC/Chaz
Corporation, PAH-Management Corporation and F&H Realty,
LLC(2)
10.6 Instrument of Assignment and Assumption, dated June 18,
1999, made by IHC/Chaz Corporation and PAH-Management
Corporation in favor of Interstate Hotels, LLC(2)
10.7 Instrument of Assignment and Assumption, dated June 18,
1999, made by F&H Realty, LLC in favor of F&H GP
Corporation(2)
10.8 Employment Agreement, dated June 18, 1999, between the
Company and J. William Richardson
10.9 Interstate Hotels Corporation 1999 Equity Incentive Plan
10.9.1 Form of Standard Stock Option Agreement
10.9.2 Form of Stock Option Agreement for certain employees with
employment agreements
10.10 Interstate Hotels Corporation Stock Purchase Plan
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
Report is filed.
- - ---------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-67065) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated June 18, 1999 and incorporated herein by reference.
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTERSTATE HOTELS CORPORATION
Date: August 16, 1999 By: /s/ J. WILLIAM RICHARDSON
-----------------------------------
J. William Richardson
Vice Chairman and Chief Financial
Officer
(Principal Financial Officer)
20
<PAGE> 1
Exhibit 2.1
DISTRIBUTION AGREEMENT
BY AND AMONG
PATRIOT AMERICAN HOSPITALITY, INC.,
WYNDHAM INTERNATIONAL, INC.,
INTERSTATE HOTELS, LLC
AND
INTERSTATE HOTELS CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C> <C>
Section 1. DEFINITIONS..............................................................2
Section 1.1 General.........................................................2
Section 2 REORGANIZATION AND RELATED TRANSACTIONS..................................6
Section 2.1 The Reorganization..............................................6
Section 2.2 Consideration...................................................7
Section 2.3 Representations and Warranties..................................8
Section 3 ASSUMPTION AND RETENTION OF LIABILITIES..................................9
Section 3.1 Assumed Liabilities.............................................9
Section 3.2 Retained Liabilities............................................9
Section 4 THE DISTRIBUTION.........................................................9
Section 4.1 The Distribution................................................9
Section 4.2 Fractional Shares..............................................10
Section 4.3 Patriot/Wyndham Board Action...................................10
Section 5 SURVIVAL, INDEMNIFICATION, CLAIMS, AND OTHER
MATTERS...............................................10
Section 5.1 Survival of Agreements.........................................10
Section 5.2 Indemnification................................................10
Section 5.3 Procedure for Indemnification of Third-Party Claims............13
Section 5.4 Other Claims...................................................15
Section 5.5 Certain Losses.................................................15
Section 5.6 No Third Party Beneficiaries...................................15
Section 5.7 Named Parties..................................................16
Section 6 CERTAIN ADDITIONAL MATTERS..............................................16
Section 6.1 Conveyancing and Assumption Instruments........................16
Section 6.2 No Representations or Warranties...............................16
Section 6.3 Further Assurances; Subsequent Transfers.......................16
Section 6.4 Interstate Officers and Directors..............................18
Section 6.5 Related Agreements.............................................18
Section 6.6 Joint Purchasing Arrangements..................................18
Section 6.7 St. Louis Marriott West........................................19
Section 6.8 Divestiture Payments...........................................19
Section 6.9 Settlement Agreement Provisions................................19
Section 6.10 Limitation on Claims...........................................19
Section 6.11 The Charles....................................................20
Section 6.12 Holiday Inns...................................................20
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 7 ACCESS TO INFORMATION AND SERVICES......................................21
Section 7.1 Provision of Corporate Records.................................21
Section 7.2 Access to Information..........................................21
Section 7.3 Production of Witnesses and Individuals........................21
Section 7.4 Retention of Records...........................................21
Section 7.5 Confidentiality................................................22
Section 7.6 Privileged Matters.............................................23
Section 7.7 Mail and Other Communications..................................24
Section 7.8 Order of Precedence............................................24
Section 8 EMPLOYMENT AND EMPLOYEE BENEFIT MATTERS.................................24
Section 8.1 Employee and Plan Transfers....................................24
Section 8.2 Limitation on Enforcement......................................24
Section 9 INSURANCE...............................................................24
Section 9.1 General........................................................24
Section 10 DISPUTE RESOLUTION......................................................25
Section 10.1 Binding Arbitration............................................25
Section 10.2 Arbitration....................................................25
Section 10.3 Treatment of Negotiation.......................................26
Section 10.4 Equitable Relief...............................................26
Section 10.5 Consolidation..................................................26
Section 11 TAX MATTERS.............................................................26
Section 11.1 Preparation of Tax Returns........................................26
Section 11.2 Responsibility for Taxes.......................................27
Section 11.3 Credits; Refunds...............................................28
Section 11.4 Carrybacks.....................................................28
Section 11.5 Payments.......................................................28
Section 11.6 Tax Contests...................................................28
Section 11.7 Cooperation....................................................29
Section 11.8 Tax Records....................................................29
Section 11.9 Interstate Hotels, LLC.........................................30
Section 12 MISCELLANEOUS...........................................................31
Section 12.1 Amendment and Waiver...........................................31
Section 12.2 Expenses.......................................................31
Section 12.3 Notices........................................................31
Section 12.4 Termination....................................................32
Section 12.5 Successors and Assigns.........................................32
Section 12.6 Entire Agreement: Parties in Interest..........................32
Section 12.7 Severability...................................................33
Section 12.8 Captions.......................................................33
Section 12.9 Annexes, Etc...................................................33
Section 12.10 Governing Law..................................................33
Section 12.11 Counterparts...................................................33
</TABLE>
(ii)
<PAGE> 4
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT ("Agreement") is dated as of June 18, 1999,
by and among Patriot American Hospitality, Inc., a Delaware corporation
("Patriot"), Wyndham International, Inc., a Delaware corporation ("Wyndham" and,
together with Patriot, "Patriot/Wyndham"), Interstate Hotels, LLC, a Delaware
limited liability company (the "LLC") and Interstate Hotels Corporation, a
Maryland corporation ("Interstate"). The parties hereto are more particularly
defined below.
WHEREAS, Patriot/Wyndham and Interstate Hotels Company ("Old
Interstate") entered into an Agreement and Plan of Merger dated as of December
2, 1997 pursuant to which Old Interstate agreed to merge with and into Patriot
(the "Merger");
WHEREAS, prior to the closing of the Merger, Marriott International,
Inc. ("Marriott") sued Old Interstate in the United States District Court for
the District of Maryland seeking to block the Merger, and the Merger was
temporarily enjoined in April 1998 pending a trial on the merits of Marriott's
claims;
WHEREAS, Patriot/Wyndham, Old Interstate and Marriott entered into a
settlement agreement originally dated May 27, 1998 (as amended to date, the
"Settlement Agreement"), permitting the Merger to close on June 2, 1998;
WHEREAS, the Settlement Agreement requires Patriot/Wyndham to (i)
transfer or cause the transfer of certain assets and liabilities to Interstate
or the LLC, which assets and liabilities consist principally of the third-party
hotel management business and certain ancillary operations which Patriot/Wyndham
acquired from Old Interstate in the Merger and (ii) distribute all of the
outstanding shares of common stock of Interstate (other than shares owned by
Patriot/Wyndham and/or its Affiliates and shares to be purchased by Marriott
and/or its Affiliates) to the holders of certain securities of Patriot and
Wyndham (the "Distribution"); and
WHEREAS, Patriot and Wyndham have transferred or caused to be
transferred prior to the date hereof a portion of the assets and liabilities
required to be transferred to Interstate or the LLC pursuant to the Settlement
Agreement; and
WHEREAS, Patriot and Wyndham intend to transfer or cause to be
transferred on the date hereof the remaining assets and liabilities required to
be transferred to Interstate or the LLC pursuant to the Settlement Agreement via
the transactions (the "Restructuring Transactions") set forth on Annex I hereto.
NOW, THEREFORE, in consideration of the foregoing and the other
agreements and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
<PAGE> 5
Section 1. DEFINITIONS.
Section 1.1 General. As used in this Agreement, capitalized terms
defined immediately after their use shall have the respective meanings thereby
provided and the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
Action: any action, claim, suit, arbitration, inquiry, subpoena,
discovery request, proceeding or investigation by or before any court or grand
jury, any governmental or other regulatory or administrative agency or
commission or any arbitration tribunal.
Affiliate: with respect to any specified person or entity, a person or
entity that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such specified
person or entity; provided, however, that, for purposes of this Agreement, (i)
Patriot/Wyndham and Interstate shall not be deemed to be Affiliates of each
other and (ii) Patriot and Wyndham shall be deemed to be Affiliates of each
other.
Affiliated Group: an affiliated group of corporations within the
meaning of Code section 1504(a) for the taxable period in question.
Agent: American Stock Transfer & Trust Company, the distribution agent
appointed by Patriot/Wyndham to distribute shares of Interstate Common Stock
pursuant to the Distribution.
Assumed Liabilities: collectively, all of the Liabilities and other
obligations of Patriot/Wyndham listed on Annex II hereto.
Books and Records: the books and records of Patriot/Wyndham (or true
and complete copies thereof), including all computerized books and records owned
by Patriot/Wyndham, which relate principally to the Interstate Business.
Code: the Internal Revenue Code of 1986, as amended.
Contributed Assets: collectively, all of the assets and properties of
Patriot/Wyndham identified on Annex III hereto. Certain of the Contributed
Assets will, pursuant to the Restructuring Transactions, be transferred or
assigned to Interstate and then transferred or assigned by Interstate to the
LLC, and certain of the Contributed Assets will be transferred or assigned
directly to the LLC. Notwithstanding the fact that such assets are ultimately
transferred to the LLC (in which Patriot/Wyndham or an Affiliate of
Patriot/Wyndham may own an equity interest) or any other Affiliate of
Interstate, such assets shall be deemed Contributed Assets for all purposes of
this Agreement.
2
<PAGE> 6
Conveyancing and Assumption Instruments: collectively, the various
agreements, instruments and other documents to be entered into in order to
effect the transfer to Interstate of the Contributed Assets, and the assumption
by Interstate or the LLC of the Assumed Liabilities, in the manner contemplated
by this Agreement and the Restructuring Memorandum attached as Annex I hereto.
Disclosing party: shall have the meaning set forth in Section 7.5.2
hereof.
Dispute: shall have the meaning set forth in Section 10.1 hereof.
Distribution: the distribution of 92% of the outstanding common stock
of Interstate to the holders of Patriot Securities, in accordance with the
provisions of Section 4.1 hereof, which shall be effective on the Distribution
Date.
Distribution Date: the date as of which the Distribution shall be
effected as determined by Patriot's and Wyndham's respective Boards of
Directors.
Distribution Transactions: shall have the meaning set forth in Section
4.1.1 hereof.
Form S-1: the Registration Statement on Form S-1 filed by Interstate
with the Securities and Exchange Commission to effect the registration of the
distribution of the Interstate Common Stock pursuant to the Securities Act, as
the same may be in effect as of the Distribution Date.
Indemnifiable Losses: with respect to any claim by an Indemnified Party
for indemnification authorized pursuant to Section 5 hereof, any and all losses,
liabilities, claims, damages, obligations, payments, costs and expenses
(including without limitation the costs and expenses of any and all Actions,
demands, assessments, judgments, settlements and compromises relating thereto
and reasonable attorneys' fees and disbursements in connection therewith)
suffered by such Indemnified Party with respect to such claim.
Indemnified Party: any person or entity who is entitled to receive
payment from an Indemnifying Party pursuant to Section 5 hereof.
Indemnifying Party: any party who is required to pay any other person
or entity pursuant to Section 5 hereof.
Indemnity Payment: the amount an Indemnifying Party is required to pay
an Indemnified Party pursuant to Section 5 hereof.
Information: shall have the meaning set forth in Section 7.2 hereof.
Information Statement/Prospectus: the Information Statement/Prospectus
to be sent to the holders of Patriot Securities in connection with the
Distribution.
3
<PAGE> 7
Insurance Proceeds: those monies received by an insured from an
insurance carrier or paid by an insurance carrier on behalf of the insured.
Interstate: means Interstate and each of its subsidiaries (immediately
following the Distribution, including the LLC), excluding for all purposes of
this Agreement the Patriot Excluded Knowledge Parties.
Interstate Business: means the business currently conducted by the
entities listed on Annex IV-A hereto, including without limitation, management
of the hotels listed on Annex IV-B hereto pursuant to the existing management
contracts, subject to the addition and subtraction of management contracts since
March 12, 1999.
Interstate Group: for each taxable period beginning on or after the
Distribution Date, the Affiliated Group of which Interstate is the common
parent, or if Interstate is not the common parent of an Affiliated Group, then
Interstate, in each case together with each foreign subsidiary or partnership
owned directly or indirectly by any such member during such period.
Interstate Common Stock: the common stock of Interstate, par value $.01
per share.
Interstate Excluded Knowledge Parties: means Interstate, each
subsidiary of Interstate (immediately following the Distribution, including the
LLC), and each employee and officer of Interstate and of each such subsidiary
immediately following the Distribution (notwithstanding that any such employee
or officer may have been an employee or officer of Patriot or Wyndham prior to
the Distribution).
Interstate Party: shall have the meaning set forth in Section 5.5
hereof.
Interstate's Knowledge: means the knowledge of Interstate, excluding
for all purposes the Patriot Excluded Knowledge Parties.
IRS: the United States Internal Revenue Service or any successor
thereto, including, but not limited to, its agents, representatives and
attorneys.
Liabilities: any and all debts, liabilities and obligations, whether or
not accrued, contingent (known or unknown) or reflected on a balance sheet,
including without limitation those arising under any law, rule, regulation,
Action, order or consent decree of any governmental entity or any judgment of
any court of any kind or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
Merger: shall have the meaning set forth in the first WHEREAS clause
hereof.
4
<PAGE> 8
Patriot Excluded Knowledge Parties: means Patriot and Wyndham, each
subsidiary of Patriot and Wyndham (immediately following the Distribution), and
each employee and officer of Patriot and Wyndham and of each such subsidiary
immediately following the Distribution.
Patriot Securities: means, collectively, Patriot/Wyndham Common Stock,
Patriot Series A Preferred Stock, Wyndham Series A and Series B Preferred Stock,
Patriot American Hospitality Partnership, L.P. common and preferred limited
partnership units and Wyndham International Operating Partnership, L.P. common
and preferred limited partnership units (counting, for purposes of this
definition, paired securities as one security).
Patriot's Knowledge: means the knowledge of Patriot/Wyndham, excluding
for all purposes the Interstate Excluded Knowledge Parties.
Patriot/Wyndham: means Patriot and Wyndham and each of their respective
subsidiaries (immediately following the Distribution).
Patriot/Wyndham Common Stock: the common stock of Patriot, par value
$.01 per share, and the common stock of Wyndham, par value $.01 per share,
shares of which are paired and trade together as a single unit.
Patriot/Wyndham Group: with respect to any taxable period, the
corporations that were members of any Affiliated Group of which Patriot, Wyndham
or any of their Affiliates was a member during such period, exclusive of the
corporations that are included in the Interstate Group immediately after the
Distribution Date, together with each foreign subsidiary or partnership owned
directly or indirectly by any such member during such period, other than LLC and
its subsidiaries and partnerships.
Patriot/Wyndham Insurance Policies: all policies and contracts of any
kind pursuant to which insurance carriers provide insurance coverage to
Patriot/Wyndham in respect of claims or occurrences relating to, without
limitation, property damage, business interruption, transit, extended coverage,
fiduciary liability, employee crime, general liability, products liability,
errors and omissions, automobile liability, employer's liability and workers'
compensation.
Patriot/Wyndham Obligations: shall have the meaning set forth in
Section 5.2.1 hereof.
Patriot/Wyndham Party: shall have the meaning set forth in Section 5.5
hereof.
Privilege: shall have the meaning set forth in Section 7.6.1 hereof.
Privileged Information: shall have the meaning set forth in Section
7.6.1 hereof.
Property Taxes: shall have the meaning set forth in Section 11.2.3
hereof.
Receiving party: shall have the meaning set forth in Section 7.5.2
hereof.
5
<PAGE> 9
Record Date: the date determined by Patriot/Wyndham's Board of
Directors as the record date for the Distribution.
Related Agreements: the Conveyancing and Assumption Instruments and the
Escrow Agreements.
Restructuring Transactions: those transactions effected in order to
transfer the Contributed Assets to Interstate or the LLC, as set forth on the
Restructuring Memorandum attached as Annex I hereto.
Retained Liabilities: collectively, all of the Liabilities and
obligations of Patriot/Wyndham listed on Annex V hereto.
Securities Act: the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
Sprint Contract: shall have the meaning set forth in Section 6.6
hereof.
Straddle Period: shall have the meaning set forth in Section 11.1
hereof.
Taxes: all Federal, state, local and foreign taxes, tariffs and charges
of any nature whatsoever (including all related interest and penalties).
Tax Returns: all returns, declarations of estimated tax payments,
reports, estimates, information returns and statements, including any related or
supporting information with respect to the foregoing, filed or required to be
filed with any governmental authority in connection with the determination,
assessment, collection or administration of Taxes.
Third-Party Claims. shall have the meaning set forth in Section 5.3.1
hereof.
Transaction Taxes: all Taxes (including without limitation all transfer
taxes and recording fees, and all interest and penalties related thereto),
incurred by any member of the Patriot/Wyndham Group or the Interstate Group
incurred as a result of the consummation of the Restructuring Transactions.
Section 2 REORGANIZATION AND RELATED TRANSACTIONS.
Section 2.1 The Reorganization.
Section 2.1.1 Subject to the terms and conditions of this Agreement,
Patriot, Wyndham, Interstate and the LLC shall use their respective best efforts
to cause, on or before the Distribution Date, (a) all of Patriot's and Wyndham's
right, title and interest in and to the Contributed Assets to be conveyed,
assigned, transferred and delivered to Interstate or the
6
<PAGE> 10
LLC, and (b) all of Patriot's and Wyndham's duties, obligations and
responsibilities under the Assumed Liabilities to be assumed by Interstate or
the LLC.
Section 2.1.2 Subject to Section 6.3 hereof, to the extent that any
such conveyances, assignments, transfers, deliveries and other transactions
shall not have been so consummated on or before the Distribution Date, Patriot,
Wyndham, Interstate and the LLC shall cooperate to effect such consummation as
promptly thereafter as shall be practicable, it nonetheless being understood and
agreed by Patriot, Wyndham, Interstate and the LLC that no such party shall be
liable in any manner to any person who is not a party to this Agreement for any
failure of any of the transfers contemplated by this Section 2 to be consummated
before, on or after the Distribution Date, other than any liability Patriot may
have to Marriott under the Settlement Agreement.
Section 2.l.3 In furtherance of the transfers and assumptions
contemplated by the foregoing Section 2.1.1 and subject to the terms of Section
5 hereof, Patriot/Wyndham and Interstate, as between the two of them,
acknowledge and agree as follows: (a) Patriot/Wyndham and its Affiliates shall
have no obligation or liability of any kind to Interstate or its Affiliates for
any condition existing at or prior to the Distribution Date or for any conduct,
act or omission by or on behalf of Patriot/Wyndham, its Affiliates or any other
person on, or at any time prior to, the Distribution Date, and Interstate and
its Affiliates shall have no claims, or right to bring a claim or Action,
against Patriot/Wyndham or its Affiliates with respect thereto, including
without limitation any claim or Action arising out of (i) the operation of the
Interstate Business on or before the Distribution Date, (ii) any advice, rights,
products or services made available to the Interstate Business, on or before the
Distribution Date, by Patriot/Wyndham, its Affiliates or any other person, (iii)
the Assumed Liabilities or (iv) the formation of Interstate and its Affiliates;
except for, and to the extent of, any responsibilities specifically retained by
Patriot/Wyndham or any of its Affiliates pursuant to the terms of this Agreement
or any of the Related Agreements; and (b) Interstate and its Affiliates shall
have no obligation or liability of any kind to Patriot/Wyndham or its Affiliates
for any condition existing at or prior to the Distribution Date or for any
conduct, act or omission by or on behalf of Interstate, its Affiliates or any
other person on, or at any time prior to, the Distribution Date, and
Patriot/Wyndham and its Affiliates shall have no claims, or right to bring a
claim or Action, against Interstate or its Affiliates with respect thereto,
including without limitation any claim or Action arising out of the Retained
Liabilities; except for, and to the extent of, any responsibilities specifically
assumed by Interstate or any of its Affiliates pursuant to the terms of this
Agreement or any of the Related Agreements.
Section 2.2 Consideration. In consideration of the conveyance,
assignment, transfer and delivery of the Contributed Assets being made pursuant
to Section 2.1 hereof, Interstate and the LLC agree to assume the Assumed
Liabilities and to issue and Interstate agrees to deliver to the Agent for
delivery to holders of Patriot Securities as of the Record Date certificates
representing the number of shares of Interstate Common Stock provided for in
Section 4.1 hereof.
7
<PAGE> 11
Section 2.3 Representations and Warranties.
Section 2.3.1 Patriot/Wyndham represents and warrants that, to
Patriot's Knowledge, assuming that all of the conveyances, assignments,
transfers, assumptions, deliveries and other transactions contemplated by this
Agreement are successfully consummated, the assets and liabilities of Interstate
and its subsidiaries will be as described in the financial statements (including
the pro forma financial data) included in the Form S-1 in all material respects.
Section 2.3.2 Patriot/Wyndham represents and warrants that, to
Patriot's Knowledge, assuming that all of the conveyances, assignments,
transfers, assumptions, deliveries and other transactions contemplated by this
Agreement are successfully consummated, the description of the Interstate
Business set forth under "BUSINESS--General," "--Operations," "--Hotel
Portfolio," "--Facilities" and "--Intellectual Property" in the Form S-1 will be
true and correct in all material respects.
Section 2.3.3 Interstate represents and warrants that, to Interstate's
Knowledge, assuming that all of the conveyances, assignments, transfers,
assumptions, deliveries and other transactions contemplated by this Agreement
are successfully consummated, the assets and liabilities of Interstate and its
subsidiaries will be as described in the financial statements (including the pro
forma financial data) included in the Form S-1 in all material respects.
Section 2.3.4 Interstate represents and warrants that, to Interstate's
Knowledge, assuming that all of the conveyances, assignments, transfers,
assumptions, deliveries and other transactions contemplated by this Agreement
are successfully consummated, the description of the Interstate Business set
forth under "BUSINESS--General," "--Operations," "--Hotel Portfolio,"
"--Facilities" and "--Intellectual Property" in the Form S-1 will be true and
correct in all material respects.
Section 2.3.5 To Patriot's Knowledge, the Contributed Assets are not
subject to any liens, pledges, mortgages, security interests, charges or other
encumbrances at the time of the Distribution, except as disclosed in the Form
S-1, including without limitation, explicit or implicit disclosure in the
financial statements contained in the Form S-1. Patriot/Wyndham has the right,
power and authority to take all actions to be taken by it as contemplated by
this Agreement. Patriot/Wyndham has, and will continue to have at the
Distribution Date, good and marketable title to the Contributed Assets. Subject
to Sections 2.1.2 and 6.3 hereof, on and after the Distribution Date, Interstate
or the LLC, as applicable, will own all of Patriot/Wyndham's right, title and
interest in and to the Contributed Assets. Notwithstanding the foregoing,
Patriot/Wyndham makes no representation or warranty with respect to ownership of
or title to any real property.
Section 2.3.6 To Patriot's Knowledge, since the date of the Merger
there have been no material amendments to or modifications of any management or
franchise agreements relating to the Interstate Business of which Interstate is
or was not aware.
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Section 3 ASSUMPTION AND RETENTION OF LIABILITIES.
Section 3.1 Assumed Liabilities. Upon the terms and subject to the
conditions set forth in this Agreement and in addition to any other Liabilities
expressly assumed by Interstate pursuant to this Agreement, the Related
Agreements or any other agreement contemplated by this Agreement, Interstate and
the LLC hereby agree with Patriot/Wyndham to assume, pay, perform and discharge
in due course any and all Assumed Liabilities.
Section 3.2 Retained Liabilities. Upon the terms and subject to the
conditions set forth in this Agreement and in addition to any other Liabilities
otherwise expressly retained by Patriot/Wyndham pursuant to this Agreement, the
Related Agreements or any other agreement contemplated by this Agreement,
Patriot/Wyndham hereby agrees with Interstate and the LLC that Patriot/Wyndham
shall pay, perform and discharge in due course any and all Retained Liabilities.
Section 4 THE DISTRIBUTION.
Section 4.1 The Distribution.
Section 4.1.1 On the Distribution Date, the transactions set forth on
Schedule 4.1.1 hereto (the "Distribution Transactions") shall be effected.
Section 4.1.2 On the Distribution Date, Patriot/Wyndham shall deliver
to the Agent the certificates for 10,000 shares of existing common stock of
Interstate which are owned by Patriot/Wyndham prior to the Distribution Date.
Upon receipt from Patriot/Wyndham or its transfer agent of a certificate as to
the number of Patriot Securities outstanding on the Record Date, Interstate
shall deliver to the Agent, for the benefit of holders of record of Patriot
Securities on the Record Date, a stock certificate representing, in the
aggregate (and rounded down to the nearest whole share), a number of shares
representing one share of Interstate Common Stock for every 30 Patriot
Securities outstanding on the Record Date, and shall instruct the Agent to
distribute as promptly as practicable following the Distribution Date to holders
of record of Patriot Securities on the Record Date, in accordance with the
Distribution Transactions set forth on Schedule 4.1.1, one share of Interstate
Common Stock for every 30 Patriot Securities and cash in lieu of fractional
shares of Interstate Common Stock in the manner provided in Section 4.2 hereof.
Notwithstanding that shares of Interstate Common Stock will be delivered by the
Agent directly to holders of Patriot Securities for convenience only to
facilitate the Distribution Transactions, such shares shall be deemed for all
purposes of this Agreement and otherwise to have been purchased, contributed
and/or distributed in accordance with the Distribution Transactions set forth on
Schedule 4.1.1, and Interstate and LLC agree to cooperate with Patriot/Wyndham
to execute any documentation requested by Patriot/Wyndham in furtherance of this
intention. Interstate agrees to provide to the Agent sufficient certificates in
such denominations as the Agent may request in order to effect the Distribution.
All of the shares of Interstate Common Stock issued in the Distribution shall be
fully paid, nonassessable and free of preemptive rights.
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Section 4.2 Fractional Shares. No certificate or scrip representing
fractional shares of Interstate Common Stock shall be issued as part of the
Distribution and, in lieu of receiving fractional shares, each holder of Patriot
Securities who would otherwise be entitled to receive a fractional share of
Interstate Common Stock pursuant to the Distribution will receive an amount in
cash (without interest), rounded to the nearest cent, determined by multiplying
$6.00 by the fraction of a share of Interstate Common Stock to which such holder
would otherwise be entitled.
Section 4.3 Patriot/Wyndham Board Action.
Section 4.3.1 This Agreement and the Related Agreements have been
approved by the Boards of Directors of Patriot and Wyndham and the consummation
of the transactions provided for herein or therein shall only be effected after
the Distribution has been declared by the Boards of Directors of Patriot and
Wyndham and the satisfaction of any other conditions as determined by the Boards
of Directors of Patriot and Wyndham.
Section 4.3.2 The Boards of Directors of Patriot and Wyndham, in their
sole discretion, shall establish the Record Date and the Distribution Date and
all appropriate procedures to be followed by holders of Patriot Securities in
connection with the Distribution.
Section 5 SURVIVAL, INDEMNIFICATION, CLAIMS, AND OTHER
MATTERS.
Section 5.1 Survival of Agreements.
Section 5.1.1 All covenants and agreements of the parties in this
Agreement shall survive the Distribution Date.
Section 5.1.2 Except as specifically provided herein, the provisions of
this Section 5 shall terminate and be of no further force and effect on the
tenth anniversary of the Distribution Date. Such termination shall in no way
limit the obligations of Interstate with respect to the Assumed Liabilities or
the obligations of Patriot/Wyndham with respect to the Retained Liabilities and
the indemnification rights under this Agreement pertaining to the Assumed
Liabilities and the Retained Liabilities, which shall survive indefinitely.
Section 5.2 Indemnification.
Section 5.2.1 Patriot/Wyndham shall indemnify, defend and hold harmless
Interstate, each of its directors, officers, employees and agents and each
Affiliate of Interstate from and against any and all Indemnifiable Losses of
Interstate or any of its Affiliates arising out of or due to, directly or
indirectly, (a) Third-Party Claims in connection with any of the Retained
Liabilities, (b) Third-Party Claims which assert that the information included
in the Information Statement/Prospectus or the Form S-1 under the captions set
forth on Schedule 5.2.1(a) hereto is false or misleading with respect to any
material fact or omits to state any
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material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, (c) Third-Party Claims which assert that Patriot/Wyndham or its
Affiliates failed to perform, or violated, any provision of this Agreement which
is to be performed or complied with by Patriot/Wyndham or its Affiliates, (d)
breaches of this Agreement by Patriot/Wyndham or its Affiliates, (e) the
obligations (the "Patriot/Wyndham Obligations") set forth on Schedule 5.2.1(b)
hereto (but only up to the maximum amounts specified on said Schedule 5.2.1(b)),
(f) any payments the LLC is obligated to make under that certain letter
agreement, dated January 1, 1999, from the LLC (and consented to by IHC Realty
Corporation) addressed to Connecticut General Life Insurance Company regarding
Interstone/CGL (WC) Partners L.P., for so long as the Warner Center Marriott is
the subject of a lease to an Affiliate of Patriot or (g) Third-Party Claims in
connection with the utilization of liquor licenses issued to Interstate or an
Affiliate of Interstate (and the related operation of the bars, lounges and
liquor facilities subject to such liquor licenses) for the benefit of hotels
owned by Patriot/Wyndham and not managed by Interstate, which claims arise
during the period prior to the applicable liquor license being transferred or
assigned to Patriot/Wyndham or an Affiliate of Patriot/Wyndham.
Section 5.2.2 Interstate shall indemnify, defend and hold harmless
Patriot/Wyndham, each of its directors, officers, employees and agents and each
Affiliate of Patriot/Wyndham from and against any and all Indemnifiable Losses
of Patriot/Wyndham or any of its Affiliates arising out of or due to, directly
or indirectly, (a) Third-Party Claims in connection with any of the Assumed
Liabilities, (b) Third-Party Claims which assert that the information included
in the Information Statement/Prospectus or the Form S-1 under the captions set
forth on Schedule 5.2.2 hereto is false or misleading with respect to any
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, (c) Third-Party Claims
which assert that Interstate or its Affiliates failed to perform, or violated,
any provision of this Agreement which is to be performed or complied with by
Interstate or its Affiliates, (d) breaches of this Agreement by Interstate or
its Affiliates, (e) Third-Party Claims in connection with the utilization of
liquor licenses issued to Patriot/Wyndham or an Affiliate of Patriot/Wyndham
(and the related operation of the bars, lounges and liquor facilities subject to
such liquor licenses) for the benefit of Interstate and the Interstate Business
for the period from the Distribution Date until the applicable liquor license is
transferred or assigned to Interstate or an Affiliate of Interstate or (f) the
guaranty by Wyndham of Interstate's obligations set forth in three Franchise
Agreements with Holiday Inns (the "Holiday Inns Hotels").
Section 5.2.3 Amounts required to be paid pursuant to this Section 5
are hereinafter collectively called "Indemnity Payments" and are individually
called an "Indemnity Payment." The amount which any party (an "Indemnifying
Party") is required to pay to any other party (an "Indemnified Party") pursuant
to Section 5.2.1 or Section 5.2.2 shall be reduced (including retroactively) by
any Insurance Proceeds or other amounts actually recovered by such Indemnified
Party in reduction of the related Indemnifiable Loss. If an Indemnified Party
shall have received an Indemnity Payment in respect of an Indemnifiable Loss and
shall
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subsequently actually receive Insurance Proceeds or other amounts (such as
judgment or settlement amounts) in respect of such Indemnifiable Loss, then such
Indemnified Party shall pay to such Indemnifying Party a sum equal to the lesser
of the amount of such Insurance Proceeds or other amounts actually received or
the net amount of Indemnity Payments actually received previously. The
Indemnified Party agrees that the Indemnifying Party shall be subrogated to such
Indemnified Party under any insurance policy. In addition, any amount required
to be paid by an Indemnifying Party to an Indemnified Party pursuant to Section
5.2.1 or 5.2.2 of this Agreement shall be net of any actual Tax benefit realized
by the Indemnified Party or its Affiliates as a result of incurring an
Indemnifiable Loss, calculated using the actual statutory rate (or rates, in the
case of an item that affects more than one Tax) applicable to the recipient of
such payment for the relevant year in which the Tax benefit is realized. In lieu
of providing any confidential information necessary for the determination of the
"actual Tax benefit" resulting from the payment of any amount under this
Agreement or any Indemnifiable Loss, Patriot/Wyndham or Interstate, as the case
may be, may provide to the other party a certification of such amount from a
nationally recognized independent certified public accountant, reasonably
acceptable to such other party, which certification shall explain in reasonable
detail the method for determining such amount.
Section 5.2.4 The parties acknowledge that the Restructuring
Transactions have been structured such that the Contributed Assets are
contributed to the LLC in a manner, and by the appropriate entities, so that
following the Restructuring Transactions Patriot/Wyndham or an Affiliate of
Patriot Wyndham will own a 55% economic interest in the LLC and Interstate will
own a 45% economic interest in the LLC. The parties agree that, in the event
that an Indemnity Payment must be made to LLC pursuant to this Section 5.2, such
Indemnity Payment will be made on behalf of Patriot/Wyndham, on the one hand, or
Interstate, on the other hand, by the entity that contributed the asset (or
retained the liability) that gave rise to the obligation to make the Indemnity
Payment (as set forth on the Restructuring Memorandum), so that following the
making of any such Indemnity Payment, the respective ownership percentages in
the LLC will remain as they were prior to the making of such Indemnity Payment,
and Interstate and LLC will cooperate with Patriot/Wyndham to execute any
documentation necessary to effect the foregoing.
Section 5.2.5 PATRIOT/WYNDHAM'S AND INTERSTATE'S RESPECTIVE OBLIGATIONS
PURSUANT TO SECTION 5.2.1(d) AND SECTION 5.2.2(d) SHALL BE LIMITED TO DIRECT AND
ACTUAL DAMAGES, TO THE EXCLUSION OF INCIDENTAL, CONSEQUENTIAL OR SPECIAL
DAMAGES. THIS SECTION 5.2.5 SHALL NOT APPLY TO (a) ANY FAILURE BY INTERSTATE OR
ITS AFFILIATES TO ASSUME, PAY, PERFORM OR DISCHARGE ANY AND ALL ASSUMED
LIABILITIES OR (b) ANY FAILURE BY PATRIOT/WYNDHAM OR ITS AFFILIATES TO PAY,
PERFORM OR DISCHARGE ANY AND ALL RETAINED LIABILITIES OR (c) ANY BREACH BY
PATRIOT/WYNDHAM OR INTERSTATE OF THEIR RESPECTIVE INDEMNITY OBLIGATIONS UNDER
THIS AGREEMENT, INCLUDING THE INDEMNITY OBLIGATIONS SET FORTH IN THIS SECTION 5.
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Section 5.2.6 Indemnification obligations contained elsewhere in this
Agreement shall be subject to the provisions of this Section 5.
Section 5.3 Procedure for Indemnification of Third-Party Claims.
Section 5.3.1 If any party shall receive notice of any claim or Action
brought, asserted, commenced or pursued by any person or entity not a party to
this Agreement (herein referred to as a "Third Party Claim"), with respect to
which any other party is or may be obligated to make an Indemnity Payment, it
shall give such other party prompt written notice thereof (including any
pleadings relating thereto) after becoming aware of such Third Party Claim,
specifying in reasonable detail the nature of the Third Party Claim and the
amount or estimated amount thereof to the extent then feasible (which estimate
shall not be conclusive of the final amount of such claim); provided, however,
that the failure of a party to give notice as provided in this Section 5.3.1
shall not relieve any other party of its indemnification obligations under this
Section 5, except to the extent that such other party is actually prejudiced by
such failure to give notice.
Section 5.3.2 The Indemnifying Party may elect to defend or seek to
settle or compromise any Third Party claim as to which a claim for
indemnification hereunder has been asserted, at the Indemnifying Party's own
expense and by counsel selected by the Indemnifying Party and reasonably
acceptable to the Indemnified Party, by so notifying the Indemnified Party
within thirty (30) days after the Indemnified Party has given notice of the
Third Party Claim in accordance with Section 5.3.1 hereof (or such earlier time
as may be necessary for the Indemnified Party to submit a responsive pleading
required in connection with the Third Party Claim). Unless the Indemnifying
Party fails to assume the defense or to seek to settle or compromise the Third
Party Claim in a timely manner, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense, settlement or compromise
of the Third Party Claim; provided, however, that if, in the reasonable judgment
of the Indemnified Party based on the advice of counsel, a conflict of interest
between the Indemnified Party and the Indemnifying Party exists with respect to
the Third Party Claim, then the Indemnified Party shall have the right to employ
one counsel selected by it and reasonably acceptable to the Indemnifying Party
and, in that event, the reasonable fees and expenses of such separate counsel
shall be paid by the Indemnifying Party. Once the Indemnifying Party has assumed
the defense of any Third Party Claim, it must actively and diligently defend or
seek to settle or compromise the Third Party Claim until conclusion of the
matter, unless the Indemnified Party agrees to the Indemnifying Party's
withdrawal.
Section 5.3.3 If the Indemnifying Party responds to a notice of Third
Party Claim by denying its obligation to indemnify the person or entity claiming
a right of defense and indemnification under this Agreement, or if the
Indemnifying Party fails to defend or seek to settle or compromise such Third
Party Claim in a timely manner, the Indemnified Party shall be entitled to
defend or seek to settle or compromise such Third Party Claim by counsel
selected by it. In addition, if it is later determined, through procedures
referenced in Section
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10 of this Agreement, or by agreement of the parties, that the Indemnifying
Party wrongly denied its indemnification obligation with respect to, or failed
to timely defend or seek to settle or compromise, such claim, then the
Indemnifying Party shall (a) reimburse the Indemnified Party for all costs and
expenses (other than salaries of officers and employees) reasonably incurred by
the Indemnified Party in connection with its defense, settlement or compromise
of the Third Party Claim and (b) be estopped from challenging a judgment, order,
settlement or compromise resolving the Third Party Claim entered into in good
faith by the Indemnified Party (if such claim has been resolved prior to the
conclusion of the proceeding between the Indemnified Party and the Indemnifying
Party). The Indemnifying Party, after initially rejecting a claim for defense or
indemnification by the Indemnified Party, may, at any time prior to the
resolution of the Third Party Claim, assume the defense of or seek to settle or
compromise said claim provided that (i) the Indemnifying Party reimburses the
Indemnified Party for all costs and expenses (other than salaries of officers
and employees) reasonably incurred by the Indemnified Party in connection with
the defense of such claim (including costs incurred in the transition of the
defense from the Indemnified Party to the Indemnifying Party) and (ii) the
assumption of the defense of the Third Party Claim will not prejudice or cause
harm to the Indemnified Party.
Section 5.3.4 With respect to any Third Party Claim relating to any
matter subject to a claim for indemnification hereunder, no party shall enter
into any compromise or settlement or consent to the entry of any judgment which
(a) does not include as a term thereof the giving by the third party of a
release to the Indemnified Party of all further liability in respect of such
Third Party Claim or (b) imposes any obligation on the Indemnified Party without
said Indemnified Party's written consent (which consent shall not be
unreasonably withheld), except an obligation to pay money which the Indemnifying
Party has agreed to pay on behalf of the Indemnified Party. In the event that an
Indemnified Party enters into any such compromise, settlement or consent without
the written consent of the Indemnifying Party (other than as contemplated by
Section 5.3.3 hereof), the entry of such compromise, settlement or consent shall
relieve the Indemnifying Party of its indemnification obligation related to the
Third Party Claim underlying such compromise, settlement or consent.
Section 5.3.5 Upon final judgment, determination, settlement or
compromise of any Third Party Claim, and unless otherwise agreed to by the
parties in writing, the Indemnifying Party shall pay promptly on behalf of the
Indemnified Party, or to the Indemnified Party in reimbursement of any amount
theretofore required to be paid by it, the amount so determined by final
judgment, determination, settlement or compromise. Upon the payment in full by
the Indemnifying Party of such amount, the Indemnifying Party shall succeed to
the rights of such Indemnified Party to the extent not waived in settlement,
against the third party who made such Third Party Claim and any other person who
may have been liable to the Indemnified Party with respect to such Third Party
Claim.
Section 5.3.6 If the Indemnifying Party elects to defend or to seek to
settle or compromise the Third Party Claim, the Indemnified Party shall make
available to the Indemnifying Party any personnel or any books, records or other
documents within its control
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or which it otherwise has the ability to make available that are necessary or
appropriate for such defense, settlement or compromise, and shall otherwise
cooperate in the defense, settlement or compromise of the Third Party Claim;
provided, however, that nothing in this Section 5.3.6 shall be deemed to require
the waiver of any privilege, including attorney-client privilege, or protection
afforded by the attorney work product doctrine. In addition, regardless of the
party actually defending a Third Party Claim for which there is an indemnity
obligation under Section 5.2 hereof, the parties shall give each other regular
status reports relating to such action with detail sufficient to permit the
other party to assert and protect its rights and obligations under this
Agreement.
Section 5.3.7 The provisions of this Section 5.3 shall survive in
perpetuity and shall be the exclusive procedures for any Third Party Claims
subject to the provisions of Section 5.2.1 or 5.2.2 hereof.
Section 5.4 Other Claims. Any claim on account of an Indemnifiable Loss
which does not result from a Third Party Claim shall be asserted by written
notice from the Indemnified Party to the Indemnifying Party. The Indemnifying
Party shall have a period of sixty (60) days (or such shorter time period as may
be required by law as indicated by the Indemnified Party in the written notice)
within which to respond. If the Indemnifying Party does not respond within such
sixty (60) day (or lesser) period, the Indemnifying Party shall be deemed to
have accepted responsibility to make payment and shall have no further right to
contest the validity of such claim. If the Indemnifying Party does respond
within such sixty (60) day (or lesser) period and rejects such claim in whole or
in part, the Indemnified Party shall be free to pursue resolution of the matter
as provided in Section 10 hereof.
Section 5.5 Certain Losses. If the indemnification provided for in
Section 5.2 is unavailable to an Indemnified Party in respect of any
Indemnifiable Loss arising out of or related to information contained in the
Information Statement/Prospectus or the Form S-1, then the Indemnifying Party,
in lieu of indemnifying the Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Indemnifiable
Loss, in such proportion as is appropriate to reflect the relative fault of
Interstate, each of its directors, each of its officers who have signed any
registration statement and each Affiliate of Interstate (an "Interstate Party")
on the one hand and Patriot/Wyndham and each Affiliate of Patriot/Wyndham (a
"Patriot/Wyndham Party") on the other hand in connection with the statements or
omissions which resulted in such Indemnifiable Loss.
Section 5.6 No Third Party Beneficiaries. Except to the extent
expressly provided otherwise in this Section 5, the indemnification provided for
by this Section 5 shall not inure to the benefit of any third party or parties
and shall not relieve any insurer who would otherwise be obligated to pay any
claim of the responsibility with respect thereto or, solely by virtue of the
indemnification provisions hereof, provide any subrogation rights with respect
thereto and each party agrees to waive such rights against the other to the
fullest extent permitted.
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Section 5.7 Named Parties. The parties hereto acknowledge that it may
not be feasible to substitute Interstate (or one of its Affiliates) for
Patriot/Wyndham (or one of its Affiliates) as a named party in Actions, whether
domestic or foreign, in respect of Assumed Liabilities. In such event,
Patriot/Wyndham (or one of its Affiliates) shall remain as a named party, but,
following the Distribution Date, Interstate (or one of its Affiliates) shall
assume the defense of any such Action in accordance with the provisions of
Section 5.3 hereof and Patriot/Wyndham and its Affiliates shall cooperate with
Interstate as contemplated by Section 5.3 and Section 7 hereof.
Section 6 CERTAIN ADDITIONAL MATTERS.
Section 6.1 Conveyancing and Assumption Instruments. In connection with
the transfer, conveyance, assignment and delivery of the Contributed Assets and
the assumption of the Assumed Liabilities contemplated by this Agreement,
Patriot/Wyndham and Interstate agree to execute or cause to be executed by the
appropriate parties and to deliver to each other, as appropriate, the
Conveyancing and Assumption Instruments.
Section 6.2 No Representations or Warranties. Except as provided in
Sections 2.1 and 2.3 hereof, Interstate understands and agrees that
Patriot/Wyndham is not in this Agreement or in any other agreement or document
contemplated by this Agreement, representing or warranting in any way as to the
value or condition of any Contributed Assets, IT BEING UNDERSTOOD THAT ALL SUCH
ASSETS ARE BEING TRANSFERRED "AS IS, WHERE IS" and without any representation or
warranty of any kind, express or implied (the implied warranties of
merchantability and fitness for a particular purpose being hereby specifically
disclaimed). Similarly, Interstate understands and agrees that Patriot/Wyndham
is not, in this Agreement or in any other agreement or document contemplated by
this Agreement, representing or warranting in any way that the obtaining of the
consents or approvals, the execution and delivery of any amendatory agreements,
and the making of the filings and applications, in each case contemplated by
this Agreement, shall satisfy the provisions of all applicable laws or
judgments, it being understood and agreed that, subject to Section 6.3 hereof,
Interstate shall bear the economic and legal risk that any necessary consents or
approvals are not obtained or that any requirements of law or judgments are not
complied with. Nothing in this Section 6.2 is intended to or shall modify any
rights or obligations of Patriot/Wyndham or Marriott under the Settlement
Agreement.
Section 6.3 Further Assurances; Subsequent Transfers.
Section 6.3.1 Each of Patriot/Wyndham and Interstate will execute and
deliver such further instruments of conveyance, transfer and assignment and will
take such other actions as each of them may reasonably request of the other in
order to effectuate the purposes of this Agreement and to carry out the terms
hereof. Without limiting the generality of the foregoing, at any time and from
time to time after the Distribution Date, at the request of Interstate and
without the payment of any further consideration, Patriot/Wyndham will execute
and deliver to Interstate or the LLC all other instruments of transfer,
conveyance, assignment and
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confirmation and take such other action as Interstate may reasonably request in
order to more effectively transfer, convey and assign to Interstate or the LLC
and to confirm Interstate's or the LLC's title to all of the Contributed Assets,
to put Interstate or the LLC in actual possession and operating control thereof
and to permit Interstate or the LLC to exercise all rights with respect thereto
(including without limitation rights under contracts and other arrangements as
to which the consent of any required third party to the transfer thereof shall
not have previously been obtained) and Interstate and the LLC will execute and
deliver to Patriot/Wyndham all instruments, undertakings or other documents and
take such other action as Patriot/Wyndham may reasonably request in order to
have Interstate or the LLC fully assume and discharge the Assumed Liabilities
and relieve Patriot/Wyndham of any Liability or obligations with respect thereto
and evidence the same to third parties. The transfers, conveyances and
assignments made, if any, pursuant to this Section 6.3 shall be structured and
effected consistent with the Restructuring Transactions and the parties hereto
will cooperate with each other in executing documentation to effect the
foregoing. Notwithstanding the foregoing, Patriot/Wyndham, Interstate and the
LLC shall not be obligated, in connection with the foregoing, to expend monies
other than reasonable out-of-pocket expenses and attorneys' fees.
Section 6.3.2 Patriot/Wyndham and Interstate will use their respective
reasonable efforts to obtain any consent, approval or amendment required to
novate and/or assign all agreements, leases, licenses and other rights of any
nature whatsoever relating to the Contributed Assets to Interstate or the LLC;
provided, however, that Patriot/Wyndham shall not be obligated to pay any
consideration therefor (except for filing fees and other administrative charges)
to the third party from whom such consents, approvals and amendments are
requested. In the event and to the extent that Patriot/Wyndham is unable to
obtain any such required consent, approval or amendment, then to the extent
feasible and permissible (a) Patriot/Wyndham shall continue to be bound thereby
and (b) Interstate or the LLC shall pay, perform and discharge fully all the
obligations of Patriot/Wyndham thereunder from and after the Distribution Date
and indemnify Patriot/Wyndham for all Indemnifiable Losses arising out of such
performance by Interstate or the LLC. Patriot/Wyndham shall, without the payment
of any further consideration, pay and remit to Interstate or the LLC promptly
any monies, rights and other considerations received in respect of such
performance. Patriot/Wyndham shall exercise or exploit its rights and options
under all such agreements, leases, licenses and other rights and commitments
referred to in this Section 6.3.2 only as reasonably directed by Interstate and
at Interstate's expense. If and when any such consent shall be obtained or such
agreement, lease, license or other right shall otherwise become assignable or
able to be novated, Patriot/Wyndham shall promptly assign and novate all its
rights and obligations thereunder to Interstate or the LLC without payment of
further consideration and Interstate or the LLC shall, without the payment of
any further consideration, assume such rights and obligations. To the extent
that the assignment of any contract or agreement (or their proceeds) pursuant to
this Section 6.3 is prohibited by law or not otherwise obtained, the assignment
provisions of this Section shall operate to create a subcontract with Interstate
or the LLC to perform each relevant unassignable Patriot/Wyndham contract at a
subcontract price equal to the monies, rights and other considerations received
by
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Patriot/Wyndham with respect to the performance by Interstate or the LLC under
such subcontract.
Section 6.3.3 Without limiting the generality of the foregoing Sections
6.2.1 and 6.2.2, Patriot/Wyndham and Interstate agree that, to the extent that
authorizations from the necessary liquor and alcoholic beverage authorities to
permit (i) Interstate or the LLC to utilize all liquor licenses required for the
operation of the Interstate Business and (ii) Patriot/Wyndham to utilize all
liquor licenses required for the operation of the business being retained by
Patriot/Wyndham have not been received on or before the Distribution Date: (a)
Patriot/Wyndham and Interstate or the LLC will as soon as practicable execute
all such forms, applications and other documents required by the applicable
liquor and alcoholic beverage authorities in order that all necessary liquor
licenses may be utilized by Interstate or the LLC in operating the Interstate
Business and Patriot/Wyndham in operating the business which it is retaining;
and (b) Patriot/Wyndham, Interstate and the LLC will cooperate to the extent
reasonably necessary to keep open the bars and lounges and liquor facilities
used in the operation of the Interstate Business and Patriot/Wyndham's business
between the Distribution Date and the time when the requisite liquor license
transfers actually become effective.
Section 6.4 Interstate Officers and Directors. Interstate and
Patriot/Wyndham shall take all actions which may be required to elect or
otherwise appoint, as of or before the Distribution Date, those individuals
designated in the Information Statement/Prospectus to be directors or officers
of Interstate.
Section 6.5 Related Agreements. As of the Distribution Date,
Patriot/Wyndham and Interstate shall, and if applicable shall cause their
Affiliates to, enter into the Related Agreements.
Section 6.6 Joint Purchasing Arrangements. Interstate acknowledges that
Patriot/Wyndham has entered into a Telecommunications Services Term Agreement
with Sprint Communications Company L.P. and ASC Telecom, Inc. (as amended to
date, the "Sprint Contract") and that the terms of the Sprint Contract were
negotiated by Patriot/Wyndham in reliance in part upon use of telephone service
under the Sprint Contract by the hotels operated by the Interstate Business.
Interstate agrees that all hotels operated by the Interstate Business shall be
subject to the terms of the Sprint Contract until October 1, 2001; provided,
however, that if Interstate is requested by a third-party owner to cancel such
Sprint Contract with respect to such owner's hotel(s) (and such owner has the
right to do so under the relevant management contract), then Interstate or its
subsidiary may terminate such contract with respect to such hotel(s) (without
payment of any penalty or fee). Other than the Sprint Contract, there shall be
no cost-sharing, joint purchasing or other material contractual relationships
between Patriot/Wyndham and Interstate or the LLC following the Distribution
Date other than (i) an equity interest in Interstate and the LLC, (ii) a seat on
the board of directors of Interstate and (iii) the ownership by Patriot/Wyndham
of certain hotels managed by the LLC. In accordance with the respective
Management Agreements, Patriot/Wyndham may bind any of the hotels owned by them
and managed by Interstate (or its subsidiaries) with
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any global or master purchasing contracts. With the exception of the Sprint
Contract, all other Patriot/Wyndham purchasing or similar contracts with respect
to the hotels operated by the Interstate Business are terminable by Interstate
and the LLC, and neither Interstate nor the LLC shall have any liability or
obligation in respect of any of Patriot/Wyndham's purchasing or similar
contracts, whether such contracts were entered into before or after the
Distribution Date.
Section 6.7 St. Louis Marriott West. Patriot/Wyndham covenants and
agrees that, after the Distribution Date, it will not exercise any of its
buy/sell rights in respect of its interest in the St. Louis Marriott West if
such exercise could reasonably be anticipated to result in the termination of
Interstate's management contract in respect of the St. Louis Marriott West.
Section 6.8 Divestiture Payments. On the Distribution Date, Patriot
will pay or cause to be paid all amounts not in dispute that are then currently
past due to Marriott or any other franchisor under any franchise or license
agreement for all Patriot-owned hotels to be operated by Interstate or its
subsidiaries.
Section 6.9 Settlement Agreement Provisions. Interstate hereby
acknowledges and agrees that the Sixth Amendment to Settlement Agreement, dated
as of May 14, 1999, among Marriott, Patriot and Wyndham (the "Sixth Amendment")
contemplates a "true-up" following the Distribution of Interstate's working
capital as of April 30, 1999. Accordingly, Interstate hereby covenants and
agrees that:
(i) Interstate will deliver to Patriot and Marriott the Unaudited
Pro Forma Combined Balance Sheet dated as of April 30, 1999
referred to in Section 3(d)3 of the Sixth Amendment within
thirty days of the Distribution Date;
(ii) Interstate will cooperate in good faith with Patriot and
Marriott to resolve any disputes between Patriot and Marriott
with respect to such balance sheet; and
(iii) Interstate will make the payments, if any, to Patriot
described in the Sixth Amendment.
The parties hereto agree that any payments made pursuant to the
"true-up" provision in Section 3(d)3 of the Sixth Amendment represent an
adjustment to the contributions to Interstate pursuant to the Reorganization
Transactions and Interstate agrees to execute any documents requested by Patriot
in furtherance of the foregoing intention.
Section 6.10 Limitation on Claims. Neither Patriot/Wyndham, on the one
hand, nor Interstate, on the other hand, shall be entitled to assert any claim
hereunder (other than under Sections 2.3.2 or 2.3.3) for any misrepresentation
by the other party if the party attempting to assert such claim had knowledge,
on or prior to the Distribution Date, of any facts which should reasonably have
put such asserting party on notice that the alleged misrepresentation was not
true. Any determination hereunder whether Patriot/Wyndham, on the one hand, or
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Interstate, on the other hand, had "knowledge" of particular facts regarding an
alleged misrepresentation shall be made to Patriot's Knowledge, with respect to
Patriot/Wyndham, and to Interstate's Knowledge, with respect to Interstate.
Section 6.11 The Charles. Patriot/Wyndham and Interstate acknowledge
that the equity interests in the Charles Hotel Complex are being contributed to
the LLC subject to an agreement to sell such interests to a third party (such
agreement, together with all other instruments executed or to be executed in
connection with such sale, being collectively referred to herein as the "Charles
Sale Contract"), the LLC has assumed the obligations of the seller under the
Charles Sale Contract and Interstate has guaranteed the performance of the
seller under the Charles Sale Contract. The LLC and Interstate acknowledge that
the sale of the Charles pursuant to the Charles Sale Contract is a material
benefit to the LLC, Interstate and Patriot/Wyndham. Accordingly, the LLC and
Interstate agree that (i) Interstate and the LLC shall in good faith perform
their obligations under the Charles Sale Contract, as the same may be amended
with Patriot/Wyndham's approval (not to be unreasonably withheld or delayed);
(ii) neither Interstate nor the LLC shall enter into any modification or
termination of the Charles Sale Contract, assign or otherwise transfer any of
the rights or interests either of them may have under the Charles Sale Contract,
or waive any rights either of them may have under the Charles Sales Contract, in
each such case without Patriot/Wyndham's prior written approval (not to be
unreasonably withheld or delayed), (iii) Interstate and the LLC shall keep
Patriot/Wyndham informed as to all discussions and negotiations with the
purchase of such interests; and (iv) Patriot/Wyndham shall be entitled to
discuss the status of the transaction and any open issues directly with the
purchaser or its agent or representative (in which case Patriot/Wyndham shall
keep Interstate informed as to such discussions). In addition, if at any time
the Charles Sales Contract terminates, or the purchaser defaults in its
obligation to close the sale thereunder, or it becomes evident that the sale
contemplated thereunder is not going to occur, then Interstate and the LLC agree
that (1) Interstate shall promptly market the sale of such equity interests to
other third parties, and shall use its best efforts to enter into a binding
purchase and sale agreement to sell such equity interests prior to the first
anniversary of the Distribution Date, in which case Patriot/Wyndham shall have
the same rights with respect to such contract and the purchaser thereunder as
the rights described in clauses (i) through (iv) above; (2) Patriot/Wyndham
shall be entitled to participate in the negotiations, and to initiate
negotiations, with any third party interested in acquiring the equity interests
in the Charles; and (3) Patriot/Wyndham shall have reasonable approval rights
over the terms and conditions of any such purchase and sale agreement; and (4)
to the extent that Interstate or the LLC can enter into an agreement to sell the
equity interests in the Charles that puts Interstate and the LLC in
substantially the same position Interstate would have been in had the purchaser
closed on the sale in accordance with the Charles Sale Contract, then at
Patriot/Wyndham's request, Interstate and the LLC shall enter into such an
agreement and in good faith perform their obligations thereunder.
Section 6.12 Holiday Inns. Interstate covenants and agrees that it
shall cooperate with Patriot/Wyndham to remove Wyndham and insert Interstate as
the guarantor for the Franchise Agreements relating to the Holiday Inns Hotels.
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Section 7 ACCESS TO INFORMATION AND SERVICES.
Section 7.1 Provision of Corporate Records. As soon as practicable
after the Distribution Date, Patriot/Wyndham shall deliver to Interstate all
Books and Records in its possession. Such Books and Records shall be the
property of Interstate, but shall be retained and made available readily to
Patriot/Wyndham for review and duplication until the earlier of (a) notice from
Patriot/Wyndham that such records are no longer needed by Patriot/Wyndham or (b)
the eighth anniversary of the Distribution Date.
Section 7.2 Access to Information. From and after the Distribution
Date, Patriot/Wyndham and Interstate shall afford to each other and to each
other's authorized accountants, counsel and other designated representatives
reasonable access and duplicating rights (with copying costs to be borne by the
requesting party) during normal business hours to all books and records and
documents, communications, items and matters to the extent such material is not
subject to a Privilege (as defined in Section 7.6 hereof) that would be waived
by delivery of such material and does not relate to any actual or potential
claim or dispute between the parties to this Agreement or between
Patriot/Wyndham and Marriott or any of its Affiliates (collectively,
"Information") within each other's knowledge, possession or control and relating
to the Contributed Assets, the Interstate Business, the Assumed Liabilities and
the Retained Liabilities, insofar as such access is reasonably required by
Patriot/Wyndham or Interstate, as the case may be (and each party shall use
reasonable efforts to cause persons or firms possessing relevant Information to
give similar access). Information may be requested under this Section 7 for,
without limitation, audit, accounting, claims, Actions, litigation and tax
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations, but not for competitive purposes.
Section 7.3 Production of Witnesses and Individuals. From and after the
Distribution Date, Patriot/Wyndham and Interstate shall each use reasonable
efforts to make available to each other, upon written request, its officers,
directors, employees and agents for fact finding, consultation and interviews
and as witnesses to the extent that any such person may reasonably be required
in connection with any Actions in which the requesting party may from time to
time be involved relating to the conduct of the Interstate Business or
Patriot/Wyndham's other businesses prior to the Distribution Date. Except as
otherwise agreed between the parties, Patriot/Wyndham and Interstate agree to
reimburse each other for reasonable out-of-pocket expenses (but not labor
charges or salary payments) incurred by the other in connection with providing
individuals and witnesses pursuant to this Section 7.3.
Section 7.4 Retention of Records. Except when a longer retention period
is otherwise required by law or agreed to in writing, Patriot/Wyndham and
Interstate shall retain, for a period of at least eight (8) years following the
Distribution Date, all material Information relating to the Interstate Business.
Notwithstanding the foregoing or any other provision hereof, in lieu of
retaining any specific Information, Patriot/Wyndham or Interstate may offer in
writing to deliver such Information to the other and, if such offer is not
accepted within ninety (90) days, the offered Information may be destroyed or
otherwise disposed of at any
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time. If the recipient of such offer shall request in writing prior to the
scheduled date for such destruction or disposal that any of the Information
proposed to be destroyed or disposed of be delivered to such requesting party,
the party proposing the destruction or disposal shall promptly arrange for the
delivery of such of the Information as was requested (at the cost of the
requesting party).
Section 7.5 Confidentiality.
Section 7.5.1 Each of Patriot/Wyndham and Interstate shall, and shall
use its best efforts to cause its officers, employees, agents, consultants,
advisors and Affiliates to, hold in strict confidence and not disclose
confidential information concerning the other party to another person, and to
not use any such confidential information, except as provided herein or unless
compelled to disclose such information by judicial or administrative process or,
in the opinion of counsel, by other requirements of law.
Section 7.5.2 For purposes of this Section 7.5, confidential
information concerning a particular party (referred to herein as the "disclosing
party") shall mean information known by the other party (referred to herein as
the "receiving party") on the Distribution Date and reasonably understood by the
receiving party to be confidential and related to the disclosing party's
business interests, or disclosed confidentially by the disclosing party to the
receiving party after the Distribution Date under the terms and for the purposes
of this Agreement or any of the Related Agreements except for: (a) information
which is or becomes generally available to the public other than as a result of
a disclosure by the receiving party; (b) information learned by the receiving
party on a non-confidential basis for the first time after the Distribution
Date, but prior to any disclosure by the disclosing party; (c) information
developed by the receiving party independent of any confidential information of
the disclosing party which is known by the receiving party on the Distribution
Date or disclosed by the disclosing party thereafter, and (d) information which
becomes available to the receiving party on a non-confidential basis from a
source other than the disclosing party if such source was not subject to any
prohibition against transmitting the information to the receiving party.
Section 7.5.3 Each party shall protect confidential information
concerning the other party by using the same degree of care, but no less than a
reasonable degree of care, to prevent the unauthorized disclosure of the other
party's confidential information as the party uses to protect its own
confidential information of a like nature.
Section 7.5.4 Each party shall use its best efforts to insure that its
officers, employees, agents, consultants, advisors and Affiliates agree to be
bound by the foregoing restrictions on use and disclosure of confidential
information concerning the other party as a condition to receiving such
information; provided, that such party will be responsible for any breach of
such confidentiality provisions by any such person.
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Section 7.6 Privileged Matters.
Section 7.6.1 Patriot/Wyndham, Interstate and the LLC agree to
maintain, preserve and assert all privileges that either party may have,
including without limitation any privilege or protection arising under or
relating to any attorney-client relationship that existed prior to the
Distribution Date ("Privilege" or "Privileges"). Patriot/Wyndham, Interstate and
the LLC shall be entitled in perpetuity to require the assertion or decide
whether to consent to the waiver of any and all Privileges which, in the case of
Interstate or the LLC, relate to the Third-Party Management Business and, in the
case of Patriot/Wyndham, relate to the Retained Liabilities. Patriot/Wyndham,
Interstate and the LLC shall each use the same degree of care as it would with
respect to itself so as not to waive any Privilege which could be asserted by
any other party under applicable law, without the prior written consent of such
other party. The rights and obligations created by this Section 7.6 shall apply
to all information as to which, but for the Distribution, Patriot/Wyndham,
Interstate or the LLC would have been entitled to assert or did assert the
protection of a Privilege ("Privileged Information"), including but not limited
to (a) all information generated prior to the Distribution Date but which, after
the Distribution, is in the possession of any other party or the Affiliates of
any other party, (b) all communications subject to a Privilege occurring prior
to the Distribution Date between counsel for Patriot/Wyndham and any person who,
at the time of the communication, was an employee of Patriot/Wyndham, regardless
of whether such employee is or becomes an employee of Interstate or the LLC, and
(c) all information generated, received or arising after the Distribution Date
that refers or relates to Privileged Information generated, received or arising
prior to the Distribution Date.
Section 7.6.2 Upon the receipt by any party of any subpoena, discovery
or other request which arguably calls for production or disclosure of Privileged
Information of any other party and whenever any party obtains knowledge that any
current or former employee of such party has received any subpoena, discovery or
other request which arguably calls for the production or disclosure of
Privileged Information of any other party, such party shall promptly notify such
other party of the existence of the request and shall provide such other party
with a reasonable opportunity to review the information and to assert any rights
it may have under this Section 7.6 or otherwise to prevent the production or
disclosure of Privileged Information. No party will produce or disclose any
information covered by a Privilege of any other party under this Section 7.6
unless (a) such other party has provided its express written consent to such
production or disclosure or (b) a court of competent jurisdiction has entered a
final, non-appealable order finding that the information is not entitled to
protection under any applicable Privilege.
Section 7.6.3 Patriot/Wyndham's transfer of Books and Records and any
other information to Interstate or the LLC, and each party's agreement to permit
the other parties to possess Privileged Information occurring or generated prior
to the Distribution Date, are made in reliance on each party's agreement, as set
forth in this Section 7.6, to maintain the confidentiality of Privileged
Information and to maintain, preserve and assert all applicable Privileges. The
access to information granted or permitted by this Agreement, the agreement
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to provide witnesses and individuals pursuant to Section 7.3 hereof and the
transfer of Privileged Information to Interstate or the LLC pursuant to this
Agreement shall not be deemed a waiver of any Privilege that has been or may be
asserted under this Section 7.6 or otherwise. Nothing in this Agreement shall
operate to reduce, minimize or condition the rights granted to any party, or the
obligations imposed upon any party, by this Section 7.6.
Section 7.7 Mail and Other Communications. Each of Patriot/Wyndham,
Interstate and the LLC agrees to forward or direct (as appropriate) to the other
parties any mail or other communications intended for such other parties which
is received by it.
Section 7.8 Order of Precedence. To the extent that the provisions of
this Section 7 are inconsistent with the provisions of Section 11 hereof with
respect to the subject matter thereof, the provisions of Section 11 shall
control.
Section 8 EMPLOYMENT AND EMPLOYEE BENEFIT MATTERS.
Section 8.1 Employee and Plan Transfers. From and after the
Distribution Date, Patriot/Wyndham, Interstate and the LLC will take the actions
specified on Annex VI hereto with respect to employees and employee benefit
plans.
Section 8.2 Limitation on Enforcement. This Section 8 is an agreement
solely between Patriot/Wyndham, Interstate and the LLC. Nothing in this
Agreement or any Related Agreement, whether express or implied, confers upon any
employee or former employee of Patriot/Wyndham, Interstate or the LLC or any
other person, any rights or remedies, including without limitation (a) any right
to employment, (b) any right to continued employment for any specified period or
(c) any right to claim any particular compensation, benefit or aggregation of
benefits, of any kind or nature whatsoever.
Section 9 INSURANCE.
Section 9.1 General. Patriot/Wyndham shall keep in effect all policies
under the Patriot/Wyndham Insurance Policies in effect as of the date hereof
insuring the Contributed Assets and operations of the Interstate Business until
the end of the day on which the Distribution occurs, unless Interstate or the
LLC shall have earlier obtained appropriate coverage and notified
Patriot/Wyndham in writing to that effect. Beginning at 12:01 a.m. on the day
following the Distribution Date, Interstate and its Affiliates will cease to be
covered under the Patriot/Wyndham Insurance Policies with respect to any injury,
loss, Liability, damages or expense that is incurred or asserted by a third
party to have been incurred after the Distribution Date in, or in connection
with, the conduct of the Interstate Business or the operation of the Contributed
Assets.
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Section 10 DISPUTE RESOLUTION.
Section 10.1 Binding Arbitration. Except with respect to matters
involving Section 7.6 hereof ("Privileged Matters") and except as may be
expressly provided in any other agreement between the parties entered into
pursuant hereto, if a dispute, controversy or claim (collectively, a "Dispute")
between Patriot/Wyndham and Interstate or any of their respective Affiliates
arises out of or relates to this Agreement, the Related Agreements or any other
agreement entered into pursuant hereto or thereto, including without limitation
the breach, interpretation or validity of any such agreement or any matter
involving an Indemnifiable Loss, Patriot/Wyndham and Interstate agree to use the
following procedures, in lieu of either party pursuing other available remedies
and as the sole remedy, to resolve the Dispute.
Section 10.2 Arbitration.
Section 10.2.1 In the event that one party fails to participate in
mediation, the Dispute may be referred immediately to arbitration and the time
of such failure shall constitute the end of the mediation period. If the parties
are not successful in resolving the Dispute by the end of the mediation period,
then the parties agree to submit the matter to binding arbitration in New York,
New York pursuant to the Commercial Rules of Arbitration of the American
Arbitration Association (the "AAA"), as modified herein, by a sole arbitrator
selected in accordance with the provisions of Section 10.2.2 hereof. In the
arbitration, (a) the parties may require reasonable discovery, pursuant to the
New York Rules of Civil Procedure then in effect, (b) each party shall have the
right to cross-examine witnesses of other parties, (c) testimony shall be
transcribed and (d) any award shall be accompanied by written findings of fact
and statement of reasons. Any arbitration proceeding shall be concluded in a
maximum of sixty (60) days from the commencement of such proceeding. Any
arbitration award shall be final and binding on the parties and judgment may be
entered thereon, upon the application of either party by any court of competent
jurisdiction.
Section 10.2.2 The parties shall have ten (10) days from the end of the
mediation period to agree upon a mutually acceptable neutral person not
affiliated with either of the parties to act as arbitrator. If no arbitrator has
been selected within such time, either party may request the AAA or another
mutually agreed-upon organization to supply within ten (10) days of such request
a list of potential arbitrators with qualifications reasonably required to
settle the dispute. Within five (5) days of each party receiving the list, the
parties shall independently rank the proposed candidates, shall simultaneously
exchange rankings, and shall be deemed to have selected as the arbitrator the
individual receiving the highest combined ranking who is available to serve. If
there is a tie, then the tie shall be broken by lot. If one party shall not
cooperate in the selection of the arbitrator, the other party may solely select
the arbitrator utilizing the procedures set forth in this Section 10.2.2.
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Section 10.2.3 The costs of arbitration shall be apportioned between
Patriot/Wyndham and Interstate as determined by the arbitrator in such manner as
the arbitrator deems reasonable taking into account the circumstances of the
case, the conduct of the parties during the proceeding, and the result of the
arbitration.
Section 10.3 Treatment of Negotiation. All negotiations pursuant to
this Section 10 shall be treated as compromise and settlement negotiations for
purposes of Rule 408 of the Federal Rules of Evidence and comparable state rules
of evidence. All negotiation and arbitration proceedings under this Section 10
shall be treated as confidential information in accordance with the provisions
of Section 7.5 hereof. Any arbitrator shall be bound by an agreement containing
confidentiality provisions at least as restrictive as those contained in Section
7.5 hereof
Section 10.4 Equitable Relief. Nothing contained herein shall preclude
either party from seeking equitable relief to prevent any immediate, irreparable
harm to its interests, including multiple breaches of this Agreement or the
relevant Related Agreement by the other party. Otherwise, these procedures are
exclusive and shall be fully exhausted prior to the initiation of any
litigation. Either party may seek specific enforcement of any arbitrator's
decision under this Section 10. The other party's only defense to such a request
for specific enforcement shall be fraud by or on the arbitrator.
Section 10.5 Consolidation. The arbitrator may consolidate an
arbitration under this Agreement with any arbitration arising under or relating
to the Related Agreements or any other agreement between the parties entered
into pursuant hereto, as the case may be, if the subject of the Disputes
thereunder arise out of or relate essentially to the same set of facts or
transactions. Such consolidated arbitration shall be determined by the
arbitrator appointed for the arbitration proceeding that was commenced first in
time.
Section 11 TAX MATTERS.
Section 11.1 Preparation of Tax Returns. Interstate shall be
responsible for and control the preparation and filing of all Tax Returns with
respect to the Interstate Group. However, with respect to any such Tax Returns
for taxable periods (or portions thereof) that end before or include the
Distribution Date or otherwise reflect Taxes for which Patriot/Wyndham may be
liable under Section 11.2.2, (i) such returns shall be prepared in a manner
consistent with past practice and in a manner that does not distort taxable
income (i.e., by accelerating income to the period prior to the Distribution or
deferring deductions to the period following the Distribution), (ii) a draft of
such Tax Return shall be provided to Patriot/Wyndham for review at least 30 days
prior to the due date for filing thereof, and (iii) no such Tax Return shall be
filed or amended if Patriot or Wyndham reasonably objects in writing within such
30-day period.
Notwithstanding the foregoing, Patriot/Wyndham shall be responsible for and
control the preparation and filing of any such Tax Return relating to a member
of the Interstate Group if
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such Tax Return also includes a member of the Patriot/Wyndham Group; provided
that, with respect to any such Tax Return for a taxable period that begins
before but does not end on the Distribution Date (a "Straddle Period") or any
Tax Return that could affect the taxable income or loss of a member of the
Interstate Group after the Distribution Date, (i) such Tax Return shall be
prepared in a manner consistent with past practice and in a manner that does not
distort taxable income (e.g., by deferring income to the period after the
Distribution or accelerating deductions to the period prior to the
Distribution), (ii) a draft of such Tax Return shall be provided to Interstate
for review at least 30 days prior to the due date for filing thereof and (iii)
no such Tax Return shall be filed or amended if Interstate reasonably objects in
writing within such 30-day period.
Section 11.2 Responsibility for Taxes.
11.2.1 Interstate. Interstate shall be liable for and shall indemnify
and hold harmless the Patriot/Wyndham Group against any Taxes attributable to
any member of the Interstate Group, or otherwise attributable to the Interstate
Business, (i) for any taxable period (or portion thereof) beginning on or after
the Distribution Date, including any liability asserted against any member of
the Patriot/Wyndham Group under the provisions of Treasury Regulations section
1.1502-6 (or any comparable provision of state or local law) for Taxes
attributable to a member of the Interstate Group and (ii) for any taxable period
to the extent such Taxes are taken into account as current liabilities of
Interstate or its Affiliates for purposes of determining working capital on the
Distribution Date; provided however that the indemnity in this Section 11.2.1
shall not apply to Transaction Taxes.
11.2.2 Patriot/Wyndham. Patriot/Wyndham shall be liable for and shall
indemnify and hold harmless the Interstate Group against (i) any Taxes
attributable to any member of the Interstate Group, or otherwise attributable to
the Interstate Business, for any taxable period (or portion thereof) ending
prior to the Distribution Date; (ii) any Transaction Taxes and (iii) any Taxes
attributable to any member of the Patriot/Wyndham Group for any taxable period,
including any liability asserted against any member of the Interstate Group
under the provisions of Treasury Regulations section 1.1502-6 (or any comparable
provision of state or local law) for Taxes attributable to a member of the
Patriot/Wyndham Group.
11.2.3 Allocation of Tax Liabilities. In the case of any Taxes in
respect of a Straddle Period, (i) real, personal property and intangible Taxes
("Property Taxes") allocated and attributable to the period prior to the
Distribution shall be equal to the amount of such Taxes for the entire Straddle
Period multiplied by a fraction, the numerator of which is the number of days
during the Straddle Period that are in the period prior to the Distribution and
the denominator of which is the number of days in the Straddle Period, and (ii)
all Taxes other than Property Taxes shall be computed and allocated based on an
actual closing of the books as if the taxable period ended as of the close of
business on the day prior to the Distribution Date (based on the principles set
forth in Sections 706 and 1502 of the Code and the Treasury Regulations
thereunder).
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Section 11.3 Credits; Refunds. The Interstate Group and the
Patriot/Wyndham Group shall each be entitled to prosecute any claims for and
receive the amount or economic benefit of any refund or credit of Taxes that
relate to Taxes for which it is responsible under Section 11.2. Each party
hereto shall, promptly upon receipt thereof, pay to the other party any such
refund or reduction that such other party is entitled to under this Section
11.3, together with any interest related thereto. A refund will be considered to
have been received by the Interstate Group or the Patriot/Wyndham Group, as the
case may be, (i) when received by a member of such Group from the applicable
taxing authority or (ii) on the due date for payment of any Taxes, to the extent
that the amount of such Taxes that any member of such Group would be required to
pay but for such refund is reduced.
Section 11.4 Carrybacks. In no event shall Patriot/Wyndham have any
obligation to pay to Interstate or its Affiliates any amount in respect of a
carryback to a period prior to the Distribution of a net operating loss, unused
credit or similar item.
Section 11.5 Payments. To the extent that a party (or its successor)
(the "Payor") is liable to the other party (or its successor) (the "Payee") for
any amount of Taxes pursuant to Section 11.2, the Payor shall pay such amount to
Payee no later than 10 days after Payee has made written demand therefore. The
Payee shall submit with its written demand a calculation of the amount
requested, showing sufficient detail so as to permit the Payor to understand the
basis of the calculations. Any payment required by this Agreement which is not
made on or before the date provided thereunder shall bear interest after such
date at the rate then in effect for underpayments of Taxes to the IRS.
Patriot/Wyndham's indemnity obligation in respect of Taxes for any
taxable period shall be reduced to reflect the amount of any such Taxes paid by
Patriot/Wyndham, Interstate or their Affiliates on or prior to the Distribution
Date (including by payment of estimated Taxes) for which a refund is not
available. If the amount of such reduction exceeds the amount of
Patriot/Wyndham's indemnity obligation with respect to any Taxes, Interstate
shall pay to Patriot/Wyndham the amount of such excess no later than the date of
filing of the return reflecting the amount of such Taxes. In addition,
Patriot/Wyndham's indemnity obligation shall be increased or decreased, as the
case may be, as necessary to reflect the fact that Interstate is to bear all
taxes, and receive the benefit of any losses, generated on the Distribution
Date, except to the extent such taxes or losses are attributable to the
Restructuring Transactions.
Section 11.6 Tax Contests. Each of Patriot/Wyndham and Interstate shall
promptly notify the other party in writing of any proposed adjustment (and shall
provide all relevant correspondence with respect to a proposed adjustment) to a
Tax Return that could result in a liability to the other party under this
Agreement; provided that the failure of a party to give notice as provided in
this Section 11.6 shall not relieve any other party of its obligations
hereunder, except to the extent that such other party is actually prejudiced by
such failure to give notice. Patriot/Wyndham shall have control of all audits
and tax contests (i) relating to Taxes that it is required to indemnify under
Section 11.2 or (ii) relating to a member of the
28
<PAGE> 32
Interstate Group or the operations of the Interstate Business for any taxable
period ending on or prior to the Distribution Date; provided that (x) Interstate
shall have the right to participate at its own expense in any such proceedings
and (y) no such tax contest that could affect the taxable income or loss of the
Interstate Group for periods after the Distribution shall be settled without the
prior written consent of Interstate, which consent shall not be unreasonably
withheld or delayed. Patriot/Wyndham and Interstate shall jointly control any
audit or tax contest relating to Taxes of a member of the Interstate Group for a
Straddle Period; provided that all major decisions shall be made by
Patriot/Wyndham, but no such contest shall be settled without the prior written
consent of Interstate, which consent shall not be unreasonably withheld or
delayed. No Tax contest for a taxable period (or portion thereof) ending on or
prior to the Distribution Date shall be settled without the prior written
consent of Patriot/Wyndham, which consent shall not be unreasonably withheld or
delayed.
Section 11.7 Cooperation. After the Distribution Date, the parties
hereto will cooperate with each other, and will cause their respective
Affiliates, employees, representatives and agents to cooperate, in preparing and
filing all Tax Returns and other reports and documents relating to Taxes,
resolving all disputes and audits relating to Taxes with respect to all taxable
periods, and in any other matters relating to Taxes, including by maintaining
and making available to the other parties other all records relating to Taxes.
Such cooperation will include without limitation (i) providing information and
access to records relevant to Patriot's status as a real estate investment trust
(within the meaning of Section 856 of the Code), (ii) providing prior notice of
and ongoing information reasonably requested by Patriot/Wyndham with respect to
any direct or indirect acquisition by Interstate or its Affiliates of interests
in real property (including leasehold interests), and (iii) permitting access to
Patriot/Wyndham and its representatives and agents in connection with the
analysis of the earnings and profits of Old Interstate prior to its merger into
Patriot. Interstate acknowledges that its personnel prepared Tax Returns and
records and are familiar with issues relating to Old Interstate and its business
prior to and after the Merger, and that Patriot/Wyndham may suffer irreparable
harm without access to and cooperation from employees at Interstate with respect
to tax matters relating to taxable periods before and after the Merger.
Accordingly, Interstate agrees that Patriot/Wyndham shall be entitled on an
ongoing and mutually convenient basis, upon reasonable notice to access to and
cooperation from employees of Interstate and its Affiliates who are familiar
with the operations of and tax matters relating to Old Interstate and its
subsidiaries (including Mauro Macioce and other individuals who may have direct
knowledge of the operations of Old Interstate). Without limiting the generality
of the foregoing, Patriot/Wyndham and Interstate acknowledge that the IRS has
notified Patriot/Wyndham of its intent to conduct an audit of Old Interstate and
its subsidiaries for Tax periods beginning with the taxable year ended December
31, 1996. Interstate agrees that its personnel (including Mauro Macioce) shall
be made available to assist in the audit process, but that the audit will be
supervised and controlled by Patriot/Wyndham.
Section 11.8 Tax Records. All Tax Returns and related information
relating exclusively to the Interstate Business shall be the property of
Interstate; provided that Patriot/Wyndham shall be entitled to copies of or
access to any such Tax Returns or related
29
<PAGE> 33
information related to taxable periods (or portions thereof) ending or prior to
the Distribution Date, upon reasonable notice to Interstate. All other Tax
Returns and related information (including Tax returns of Interstate Hotels
Company and its affiliates) shall be the property of Patriot/Wyndham; provided
that to the extent such Tax Returns or information also relates to the
Interstate Business or members of the Interstate Group, Interstate shall be
entitled to copies of or access to such returns or related information upon
reasonable notice to Patriot/Wyndham.
Patriot/Wyndham and Interstate agree to retain all Tax Returns and
related information which might contain information or provide evidence relevant
to the determination of the Tax liability of the Patriot/Wyndham Group or the
Interstate Group or the stockholders of either for any taxable period for a
period of ten years following the end of the latest taxable period to which they
relate, provided that no such records shall be discarded (i) until the
settlement of any ongoing contest relating thereto or (ii) without giving the
other party notice and the opportunity to retain such records.
Section 11.9 Interstate Hotels, LLC. The LLC shall comply, and
Interstate shall cause the LLC to comply, with the provisions of the LLC's
Amended and Restated Limited Liability Company Operating Agreement relating to
Taxes.
Section 11.10 Tax Elections. Except as required by the Code or the
regulations promulgated thereunder, no corporation, partnership or limited
liability company that will become a member of the Interstate Group before or on
the Distribution Date shall make any new election, change any existing election,
change any annual accounting period or adopt or change any accounting method
after May 13, 1999 and before the Distribution Date if any such election,
adoption or change could have the effect of increasing the tax owed by any
member of the Interstate Group on or after the Distribution Date; provided that
this Section 11.10(i) shall not prevent (x) the filing of new elections for
members of the Interstate Group upon the filing of their first applicable Tax
Returns, (y) elections, adoptions or changes made in consultation with
Interstate personnel, or (z) any other elections, adoptions or changes to the
extent that Patriot/Wyndham obtains Interstate's consent, which consent shall
not be unreasonably withheld or delayed. To Patriot's Knowledge, no election,
adoption or change described in the foregoing sentence has occurred since April
30, 1999, except that certain elections, adoptions or changes may have been made
in consultation with Interstate. Notwithstanding the foregoing, the restrictions
set forth in this Section 11.10 shall not apply if the Distribution has not
occurred by September 1, 1999.
Patriot/Wyndham covenants and agrees that no corporation that will
become a member of the Interstate Group on or before the Distribution Date has
made or will make prior to the Distribution Date any election under Section
341(f) of the Code.
30
<PAGE> 34
Section 12 MISCELLANEOUS.
Section 12.1 Amendment and Waiver. No amendment of any provision of
this Agreement shall in any event be effective, unless the same shall be in
writing and signed by the parties hereto. Any failure of any party to comply
with any obligation, agreement or condition hereunder may only be waived in
writing by the other party but such waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure. No failure by any
party to take any action against any breach of this Agreement or default by the
other party shall constitute a waiver of such party's right to enforce any
provisions hereof or to take any such action.
Section 12.2 Expenses. Except as otherwise provided in this Agreement,
any Related Agreement or any other agreement being entered into by
Patriot/Wyndham and Interstate pursuant to this Agreement, Patriot/Wyndham shall
pay all investment banking, legal, accounting, printing, governmental filing,
listing, distribution agent and similar fees, costs and expenses incurred in
connection with the Distribution (whether or not payable as of the Distribution
Date) and with the consummation of the transactions contemplated by this
Agreement.
Section 12.3 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (a) on the date of service if served personally on the
party to whom notice is given, (b) on the day of transmission if sent via
facsimile transmission to the facsimile number given below, provided that
telephonic confirmation of receipt is obtained promptly after completion of the
transmission, (c) on the business day after delivery to a nationally recognized
overnight courier service or the Express Mail service maintained by the United
States Postal Service, provided receipt of delivery has been confirmed, or (d)
on the fifth day after mailing, provided receipt of delivery is confirmed, if
mailed to the party to whom notice is to be given, by first class mail,
registered or certified, postage prepaid, properly addressed and return receipt
requested, to the party as follows:
31
<PAGE> 35
If to Patriot/Wyndham, at:
Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
Attn.: Carla S. Moreland
Fax: (214) 863-1986
If to Interstate or the LLC, at:
Interstate Hotels Corporation
680 Andersen Drive, Foster Plaza Ten
Pittsburgh, Pennsylvania 15220
Attn.: Timothy Q. Hudak
Fax: (412) 937-3265
Either party may change its address for receiving notices by written
notice given to the other party in the manner provided above.
Section 12.4 Termination. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of Patriot/Wyndham without the approval of Interstate. Except as
set forth in the Settlement Agreement, in the event of such termination, no
party shall have any liability of any kind to any other party. From and after
the Distribution Date, this Agreement may not be terminated.
Section 12.5 Successors and Assigns. This Agreement shall inure to the
benefit of, and be binding upon and enforceable against the respective
successors and assigns of the parties hereto, provided that this Agreement may
not be assigned by either party without the prior written consent of the other
party, and any attempt to assign any rights or obligations hereunder without
such consent shall be void.
Section 12.6 Entire Agreement: Parties in Interest: This Agreement
(including the schedules, annexes and exhibits hereto) comprises the entire
agreement between the parties hereto as to the subject matter hereof and
supersedes all prior agreements and understandings between them relating thereto
and, except as provided in Section 5.2 hereof, is not intended to confer upon
any person other than the parties hereto (including their successors and
permitted assigns) any rights or remedies hereunder.
32
<PAGE> 36
Section 12.7 Severability. If any term or provision of this Agreement
or the application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement or the application of
such terms or provisions to persons or circumstances other than those as to
which it is invalid or unenforceable shall not be affected thereby and each term
and provision of this Agreement shall be valid and enforced to the fullest
extent permitted by law.
Section 12.8 Captions. Captions and headings are supplied herein for
convenience only and shall not be deemed a part of this Agreement for any
purpose.
Section 12.9 Annexes, Etc. The Annexes, Schedules and Exhibits shall be
construed with and as part of this Agreement to the same extent as if the same
had been set forth verbatim herein.
Section 12.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal substantive laws of the State of
Delaware, without giving effect to the principles of conflicts of laws thereof.
Section 12.11 Counterparts. This Agreement may be executed in several
counterparts, and all counterparts so executed shall constitute one agreement,
binding upon the parties hereto, notwithstanding that the parties are not
signatory to the same counterpart.
33
<PAGE> 37
IN WITNESS WHEREOF, Patriot/Wyndham, Interstate and the LLC have caused
this Agreement to be duly executed by their authorized representatives as an
agreement under seal, all as of the day and year first written above.
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ WILLIAM W. EVANS, III
-------------------------------------
Name: William W. Evans, III
Title: President and Chief Operating Officer
WYNDHAM INTERNATIONAL, INC.
By: /s/ WILLIAM W. EVANS, III
-------------------------------------
Name: William W. Evans, III
Title: Executive Vice President
INTERSTATE HOTELS CORPORATION
By: /s/ TIMOTHY Q. HUDAK
-------------------------------------
Name: Timothy Q. Hudak
Title: Senior Vice President and Secretary
INTERSTATE HOTELS, LLC
By Interstate Hotels Corporation, its
Managing Member
By: /s/ TIMOTHY Q. HUDAK
-------------------------------------
Name: Timothy Q. Hudak
Title: Senior Vice President and Secretary
<PAGE> 38
Annex I
-------
Restructuring Memorandum
------------------------
DEFINED TERMS:
- - --------------
Newco or IHC Interstate Hotels Corporation
Patriot Patriot American Hospitality, Inc.
REIT OP Patriot American Hospitality Partnership, L.P.
Wyndham Wyndham International, Inc.
Wyndham OP Wyndham International Operating Partnership, L.P.
Interstate Holdings PAH-Interstate Holdings, Inc.
Interstate LLC Interstate Hotels, LLC
PAH-Management PAH-Management Corporation
This section outlines the steps Patriot will take to transfer various
assets to Newco in connection with the spin-off.
I. NORTHRIDGE INSURANCE COMPANY.
----------------------------
A. Wyndham OP contributes its 100 shares of Class A Common Stock (1%
interest) of Northridge Holdings, Inc. to Interstate Holdings.
B. Patriot and Interstate Holdings then contribute to Newco their
respective interests in Northridge Holdings, Inc.
C. Northridge Holdings, Inc. contributes the stock of Northridge
Insurance Company to Interstate LLC.
II. PAH-CROSSROADS HOLDINGS, INC.
----------------------------
A. Patriot purchases from Wyndham OP and REIT OP their 1.01% (102
shares of Class C Common Stock) and 0.99% (100 shares of Class A Common Stock)
interests, respectively, in PAH-Crossroads Holdings, Inc. (valued at $7,285,282,
including the value of the Paired Shares held by Crossroads/Memphis Partnership,
L.P. (at $5,00 per Paired Share) and the value of PAH-Crossroads Member, Inc.),
for $73,581 and $72,124, respectively.
B. PAH-Crossroads Holdings, Inc. is liquidated.
<PAGE> 39
C. Following the dissolution of PAH-Crossroads Holdings, Inc. into
Patriot, Crossroads/Memphis Partnership, L.P. distributes its owned 499,979
Paired Shares pro-rata up the ownership chain to Patriot (where they will be
canceled). Wyndham will purchase from Patriot the Wyndham shares.
D. Patriot contributes to Newco a 55% interest in the following assets
previously held by PAH-Crossroads Holdings, Inc.:
(i) 99% interest in Crossroads Future Company, LLC
(ii) 99% interest in Crossroads Memphis Company, LLC
(iii) 16.7671% LP interest in Crossroads/Memphis Partnership, L.P.
(iv) 99% interest in Crossroads Hospitality Tenant Company, LLC
(v) 100% interest in PAH-Crossroads Member, Inc.
(vi) 100% interest in Crossroads/Memphis Financing Corporation
The interests listed in (i) through (vi) above are referred to collectively
herein as the "Crossroads Transferred Assets."
E. Interstate Holdings contributes cash or other property to Newco.
F. Patriot contributes a 45% interest in the Crossroads Transferred
Assets to Interstate Holdings.
G. Wyndham OP contributes cash or other property to Interstate
Holdings.
H. Newco contributes a 55% interest in the Crossroads Transferred
Assets (excluding PAH-Crossroads Member, Inc. and Crossroads/Memphis Financing
Corporation) to Interstate LLC.
I. Interstate Holdings contributes a 45% interest in the Crossroads
Transferred Assets (excluding PAH-Crossroads Member, Inc. and Crossroads/Memphis
Financing Corporation) to Interstate LLC.
J. Interstate Holdings contributes a 45% interest in each of
PAH-Crossroads Member, Inc. and Crossroads/Memphis Financing Corporation to
Newco.
K. Patriot contributes cash or other property to Newco.
L. Interstate LLC contributes the Crossroads Transferred Assets
(excluding PAH-Crossroads Member, Inc. and Crossroads/Memphis Financing
Corporation) to Crossroads Hospitality Company L.L.C.
M. PAH-Interstate Member, Inc. contributes related party accounts
receivable from Interstate LLC in the amount of $47,915 to Crossroads
Hospitality Company L.L.C.
<PAGE> 40
III. PAH-MANAGEMENT CORPORATION.
--------------------------
A. PAH Management contributes 100% of the outstanding stock of
PAH-Member, Inc. and the following interests to Interstate Holdings in exchange
for stock (items #1 through #4, collectively, the "PAH-Management Transferred
Assets"):
1. 100% of PAH-Cambridge Holdings, LLC (which
holds a 25% interest in Cambridge Hotel
Associates);
2. 99% of Continental Design & Supplies Company,
LLC;
3. 100% of PAH-Hilltop GP LLC (which holds a 99% general
partner interest in Hilltop Equipment Leasing
Company, L.P.); and
4. the seven Gencom management contracts and the
St. Louis management contract (together, the
"Eight Contracts").
B. Interstate Holdings contributes 100% of PAH-Member, Inc. to Newco.
C. Interstate Holdings then contributes the PAH-Management Transferred
Interests to Interstate LLC.
IV. INTERCARP/CHARLES HOTEL.
-----------------------
A. IHC/Chaz Corporation is liquidated into Patriot, so that Patriot
will own directly a 1% GP interest in Intercarp Limited Partnership.
B. The 1% GP interest in Intercarp Limited Partnership is then
contributed by Patriot to Interstate Holdings.
C. Wyndham OP contributes cash or other property to Interstate
Holdings.
D. Interstate Holdings then contributes the 1% GP interest in Intercarp
Limited Partnership to Interstate LLC.
E. Newco contributes cash or other property to Interstate LLC.
F. PAH-Management contributes a 82.9102% limited partner interest in
Intercarp Limited Partnership to Interstate Holdings.
G. Wyndham OP contributes cash or other property to Interstate
Holdings.
H. Interstate Holdings contributes the 82.9102% interest in Intercarp
Limited Partnership to Interstate LLC.
V. PAH-INTERSTATE MEMBER, INC.
--------------------------
This entity will be contributed by Interstate Holdings to Newco (with a
corresponding contribution to Newco of cash or other property by Patriot).
<PAGE> 41
VI. TROY MARRIOTT.
-------------
A. Patriot purchases 100% of the interests in the Troy Marriott
Management Agreement (the "Troy Management Agreement") from CHC REIT Management
Corp. for $250,000.
B. Patriot contributes a 55% interest in the Troy Management Agreement
to Interstate Holdings.
C. Patriot contributes a 45% interest in the Troy Management Agreement
to Newco.
D. Interstate Holdings contributes a 55% interest in the Troy
Management Agreement to Interstate LLC.
E. Newco contributes a 45% interest in the Troy Management Agreement to
Interstate LLC.
VII. CONTRIBUTIONS TO PAH-INTERSTATE HOLDINGS, INC.
---------------------------------------------
A. By Wyndham OP in exchange for 147.58 shares of Class A
Common Stock:
100 shares of Class A Common $202,277.55
Stock (1% interest) of Northridge
Holdings, Inc.
Cash $131,504
Related Party Accounts Receivable $112,721
from Interstate LLC
B. By Patriot in exchange for 3,043.34 shares of Class B
Common Stock:
1% GP interest in Intercarp Limited $229,167
Partnership
45% interest in the Crossroads $2,153,424
Transferred Assets
55% interest in the Troy $137,500
Management Agreement
Related Party Accounts Receivable $6,687,463
from Interstate LLC
C. By PAH-Management in exchange for 11,567.15 shares of Class B
Common Stock:
100% of PAH-Cambridge Holdings $1.00
LLC (which holds a 25% interest in
Cambridge Hotel Associates)
99% of Continental Design & $1,495,266
Supplies Company, LLC
<PAGE> 42
100% of PAH-Hilltop GP LLC $999,539
(which hold a 99% general partner
interest in Hilltop Equipment Leasing
Company, L.P.)
the Eight Contracts $13,455,440
100 shares of common stock (100%) $25,099
of PAH Member, Inc. (which holds
1% of Hilltop Equipment Leasing
Company, L.P. and 1% of
Continental Design & Supplies
Company, L.L.C.)
82.9102% LP interest in Intercarp $19,020,833
Limited Partnership
VIII. CONTRIBUTIONS TO NEWCO.
----------------------
A. By Patriot in exchange for 8,837,924 (including the shares
to be returned from the FET counterparties and canceled) shares of Class A
Common Stock:
9,900 shares of Class B Common $20,025,477
Stock (99%) of Northridge Holdings,
Inc.
55% interest in the Crossroads $2,631,964
Transferred Assets
9,900 shares of Old Class B $16,128,159
Common Stock
45% interest in the Troy $112,500
Management Agreement
Cash $6,853,496
Related Party Accounts Receivable $21,709,816
from Interstate LLC
B. By Interstate Holdings in exchange for 60,639 shares (1%) of
Class C Common Stock:
100 shares of Class A Common $202,277.55
Stock (1%) of Northridge Holdings,
Inc.
100% of PAH-Member, Inc. $25,099
100% of PAH-Interstate Member, $107,899
Inc.
100 shares of Old Class A Common $162,911
Stock
<PAGE> 43
45% interest in PAH-Crossroads $18,826
Member, Inc.
45% interest in Crossroads/Memphis $0.45
Financing Corporation
Cash $131,504
Related Party Accounts Receivable $47,915
from Interstate LLC
C. By Marriott in exchange for 242,555 shares (4%) of Class
B Common Stock:
Cash $2,120,000
IX. CONTRIBUTIONS TO INTERSTATE LLC.
-------------------------------
A. By Northridge Holdings, Inc.:
100% of the capital stock of $20,227,755
Northridge Insurance Company
B. By Newco (resulting in a collective
45% interests held by Northridge
Holdings, Inc. and Newco):
55% interest in the Crossroads $2,608,954
Transferred Assets (excluding PAH-
Crossroads Member, Inc. and
Crossroads/Memphis Financing
Corporation)
45% interest in the Troy $112,500
Management Agreement
Related Party Accounts Receivable $21,709,816
from Interstate LLC
C. By Interstate Holdings, resulting in a 55% interest in
Interstate LLC:
45% interest in the Crossroads $2,134,598
Transferred Assets (excluding PAH-
Crossroads Member, Inc. and
Crossroads/Memphis Financing
Corporation)
55% interest in the Troy $137,500
Management Agreement
The PAH-Management Transferred $15,940,250
Assets
1% GP interest in Intercarp Limited $229,167
Partnership
<PAGE> 44
82.9102% LP interest in Intercarp $19,020,833
Limited Partnership
Related Party Accounts Receivable $6,752,269
from Interstate LLC
X. CONTRIBUTION TO PAH-INTERSTATE MEMBER, INC.
------------------------------------------
A. Newco contributes related party accounts receivable from
Interstate LLC in the amount of $47,915 to PAH-Interstate Member, Inc.
XI. CONTRIBUTION TO NORTHRIDGE HOLDINGS, INC.
----------------------------------------
A. Newco contributes its interest in Interstate LLC into
Northridge Holdings, Inc.
XII. CONTRIBUTIONS TO CROSSROADS HOSPITALITY COMPANY, L.L.C.
------------------------------------------------------
A. By Interstate LLC, the Crossroads Transferred Assets
(excluding PAH-Crossroads Member, Inc. and Crossroads/Memphis
financing corporation), including:
99% interest in Crossroads Future $1,184,383.29
Company, LLC
99% interest in Crossroads Memphis $2,957,389.65
Company LLC
16.7671% LP interest in $601,777.96
Crossroads/Memphis Partnership LP
99% interest in Crossroads $1
Hospitality Tenant Company, LLC
B. By PAH-Interstate Member, Inc.:
Related party accounts receivable $47,915
from Interstate LLC
XIII. MISCELLANEOUS.
-------------
A. Merger of PAH-Member, Inc. and PAH-Crossroads
Member, Inc. into PAH-Interstate Member, Inc. and name change to
Interstate Member, Inc.
<PAGE> 45
Annex II
--------
Assumed Liabilities
-------------------
All liabilities and obligations relating to and arising from the
operation of the Interstate Business (except contingent liabilities in existence
on the date hereof which are within Patriot's Knowledge and are not disclosed in
Schedule 5.2.1(b) hereto), whether arising or accruing before or after the
Distribution Date, including but not limited to:
(a) All liabilities and obligations which should be set forth,
reflected, disclosed or reserved for on a combined balance sheet for Interstate
as of the Distribution Date prepared in the same manner as the December 31, 1998
combined balance sheet of Interstate included in the Information
Statement/Prospectus (after giving effect to any pro forma adjustments reflected
or described in the Information Statement/Prospectus);
(b) All liabilities and obligations of Patriot/Wyndham pursuant to,
under or relating to all agreements, contracts and leases of Patriot/Wyndham
relating to the Interstate Business;
(c) All liabilities and obligations being assumed by or agreed to be
performed by Interstate pursuant to any other agreement being entered into in
connection with this Agreement, including without limitation the Related
Agreements;
(d) All liabilities and obligations relating to all Actions relating
principally to or arising principally out of the operations of the Interstate
Business; and
(e) All liabilities and obligations relating to or arising from the
failure or other malfunction of any computer or other electronic system used or
useable in the Interstate Business due or relating to the year 2000.
<PAGE> 46
Annex III
---------
Contributed Assets
------------------
1. 100% of the outstanding capital stock of Northridge Holdings, Inc.
2. A 99% membership interest in Crossroads Future Company, L.L.C.
3. A 99% membership interest in Crossroads/Memphis Company, L.L.C.
4. A 99% membership interest in Crossroads Hospitality Tenant Company,
L.L.C.
5. 100% of the outstanding capital stock of PAH-Crossroads Member, Inc.
6. A 16.7671% limited partnership interest in Crossroads/Memphis
Partnership, L.P.
7. 100% of the outstanding capital stock of Crossroads/Memphis Financing
Corporation.
8. 100% of the membership interests in PAH-Hilltop GP, L.L.C.
9. A 99% membership interest in Continental Design & Supplies Company,
L.L.C.
10. 100% of the membership interests in PAH-Cambridge Holdings, L.L.C.
11. 100% of the outstanding capital stock of PAH-Member, Inc.
12. 100% of the outstanding capital stock of PAH-Interstate Member, Inc.
13. A 1% general partner interest in Intercarp Limited Partnership
14. An 82.9102% limited partner interest in Intercarp Limited Partnership
15. Cash in the amount of $6,985,000 and related party accounts receivable
from Interstate Hotels, LLC in the amount of $28,510,000
16. Rights under the Management Agreements relating to the following
hotels:
Chicago Embassy Suites
Phoenix Embassy Suites
Schaumburg Embassy Suites
Denver Hilton
Parsippany Hilton
Lisle Radisson
San Jose Radisson
St. Louis Marriott
Troy Marriott
17. All tangible and intangible assets owned by Patriot/Wyndham relating
principally to the Interstate Business as of the Distribution Date,
including but not limited to:
(a) All assets and properties which should be set forth or
reflected on a combined balance sheet for Interstate as of the
Distribution Date prepared in the same manner as the December
31, 1998 combined balance sheet of Interstate included in the
Information Statement/Prospectus (after giving effect to the
pro forma adjustments reflected or described in the
Information Statement/Prospectus);
(b) All of Patriot/Wyndham's right and interest in, to, under and
relating to all agreements, contracts and leases of
Patriot/Wyndham relating to the Interstate Business;
<PAGE> 47
(c) All rights and interests of Patriot/Wyndham in and with
respect to the patents, trademarks, copyrights, trade secrets
and other intellectual property concerning the Interstate
Business;
(d) All of the Books and Records; and
(e) All permits and licenses held by Patriot/Wyndham which are
transferrable and which relate principally to the Interstate
Business.
ANYTHING CONTAINED IN THIS ANNEX III TO THE CONTRARY NOTWITHSTANDING,
CONTRIBUTED ASSETS SHALL NOT INCLUDE:
(i) Cash and cash equivalents, including cash on hand or
in bank accounts, certificates of deposit, commercial
paper and other similar securities or other
marketable securities other than the $6,985,000 cash
payment pursuant to item 15 above;
(ii) Any books and records relating to the Interstate
Business which Patriot/Wyndham is required by law to
retain in its possession; and
(iii) Any right, title or interest of Patriot/Wyndham in
any federal, state or local tax refund (including any
income in respect thereto) relating to the operations
of the Interstate Business prior to the Distribution
Date.
<PAGE> 48
Annex IV-A
----------
Entities Comprising the Interstate Business
-------------------------------------------
Interstate Hotels Corporation
IHC II, LLC
Northridge Holdings, Inc.
PAH-Crossroads Member, Inc.
PAH-Interstate Member, Inc.
PAH-Member, Inc.
IHC Services Company, L.L.C.
Crossroads Hospitality Company, L.L.C.
Crossroads Future Company, L.L.C.
Crossroads/Memphis Company, L.L.C.
Crossroads Hospitality Tenant Company, L.L.C.
Crossroads/Memphis Financing Corporation (Special Member)
Crossroads/Memphis Partnership, L.P.
Crossroads/Memphis Financing Company, L.L.C.
Oak Hill Catering Company, Inc.
Equity Bluefield, Inc.
State College BBQ/Concord Joint Venture
CHR Consulting Company, L.L.C.
Colony International Management Company, L.L.C.
Colony de Mexico, S.A. de C.V.
CHR Services Company, L.L.C.
Interstate Hotels, LLC
IHC/Moscow Corporation
PAH-Hilltop GP, LLC
Hilltop Equipment Leasing Company, L.P.
Northridge Insurance Company
Continental Design & Supplies Company, L.L.C.
PAH-Cambridge Holdings, LLC
Cambridge Hotel Associates
Intercarp Limited Partnership*
Charles Sq. Associates; CH&S Ltd.
Colony Hotels and Resorts Company
Crossroads/Memphis Financing II Corporation
Future Financing Member Corporation
Crossroads/Memphis Financing Company II, L.L.C.
Crossroads Future Financing Company, L.L.C.
IHC International Development (U.K.) L.L.C.
* Patriot/Wyndham's interests under contract to be sold
<PAGE> 49
Annex IV-B
----------
HOTELS OPERATED BY THE INTERSTATE BUSINESS
------------------------------------------
<TABLE>
<CAPTION>
STATE/ # OF
HOTEL CITY COUNTRY FRANCHISE DATE ROOMS
----- ---- ------- --------- ---- -----
<S> <C> <C> <C> <C> <C>
LEXINGTON HOTEL PHOENIX AZ INDEPENDENT Nov-93 180
RADISSON HOTEL LOS ANGELES WESTSIDE CULVER CITY CA RADISSON Jan-98 368
MARRIOTT'S LAGUNA CLIFFS RESORT DANA POINT CA MARRIOTT Oct-94 346
WESTIN BONAVENTURE LOS ANGELES CA WESTIN Dec-95 1,354
ONTARIO AIRPORT MARRIOTT ONTARIO CA MARRIOTT Sep-97 299
AMERISUITES HOTEL ONTARIO ONTARIO CA AMERISUITES Dec-98 128
SAN FRANCISCO MARRIOTT FISHERMAN'S WHARF SAN FRANCISCO CA MARRIOTT Oct-88 285
SAN FRANCISCO HOLIDAY INN GOLDEN GATEWAY SAN FRANCISCO CA HOLIDAY INN Aug-92 498
CLIFFS AT SHELL BEACH RESORT SHELL BEACH CA INDEPENDENT Oct-94 165
WARNER CENTER MARRIOTT WOODLAND HILLS CA MARRIOTT Feb-94 463
TORONTO DELTA MEADOWVALE MISSISSAUGA, CANADA DELTA Feb-96 374
ONTARIO
TORONTO COLONY HOTEL TORONTO, ONTARIO CANADA COLONY Dec-93 717
TRUMBULL MARRIOTT TRUMBULL CT MARRIOTT Dec-85 323
BOCA RATON MARRIOTT BOCA RATON FL MARRIOTT Aug-87 256
FORT LAUDERDALE MARRIOTT NORTH FORT LAUDERDALE FL MARRIOTT Dec-86 321
SHERATON BISCAYNE BAY MIAMI FL SHERATON Oct-86 598
ORLANDO AIRPORT MARRIOTT ORLANDO FL MARRIOTT Nov-88 484
MARRIOTT AT SAWGRASS RESORT PONTE VEDRA FL MARRIOTT Aug-88 510
BEACH
DON CESAR BEACH RESORT ST. PETE BEACH FL INDEPENDENT Dec-92 275
DON CESAR BEACH HOUSE ST. PETE BEACH FL INDEPENDENT Jan-97 70
LAWAI BEACH RESORT KOLOA, KAUAI HI COLONY Jun-94 171
THE CHARLES HOTEL IN HARVARD SQUARE CAMBRIDGE MA INDEPENDENT Feb-85 296
HARBOR VIEW HOTEL EDGARTOWN MA INDEPENDENT Jul-94 124
KELLEY HOUSE EDGARTOWN MA INDEPENDENT Jul-94 53
GAITHERSBURG HILTON GAITHERSBURG MD HILTON Jun-93 301
CHARLOTTE MARRIOTT EXECUTIVE PARK CHARLOTTE NC MARRIOTT Sep-83 297
THE INN AT GREAT NECK GREAT NECK NY INDEPENDENT May-96 85
ROOSEVELT HOTEL NEW YORK NY INDEPENDENT Apr-97 1,033
COLUMBUS EMBASSY SUITES COLUMBUS OH EMBASSY SUITES Jun-98 220
WATERFORD MARRIOTT OKLAHOMA CITY OK MARRIOTT Dec-94 197
PITTSBURGH GREEN TREE MARRIOTT PITTSBURGH PA MARRIOTT Nov-72 467
PITTSBURGH MARRIOTT CITY CENTER PITTSBURGH PA MARRIOTT Jul-96 401
PROVIDENCE MARRIOTT PROVIDENCE RI MARRIOTT Nov-75 345
HOTEL TVERSKAYA MOSCOW RUSSIA COLONY Sep-95 122
MOSCOW MARRIOTT GRAND HOTEL MOSCOW RUSSIA MARRIOTT Aug-97 392
MOSCOW MARRIOTT CITY CENTER MOSCOW RUSSIA MARRIOTT Jan-99 232
MEMPHIS MARRIOTT MEMPHIS TN MARRIOTT Oct-87 320
SEATTLE CROWNE PLAZA SEATTLE WA CROWNE PLAZA Dec-92 415
SCHAUMBURG EMBASSY SUITES SPIN 209
OFF
EMBASSY SUITES PHOENIX NORTH SPIN 314
OFF
EMBASSY SUITES CHICAGO SPIN 358
OFF
SAN JOSE RADISSON AIRPORT PLAZA HOTEL SPIN 185
OFF
LISLE RADISSON SPIN 242
OFF
DENVER HILTON SOUTH SPIN 305
OFF
PARSIPPANY HILTON SPIN 510
OFF
TROY MARRIOTT SPIN 350
OFF
TOTAL PROPERTIES INTERSTATE 46
TOTAL ROOMS INTERSTATE 15,958
HAMPTON INN BIRMINGHAM - MT. BROOK (mgmt 6/25/97) BIRMINGHAM MT. AL HAMPTON INN Aug-97 131
BROOK
HAMPTON INN BIRMINGHAM - VESTAVIA HILLS BIRMINGHAM AL HAMPTON INN Jun-97 123
VESTAVIA HILLS
COMFORT INN ENTERPRISE ENTERPRISE AL COMFORT INN Nov-96 78
COURTYARD BY MARRIOTT GULF SHORES GULF SHORES AL COURTYARD BY Nov-97 92
MARRIOTT
HAMPTON INN NORTH LITTLE ROCK NORTH LITTLE ROCK AR HAMPTON INN Jun-97 123
FLAGSTAFF SUPER 8 MOTEL FLAGSTAFF AZ SUPER 8 Dec-94 86
HOMEWOOD SUITES PHOENIX PHOENIX AZ HOMEWOOD SUITES Nov-96 124
HAMPTON INN SCOTTSDALE-OLD TOWN SCOTTSDALE AZ HAMPTON INN Nov-96 126
RESIDENCE INN BY MARRIOTT TUCSON TUCSON AZ RESIDENCE INN BY Jan-97 128
MARRIOTT
FREMONT HAMPTON INN FREEMONT CA HAMPTON INN Apr-99 100
HAMPTON INN LIVERMORE LIVERMORE CA HAMPTON INN Jun-97 76
HAMPTON INN AURORA AURORA CO HAMPTON INN Jun-97 132
RESIDENCE INN BY MARRIOTT COLORADO SPRINGS NORTH COLORADO CO RESIDENCE INN BY Jan-97 96
SPRINGS MARRIOTT
HAMPTON INN COLORADO SPRINGS COLORADO CO HAMPTON INN Jun-97 128
SPRINGS
DANBURY RADISSON SUITES DANBURY CT RADISSON Dec-98 76
HAMPTON INN MERIDEN MERIDEN CT HAMPTON INN Nov-96 125
HAMPTON INN MILFORD MILFORD CT HAMPTON INN Nov-96 148
COURTYARD BY MARRIOTT ORANGE ORANGE CT COURTYARD BY Sep-97 121
MARRIOTT
HOMEWOOD SUITES HARTFORD/WINDSOR LOCKS WINDSOR LOCKS CT HOMEWOOD SUITES Nov-96 132
HAMPTON INN DESTIN (11/14/96) DESTIN FL HAMPTON INN Jun-97 104
JACKSONVILLE COUNTRY INN & SUITES JACKSONVILLE FL COUNTRY INN & Jun-99 120
SUITES
HAMPTON INN JACKSONVILLE JACKSONVILLE FL HAMPTON INN Nov-96 122
COMFORT INN JACKSONVILLE BEACH JACKSONVILLE FL COMFORT INN Nov-96 177
BEACH
KENDALL RADISSON MIAMI FL RADISSON Feb-99 160
THE CADILLAC HOTEL MIAMI BEACH FL INDEPENDENT Jul-97 271
HAMPTON INN MIAMI-SOUTH BEACH/SURFCOMBER MIAMI BEACH FL INDEPENDENT Dec-97 212
HAMPTON INN SARASOTA SARASOTA FL HAMPTON INN Nov-96 97
</TABLE>
<PAGE> 50
HOTELS OPERATED BY THE INTERSTATE BUSINESS
------------------------------------------
<TABLE>
<CAPTION>
STATE/ # OF
HOTEL CITY COUNTRY FRANCHISE DATE ROOMS
----- ---- ------- --------- ---- -----
<S> <C> <C> <C> <C> <C>
AZURE TIDES INN SARASOTA-LIDO KEY FL INDEPENDENT Dec-95 59
HAMPTON INN ATLANTA - NORTHLAKE ATLANTA GA HAMPTON INN Jun-97 130
AUGUSTA HOMEWOOD SUITES AUGUSTA GA HOMEWOOD SUITES Jul-97 65
HAMPTON INN COLUMBUS AIRPORT COLUMBUS GA HAMPTON INN Nov-96 119
HAMPTON INN SAVANNAH SAVANNAH GA HAMPTON INN Feb-97 129
RESIDENCE INN BY MARRIOTT BOISE BOISE ID RESIDENCE INN BY Apr-98 104
MARRIOTT
HILTON GARDEN INN CHICAGO CHICAGO IL HILTON GARDEN INN Oct-99 357
HAMPTON INN CHICAGO/GURNEE GURNEE IL HAMPTON INN Nov-96 134
HAMPTON INN CHICAGO/NAPERVILLE NAPERVILLE IL HAMPTON INN Nov-96 130
HAMPTON INN INDIANAPOLIS NE INDIANAPOLIS IN HAMPTON INN Nov-96 129
HAMPTON INN KANSAS CITY KANSAS CITY KS HAMPTON INN Jun-97 120
HAMPTON INN OVERLAND PARK OVERLAND PARK KS HAMPTON INN Apr-97 134
HAMPTON INN LOUISVILLE LOUISVILLE KY HAMPTON INN Nov-96 119
COURTYARD BY MARRIOTT WESTBOROUGH WESTBOROUGH MA COURTYARD BY Nov-97 98
MARRIOTT
HAMPTON INN GLEN BURNIE GLEN BURNIE MD HAMPTON INN Nov-96 115
HAMPTON INN ANN ARBOR SOUTH ANN ARBOR MI HAMPTON INN Nov-96 150
HAMPTON INN MADISON HEIGHTS MADISON HEIGHTS MI HAMPTON INN Jun-97 124
HAMPTON INN DETROIT NORTHVILLE MI HAMPTON INN Nov-96 125
HAMPTON INN TRAVERSE CITY TRAVERSE CITY MI HAMPTON INN Nov-96 127
RESIDENCE INN BY MARRIOTT EAGAN EAGAN MN RESIDENCE INN BY Nov-96 120
MARRIOTT
HAMPTON INN ST. LOUIS ST. LOUIS MO HAMPTON INN Jun-97 122
COURTYARD BY MARRIOTT ST. LOUIS ST. LOUIS MO COURTYARD BY Dec-98 122
MARRIOTT
JACKSON SLEEP INN JACKSON MS SLEEP INN May-98 80
FAIRFIELD INN BY MARRIOTT JACKSON JACKSON MS FAIRFIELD INN BY Jan-99 106
MARRIOTT
HAMPTON INN SOUTHAVEN (11/14/96) SOUTHAVEN MS HAMPTON INN Mar-97 86
SOUTHAVEN FAIRFIELD INN BY MARRIOTT SOUTHAVEN MS FAIRFIELD INN BY Jan-99 94
MARRIOTT
VICKSBURG FAIRFIELD INN BY MARRIOTT VICKSBURG MS FAIRFIELD INN BY Jul-95 81
MARRIOTT
HAMPTON INN CHAPEL HILL CHAPEL HILL NC HAMPTON INN Jun-97 122
HAMPTON INN FAYETTEVILLE FAYETVILLE NC HAMPTON INN Nov-96 122
HAMPTON INN GASTONIA GASTONIA NC HAMPTON INN Nov-96 109
THE INN AT WILKSBORO WILKSBORO NC INDEPENDENT Nov-96 101
BROOKSTOWN INN WINSTON-SALEM NC INDEPENDENT Jul-94 71
WINSTON-SALEM INN WINSTON-SALEM NC INDEPENDENT Nov-96 160
RESIDENCE INN BY MARRIOTT OMAHA OMAHA NE RESIDENCE INN BY Nov-96 80
MARRIOTT
RESIDENCE INN BY MARRIOTT PRINCETON PRINCETON NJ RESIDENCE INN BY Sep-97 208
MARRIOTT
HOLIDAY INN SADDLE BROOK SADDLE BROOK NJ HOLIDAY INN Jul-97 144
RESIDENCE INN BY MARRIOTT TINTON FALLS TINTON FALLS NJ RESIDENCE INN BY Nov-96 96
MARRIOTT
HAMPTON INN ALBUQUERQUE ALBUQUERQUE NM HAMPTON INN Nov-99 131
COURTYARD BY MARRIOTT ALBANY ALBANY NY COURTYARD BY Jan-96 78
MARRIOTT
HAMPTON INN ALBANY ALBANY NY HAMPTON INN Nov-96 154
THE PILLARS HOTEL AKA MEDICAL INN BUFFALO BUFFALO NY INDEPENDENT Nov-98 100
CANTON BEST WESTERN UNIVERSITY INN CANTON NY BEST WESTERN Apr-95 102
HOLIDAY INN FISHKILL FISHKILL NY HOLIDAY INN Jan-97 156
HAMPTON INN FISHKILL FISHKILL NY HAMPTON INN Aug-98 156
COMFORT INN MURRAY HILL NEW YORK NY COMFORT INN Nov-95 128
MANHATTAN COURTYARD BY MARRIOTT TIMES SQUARE NEW YORK NY COURTYARD BY Dec-98 244
SOUTH MARRIOTT
HAMPTON INN CLEVELAND DOWNTOWN CLEVELAND OH HAMPTON INN Jun-98 194
HAMPTON INN DUBLIN DUBLIN OH HAMPTON INN Jun-97 123
SHARONVILLE HOMEWOOD SUITES SHARONVILLE OH HOMEWOOD SUITES Apr-98 111
HAMPTON INN CLEVELAND/WESTLAKE WESTLAKE OH HAMPTON INN Nov-96 123
RESIDENCE INN BY MARRIOTT OKLAHOMA CITY OKLAHOMA CITY OK RESIDENCE INN BY Jan-97 135
MARRIOTT
RESIDENCE INN BY MARRIOTT PORTLAND PORTLAND OR RESIDENCE INN BY Apr-98 168
MARRIOTT
CHAMBERSBURG FAIRFIELD INN BY MARRIOTT CHAMBERSBURG PA FAIRFIELD INN BY Aug-96 74
MARRIOTT
PHILADELPHIA HOLIDAY INN AIRPORT PHILADELPHIA PA HOLIDAY INN Oct-97 303
RESIDENCE INN BY MARRIOTT PITTSBURGH AIRPORT PITTSBURGH PA RESIDENCE INN BY May-98 156
MARRIOTT
RESIDENCE INN BY MARRIOTT OAKLAND PITTSBURGH PA RESIDENCE INN BY Nov-99 176
MARRIOTT
HOLIDAY INN EXPRESS PITTSTON PITTSTON PA HOLIDAY INN Nov-97 100
HAMPTON INN SCRANTON SCRANTON PA HAMPTON INN Nov-96 129
HAMPTON INN STATE COLLEGE STATE COLLEGE PA HAMPTON INN Nov-96 120
HAMPTON INN UNIONTOWN UNIONTOWN PA HAMPTON INN Jun-97 86
HOLIDAY INN MT. PLEASANT MT PLEASANT SC HOLIDAY INN Nov-96 158
HAMPTON INN CHARLESTON NORTH SC HAMPTON INN Jun-97 125
CHARLESTON
HAMPTON INN COLUMBIA WEST WEST COLUMBIA SC HAMPTON INN Jun-97 121
HAMPTON INN AND SUITES BARTLETT BARTLETT TN HAMPTON INN AND May-98 125
SUITES
HAMPTON INN NASHVILLE BRENTWOOD TN HAMPTON INN Jun-97 114
HAMPTON INN CHATTANOOGA CHATTANOOGA TN HAMPTON INN Nov-96 168
HAMPTON INN COLLIERVILLE COLLIERVILLE TN HAMPTON INN Mar-97 90
GERMANTOWN HOMEWOOD SUITES (11/14/96) GERMANTOWN TN HOMEWOOD SUITES Jun-97 92
HAMPTON INN KNOXVILLE AIRPORT KNOXVILLE/ALCOA TN HAMPTON INN Nov-96 118
HAMPTON INN MEMPHIS - POPLAR MEMPHIS TN HAMPTON INN Jun-97 126
HAMPTON INN MEMPHIS - SYCAMORE MEMPHIS TN HAMPTON INN Jun-97 117
HAMPTON INN NASHVILLE - BRILEY NASHVILLE TN HAMPTON INN Jun-97 120
HAMPTON INN PICKWICK DAM (11/14/96) PICKWICK DAM TN HAMPTON INN Mar-97 50
HAMPTON INN DALLAS - ADDISON ADDISON TX HAMPTON INN Jun-97 160
HAMPTON INN ARLINGTON SOUTH ARLINGTON TX HAMPTON INN Nov-96 141
HAMPTON INN AUSTIN NORTH AUSTIN TX HAMPTON INN Nov-96 121
AUSTIN DOUBLETREE AUSTIN TX DOUBLETREE CLUB Sep-97 155
HAMPTON INN COLLEGE STATION COLLEGE STATION TX HAMPTON INN Nov-96 135
HAMPTON INN FORT WORTH WEST FORT WORTH TX HAMPTON INN Nov-96 125
HAMPTON INN GARLAND GARLAND TX HAMPTON INN Nov-96 125
HAMPTON INN DALLAS - RICHARDSON RICHARDSON TX HAMPTON INN Jun-97 130
HOMEWOOD SUITES SAN ANTONIO SAN ANTONIO TX HOMEWOOD SUITES Nov-96 123
HAMPTON INN SAN ANTONIO (mgmt 11/14/98) SAN ANTONIO TX HAMPTON INN Apr-98 169
HAMPTON INN NORFOLK NORFOLK VA HAMPTON INN Mar-97 119
</TABLE>
<PAGE> 51
HOTELS OPERATED BY THE INTERSTATE BUSINESS
------------------------------------------
<TABLE>
<CAPTION>
STATE/ # OF
HOTEL CITY COUNTRY FRANCHISE DATE ROOMS
----- ---- ------- --------- ---- -----
<S> <C> <C> <C> <C> <C>
VIRGINIA BEACH DAYS INN AIRPORT VIRGINIA BEACH VA DAYS INN Nov-94 148
POINT PLEASANT ST. THOMAS VIRGIN COLONY Sep-95 110
ISLANDS
RESIDENCE INN BY MARRIOTT BURLINGTON BURLINGTON VT RESIDENCE INN BY Nov-96 96
MARRIOTT
COMFORT INN TROLLEY SQUARE RUTLAND VT COMFORT INN Nov-96 104
GOLDEN EAGLE RESORT STOWE VT COLONY Jun-94 89
STRATTON MOUNTAIN INN STRATTON VT COLONY Jun-94 119
MOUNTAIN
STRATTON VILLAGE LODGE STRATTON VT COLONY Jun-94 91
MOUNTAIN
HAMPTON INN WHITE RIVER JUNCTION WHITE RIVER VT HAMPTON INN Oct-97 96
JUNCTION
HOMEWOOD SUITES SEATTLE SEATTLE WA HOMEWOOD SUITES Aug-98 161
RESIDENCE INN BY MARRIOTT MADISON MADISON WI RESIDENCE INN BY Nov-96 80
MARRIOTT
HAMPTON INN BECKLEY BECKLEY WV HAMPTON INN Nov-96 108
HOLIDAY INN BLUEFIELD BLUEFIELD WV HOLIDAY INN Nov-96 120
HAMPTON INN MORGANTOWN MORGANTOWN WV HAMPTON INN Nov-96 108
HOLIDAY INN OAK HILL OAK HILL WV HOLIDAY INN Nov-96 119
HAMPTON INN SOUTH SAN FRANCISCO May-99 90
HOMEWOOD SUITES ORLANDO Jun-99 252
HOMEWOOD SUITES CHICAGO Jun-99 233
COURTYARD BY MARRIOTT BEECHWOOD SPIN 113
OFF
TOTAL PROPERTIES CROSSROADS 129
TOTAL ROOMS CROSSROADS 16,411
TOTAL PROPERTIES 175
TOTAL ROOMS 32,369
</TABLE>
<PAGE> 52
Annex V
-------
Retained Liabilities
--------------------
All liabilities and obligations of Patriot/Wyndham and its subsidiaries
(other than Interstate and its subsidiaries, including without limitation, the
LLC), except those set forth on Annex II.
<PAGE> 53
Annex VI
--------
Employment and Employee Benefit Plan Matters
--------------------------------------------
From and after the date of the distribution, Patriot/Wyndham,
Interstate and LLC will cooperate, in good faith, with one another to transfer
employees from their respective payrolls and employee benefit plans as of the
dates on which Patriot/Wyndham or LLC cease or assume management of various
hotels in order to avoid any legal or financial liabilities to any of such
entities or their respective subsidiaries and affiliates arising out of such
transfer or the timing thereof.
<PAGE> 54
Schedule 4.1.1
--------------
Distribution Transactions
-------------------------
A. Patriot distributes shares of Newco Class A Common Stock to:
1. Paired Share holders
2. Series A Preferred Stock holders
B. Patriot contributes shares of Newco Class A Common Stock and
cash in lieu of fractional shares to REIT OP.
C. REIT OP makes the following distributions:
1. 45,480 shares of Newco Class A Common Stock and $2.33 in
lieu of fractional shares to holders of Class A Preferred
Units (which are paired with Class B Preferred Units of
Wyndham OP)
2. 456,889 shares of Newco Class A Common Stock and $297.81 in
lieu of fractional shares to holders of Common Units.
D. Wyndham purchases from Patriot shares of Newco Class A Common
Stock and distributes these shares to holders of Wyndham Series A and Series B
Preferred Stock.
E. Wyndham OP purchases from Patriot shares of Newco Class A Common
Stock and distributes these shares to holders of Wyndham OP Series A and Series
C Preferred Units.
F. Patriot issues Paired Shares to the forward counterparties in
exchange for shares of Newco Class A Common Stock.
G. Newco purchases for $1 from Patriot 3,239,196 shares of Newco
Class A Common Stock for cancellation.
<PAGE> 55
Schedule 5.2.1(a)
-----------------
The information contained under the following captions of the
Information Statement/Prospectus and Form S-1 is subject to the indemnification
provisions of Section 5.2.1 of the Agreement:
INFORMATION STATEMENT/PROSPECTUS COVER PAGE
QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF AND INTERSTATE MANAGEMENT - The
information contained in the first seven questions and answers.
SUMMARY - The Spin-off; Reasons for the Spin-off.
THE SPIN-OFF - Background of the Spin-off; Distribution of Interstate Shares;
Distribution Agreement*, Allocation of Shared Expenses*, Distribution Agent,
Federal Income Tax Consequences of the Spin-off.
- - --------
* Liability to be shared between Patriot/Wyndham, on the one hand, and
Interstate, on the other hand, on a 50/50 basis.
<PAGE> 56
Schedule 5.2.1(b)
-----------------
Patriot/Wyndham Obligations
---------------------------
<TABLE>
<CAPTION>
INDEMNITY OBLIGATION OF
PATRIOT/WYNDHAM, INCLUDING
CONTINGENT LIABILITY DESCRIPTION MAXIMUM LIABILITY
- - -------------------- ----------- -----------------
<S> <C> <C>
Y2K Non-Compliance Equity Inns DMR survey Patriot to indemnify the LLC
(corporate office) plus remedies for costs and expenses up to
an aggregate of $1,193,500
incurred in connection with
Y2K compliance required
under existing contracts or
leases with Equity Inns
Trezevant litigation Reserve for uninsured Patriot to indemnify the LLC
lawsuit pending on the for costs and expenses up to
date of this Agreement an aggregate of $500,000
incurred in connection with
the Trezevant litigation
General employment Reserves for deductibles Patriot to indemnify the LLC
lawsuits deductible relating to employment- up to an aggregate of
related lawsuits $250,000 for amounts paid
for deductibles relating to
employment-related lawsuits
pending on the date of this
Agreement
Up to $750,000 for Interstate Hotels, LLC Patriot to cause the
unfunded loans relating has committed to fund non-managing member to
to the Marriott Grand preopening costs in the contribute to the LLC its
Hotel, Moscow, Russia form of loans up to a pro rata portion (up to
predetermined maximum $412,500) if and to the
amount extent Interstate
contributes its pro rata
portion
Loan Forgiveness under Certain employees have Patriot to indemnify for any
Employment Agreements options for up to 90 days losses incurred by
following the Interstate as a result of
Distribution Date (the forgiveness of employee
"Free Look Period") to loans due to elections to
elect to leave Interstate. leave Interstate during the
These employees are Free Look Period, up to $1.5
entitled to forgiveness of million
outstanding loans
</TABLE>
<PAGE> 57
Schedule 5.2.2
--------------
The information set forth below is subject to the indemnification
provisions of Section 5.2.2 of the Agreement:
All information contained in the Information Statement/Prospectus and
Form S-1 other than the information contained under the captions set forth on
Schedule 5.2.1(a); provided, that the information set forth under "THE
SPIN-OFF--Distribution Agreement" and "--Allocation of Shared Expenses" shall be
shared between Patriot/Wyndham, on the one hand, and Interstate, on the other
hand, on a 50/50 basis.
<PAGE> 1
Exhibit 3.1
ARTICLES OF
AMENDMENT AND RESTATEMENT
OF
INTERSTATE HOTELS CORPORATION
<PAGE> 2
THIS IS TO CERTIFY THAT:
FIRST: Interstate Hotels Corporation, a Maryland corporation with its
principal office in the State of Maryland, and its resident agent, as set forth
below in ARTICLES IV and V, respectively, of these Articles of Amendment and
Restatement desires to amend and restate its charter as filed with the State
Department of Assessments and Taxation on May 29, 1998, as amended on October
30, 1998 and May 7, 1999, as set forth in these Articles of Amendment and
Restatement.
SECOND: The following provisions are all of the provisions of the
charter currently in effect as hereinafter amended:
ARTICLE I
INCORPORATION
The undersigned, Michael J. O'Connor, whose post office address is c/o
Goodwin, Procter & Hoar LLP, 53 State Street, Boston, Massachusetts, 02109,
being at least eighteen (18) years of age, does hereby form a corporation under
the Maryland General Corporation Law (the "MGCL").
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
Interstate Hotels Corporation
ARTICLE III
PURPOSES
The Corporation is being formed to operate and manage hotels and to
engage in any lawful act or activity for which a corporation may be organized
under the MGCL. The foregoing purposes shall be in no way limited or restricted
by reference to, or inference from, the terms of any other clause of these
Articles of Incorporation, as amended from time to time, and each shall be
regarded as independent. The foregoing purposes are also to be construed as
powers of the Corporation, and shall be in addition to and not in limitation of
the general powers of corporations under the laws of the State of Maryland.
<PAGE> 3
ARTICLE IV
PRINCIPAL OFFICE ADDRESS
The address of the principal office of the Corporation in Maryland is
c/o CSC-Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore,
Maryland 21202.
ARTICLE V
THE RESIDENT AGENT
The resident agent of the Corporation in Maryland is CSC-Lawyers
Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland 21202.
ARTICLE VI
BOARD OF DIRECTORS
6.1 General Powers; Action by Committee. The business and affairs of
the Corporation shall be managed under the direction of the Board of Directors
and, except as otherwise expressly provided by law, these Articles or the
bylaws, as amended from time to time (the "Bylaws"), of the Corporation, all of
the powers of the Corporation shall be vested in such Board of Directors. Any
action which the Board of Directors is empowered to take may be taken on behalf
of the Board of Directors by a duly authorized committee thereof except (i) to
the extent limited by Maryland law, these Articles or the Bylaws and (ii) for
any action which requires the affirmative vote or approval of a majority of all
Directors then in office (unless, in such case, these Articles or the Bylaws
specifically provide that a duly authorized committee can take such action on
behalf of the Board of Directors). A majority of the Board of Directors shall
constitute a quorum and, except as otherwise specifically provided in these
Articles, the affirmative vote of a majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
6.2 Number. Until the annual meeting of stockholders to be held in
2000, the number of Directors of the Corporation shall be fixed at six. From the
date of the annual meeting of stockholders to be held in 2000 (the "First Annual
Meeting Date") until the earliest to occur of (i) such time that there are no
shares of Class B Common Stock outstanding, (ii) such time that there are no
shares of Class C Common Stock outstanding and (iii) September 30, 2003, the
number of Directors of the Corporation shall be fixed at (x) eleven in the event
that, on the First Annual Meeting Date, Patriot American Hospitality, Inc., a
Delaware corporation ("Patriot"), qualifies as a "real estate investment trust"
(within the meaning of Section 856 of the Internal Revenue Code of 1986, as
amended) (a "REIT"), or (y) seven in the event that, on the First Annual Meeting
Date, Patriot does not exist or does not qualify as a
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REIT. After the earliest to occur of (A) such time that there are no shares of
Class B Common Stock outstanding, (B) such time that there are no shares of
Class C Common Stock outstanding and (C) September 30, 2003, the number of
Directors of the Corporation shall be fixed from time to time by a resolution
duly adopted by the Board of Directors; provided, however, that the total number
of Directors shall not be increased above (x) eleven in the event that, on the
First Annual Meeting Date, Patriot qualifies as a REIT, or (y) seven in the
event that, on the First Annual Meeting Date, Patriot does not exist or does not
qualify as a REIT, prior to September 30, 2003 without the consent of the Class
B Director, if any, or Class C Director, if any, then serving on the Board of
Directors; provided, further, that the total number of Directors shall not be
reduced below eleven prior to September 30, 2003 at any time while Patriot
qualifies as a REIT without the consent of the Class C Director, if any, then
serving on the Board of Directors; and provided, further, that the total number
of Directors shall be not fewer than three unless there are fewer than three
stockholders at the time. No reduction in the number of Directors shall cause
the removal of any Director from office prior to the expiration of his or her
term.
6.3 Initial Board; Term; Election. The initial Directors of the
Corporation (hereinafter referred to, together with their direct and indirect
successors, as the "Class A Directors") shall be Thomas F. Hewitt, Michael L.
Ashner, Benjamin D. Holloway, Phillip H. McNeill, Sr. and Anne L. Raymond. The
Class A Directors shall be further classified, with respect to the term for
which they severally hold office, into three classes, as nearly equal in number
as possible. The initial Class A-I Director of the Corporation, who shall serve
a term expiring at the annual meeting of stockholders to be held in 2000, shall
be Anne L. Raymond; the initial Class A-II Directors of the Corporation, who
shall serve terms expiring at the annual meeting of stockholders to be held in
2001, shall be Michael L. Ashner and Benjamin D. Holloway; and the initial Class
A-III Directors of the Corporation, who shall serve terms expiring at the annual
meeting of stockholders to be held in 2002, shall be Thomas F. Hewitt and
Phillip H. McNeill, Sr. On the First Annual Meeting Date, if Patriot qualifies
as a REIT, four additional Class A Directors shall be elected to the Board and
such additional Directors shall be classified by the Board of Directors into
appropriate classes so that the classes of the Board of Directors will
thereafter be as nearly equal in number as possible. At each annual meeting of
stockholders, the successor or successors of the group of Class A Directors
whose term expires at that meeting shall be elected by the vote of holders of a
plurality of the shares of Class A Common Stock present in person or represented
by proxy at such meeting and entitled to vote on the election of Class A
Directors, and shall hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of his or their election.
One Director of the Corporation (hereinafter referred to, together with his
direct and indirect successors, as the "Class B Director") shall, in accordance
with and subject to Section 7.5 hereof, be elected by the holders of shares of
Class B Common Stock. The initial Class B Director of the Corporation shall be
Stephen P. Joyce, and shall serve a term expiring at the annual meeting of
stockholders to be held in 2001. Thereafter, the Class B Director shall serve
one-year terms expiring at each subsequent annual meeting of stockholders. At
each meeting of stockholders at which a Class B Director is to be elected, the
Class B Director shall be elected by the vote of holders of a plurality of the
shares of Class B Common Stock present
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in person or represented by proxy at such meeting and entitled to vote on the
election of Class B Directors. Upon the First Annual Meeting Date, one Director
of the Corporation (hereinafter referred to, together with his direct and
indirect successors, as the "Class C Director") shall, in accordance with and
subject to Section 7.6 hereof, be elected by the holders of shares of Class C
Common Stock. The initial Class C Director of the Corporation shall be elected
on the First Annual Meeting Date at either a meeting of holders of shares of
Class C Common Stock or by the unanimous written consent of such holders, and
shall serve a term expiring at the annual meeting of stockholders to be held in
2001. Thereafter, the Class C Director shall serve one-year terms expiring at
each subsequent annual meeting of stockholders. At each meeting of stockholders
at which a Class C Director is to be elected, the Class C Director shall be
elected by the vote of holders of a plurality of the shares of Class C Common
Stock present in person or represented by proxy at such meeting and entitled to
vote on the election of Class C Directors. The Directors shall hold office until
their successors are duly elected and qualified or until their earlier death,
disqualification, resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
these Articles or any articles supplementary thereto, the holders of any one or
more series of Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect Directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of such provisions and any articles supplementary applicable thereto, to
the extent applicable, and, except for Class A Directors, such Directors so
elected shall not be divided into classes pursuant to this Section 6.3.
During any period when the holders of any series of Stock have the
right to elect additional Directors as provided for or fixed pursuant to the
provisions of these Articles or any articles supplementary thereto, then upon
commencement and for the duration of the period during which such right
continues: (a) the then otherwise total authorized number of Directors of the
Corporation shall automatically be increased by such specified number of
Directors, and the holders of such Stock shall be entitled to elect the
additional Directors so provided for or fixed pursuant to said provisions and
(b) each such additional Director shall serve until such Director's successor
shall have been duly elected and qualified, or until such Director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such Director's earlier death, disqualification, resignation
or removal. Except as otherwise provided by the Board of Directors in the
resolution or resolutions establishing such series, whenever the holders of any
series of Stock having such right to elect additional Directors are divested of
such right pursuant to the provisions of such Stock, the terms of office of all
such additional Directors elected by the holders of such Stock, or elected to
fill any vacancies resulting from the death, resignation, disqualification or
removal of such additional Directors, shall forthwith terminate and the total
authorized number of Directors of the Corporation shall be reduced accordingly.
6.4 Resignation or Removal of Directors. Any Director may resign from
the Board of Directors or any committee thereof at any time by written notice to
the Board of Directors,
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effective upon execution and delivery to the Corporation of such notice or upon
any future date specified in the notice. Subject to the rights, if any, of the
holders of any class or series of Stock to elect Directors and to remove any
Director whom such holders have the right to elect, and except as otherwise
provided in Section 7.5.1 and Section 7.6.1, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office (a) only with cause and (b) only by the affirmative vote of the
holders of at least 75% of the shares then entitled to vote at a meeting of the
stockholders called for that purpose. At least 30 days prior to any meeting of
stockholders at which it is proposed that any Director be removed from office,
written notice of such proposed removal shall be sent to the Director whose
removal will be considered at the meeting. For purposes of these Articles,
"cause," with respect to the removal of any Director, shall mean only (i)
conviction of a felony, (ii) declaration of unsound mind by order of a court,
(iii) gross dereliction of duty, (iv) commission of any act involving moral
turpitude or (v) commission of an act that constitutes intentional misconduct or
a knowing violation of law if such action in either event results both in an
improper substantial personal benefit to such Director and a material injury to
the Corporation.
6.5 Vacancies. Subject to the rights, if any, of the holders of any
class or series of Stock to elect Directors and to fill vacancies on the Board
of Directors relating thereto, (i) any vacancy on the Board of Directors which
results from the removal of a Director for cause may be filled by the
affirmative vote of a majority of votes cast by the holders of Class A Common
Stock, (ii) any vacancy occurring on the Board of Directors for any reason,
except as a result of an increase in the number of Directors, may be filled by a
majority vote of the remaining Directors, notwithstanding that such majority is
less than a quorum, and (iii) any vacancy occurring on the Board of Directors as
a result of an increase in the number of Directors may be filled by a majority
vote of the entire Board of Directors. A Director elected by the Board of
Directors to fill a vacancy shall hold office until the next annual meeting of
stockholders and until his or her successor is elected and qualified. A Director
elected by the stockholders to fill a vacancy which results from the removal of
a Director shall hold office for the balance of the term of the removed
Director. In the event of a vacancy in the Board of Directors, the remaining
Directors, except as otherwise provided by law or by these Articles or by the
Bylaws, may exercise the powers of the full Board of Directors until such
vacancy is filled.
6.6 Powers. These Articles, as amended or supplemented from time to
time, shall be construed with a presumption in favor of the grant of power and
authority to the Directors. The determination as to any of the following
matters, made in good faith by or pursuant to the direction of the Board of
Directors consistent with these Articles and in the absence of actual receipt of
an improper benefit in money, property or services or active and deliberate
dishonesty established by a court, shall be final and conclusive and shall be
binding upon the Corporation and every holder of shares of its Stock: the amount
of the net income of the Corporation for any period and the amount of assets at
any time legally available for the payment of dividends, redemption of its Stock
or the payment of other distributions on its Stock; the amount of paid-in
surplus, net assets, other surplus, annual or other net profit, net assets in
excess of capital, undivided profits or excess of profits over losses on sales
of assets;
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the amount, purpose, time of creation, increase or decrease, alteration or
cancellation of any reserves or charges and the propriety thereof (whether or
not any obligation or liability for which such reserves or charges shall have
been created shall have been paid or discharged); the fair value, or any sale,
bid or asked price to be applied in determining the fair value, of any asset
owned or held by the Corporation; any matter relating to the acquisition,
holding and disposition of any assets by the Corporation; or any other matter
relating to the business and affairs of the Corporation.
ARTICLE VII
STOCK
7.1 Authorized Stock. Immediately prior to the filing of these Articles
of Amendment and Restatement, the total number of shares of stock ("Stock")
which the Corporation had authority to issue was One Hundred Thousand (100,000)
shares, par value $.01 per share ("Old Common Stock"). The aggregate par value
of all of the shares of all classes of Stock was $1,000. Upon filing of these
Articles of Amendment and Restatement, the total number of shares of stock
("Stock") which the Corporation has authority to issue is seventy-five million
(75,000,000) shares, initially consisting of (i) ten million (10,000,000) shares
of Preferred Stock, par value $.01 per share; (ii) sixty-two million
(62,000,000) shares of Class A Common Stock, par value $.01 per share ("Class A
Common Stock"); (iii) one million five hundred thousand (1,500,000) shares of
Class B Common Stock, par value $.01 per share ("Class B Common Stock"); and
(iv) one million five hundred thousand (1,500,000) shares of Class C Common
Stock, par value $.01 per share ("Class C Common Stock" and, together with the
Class A Common Stock and the Class B Common Stock, the "Common Stock"). The
aggregate par value of all the shares of all classes of Stock is $750,000.
Pursuant to a Recapitalization and Subscription Agreement dated as of June 18,
1999 (the "Recapitalization Agreement"), simultaneously with the filing of these
Articles of Amendment and Restatement, each share of Old Common Stock will be
exchanged into the number of shares of Common Stock set forth in the
Recapitalization Agreement. If shares of one class of Stock are classified or
reclassified into shares of another class of Stock pursuant to this Article VII,
the number of authorized shares of the former class shall be automatically
decreased and the number of shares of the latter class shall be automatically
increased, in each case by the number of shares so classified or reclassified,
so that the aggregate number of shares of Stock of all classes that the
Corporation has authority to issue shall not be more than the total number of
shares of Stock set forth in the first sentence of this paragraph.
7.2 Preferred Stock. Subject to any limitations prescribed by law, the
Board of Directors is expressly authorized to classify any unissued shares of
Preferred Stock and reclassify any previously classified but unissued shares of
Preferred Stock of any series from time to time, in one or more classes or
series of such Stock and, by filing articles supplementary with the State
Department of Assessments and Taxation of the State of Maryland, to establish or
change from time to time the number of shares to be included in each
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such class or series, and to fix the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class or series. Any action by the Board of Directors under this Section 7.2
shall require the affirmative vote of a majority of the Directors then in
office; provided, however, that by the affirmative vote of a majority of the
Directors then in office, the Board of Directors may appoint a committee to act
on behalf of the Board of Directors under this Section 7.2, and in such event
the affirmative vote of a majority of the members of such committee then in
office shall be required for any action under this Section 7.2.
7.3 Common Stock. Except as otherwise expressly provided herein, all
shares of Common Stock shall be identical and shall entitle the holders thereof
to the same rights and privileges. Subject to all of the rights, powers and
preferences of the Preferred Stock and except as provided by law or in these
Articles (or in any articles supplementary regarding any class or series of
Preferred Stock):
7.3.1 Voting Rights. Except as otherwise provided herein, the
holders of shares of Common Stock shall be entitled to vote on all
matters requiring stockholder action, and each holder of shares of
Common Stock shall be entitled to one vote for each share of Common
Stock held by such stockholder. Except as required by law or as set
forth herein, the holders of Common Stock shall vote together as a
single class on all matters submitted to stockholders for a vote.
7.3.2 Dividend Rights. Holders of Common Stock shall be
entitled to receive such dividends and other distributions in cash,
Stock or property of the Corporation as may be authorized and declared
by the Board of Directors upon the Common Stock out of any assets or
funds of the Corporation legally available therefor, but only when and
as authorized by the Board of Directors or any authorized committee
thereof from time to time.
Before payment of any dividends or other distributions, there
may be set aside out of any assets of the Corporation available for
dividends or other distributions such sum or sums as the Board of
Directors may from to time, in its absolute discretion, think proper as
a reserve fund for contingencies, for equalizing dividends or other
distributions, for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors shall
determine to be in the best interests of the Corporation, and the Board
of Directors may modify or abolish any such reserve in the manner in
which it was created.
Notwithstanding any other provision of these Articles, no
dividend or other distribution may be declared or paid upon any class
of Common Stock, whether payable in cash or in shares of such class or
any other class of Common Stock or otherwise, unless a comparable
dividend shall be declared and paid upon each other class of Common
Stock then outstanding. If a dividend declared upon Class A Common
Stock is payable in shares of Class A Common Stock, the comparable
dividend declared upon
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Class B Common Stock shall be payable in shares of Class B Common Stock
and the comparable dividend declared upon Class C Common Stock shall be
payable in shares of Class C Common Stock, and vice versa.
7.3.3 Rights Upon Liquidation. Upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
subject to the rights of holders of any shares of Preferred Stock, the
net assets of the Corporation available for distribution to the holders
of Common Stock shall be distributed pro rata to such holders in
proportion to the number of shares of Common Stock held by each.
7.4 Class A Common Stock. The holders of the outstanding shares of
Class A Common Stock shall be entitled, as a class, to initially elect five
Class A Directors of the Corporation. At each annual meeting of stockholders,
the presence in person or by proxy of the holders of a majority of the
outstanding shares of Class A Common Stock shall be required and be sufficient
to constitute a quorum of such class for the election of Directors by such
class. Class A Directors may be removed from office in accordance with Section
6.4. In addition, the holders of the outstanding shares of Class A Common Stock
shall be entitled, as a class, to elect additional Class A Directors of the
Corporation if so permitted by these Articles, including, without limitation, as
permitted by Section 6.3, Section 7.5 and Section 7.6.
7.5 Class B Common Stock.
7.5.1 Voting Rights.
(a) The holders of the outstanding shares of Class B
Common Stock shall be entitled, as a class, to elect one Class
B Director of the Corporation. A Class B Director shall be
removed from office (i) with or without cause only by the
affirmative vote of the holders of a majority of the shares of
Class B Common Stock then entitled to vote at a meeting of
such stockholders called for the purpose or by the unanimous
written consent of holders of shares of Class B Common Stock,
(ii) automatically upon the occurrence of a Class B Conversion
Event (as defined below) or (iii) in accordance with Section
6.4. Upon the occurrence of a Class B Conversion Event, the
number of Class A Directors shall be automatically increased
by one and the vacancy created thereby may be filled in
accordance with Section 6.5 either by the remaining Directors
or by the holders of Class A Common Stock. If such vacancy is
filled by the remaining Directors, such remaining Directors
shall classify the new Director into the class of Directors
whose terms expire at the next annual meeting of stockholders.
If such vacancy is filled by the holders of Class A Common
Stock, the remaining Directors shall classify the new Director
into an appropriate class so that the classes of the Board of
Directors will thereafter be as nearly equal in number as
possible. Any Class B Director who dies, resigns, is removed
in accordance with Section 6.4 or otherwise ceases to be a
Director for any reason other than a Class B Conversion Event
shall be replaced by the
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vote of holders of a plurality of the shares of Class B Common
Stock then entitled to vote at a meeting of such stockholders
called for the purpose or by the unanimous written consent of
holders of Class B Common Stock.
(b) So long as any shares of Class B Common Stock are
outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of
Class B Common Stock then entitled to vote, voting as a class,
at a meeting of such stockholders called for the purpose or by
the unanimous written consent of holders of shares of Class B
Common Stock, enter into a definitive agreement with respect
to, or authorize the corporate action necessary to carry out,
a Patriot Related Transaction (as defined below), if at the
time of the vote of the Board of Directors authorizing the
entry into such agreement or the effectuation of such
corporate action Patriot and Wyndham International, Inc., a
Delaware corporation ("Wyndham"), together with the respective
Affiliates (as defined below) of Patriot and Wyndham, own in
the aggregate at least 10% of the outstanding Common Stock.
For purposes of this Article VII, "Patriot Related
Transaction" shall mean (i) a merger, consolidation, or share
exchange with Patriot or Wyndham or any Affiliate of Patriot
or Wyndham; (ii) the sale, lease, transfer or other
disposition of a substantial portion of the Corporation's
assets to Patriot or Wyndham or any Affiliate of Patriot or
Wyndham in one transaction or a series of transactions within
a 12 month period; (iii) the issuance or transfer by the
Corporation, in one transaction or a series of transactions,
of any equity securities of the Corporation which have an
aggregate market value of 10% or more of the total market
value of the outstanding Stock of the Corporation to Patriot
or Wyndham or any Affiliate of Patriot or Wyndham; (iv) the
adoption of any plan or proposal for the liquidation or
dissolution of the Corporation in which anything other than
cash or a pro rata distribution of assets will be received by
Patriot or Wyndham or any Affiliate of Patriot or Wyndham; or
(v) a reverse stock split which has the effect, directly or
indirectly, in one transaction or a series of transactions, of
increasing by 5% or more the proportionate amount of the
outstanding shares of Common Stock owned by Patriot or Wyndham
or any Affiliate of Patriot or Wyndham. For purposes of this
Article VII, an "Affiliate" of a specified individual or
entity is an individual or entity that directly, or indirectly
through one or more intermediaries, controls or is controlled
by, or is under common control with, such specified individual
or entity.
(c) For the purposes of taking the actions specified
in this Section 7.5.1, special meetings of holders of Class B
Common Stock shall be called by the Secretary of the
Corporation upon the written request of the holders of not
less than a majority of the shares of Class B Common Stock
then outstanding. Any such request shall state the purpose of
such meeting and the matters proposed to be acted upon at such
meeting. The Secretary shall inform such
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holders of Class B Common Stock of the reasonably estimated
cost of preparing and mailing notice of the meeting and, upon
payment to the Corporation by such stockholders of such costs,
the Secretary shall give notice to each holder of Class B
Common Stock entitled to notice of the meeting. At any such
meeting, the presence in person or by proxy of holders of a
majority of the outstanding shares of Class B Common Stock
shall be required and be sufficient to constitute a quorum for
the taking of action at such meeting. Holders of Class B
Common Stock shall also be entitled to take any action
specified in this Section 7.5.1 without a meeting upon the
unanimous written consent of holders of Class B Common Stock.
7.5.2 Voluntary Conversion into Class A Common Stock. Subject
to and upon compliance with the provisions of Section 7.7, each share
of Class B Common Stock shall be convertible, at the option of the
holder thereof, into one fully paid and non-assessable share of Class A
Common Stock. Each holder of Class B Common Stock shall be entitled to
convert shares of Class B Common Stock if such holder provides a
written request for conversion to the Corporation at least ten business
days prior to the date on which such holder desires to convert his
Class B Common Stock stating the date on which such holder desires to
convert his Class B Common Stock, which notice shall be binding and
irrevocable on the holder and, to the extent the holder otherwise
complies with the provisions of Section 7.7, the Corporation.
7.5.3 Automatic Conversion into Class A Common Stock. Each
share of Class B Common Stock shall automatically be converted into one
fully paid and non-assessable share of Class A Common Stock upon the
sale or other transfer, whether by operation of law or otherwise, of
such share of Class B Common Stock to any individual or entity other
than an Affiliate of Marriott International, Inc., a Delaware
corporation ("Marriott"), or any successor of Marriott or of any
Affiliate of Marriott. In addition, each share of Class B Common Stock
then outstanding shall automatically be converted into one fully paid
and non-assessable share of Class A Common Stock upon the occurrence of
a Class B Conversion Event. A "Class B Conversion Event" shall mean
such time that Marriott, together with its Affiliates, shall cease to
own at least two percent of the outstanding Common Stock. Each owner of
record of shares of Class B Common Stock shall provide to the
Corporation, as promptly as practicable, a written statement or
affidavit stating such information as the Corporation may request in
order to determine whether a Class B Conversion Event has occurred
(including, if requested by the Corporation, information relating to
the level of Beneficial Ownership (as defined below) of any class of
Common Stock by such owner of record and such other party or parties
necessary to determine whether a Class B Conversion Event has occurred
(to the extent such information is known to such owner of record)).
7.5.4 Record Ownership. All shares of Class B Common Stock
outstanding shall be owned of record at all times by Marriott, an
Affiliate of Marriott, or a successor of Marriott or of an Affiliate of
Marriott. The direct Beneficial Owner of
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shares of Class B Common Stock shall at all times be the owner of
record of such shares. "Beneficial Ownership," when used with respect
to ownership of shares of Stock by any person, shall mean all shares of
Stock which are (i) directly owned by such person or (ii) beneficially
owned by such person pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); provided,
however, that in determining the number of shares Beneficially Owned by
a person or group, no share shall be counted more than once although
applicable to both clauses (i) and (ii) of this definition or (in the
case of a group) although Beneficially Owned by more than one person in
such group. If a person Beneficially Owns shares of Stock that are not
actually outstanding (e.g., shares issuable upon the exercise of an
option or convertible security) ("Option Shares"), then, whenever these
Articles require a determination of the percentage of outstanding
shares of a class of Stock Beneficially Owned by that person, the
Option Shares Beneficially Owned by that person shall also be deemed to
be outstanding.
7.6 Class C Common Stock.
7.6.1 Voting Rights.
(a) Upon the First Annual Meeting Date, the holders
of the outstanding shares of Class C Common Stock shall be
entitled, as a class, to elect one Class C Director of the
Corporation. A Class C Director shall be removed from office
(i) with or without cause only by the affirmative vote of the
holders of a majority of the shares of Class C Common Stock
then entitled to vote at a meeting of such stockholders called
for the purpose or by the unanimous written consent of holders
of shares of Class C Common Stock, (ii) automatically upon the
occurrence of a Class C Conversion Event (as defined below) or
(iii) in accordance with Section 6.4. Upon the occurrence of a
Class C Conversion Event, the number of Class A Directors
shall be automatically increased by one and the vacancy
created thereby may be filled in accordance with Section 6.5
either by the remaining Directors or by the holders of Class A
Common Stock. If such vacancy is filled by the remaining
Directors, such remaining Directors shall classify the new
Director into the class of Directors whose terms expire at the
next annual meeting of stockholders. If such vacancy is filled
by the holders of Class A Common Stock, the remaining
Directors shall classify the new Director into an appropriate
class so that the classes of the Board of Directors will
thereafter be as nearly equal in number as possible. Any Class
C Director who dies, resigns, is removed in accordance with
Section 6.4 or otherwise ceases to be a Director for any
reason other than a Class C Conversion Event shall be replaced
by the vote of holders of a plurality of the shares of Class C
Common Stock then entitled to vote at a meeting of such
stockholders called for the purpose or by the unanimous
written consent of holders of Class C Common Stock.
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(b) So long as any shares of Class C Common Stock are
outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of
Class C Common Stock then entitled to vote, voting as a class,
at a meeting of such stockholders called for the purpose or by
the unanimous written consent of holders of shares of Class C
Common Stock, enter into a definitive agreement with respect
to, or authorize the corporate action necessary to carry out,
a Marriott Related Transaction (as defined below), if at the
time of the vote of the Board of Directors authorizing the
entry into such agreement or the effectuation of such
corporate action Marriott, together with its Affiliates, owns
in the aggregate at least 10% of the outstanding Common Stock.
For purposes of this Article VII, "Marriott Related
Transaction" shall mean (i) a merger, consolidation, or share
exchange with Marriott or any Affiliate of Marriott; (ii) the
sale, lease, transfer or other disposition of a substantial
portion of the Corporation's assets to Marriott or any
Affiliate of Marriott in one transaction or a series of
transactions within a 12 month period; (iii) the issuance or
transfer by the Corporation, in one transaction or a series of
transactions, of any equity securities of the Corporation
which have an aggregate market value of 10% or more of the
total market value of the outstanding Stock of the Corporation
to Marriott or any Affiliate of Marriott; (iv) the adoption of
any plan or proposal for the liquidation or dissolution of the
Corporation in which anything other than cash or a pro rata
distribution of assets will be received by Marriott or any
Affiliate of Marriott; or (v) a reverse stock split which has
the effect, directly or indirectly, in one transaction or a
series of transactions, of increasing by 5% or more the
proportionate amount of the outstanding shares of Common Stock
owned by Marriott or any Affiliate of Marriott.
(c) For the purposes of taking the actions specified
in this Section 7.6.1, special meetings of holders of Class C
Common Stock shall be called by the Secretary of the
Corporation upon the written request of the holders of not
less than a majority of the shares of Class C Common Stock
then outstanding. Any such request shall state the purpose of
such meeting and the matters proposed to be acted upon at such
meeting. The Secretary shall inform such holders of Class C
Common Stock of the reasonably estimated cost of preparing and
mailing notice of the meeting and, upon payment to the
Corporation by such stockholders of such costs, the Secretary
shall give notice to each holder of Class C Common Stock
entitled to notice of the meeting. At any such meeting, the
presence in person or by proxy of holders of a majority of the
outstanding shares of Class C Common Stock shall be required
and be sufficient to constitute a quorum for the taking of
action at such meeting. Holders of Class C Common Stock shall
also be entitled to take any action specified in this Section
7.6.1 without a meeting upon the unanimous written consent of
holders of Class C Common Stock.
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7.6.2 Voluntary Conversion into Class A Common Stock. Subject
to and upon compliance with the provisions of Section 7.7, each share
of Class C Common Stock shall be convertible, at the option of the
holder thereof, into one fully paid and non-assessable share of Class A
Common Stock. Each holder of Class C Common Stock shall be entitled to
convert shares of Class C Common Stock if such holder provides a
written request for conversion to the Corporation at least ten business
days prior to the date on which such holder desires to convert his
Class C Common Stock stating the date on which such holder desires to
convert his Class C Common Stock, which notice shall be binding and
irrevocable on the holder and, to the extent the holder otherwise
complies with the provisions of Section 7.7, the Corporation.
7.6.3 Automatic Conversion into Class A Common Stock. Each
share of Class C Common Stock shall automatically be converted into one
fully paid and non-assessable share of Class A Common Stock upon the
sale or other transfer, whether by operation of law or otherwise, of
such share of Class C Common Stock to any individual or entity other
than Patriot, Wyndham, any Affiliate of Patriot or Wyndham, or any
successor of Patriot or Wyndham or of any Affiliate of Patriot or
Wyndham. In addition, each share of Class C Common Stock then
outstanding shall automatically be converted into one fully paid and
non-assessable share of Class A Common Stock upon the occurrence of a
Class C Conversion Event. A "Class C Conversion Event" shall mean such
time that Patriot and Wyndham, together with their respective
Affiliates and the successors of Patriot and Wyndham and their
respective Affiliates, shall cease to own at least two percent of the
outstanding Common Stock. Each owner of record of shares of Class C
Common Stock shall provide to the Corporation, as promptly as
practicable, a written statement or affidavit stating such information
as the Corporation may request in order to determine whether a Class C
Conversion Event has occurred (including, if requested by the
Corporation, information relating to the level of Beneficial Ownership
(as defined in Section 7.5.4) of any class of Common Stock by such
owner of record and such other party or parties necessary to determine
whether a Class C Conversion Event has occurred (to the extent such
information is known to such owner of record)).
7.6.4 Record Ownership. All shares of Class C Common Stock
outstanding shall be owned of record at all times by Patriot, Wyndham,
an Affiliate of Patriot or Wyndham, or a successor of Patriot or
Wyndham or of an Affiliate of Patriot or Wyndham. The direct Beneficial
Owner (as defined in Section 7.5.4) of shares of Class C Common Stock
shall at all times be the owner of record of such shares.
7.7 Voluntary Conversion Procedures.
7.7.1 Surrender of Certificates. Each conversion of shares of
Class B or Class C Common Stock into shares of Class A Common Stock
pursuant to Section 7.5.2 or Section 7.6.2 shall be effected by the
surrender of the certificate or certificates representing the shares of
Class B or Class C Common Stock to be converted, duly
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assigned or endorsed for transfer to the Corporation (or accompanied by
duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer
agent for the Common Stock or such office or offices in the continental
United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Class B and/or Class C
Common Stock by the Corporation, together with written notice by the
holder of such Class B or Class C Common Stock stating that such holder
desires to convert the shares, or a stated number of the shares, of
Class B or Class C Common Stock represented by such certificate(s) into
Class A Common Stock, which notice shall also state the name or names
(with addresses) and denominations in which the certificate or
certificates for Class A Common Stock shall be issued and shall include
instructions for delivery thereof. Upon surrender of a certificate
representing Class B or Class C Common Stock for conversion, the
Corporation shall issue and send by hand delivery, by courier or by
first class mail (postage prepaid) to the holder thereof or to such
holder's designee, at the address designated by such holder, a
certificate or certificates for the number of shares of Class A Common
Stock to which such holder shall be entitled upon conversion. In the
event that there shall have been surrendered a certificate or
certificates representing Class B or Class C Common Stock, only part of
which are to be converted, the Corporation shall issue and send to such
holder or such holder's designee, in the manner set forth in the
preceding sentence, a new certificate or certificates representing the
number of shares of Class B or Class C Common Stock which shall not
have been converted. If the certificate or certificates for Class A
Common Stock are to be issued in a name other than the name of the
registered holder of the stock surrendered for conversion, the
Corporation shall not be obligated to issue or deliver any certificate
unless and until the holder of the stock surrendered has paid to the
Corporation the amount of any tax that may be payable in respect of any
transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
7.7.2 Date of Conversion. Such conversion shall be deemed to
have been effected as of the later of (i) the close of business on the
date on which such certificate or certificates shall have been
surrendered or (ii) the date on which the holder shall have fully
complied with the provisions of this Section 7.7, and at such time the
rights of the holder of such Class B or Class C Common Stock (or
specified portion thereof) as to such converted shares shall cease and
the person or persons in whose name or names any certificate or
certificates for shares of Class A Common Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of
record of the shares of Class A Common Stock represented thereby.
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<PAGE> 16
7.7.3 Reservation of Class A Common Stock. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Class A Common Stock, solely for the purpose of
issuance upon the conversion of the Class B and Class C Common Stock,
such number of shares of Class A Common Stock as are issuable upon the
conversion of all outstanding shares of Class B and Class C Common
Stock.
7.7.4 No Reissuance. No share or shares of the Class B or
Class C Common Stock acquired by the Corporation by reason of
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation
shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce
the authorized number of shares of the Class B or Class C Common Stock
accordingly.
7.7.5 No Limitation of Automatic Conversion. Nothing in this
Section 7.7 or otherwise shall in any way limit the right of the
Corporation to effect the automatic conversion of shares of Class B or
Class C Common Stock in accordance with the provisions of Sections
7.5.3 and 7.6.3 hereof, and all of such shares shall be deemed
automatically converted into shares of Class A Common Stock in
accordance with such Sections regardless of whether any holder of Class
B or Class C Common Stock to be converted surrenders his or her stock
certificates or otherwise complies with this Section 7.7.
7.8 Classification of Stock. The Board of Directors may classify or
reclassify any unissued shares of Stock from time to time by setting or changing
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications, and terms
and conditions of redemption for each class or series, including, but not
limited to, the reclassification of unissued shares of Common Stock to shares of
Preferred Stock or unissued shares of Preferred Stock to shares of Common Stock
or the issuance of any rights plan or similar plan.
7.9 Issuance of Stock. The Board of Directors may authorize the
issuance from time to time of shares of Stock of any class or series, whether
now or hereafter authorized, or securities or rights convertible into shares of
Stock, for such consideration as the Board of Directors may deem advisable (or
without consideration in the case of a share split or dividend), subject to such
restrictions or limitations, if any, as may be set forth in these Articles or
the Bylaws of the Corporation.
7.10 Dividends or Distributions. The Directors may from time to time
authorize and declare and pay to stockholders such dividends or distributions in
cash, property or other assets of the Corporation or in securities of the
Corporation or any other entity or from any other source as the Directors in
their discretion shall determine.
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7.11 Ambiguity. In the case of an ambiguity in the application of any
of the provisions of this Article VII, the Board of Directors shall have the
power to determine the application of the provisions of this Article VII with
respect to any situation based on the facts known to it.
7.12 Severability. Each provision of this Article VII shall be
severable and an adverse determination as to any such provision shall in no way
affect the validity of any other provision of this Article VII or any other
Article.
7.13 Articles and Bylaws. All persons who shall acquire Stock in the
Corporation shall acquire the same subject to the provisions of these Articles
and the Bylaws.
ARTICLE VIII
LIMITATION ON PREEMPTIVE RIGHTS
No holder of any Stock or any other securities of the Corporation,
whether now or hereafter authorized, shall have any preferential or preemptive
rights to subscribe for or purchase any Stock or any other securities of the
Corporation other than such rights, if any, as the Board of Directors, in its
sole discretion, may fix by articles supplementary, by contract or otherwise;
and any Stock or other securities which the Board of Directors may determine to
offer for subscription may, within the Board of Directors' sole discretion, be
offered to one or more of the holders of any class, series or type of Stock or
other securities at the time outstanding to the exclusion of other holders of
such class, series or type of Stock or other securities or the holders of any or
all other classes, series or types of Stock or other securities at the time
outstanding.
ARTICLE IX
RIGHTS AND POWERS OF CORPORATION,
BOARD OF DIRECTORS AND OFFICERS
In carrying on its business, or for the purpose of attaining or
furthering any of its objects, the Corporation shall have all of the rights,
powers and privileges granted to corporations by the laws of the State of
Maryland, as well as the power to do any and all acts and things that a natural
person or partnership could do as now or hereafter authorized by law, either
alone or in partnership or conjunction with others. In furtherance and not in
limitation of the powers conferred by statute, the powers of the Corporation and
of the Directors and stockholders shall include the following:
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9.1 Conflicts of Interest. Any Director or officer individually, or any
firm of which any Director or officer may be a member, or any corporation or
association of which any Director or officer may be a director or officer or in
which any Director or officer may be interested as the holder of any amount of
its Stock or otherwise, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of the Corporation, and, in the
absence of fraud, no contract or other transaction shall be thereby affected or
invalidated; provided, however, that (a) such fact shall have been disclosed or
shall have been known to the Board of Directors or the committee thereof that
approved such contract or transaction and such contract or transaction shall
have been approved or ratified by the affirmative vote of a majority of the
disinterested Directors, or (b) such fact shall have been disclosed or shall
have been known to the stockholders entitled to vote, and such contract or
transaction shall have been approved or ratified by a majority of the votes cast
by the stockholders entitled to vote, other than the votes of shares owned of
record or beneficially by the interested Director or officer or corporation,
firm or other entity, or (c) the contract or transaction is fair and reasonable
to the Corporation. Any Director of the Corporation who is also a director or
officer of or interested in such other corporation or association, or who, or
the firm of which he is a member, is so interested, may be counted in
determining the existence of a quorum at any meeting of the Board of Directors
of the Corporation which shall authorize any such contract or transaction, with
like force and effect as if he were not such director or officer of such other
corporation or association or were not so interested or were not a member of a
firm so interested.
9.2 Amendment of Articles. The Corporation reserves the right, from
time to time, to make any amendment of its Articles, now or hereafter authorized
by law, including any amendment which alters the contract rights, as expressly
set forth in its Articles, of any outstanding Stock.
No amendment or repeal of these Articles shall be made unless the same
is first approved by the Board of Directors pursuant to a resolution adopted by
the Board of Directors in accordance with the MGCL, and, except as otherwise
provided by law, thereafter approved by the stockholders.
Whenever any vote of the holders of voting stock is required to amend
or repeal any provision of these Articles, then in addition to any other vote of
the holders of voting stock that is required by these Articles, the affirmative
vote of the holders of a majority of the outstanding shares of Stock of the
Corporation entitled to vote on such amendment or repeal, voting together as a
single class, and the affirmative vote of the holders of a majority of the
outstanding shares of each class entitled to vote thereon as a class, shall be
required to amend or repeal any provision of these Articles; provided, however,
that the affirmative vote of the holders of not less than two-thirds of the
outstanding shares entitled to vote on such amendment or repeal, voting together
as a single class, and the affirmative vote of the holders of not less than
two-thirds of the outstanding shares of Class B Common Stock, voting as a single
class, and Class C Common Stock, voting as a single class, shall be required to
amend
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or repeal any of the provisions of Sections 6.2, 6.3, 6.4 or 6.5 of Article VI,
Sections 7.3, 7.5, 7.6 or 7.7 of Article VII, Article IX or Article XI of these
Articles.
ARTICLE X
INDEMNIFICATION
The Corporation (which for the purpose of this Article X shall include
predecessor entities of the Corporation as set forth in Section 2-418 of the
MGCL) shall have the power to the maximum extent permitted by Maryland law in
effect from time to time, to obligate itself to indemnify, and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to, (a) any individual who is a present or former Director or officer of the
Corporation or (b) any individual who, while a Director of the Corporation and
at the request of the Corporation, serves or has served as a director, officer,
partner or trustee of another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or any other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his status as a present or former
Director or officer of the Corporation. The Corporation shall have the power,
with the approval of the Board of Directors, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Corporation
in any of the capacities described in (a) or (b) above and to any employee or
agent of the Corporation or a predecessor of the Corporation.
ARTICLE XI
LIMITATION OF LIABILITY
To the fullest extent permitted under the MGCL as in effect on the date
of filing these Articles or as the MGCL is thereafter amended from time to time,
no Director or officer shall be liable to the Corporation or its stockholders
for money damages. Neither the amendment or the repeal of this Article, nor the
adoption of any other provision in the Corporation's Articles inconsistent with
this Article, shall eliminate or reduce the protection afforded by this Article
to a Director or officer of the Corporation with respect to any matter which
occurred, or any cause of action, suit or claim which but for this Article would
have accrued or arisen, prior to such amendment, repeal or adoption.
ARTICLE XII
EXEMPTION FROM BUSINESS COMBINATION STATUTE
Pursuant to Section 3-603(e)(1)(iii) of the MGCL, the Corporation
expressly elects not to be governed by the provisions of Section 3-602 of the
MGCL with respect to any business combination (as defined in Section 3-601 of
the MGCL).
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ARTICLE XIII
MISCELLANEOUS
13.1 Provisions in Conflict with Law or Regulations.
(a) The provisions of these Articles are severable, and if the
Board of Directors shall determine that any one or more of such provisions are
in conflict with applicable federal or state laws, the conflicting provisions
shall be deemed never to have constituted a part of these Articles, even without
any amendment of these Articles pursuant to Section 9.2 hereof; provided,
however, that such determination by the Directors shall not affect or impair any
of the remaining provisions of these Articles or render invalid or improper any
action taken or omitted prior to such determination. No Director shall be liable
for making or failing to make such a determination.
(b) If any provision of these Articles or any application of
such provision shall be held invalid or unenforceable by any federal or state
court having jurisdiction, such holding shall not in any manner affect or render
invalid or unenforceable such provision in any other jurisdiction, and the
validity of the remaining provisions of these Articles shall not be affected.
Other applications of such provision shall be affected only to the extent
necessary to comply with the determination of such court.
THIRD: The amendment to and restatement of the Charter as hereinabove
set forth has been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation
is as set forth in Article IV of the foregoing amendment and restatement of the
charter.
FIFTH: The name and address of the Corporation's current resident agent
is as set forth in Article V of the foregoing amendment and restatement of the
charter.
SIXTH: The number of directors of the Corporation and the names of
those currently in office are as set forth in Article VI of the foregoing
amendment and restatement of the Charter.
SEVENTH: The undersigned Chairman of the Board of Directors and Chief
Executive Officer acknowledges these Articles of Amendment and Restatement to be
the corporate act of the Corporation and as to all matters or facts required to
be verified under oath, the undersigned Chairman of the Board of Directors and
Chief Executive Officer acknowledges that to the best of his knowledge,
information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for perjury.
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<PAGE> 21
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
Chairman of the Board of Directors and Chief Executive Officer and attested to
by its Secretary on this 18th day of June, 1999.
ATTEST: INTERSTATE HOTELS
CORPORATION
/s/ Timothy Q. Hudak By: /s/ Thomas F. Hewitt
- - ------------------------------- ----------------------------
Timothy Q. Hudak Thomas F. Hewitt
Secretary Chairman of the Board of Directors
and Chief Executive Officer
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Exhibit 3.2
ARTICLES SUPPLEMENTARY
CLASSIFYING AND DESIGNATING A SERIES OF PREFERRED STOCK
AS
SERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK
OF
INTERSTATE HOTELS CORPORATION
Pursuant to Section 2-201 of the General Corporation Law
of the State of Maryland
We, Thomas F. Hewitt and Timothy Q. Hudak, being the Chairman of the
Board of Directors and Chief Executive Officer and the Secretary, respectively,
of INTERSTATE HOTELS CORPORATION, a corporation organized and existing under the
General Corporation Law of the State of Maryland (the "Corporation"), in
accordance with the provisions of Section 1-301 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Amended and Restated Articles of Incorporation of the Corporation, on June
9, 1999 the Board of Directors adopted the following resolution creating a
series of 70,000 shares of Preferred Stock designated as "Series A Junior
Participating Cumulative Preferred Stock":
"RESOLVED, that pursuant to the authority vested in
the Board of Directors of the Corporation in accordance with
the provisions of its Amended and Restated Articles of
Incorporation, as amended, a series of Preferred Stock, par
value $0.01 per share, of the Corporation be, and it hereby
is, created, with such voting powers, preferences and
relative, participating, optional or other special rights, and
such qualifications, limitations or restrictions thereof, as
follows:
Section 1. Designation and Amount. There shall be a series of Preferred
Stock of the Corporation which shall be designated as "Series A Junior
Participating Cumulative Preferred Stock," par value $0.01 per share
(hereinafter called "Series A Preferred Stock"), and the number of shares
constituting such series shall be 70,000. Such number of shares may be increased
or decreased by resolution of the Board of Directors and by the filing of
articles
<PAGE> 2
supplementary pursuant to the provisions of the General Corporation Law of the
State of Maryland stating that such increase or reduction has been so
authorized; provided, however, that no decrease shall reduce the number of
shares of Series A Preferred Stock to a number less than that of the shares then
outstanding plus the number of shares of Series A Preferred Stock issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
Section 2. Dividends and Distributions.
(A) (i) Subject to the rights of the holders of any shares of any
series of preferred stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of shares of common stock
and of any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1.00 or (b) subject to the provisions for
adjustment hereinafter set forth, 1,000 times the aggregate per share amount of
all cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of common stock or a subdivision of the outstanding shares of
common stock (by reclassification or otherwise), declared on the common stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. The multiple of
cash and non-cash dividends declared on the common stock to which holders of the
Series A Preferred Stock are entitled, which shall be 1,000 initially but which
shall be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Dividend Multiple." In the event the Corporation shall at
any time after July 8, 1999 (the "Rights Declaration Date") (i) declare or pay
any dividend on common stock payable in shares of common stock, or (ii) effect a
subdivision or combination or consolidation of the outstanding shares of common
stock (by reclassification or otherwise than by payment of a dividend in shares
of common stock) into a greater or lesser number of shares of common stock, then
in each such case the Dividend Multiple thereafter applicable to the
determination of the amount of dividends which holders of shares of Series A
Preferred Stock shall be entitled to receive shall be the Dividend Multiple
applicable immediately prior to such event multiplied by a fraction, the
numerator of which is the number of shares of common stock outstanding
immediately after such event and the denominator of which is the number of
shares of common stock that were outstanding immediately prior to such event.
(ii) Notwithstanding anything else contained in this paragraph
(A), the Corporation shall, out of funds legally available for that purpose,
declare a dividend or distribution on the
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<PAGE> 3
Series A Preferred Stock as provided in this paragraph (A) immediately after it
declares a dividend or distribution on the shares of common stock (other than a
dividend payable in shares of common stock); provided that, in the event no
dividend or distribution shall have been declared on the shares of common stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix in
accordance with applicable law a record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than such
number of days prior to the date fixed for the payment thereof as may be allowed
by applicable law.
Section 3. Voting Rights. In addition to any other voting rights
required by law, the holders of shares of Series A Preferred Stock shall have
the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Corporation.
The number of votes which a holder of a share of Series A Preferred Stock is
entitled to cast, which shall initially be 1,000 but which may be adjusted from
time to time as hereinafter provided, is hereinafter referred to as the "Vote
Multiple." In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on shares of common stock
payable in shares of common stock, or (ii) effect a subdivision or combination
or consolidation of the outstanding shares of common stock (by reclassification
or otherwise than by payment of a dividend in shares of common stock) into a
greater or lesser number of shares of common stock, then in each such case the
Vote Multiple thereafter applicable to the determination of the number of votes
per share to which holders of shares of Series A Preferred Stock shall be
entitled shall be the Vote Multiple immediately prior to such event multiplied
by a fraction, the numerator of which is the number of shares of common stock
outstanding immediately after such event and the
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<PAGE> 4
denominator of which is the number of shares of common stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of common stock and
the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) Whenever, at any time or times, dividends payable on any shares
of Series A Preferred Stock shall be in arrears in an amount equal to at least
two full quarter dividends (whether or not declared and whether or not
consecutive), the holders of record of the outstanding shares of Series A
Preferred Stock shall have the exclusive right, voting separately as a single
class, to elect two directors of the Corporation at a special meeting of
shareholders of the Corporation or at the Corporation's next annual meeting of
shareholders, and at each subsequent annual meeting of shareholders, as provided
below. At elections for such directors, each Series A Preferred Share shall
entitle the holder thereof to 1,000 votes in such elections.
(ii) Upon the vesting of such right of the holders of shares of
Series A Preferred Stock, the maximum authorized number of members of the Board
of Directors shall automatically be increased by two and the two vacancies so
created shall be filled by vote of the holders of the outstanding shares of
Series A Preferred Stock as hereinafter set forth. A special meeting of the
shareholders of the Corporation then entitled to vote shall be called by the
Chairman of the Board of Directors or the President or the Secretary of the
Corporation, if requested in writing by the holders of record of not less than
15% of the shares of Series A Preferred Stock then outstanding. At such special
meeting, or, if no such special meeting shall have been called, then at the next
annual meeting of shareholders of the Corporation, the holders of the shares of
Series A Preferred Stock shall elect, voting as above provided, two directors of
the Corporation to fill the aforesaid vacancies created by the automatic
increase in the number of members of the Board of Directors. At any and all such
meetings for such election, the holders of a majority of the outstanding shares
of Series A Preferred Stock shall be necessary to constitute a quorum for such
election, whether present in person or proxy, and such two directors shall be
elected by the vote of at least a majority of the shares of Series A Preferred
Stock held by such shareholders present or represented at the meeting. Any
director elected by holders of shares of Series A Preferred Stock pursuant to
this Section may be removed at any annual or special meeting, by vote of a
majority of the shareholders voting as a class who elected such director, with
or without cause. In case any vacancy shall occur among the directors elected by
the holders of shares of Series A Preferred Stock pursuant to this Section, such
vacancy may be filled by the remaining director so elected, or his successor
then in office, and the director so elected to fill such vacancy shall serve
until the next meeting of shareholders for the election of directors. After the
holders of shares of Series A Preferred Stock shall have exercised their right
to elect directors in any default period and during the continuance of such
period, the number of directors shall not be further increased or decreased
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except by vote of the holders of shares of Series A Preferred Stock as herein
provided or pursuant to the rights of any equity securities ranking senior to or
pari passu with the Series A Preferred Stock.
(iii) The right of the holders of shares of Series A Preferred Stock,
voting separately as a class, to elect two members of the Board of Directors of
the Corporation as aforesaid shall continue until, and only until, such time as
all arrears in dividends (whether or not declared) on the Series A Preferred
Stock shall have been paid or declared and set apart for payment, at which time
such right shall terminate, except as herein or by law expressly provided
subject to revesting in the event of each and every subsequent default of the
character above-mentioned. Upon any termination of the right of the holders of
the Series A Preferred Stock as a class to vote for directors as herein
provided, the term of office of all directors then in office elected by the
holders of shares of Series A Preferred Stock pursuant to this Section shall
terminate immediately. Whenever the term of office of the directors elected by
the holders of shares of Series A Preferred Stock pursuant to this Section shall
terminate and the special voting powers vested in the holders of the Series A
Preferred Stock pursuant to this Section shall have expired, the maximum number
of members of this Board of Directors of the Corporation shall be such number as
may be provided for in the By-laws of the Corporation, irrespective of any
increase made pursuant to the provisions of this Section.
(D) Except as otherwise required by applicable law or as set forth
herein, holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of common stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
(A) Whenever dividends or distributions payable on the Series A
Preferred Stock as provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A
Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except dividends paid ratably on
the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled;
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(iii) except as permitted in subsection 4(A)(iv) below, redeem,
purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A
Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of any stock ranking
on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock,
except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under subsection (A) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
preferred stock and may be reissued as part of a new series of preferred stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made (x) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,000.00 per share or
(2) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of shares of common stock, or (y) to the
holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all other
such parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding
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up. In the event the Corporation shall at any time after the Rights Declaration
Date (i) declare or pay any dividend on shares of common stock payable in shares
of common stock, or (ii) effect a subdivision or combination or consolidation of
the outstanding shares of common stock (by reclassification or otherwise than by
payment of a dividend in shares of common stock) into a greater or lesser number
of shares of common stock, then in each such case the aggregate amount per share
to which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (x) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of common stock outstanding immediately after such event and the
denominator of which is the number of shares of common stock that were
outstanding immediately prior to such event.
Neither the consolidation of nor merging of the Corporation with or
into any other corporation or corporations, nor the sale or other transfer of
all or substantially all of the assets of the Corporation, shall be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section 6.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of common stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of common stock is changed or exchanged,
plus accrued and unpaid dividends, if any, payable with respect to the Series A
Preferred Stock. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare or pay any dividend on shares of common stock
payable in shares of common stock, or (ii) effect a subdivision or combination
or consolidation of the outstanding shares of common stock (by reclassification
or otherwise than by payment of a dividend in shares of common stock) into a
greater or lesser number of shares of common stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
common stock outstanding immediately after such event and the denominator of
which is the number of shares of common stock that were outstanding immediately
prior to such event.
Section 8. Redemption. The shares of Series A Preferred Stock shall not
be redeemable; provided, however, that the foregoing shall not limit the ability
of the Corporation to purchase or otherwise deal in such shares to the extent
otherwise permitted hereby and by law.
Section 9. Ranking. Unless otherwise expressly provided in the Amended
and Restated Articles of Incorporation or Articles Supplementary relating to any
other series of
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preferred stock of the Corporation, the Series A Preferred Stock shall rank
junior to every other series of the Corporation's preferred stock previously or
hereafter authorized, as to the payment of dividends and the distribution of
assets on liquidation, dissolution or winding up and shall rank senior to the
common stock.
Section 10. Amendment. Neither these Articles Supplementary nor the
Amended and Restated Articles of Incorporation of the Corporation may be amended
in any manner which would materially alter or change the powers, preferences or
special rights of the Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Preferred Stock may be issued
in whole shares or in any fraction of a share that is one one-thousandth
(1/1,000th) of a share or any integral multiple of such fraction, which shall
entitle the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of shares of Series A Preferred
Stock. In lieu of fractional shares, the Corporation may elect to make a cash
payment as provided in the Rights Agreement for fractions of a share other than
one one-thousandth (1/1,000th) of a share or any integral multiple thereof."
The undersigned Chairman of the Board of Directors and Chief Executive
Officer of the Corporation acknowledges these Articles Supplementary to be the
corporate act of the Corporation and, as to all matters and facts required to be
verified under oath, states that, to the best of his knowledge, information and
belief and under penalties of perjury, the matters and facts set forth herein
are true in all material respects.
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In WITNESS WHEREOF, these Articles Supplementary have been executed on behalf of
the Corporation by its Chairman of the Board of Directors and Chief Executive
Officer and attested to by its Secretary this 30th day of June, 1999.
INTERSTATE HOTELS CORPORATION
By: /s/ Thomas F. Hewitt
---------------------------------
Thomas F. Hewitt
Chairman of the Board of Directors and
Chief Executive Officer
ATTEST:
/s/ Timothy Q. Hudak
- - ---------------------------
Timothy Q. Hudak
Secretary
<PAGE> 1
Exhibit 3.3
AMENDED AND RESTATED
BYLAWS
OF
INTERSTATE HOTELS CORPORATION
ARTICLE I
Definitions and Offices
1.1 Definitions For purposes of these Bylaws, the following words shall
have the meanings set forth below:
(a) "Articles" shall mean the Articles of Incorporation of the
Corporation, as amended from time to time.
(b) "Corporation" shall mean Interstate Hotels Corporation
(c) "Public Announcement" shall mean: (i) disclosure in a
press release reported by the Dow Jones News Service, Associated Press or other
similar national news service, (ii) a report or other document filed publicly
with the Securities and Exchange Commission (including, without limitation, a
Form 8-K) or (iii) a letter or report sent to stockholders of record of the
Corporation at the time of the mailing of such letter or report.
(d) "MGCL" shall mean the Maryland General Corporation Law, as
amended from time to time.
1.2 Principal Executive Office. The principal executive office of the
Corporation shall be located at such place or places as the Board of Directors
may designate.
1.3 Additional Offices. The Corporation may have additional offices at
such places as the Board of Directors may from time to time determine or the
business of the Corporation may require.
<PAGE> 2
ARTICLE II
Meetings of Stockholders
2.1 Places of Meetings. All meetings of stockholders shall be held at
such place, either within or without the State of Maryland but within the United
States, as from time to time may be fixed by the majority of the Board of
Directors, the Chairman of the Board, if one is elected, or the Chief Executive
Officer, or if no such Chief Executive Officer is then in office, the President,
which place may subsequently be changed at any time by vote of the Board of
Directors.
2.2 Annual Meeting. The annual meeting of stockholders, for the
election of Directors and the transaction of such other business as may come
properly before the meeting, shall be held each year during the month of May at
such date and time as shall be determined by a majority of the Board of
Directors, the Chairman of the Board, if one is elected, or the Chief Executive
Officer, or if no Chief Executive Officer is then in office, the President,
which date and time may subsequently be changed at any time by vote of the Board
of Directors. If no annual meeting has been held for a period of thirteen months
after the Corporation's last annual meeting of stockholders, a special meeting
in lieu thereof may be held, and such special meeting shall have, for the
purposes of these Bylaws or otherwise, all the force and effect of an annual
meeting. Any and all references hereafter in these Bylaws to an annual meeting
or annual meetings also shall be deemed to refer to any special meeting(s) in
lieu thereof.
At any annual meeting of stockholders or any special meeting in lieu of
an annual meeting of stockholders, only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such annual meeting. To be considered as properly brought before an
annual meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the annual meeting
in question) of any shares of stock of the Corporation entitled to vote at such
annual meeting who complies with the requirements set forth in Section 2.9.
2.3 Special Meetings. Except as otherwise required by law or by the
Articles and subject to the rights, if any, of the holders of any class or
series of stock of the Corporation, special meetings of the stockholders may be
called only by the Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of the Directors then in office, by the Chairman
of the Board, if one is elected, or by the Chief Executive Officer, or if no
Chief Executive Officer is then in office, the President. Only those matters set
forth in the notice of the special meeting may be considered or acted upon at a
special meeting of stockholders of the Corporation, unless otherwise provided by
law. Special meetings of stockholders shall also be
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called by the Secretary of the Corporation upon the written request of the
holders of shares entitled to cast not less than a majority of all the votes
entitled to be cast at such meeting. Such request shall state the purpose of
such meeting and the matters proposed to be acted on at such meeting. The
secretary shall inform such stockholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment to the Corporation
by such stockholders of such costs, the secretary shall give notice to each
stockholder entitled to notice of the meeting.
2.4 Notice of Meetings; Adjournments. A written notice of each annual
meeting stating the hour, date and place of such annual meeting shall be given
by the Secretary or an Assistant Secretary of the Corporation (or other person
authorized by these Bylaws or by law), not less than 10 days nor more than 90
days before the annual meeting, to each stockholder entitled to vote thereat and
to each stockholder who, by law or under the Articles or under these Bylaws, is
entitled to such notice, by personally delivering such notice to him or her, by
leaving such notice at his or her residence or usual place of business or by
mail, postage prepaid, addressed to such stockholder at the address of such
stockholder as it appears on the stock transfer books of the Corporation. Such
notice shall be deemed to be delivered when hand-delivered to such address or
deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the
same manner as provided for annual meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
Notice of an annual meeting or special meeting of stockholders need not
be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any annual meeting or special meeting of stockholders need
be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled annual meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to this Section 2.4
or otherwise. In no event shall the Public Announcement of an adjournment,
postponement or rescheduling of any previously scheduled meeting of stockholders
commence a new time period for the giving of a stockholder's notice under
Section 2.9 of these Bylaws.
When any meeting is convened, the presiding officer of the meeting may
adjourn the meeting if (a) no quorum is present for the transaction of business,
(b) the Board of Directors determines that adjournment is necessary or
appropriate to enable the stockholders to consider fully information that the
Board of Directors determines has not been made sufficiently or timely available
to stockholders or (c) the Board of Directors determines that adjournment is
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otherwise in the best interests of the Corporation. When any annual meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting, other than an announcement at
the meeting at which the adjournment is taken, of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Articles or under these Bylaws, is entitled to such notice.
2.5 Quorum. Except as otherwise required by law or by the Articles, any
number of stockholders together holding at least a majority of the outstanding
shares of capital stock entitled to vote with respect to the business to be
transacted, who shall be present in person or represented by proxy at any
meeting duly called, shall constitute a quorum for the transaction of business
at such meeting. Where a separate vote by a class or classes is required, a
majority of the outstanding shares of such class or classes, present in person
or represented by proxy, shall constitute a quorum entitled to take action with
respect to that matter. If, however, such quorum shall not be present at any
meeting of the stockholders, the stockholders entitled to vote at such meeting,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time to a date not more than 120 days after the original record date
without notice other than announcement at the meeting. At such adjourned meeting
at which a quorum is present, any business may be transacted which might have
been transacted at the meeting as originally noticed. The stockholders present
at a duly constituted meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
2.6 Voting and Proxies. Stockholders shall have one vote for each share
of stock entitled to vote owned by them of record according to the stock
transfer books of the Corporation, unless otherwise provided by law or by the
Articles. A stockholder may cast the votes entitled to be cast by the shares of
stock owned of record by him either in person or by proxy executed in writing by
the stockholder or by his duly authorized agent. Such proxy shall be filed with
the Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy. Proxies shall be filed with the Secretary of
the Corporation before being voted. Except as otherwise limited therein or as
otherwise provided by law, proxies authorizing a person to vote at a specific
meeting shall entitle the persons authorized thereby to vote at any adjournment
of such meeting, but they shall not be valid after final adjournment of such
meeting. A proxy with respect to stock held in the name of two or more persons
shall be valid if executed by or on behalf of any one of them unless at or prior
to the exercise of the proxy the Corporation receives specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid, and the burden of proving
invalidity shall rest on the challenger.
2.7 Action at Meeting. When a quorum is present, any matter before any
meeting of stockholders (other than the election of Directors) shall be decided
by the affirmative vote of
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the majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such matter, except where a larger vote is required by
law, by the Articles or by these Bylaws. Where a separate vote by a class or
classes is required, the affirmative vote of the majority of shares of such
class or classes present in person or represented by proxy at the meeting shall
be the act of such class. Any election of Directors by stockholders shall be
determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
Directors, except where a larger vote is required by law, by the Articles or by
these Bylaws. The Corporation shall not directly or indirectly vote any shares
of its own stock; provided, however, that the Corporation may vote shares which
it holds in a fiduciary capacity to the extent permitted by law.
2.8 Stockholder List. The officer or agent having charge of the stock
transfer books of the Corporation shall make, at least 10 days before every
annual meeting or special meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting or any adjournment thereof, in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the hour, date and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
2.9 Stockholder Proposals. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder of record (both as of the time notice of such proposal is given by
the stockholder as set forth below and as of the record date for the annual
meeting in question) of any shares of capital stock entitled to vote at such
annual meeting, such stockholder shall: (i) give timely written notice as
required by this Section 2.9 to the Secretary of the Corporation and (ii) be
present at such meeting, either in person or by a representative. For the first
annual meeting following the initial registration of the Common Stock of the
Corporation under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), a stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the later of (x) the 15th day following the day on
which the Public Announcement of the date of such annual meeting is first made
by the Corporation or (y) the 75th day prior to the scheduled date of such
annual meeting as set forth in the Public Announcement. For all subsequent
annual meetings, a stockholder's notice shall be timely if delivered to, or
mailed to and received by, the Corporation at its principal executive office not
less than 75 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting (the "Anniversary Date"); provided,
however, that in the event the annual meeting is scheduled to be held on a date
more than 30 days before the Anniversary Date or more than 60 days after the
Anniversary Date, a stockholder's notice shall be timely if delivered to, or
mailed to and received by, the Corporation at its principal executive office not
later than the close of business on the later of (1) the 15th day following the
day on which Public
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Announcement of the date of such annual meeting is first made by the Corporation
or (2) the 75th day prior to the scheduled date of such annual meeting as set
forth in the Public Announcement.
A stockholder's notice to the Secretary of the Corporation shall set
forth as to each matter proposed to be brought before an annual meeting: (i) a
brief description of the business the stockholder desires to bring before such
annual meeting and the reasons for conducting such business at such annual
meeting, (ii) the name and address, as they appear on the stock transfer books
of the Corporation, of the stockholder proposing such business, (iii) the class
and number of shares of the capital stock of the Corporation beneficially owned
by the stockholder proposing such business, (iv) the names and addresses of the
beneficial owners, if any, of any capital stock of the Corporation registered in
such stockholder's name on such books, and the class and number of shares of the
capital stock of the Corporation beneficially owned by such beneficial owners,
(v) the names and addresses of other stockholders known by the stockholder
proposing such business to support such proposal, and the class and number of
shares of the capital stock of the Corporation beneficially owned by such other
stockholders and (vi) any material interest of the stockholder proposing to
bring such business before such meeting (or any other stockholders known to be
supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof determines
that any stockholder proposal was not made in a timely fashion in accordance
with the provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the annual
meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 2.9. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If the Board of Directors, a
designated committee thereof or the presiding officer determines that a
stockholder proposal was made in accordance with the requirements of this
Section 2.9, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this Section 2.9, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.9, and nothing in this Section 2.9 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act (or
any successor provision thereof).
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2.10 Voting Procedures and Inspectors of Elections. The Corporation
shall, in advance of any meeting of stockholders, appoint one or more inspectors
to act at the meeting and make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the presiding officer shall appoint one or more inspectors to act
at the meeting. Any inspector may, but need not, be an officer, employee or
agent of the Corporation. Each inspector, before entering upon the discharge of
his or her duties, shall take and sign an oath faithfully to execute the duties
of inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall perform such duties as are required by the MGCL,
including the counting of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors. The presiding officer may review all
determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he or
she shall not be bound by any determinations made by the inspectors. All
determinations by the inspectors and, if applicable, the presiding officer,
shall be subject to further review by any court of competent jurisdiction.
2.11 Presiding Officer. The Chairman of the Board, if one is elected,
or if not elected or in his or her absence, the Chief Executive Officer, or if
no Chief Executive Officer is then in office, the President, shall preside at
all annual meetings or special meetings of stockholders and shall have the
power, among other things, to adjourn such meetings at any time and from time to
time, subject to Sections 2.4 and 2.5 of this Article II. The order of business
and all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
ARTICLE III
Directors
3.1 General Powers. The business and affairs of the Corporation shall
be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law, the Articles or these Bylaws, all of the
powers of the Corporation shall be vested in such Board.
3.2 Number of Directors. The number of Directors shall be determined as
provided in the Articles. The Directors shall hold office in the manner provided
in the Articles.
3.3 Election and Removal of Directors; Quorum.
(a) Directors shall be elected and removed in the manner
provided for in the Articles.
(b) Vacancies in the Board of Directors shall be filled in the
manner provided for in the Articles.
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(c) At any meeting of the Board of Directors, a majority of
the number of Directors then in office shall constitute a quorum for the
transaction of business. However, if less than a quorum is present at a meeting,
a majority of the Directors present may adjourn the meeting from time to time,
and the meeting may be held as adjourned without further notice, except as
provided in Section 3.6 of this Article III. Any business which might have been
transacted at the meeting as originally noticed may be transacted at such
adjourned meeting at which a quorum is present.
(d) No Director need be a stockholder of the Corporation.
(e) A Director may resign in the manner provided for in the
Articles.
3.4 Regular Meetings. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Section 3.4, on the same
date and at the same place as the annual meeting of stockholders following the
close of such meeting of stockholders. Other regular meetings of the Board of
Directors may be held at such hour, date and place as the Board of Directors may
by resolution from time to time determine without notice other than such
resolution.
3.5 Special Meetings. Special meetings of the Board of Directors may be
called, orally or in writing, by or at the request of a majority of the
Directors, the Chairman of the Board, if one is elected, or the Chief Executive
Officer, or if no Chief Executive Officer is then in office, the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
3.6 Notice of Meetings. Notice of the hour, date and place of all
special meetings of the Board of Directors shall be given to each Director by
the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the Chief Executive Officer, or if no Chief Executive Officer is
then in office, the President or such other officer designated by the Chairman
of the Board, if one is elected, or the Chief Executive Officer, or if no Chief
Executive Officer is then in office, the President. Notice of any special
meeting of the Board of Directors shall be given to each Director in person, by
telephone, or by facsimile, telex, telecopy, telegram, or other written form of
electronic communication, sent to his or her business or home address at least
three business days in advance of the meeting, or by written notice mailed to
his or her business or home address at least three business days in advance of
the meeting. Such notice shall be deemed to be delivered when hand delivered to
such address, read to such Director by telephone, deposited in the mail so
addressed, with postage thereon prepaid if mailed, dispatched or transmitted if
faxed, telexed or telecopied, or when delivered to the telegraph company if sent
by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting
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adjourned for less than 30 days or of the business to be transacted thereat,
other than an announcement at the meeting at which such adjournment is taken of
the hour, date and place to which the meeting is adjourned.
A written waiver of notice signed before or after a meeting by a
Director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Articles or by
these Bylaws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
3.7 Nominations. Except as otherwise provided in the Articles,
nominations of candidates for election as Directors of the Corporation at any
annual meeting may be made only (a) by, or at the direction of, a majority of
the Board of Directors or a designated committee thereof or (b) by any
stockholder of record (both as of the time notice of such nomination is given by
the stockholder as set forth below and as of the record date for the annual
meeting in question) of any shares of the stock of the Corporation entitled to
vote at such annual meeting who complies with the timing, informational and
other requirements set forth in this Section 3.7. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 3.7 and who seeks to make such a nomination must be, or his, her or its
representative must be, present in person at the annual meeting. Only persons
nominated in accordance with the procedures set forth in this Section 3.7 shall
be eligible for election as Directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the
Board of Directors shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 3.7. For the first
annual meeting following the initial registration of the Common Stock of the
Corporation under the Exchange Act, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (i) the
15th day following the day on which the Public Announcement of the date of such
annual meeting is first made by the Corporation or (ii) the 75th day prior to
the scheduled date of such annual meeting as set forth in the Public
Announcement. For all subsequent annual meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the Anniversary Date; provided, however, that in the event the annual meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(x) the 15th day following the day on which Public Announcement of the date of
such annual meeting is first made by the Corporation or (y) the 75th day prior
to the scheduled date of such annual meeting as set forth in the Public
Announcement.
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A stockholder's notice to the Secretary of the Corporation shall set
forth as to each person whom the stockholder proposes to nominate for election
or re-election as a Director: (1) the name, age, business address and residence
address of such person; (2) the principal occupation or employment of such
person; (3) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person on the date of such
stockholder notice; and (4) the consent of each nominee to serve as a Director
if elected. A stockholder's notice to the Secretary of the Corporation shall
further set forth as to the stockholder giving such notice: (a) the name and
address, as they appear on the stock transfer books of the Corporation, of such
stockholder and of the beneficial owners (if any) of the capital stock of the
Corporation registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s);
(b) the class and number of shares of the capital stock of the Corporation which
are held of record, beneficially owned or represented by proxy by such
stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the annual meeting in question
(if such date shall then have been made publicly available and shall be earlier
than the date of such stockholder notice) and on the date of such stockholder's
notice; and (c) a description of all arrangements or understandings between such
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
such stockholder.
If the Board of Directors or a designated committee thereof determines
that any stockholder nomination was not made in accordance with the terms of
this Section 3.7 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3.7 in any material
respect, then such nomination shall not be considered at the annual meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3.7, the presiding officer of the annual meeting
shall determine whether a nomination was made in accordance with such
provisions. If the presiding officer determines that any stockholder nomination
was not made in accordance with the terms of this Section 3.7 or that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3.7 in any material respect, then
such nomination shall not be considered at the annual meeting in question. If
the Board of Directors, a designated committee thereof or the presiding officer
determines that a nomination was made in accordance with the terms of this
Section 3.7, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second paragraph of
this Section 3.7, in the event that the number of Directors to be elected to the
Board of Directors is increased and there is no Public Announcement by the
Corporation naming all of the nominees for Director or specifying the size of
the increased Board of Directors at least 75 days prior to the Anniversary Date,
a stockholder's notice required by this Section 3.7 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if such notice shall be delivered to, or mailed to and received by,
the Corporation at its principal
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executive office not later than the close of business on the 15th day following
the day on which such Public Announcement is first made by the Corporation.
Except as otherwise provided in the Articles, no person shall be
elected by the stockholders as a Director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 3.7. Election of
Directors at an annual meeting need not be by written ballot, unless otherwise
provided by the Board of Directors or presiding officer at such annual meeting.
If written ballots are to be used, ballots bearing the names of all the persons
who have been nominated for election as Directors at the annual meeting in
accordance with the procedures set forth in this Section 3.7 shall be provided
for use at the annual meeting.
3.8 Action at Meeting and by Consent.
(a) At any meeting of the Board of Directors at which a quorum
is present, a majority of the Directors present may take any action on behalf of
the Board of Directors, unless otherwise required by law, by the Articles or by
these Bylaws.
(b) Except as expressly provided in Section 3.9 hereof and
except as may be provided elsewhere herein, any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a meeting
if all members of the Board of Directors consent thereto in writing. Such
written consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
3.9 Certain Matters. The Board of Directors shall, on a quarterly
basis, review a report prepared by management of the Corporation summarizing for
each hotel in which the Corporation holds an interest (i) the status of
renovations and maintenance projects being conducted, (ii) the level of guest
satisfaction, (iii) quality scores, and (iv) financial performance.
In addition, and notwithstanding anything to the contrary in
these Bylaws, the following actions by the Corporation shall require the
approval of (i) a majority of the Board of Directors and (ii) a majority of the
Class A Directors (as defined in the Articles) who vote on the action, which
approvals shall be obtained at a meeting of the Board of Directors at which a
quorum is present (and shall not be obtained by written consent in lieu
thereof):
(a) The entry by the Corporation into any transaction, or
series of related transactions, in which the amount involved is expected to
exceed one hundred thousand dollars ($100,000), with either Marriott
International, Inc., a Delaware corporation ("Marriott"), Patriot American
Hospitality, Inc., a Delaware corporation ("Patriot"), Wyndham International,
Inc., a Delaware corporation ("Wyndham"), or any entity controlled by Marriott,
Patriot or Wyndham. In addition, to the extent the Corporation serves, directly
or indirectly, as the managing member of Interstate Hotels, LLC, a Delaware
limited liability
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company ("Interstate LLC"), or IHC II, LLC, a Delaware limited liability company
("IHC LLC" and, together with Interstate LLC, the "LLCs"), any transaction or
series of related transactions proposed to be entered into by either LLC that
would, if such transaction or transactions were to be entered into by the
Corporation, require the approval of the Board of Directors under this Section
3.9(a), shall, as a condition to the Corporation's approving such transaction or
transactions in its capacity as managing member of such LLC, require the
approval of the Board of Directors under this Section 3.9(a) as if such
transaction or transactions were proposed to be entered into by the Corporation.
(b) The modification or termination by the Corporation of any
franchise agreement relating to a Marriott-branded hotel.
(c) The commencement by the Corporation of any legal action,
whether in a court of law, arbitration tribunal or otherwise, or the filing of a
claim or counterclaim by the Corporation in any such legal action, against
Marriott, Patriot or Wyndham or any entity controlled by Marriott, Patriot or
Wyndham or any officer or director of Marriott, Patriot or Wyndham or of any
entity controlled by Marriott, Patriot or Wyndham.
3.10 Manner of Participation. Directors may participate in meetings of
the Board of Directors by means of conference telephone or similar
communications equipment by means of which all Directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these Bylaws.
3.11 Compensation of Directors. By resolution of the Board of
Directors, Directors may be allowed a fee or other compensation for serving as a
Director and/or for serving on any committee of the Board of Directors and a fee
or other compensation and expenses for attendance at a meeting of the Board
and/or any committee thereof, but nothing herein shall preclude Directors from
serving the Corporation in other capacities and receiving compensation for such
other services.
3.12 Reliance. Each Director, officer, employee and agent of the
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a Director.
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ARTICLE IV
Committees
4.1 Number, Tenure and Qualifications. The Board of Directors may
appoint from among its members committees, composed of two or more Directors, to
serve at the pleasure of the Board of Directors; provided, however, that no
committee shall be created by the Board of Directors, nor shall any member be
appointed to or removed from any committee, without the approval of each Class B
and Class C Director (as defined in the Articles) then serving on the Board of
Directors.
4.2 Powers. The Board of Directors may delegate to committees appointed
under Section 4.1 of this Article any of the powers of the Board of Directors,
except for the matters specified in Section 3.9 hereof as requiring Board
approval at a Board meeting and except as prohibited by law, by the Articles or
by these Bylaws.
4.3 Meetings. Notice of committee meetings shall be given in the same
manner as notice for special meetings of the Board of Directors. A majority of
the members of the committee shall constitute a quorum for the transaction of
business at any meeting of the committee. The act of a majority of the committee
members present at a meeting shall be the act of such committee. The Board of
Directors may designate a chairman of any committee, and such chairman or any
two members of any committee may fix the time and place of its meeting unless
the Board shall otherwise provide. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another Director to act in the place of such
absent member. Each committee shall keep minutes of its proceedings.
4.4 Telephone Meetings. Members of a committee of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
4.5 Informal Action by Committees. Any action required or permitted to
be taken at any meeting of a committee of the Board of Directors may be taken
without a meeting, if consent in writing to such action is signed by each member
of the committee and such written consent is filed with the minutes of
proceedings of such committee.
4.6 Vacancies. Subject to the provisions hereof, the Board of Directors
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member or to dissolve any such committee.
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ARTICLE V
Officers
5.1 Enumeration. The officers of the Corporation shall consist of a
President, a Treasurer, a Secretary and such other officers, including, without
limitation, a Chairman of the Board of Directors, a Chief Executive Officer and
one or more Vice Presidents (including Executive Vice Presidents or Senior Vice
Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant
Secretaries, and such other officers as the Board of Directors may determine.
5.2 Election. At the regular annual meeting of the Board following the
annual meeting of stockholders, the Board of Directors shall elect the
President, the Treasurer and the Secretary. Other officers may be elected by the
Board of Directors in accordance with this Article V at such regular annual
meeting of the Board of Directors or at any other regular or special meeting.
5.3 Qualification. No officer need be a stockholder or a Director. Any
person may occupy more than one office of the Corporation at any time; provided,
that such officer does not serve concurrently as both President and Vice
President. Any officer may be required by the Board of Directors to give bond
for the faithful performance of his or her duties in such amount and with such
sureties as the Board of Directors may determine.
5.4 Tenure. Except as otherwise provided by the Articles or by these
Bylaws, each of the officers of the Corporation shall hold office until the
regular annual meeting of the Board of Directors following the next annual
meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
5.5 Resignation. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
5.6 Removal. Except as otherwise provided by law, if the Board of
Directors in its judgement finds that the best interests of the Corporation will
be served, it may remove any officer by the affirmative vote of a majority of
the Directors then in office; provided however, that such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
5.7 Absence or Disability. In the event of the absence or disability of
any officer, the Board of Directors may designate another officer to act
temporarily in place of such absent or disabled officer.
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5.8 Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
5.9 President. The President shall, subject to the direction of the
Board of Directors, have general supervision and control of the Corporation's
business. If there is no Chairman of the Board or if he or she is absent, the
President shall preside, when present, at all meetings of stockholders and of
the Board of Directors. The President shall have such other powers and perform
such other duties as the Board of Directors may from time to time designate.
5.10 Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
5.11 Chief Executive Officer.
(a) The Chief Executive Officer, if one is elected, shall have
such powers and shall perform such duties as the Board of Directors may from
time to time designate. If there shall be a Chief Executive Officer at any time,
such officer shall have authority to take any action that the President is
authorized to take by these Bylaws (other than the execution of stock
certificates).
(b) The initial Chief Executive Officer shall be Thomas F.
Hewitt.
5.12 Vice Presidents and Assistant Vice Presidents. Any Vice President
(including any Executive Vice President or Senior Vice President) and any
Assistant Vice President shall have such powers and shall perform such duties as
the Board of Directors or the Chief Executive Officer, or if no Chief Executive
Officer is then in office, the President, may from time to time designate.
5.13 Treasurer and Assistant Treasurers. The Treasurer shall, subject
to the direction of the Board of Directors and except as the Board of Directors,
the Chief Executive Officer or, if no Chief Executive Officer is then in office,
the President may otherwise provide, have general charge of the financial
affairs of the Corporation and shall cause to be kept accurate books of account.
The Treasurer shall have custody of all funds, securities, and valuable
documents of the Corporation. He or she shall have such other duties and powers
as may be designated from time to time by the Board of Directors or the Chief
Executive Officer, or if no Chief Executive Officer is then in office, the
President.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer, or if no Chief
Executive Officer is then in office, the President may from time to time
designate.
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5.14 Secretary and Assistant Secretaries. The Secretary shall record
all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer, or if no Chief
Executive Officer is then in office, the President. In the absence of the
Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer, or if no Chief
Executive Officer is then in office, the President may from time to time
designate.
5.15 Other Powers and Duties. Subject to these Bylaws and to such
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors. Except as otherwise
provided in these Bylaws, the Chief Executive Officer, if one is then serving in
office, shall report to the Board of Directors and the President, if one is then
serving in office, shall report to the Board of Directors and the Chief
Executive Officer (at any time one is serving in office).
5.16 No Right to Employment. No provision of these Bylaws shall confer
upon any officer or other employee of the Corporation any right with respect to
the continuance of employment by the Corporation, nor shall any provision of
these Bylaws interfere in any way with the right of the Corporation to terminate
the employment of any officer or other employee at any time.
ARTICLE VI
Stock
6.1 Certificates. Each stockholder shall be entitled to a certificate
of the stock of the Corporation, which shall represent and certify the number of
shares of each class held by such stockholder in the Corporation, in such form
as may from time to time be prescribed by the Board of Directors. Such
certificate shall be signed by the Chairman of the Board, the President or a
Vice President and countersigned by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary. The Corporation seal and the signatures
by the Corporation's officers, the transfer agent or the registrar may be either
manual or facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has
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been placed on such certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, the certificate may be
issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Each certificate
representing shares which are restricted as to their transferability or voting
powers, which are preferred or limited as to their dividends or as to their
allocable portion of the assets upon liquidation or which are redeemable at the
option of the Corporation, shall have a statement of such restriction,
limitation, preference or redemption provision, or a summary thereof, plainly
stated on the certificate. If the Corporation has authority to issue stock of
more than one class, the certificate shall contain on the face or back a full
statement or summary of the designations and any preferences, conversion on
other rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restrictions to the stockholder on request and
without charge. Every certificate for shares of stock which are subject to a
restriction on transfer and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
6.2 Lost, Destroyed and Mutilated Certificates. Holders of the shares
of the stock of the Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such stockholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
6.3 Transfer of Stock. Shares of stock of the Corporation shall be
transferable or assignable only on the stock transfer books of the Corporation
by the holder in person or by attorney upon surrender to the Corporation or its
transfer agent of the certificate theretofore properly endorsed or, if sought to
be transferred by attorney, accompanied by a written assignment or power of
attorney properly executed, with transfer stamps (if necessary) affixed, and
with such proof of the authenticity of signatures as the Corporation or its
transfer agent may reasonably require.
6.4 Record Holders. Except as may otherwise be required by law, by the
Articles or by these Bylaws, the Corporation shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
thereto, regardless of any transfer, pledge or other
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disposition of such stock, until the shares have been transferred on the books
of the Corporation in accordance with the requirements of these Bylaws.
It shall be the duty of each stockholder to notify the Corporation of
his or her postal address and any changes thereto.
6.5 Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than 90 nor less than 10
days before the date of such meeting and (b) in the case of any other action,
shall not be more than 90 days prior to such other action. If no record date is
fixed: (i) the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held and (ii) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
ARTICLE VII
Indemnification
7.1 Indemnification to the Extent Permitted by Law. The Corporation
shall indemnify, to the full extent authorized or permitted by Maryland
statutory or decisional law or any other applicable law, any person made, or
threatened to be made, a party to any action or proceeding (whether civil or
criminal or otherwise) by reason of the fact he, his testator or intestate is or
was a Director or officer of the Corporation or any predecessor of the
Corporation, or is or was serving at the request of the Corporation or any
predecessor of the Corporation as a director or officer of, or in any other
capacity with respect to, any other corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise (an "Indemnified Person"),
including the advancement of expenses under procedures provided under such law.
The Corporation shall indemnify any Indemnified Person's spouse (whether by
statute or at common law and without regard to the location of the governing
jurisdiction) and children to the same extent and subject to the same
limitations applicable to any Indemnified Person hereunder for claims arising
out of the status of such person as a spouse or child of such Indemnified
Person, including claims seeking damages from marital property (including
community property) or property held by such Indemnified Person and such spouse
or property transferred to such spouse or child, but such indemnity shall not
otherwise extend to protect the spouse or child against liabilities caused by
the spouse's or child's own acts.
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The provisions of this Section 7.1 shall constitute a contract with each
Indemnified Person who serves at any time while these provisions are in effect
and may be modified adversely only with the consent of affected Indemnified
Persons and each such Indemnified Person shall be deemed to be serving as such
in reliance on these provisions.
7.2 Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VII with respect to the indemnification of and
advancement of expenses to Directors and officers of the Corporation.
7.3 Insurance. The Corporation shall have the power to purchase and
maintain insurance to protect itself and any Indemnified Person, employee or
agent of the Corporation against any liability, whether or not the Corporation
would have the power to indemnify him or her against such liability.
7.4 Non-Exclusive Rights to Indemnify; Heirs and Personal
Representatives. The rights to indemnification set forth in this Article VII are
in addition to all rights which any Indemnified Person may be entitled as a
matter of law or by contract, and shall inure to the benefit of the heirs and
personal representatives of each Indemnified Person.
7.5 No Limitation. In addition to any indemnification permitted by
these Bylaws, the Board of Directors shall, in its sole discretion, have the
power to grant such indemnification to such persons as it deems in the interest
of the Corporation to the full extent permitted by law. This Article shall not
limit the Corporation's power to indemnify against liabilities other than those
arising from a person's serving the Corporation as a Director or officer.
7.6 Amendment, Repeal or Modification. Any amendment, repeal or
modification of any provision of this Article VII by the stockholders or the
Directors of the Corporation is effective on a prospective basis only and
neither repeal nor modification of such provisions shall adversely affect any
right or protection of a Director or officer of the Corporation under this
Article VII existing at the time of such amendment, repeal or modification.
7.7 Right of Claimant to Bring Suit. If a claim under Section 7.1 of
this Article VII is not paid in full by the Corporation within ninety (90) days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the MGCL for the Corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be
19
<PAGE> 20
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the MGCL, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct.
7.8 Partial Indemnification. If any Indemnified Person is entitled
under any provision of these Bylaws to indemnification by the Company for some
or a portion of the expenses, judgments, fines or penalties actually or
reasonably incurred by him or her in the investigation, defense, appeal or
settlement of any civil or criminal action or proceeding, but not, however, for
the total amount thereof, the Corporation shall nevertheless indemnify such
Indemnified Person for the portion of such expenses, judgments, fines or
penalties to which such Indemnified Person is entitled.
ARTICLE VIII
Miscellaneous Provisions
8.1 Exemption From Control Share Acquisition Statute. Subject to
amendment or repeal of this Section 8.1, pursuant to Section 3-702 of the MGCL,
the provisions of Title 3, Subtitle 7 of the MGCL, which relates to voting
rights of certain control shares, shall not apply to any share of stock of the
corporation now or hereafter issued.
8.2 Seal. The seal of the Corporation shall consist of a flat-faced
circular die, of which there may be any number of counterparts, on which there
shall be engraved the word "Seal" and the name of the Corporation. The Board of
Directors shall have the power to adopt and alter the seal of the Corporation.
8.3 Fiscal Year. The fiscal year of the Corporation shall be a calendar
year or as may otherwise be fixed by the Board of Directors.
8.4 Checks, Notes and Drafts. Checks, notes, drafts and other orders
for the payment of money shall be signed by such persons as the Board of
Directors from time to time may authorize. When the Board of Directors so
authorizes, however, the signature of any such person may be a facsimile.
8.5 Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other obligations to be entered into by the Corporation in the
ordinary course of its business without Director action may be executed on
behalf of the Corporation by the Chairman of the Board, if one is elected, the
Chief Executive Officer, or if no Chief Executive Officer is then in office, the
President or the Treasurer or any other officer, employee or agent of the
Corporation as the Board of Directors may authorize.
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<PAGE> 21
8.6 Resident Agent. The Board of Directors may appoint a resident agent
upon whom legal process may be served in any action or proceeding against the
Corporation.
8.7 Corporate Records. The original or attested copies of the Articles,
Bylaws and records of all meetings of the incorporators, stockholders and the
Board of Directors and the stock transfer books, which shall contain the names
of all stockholders, their record addresses and the amount of stock held by
each, may be kept outside the State of Maryland and shall be kept at the
principal office of the Corporation, at the office of its counsel or at an
office of its transfer agent or at such other place or places as may be
designated from time to time by the Board of Directors.
8.8 Amendment of Bylaws. Except as provided otherwise by law, these
Bylaws may be amended or repealed solely by the Board of Directors by the
affirmative vote of a majority of the Directors then in office; provided,
however, that the amendment or repeal of any of the provisions of Section 3.9 or
Section 4.1 of these Bylaws shall require (a) if at the time such amendment or
repeal is proposed there is both a Class B and Class C Director (as defined in
the Articles) in office, the affirmative vote of a majority of the Directors
then in office, including the affirmative vote of each of the Class B and Class
C Directors, or (b) the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote on such matter.
8.9 Voting of Stock Held. Unless otherwise provided by resolution of
the Board of Directors, the Chairman of the Board, if one is elected, the Chief
Executive Officer, the President or the Treasurer may from time to time waive
notice of and act on behalf of this Corporation, or appoint an attorney or
attorneys or agent or agents of the Corporation, in the name and on behalf of
the Corporation, to cast the vote that the Corporation may be entitled to cast
as a stockholder or otherwise in any other corporation, any of whose securities
may be held by the Corporation, at meetings of the holders of the shares or
other securities of such other corporation, or to consent in writing to any
action by any such other corporation; and the Chairman of the Board, if one is
elected, the Chief Executive Officer, the President or the Treasurer shall
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent and may execute or cause to be executed on behalf
of the Corporation, and under its corporate seal or otherwise, such written
proxies, consents, waivers or other instruments as may be necessary or proper in
the premises. In lieu of such appointment, the Chairman of the Board, if one is
elected, the Chief Executive Officer, the President or the Treasurer may himself
or herself attend any meetings of the holders of shares or other securities of
any such other corporation and there vote or exercise any or all power of the
Corporation as the holder of such shares or other securities of such other
corporation.
Adopted and effective as of June 18, 1999.
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<PAGE> 1
Exhibit 10.1
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
INTERSTATE HOTELS, LLC
Dated as of June 18, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1
DEFINITIONS.........................................................................2
ARTICLE 2
FORMATION, DURATION AND PURPOSES....................................................8
Section 2.1 Formation.........................................................8
Section 2.2 Name; Registered Agent and Registered Office......................9
Section 2.3 Principal Office..................................................9
Section 2.4 Purposes and Business.............................................9
Section 2.5 Future Business..................................................10
ARTICLE 3
RIGHTS AND OBLIGATIONS OF MEMBERS..................................................11
Section 3.1 Limited Liability................................................11
Section 3.2 Admission of Members.............................................11
Section 3.3 Bankruptcy of a Member...........................................11
Section 3.4 No Withdrawal....................................................11
Section 3.5 Remuneration to Members..........................................11
Section 3.6 Duties and Conflicts.............................................11
ARTICLE 4
MANAGEMENT.........................................................................12
Section 4.1 Management by the Managing Member; Members.......................12
Section 4.2 Bank Accounts....................................................12
Section 4.3 Liability; Indemnification.......................................13
Section 4.4 Limitations on Sale of Assets; Indemnification...................13
Section 4.5 Allocation of Costs and Expenses.................................14
Section 4.6 Resolution of Disputes Regarding Shared Expenses.................15
ARTICLE 5
BOOKS AND RECORDS..................................................................16
Section 5.1 Books and Records................................................16
Section 5.2 Accounting and Fiscal Year.......................................16
Section 5.3 Reports..........................................................16
Section 5.4 The Company Accountant...........................................18
ARTICLE 6
CONTRIBUTIONS......................................................................18
Section 6.1 Initial Capital Contributions....................................18
Section 6.2 Additional Capital Contributions.................................18
Section 6.3 No Third Party Beneficiary.......................................19
Section 6.4 Capital Accounts.................................................19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 6.5 Withdrawal of Capital............................................19
Section 6.6 Negative Capital Accounts........................................20
Section 6.7 Satisfaction of Indemnity Obligations Under
Distribution Agreement...........................................20
ARTICLE 7
ALLOCATION OF PROFITS AND LOSSES; TAX MATTERS......................................20
Section 7.1 Profits and Losses...............................................20
Section 7.2 Regulatory Allocations...........................................20
Section 7.3 Tax Allocations..................................................21
Section 7.4 Tax Matters Member...............................................22
Section 7.5 Tax Elections....................................................22
ARTICLE 8
DISTRIBUTIONS......................................................................22
Section 8.1 Cash Available for Distributions.................................22
ARTICLE 8A
COMPANY'S INTEREST IN INTERCARP....................................................23
ARTICLE 9
TRANSFER...........................................................................24
Section 9.1 No Transfer of Interests.........................................24
Section 9.2 Permitted Transfers of Interests; Right of First Offer...........24
Section 9.3 Transferees......................................................25
Section 9.4 Admission of Additional Members..................................26
ARTICLE 10
TERMINATION........................................................................26
Section 10.1 Dissolution......................................................26
Section 10.2 Termination......................................................27
Section 10.3 Acts in Furtherance of Liquidation...............................28
ARTICLE 11
TAG-ALONG AND DRAG-ALONG RIGHTS....................................................28
Section 11.1 Notice of Proposed Transaction...................................28
Section 11.2 Tag-Along and Drag-Along Rights..................................29
Section 11.3 Terms............................................................29
Section 11.4 Closing..........................................................31
ARTICLE 12
GENERAL PROVISIONS.................................................................31
Section 12.1 Covenants, Representations and Warranties of the Members.........31
Section 12.2 Notices..........................................................32
</TABLE>
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<TABLE>
<S> <C>
Section 12.3 Governing Laws; Jurisdiction; Venue..............................34
Section 12.4 Entire Agreement.................................................34
Section 12.5 Waiver...........................................................34
Section 12.6 Severability.....................................................35
Section 12.7 Terminology......................................................35
Section 12.8 Action by the Members............................................35
Section 12.9 Amendments.......................................................35
Section 12.10 Binding Agreement................................................35
Section 12.11 Further Assurances..............................................S-1
SCHEDULES & EXHIBITS:
Schedule 1.1 - Initial Capital Contributions, Capital Account Balances
Schedule 1.2 - Existing Subsidiaries
Schedule 2.4.1 - List of Existing Contracts
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
--------------------------------------------------------
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY
AGREEMENT (this "AGREEMENT"), made and entered into as of this 18th day of June,
1999 by and between Northridge Holdings, Inc., a Delaware Corporation (together
with its permitted successors and assigns hereunder "NORTHRIDGE HOLDINGS"), and
PAH-Interstate Holdings, Inc., a Delaware corporation (together with its
permitted successors and assigns hereunder "PAH"), amends and restates in its
entirety the Limited Liability Company Agreement dated as of June 2, 1998 by and
between Interstate Hotels Corporation, a Maryland corporation, f/k/a Interstate
Hotels Management, Inc., (together with its permitted successors and assigns
hereunder "IHC") and PAH (the "ORIGINAL AGREEMENT"). Northridge Holdings and PAH
are each sometimes referred to herein individually as a "MEMBER" and
collectively as the "MEMBERS".
R E C I T A L S
WHEREAS, Patriot American Hospitality, Inc. ("PATRIOT REIT") formed a
limited liability company with the name "Interstate Hotels, LLC" (the "COMPANY")
under the Act (as defined below) by the filing of a Certificate of Formation
(the "CERTIFICATE OF FORMATION") with the Delaware Secretary of State on March
23, 1998;
WHEREAS, on June 2, 1998, Interstate Hotels Company, a Pennsylvania
corporation ("INTERSTATE"), merged with and into Patriot REIT (the "INTERSTATE
MERGER");
WHEREAS, immediately following the Interstate Merger, Patriot REIT
caused Interstate Hotels Corporation, a Pennsylvania corporation and a
wholly-owned subsidiary of Interstate, to merge with and into the Company;
WHEREAS, Patriot REIT subsequently contributed on June 2, 1998 a 65%
non-managing member interest in the Company to PAH and a 35% managing member
interest in the Company to IHC;
WHEREAS, pursuant to a Distribution Agreement, dated as of June 18,
1999, by and among Patriot REIT, Wyndham International, Inc. ("WYNDHAM" and,
together with Patriot REIT, "PATRIOT/WYNDHAM"), IHC and the Company (the
"DISTRIBUTION AGREEMENT"), Patriot/Wyndham has agreed to contribute additional
assets to the Company through PAH and IHC such that, following such
contributions, PAH will own a 55% non-managing member interest in the Company
and IHC will own a 45% managing member interest in the Company;
WHEREAS, of even date herewith IHC has contributed all of its right,
title and interest in and to the Company to Northridge Holdings, a wholly
owned-subsidiary of IHC,
<PAGE> 6
following which contribution Northridge Holdings owns a 45% sole managing member
interest in the Company and is a Substitute Member (as defined below); and
WHEREAS, the Members now desire to amend and restate the Original
Agreement in its entirety so as to govern the operations of the Company and the
rights and obligations of the Members.
NOW, THEREFORE, in consideration of the recitals and the covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Members hereby
agree as follows:
ARTICLE 1
DEFINITIONS
-----------
For purposes of this Agreement, initially capitalized terms used herein
shall have the following meanings:
"AAA" as defined in subsection 4.6.1.
"ACQUIROR" as defined in Section 11.1.
"ACT" as defined in Section 2.1.
"ADDITIONAL CAPITAL CONTRIBUTION" as defined in Section 6.4.
"ADDITIONAL MEMBER" as defined in subsection 9.4.2.
"AFFILIATE" means, when used with respect to any Person, any other
Person controlling or controlled by or under common control with such Person.
For purposes of this definition, the term "CONTROL", with respect to any Person,
means 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 of other beneficial interests or by contract
or otherwise.
"AGREEMENT" as defined in the Preamble.
"APPRAISER" as defined in Section 11.3.
"ASSET PURCHASE AGREEMENT" as defined in subsection 4.4.1.
"BANKRUPTCY" means, with respect to any Person, (i) the commencement by
such Person of a proceeding seeking relief under any provision or chapter of the
Bankruptcy Code or any other federal or state law relating to insolvency,
bankruptcy or reorganization; (ii) an
2
<PAGE> 7
adjudication that such Person is insolvent or bankrupt; (iii) the entry of an
order for relief under the Bankruptcy Code with respect to such Person; (iv) the
filing of any such petition or the commencement of any such case or proceeding
against such Person, unless such petition and the case or proceeding initiated
thereby are dismissed within seventy-five (75) days from the date of such
filing; (v) the filing of an answer by such Person admitting the material
allegations of any such petition; (vi) the appointment of a trustee, receiver or
custodian for all or substantially all of the assets of such Person unless such
appointment is vacated or dismissed within seventy-five (75) days from the date
of such appointment but not less than five (5) days before the proposed sale of
any assets of such Person; (vii) the insolvency of such Person or the execution
by such Person of a general assignment for the benefit of creditors; (viii) the
convening by such Person of a meeting of its creditors, or any class thereof,
for purposes of effecting a moratorium upon or composition of its debts or an
extension of its debts; (ix) the failure of such Person to pay its debts
generally as they mature; (x) the levy, attachment, execution or other seizure
of substantially all of the assets of such Person where such seizure is not
discharged within ten (10) days thereafter; or (xi) the admission by such Person
in writing of its inability to pay its debts generally as they mature or that it
is generally not paying its debts as they become due.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"BOOK DEPRECIATION" means, for each fiscal year, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year, except that if the Book Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such year, Book Depreciation shall be an amount that bears the same ratio to
such beginning Book Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year bears to such beginning adjusted
tax basis; provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such year is zero, Book Depreciation
shall be determined with reference to such beginning Book Value using a method
reasonably selected by the Managing Member pursuant to Section 7.5.
"BOOK VALUE" means, with respect to any asset of the Company, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) the initial Book Value of any asset contributed by a Member to the
Company shall be the gross fair market value of such asset as determined by the
Members;
(ii) the Book Values of all Company assets shall be adjusted to equal
their respective fair market values as permitted pursuant to Section
1.704-1(b)(2)(iv)(f) of the Treasury Regulations;
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<PAGE> 8
(iii) the Book Value of any asset of the Company distributed to any
Member shall be adjusted to equal the gross fair market value of such asset as
of the date of distribution as determined by the Members; and
(iv) the Book Value of Company assets shall be increased (or decreased)
to reflect any adjustments to the adjusted basis of such assets pursuant to Code
Section 734(b) or 743(b) to the extent such adjustments are taken into account
in determining Capital Accounts and are not otherwise reflected in an adjustment
made pursuant to this definition of "Book Value".
If the Book Value of an asset has been determined or adjusted pursuant
to this definition of Book Value, then such Book Value shall thereafter be
adjusted by Book Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses.
"BUSINESS DAY" means any day other than a Legal Holiday.
"BUYER" as defined in Section 11.3.
"CAPITAL ACCOUNT" means, with respect to any Member, the separate
"book" account which the Company shall establish and maintain for such Member in
accordance with Section 704(b) of the Code and Regulations Section
1.704-1(b)(2)(iv) and such other provisions of Section 1.704-1(b) of the
Regulations as must be complied with in order for the Capital Accounts to be
determined in accordance with the provisions of said Regulations. In furtherance
of the foregoing, the Capital Accounts shall be maintained in compliance with
Section 1.704-1(b)(2)(iv) of the Regulations, and the provisions hereof shall be
interpreted and applied in a manner consistent therewith.
"CAPITAL CALL DUE DATE" as defined in subsection 6.2.2.
"CAPITAL CALL NOTICE" as defined in subsection 6.2.2.
"CAPITAL CONTRIBUTIONS" as defined in subsection 6.2.1.
"CERTIFICATE OF FORMATION" as defined in the Recitals.
"CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"COMPANY" as defined in the Recitals.
"COMPANY ACCOUNTANT" as defined in Section 5.4.
"DISTRIBUTION AGREEMENT" as defined in the Recitals.
4
<PAGE> 9
"EBITDA" as defined in Section 11.3.
"EXISTING CONTRACTS" means those agreements held by the Company or the
Existing Subsidiaries, each as more fully identified on Schedule 2.4.1 hereto.
"EXISTING SUBSIDIARY CONTRACTS" means those agreements held by the
Existing Subsidiaries, each as more fully identified on Schedule 2.4.1 hereto.
"EXISTING SUBSIDIARIES" means those entities listed on Schedule 1.2
hereto.
"FAIR MARKET VALUE" as defined in Section 11.3.
"FIRST OFFER NOTICE" as defined in subsection 9.2.2.1.
"FIRST OFFER PRICE" as defined in subsection 9.2.2.1.
"IHC" as defined in the Preamble.
"INITIAL CAPITAL CONTRIBUTIONS" as defined in Section 6.1.
"INTEREST" means, with respect to any Member at any time, the interest
of such Member in the Company at such time, including the right of such Member
to any and all of the benefits to which such Member may be entitled as provided
in this Agreement, together with the obligations of such Member to comply with
all of the terms and provisions of this Agreement.
"INTERSTATE COMMON STOCK" as defined in Section 11.1.
"INTERSTATE MERGER" as defined in the Recitals.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York are authorized by law, regulation or
executive order to remain closed. If a date is a Legal Holiday, the date set for
any action hereunder shall be the next succeeding day that is not a Legal
Holiday.
"LIQUIDATING MEMBER" means the Managing Member; provided, however, if
the Managing Member's Bankruptcy, withdrawal or liquidation or the Guarantor's
Bankruptcy, withdrawal or liquidation shall have preceded the liquidation of the
Company, the Non-Managing Member shall be the Liquidating Member.
"MANAGING MEMBER" means Northridge Holdings, and any successor to
Northridge Holdings appointed as Managing Member in accordance with the
provisions of this Agreement.
5
<PAGE> 10
"MEMBER" or "MEMBERS" means, prior to the date hereof, PAH and IHC, and
on the date hereof, the Persons identified as Members in the preamble to this
Agreement, and thereafter "Members" shall include any Person admitted as a
Substitute Member or an Additional Member.
"NECESSARY COSTS" as defined in subsection 6.2.3.
"NET CAPITAL PROCEEDS" means (i) the net cash proceeds arising out of
the refinancing or refunding of any Company indebtedness or any additional
indebtedness, and (ii) gross receipts (including condemnation and casualty
insurance proceeds) from the sale, exchange or other disposition (excluding
leasing in the ordinary course of business) of any Company assets, less (A) any
indebtedness relating to or secured by such assets which is paid out of such
gross receipts, (B) the costs and expenses of the sale, exchange or disposition
including brokerage commissions, and (C) in the case of condemnation or
casualty, the cost of any collection, repair or restoration.
"NET OPERATING CASH FLOW" means, for any period, the excess of cash
receipts of all kinds for that period (including disbursements from reserves
previously established by the Managing Member) over cash disbursements of all
kinds for that period (including reasonable reserves established by the Managing
Member), but excluding Net Capital Proceeds.
"NON-MANAGING MEMBER" means PAH, and any successor to PAH as permitted
in accordance with the terms of this Agreement.
"NORTHRIDGE HOLDINGS" as defined in the Preamble.
"OFFERED PERCENTAGE INTEREST" as defined in subsection 9.2.2.1.
"ORIGINAL AGREEMENT" as defined in the Preamble.
"PAH" as defined in the Preamble.
"PATRIOT REIT" as defined in the Recitals.
"PATRIOT/WYNDHAM" as defined in the Recitals.
6
<PAGE> 11
"PERCENTAGE INTEREST" means, with respect to each Member, the
percentage set forth below opposite its name, in each case, subject to
adjustment as provided in this Agreement:
Northridge Holdings 45%
PAH 55%
Upon the making of any additional Capital Contribution each Member's Percentage
Interest shall thereafter be adjusted in accordance with Section 6.2.
"PERMITTED TRANSFER" means any Transfer expressly permitted by the
terms of this Agreement.
"PERSON" means any individual, partnership, limited partnership, trust,
estate, association, corporation, limited liability company, or other entity
whether domestic or foreign.
"PROFITS"and "LOSSES" means, for each fiscal year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) any depreciation, amortization and/or cost recovery
deductions with respect to any asset shall be deemed to be equal to the
Book Depreciation available with respect to such asset;
(b) any income or gain of the Company that is exempt from
federal income tax and not otherwise taken into account in computing
Profits or Losses shall be added to such taxable income or loss;
(c) any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses, shall be subtracted
from such taxable income or loss;
(d) to the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Section 734(b) or 743(b) of the Code is
required to be taken into account in determining Capital Accounts as a
result of a distribution other than in liquidation of a Member's
Interest, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases the basis of the asset) from the disposition
of the asset and shall be taken into account for purposes of computing
Profits or Losses;
7
<PAGE> 12
(e) in the event the Book Value of any Company asset is
adjusted pursuant to the definition of Book Value, the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits or Losses;
(f) gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of the
property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its Book Value; and
(g) any items of income, gain, loss or deduction that are
individually specially allocated pursuant to the provisions of Section
7.2 shall not be taken into account in computing Profits and Losses for
any taxable year.
"REIT" as defined in subsection 4.4.1.
"REMAINING MEMBERS" as defined in subsection 10.1.1.
"REQUIRED FUNDS" as defined in subsection 6.2.2.
"SALE NOTICE" as defined in Section 11.1.
"SECURITIES ACT" as defined in subsection 12.1.6.
"SECURITIES LAWS" as defined in subsection 12.1.6.
"SETTLEMENT AGREEMENT" means that certain agreement by and among
Patriot REIT, Wyndham, Interstate Hotels Corporation, Interstate, and Marriott
International, Inc., dated as of May 27, 1998, as amended by that certain First
Amendment to Settlement Agreement dated the 26th day of August, 1998, as further
amended by that certain Second Amendment to Settlement Agreement dated as of
October 29, 1998, as further amended by that certain Third Amendment to
Settlement Agreement dated as of January 6, 1999, as further amended by that
certain Fourth Amendment to Settlement Agreement dated as of March 11, 1999, as
further amended by that certain Fifth Amendment to Settlement Agreement dated as
of April 23, 1999, and as further amended by that certain Sixth Amendment to
Settlement Agreement dated as of May 14, 1999.
"SHARED EXPENSES" as defined in Section 4.5.
"SPECIAL TRANSFER EVENT" as defined in subsection 9.2.2.
"SUBSTITUTE MEMBER" as defined in Section 9.3.
"TAX MATTERS MEMBER" as defined in Section 7.4.
8
<PAGE> 13
"TRANSACTION" as defined in Section 11.1.
"TRANSFER" as defined in subsection 9.1.1.
"TREASURY REGULATIONS" means the income tax regulations promulgated
under the Code, whether temporary, proposed or finalized, as such regulations
may be amended from time to time (including corresponding provisions of
succeeding regulations).
"WYNDHAM" as defined in the Recitals.
ARTICLE 2
FORMATION, DURATION AND PURPOSES
--------------------------------
SECTION 2.1 FORMATION. Pursuant to the Delaware Limited Liability
Company Act, codified in the Delaware Code Annotated, Title 6, Sections 18-101
to 18-1109, as the same may be amended from time to time (the "ACT"), the
Members have formed a limited liability company by filing the Certificate of
Formation with the Secretary of State of the State of Delaware. The rights and
liabilities of the Members, and the operation of the Company, shall be governed
by and determined pursuant to the Act and this Agreement. To the extent the
rights and obligations of any Member are different by reason of any provision of
this Agreement than they would be in the absence of such provision, this
Agreement, to the extent permitted by the Act, shall control.
SECTION 2.2 NAME; REGISTERED AGENT AND REGISTERED OFFICE. The name of
the Company, and the name under which the business of the Company shall be
conducted shall be Interstate Hotels, LLC or such other name as hereafter may be
adopted by the Managing Member. The Registered Agent of the Company shall be The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, or
such other Person as may be selected from time to time by the Managing Member.
The registered office of the Company shall be c/o The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801.
SECTION 2.3 PRINCIPAL OFFICE. The principal place of business and
office of the Company shall be located c/o Interstate Hotels Corporation, Foster
Plaza Ten, 680 Andersen Drive, Pittsburgh, Pennsylvania 15220-8126, or at such
other place as may be determined by the Managing Member.
SECTION 2.4 PURPOSES AND BUSINESS.
2.4.1 The purpose and nature of the business of the Company shall
be:
(i) to directly or indirectly own, hold, manage, terminate,
extend, amend, amend and restate or otherwise modify,
or renew or replace (provided such renewal or
replacement relates solely to
9
<PAGE> 14
the hotels referenced in the Existing Contracts) the
Existing Contracts and any such renewals or
replacements;
(ii) to own and hold ownership interests in the Existing
Subsidiaries of the Company for the purpose of causing
said subsidiaries to (a) own, hold, manage, terminate,
extend, amend, amend and restate or otherwise modify,
or renew or replace (provided such renewal or
replacement relates solely to the hotels referenced in
the Existing Subsidiary Contracts) the Existing
Subsidiary Contracts to which they are a party and (b)
provide certain ancillary services to the hotels
subject to the Existing Contracts and the Existing
Subsidiary Contracts and any such renewals or
replacements;
(iii) to exercise the rights and perform the obligations of
the Company and to cause the Existing Subsidiaries to
exercise their respective rights and perform their
respective obligations under and pursuant to the
Existing Contracts, including to act as managers and
franchisees under such Existing Contracts or any
renewals or replacements thereof with respect to the
hotels referenced in such Existing Contracts;
(iv) to own and hold ownership interests in entities owning
and managing The Charles Hotel Complex in Cambridge,
Massachusetts; and
(v) to conduct all activities necessary or desirable to
accomplish the foregoing purposes, including retaining
such employees as the Managing Member deems reasonably
necessary.
2.4.2 The Company shall not:
(i) enter into or permit any Existing Subsidiary to enter
into any contract or agreement other than as permitted
under subsection 2.4.1;
(ii) enter into or permit any Existing Subsidiary to enter
into or conduct any business, other than as set forth
under subsection 2.4.1;
(iii) create, acquire or retain any equity interest in any
legal entity, other than the Existing Subsidiaries;
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(iv) make any loans, investments or other similar payments
other than loans, investments or other similar payments
made for the benefit of the Company or the Existing
Subsidiaries (which may include indirect benefits such
as the renewal of an Existing Contract or an Existing
Subsidiary Contract); or
(v) permit any Person other than the Company to have any
ownership interest in any Existing Subsidiary.
SECTION 2.5 FUTURE BUSINESS. The Members acknowledge and agree that
they intend for all management and franchise activities, other than franchise or
management activities permitted under subsection 2.4.1 or relating to the hotels
currently managed under the Existing Contracts, to be conducted by Northridge
Holdings or IHC, as opposed to the Company, and neither the Managing Member nor
the Non-Managing Member shall have any obligation, fiduciary or otherwise, to
offer or bring to the Company any opportunities relating to any business
activities not contemplated in subsection 2.4.1. It is anticipated that all such
opportunities not contemplated by subsection 2.4.1 shall belong to Northridge
Holdings or IHC.
ARTICLE 3
RIGHTS AND OBLIGATIONS OF MEMBERS
---------------------------------
SECTION 3.1 LIMITED LIABILITY. Except as required under the Act or as
expressly set forth in this Agreement, the debts, obligations and liabilities of
the Company, whether arising in contract, tort or otherwise, will be solely the
debts, obligations and liabilities of the Company, and no Member will be
obligated personally for any debt, obligation or liability of the Company solely
by reason of being a member of the Company.
SECTION 3.2 ADMISSION OF MEMBERS. Northridge Holdings and PAH are
Members of the Company and shall be shown as such on the books and records of
the Company. Except as expressly permitted by this Agreement, no other Person
will be admitted as a member of the Company, and no additional Interests will be
issued, without the approval of Northridge Holdings and PAH.
SECTION 3.3 BANKRUPTCY OF A MEMBER. Except as provided in Section 10.1,
the Bankruptcy of any Member shall not cause a dissolution of the Company, and
the rights of such Member to share in the profits or losses of the Company and
to receive distributions of Company funds shall, on the happening of such event,
devolve on its successors or assigns, subject to the terms and conditions of
this Agreement, and the Company shall continue as a limited liability company.
However, in no event shall any such assignee become a substitute Member or
succeed to any right to vote or participate in the management of the business,
property and affairs of the Company or to exercise any rights of a Member,
unless such
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assignee shall otherwise be entitled to become a Substitute Member under the
terms of this Agreement.
SECTION 3.4 NO WITHDRAWAL. No Member may withdraw from the Company
without the prior consent of the other Members (which may be granted or withheld
in the sole discretion of such Members), other than as expressly provided in
this Agreement.
SECTION 3.5 REMUNERATION TO MEMBERS. Except as expressly otherwise
authorized in, or pursuant to, this Agreement, no Member shall be entitled to
remuneration for acting in the Company business.
SECTION 3.6 DUTIES AND CONFLICTS. Notwithstanding anything to the
contrary contained in this Agreement, (i) each Member recognizes that the other
Member and its Affiliates have or may have other business interests, activities
and investments, some of which may be in conflict or competition with the
business of the Company, and that such Persons are entitled to carry on such
other business interests, activities and investments; (ii) the Members and their
Affiliates may engage in or possess an interest in any other business or venture
of any kind, independently or with others, on their own behalf or on behalf of
other entities with which they are affiliated or associated, and such Persons
may engage in any activities, whether or not competitive with the Company,
without any obligation to offer any interest in such activities to the Company
or to any Member; and (iii) neither the Company nor any Member shall have any
right, by virtue of this Agreement, in or to such activities, or the income or
profits derived therefrom, and the pursuit of such activities, even if
competitive with the business of the Company, shall not be deemed wrongful or
improper.
ARTICLE 4
MANAGEMENT
----------
SECTION 4.1 MANAGEMENT BY THE MANAGING MEMBER; MEMBERS.
4.1.1 MANAGEMENT BY THE MANAGING MEMBER. The overall
management and control of the business and affairs of the Company shall
be overseen by the Managing Member, in the form and manner described
below. Except as otherwise expressly provided in this Agreement, the
Managing Member shall have the exclusive power and authority to take
such action for and on behalf of the Company as the Managing Member
shall from time to time deem necessary or appropriate to carry on the
Company business and to carry out the purposes for which the Company
was organized. The Managing Member shall in good faith use reasonable
efforts to extend or renew the Existing Contracts (including leases)
with the respective third party owners and shall cause the Existing
Subsidiaries to use good faith efforts to extend or renew the Existing
Subsidiary Contracts (including leases) with the respective third party
owners, in each case upon the expiration thereof, shall in good faith
use
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reasonable efforts to provide and promote the ancillary services
provided by the Existing Subsidiaries that are not parties to hotel
management contracts, and shall not allow or cause, directly or
indirectly, Northridge Holdings or any other affiliate of Northridge
Holdings (other than the Company) to become the Manager of the hotels
currently managed under the Existing Contracts.
4.1.2 INVOLVEMENT IN COMPANY BUSINESS. The Managing Member
shall devote such time to the Company business as it deems to be
necessary or desirable in connection with its respective duties and
responsibilities hereunder.
4.1.3 LIMITATIONS ON POWERS OF THE MEMBERS. Notwithstanding
the foregoing provisions of this Section 4.1 or any other provision of
this Agreement to the contrary, the Members shall not be empowered to,
and shall not (i) undertake any act in violation of this Agreement;
(ii) possess or take title to any assets of the Company; or (iii) take
any action that makes it illegal or impossible for the Company to carry
on its business.
SECTION 4.2 BANK ACCOUNTS. The Managing Member shall open and
thereafter maintain, for the Company, a commercial checking account and such
other accounts at one or more banks or trust companies organized and existing
under the laws of the United States or any state thereof, each having combined
capital and surplus aggregating at least $500,000,000 and none of which is an
Affiliate of any Member, which accounts shall be interest bearing to the extent
practicable. All funds of the Company shall be promptly deposited in said
accounts.
SECTION 4.3 LIABILITY; INDEMNIFICATION. Except as set forth in Section
4.4, no Member (including the Managing Member) shall be liable to the Company or
any Member for any act or omission by it in the conduct of its duties as a
Managing Member or Member, as the case may be, that is within the scope of such
Person's authority hereunder and that is performed or omitted in good faith and
without gross negligence or willful misconduct on its part. The Company shall
indemnify, defend and hold harmless each such Person and its respective
Affiliates and agents from and against any personal liability, claim, loss,
damage, cost or expenses, including attorneys' fees and expenses, incurred or
sustained by such Person or such Affiliate or agent by reason of any act or
omission by it that is within the scope of its authority hereunder and that is
performed or omitted in good faith and without gross negligence or willful
misconduct on its part. The indemnification provided under this Section 4.3
shall be in addition to, and shall not limit or diminish, the coverage of any
such Person or Affiliate or agent under any insurance covering the Company. The
provisions of this Section 4.3 shall survive any termination of the Company or
this Agreement.
SECTION 4.4 LIMITATIONS ON SALE OF ASSETS; INDEMNIFICATION.
4.4.1 The Members acknowledge that if any or all of the Existing
Contracts or other assets of the Company were sold or
otherwise transferred or disposed of by the Company, or if the
Company were merged with or acquired by another entity or
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otherwise engaged in a corporate transaction in which taxable
gain could be recognized in whole or in part, PAH would suffer
significant adverse tax consequences. The Members also
acknowledge that the stock of PAH is held by an entity that is
a "real estate investment trust" for Federal income tax
purposes (a "REIT") that must comply with certain requirements
to continue to qualify as a REIT, including legislation
adopted in 1998 affecting the operations and activities of
"stapled" REITs entitled to grandfathering relief under
Section 269B of the Code. Accordingly, without the prior
written consent of PAH, the Company shall not, and the
Managing Member shall cause the Company not to, (i) sell or
otherwise dispose of any of the Existing Contracts or other
assets of the Company or the Existing Subsidiaries (except for
sale or disposals of the Existing Contracts or other assets
pursuant to the performance of obligations of the Company that
are required (as distinguished from permitted) under the
Existing Contracts), (ii) merge with, be acquired by or enter
into a corporate acquisition or reorganization transaction
with any other person or entity, or to allow any of the
Existing Subsidiaries to merge with, be acquired by or enter
into a corporate acquisition or reorganization transaction
with any other person or entity, (iii) knowingly cause PAH to
recognize any of the "built-in gain" with respect to its
interest in the Company or the Company's assets, (iv) acquire
any real property or other interests in real estate (including
leasehold interests), or acquire interests in, or
substantially all of the assets of, any other person or entity
(other than the Existing Subsidiaries), or to allow any of the
Existing Subsidiaries to acquire any real property or other
interests in real estate, or acquire interests in, or
substantially all of the assets of, any other person or entity
(including leasehold interests), or (v) change the nature of
the Company's business, or allow any of the Existing
Subsidiaries to change the nature of any of the Existing
Subsidiaries' business, in a manner not contemplated by this
Agreement; provided, however, that (a) nothing in this Section
4.4.1 or elsewhere in this Agreement shall prohibit the
Company from selling its interests in The Charles Hotel
Complex in Cambridge, Massachusetts pursuant to an Asset
Purchase Agreement, dated as of May 7, 1999, by and among
IHC/Chaz Corporation, PAH-Management Corporation and F&H
Realty LLC (the "ASSET PURCHASE AGREEMENT") and (b) the
indemnification obligations under Section 4.4.2 below shall
not apply in connection with any such sale of interests in The
Charles Hotel Complex.
4.4.2 The Company and the Managing Member, jointly and severally,
hereby indemnify and hold harmless PAH, its shareholders,
officers, directors, agents and other indirect owners, and
their successors in interest, from and against any personal
liability, claim, loss, damage, cost or expenses, including
attorneys' fees and expenses, incurred or sustained by any
breach of the obligations set forth in subsections 4.4.1(i)
through 4.4.1(iii), including the amount of any such adverse
tax consequences.
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SECTION 4.5 ALLOCATION OF COSTS AND EXPENSES. The Company and
Northridge Holdings acknowledge that certain employees, equipment and services
may be provided by the Company for the benefit of Northridge Holdings (including
any subsidiary of Northridge Holdings, other than the Company), or vice versa.
All costs and expenses relating to services provided by one party for, in whole
or in part, the benefit of the other (the "SHARED EXPENSES") shall be allocated
between the Company and Northridge Holdings, based on generally accepted
accounting principles consistently applied, on the basis of which party
benefited from the expenditure of such Shared Expenses. To the extent the
allocation of any Shared Expenses cannot be fairly or equitably apportioned
(including general and administrative expenses), the Company and Northridge
Holdings shall allocate Shared Expenses based on respective gross revenues so
that each party's profit margins are substantially the same for similar
services. The Managing Member and the Non-Managing Member may mutually agree in
writing to apportion Shared Expenses between the Company and Northridge Holdings
other than as set forth above. The Managing Member shall regularly (not less
frequently than quarterly) provide all Members with a breakdown of such
allocation of Shared Expenses, which breakdown shall be reviewed by the Company
Accountant. The Chief Financial Officer of Northridge Holdings (and IHC, if IHC
has a Chief Financial Officer different than that of Northridge Holdings) shall
certify quarterly to the Non-Managing Member that the allocation of Shared
Expenses for the immediately preceding quarter complies with the allocation
methodology set forth in this Section 4.5.
SECTION 4.6 RESOLUTION OF DISPUTES REGARDING SHARED EXPENSES.
4.6.1 All disputes, claims, or controversies relating to the
allocation of Shared Expenses pursuant to Section 4.5 shall be
resolved solely and exclusively by binding arbitration to be
conducted before the American Arbitration Association ("AAA")
or its successor. The arbitration shall be held in New York,
New York before a single arbitrator to be selected by the
Members or, if the Members are unable to agree on a single
arbitrator, before a panel of three arbitrators appointed by
AAA, and the arbitration shall be conducted in accordance with
the rules and regulations promulgated by AAA, unless
specifically modified herein. The parties covenant and agree
that the arbitration shall commence within sixty (60) days of
the date on which a written demand for arbitration is filed by
any Member with AAA. In connection with the arbitration
proceeding, the arbitrator shall have the power to order the
production of documents by each party and any third-party
witnesses; however, the arbitrator shall not have the power to
order the taking of depositions, the answering of
interrogatories or the response to requests for admission. In
connection with any arbitration, each party shall provide to
the other, no later than seven business days before the date
of the arbitration, the identity of all persons that may
testify at the arbitration and a copy of all documents that
may be introduced at the arbitration or considered or used by
a party's witness or expert. The arbitrator's decision and
award shall be made and delivered within six (6) months of the
selection of the arbitrator and judgment on the award may
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<PAGE> 20
be entered by any court having competent jurisdiction. The
arbitrator's decision shall set forth a reasoned basis for its
findings. The Members covenant and agree that they will
participate in the arbitration in good faith and that they
will share equally its costs except as otherwise provided
herein. This clause applies equally to requests for temporary,
preliminary or permanent injunctive relief, except that in the
case of temporary or preliminary injunctive relief any Member
may proceed in court without prior arbitration for the limited
purpose of avoiding immediate and irreparable harm. The
provisions of this Section 4.6 shall be enforceable in any
court of competent jurisdiction, and the parties shall bear
their own costs in the event of any proceeding to enforce this
Agreement except as otherwise provided herein. The arbitrator
may in his or her discretion assess costs and expenses
(including the reasonable legal fees and expenses of the
prevailing party) against any party to a proceeding. Any party
unsuccessfully refusing to comply with an order of the
arbitrators shall be liable for costs and expenses, including
attorneys' fees, incurred by the other party in enforcing the
award.
4.6.2 The Members agree not to institute, join in, or cooperate in
any litigation, lawsuit, claim or action against the Company
or any Member regarding the allocation of Shared Expenses,
other than by the means provided for in Section 4.6.1 of this
Agreement.
4.6.3 Each of the Members irrevocably and unconditionally consents
to the exclusive jurisdiction of AAA to resolve all disputes,
claims or controversies arising out of or relating to the
allocation of Shared Expenses, and further consents to the
jurisdiction of the courts of the State of New York for the
purposes of enforcing the arbitration provisions of Section
4.6.1 of this Agreement. Each Member further irrevocably
waives any objection to proceeding before AAA based upon lack
of personal jurisdiction or to the laying of venue and further
irrevocably and unconditionally waives and agrees not to make
a claim in any court that arbitration before AAA has been
brought in an inconvenient forum.
ARTICLE 5
BOOKS AND RECORDS
-----------------
SECTION 5.1 BOOKS AND RECORDS. The Managing Member shall maintain or
cause to be maintained, at the expense of the Company, in a manner customary and
consistent with good accounting principles, practices and procedures, a
comprehensive system of office records, books and accounts (which records, books
and accounts shall be and remain the property of the Company) in which shall be
entered fully and accurately each and every financial transaction with respect
to the operations of the Company. Bills, receipts and vouchers shall be
maintained on file by the Company. The Managing Member shall maintain or cause
to be maintained said books and accounts in a safe manner and separate from any
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records not having to do directly with the Company. The Managing Member shall
cause audits to be performed and audited financial statements and income tax
returns to be prepared as it deems necessary. Such books and records of account
shall be prepared and maintained by the Managing Member at a location or
locations designated by the Managing Member. Each Member or its duly authorized
representative shall have the right to inspect, examine and copy such books and
records of account at the Company's office during reasonable business hours.
SECTION 5.2 ACCOUNTING AND FISCAL YEAR. The books of the Company shall
be kept on the accrual basis and the Company shall report its operations for tax
purposes on the accrual method. The taxable year of the Company shall end on
December 31 of each year, unless a different taxable year shall be required by
the Code.
SECTION 5.3 REPORTS.
5.3.1 The Managing Member shall prepare, or cause to be
prepared, at Company expense, the financial reports and other
information, including, without limitation, audited financial
statements, that the Managing Member may determine are appropriate. The
Managing Member shall prepare or cause to be prepared at the expense of
the Company and shall furnish to each of the Members the following:
5.3.1.1 Within sixty (60) calendar days after the
close of each calendar year of the Company, audited financial
statements, including, without limitation, related notes to financial
statements, a balance sheet of the Company dated as of the end of the
calendar year, a related statement of income and expense, a statement
of cash flow and a statement of changes in Members' capital for the
Company for the calendar year, information for the calendar year as to
the balance in each Member's Capital Account, and all other information
deemed reasonably necessary by the Managing Member, or as reasonably
requested by the Non-Managing Member, certified by an independent
accounting firm as being, to the best of its knowledge, true and
correct and prepared in accordance with generally accepted accounting
principles applied on a consistent basis, and all of which shall
otherwise be certified in such manner as is customary;
5.3.1.2 Within twenty (20) calendar days after the
close of each calendar quarter of the Company (other than the last
calendar quarter in any calendar year), a balance sheet of the Company
dated as of the end of the calendar quarter, a related statement of
income and expense, a statement of cash flow and a statement of changes
in Members' capital for the calendar quarter, and information for the
calendar quarter as to the balance in each Member's Capital Account,
and all other information, including a market update, as is deemed
reasonable by the Managing Member, or as reasonably requested by the
Non-Managing Member, all of which shall be certified by the Person
preparing or responsible for preparing such statements as being, to the
best of its knowledge, true and correct;
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5.3.1.3 Within twenty (20) calendar days after the
end of each calendar month, an income statement (with budget variance
explanations) and statement of cash flow; and
5.3.1.4 Promptly after the end of each calendar
year and after the end of each calendar quarter, the Managing Member
will use its best efforts to have the Company Accountant prepare and
deliver to each Member a report setting forth in sufficient detail all
such information and data with respect to business transactions
effected by or involving the Company during the calendar year as will
enable the Company and each Member to timely prepare its federal, state
and local income tax returns (including with respect to quarterly
estimated tax payments) in accordance with the laws, rules and
regulations then prevailing. The Managing Member will use its
reasonable efforts to have the Company Accountant also prepare federal,
state and local tax returns required of the Company and to submit those
returns to the Company for its approval no later than 30 calendar days
prior to the date required for the filing thereof (including any
extensions granted) and will file the tax returns after they have been
made available to the Members for review and approved by the Managing
Member. In the event the Managing Member shall not desire or be able to
approve any such tax return prior to the date required for the filing
thereof (including any extensions granted), the Company will timely
obtain an extension of such date if such extension is available under
applicable law. In all cases, tax returns shall be prepared and filed
in accordance with applicable law and with the provisions of this
Agreement.
5.3.2 All decisions as to accounting principles shall be made
by the Managing Member subject to the provisions of this Agreement.
SECTION 5.4 THE COMPANY ACCOUNTANT. The Company shall retain as the
regular accountant and auditor for the Company (the "COMPANY ACCOUNTANT") a
nationally-recognized accounting firm or any other accounting firm acceptable to
the Managing Member in its sole discretion. The fees and expenses of the Company
Accountant shall be a Company expense.
ARTICLE 6
CONTRIBUTIONS
-------------
SECTION 6.1 INITIAL CAPITAL CONTRIBUTIONS. The "INITIAL CAPITAL
CONTRIBUTIONS" of the Members and initial Capital Account balances shall be as
described on Schedule 1.1 attached hereto.
SECTION 6.2 ADDITIONAL CAPITAL CONTRIBUTIONS.
6.2.1 Except as otherwise provided herein, no Member shall be
obligated to make any additional contributions of capital (all
contributions of capital to the
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Company, including the Initial Capital Contributions, "CAPITAL
CONTRIBUTIONS") to the Company (including upon dissolution and
liquidation of the Company). Upon the making of any additional Capital
Contributions, each Member's Percentage Interest shall thereafter be
equal to the ratio, expressed as a percentage, equal to the aggregate
Capital Contributions made by such Member divided by the aggregate
Capital Contributions made by all Members to the Company.
6.2.2 The Managing Member shall monitor the finances of the
Company in an attempt to determine whether or not, and when, the cash
receipts of the Company are insufficient to pay all costs and expenses
of the Company (such costs and expenses, the "NECESSARY COSTS"). Prior
to the Managing Member contributing any capital to the Company (other
than the Managing Member's Initial Capital Contribution), the Managing
Member shall issue capital calls to the Members to fund shortfalls
related to the Company (the "CAPITAL CALL NOTICE"). Such Capital Call
Notice shall set forth the amount of the required funds (the "REQUIRED
FUNDS") and a list of Necessary Costs, and shall specify a date (the
"CAPITAL CALL DUE DATE") for contribution of such funds. Upon receipt
of the Capital Call Notice, the Non-Managing Member shall have the
right, but not the obligation, to fund its proportionate share (based
on its respective Percentage Interest) of the total funds specified in
the Capital Call Notice. The Capital Call Due Date shall be at least
thirty (30) days after receipt of the Capital Call Notice unless a
shorter time is agreed to by the Non-Managing Member. All additional
Capital Contributions shall be made by wire transfer of immediately
available funds to an account of the Company.
6.2.3 To the extent the Non-Managing Member elects not to fund
its proportional share of the Required Funds, the Managing Member shall
have the right, but not the obligation, to contribute the unfunded
amount to the Company. Should the Managing Member elect to fund such
amount, then the Members' Percentage Interests will be adjusted as
described in subsection 6.2.1.
SECTION 6.3 NO THIRD PARTY BENEFICIARY. The provisions hereof are
intended for the benefit of the Members and the Company only and shall not
confer any right or claim upon, or otherwise inure to the benefit of, any
officer or creditor of, or other third party having dealings with, the Company.
SECTION 6.4 CAPITAL ACCOUNTS. A Capital Account shall be maintained for
each Member. Initially, the Capital Account of each Member shall be credited
with the amounts referred to in Schedule 1.1. Thereafter, each Member's Capital
Account shall be credited with such Member's share of Profits, any individual
items of income and gain allocated to such Member pursuant to the provisions of
Article 7, the amount of additional cash, and the Book Value of any asset (net
of any liabilities assumed by the Company and liabilities to which the asset is
subject), contributed to the Company by such Member (an "ADDITIONAL CAPITAL
CONTRIBUTION"), and shall be debited with the Member's share of Losses, any
individual items of deduction and loss allocated to such Member pursuant to the
provisions of Article 7, the
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<PAGE> 24
amount of any cash distributed to such Member and the Book Value of any asset
distributed to such Member (net of any liabilities assumed by the Member and
liabilities to which the asset is subject). Each Member's Capital Account shall
also be credited with the amount of Company liabilities assumed by such Member
or that are secured by any property distributed to such Member, and each
Member's Capital Account shall be debited with the amount of any liabilities of
such Member assumed by the Company or that are secured by any property
contributed by such Member to the Company. In the event that all or a portion of
an interest in the Company is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent it related to the transferred interest.
The provisions of this Section 6.4 and the other provisions in this
Agreement relating to maintenance of Capital Accounts are intended to comply
with Treasury Regulations Section 1.704-1(b) and shall be interpreted in a
manner consistent therewith.
SECTION 6.5 WITHDRAWAL OF CAPITAL. Except as provided herein, (i) no
Member shall be entitled to withdraw any part of its Capital Account, (ii) no
Member shall be entitled to receive any interest on its Capital Account or
distributions from the Company, and (iii) no Member shall be entitled to demand
or receive any property from the Company other than cash.
SECTION 6.6 NEGATIVE CAPITAL ACCOUNTS. In no event shall any Member be
obligated to make any capital contribution to the Company solely as a result of
the existence at any time of a negative Capital Account balance for such Member.
SECTION 6.7 SATISFACTION OF INDEMNITY OBLIGATIONS UNDER DISTRIBUTION
AGREEMENT. Payments made to the Company by PAH or its affiliates, or by the
Company to PAH or its affiliates, in satisfaction of indemnity or "true-up"
obligations under the Distribution Agreement or the Settlement Agreement shall,
except as specifically set forth in this Agreement, be treated as made by the
Member that contributed the asset related to the indemnity claim or true-up
obligation on a pro rata basis in proportion to the Member's initial Percentage
Interests. The Members shall cooperate to execute any documents reasonably
requested by PAH in furtherance of the foregoing. Any such payments made
pursuant to the Distribution Agreement or Settlement Agreement shall be neither
credited nor charged to the Capital Accounts of any of the Members.
ARTICLE 7
ALLOCATION OF PROFITS AND LOSSES; TAX MATTERS
---------------------------------------------
SECTION 7.1 PROFITS AND LOSSES. Profits and Losses for each fiscal year
of the Company shall be allocated to the Members in accordance with their
respective Percentage Interests as determined from time to time. The Percentage
Interests of the Members shall be
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appropriately adjusted to reflect any disproportionate contribution made by one
or more of the Members.
SECTION 7.2 REGULATORY ALLOCATIONS.
7.2.1 Notwithstanding subsection 7.1, the following special
allocations shall be made each taxable year, to the extent required, in the
following order:
(i) Minimum Gain Chargebacks and Qualified Income Offset.
Items of Company income and gain shall be allocated
to the extent of, and in an amount sufficient to
satisfy, the "minimum gain chargeback" requirements
of Treasury Regulations Section 1.704-2(f) and (i)(4)
and the "qualified income offset" requirement of
Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(3).
(ii) Nonrecourse and Partner Nonrecourse Deductions.
"Nonrecourse deductions" of the Company (within the
meaning of Treasury Regulations Section
1.704-2(b)(1)) shall be allocated among the Members
in proportion to their respective Percentage
Interests. "Partner nonrecourse deductions" (within
the meaning of Treasury Regulations Section
1.704-2(i)) shall be allocated to the Member who
bears the economic risk of loss associated with such
deductions, in accordance with Treasury Regulations
Section 1.704-2(i).
(iii) Any Other Allocations of Items That Cannot Have
Economic Effect. Unless otherwise required by Code
Section 704(b) or the Treasury Regulations
promulgated thereunder or otherwise provided in this
subsection 7.2.2, any allocations of Company items of
income, gain, loss, deduction or credit that cannot
have "economic effect" (within the meaning of
Treasury Regulations Section 1.704-1 and 1.704-2)
shall be allocated among the Members in proportion to
their respective Percentage Interests.
(iv) Curative Allocations. The allocations set forth in
this Section 7.2.1 (the "Regulatory Allocations") are
intended to comply with certain requirements of the
Treasury Regulations. It is the intention of the
Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other
Regulatory Allocations or with special allocations
pursuant to this Section 7.2. Therefore,
notwithstanding, any other provision of this
Agreement (other than the Regulatory Allocations),
offsetting special allocations of Company income,
gain, loss or deduction shall be made as appropriate
so that, taking into account such special
allocations, each Member's Capital Account balance
is, to the extent possible, equal to the Capital
Account balance
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such Member would have had if the Regulatory
Allocations were not part of this Agreement; provided
that such offsetting special allocations shall take
into account future Regulatory Allocations that are
likely to offset other Regulatory Allocations
previously made.
7.2.2 Maintenance of Percentage Interests. It is the intention
of the parties that the Capital Account balances of the Members reflect their
respective Percentage Interests. In furtherance of the foregoing, from time to
time and to the extent necessary, items of Company income, gain, loss or
deduction shall be allocated to the Members to the extent possible to ensure
that each Member's Capital Account balance properly reflects its Percentage
Interest relative to the Capital Account balances of the other Member(s).
SECTION 7.3 TAX ALLOCATIONS. The Company's ordinary income and losses
and capital gain as determined for tax purposes (and each item of income, gain,
loss or deduction entering into the computation thereof) shall be allocated to
the Members in the same proportions as the corresponding "book" items are
allocated pursuant to Sections 7.1 and 7.2 of this Agreement. Notwithstanding
the foregoing, tax items relating to property with an adjusted tax basis that is
different from its Book Value shall be allocated among the Members in accordance
with Section 704(c) of the Code and the Treasury Regulations issued thereunder.
Items described in this Section 7.3 shall neither be credited nor charged to the
Member's Capital Accounts.
SECTION 7.4 TAX MATTERS MEMBER. The Managing Member is hereby
designated as the "TAX MATTERS MEMBER" for the Company (as such term is defined
in Section 6231(a)(7) of the Code), and all federal, state and local tax audits
and litigation shall be conducted under the direction of the Tax Matters Member.
Any action taken by the Tax Matters Member shall be made as a fiduciary with
respect to the interests of all Members notwithstanding any other provision
contained herein.
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SECTION 7.5 TAX ELECTIONS. All elections required or permitted to be
made by the Code or other applicable tax laws, and all material decisions with
respect to the calculation of taxable income or tax loss under the Code or any
other applicable tax laws, shall be made by the Tax Matters Member; provided
that the Tax Matters Member shall consult with and obtain the consent of the
other Member(s) (such consent not to be unreasonably withheld) to the extent
that any such election or decision could adversely impact the other Member(s).
Notwithstanding the foregoing, the Non-Managing Member shall be entitled to
determine whether the Company will elect installment sale treatment under
Section 453 of the Code with respect to property contributed to the Company by
the Non-Managing Member. In addition, the Members agree that the Company will
use the "traditional method" of allocations under Section 704(c) of the Code and
the Treasury Regulations issued thereunder with respect to all assets held or to
be held by the Company as of the date of this Agreement. In the event that one
or more of the Members desires to make additional contributions to the Company
of assets that would be subject to Section 704(c) of the Code, the Members shall
agree on a Section 704(c) methodology that will apply to such assets.
ARTICLE 8
DISTRIBUTIONS
-------------
SECTION 8.1 CASH AVAILABLE FOR DISTRIBUTIONS.
8.1.1 At such times as are determined by the Managing Member
(but no less frequently than quarterly), the Company shall make a
distribution of Net Operating Cash Flow of the Company (to the extent
positive). Net Operating Cash Flow distributions shall be made pro rata
to the Members, in accordance with their Percentage Interests.
8.1.2 Except upon the liquidation of the Company (in which
event Net Capital Proceeds shall be distributed pursuant to Section
10.2) and as provided in Article 8A, any Net Capital Proceeds shall be
distributed by the Company to the Members pro rata in accordance with
their Percentage Interests, within thirty (30) days following receipt.
8.1.3 Except as provided in subsection 8.1.1 and subsection
8.1.2 above, no portion of any capital contribution made by any Member
to the Company may be withdrawn or distributed at any time.
8.1.4 If the Percentage Interests of the Members are adjusted
effective at any time or times during any fiscal year of the Company,
all distributions of cash made to the Members during such fiscal year
(without regard to the actual timing of such distributions) shall be
allocated to each portion of such fiscal year during which different
Percentage Interests are in effect in the proportion that the number of
days in such portion bears to the total number of days in such fiscal
year except with respect to
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Net Capital Proceeds, in which case such proceeds shall be distributed
in accordance with the Percentage Interests on the date of the
applicable transaction. The amounts so allocated to each such portion
of said fiscal year shall be divided among the Members in proportion to
their respective Percentage Interests in effect during each such
portion of the fiscal year in question. Such allocations to such
portions of a fiscal year, and the adjustments, if any, of such cash
distributions made during such year, shall be determined with
reasonable promptness after the close of each such fiscal year by the
Company Accountant. The Members will promptly make any adjusting
payments between them as may be required in order to effect any
adjustments of such cash distributions as determined by the Company
Accountant.
8.1.5 Pursuant to and to the extent required by the Settlement
Agreement, the Company shall make a special distribution of cash or
cash equivalent to the Managing Member in the amount of the Adjusted
Positive Net Working Capital (as defined in the Settlement Agreement),
which distribution shall cause an adjustment to the Managing Member's
Capital Account as required by Section 6.4 but which shall not affect
the Managing Member's Percentage Interest. Notwithstanding anything to
the contrary, immediately prior to the distribution of the Company's
assets upon the liquidation or termination of the Company pursuant to
Section 10.4 of this Agreement, the Managing Member shall be specially
allocated an amount of gross income or gain, or the Non-Managing Member
shall be specially allocated an amount of loss or deduction, such that
the relative Capital Account balances of the Members will be in
proportion upon liquidation to their respective Percentage Interests.
ARTICLE 8A
COMPANY'S INTEREST IN INTERCARP
-------------------------------
The Members acknowledge that the Company holds certain interests in
Intercarp Limited Partnership (the "INTERCARP INTERESTS") which are subject to
the Asset Purchase Agreement, pursuant to which such interests are expected to
be sold to F&H Realty LLC. If the Intercarp Interests are sold pursuant to the
Asset Purchase Agreement, as such Asset Purchase Agreement may be amended from
time to time, (i) any cash received at the closing of the transaction shall not
be distributed to the Members pursuant to this Agreement, notwithstanding
Section 8.1.2, and shall instead be used by the Company to pay current
liabilities, and (ii) with respect to any note in an amount not to exceed $5.75
million received at the closing of the transaction, all interest income and
principal payments with respect to such note shall be distributed to the
Managing Member; provided that this clause (ii) shall not apply if Northridge
Holdings, IHC, or any of their affiliates (other than the Company or any
subsidiary of the Company) fails to make a loan to F&H Realty LLC with a
principal amount of at least $2.5 million as required pursuant to the Asset
Purchase Agreement.
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ARTICLE 9
TRANSFER
--------
SECTION 9.1 NO TRANSFER OF INTERESTS.
9.1.1 Except as expressly permitted or contemplated by this
Agreement, no Member may sell, assign, give, hypothecate, pledge,
encumber or otherwise transfer ("TRANSFER") all or any portion of its
Interest, whether directly or indirectly (including the transfer of
interests in the Managing Member), without the written consent of the
other Members.
9.1.2 Any Transfer by a Member of its Interest in
contravention of this Article 9 shall be null and void. No Member shall
withdraw from the Company except in connection with a Permitted
Transfer or in accordance with Section 3.4.
SECTION 9.2 PERMITTED TRANSFERS OF INTERESTS; RIGHT OF FIRST OFFER.
9.2.1 The Non-Managing Member, from time to time and in its
sole discretion, without the consent of the Managing Member, may
Transfer its Interest in whole, or in part, to any party, provided such
transferee agrees to be bound by all the terms, conditions and
provisions of this Agreement (including the provisions of this Article
9). Any Transfer of the Non-Managing Member's Interest to a third party
shall be deemed a Permitted Transfer, and if such transferee acquires
all of the Non-Managing Member's Interest, such transferee shall be
admitted as a Substitute Member pursuant to Section 9.3.
9.2.2 Notwithstanding the foregoing, in the event of a
proposed transfer of all or part of the Non-Managing Member's Interest
to a third-party that is not an affiliate of PAH in a transaction that
would cause PAH to recognize any of the "built-in gain" with respect to
its interest in the Company or the assets of the Company (a "SPECIAL
TRANSFER EVENT"), the following procedures shall apply:
9.2.2.1 The Non-Managing Member shall, prior to any
transfer permitted under subsection 9.2.1, offer in writing
(the "FIRST OFFER NOTICE") to sell to the Managing Member all
or any part of its Percentage Interest (the "OFFERED
PERCENTAGE INTEREST"). The Managing Member shall notify the
Non-Managing Member within fifteen (15) Business Days of
receipt of the First Offer Notice that the Managing Member
either: a) is willing to purchase the Offered Percentage
Interest at a given price (the "FIRST OFFER PRICE"), or b) is
unwilling to purchase the Offered Percentage Interest. A
failure to respond to a First Offer Notice within such fifteen
(15) Business-Day period shall be deemed to be an election not
to purchase the Percentage Interest.
9.2.2.2 If the Managing Member has timely offered
elected to
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purchase the Percentage Interest specified in the First Offer
Notice, then the Non-Managing Member may: a) sell the Offered
Percentage Interest to the Managing Member at the First Offer
Price (which, the sale shall be without recourse,
representation or warranty, except that the Non-Managing
Member shall represent and warrant that it has authority to
sell, and owns the Interest free and clear of liens or claims
of third parties) or b) elect to market and sell the Offered
Percentage Interest to third parties within 180 days of
receiving the First Offer Price at a price not less than
ninety-eight percent (98%) of the First Offer Price. If the
Non-Managing Member does not transfer its interest within such
180 day period, then prior to any transfer which would result
in a Special Transfer Event, the Non-Managing Member shall
again comply with the terms of this subsection 9.2.2.
9.2.3 Any Permitted Transfer shall not relieve the transferor
of any of its obligations prior to such Transfer. Nothing contained in
this Article 9 shall prohibit a Transfer indirectly of a Member's
Interest in the Company if a direct Transfer would otherwise be
permitted under this Section 9.2. Subject to Section 9.3, any
transferee of a direct Interest pursuant to this Section 9.2 shall
become a Substitute Member of the Company. Each Member and its
permitted transferees shall be treated as one Member for all purposes
of this Agreement. The provisions of this Section 9.2 will not apply to
or be deemed to authorize or permit any collateral transfer of, or
grant of a security interest in, a Member's interest in the Company or
in any asset of the Company (which transfer or grant shall be subject
to the other provisions of this Agreement).
SECTION 9.3 TRANSFEREES. Notwithstanding anything to the contrary
contained in this Agreement, no transfer of all or any part of any Interest
shall be made if, as a result thereof, any income of the Company will be subject
to corporate federal income tax. No transferee of all or any portion of any
Interest shall be admitted as a Member unless such Interest is transferred in
compliance with the applicable provisions of this Agreement, such transferee
shall have furnished evidence of satisfaction of the requirements of Section 9.2
reasonably satisfactory to the remaining Members, and such transferee shall have
executed and delivered to the Company such instruments necessary to effectuate
the admission of such transferee as a Member and to confirm the agreement of
such transferee to be bound by all of the terms and provisions of this Agreement
with respect to such Interest. At the request of the remaining Members prior to
such transfer, each such transferee shall also cause to be delivered to the
Company, at the transferee's sole cost and expense, a favorable opinion of legal
counsel reasonably acceptable to the Company, to the effect that such transferee
has the legal right, power and capacity to own the Interest proposed to be
transferred. As promptly as practicable after the admission of any Person as a
Member, the books and records of the Company shall be changed to reflect such
admission. Upon satisfaction of the requirements of this Section 9.3 and any
other applicable provisions of this Agreement), such transferee shall be a
substitute Member (a "SUBSTITUTE MEMBER") of the Company. All reasonable costs
and expenses
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incurred by the Company in connection with any Transfer of any Interest and, if
applicable, the admission of any transferee as a Member shall be paid by such
transferee.
SECTION 9.4 ADMISSION OF ADDITIONAL MEMBERS.
9.4.1 No person may be admitted as an additional Member of the
Company (in contrast with admission as a Substitute Member in
connection with a Permitted Transfer) without the prior written consent
of the Members.
9.4.2 Any additional Member admitted to the Company shall
execute and deliver documentation in form satisfactory to the Managing
Member or the Members, as the case may be, accepting and agreeing to be
bound by this Agreement, and such other documentation as the Managing
Member or the Members, as the case may be, shall require in order to
effect such person's admission as an additional Member. The admission
of any person as an additional Member (an "ADDITIONAL MEMBER") shall
become effective as of the date upon which the name of such person is
recorded on the books and records of the Company following the consent
of the Managing Member or the Members, as the case may be, to such
admission.
ARTICLE 10
TERMINATION
-----------
SECTION 10.1 DISSOLUTION. The Company shall be dissolved and its
business wound up upon the happening of any of the following events, whichever
shall first occur:
10.1.1 the Bankruptcy of any Member, if within ninety (90)
days thereafter a majority in interest of the remaining Members (the
"REMAINING MEMBERS") shall not have elected to continue the Company,
which right of election is hereby granted to them;
10.1.2 entry of a decree of judicial dissolution of the
Company; or
10.1.3 the termination of all of the Existing Contracts and
any renewals or replacements thereof entered into in accordance with
subsection 2.4.1.
In no event shall the Company dissolve prior to the occurrence of one of the
events set forth above.
SECTION 10.2 TERMINATION. In cases of dissolution of the Company, the
business of the Company shall be wound up and the Company terminated (and the
Company shall cause the Existing Subsidiaries to be wound up and the business of
the Existing Subsidiaries to be
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terminated) as promptly as practicable thereafter, and each of the following
shall be accomplished:
10.2.1 The Liquidating Member shall cause to be prepared a
statement setting forth the assets and liabilities of the Company (as
consolidated with the Existing Subsidiaries) as of the date of
dissolution, a copy of which statement shall be furnished to all of the
Members.
10.2.2 The property and assets of the Company (including those
held by the Existing Subsidiaries) shall be liquidated by the
Liquidating Member as promptly as possible, but in an orderly and
businesslike and commercially reasonable manner. The Liquidating Member
may, in the exercise of its business judgment and if commercially
reasonable, determine not to sell all or any portion of the property
and assets of the Company, in which event such property and assets
shall be distributed in kind pursuant to subsection 10.2.4 below.
10.2.3 Any income, gain, profit or loss realized by the
Company upon the sale or other disposition of its property pursuant to
subsection 10.2.2 shall be allocated to the Members as and to the
extent required by Article 7 hereof.
10.2.4 The proceeds of sale and all other assets of the
Company shall be applied and distributed as follows and in the
following order of priority:
(i) To the payment of the Company's outstanding
liabilities, which shall be set forth on a statement
as provided in subsection 10.2.1.
(ii) To the setting up of any reserves that the
Liquidating Member shall determine to be reasonably
necessary for contingent, unliquidated or unforseen
liabilities or obligations of the Company or the
Members arising out of or in connection with the
Company. Such reserves, may, in the discretion of the
Liquidating Member, be paid over to a national bank
or national title with the Company as escrowee for
the purposes of disbursing such reserves to satisfy
the liabilities and obligations described above, and
at the expiration of such period as the Liquidating
Member may reasonably deem advisable, distribute any
remaining balance in the manner set forth below.
(iii) To each Member in accordance with their respective
Capital Account balances.
No payment or distribution in any of the foregoing categories shall be
made until all payments in each prior category shall have been made in
full. If the payments due to be made in any of the foregoing categories
exceed the remaining assets available for such purpose, such payment
shall be made to the Persons entitled to receive the same pro
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rata in accordance with the respective amount due to each such Person.
Payments described in clause (ii) above may be made in cash or in
assets of the Company in kind. Any asset distributed in kind shall be
distributed pro-rata unless the Members otherwise agree in writing and
shall be valued at its fair market value and for all purposes of this
Agreement shall be treated as if such asset had been sold at such value
and the net cash proceeds therefrom distributed to the Members. Without
limiting the foregoing, with respect to any assets distributed in kind,
there shall be a calculation of the amount of income, gain, profit or
loss that would have been realized by the Company with respect to such
assets if such assets had been sold at fair market value.
SECTION 10.3 ACTS IN FURTHERANCE OF LIQUIDATION. Each Member, upon the
request of the Liquidating Member, shall promptly execute, acknowledge and
deliver all documents and other instruments as the Liquidating Member shall
reasonably request to effectuate the proper dissolution and termination of the
Company, including the winding up of the business of the Company.
ARTICLE 11
TAG-ALONG AND DRAG-ALONG RIGHTS
-------------------------------
SECTION 11.1 NOTICE OF PROPOSED TRANSACTION. If the Board of Directors
of either Managing Member or IHC votes to approve or to recommend that
stockholders of Managing Member or IHC consider and approve a transaction that,
together with any other transactions within the preceding twelve (12) months,
would result in (i) a Person and its Affiliates, or a group of Persons within
the meaning of Section 13(d)(3) of the Exchange Act, (an "ACQUIROR") acquiring
beneficial ownership of 50% or more of the outstanding common stock, par value
$.01 per share, of Managing Member or IHC (the "INTERSTATE COMMON STOCK") or
(ii) the sale, exchange or other disposition of all or substantially all of the
assets of Managing Member or IHC (in either case, a "TRANSACTION"), then
Managing Member shall give written notice of such vote (a "SALE NOTICE") to
Non-Managing Member not less than two (2) business days following the date of
such vote. The date of such Sale Notice shall not be less than ten (10) business
days prior to the closing of the Transaction to which it relates. The Sale
Notice shall set forth in reasonable detail the name of the parties to the
proposed Transaction, the terms and conditions of the Transaction (including the
purchase price and any other material economic terms) and the scheduled date of
the Transaction. In addition, Managing Member shall provide Non-Managing Member
with additional information reasonably requested by Non-Managing Member relating
to the Transaction or the Acquiror.
SECTION 11.2 TAG-ALONG AND DRAG-ALONG RIGHTS.
(a) In the event that the Board of Directors of Managing
Member or IHC votes to approve any Transaction or to recommend that the
stockholders of Managing Member or IHC consider any Transaction, Managing Member
shall, at the written election of Non-Managing Member given within five (5)
business days of the later of the date of the applicable
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Sale Notice or the date on which Non-Managing Member learns of the Transaction
(in which case Managing Member shall promptly deliver a Sale Notice to
Non-Managing Member), use its best efforts to cause the terms and conditions of
the proposed Transaction to include an offer to purchase Non-Managing Member's
Interest in accordance with the provisions set forth below. In the event that
Managing Member is unable to cause the terms and conditions of the Transaction
to include an offer to purchase Non-Managing Member's Interest in accordance
with the provisions set forth below, Managing Member shall be deemed to have
elected to purchase Non-Managing Member's Interest on the terms set forth below.
(b) In the event that Managing Member has given a Sale Notice
to Non-Managing Member, and Non-Managing Member does not elect to participate in
the Transaction within the five (5) business day period set forth above,
Managing Member may, at its option (i) proceed with the Transaction on its
original terms or (ii) by written notice to Non-Managing Member given within
five (5) business days after the five (5) business day period set forth in (a)
above, require Non-Managing Member to sell its Interest to the Acquiror or
Managing Member on the terms set forth below.
SECTION 11.3 TERMS.
(a) If, at any time on or prior to June 18, 2002, Non-Managing
Member elects to sell, or Managing Member or Acquiror (such Person, the "BUYER")
elects to buy, as the case may be, Non-Managing Member's Interest, in either
case, pursuant to Section 11.2, the purchase price for Non-Managing Member's
Interest for purposes of this Article 11 shall be calculated on the following
basis. The value of the Transaction shall be determined, with appropriate
adjustment if less than all of the Interstate Common Stock or assets of Managing
Member or IHC are being purchased in the Transaction, and taking into account
all cash and non-cash consideration (including any deferred consideration), less
out of pocket expenses paid by Managing Member in the transaction (such as
legal, financial advisory and similar fees). A multiple of Managing Member's
earnings before interest, taxes, depreciation and amortization ("EBITDA") for
the twelve full months immediately preceding the month in which the Board of
Directors of Managing Member (or IHC, as applicable) voted to approve the
Transaction or to recommend that the stockholders of Managing Member (or IHC, as
applicable) consider the Transaction shall then be calculated by dividing the
value of the Transaction by such EBITDA. A value for the Company shall then be
calculated by multiplying the Company's EBITDA for the twelve full months
immediately preceding the month in which the Board of Directors of Managing
Member (or IHC, as applicable) voted to approve the Transaction or to recommend
that the stockholders of Managing Member (or IHC, as applicable) consider the
Transaction by the multiple calculated in accordance with the preceding
sentence. The purchase price for Non-Managing Member's Interest shall be equal
to the value of the Company calculated in accordance with the preceding sentence
multiplied by Non-Managing Member's Percentage Interest. Non-Managing Member
shall be obligated to pay only expenses incurred by Non-Managing Member in the
sale, and shall not be obligated for any transfer fees or taxes, financial
advisory fees or other amounts unless contracted for by PAH or Patriot REIT.
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(b) If, at any time after June 18, 2002, Non-Managing Member
elects to sell, or a Buyer elects to buy, as the case may be, Non-Managing
Member's Interest, in either case, pursuant to Section 11.2, the purchase price
for Non-Managing Member's Interest for purposes of this Article 11 shall be
negotiated between Non-Managing Member and the Buyer within five (5) business
days. If the Buyer and Non-Managing Member are unable to reach agreement on the
purchase price within such time period, then either Managing Member or
Non-Managing Member may demand that the purchase price be determined in the
following manner. Within five (5) business days of such demand, Non-Managing
Member and Managing Member shall select a nationally-recognized investment bank
or other nationally-recognized independent appraiser; provided that such bank or
appraiser must have experience valuing hotel management companies (such bank or
appraiser, an "APPRAISER"). If Managing Member and Non-Managing Member are
unable to select an Appraiser, then, within an additional five (5) business
days, each such party shall select an Appraiser and the two (2) Appraisers so
selected shall, within an additional five (5) business days, select a third
Appraiser. Each Appraiser shall, in good faith, determine a fair market value
(the "FAIR MARKET VALUE") for Non-Managing Member's Interest taking into account
all relevant factors, utilizing methodology typically employed in valuing hotel
management companies. If one Appraiser is hired, the purchase price for
Non-Managing Member's Interest shall equal the Fair Market Value; if more than
one Appraiser is hired, then the purchase price for Non-Managing Member's
Interest shall equal the average of each such determination of Fair Market
Value. The determination of the purchase price in such manner shall be binding
upon the parties and shall not be subject to dispute or appeal. Non-Managing
Member shall be obligated to pay one-half the expenses of each Appraiser and
expenses incurred by Non-Managing Member in the sale, and shall not be obligated
for any transfer fees or taxes, financial advisory fees or other amounts unless
contracted for by PAH or Patriot REIT.
(c) If Managing Member is acquiring Non-Managing Member's
Interest, the agreement for the purchase and sale of Non-Managing Member's
Interest shall be on substantially the same terms and conditions as the
agreement relating to the acquisition of the stock or assets of Managing Member
or IHC by the Acquiror, with appropriate modifications to reflect that
Non-Managing Member is a passive investor in the Company and has no independent
knowledge of the Company's assets or business.
(d) Managing Member and Non-Managing Member agree that a
breach of any of the terms, conditions or other obligations under this Article
11 may result in irreparable harm to the non-breaching party, and shall give
rise to a right of the non-breaching party to seek enforcement of the provisions
of this Article 11 in a court of equity by a decree of specific performance.
This remedy is intended to be cumulative and in addition to any other remedy a
party may have.
SECTION 11.4 CLOSING. The closing of any purchase of Non-Managing
Member's Interest pursuant to this Article 11 shall occur simultaneously with
the closing of the Transaction which gave rise to such purchase, whether such
purchase is made by an Acquiror or by Managing Member.
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ARTICLE 12
GENERAL PROVISIONS
------------------
SECTION 12.1 COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE MEMBERS.
Each Member represents and warrants to the other Members as follows:
12.1.1 It is duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation with all
requisite power and authority to enter into this Agreement.
12.1.2 This Agreement constitutes the legal, valid and binding
obligation of the Member enforceable in accordance with its terms,
subject to the application of principles of equity and laws governing
insolvency and creditors' rights generally.
12.1.3 No consents or approvals are required from any
governmental authority or other Person for the Member to enter into
this Agreement. All limited liability company, corporate or partnership
action on the part of the Member necessary for the authorization,
execution and delivery of this Agreement, and the consummation of the
transactions contemplated under this Agreement, have been duly taken.
12.1.4 The execution and delivery of this Agreement by the
Member, and the consummation of the transactions contemplated under
this Agreement, do not conflict with or contravene the provision of the
Member's organizational documents or any agreement or instrument by
which it or its properties are bound or any law, rule, regulations,
order or decree to which it or its properties are subject.
12.1.5 No Member has retained any broker, finder or other
commission or fee agent, and no such person has acted on its behalf in
connection with the execution and delivery of this Agreement.
12.1.6 Each Member is acquiring its interest in the Company
for investment, solely for its own account, with the intention of
holding such interest for investment and not with a view to, or for
resale in connection with, any distribution or public offering or
resale of any portion of such interest within the meaning of the
Securities Act of 1933 (the "SECURITIES ACT") or any other applicable
federal or state securities law, rule or regulation ("SECURITIES
LAWS").
12.1.7 Each Member acknowledges that it is aware that its
interest in the Company has not been registered under the Securities
Act or under any other Securities Law in reliance upon exemption
contained therein. Each Member understands and acknowledges that its
representations and warranties contained herein are being relied upon
by the Company, the other Members and the constituent owners of such
other
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Members as the basis for exemption of the issuance of interest in the
Company from registration requirements of the Securities Act and other
Securities Laws. Each Member acknowledges that the Company will not and
has no obligation to register any interest in the Company under the
Securities Act or other Securities Laws.
12.1.8 Each Member acknowledges that prior to its execution of
this Agreement, it received a copy of this Agreement and that it
examined this document or caused this document to be examined by its
representative or attorney. Each Member further acknowledges that it or
its representative or attorney is familiar with this Agreement, and
with the business and affairs of the Company, and that except as
otherwise specifically provided in this Agreement, it does not desire
any further information or data relating to the Company, the Assets or
the other Members. Each Member acknowledges that it understands that
the acquisition of its interest in the Company is a speculative
investment involving a high degree of risk and represents that it has a
net worth sufficient to bear the economic risk of its investment in the
Company and to justify its investing in a highly speculative Company of
this type.
SECTION 12.2 NOTICES. All notices, demands, approvals, consents or
requests provided for or permitted to be given pursuant to this Agreement must
be in writing.
12.2.1 All notices, demands, approvals, consents and requests
to be sent to the Company pursuant to the terms hereof shall be deemed
to have been properly given or served by personal delivery or by a
nationally recognized overnight courier or by registered or certified
mail, return receipt requested, postage prepaid and addressed as
follows:
If to the Company:
c/o Interstate Hotels Corporation
680 Andersen Drive, Foster Plaza Ten
Pittsburgh, Pennsylvania 15220
Attn: Thomas F. Hewitt
With a copy to:
c/o Interstate Hotels Corporation
680 Andersen Drive, Foster Plaza Ten
Pittsburgh, Pennsylvania 15220
Attn: Timothy Q. Hudak, Esq.
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With a copy to:
c/o PAH - Interstate Holdings, Inc.
c/o Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn: General Counsel
If to Northridge Holdings:
c/o Interstate Hotels Corporation
680 Andersen Drive, Foster Plaza Ten
Pittsburgh, Pennsylvania 15220
Attn: Thomas F. Hewitt
Timothy Q. Hudak, Esq.
If to PAH:
c/o PAH - Interstate Holdings, Inc.
c/o Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Attn: General Counsel
12.2.2 All notices, demands and requests shall be effective
upon personal delivery or upon the date of receipt by the addressee as
shown on the return receipt or upon the date of acknowledgment or
confirmation of receipt with respect to delivery by or nationally
recognized overnight courier. Rejection or other refusal to accept or
the inability to deliver because of changed address of which no notice
was given shall be deemed to be receipt of the notice, demand or
request sent.
12.2.3 By giving to the other parties at least ten (10) days
prior written notice thereof, the parties hereto and their respective
successors and assigns shall have the right from time to time and at
any time during the term of this Agreement to change their respective
addresses.
SECTION 12.3 GOVERNING LAWS; JURISDICTION; VENUE.
12.3.1 GOVERNING LAWS. This Agreement and the obligations of
the Members hereunder shall be interpreted, construed and enforced in
accordance with the laws of the State of Delaware without regard to
conflicts of law principles.
12.3.2 JURISDICTION; VENUE. Each of the Members hereby
irrevocably submits to the exclusive jurisdiction of any state court
located in the City of Wilmington, Delaware and any federal court in
the State of Delaware and any other court with jurisdiction to hear
appeals from such courts for the purposes of any suit,
34
<PAGE> 39
action or other proceeding of any type whatsoever arising out of this
Agreement or the subject matter hereof, and to the extent permitted by
applicable law, hereby waives, and agrees not to assert, by way of
motion, as a defense, or otherwise, in any such suit, action or
proceeding any claim that it is not personally subject to the
jurisdiction of the above-named courts, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the
subject matter hereof may not be enforced in or by such court.
SECTION 12.4 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto relative to the formation and operation of
the Company. No variations, modifications, or changes herein or hereof shall be
binding upon any party hereto unless set forth in a document duly executed by or
on behalf of such party.
SECTION 12.5 WAIVER. No consent or waiver, express or implied, by any
Member to or of any breach or default by any other Member in the performance by
the other Member of its obligations hereunder shall be deemed or construed to be
a consent or waiver to or of any other breach or default in the performance by
such other Member of the same or any other obligations of such other Member
hereunder. Failure on the part of any Member to complain of any act or failure
to act of any of the other Members or to declare any of the other Members in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Member of its rights hereunder.
SECTION 12.6 SEVERABILITY. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be invalid or
enforceable to any extent, the remainder of this Agreement and the application
of such provisions to other Persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
SECTION 12.7 TERMINOLOGY. All personal pronouns used in this Agreement,
whether used in the masculine, feminine, or neuter gender, shall include all
other genders; the singular shall include the plural, and vice versa and shall
refer solely to the parties signatory thereto except where otherwise
specifically provided. Titles of Articles and Sections are for convenience only,
and neither limit nor amplify the provisions of the Agreement itself, and all
references herein to Articles, Sections or subdivisions thereof shall refer to
the corresponding Articles, Sections or subdivisions thereof of this Agreement
unless specific reference is made to such Articles, Sections or subdivisions of
another document or instrument. Any use of the words "INCLUDING" or "INCLUDE"
herein shall, unless the context clearly requires otherwise, be deemed to mean
"WITHOUT LIMITATION."
SECTION 12.8 ACTION BY THE MEMBERS. No approval, consent, designation
or other action by a Member shall be binding upon such Member unless the same is
in writing and executed on behalf of such Member by a duly authorized
representative of such Member.
35
<PAGE> 40
SECTION 12.9 AMENDMENTS. No change, modification or amendment of this
Agreement shall be valid or binding unless such change, modification or
amendment shall be in writing and duly executed by all of the Members.
SECTION 12.10 BINDING AGREEMENT. Subject to the restrictions on
transfers and encumbrances set forth herein, this Agreement shall inure to the
benefit of and be binding upon the undersigned Members and their respective
heirs, executors, legal representatives, successors and assigns. Whenever, in
this instrument, a reference to any party or Member is made, such reference
shall be deemed to include a reference to the heirs, executors, legal
representatives, successors and assigns of such party or Member.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
36
<PAGE> 41
SECTION 12.11 FURTHER ASSURANCES. Each of the Members shall hereafter
execute and deliver such further instruments and do such further acts and things
as may be reasonably necessary to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
IN WITNESS WHEREOF, this Agreement is executed effective as of the date
first set forth above.
NORTHRIDGE HOLDINGS, INC.
a Delaware corporation
By: /s/ TIMOTHY Q. HUDAK
--------------------------------
Name: Timothy Q. Hudak
Title: Assistant Secretary
PAH-INTERSTATE HOLDINGS, INC.
a Delaware corporation
By: /s/ WILLIAM W. EVANS, III
--------------------------------
Name: William W. Evans, III
Title: Executive Vice President
S-1
<PAGE> 42
SCHEDULE 1.1
------------
INITIAL CAPITAL ACCOUNTS
------------------------
Northridge Holdings, Inc. $60,950,094
PAH-Interstate Holdings, Inc. $74,494,560
Sch.1.1
<PAGE> 43
SCHEDULE 1.2
------------
EXISTING SUBSIDIARIES
---------------------
Cambridge Hotel Associates
CHR Consulting Company, L.L.C.
CHR Services Company, L.L.C.
Colony de Mexico, S.A. de C.V.
Colony Hotels and Resorts Company
Colony International Management Company, L.L.C.
Continental Design & Supplies Company, L.L.C.
Crossroads Future Company, L.L.C.
Crossroads Future Financing Company, L.L.C.
Crossroads Hospitality Company, L.L.C.
Crossroads Hospitality Tenant Company, L.L.C.
Crossroads/Memphis Company, L.L.C.
Crossroads/Memphis Financing Company, L.L.C.
Crossroads/Memphis Financing Company II, L.L.C.
Crossroads/Memphis Partnership, L.P.
Equity Bluefield, Inc.
Hilltop Equipment Leasing Company, L.P.
IHC International Development (U.K.) L.L.C.
IHC/Moscow Corporation
IHC Services Company, L.L.C.
Intercarp Limited Partnership
Northridge Insurance Company
Oak Hill Catering Company, Inc.
PAH-Cambridge Holdings, LLC
PAH-Hilltop GP, LLC
State College BBQ/Concord Joint Venture
Sch.1.2
<PAGE> 44
SCHEDULE 2.4.1
--------------
LIST OF EXISTING CONTRACTS
(INCLUDING EXISTING SUBSIDIARY CONTRACTS)
(See attached)
Sch. 2.4.1
<PAGE> 45
INTERSTATE HOTELS PORTFOLIO PROPOSED SPINCO
<TABLE>
<CAPTION>
================================================================================================================
HOTEL # OF ROOMS DIVISION
================================================================================================================
<S> <C> <C>
Pittsburgh Green Tree Marriott 467 IHC
- - ----------------------------------------------------------------------------------------------------------------
Charlotte Marriott Executive Park 297 IHC
- - ----------------------------------------------------------------------------------------------------------------
The Charles Hotel in Harvard Square 296 IHC
- - ----------------------------------------------------------------------------------------------------------------
(intentionally omitted)
- - ----------------------------------------------------------------------------------------------------------------
Sheraton Biscayne Bay 598 IHC
- - ----------------------------------------------------------------------------------------------------------------
Fort Lauderdale Marriott North 321 IHC
- - ----------------------------------------------------------------------------------------------------------------
Boca Raton Marriott 256 IHC
- - ----------------------------------------------------------------------------------------------------------------
Memphis Marriott 320 IHC
- - ----------------------------------------------------------------------------------------------------------------
Marriott at Sawgrass Resort 510 IHC
- - ----------------------------------------------------------------------------------------------------------------
San Francisco Marriott Fisherman's Wharf 285 IHC
- - ----------------------------------------------------------------------------------------------------------------
Orlando Airport Marriott 484 IHC
- - ----------------------------------------------------------------------------------------------------------------
Parsippany Hilton 510 IHC
- - ----------------------------------------------------------------------------------------------------------------
St. Louis Marriott West 300 IHC
- - ----------------------------------------------------------------------------------------------------------------
San Francisco Holiday Inn Golden Gateway 498 IHC
- - ----------------------------------------------------------------------------------------------------------------
Don CeSar Resort and Beach Club 345 IHC
- - ----------------------------------------------------------------------------------------------------------------
Seattle Crowne Plaza 415 IHC
- - ----------------------------------------------------------------------------------------------------------------
Lexington Hotel 180 IHC
- - ----------------------------------------------------------------------------------------------------------------
Lisle Radisson 242 IHC
- - ----------------------------------------------------------------------------------------------------------------
Toronto Colony Hotel 717 IHC
- - ----------------------------------------------------------------------------------------------------------------
Warner Center Marriott 463 IHC
- - ----------------------------------------------------------------------------------------------------------------
Lawai Beach Resort 171 IHC
- - ----------------------------------------------------------------------------------------------------------------
Golden Eagle Resort 89 CHC
- - ----------------------------------------------------------------------------------------------------------------
Stratton Village Lodge 91 CHC
- - ----------------------------------------------------------------------------------------------------------------
Stratton Mountain Inn 118 CHC
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Sch. 2.4.1
<PAGE> 46
INTERSTATE HOTELS PORTFOLIO PROPOSED SPINCO
<TABLE>
<CAPTION>
================================================================================================================
HOTEL # OF ROOMS DIVISION
================================================================================================================
<S> <C> <C>
Brookstown Inn 71 CHC
- - ----------------------------------------------------------------------------------------------------------------
Kelley House 53 IHC
- - ----------------------------------------------------------------------------------------------------------------
Harbor View Hotel 124 IHC
- - ----------------------------------------------------------------------------------------------------------------
(intentionally omitted)
- - ----------------------------------------------------------------------------------------------------------------
Marriott's Laguna Cliffs Resort 346 IHC
- - ----------------------------------------------------------------------------------------------------------------
Virginia Beach Days Inn Airport 148 CHC
- - ----------------------------------------------------------------------------------------------------------------
Waterford Marriott 197 IHC
- - ----------------------------------------------------------------------------------------------------------------
Denver Hilton South 305 IHC
- - ----------------------------------------------------------------------------------------------------------------
Flagstaff Super 8 Motel 86 CHC
- - ----------------------------------------------------------------------------------------------------------------
Canton Best Western University Inn 102 CHC
- - ----------------------------------------------------------------------------------------------------------------
Vicksburg Fairfield Inn by Marriott 81 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hotel Tverskaya 122 IHC
- - ----------------------------------------------------------------------------------------------------------------
Point Pleasant 110 CHC
- - ----------------------------------------------------------------------------------------------------------------
Comfort Inn Murray Hill 128 CHC
- - ----------------------------------------------------------------------------------------------------------------
Westin Bonaventure 1,354 IHC
- - ----------------------------------------------------------------------------------------------------------------
San Jose Radisson Airport Plaza Hotel 185 IHC
- - ----------------------------------------------------------------------------------------------------------------
Schaumburg Embassy Suites 209 IHC
- - ----------------------------------------------------------------------------------------------------------------
Courtyard by Marriott Albany 78 CHC
- - ----------------------------------------------------------------------------------------------------------------
Toronto Delta Meadowvale 374 IHC
- - ----------------------------------------------------------------------------------------------------------------
The Inn at Great Neck 85 IHC
- - ----------------------------------------------------------------------------------------------------------------
Pittsburgh Marriott City Center 401 IHC
- - ----------------------------------------------------------------------------------------------------------------
Chambersburg Fairfield Inn by Marriott 74 CHC
- - ----------------------------------------------------------------------------------------------------------------
Embassy Suites Phoenix North 314 IHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Omaha 80 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Madison 80 CHC
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Sch. 2.4.1
<PAGE> 47
INTERSTATE HOTELS PORTFOLIO PROPOSED SPINCO
<TABLE>
<CAPTION>
================================================================================================================
HOTEL # OF ROOMS DIVISION
================================================================================================================
<S> <C> <C>
Residence Inn by Marriott Tinton Falls 96 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Burlington 96 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Sarasota 97 CHC
- - ----------------------------------------------------------------------------------------------------------------
The Inn at Wilksboro 101 CHC
- - ----------------------------------------------------------------------------------------------------------------
Comfort Inn Trolley Square 104 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Beckley 106 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Morgantown 106 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Gastonia 109 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Glen Burnie 115 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Knoxville Airport 118 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Columbus Airport 119 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Louisville 119 CHC
- - ----------------------------------------------------------------------------------------------------------------
Holiday Inn Oak Hill 119 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Eagan 120 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn State College 120 CHC
- - ----------------------------------------------------------------------------------------------------------------
Holiday Inn Bluefield 120 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Austin North 121 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Jacksonville 122 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Fayetteville 122 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Cleveland/Westlake 123 CHC
- - ----------------------------------------------------------------------------------------------------------------
Homewood Suites San Antonio 123 CHC
- - ----------------------------------------------------------------------------------------------------------------
Homewood Suites Phoenix 124 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Meriden 125 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Detroit 125 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Fort Worth West 125 CHC
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Sch. 2.4.1
<PAGE> 48
INTERSTATE HOTELS PORTFOLIO PROPOSED SPINCO
<TABLE>
<CAPTION>
================================================================================================================
HOTEL # OF ROOMS DIVISION
================================================================================================================
<S> <C> <C>
Hampton Inn Garland 125 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Scottsdale-Old Town 126 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Traverse City 127 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Indianapolis NE 129 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Scranton 129 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Chicago/Naperville 130 CHC
- - ----------------------------------------------------------------------------------------------------------------
Homewood Suites Hartford/Windsor Locks 132 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Chicago/Gurnee 134 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn College Station 135 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Arlington South 141 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Milford 148 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Ann Arbor South 150 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Albany 154 CHC
- - ----------------------------------------------------------------------------------------------------------------
Holiday Inn Mt. Pleasant 158 CHC
- - ----------------------------------------------------------------------------------------------------------------
Winston-Salem Inn 160 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Chattanooga 168 CHC
- - ----------------------------------------------------------------------------------------------------------------
Comfort Inn Jacksonville Beach 177 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Colorado Springs North 96 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Tucson 128 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Oklahoma City 135 CHC
- - ----------------------------------------------------------------------------------------------------------------
(intentionally omitted)
- - ----------------------------------------------------------------------------------------------------------------
Holiday Inn Fishkill 156 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Savannah 129 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Norfolk 119 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Pickwick Dam 50 CHC
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Sch. 2.4.1
<PAGE> 49
INTERSTATE HOTELS PORTFOLIO PROPOSED SPINCO
<TABLE>
<CAPTION>
================================================================================================================
HOTEL # OF ROOMS DIVISION
================================================================================================================
<S> <C> <C>
Hampton Inn Collierville 90 CHC
- - ----------------------------------------------------------------------------------------------------------------
Embassy Suites Chicago 358 IHC
- - ----------------------------------------------------------------------------------------------------------------
Roosevelt Hotel 1,033 IHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Overland Park 134 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Uniontown 86 CHC
- - ----------------------------------------------------------------------------------------------------------------
Germantown Homewood Suites 92 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Memphis-Sycamore 117 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Kansas City 120 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Nashville-Briley 120 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Columbia West 121 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn St. Louis 122 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Chapel Hill 122 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Birmingham-Vestavia Hills 123 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn North Little Rock 123 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Dublin 123 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Madison Heights 124 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Charleston 125 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Memphis-Poplar 126 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Colorado Springs 128 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Atlanta-Northlake 130 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Dallas-Richardson 130 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Aurora 132 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Dallas-Addison 160 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Livermore 78 CHC
- - ----------------------------------------------------------------------------------------------------------------
The Cadillac Hotel 271 CHC
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Sch. 2.4.1
<PAGE> 50
INTERSTATE HOTELS PORTFOLIO PROPOSED SPINCO
<TABLE>
<CAPTION>
================================================================================================================
HOTEL # OF ROOMS DIVISION
================================================================================================================
<S> <C> <C>
Augusta Homewood Suites 65 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Birmingham-Mt. Brook 131 CHC
- - ----------------------------------------------------------------------------------------------------------------
Moscow Marriott Grand Hotel 392 IHC
- - ----------------------------------------------------------------------------------------------------------------
Austin Doubletree 155 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Princeton 208 CHC
- - ----------------------------------------------------------------------------------------------------------------
Courtyard by Marriott Orange 121 CHC
- - ----------------------------------------------------------------------------------------------------------------
Ontario Airport Marriott 299 IHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn White River Junction 96 CHC
- - ----------------------------------------------------------------------------------------------------------------
Philadelphia Holiday Inn Airport 303 CHC
- - ----------------------------------------------------------------------------------------------------------------
Courtyard by Marriott Westborough 98 CHC
- - ----------------------------------------------------------------------------------------------------------------
Holiday Inn Express Pittston 100 CHC
- - ----------------------------------------------------------------------------------------------------------------
Courtyard by Marriott Gulf Shores 92 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Miami-South Beach/Surfcomber 185 CHC
- - ----------------------------------------------------------------------------------------------------------------
Radisson Hotel Los Angeles Westside 368 IHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn San Antonio 169 CHC
- - ----------------------------------------------------------------------------------------------------------------
Sharonville Homewood Suites 111 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Portland 168 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Boise 104 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Pittsburgh Airport 156 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn and Suites Bartlett 125 CHC
- - ----------------------------------------------------------------------------------------------------------------
Jackson Sleep Inn 80 CHC
- - ----------------------------------------------------------------------------------------------------------------
Columbus Embassy Suites 220 IHC
- - ----------------------------------------------------------------------------------------------------------------
AmeriSuites Hotel Ontario 128 IHC
- - ----------------------------------------------------------------------------------------------------------------
Moscow Marriott Royale 232 IHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Cleveland Downtown 194 CHC
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Sch. 2.4.1
<PAGE> 51
INTERSTATE HOTELS PORTFOLIO PROPOSED SPINCO
<TABLE>
<CAPTION>
================================================================================================================
HOTEL # OF ROOMS DIVISION
================================================================================================================
<S> <C> <C>
Homewood Suites Seattle 161 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Fishkill 156 CHC
- - ----------------------------------------------------------------------------------------------------------------
The Pillars Hotel aka Medical Inn Buffalo 100 CHC
- - ----------------------------------------------------------------------------------------------------------------
Courtyard by Marriott St. Louis 122 CHC
- - ----------------------------------------------------------------------------------------------------------------
Manhattan Courtyard by Marriott Times Square South 244 CHC
- - ----------------------------------------------------------------------------------------------------------------
Danbury Radisson Suites 76 CHC
- - ----------------------------------------------------------------------------------------------------------------
Southaven Fairfield Inn by Marriott 94 CHC
- - ----------------------------------------------------------------------------------------------------------------
Colorado Springs Hilton Garden Inn 154 CHC
- - ----------------------------------------------------------------------------------------------------------------
Fairfield Inn by Marriott Jackson 79 CHC
- - ----------------------------------------------------------------------------------------------------------------
Fremont Hampton Inn 100 CHC
- - ----------------------------------------------------------------------------------------------------------------
Homewood Suites Chicago 233 CHC
- - ----------------------------------------------------------------------------------------------------------------
Homewood Suites Orlando 252 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn South San Francisco 90 CHC
- - ----------------------------------------------------------------------------------------------------------------
Kendall Radisson 160 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hampton Inn Albuquerque 131 CHC
- - ----------------------------------------------------------------------------------------------------------------
Residence Inn by Marriott Oakland 176 CHC
- - ----------------------------------------------------------------------------------------------------------------
Hilton Garden Inn Chicago 357 CHC
- - ----------------------------------------------------------------------------------------------------------------
Jacksonville Country Inn & Suites 120 CHC
- - ----------------------------------------------------------------------------------------------------------------
Courtyard by Marriott Beachwood 112 CHC
- - ----------------------------------------------------------------------------------------------------------------
Troy Marriott 350 IHC
================================================================================================================
TOTAL PROPERTIES 166
- - ----------------------------------------------------------------------------------------------------------------
TOTAL ROOMS 31,049
================================================================================================================
</TABLE>
Sch. 2.4.1
<PAGE> 1
Exhibit 10.2
VOTING AGREEMENT
This Voting Agreement, dated as of June 18, 1999 (this "Agreement"), is
among Interstate Hotels Corporation, a Maryland corporation ("Newco"), and the
shareholders of Newco named on the signature pages hereto (individually, a
"Shareholder" and collectively, the "Shareholders").
RECITALS:
A. On the date hereof, Patriot American Hospitality, Inc., a Delaware
corporation ("Patriot"), has distributed shares of Class A Common Stock, par
value $0.01 per share, of Newco (collectively with Newco's Class B Common Stock,
par value $0.01 per share, and Class C Common Stock, par value $0.01 per share,
"Newco Stock"), to certain of its securityholders; and
B. Upon consummation of such distribution and the transactions with the
counterparties to certain forward equity contracts to which Patriot is a party
(as described on Page 3 of the Information Statement/Prospectus filed with the
Securities and Exchange Commission (File No. 333-67065) and distributed to
Patriot's securityholders in connection with the distribution) (the "Related
Transactions"), each Shareholder owns the number of shares (the "Shares") of
Newco Stock set forth on Exhibit A hereto.
NOW, THEREFORE, the parties hereto agree as follows:
I. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders hereby represents and warrants to Newco with
respect to himself but not the other Shareholders as follows:
1.1 Due Authority. The Shareholder has full power and authority to
execute and deliver this Agreement and to perform his obligations hereunder.
This Agreement has been duly executed and delivered by or on behalf of such
Shareholder and, assuming its due authorization, execution and delivery by Newco
and the other Shareholders, constitutes a legal, valid and binding obligation of
such Shareholder.
1.2 No Conflict; Consents. (a) The execution and delivery of this
Agreement by the Shareholder do not, and the performance by such Shareholder of
his obligations under this Agreement and the compliance by such Shareholder with
any provisions hereof do not and will not, (i) conflict with or violate any law,
statute, rule, regulation, order, writ, judgment or decree applicable to such
Shareholder or the Shares owned by such Shareholder, or (ii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the Shares owned by
1
<PAGE> 2
such Shareholder pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which such Shareholder is a party or by which such Shareholder or any of the
Shares owned by such Shareholder are bound.
(b) The execution and delivery of this Agreement by the Shareholder do
not, and the performance of this Agreement by such Shareholder will not, require
any consent, approval, authorization or permit of, or filing with (except for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) or notification to, any government or regulatory
authority by such Shareholder.
1.3 Title to Shares. The Shareholder is the record or beneficial owner
of the Shares as listed on Exhibit A free and clear of any proxy or voting
restriction other than pursuant to this Agreement.
II. REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco hereby represents and warrants to the Shareholders as follows:
2.1 Due Authority. Newco has full power, corporate or otherwise, and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement has been duly executed and delivered by or on behalf
of Newco and, assuming its due authorization, execution and delivery by the
Shareholders, constitutes a legal, valid and binding obligation of Newco,
enforceable against Newco in accordance with its terms.
2.2 No Conflict; Consents. (a) The execution and delivery of this
Agreement by Newco do not, and the performance by Newco of its obligations
contemplated by this Agreement and the compliance by Newco with any provisions
hereof do not and will not, (i) conflict with or violate any law, statute, rule,
regulation, order, writ, judgment or decree applicable to Newco, (ii) conflict
with or violate Newco's charter or bylaws, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Newco is a party or by which Newco is bound.
(b) The execution and delivery of this Agreement by Newco do not, and
the performance of this Agreement by Newco will not, require any consent,
approval, authorization or permit of, or filing with (except for applicable
requirements, if any, of the Exchange Act) or notification to, any governmental
or regulatory authority by Newco.
III. CERTAIN COVENANTS OF THE SHAREHOLDERS
Each of the Shareholders hereby covenants and agrees with Newco as
follows:
2
<PAGE> 3
3.1 Voting. (a) Each Shareholder hereby agrees, if as of the record
date for any meeting of shareholders of Newco the Shareholders and those
individuals and entities (the "Affiliated Shareholders") identified on Exhibit C
hereto own in the aggregate more than 9.9% of the outstanding Newco Stock, to
vote, or to use all practicable efforts to direct the record owner thereof to
vote, each of the Shares owned by such Shareholder at such meeting or any
adjournment thereof in accordance with Paragraph 3.1(b) below, and in connection
therewith, at Newco's written request, to execute, if necessary, proxies to
effectuate the foregoing.
(b) Immediately prior to the closing of the polls on a particular
proposal, the inspector of elections for the meeting of Newco shareholders at
which such proposal is being voted upon or, if no such inspector has been
appointed, such other individual as may be designated by Newco, shall (i)
determine the number of shares of Newco Stock as to which votes were cast
(including abstentions) with respect to such proposal (other than votes cast by
the Shareholders or the Affiliated Shareholders), (ii) count such votes, and
(iii) submit to each Shareholder (A) a fraction (the "Affirmative Multiple"),
the numerator of which is the total number of votes cast in favor of such
proposal (other than votes cast by the Shareholders or the Affiliated
Shareholders) and the denominator of which is the total number of votes cast,
including abstentions, with respect to such proposal (other than votes cast,
including abstentions, by the Shareholders or the Affiliated Shareholders), and
(B) a fraction (the "Abstention Multiple"), the numerator of which is the total
number of shares of Newco Stock which the holders of the Newco Stock voted to
abstain with respect to such proposal (other than those made by the Shareholders
or the Affiliated Shareholders) and the denominator of which is the total number
of votes cast, including abstentions (other than votes cast, including
abstentions, by the Shareholders or the Affiliated Shareholders), with respect
to such proposal. Each Shareholder agrees that he shall then (a) multiply the
number of Shares owned by him as of the applicable record date by the
Affirmative Multiple and vote, or use all practicable efforts to direct the
record owner thereof to vote, the resulting number (rounded up to the nearest
whole share) of Shares of Newco Stock in favor of such proposal, (b) multiply
the number of Shares owned by him as of the applicable record date by the
Abstention Multiple and abstain, or use all practicable efforts to direct the
record owner thereof to abstain, with respect to the resulting number (rounded
up to the nearest whole share) of Shares of Newco Stock, and (c) vote, or use
all practicable efforts to direct the record owner thereof to vote, the
remaining number of Shares of Newco Stock owned by him as of the applicable
record date, if any, against such proposal. "Broker non-votes" shall not be
considered votes "cast" for the purposes of this Agreement.
3.2 Disposition of Shares. (a) Each Shareholder hereby agrees to use
reasonable efforts to sell or otherwise dispose of the number of shares of Newco
Stock necessary so that on or prior to the first anniversary of the date hereof
(such anniversary being the "Disposition Date"), the percentage of the
outstanding shares of Newco Stock owned in the aggregate by the Shareholders and
the Affiliated Shareholders shall be equal to or less than 9.9% of the then
outstanding shares of Newco Stock; provided, however, that no Shareholder shall
be required hereby to sell or otherwise dispose of, on or prior to the
Disposition Date, a number of shares of Newco Stock greater than the product of
(x) the sum of the total number of shares of Newco
3
<PAGE> 4
Stock distributed to the Shareholders and the Affiliated Shareholders on the
date hereof minus the number of shares that equals 9.9% of the total number of
shares of Newco Stock outstanding after such distribution and the Related
Transactions multiplied by (y) such Shareholder's "Ownership Percentage," as set
forth on Exhibit B hereto. From and after the Disposition Date, each Shareholder
hereby agrees that, upon the written request of Newco after a determination by
Newco pursuant to Section 3.3(b) below that, as of the last day of the most
recent fiscal quarter, such Shareholders and the Affiliated Shareholders own
more than 9.9% of the outstanding shares of Newco Stock (any such date a
"Measurement Date"), he shall use reasonable efforts to sell the number of
shares of Newco Stock necessary so that on or prior to the last day of the
following fiscal quarter, the percentage of the outstanding shares of Newco
Stock owned in the aggregate by the Shareholders and the Affiliated Shareholders
shall be equal to or less than 9.9% of the then outstanding shares of Newco
Stock; provided, however, that no Shareholder shall be required hereby to sell,
on or prior to the last day of the fiscal quarter following any Measurement
Date, a number of shares of Newco Stock greater than the product of (x) the sum
of the total number of shares of Newco Stock owned by the Shareholders and the
Affiliated Shareholders on such Measurement Date minus the number of shares that
equals 9.9% of the total number of shares of Newco Stock outstanding on such
Measurement Date multiplied by (y) such Shareholder's Ownership Percentage.
(b) Each Shareholder's obligations under this Section 3.2 are
individual and no Shareholder shall be liable for the failure of any other
Shareholder to use reasonable efforts to sell or otherwise dispose of such
Shareholder's Shares.
(c) Notwithstanding any other provision of this Agreement, no
Shareholder shall be obligated (i) to sell any Share which such Shareholder does
not have the authority to dispose of at that time, or (ii) to sell any Shares at
any time when such sale could reasonably be expected to (A) violate any federal
or state statute or other law, rule or regulation or (B) subject such
Shareholder to any liability to Newco, any governmental entity or any other
entity or individual under any such statute, law, rule or regulation, including,
without limitation, liability under Section 16(b) of the Exchange Act and the
rules promulgated thereunder (collectively, "Section 16(b)") (and no other
Shareholder shall be required to sell any additional shares of Newco Stock as a
result of either clause (i) or clause (ii) of this Section 3.2(c)). Each
Shareholder hereby agrees, on each date when it is reasonably foreseeable that
such Shareholder will have the obligation to use reasonable efforts to sell
Shares pursuant to Section 3.2(a) during the six months following such date, to
use reasonable good faith efforts to refrain from making any purchases of Newco
Stock if the reasonably foreseeable result of any such purchase would be that
any sale of Shares by such Shareholder during the six months following such
purchase would result in the incurrence of liability under Section 16(b).
(d) No provision of this Section 3.2 shall be deemed to limit Newco's
rights under Section 3.3 below.
4
<PAGE> 5
3.3 Call Right. (a) If the Shareholders do not satisfy their
obligations pursuant to Section 3.2, Newco shall have the right (the "Call
Right") (in addition to any other remedies available under Section 4.6 hereof)
to purchase from the Shareholders from time to time after the Disposition Date
all or any portion of the Callable Shares (as defined below), subject to the
terms set forth below.
(b) Newco shall determine after the Disposition Date and after the last
day of each fiscal quarter after the Disposition Date (i) the percentage of the
outstanding shares of Newco Stock owned by the Affiliated Shareholders (the
"Affiliate Percentage") on such date by dividing the number of shares of Newco
Stock owned by the Affiliated Shareholders on such date by the total number of
shares of Newco Stock outstanding on such date; and (ii) the percentage of the
outstanding shares of Newco Stock owned by the Shareholders on such date (the
"Shareholder Percentage") by dividing the number of shares of Newco Stock owned
by the Shareholders on such date by the total number of shares of Newco Stock
outstanding on such date. Each Shareholder agrees that he shall provide to
Newco, as promptly as practicable upon the written request of Newco, such
information regarding such Shareholder's ownership of Newco Stock as Newco may
reasonably request in order to make the determinations contemplated by this
Section 3.3(b).
(c) "Callable Shares" shall mean (i) in the event that the Affiliate
Percentage as determined pursuant to subparagraph (b) above exceeds 9.9%, all
Shares owned by the Shareholders, (ii) in the event that the Affiliate
Percentage as so determined is less than 9.9% but the sum of the Affiliate
Percentage plus the Shareholder Percentage exceeds 9.9%, the lesser of (x) the
sum of the total number of shares of Newco Stock owned by all Shareholders and
all Affiliated Shareholders on the Disposition Date and any Measurement Date
minus the number of shares of Newco Stock (rounded to the nearest whole number)
that equals 9.9% of the total number of shares of Newco Stock outstanding on
such date and (y) the sum of the total number of shares of Newco Stock owned by
all Shareholders and all Affiliated Shareholders on the date notice of the
exercise of the Call Right is sent by Newco to the Shareholders (the "Call
Notice Date") minus the number of shares of Newco Stock (rounded to the nearest
whole number) that equals 9.9% of the total number of shares of Newco Stock
outstanding on the Call Notice Date, and (iii) in the event that the sum of the
Affiliate Percentage plus the Shareholder Percentage is equal to or less than
9.9%, zero Shares.
(d) Upon exercise of the Call Right, Newco shall determine the number
of Callable Shares to be purchased from each Shareholder by multiplying the
number of Shares as to which the Call Right is being exercised (the "Called
Shares") by such Shareholder's Ownership Percentage, as set forth on Exhibit B
hereto. In the event the aggregate number of Shares to be purchased by Newco
from all Shareholders after operation of the previous sentence (the "Initial
Shares") is less than the number of Called Shares, Newco shall purchase an
additional number of Shares equal to the difference between the Called Shares
and the Initial Shares by allocating such purchases among the Shareholders in
proportion to the Ownership Percentage of each Shareholder who continues to own
Shares after operation of the previous sentence.
5
<PAGE> 6
(e) The per share price to be paid to each Shareholder upon exercise of
the Call Right shall be the average of the Closing Price of Newco Stock for the
ten consecutive Trading Days ending with the Trading Day immediately preceding
the Call Notice Date. The "Closing Price" on any date shall mean (A) where there
exists a public market for the Newco Stock, the last sale price, regular way,
or, in case no such sale takes place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the shares of Newco
Stock are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
shares of Newco Stock are listed or admitted to trading or, if the shares of
Newco Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price, or if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
Nasdaq Stock Market, Inc. or, if such system is no longer in use, the principal
other automated quotation system that may then be in use or (B) if no public
market for the Newco Stock exists, the Closing Price will be determined by a
single, independent appraiser selected by Newco's Board of Directors, which
appraiser shall appraise the fair value for such Newco Stock within such
guidelines as shall be determined by the Board of Directors. "Trading Day" shall
mean a day on which the principal national securities exchange on which the
shares of Newco Stock are listed or admitted to trading is open for the
transaction of business or, if the shares of Newco Stock are not listed or
admitted to trading on any national securities exchange, any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
(f) The Call Right may be exercised by Newco at any time within 60 days
after the Disposition Date and each Measurement Date, on no more than one
occasion with respect to each such date, by written notice to each Shareholder,
which notice shall be delivered via facsimile to the number and by mail to the
address set forth for each Shareholder on Exhibit A hereto (or such other
facsimile number or address as such Shareholder may notify Newco of) and which
notice shall specify (i) evidence of the calculations made by Newco pursuant to
subparagraphs (b) and (c) of this Section 3.3, (ii) the total number of Shares
as to which the Call Right is being exercised, (iii) the number of Shares being
purchased from such Shareholder (including evidence of the calculation made by
Newco pursuant to subparagraph (d) of this Section 3.3), and (iv) the per share
price to be paid to such Shareholder, including notification of the particular
clause of subparagraph (e) of this Section 3.3 pursuant to which such price was
determined.
(g) Each Shareholder shall, within ten days of the Call Notice Date,
deliver to Newco a stock certificate or stock certificates, duly assigned or
endorsed for transfer to Newco (or accompanied by duly executed stock powers
relating thereto), representing the Shares being sold to Newco pursuant to the
exercise of the Call Right. Newco shall, not later than one business day after
receipt of such stock certificate or stock certificates, mail via first class
mail
6
<PAGE> 7
to such Shareholder a certified check in the amount equal to the purchase price
of such Shares. In the event a Shareholder delivers to Newco a stock certificate
or stock certificates in a denomination or denominations exceeding the number of
Shares being sold by such Shareholder to Newco, Newco shall, within ten days of
receipt of such stock certificate, deliver to such Shareholder a new stock
certificate or new stock certificates representing the number of shares of Newco
Stock represented by such delivered stock certificate or stock certificates
which are not being sold to Newco pursuant to the Call Right.
(h) If, upon the expiration of the 45-day period after the Disposition
Date or any Measurement Date, Newco shall have failed to exercise the Call
Right, Marriott International, Inc., a Delaware corporation, shall have the
right to deliver, within ten days after the expiration of such 45-day period,
written notice (the "Marriott Notice") to Newco indicating its desire for Newco
to exercise the Call Right and specifying the total number of Shares as to which
the Call Right should be exercised. Upon receipt of the Marriott Notice, Newco
shall be obligated, within five days after the receipt of such notice, to
exercise the Call Right pursuant to Section 3.3(f) above for the number of
Shares specified in the Marriott Notice.
3.4 Certain Events. This Agreement and the obligations hereunder will
terminate with respect to each Share sold, transferred or otherwise disposed of
by any means by any Shareholder; provided, that the provisions and obligations
of this Agreement shall continue to attach to any Shares sold or otherwise
transferred by a Shareholder to another Shareholder or to an Affiliated
Shareholder and such Shareholder or Affiliated Shareholder will be bound by such
provisions and obligations with respect to such Shares. Each Shareholder shall
cease to be a Shareholder under this Agreement and each Affiliated Shareholder
shall cease to be an Affiliated Shareholder under this Agreement (including,
without limitation in either such case, for the purposes of making all
computations under this Agreement) at such time that such Shareholder or
Affiliated Shareholder is no longer an officer, director or 10% shareholder of
Patriot, Wyndham International, Inc., a Delaware corporation ("Wyndham"), or any
entity controlled by Patriot or Wyndham. This Agreement and the obligations
hereunder shall be suspended at any time that the percentage of the outstanding
shares of Newco Stock owned in the aggregate by the Shareholders and the
Affiliated Shareholders is less than 9.9%; and this Agreement and the
obligations hereunder shall in any event terminate on the fifth anniversary of
the date of this Agreement.
3.5 Absence of Group. Newco and the Shareholders hereby agree that
neither the execution nor the performance of this Agreement by the Shareholders
shall mean (or be used as evidence) that any Shareholder is a member of a group
(as that term is used for any purpose) with any other Shareholder or Affiliated
Shareholder or that any Affiliated Shareholder is a member of any group with a
Shareholder or any other Affiliated Shareholder.
7
<PAGE> 8
IV. MISCELLANEOUS; GENERAL PROVISIONS
4.1 Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
4.2 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior agreements and undertakings, both
written and oral, between the parties with respect to the subject matter hereof.
4.3 Amendments. This Agreement may not be modified, amended, waived,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
4.4 Assignment. This Agreement may not be assigned by operation of law
or otherwise.
4.5 Parties in Interest. Except as provided in Section 3.3(h) hereof,
this Agreement is binding upon, and shall inure solely to the benefit of, each
party hereto and nothing in this Agreement, express or implied, is intended to
or will confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
4.6 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof or was otherwise breached. It is
accordingly agreed that the parties will be entitled to specific relief
hereunder, including, without limitation, an injunction or injunctions to
prevent and enjoin breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, in any state or federal court in
the State of Maryland, in addition to any other remedy to which they may be
entitled at law or in equity. Any requirements for the securing or posting of
any bond with respect to any such remedy are hereby waived.
4.7 Governing Law; Jurisdiction and Venue. This Agreement will be
governed by, and construed in accordance with, the internal laws of the State of
Maryland without regard to its rules of conflict of laws. The parties hereto
hereby irrevocably and unconditionally consent to and submit to the exclusive
jurisdiction of the courts of the State of Maryland for any litigation arising
out of or relating to this Agreement and the transactions contemplated hereby
(and agrees not to commence any litigation relating thereto except in such
courts), waives any objection to
8
<PAGE> 9
the laying of venue of any such litigation in the State of Maryland and agrees
not to plead or claim in any court in the State of Maryland that such litigation
brought therein has been brought in any inconvenient forum.
4.8 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
4.9 Directors and Officers. Notwithstanding anything herein to the
contrary, the covenants and agreements set forth herein shall not prevent any
Shareholder who is serving on the Board of Directors of Newco or who is an
officer of Newco from taking any action in his or her capacity as a director or
officer of Newco.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
INTERSTATE HOTELS CORPORATION
By: /s/ Timothy Q. Hudak
-------------------------------
Name: Timothy Q. Hudak
Title: Senior Vice President
and Secretary
/s/ Paul A. Nussbaum
-------------------------------
Paul A. Nussbaum
/s/ James D. Carreker
-------------------------------
James D. Carreker
<PAGE> 11
/s/ Milton Fine
-------------------------------
Milton Fine
-------------------------------
David J. Fine
By: /s/ Marvin I. Droz
-------------------------------
Attorney-in-fact
TRUST U/A DATED 11/11/94 FBO MILTON
FINE
By: /s/ Milton Fine
-------------------------------
Milton Fine, Trustee
MILTON FINE 1997 CHARITABLE
REMAINDER UNITRUST
By:
-------------------------------
David J. Fine, Trustee
By: /s/ Marvin I. Droz
---------------------------
Attorney-in-fact
MILTON FINE GRANTOR ANNUITY TRUST
U/A DATED 3/31/96
By:
-------------------------------
David J. Fine, Trustee
By: /s/ Marvin I. Droz
----------------------------
Attorney-in-fact
<PAGE> 12
FCT-C DelCo 1 TRUST
By: FCT Administration, Inc., Trustee
By:
-------------------------------
David J. Fine, President
By: /s/ Marvin I. Droz
----------------------------
Attorney-in-fact
FCT-C DelCo 2 TRUST
By: FCT Administration, Inc., Trustee
By:
-------------------------------
David J. Fine, President
By: /s/ Marvin I. Droz
---------------------------
Attorney-in-fact
FCT-C DelCo 3 TRUST
By: FCT Administration, Inc., Trustee
By:
-------------------------------
David J. Fine, President
By: /s/ Marvin I. Droz
---------------------------
Attorney-in-fact
FCT-D DelCo 1 TRUST
By: FCT Administration, Inc., Trustee
By:
-------------------------------
David J. Fine, President
By: /s/ Marvin I. Droz
---------------------------
Attorney-in-fact
<PAGE> 13
FCT-D DelCo 2 TRUST
By: FCT Administration, Inc., Trustee
By:
-------------------------------
David J. Fine, President
By: /s/ Marvin I. Droz
--------------------------
Attorney-in-fact
FCT-D DelCo 3 TRUST
By: FCT Administration, Inc., Trustee
By:
-------------------------------
David J. Fine, President
By: /s/ Marvin I. Droz
--------------------------
Attorney-in-fact
FCT-S DelCo 1 TRUST
By: FCT Administration, Inc., Trustee
By:
-------------------------------
David J. Fine, President
By: /s/ Marvin I. Droz
--------------------------
Attorney-in-fact
FCT-S DelCo 2 TRUST
By: FCT Administration, Inc., Trustee
By:
-------------------------------
David J. Fine, President
By: /s/ Marvin I. Droz
--------------------------
Attorney-in-fact
<PAGE> 14
FCT-S DelCo 3 TRUST
By: FCT Administration, Inc., Trustee
By:
-------------------------------
David J. Fine, President
By: /s/ Marvin I. Droz
--------------------------
Attorney-in-fact
INTERSTATE HOTELS CORPORATION #1018
By: /s/ Milton Fine
-------------------------------
Name: Milton Fine
IHC ASSOCIATES CORPORATION
By: /s/ Milton Fine
-------------------------------
Name: Milton Fine
MILTON FINE GRANTOR ANNUITY
TRUST U/A DATED 12/15/98
By:
-------------------------------
David J. Fine, Trustee
By: /s/ Marvin I. Droz
--------------------------
Attorney-in-fact
<PAGE> 15
MILTON FINE 1998 CHARITABLE
REMAINDER UNITRUST
By:
-------------------------------
David J. Fine, Trustee
By: /s/ Marvin I. Droz
--------------------------
Attorney-in-fact
MILTON FINE FAMILY CHARITABLE
FOUNDATION
By: /s/ Milton Fine
-------------------------------
Milton Fine, President
David J. Fine, as Custodian for
Ariel Ethan Fine under Massachusetts
Uniform Transfers to Minors Act,
By: /s/ Marvin I. Droz
-------------------------------
Attorney-in-fact
David J. Fine, as Custodian for
Benjamin Samuel Fine under Massachusetts
Uniform Transfers to Minors Act,
By: /s/ Marvin I. Droz
-------------------------------
Attorney-in-fact
David J. Fine, as Custodian for
Adam Levi Fine under Massachusetts
Uniform Transfers to Minors Act,
By: /s/ Marvin I. Droz
-------------------------------
Attorney-in-fact
<PAGE> 16
David J. Fine, as Custodian for
Rose Emily Friedman under Massachusetts
Uniform Transfers to Minors Act,
By: /s/ Marvin I. Droz
-------------------------------
Attorney-in-fact
David J. Fine, as Custodian for
Sophia Friedman under Massachusetts
Uniform Transfers to Minors Act,
By: /s/ Marvin I. Droz
-------------------------------
Attorney-in-fact
David J. Fine, as Custodian for
Nina Friedman under Massachusetts
Uniform Transfers to Minors Act,
By: /s/ Marvin I. Droz
-------------------------------
Attorney-in-fact
David J. Fine, as Custodian for
Daniel J. King under Pennsylvania
Uniform Transfers to Minors Act,
By: /s/ Marvin I. Droz
-------------------------------
Attorney-in-fact
David J. Fine, as Custodian for
Ryan P. King under Pennsylvania
Uniform Transfers to Minors Act,
By: /s/ Marvin I. Droz
-------------------------------
Attorney-in-fact
<PAGE> 17
David J. Fine, as Custodian for
Alice King under Pennsylvania
Uniform Transfers to Minors Act,
By: /s/ Marvin I. Droz
-------------------------------
Attorney-in-fact
<PAGE> 18
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of Percentage of
Name and Address Newco Stock Owned Newco Stock Outstanding
of Shareholder by Shareholder on Date Hereof*
- - -------------- -------------- ---------------
<S> <C> <C>
Paul A. Nussbaum 47,777 0.79%
c/o Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Facsimile: (214) 863-1805
James D. Carreker 65,019 1.07%
c/o Wyndham International, Inc.
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Facsimile: (214) 863-1262
Milton Fine** 0 0%
David J. Fine** 0 0%
Trust U/A Dated 11/11/94 FBO 55,692 0.92%
Milton Fine**
Milton Fine 1997 Charitable Remainder 38,820 0.64%
Unitrust**
Milton Fine Grantor Annuity 35,747 0.59%
Trust U/A Dated 3/31/96**
FCT-C DelCo 1 Trust** 25,216 0.42%
FCT-C DelCo 2 Trust** 9,333 0.15%
FCT-C DelCo 3 Trust** 870 0.01%
FCT-D DelCo 1 Trust** 25,216 0.42%
FCT-D DelCo 2 Trust** 9,333 0.15%
</TABLE>
<PAGE> 19
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of Percentage of
Name and Address Newco Stock Owned Newco Stock Outstanding
of Shareholder by Shareholder on Date Hereof*
- - -------------- -------------- ---------------
<S> <C> <C>
FCT-D DelCo 3 Trust** 870 0.01%
FCT-S DelCo 1 Trust** 25,216 0.42%
FCT-S DelCo 2 Trust** 9,333 0.15%
FCT-S DelCo 3 Trust** 1,005 0.02%
Interstate Hotels Corporation #1018** 1,510 0.02%
IHC Associates Corporation** 39 ***
Milton Fine Grantor Annuity 24,686 0.41%
Trust U/A Dated 12/15/98**
Milton Fine 1998 Charitable 38,653 0.64%
Remainder Unitrust**
Milton Fine Family Charitable 8,944 0.15%
Foundation**
David J. Fine, as Custodian for 89 ***
Ariel Ethan Fine under Mass.
UTMA**
David J. Fine, as Custodian for 89 ***
Benjamin Samuel Fine under
Mass. UTMA**
David J. Fine, as Custodian for 89 ***
Adam Levi Fine under
Mass. UTMA**
David J. Fine, as Custodian for 89 ***
Rose Emily Friedman under
Mass. UTMA**
David J. Fine, as Custodian for 89 ***
Sophia Friedman under
Mass. UTMA**
David J. Fine, as Custodian for 89 ***
Nina Friedman under
Mass. UTMA**
</TABLE>
<PAGE> 20
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of Percentage of
Name and Address Newco Stock Owned Newco Stock Outstanding
of Shareholder by Shareholder on Date Hereof*
- - -------------- -------------- ---------------
<S> <C> <C>
David J. Fine, as Custodian for 44 ***
Daniel J. King under
Pa. UTMA**
David J. Fine, as Custodian for 44 ***
Ryan P. King under
Pa. UTMA**
David J. Fine, as Custodian for 44 ***
Alice King under
Pa. UTMA**
Total 423,945 6.99%
</TABLE>
*after consummation of the Related Transactions
**c/o Milton Fine
Fine Family Investment Corporation
680 Andersen Drive, Foster Plaza Ten, 4th Floor
Pittsburgh, Pennsylvania 15220
Facsimile: (412) 919-3508
***less than 0.01%
<PAGE> 21
EXHIBIT B
SHAREHOLDER OWNERSHIP PERCENTAGES
<TABLE>
<CAPTION>
Shareholder Ownership Percentage
----------- --------------------
<S> <C>
Paul A. Nussbaum 11.27%
James D. Carreker 15.34%
Milton Fine 0%
David J. Fine 0%
Trust U/A Dated 11/11/94 FBO Milton Fine 13.14%
Milton Fine 1997 Charitable Remainder Unitrust 9.16%
Milton Fine Grantor Annuity Trust U/A Dated 3/31/96 8.43%
FCT-C DelCo 1 Trust 5.95%
FCT-C DelCo 2 Trust 2.20%
FCT-C DelCo 3 Trust 0.21%
FCT-D DelCo 1 Trust 5.95%
FCT-D DelCo 2 Trust 2.20%
FCT-D DelCo 3 Trust 0.21%
FCT-S DelCo 1 Trust 5.95%
FCT-S DelCo 2 Trust 2.20%
FCT-S DelCo 3 Trust 0.24%
Interstate Hotels Corporation #1018 0.36%
IHC Associates Corporation 0.01%
Milton Fine Grantor Annuity Trust U/A Dated 12/15/98 5.81%
Milton Fine 1998 Charitable Remainder Unitrust 9.11%
Milton Fine Family Charitable Foundation 2.11%
David J. Fine, as Custodian for Ariel Ethan Fine 0.02%
under Mass. UTMA
David J. Fine, as Custodian for Benjamin Samuel 0.02%
Fine under Mass. UTMA
David J. Fine, as Custodian for Adam Levi 0.02%
Fine under Mass. UTMA
David J. Fine, as Custodian for Rose Emily 0.02%
Friedman under Mass. UTMA
David J. Fine, as Custodian for Sophia Friedman 0.02%
under Mass. UTMA
David J. Fine, as Custodian for Nina Friedman 0.02%
under Mass. UTMA
David J. Fine, as Custodian for Daniel J. King 0.01%
under Pa. UTMA
David J. Fine, as Custodian for Ryan P. King 0.01%
under Pa. UTMA
David J. Fine, as Custodian for Alice King 0.01%
under Pa. UTMA
Total 100%
</TABLE>
<PAGE> 22
EXHIBIT C
AFFILIATED SHAREHOLDERS
<TABLE>
<CAPTION>
Number of Shares of Percentage of
Newco Stock Owned Newco Stock
Name by Affiliated Shareholder Outstanding on Date Hereof*
---- ------------------------- ---------------------------
<S> <C> <C>
Karim Alibhai 168,223 2.77%
Leslie V. Bentley 19,704 0.32%
John P. Bohlmann 1,055 0.02%
Leonard Boxer 539 **
Harlan R. Crow 404,224 6.67%
John H. Daniels 5,401 0.09%
John C. Deterding 392 **
Gregory R. Dillon 392 **
Burton C. Einspruch, M.D. 100 **
William W. Evans III 5,752 0.09%
Susan T. Groenteman 667 0.01%
Michael Grossman 398 **
Arch K. Jacobson 427 **
Lawrence S. Jones 656 0.01%
Stanley M. Koonce, Jr. 19,337 0.32%
Thomas W. Lattin 6,109 0.10%
James C. Leslie 143 **
Carla S. Moreland 469 **
Leslie Ng 0 0%
Paul Novak 2,373 0.04%
Anne L. Raymond 20,177 0.33%
Philip J. Ward 35 **
Patriot American Hospitality, Inc. 181,916 3.00%
Wyndham International, Inc. 0 0%
PAH-Interstate Holdings, Inc. 60,639 1.00%
---------------------------------------------------------------------------------------
Total 899,128 14.83%
</TABLE>
*less than 0.01%
**after consummation of the Related Transactions
<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of June 18, 1999, is
made and entered into by and between Interstate Hotels Corporation, a Maryland
corporation (the "Company"), and J. William Richardson (the "Executive").
RECITALS
A. The Company desires to obtain the services of the Executive as a
senior executive of the Company;
B. The Executive desires to provide his services to the Company on the
terms and conditions herein provided.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. In addition to terms defined elsewhere herein, the
following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "BASE PAY" means the salary provided for in Section 4(a),
as such amount may be adjusted hereunder.
(b) "BOARD" means the Board of Directors of the Company or an
authorized committee thereof.
(c) "CAUSE" means that the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or
theft in connection with his duties or in the course of his
employment with the Company or any Subsidiary;
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional Unauthorized Disclosure, Use or
Solicitation; or
(iv) intentional wrongful engagement in any
Competitive Activity; and any such act shall have been
materially harmful to the Company. For purposes of this
Agreement, no act or failure to act on the part of the
Executive will be deemed "intentional" if it was due primarily
to an error in judgment or negligence, but will be deemed
"intentional" only if done or omitted to be done by the
Executive not in good faith and without reasonable belief that
his action or
<PAGE> 2
omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive will not be
deemed to have been terminated for "Cause" hereunder unless
and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of
not less than three quarters of the full Board of Directors
then in office at a meeting of the Board of Directors called
and held for such purpose, after reasonable notice to the
Executive and an opportunity for the Executive, together with
his counsel (if the Executive chooses to have counsel present
at such meeting), to be heard before the Board, finding that,
in the good faith opinion of the Board, the Executive had
committed an act constituting "Cause" as herein defined and
specifying the particulars thereof in detail, provided,
however, that nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination and such determination,
albeit a condition to any termination for "Cause" as
aforesaid, will not create any presumption that "Cause" in
fact exists.
(d) "CHANGE IN CONTROL" means an event which shall be deemed
to have occurred if (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities; or (ii)
individuals who at the Commencement Date constitute the Board of the Company and
any new director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in clauses
(i) or (iii) of this paragraph) whose election by the Board of the Company or
nomination for election by the Company's stockholders was approved by a vote of
at least 80% of the directors then still in office who either were directors at
the Commencement Date or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Board of the Company; or (iii) the stockholders of the Company approve a merger
or consolidation of the Company with or into any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 60% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.
(e) "COMPETITIVE ACTIVITY" means any act by the Executive that
is prohibited under Section 6.
(f) "DISABILITY" means the Executive's inability, as a result
of mental or physical illness, injury or disease, substantially to perform his
material duties and responsibilities under this Agreement for a period of 180
consecutive calendar days within any 12-month period.
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(g) "EMPLOYEE BENEFITS" means the perquisites, benefits and
service credit for benefits as provided under any and all employee welfare
benefit policies, plans, programs or arrangements in which Executive is entitled
to participate, including without limitation any group or other life, health,
medical/hospital or other insurance (whether funded by actual insurance or
self-insured by the Company), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies, plans,
programs or arrangements that may be adopted hereafter by the Company.
(h) "SUBSIDIARY" means an entity in which the Company directly
or indirectly beneficially owns 50% or more of the outstanding Voting Stock or,
if a partnership, limited liability company or similar entity, at least 50% of
the equity capital interests thereof.
(i) "TERM OF EMPLOYMENT" means the period specified in Section
2.
(j) "UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION" means any
violation or breach by the Executive of any provision of Section 7.
2. TERM OF EMPLOYMENT. The Company hereby employs the Executive and the
Executive hereby accepts such employment, effective as of June 18, 1999 (the
"Commencement Date") and ending at the close of business on June 17, 2002;
provided, however, that commencing June 17, 2001 and each June 17th thereafter
the Term of Employment will automatically be extended for successive one-year
periods unless either party gives written notice to the other, not less than 90
calendar days prior to the otherwise scheduled expiration of the Term of
Employment, that it or he does not want the Term of Employment so to extend. The
Executive will devote substantially all of his business time to the business and
affairs of the Company and its Subsidiaries (excluding reasonable amounts of
time devoted to charitable purposes, passive investments and directorships and
periods in which he is physically or mentally ill, injured or otherwise
disabled).
3. DUTIES, RESPONSIBILITIES AND OFFICE LOCATION. During the Term of
Employment, the Executive will have and perform the duties and responsibilities
set forth in Exhibit A, provided, however, that the Board may from time to time
change those duties and responsibilities (in which event the parties may, but
will not be required to, substitute a new Exhibit A) and no such change will
give rise to any liability on the part of the Company so long as such change
does not result in a change in the primary reporting relationship set forth on
Exhibit A.
4 COMPENSATION AND BENEFITS. (a) BASE PAY. During the Term of
Employment, the Executive will receive Base Pay of $325,000 per year subject to
review by the Board for increase (but not decrease) at the end of each fiscal
year during the Term of Employment. Such Base Pay will be payable by the Company
in accordance with its regular compensation practices and policies applicable to
senior executives of the Company.
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(b) ANNUAL PERFORMANCE BONUS. For each fiscal year of the
Company during the Term of Employment, the Executive will be eligible for an
annual performance bonus under the Company's Management Bonus Plan ("Bonus
Plan"), that can vary from a minimum of $200,000 to a maximum of 200% of the
Executive's base salary. The Bonus will be subject to the rules issued each year
by the Board. During 1999 the Bonus will be based on Hotel Profits and Corporate
Profits and shall be calculated and paid consistent with other Executives of the
Company. In future years these categories may be revised or deleted and new
categories could be added. The Executive must be employed by the Company at the
time the Bonus is scheduled to be paid to be eligible to receive the Bonus.
(c) EMPLOYEE BENEFITS. During the Term of Employment, the
Executive will be entitled to (i) participate in all employee benefit plans,
programs, policies and arrangements sponsored, maintained or contributed to by
the Company, subject to and in accordance with the terms and conditions of such
plans, programs, policies and arrangements as they relate to similarly situated
senior executives of the Company, (ii) participate in all equity and long-term
incentive plans sponsored or maintained by the Company at a level commensurate
with his position, subject to and in accordance with the terms and conditions of
such plans as they relate to senior executives of the Company, and (iii) receive
all other benefits and perquisites provided or made available by the Company to
its senior executives, subject to and in accordance with the terms and
conditions of such benefits and perquisites as they relate to senior executives
of the Company.
(d) EXPENSES. During the Term of Employment, the Executive
will be entitled to reimbursement of all documented reasonable travel and
entertainment expenses incurred by him on behalf of the Company in the course of
the performance of his duties hereunder, subject to and in accordance with the
terms and conditions of the Company's expense reimbursement policies as they
relate to senior executives of the Company.
(e) VACATION. During the Term of Employment, the Executive
will be entitled to not less than four weeks of vacation, in addition to paid
public holidays as observed by the Company from year to year, subject to and in
accordance with the terms and conditions of the Company's regular compensation
practices and policies as they relate to senior executives of the Company
(f) LOANS. The Company has loaned the Executive $357,317, the
repayment of which shall be forgiven by the Company so long as the Executive's
employment is not terminated by the Company for Cause or voluntarily by the
Executive prior to September 16, 1999. At the Executive's request, the Company
will amortize such loan forgiveness on terms and conditions mutually agreed upon
between Company and Executive.
(g) EQUITY. No later than the fifth business day after the
Commencement Date (the "Date of Grant"), Executive shall receive a grant of
150,000 shares of restricted stock of the
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Company ("Restricted Stock Grant"). The Restricted Stock Grant shall vest
with respect to 33-1/3% of the underlying shares on June 17, 2000, June 17, 2001
and June 17, 2002; provided, however, upon the occurrence of a Change in Control
of the Company all amounts of the unvested Restricted Stock Grant shall
automatically vest.
5. TERMINATION OF EMPLOYMENT. (a) TERMINATION BY NOTICE. Subject to the
provisions of Section 2 and this Section 5, the Executive's employment hereunder
will be for the Term of Employment specified in Section 2.
(b) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE. The
Company may, with or without notice, terminate the Executive's employment
hereunder for Cause. If the Executive's employment is terminated by the Company
effective during the Term of Employment for Cause, or is terminated by the
Executive, the Executive will not be entitled to any compensation or benefits
provided herein, and nothing herein will limit the Company's rights against the
Executive or the rights and obligations of the parties under Sections 6 and 7.
(c) TERMINATION FOR ANY REASON OTHER THAN CAUSE OR DISABILITY.
If the Executive's employment is terminated by the Company during the Term of
Employment for any reason other than Cause or Disability:
(i) The Executive will be entitled to receive the greater
of (A) the sum of his Base Pay and annual performance bonus for one (1)
year immediately preceding the effective date of his termination of
employment and (B) his Base Pay (at the rate in effect on the effective
date of his termination of employment) and annual performance bonus
based upon the highest annual performance bonus received by the
Executive during the Term of this Agreement for the remainder of the
Term of Employment, in either case payable in accordance with the
Company's regular compensation practices and policies applicable to
senior executives; and
(ii) For one (1) year following the effective date of the
Executive's termination of employment or, if longer, the remainder of
the Term of Employment (the "Continuation Period"), the Company will
arrange to provide the Executive and his eligible dependents with
Employee Benefits (excluding retirement, deferred compensation and
stock option, stock purchase, stock appreciation or similar
compensatory benefits) that are substantially similar to those that the
Executive and such dependents were receiving or entitled to receive
immediately prior to the effective date of the Executive's termination
of employment, except that the level of any such Employee Benefits to
be provided to the Executive and such dependents may be reduced in the
event of a corresponding reduction generally applicable to all senior
executives. If and to the extent that any benefit described in this
Section 5(c)(ii) is not or cannot be paid or provided under any policy,
plan, program or arrangement of the Company or any Subsidiary, as the
case may be, then the Company will itself pay or provide for the
payment of such Employee Benefits to the Executive, his dependents and
his beneficiaries. Employee Benefits otherwise receivable by the
Executive pursuant to this
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Section 5(c)(ii) will be reduced to the extent comparable welfare
benefits are actually received by the Executive from another employer
during the Continuation Period following the effective date of the
Executive's termination of employment, and any such benefits actually
received by the Executive must be reported by the Executive to the
Company.
(d) DEATH OR DISABILITY. If the Executive's employment is
terminated effective during the Term of Employment as a result of his death or
by the Company as a result of his Disability, the Executive (or, in the event of
his death, his designated beneficiary) will be entitled to receive his Base Pay
(at the rate in effect on the effective date of his termination of employment)
for a period of 12 months following such effective date, payable in accordance
with the Company's regular compensation practices and policies applicable to
senior executives but less any amounts paid to the Executive under any long-term
disability plan, program, policy or arrangement of the Company or any
Subsidiary.
(e) CHANGE IN CONTROL.
(i) In the event of the occurrence of a Change in Control
during the Term of Employment, if within 36 months of such Change of
Control, Executive's employment is terminated by the Company without
Cause, or by the Executive as set forth below, Executive shall be
entitled to receive (i) a lump sum payment equal to One Million Five
Hundred Thousand Dollars ($1,500,000) and (ii) the benefits
continuation as provided under Section 5(c)(ii). Notwithstanding the
foregoing, in the event of a Change in Control, Executive may terminate
employment with the Company for any reason, or without reason, during
the first 12 months immediately following the first occurrence of a
Change in Control with the right to severance compensation as provided
in this Section 5(e).
(ii) If Executive incurs the tax (the "Excise Tax") imposed by
Section 4999 of the Internal Revenue Code of 1986 (the "Code") on
"excess parachute payments" within the meaning of Section 280G(b)(1) of
the Code, the Company will pay to Executive an amount (the "Gross Up
Payment") such that the net amount retained by Executive, after
deduction of any Excise Tax on the excess parachute payment and any
federal, state and local taxes (together with penalties and interest)
and Excise Tax upon the payment provided for by this Section 6(e)(ii),
will be equal to the Parachute Amount.
(iii) For purposes of determining the amount of the Gross Up
Payment, Executive will be deemed to pay federal income taxes at the
highest marginal rate of federal taxation in the calendar year in which
the Gross Up Payment is to be made and state and local income taxes at
the highest marginal rates of taxation in the state and locality of
Executive's residence on the date of Executive's termination, net of
the maximum reduction in federal income taxes that could be obtained
from deduction of such state and local taxes. The determination of
whether the Excise Tax is payable and
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the amount thereof will be determined by a firm of independent
certified public accountants jointly selected by the Company and the
Executive.
(iv) The Company will pay the estimated amount of the Gross Up
Payment to the Federal tax authorities as withholding taxes. The
Executive and the Company agree to reasonably cooperate in the
determination of the actual amount of the Gross Up Payment. Further,
Executive and the Company agree to make such adjustments to the
estimated amount of the Gross Up Payment as may be necessary to equal
the actual amount of the Gross Up Payment, which in the case of
Executive will refer to refunds of prior overpayments and in the case
of the Company will refer to makeup of prior underpayments.
(f) COMPENSATION AND BENEFITS ON TERMINATION. Except as
otherwise provided in Section 5(c), (d) or (e):
(i) All compensation and benefits payable to the
Executive pursuant to Section 4 (other than compensation and benefits
previously earned and, if applicable, vested under the terms of this
Agreement or any other applicable employee benefit plan, program,
policy, arrangement or agreement) will terminate as of the effective
date of the Executive's termination of employment; and
(ii) The Executive will not be entitled to, and hereby
waives, any claims for compensation or benefits (other than
compensation and benefits previously earned and, if applicable, vested
under the terms of this Agreement or any other applicable employee
benefit plan, program, policy, arrangement or agreement) payable after
such effective date and for damages arising in connection with his
termination of employment pursuant to this Agreement.
(g) NO MITIGATION OBLIGATION. The Company hereby acknowledges
that it will be difficult and may be impossible for the Executive to find
reasonably comparable employment following the Termination Date and that the
non-competition covenant contained in Section 6 will further limit the
employment opportunities for the Executive. Accordingly, the payment of the
compensation by the Company to the Executive in accordance with the terms of
this Agreement is hereby acknowledged by the Company to be reasonable, and the
Executive will not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor will any
profits, income, earnings or other benefits from any source whatsoever create
any mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 5(c)(ii).
6. COMPETITIVE ACTIVITY. During the Term of Employment and the period
ending one year following the effective date of the Executive's termination of
employment, the Executive will not:
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(a) enter into or engage in any business which competes with the
Company's business or promote or assist, financially or
otherwise, any firm, person, association, partnership,
corporation or other entity engaged in any business which
competes with the Company's business; provided that this
clause (i) shall cease to apply after the Executive's
termination of employment, or
(b) solicit or endeavor, directly or indirectly (including through
third parties), to cause any employee of the Company or any
Subsidiary to leave his employment or induce or attempt to
induce any such employee to breach any employment agreement
with the Company or any Subsidiary or otherwise interfere with
the employment of any such employee; or
(c) solicit, endeavor to cause, induce or attempt to induce any
agent who engages in the business of marketing the services of
the Company or any Subsidiary to terminate, reduce or modify
its agency relationship with the Company or any Subsidiary.
7. UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION. (a) Executive will
keep in strict confidence, and will not, directly or indirectly, at any time
during or after his employment with the Company, disclose, furnish, disseminate,
make available or, except in the course of performing his duties of employment
hereunder, use any trade secrets or confidential business and technical
information of the Company or its customers, vendors or property owners or
managers, without limitation as to when or how Executive may have acquired such
information. Such confidential information will include, without limitation, the
Company's unique selling methods and trade techniques, management, training,
marketing and selling manuals, promotional materials, training courses and other
training and instructional materials, vendor, owner, manager and product
information, customer lists, other customer information and other trade
information. Executive specifically acknowledges that all such confidential
information including, without limitation, customer lists, other customer
information and other trade information, whether reduced to writing, maintained
on any form of electronic media, or maintained in the mind or memory of
Executive and whether compiled by the Company, and/or Executive, derives
independent economic value from not being readily known to or ascertainable by
proper means by others who can obtain economic value from its disclosure or use,
that reasonable efforts have been made by the Company to maintain the secrecy of
such information, that such information is the sole property of the Company and
that any retention and use of such information by Executive during his
employment with the Company (except in the course of performing his duties and
obligations hereunder) or after the termination of his employment will
constitute a misappropriation of the Company's trade secrets.
(b) Executive agrees that upon termination of Executive's
employment with the Company, for any reason, Executive will return to the
Company, in good condition, all property of the Company, including without
limitation, the originals and all copies of all management, training, marketing
and selling manuals, promotional materials, other training and instructional
materials, vendor, owner, manager and product information, customer lists, other
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customer information and all other selling, service and trade information and
equipment. In the event that such items are not so returned, the Company will
have the right to charge Executive for all reasonable damages, costs, attorneys'
fees and other expenses incurred in searching for, taking, removing and/or
recovering such property.
(c) Executive acknowledges that to the extent permitted by
law, all work papers, reports, documentation, drawing, photographs, negatives,
tapes and masters therefor, prototypes and other materials (hereinafter,
"items"), including, without limitation, any and all such items generated and
maintained on any form of electronic media, generated by Executive during his
employment with the Company will be considered a "work made for hire" and that
ownership of any and all copyrights in any and all such items will belong to the
Company. The item will recognize the Company as the copyright owner, will
contain all proper copyright notices, e.g., "(year of creation" Interstate
Hotels Corporation. All rights reserved," and will be in condition to be
registered or otherwise placed in compliance with registration or other
statutory requirements throughout the world.
(d) Executive hereby assigns and agrees to assign to the
Company, its successors, assigns or nominees, all of his rights to any
discoveries, inventions and improvements, whether patentable or note, made,
conceived or suggested, either solely or jointly with others, by Executive while
in the Company's employ, whether in the course of his employment with the use of
the Company's time, materials or facilities or in any way within or related to
the existing or contemplated scope of the Company's business. Any discovery,
invention or improvement relating to any subject matter with which the Company
was concerned during Executive's employment and made, conceived or suggested by
Executive, either solely or jointly with others, within one year following
termination of Executive's employment under this Agreement or any successor
agreements will be irrebuttably presumed to have been so made, conceived or
suggested in the course of such employment with the use of the Company's time,
materials or facilities. Upon request by the Company with respect to any such
discoveries, inventions or improvements, Executive will execute and deliver to
the Company, at any time during or after his employment, all appropriate
documents for use in applying for, obtaining and maintaining such domestic and
foreign patents as the Company may desire, and all proper assignments therefor,
when so requested, at the expense of the Company, but without further or
additional consideration.
(e) Executive may use the Company's trade names, trademarks
and/or service marks in connection with the sale of the Company's products and
services, but only in such manner and for such purposes as may be authorized by
the Company. Upon any termination of this Agreement, Executive immediately will
cease the use of such trade names, trademarks and/or service marks and eliminate
them wherever they have been used or incorporated by Executive.
(f) The Executive will not directly or indirectly (i) solicit
or endeavor to cause any employee of the Company or any Subsidiary to leave his
employment or induce or attempt to induce any such employee to breach any
employment agreement with the Company or any
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Subsidiary or otherwise interfere with the employment of any such employee or
(ii) solicit, endeavor to cause, induce or attempt to induce any agent who
engages in the business of marketing the services of the Company or any
Subsidiary to terminate, reduce or modify its agency relationship with the
Company or any Subsidiary.
8. SUCCESSORS AND BINDING AGREEMENT. (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor will thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto will, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 8(a) and (b). Without limiting the generality or
effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by Executive's
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 8(c), the Company will
have no liability to pay any amount so attempted to be assigned, transferred or
delegated.
9. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation, arbitration or other action or proceeding designed to
deny, or to recover from, the Executive the benefits provided or intended to be
provided to the Executive hereunder, the Company irrevocably authorizes the
Executive from time to time to retain counsel of Executive's choice, at the
expense of the Company as hereafter provided, to advise and represent the
Executive in connection with any such interpretation, enforcement or defense,
including without limitation the initiation or defense of
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any litigation, arbitration or other legal action, whether by or against the
Company or any Director, officer, stockholder or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Executive's entering into an attorney-client
relationship with such counsel, and in that connection the Company and the
Executive agree that a confidential relationship shall exist between the
Executive and such counsel. Without respect to whether the Executive prevails,
in whole or in part, in connection with any of the foregoing, the Company will
pay and be solely financially responsible for any and all attorneys' and related
fees and expenses incurred by the Executive in connection with any of the
foregoing.
10. ADDITIONAL REMEDIES. (a) Notwithstanding any other remedy herein
provided for or available, if the Executive should be in breach of any of the
provisions of Section 6 or 7, the Executive expressly acknowledges and agrees
that the Company will be entitled to injunctive relief or specific performance,
without the necessity of proving damages, in addition to any other remedies it
may have.
(b) Notwithstanding any of the foregoing, in the event of any
disputes regarding the interpretation or application of any provision of this
Agreement, either the Executive or the Company, or both parties, may request in
writing that such dispute be resolved through final and binding arbitration. The
parties will jointly select the arbitrator who will hear such dispute. If the
parties cannot agree on the selection of an arbitrator, the parties will request
that one be appointed by the American Arbitration Association. The arbitration
will be conducted in Pittsburgh, Pennsylvania (or in any other location mutually
agreed upon by the parties) in accordance with the rules of the American
Arbitration Association. The parties acknowledge and agree that time will be of
the essence throughout such procedure. The decision of the arbitrator may be
entered in any court having subject matter and personal jurisdiction over the
dispute and the Executive. The Company will pay any costs and expenses in
connection with any such dispute or procedure.
11. REPRESENTATION. Each party represents and warrants that it is fully
authorized and empowered to enter into this Agreement and that the performance
of its obligations under this Agreement will not violate any agreement between
it and any other person or entity.
12. SEVERABILITY. In the event that any provision or portion of this
Agreement is determined to be invalid or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement will be unaffected
thereby and will remain in full force and effect to the fullest extent permitted
by law.
13. LITIGATION AND REGULATORY COOPERATION. During and after Executive's
employment, Executive shall reasonably cooperate with the Company in the defense
or prosecution of any claims or actions now in existence or which may be brought
in the future against or on behalf of the Company which relate to events or
occurrences that transpired while Executive was employed by the Company;
provided, however, that such cooperation shall not
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materially and adversely affect Executive or expose Executive to an increased
probability of civil or criminal litigation. Executive's cooperation in
connection with such claims or actions shall include, but not be limited to,
being available to meet with counsel to prepare for discovery or trial and to
act as a witness on behalf of the Company at mutually convenient times. During
and after Executive's employment, Executive also shall cooperate fully with the
Company in connection with any investigation or review of any federal, state or
local regulatory authority as any such investigation or review relates to events
or occurrences that transpired while Executive was employed by the Company. The
Company shall also provide Executive with compensation on an hourly basis
calculated as his final Base Pay for requested litigation and regulatory
cooperation that occurs after his termination of employment, and reimburse
Executive for all costs and expenses incurred in connection with his performance
under this Section 13; including, but not limited to, reasonable attorney" fees
and costs.
14. INDEMNIFICATION. The Executive shall receive maximum
indemnification from the Company as permitted by the Company's by-laws in effect
at any time during the Term of this Agreement and applicable law.
This Section shall survive the termination of this Agreement.
15. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express or UPS, addressed to the Company (to the attention of the Secretary of
the Company) at its principal executive office and to the Executive at his
principal residence (with a copy to any counsel designated by the Executive), or
to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of changes of address will be
effective only upon receipt.
16. DISCLOSURE. During the Term of Employment and for one year
thereafter, Executive will communicate the contents of this Agreement to any
person, firm, association, partnership, corporation or other entity which he or
she intends to be employed by, associated with, or represent and which is
engaged in a business that is competitive to the business of the Company.
17. MODIFICATIONS AND WAIVERS. No provision of this Agreement may be
modified or discharged unless such modification or discharge is authorized by
the Board and is agreed to in writing, signed by the Executive and by an officer
of the Company duly authorized by the Board. No waiver by either party hereto of
any breach by the other party hereto of any condition or provision of this
Agreement to be performed by such other party will be deemed a waiver of similar
or dissimilar provisions or conditions at the time or at any prior or subsequent
time.
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18. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties hereto with respect to its subject matter, except
as such parties may otherwise agree in a writing which specifies that it is an
exception to the foregoing. This Agreement supersedes all prior agreements
between the parties hereto with respect to its subject matter and,
notwithstanding any other provision hereof, will become effective upon the
execution of this Agreement by the parties.
19. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the Commonwealth of Pennsylvania, without giving
effect to the principles of conflict of laws of such Commonwealth.
20. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed to be an original but all of
which together will constitute one and the same instrument.
21. HEADINGS, ETC. The section headings contained in this Agreement are
for convenience of reference only and will not be deemed to control or affect
the meaning or construction of any provision of this Agreement. References to
Sections are to Sections in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INTERSTATE HOTELS CORPORATION
By: /s/ Thomas F. Hewitt
--------------------------------
/s/ J. William Richardson
----------------------------------
J. William Richardson
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EXHIBIT A
Executive: J. William Richardson
Duties and Responsibilities: Vice Chairman
and Chief Financial Officer
Primary Reporting Relationship: Chairman and Chief Executive Officer
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Exhibit 10.9
INTERSTATE HOTELS CORPORATION
1999 EQUITY INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Interstate Hotels Corporation 1999 Equity
Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable
the officers, employees, Independent Directors and other key persons (including
consultants) of Interstate Hotels Corporation (the "Company") and its
Subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company, thereby stimulating their efforts on
the Company's behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Administrator" is defined in Section 2(a).
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Deferred Stock Awards, Restricted Stock Awards and Unrestricted Stock
Awards.
"Board" means the Board of Directors of the Company.
"Change of Control" is defined in Section 14.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the committee of the Board referred to in Section 2.
"Covered Employee" means an employee who is a "covered employee" within
the meaning of Section 162(m) of the Code.
"Deferred Stock Award" means Awards granted pursuant to Section 7.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 16.
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"Fair Market Value" of the Stock on any given date means the fair
market value of the Stock determined in good faith by the Administrator;
provided, however, that (i) if the Stock is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), NASDAQ National Market System or a national securities exchange, the
determination shall be made by reference to market quotations. If there are no
market quotations for such date, the determination shall be made by reference to
the last date preceding such date for which there are market quotations.
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Cycle" means one or more periods of time, which may be of
varying and overlapping durations, as the Administrator may select, over which
the attainment of one or more performance criteria will be measured for the
purpose of determining a participant's right to and the payment of a Restricted
Stock Award or Deferred Stock Award.
"Restricted Stock Award" means Awards granted pursuant to Section 6.
"Stock" means the Common Stock, par value $.01 per share, of the
Company, subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities beginning with
the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50 percent or more of the economic interest or the total combined
voting power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section
8.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO
SELECT PARTICIPANTS AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by either the Board or a
committee of not less than two Independent Directors (in either case, the
"Administrator").
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(b) Powers of Administrator. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to
time be granted;
(ii) to determine the time or times of grant, and the extent,
if any, of Incentive Stock Options, Non-Qualified Stock Options,
Restricted Stock Awards, Deferred Stock Awards and Unrestricted Stock
Awards, or any combination of the foregoing, granted to any one or more
participants;
(iii) to determine the number of shares of Stock to be covered
by any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of
the Plan, of any Award, which terms and conditions may differ among
individual Awards and participants, and to approve the form of written
instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of
all or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii), to extend
at any time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and
under what circumstances distribution or the receipt of Stock and other
amounts payable with respect to an Award shall be deferred either
automatically or at the election of the participant and whether and to
what extent the Company shall pay or credit amounts constituting
interest (at rates determined by the Administrator) or dividends or
deemed dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its own
acts and proceedings as it shall deem advisable; to interpret the terms
and provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Administrator shall be binding
on all persons, including the Company and Plan participants.
(c) Delegation of Authority to Grant Awards. The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to the granting of
Awards at Fair Market Value, to
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individuals who are not subject to the reporting and other provisions of Section
16 of the Act or "covered employees" within the meaning of Section 162(m) of the
Code. Any such delegation by the Administrator shall include a limitation as to
the amount of Awards that may be granted during the period of the delegation and
shall contain guidelines as to the determination of the exercise price of any
Stock Option, the conversion ratio or price of other Awards and the vesting
criteria. The Administrator may revoke or amend the terms of a delegation at any
time but such action shall not invalidate any prior actions of the
Administrator's delegate or delegates that were consistent with the terms of the
Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Stock Issuable. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be such aggregate number of shares
of Stock as does not exceed the sum of (i) 2,300,000 shares; plus (ii) as of
each June 30 and December 31 after June 30, 1999, an additional positive number
equal to twenty percent (20%) of the shares of Stock issued by the Company
during that six month period; provided, however, that the maximum number of
shares of Stock for which Incentive Stock Options may be granted under the Plan
shall not exceed 2,300,000 shares. For purposes of the foregoing limitations,
the shares of Stock underlying any Awards which are forfeited, cancelled,
reacquired by the Company, satisfied without the issuance of Stock or otherwise
terminated (other than by exercise) shall be added back to the shares of Stock
available for issuance under the Plan. Subject to such overall limitations,
shares of Stock may be issued up to such maximum number pursuant to any type or
types of Award; provided, however, that from and after the date the Plan is
subject to Section 162(m) of the Code, Stock Options with respect to no more
than 400,000 shares of Stock may be granted to any one individual participant
during any one calendar year period. The shares available for issuance under the
Plan may be authorized but unissued shares of Stock or shares of Stock
reacquired by the Company and held in its treasury.
(b) Changes in Stock. If, as a result of any reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar change in the Company's capital stock, the outstanding
shares of Stock are increased or decreased or are exchanged for a different
number or kind of shares or other securities of the Company, or additional
shares or new or different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of Stock or other
securities, the Administrator shall make an appropriate or proportionate
adjustment in (i) the maximum number of shares reserved for issuance under the
Plan, (ii) the number of Stock Options that can be granted to any one individual
participant, (iii) the number and kind of shares or other securities subject to
any then outstanding Awards under the Plan, and (iv) the price for each share
subject to any then outstanding Stock Options under the Plan, without changing
the aggregate exercise price (i.e., the exercise price multiplied by the number
of shares underlying outstanding Stock Options) as to which such Stock Options
remain exercisable and the repurchase price for shares subject to repurchase.
The adjustment by the Administrator shall be final, binding and conclusive. No
fractional shares of Stock shall be issued under the Plan
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resulting from any such adjustment, but the Administrator in its discretion may
make a cash payment in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an Incentive Stock Option, without
the consent of the participant, if it would constitute a modification, extension
or renewal of the Option within the meaning of Section 424(h) of the Code.
(c) Mergers and Other Transactions. In the case of and subject to the
consummation of (i) the dissolution or liquidation of the Company, (ii) the sale
of all or substantially all of the assets of the Company on a consolidated basis
to an unrelated person or entity, (iii) a merger, reorganization or
consolidation in which the holders of the Company's outstanding voting power
immediately prior to such transaction do not own a majority of the outstanding
voting power of the surviving or resulting entity immediately upon completion of
such transaction, (iv) the sale of all of the Stock of the Company to an
unrelated person or entity or (v) any other transaction in which the owners of
the Company's outstanding voting power prior to such transaction do not own at
least a majority of the outstanding voting power of the relevant entity after
the transaction (in each case, a "Covered Transaction"), all Options that are
not exercisable shall become fully exercisable and all other Awards with
conditions and restrictions relating solely to the passage of time and continued
employment shall become fully vested, except as the Administrator may otherwise
specify with respect to particular Awards. Upon the consummation of the Covered
Transaction, the Plan and all outstanding Awards granted hereunder shall
terminate, unless provision is made in connection with the Covered Transaction
for the assumption of Awards heretofore granted, or the substitution of such
Awards with new Awards of the successor entity or parent thereof, with
appropriate adjustment as to the number and kind of shares and, if appropriate,
the per share exercise prices, as provided in Section 3(b) above. In the event
of such termination, each optionee shall be permitted, within a specified period
of time determined by the Administrator prior to consummation of the Covered
Transaction, to exercise all outstanding Options held by such optionee,
including those that are not then exercisable, subject to the consummation of
the Covered Transaction.
(d) Substitute Awards. The Administrator may grant Awards under the
Plan in substitution for stock and stock based awards held by employees of
another corporation who become employees of the Company or a Subsidiary as the
result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Administrator may direct
that the substitute awards be granted on such terms and conditions as the
Administrator considers appropriate in the circumstances. Any substitute Awards
granted under the Plan shall not count against the share limitation set forth in
Section 3(a).
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SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time officers and
other employees, Independent Directors and key persons (including consultants
and prospective employees) of the Company and its Subsidiaries as are selected
from time to time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve. Option agreements need not be
identical.
Stock Options granted under the Plan may be either Incentive Stock
Options or NonQualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. To the extent
that any Option does not qualify as an Incentive Stock Option, it shall be
deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after June 9,
2009.
(a) Stock Options. The Administrator in its discretion may grant Stock
Options to eligible employees, Independent Directors and key persons of the
Company or any Subsidiary. Stock Options granted pursuant to this Section 5(a)
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Administrator shall deem desirable. If the Administrator so determines,
Stock Options may be granted in lieu of cash compensation at the participant's
election, subject to such terms and conditions as the Administrator may
establish.
(i) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall
be determined by the Administrator at the time of grant but shall not
be less than 100 percent of the Fair Market Value on the date of grant
in the case of Incentive Stock Options, or 85 percent of the Fair
Market Value on the date of grant, in the case of Non-Qualified Stock
Options (other than options granted in lieu of cash compensation). If
an employee owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10 percent of the
combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation and an Incentive Stock Option is
granted to such employee, the option price of such Incentive Stock
Option shall be not less than 110 percent of the Fair Market Value on
the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed
by the Administrator, but no Stock Option shall be exercisable more
than ten years after the date the option is granted. If an employee
owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10 percent of the combined
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voting power of all classes of stock of the Company or any parent or
subsidiary corporation and an Incentive Stock Option is granted to such
employee, the term of such option shall be no more than five years from
the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options
shall become exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after
the grant date; provided, however, that Stock Options granted in lieu
of cash compensation shall be exercisable in full as of the grant date.
The Administrator may at any time accelerate the exercisability of all
or any portion of any Stock Option. An optionee shall have the rights
of a stockholder only as to shares acquired upon the exercise of a
Stock Option and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the
purchase price may be made by one or more of the following methods to
the extent provided in the Option agreement:
(A) In cash, by certified or bank check or other
instrument acceptable to the Administrator;
(B) Through the delivery (or attestation to the
ownership) of shares of Stock that have been purchased by the
optionee on the open market or that have been beneficially
owned by the optionee for at least six months and are not then
subject to restrictions under any Company plan. Such
surrendered shares shall be valued at Fair Market Value on the
exercise date;
(C) By the optionee delivering to the Company a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company for the
purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee
and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure; or
(D) By the optionee delivering to the Company a
promissory note if the Board has expressly authorized the loan
of funds to the optionee for the purpose of enabling or
assisting the optionee to effect the exercise of his Stock
Option; provided that at least so much of the exercise price
as represents the par value of the Stock shall be paid other
than with a promissory note.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Stock to be
purchased pursuant to the exercise of a Stock Option will be contingent
upon receipt from the optionee (or a purchaser acting in his
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stead in accordance with the provisions of the Stock Option) by the
Company of the full purchase price for such shares and the fulfillment
of any other requirements contained in the Stock Option or applicable
provisions of laws. In the event an optionee chooses to pay the
purchase price by previously-owned shares of Stock through the
attestation method, the number of shares of Stock transferred to the
optionee upon the exercise of the Stock Option shall be net of the
number of shares attested to.
(v) Annual Limit on Incentive Stock Options. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time of
grant) of the shares of Stock with respect to which Incentive Stock
Options granted under this Plan and any other plan of the Company or
its parent and subsidiary corporations become exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000.
To the extent that any Stock Option exceeds this limit, it shall
constitute a Non-Qualified Stock Option.
(b) Reload Options. At the discretion of the Administrator, Options
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the sum of (i) the number delivered to exercise the original Option and (ii)
the number withheld to satisfy tax liabilities, with an Option term equal to the
remainder of the original Option term unless the Administrator otherwise
determines in the Award agreement for the original Option grant.
(c) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee, or by the optionee's legal
representative or guardian in the event of the optionee's incapacity.
Notwithstanding the foregoing, the Administrator, in its sole discretion, may
provide in the Award agreement regarding a given Option that the optionee may
transfer his Non-Qualified Stock Options to members of his immediate family, to
trusts for the benefit of such family members, or to partnerships in which such
family members are the only partners, provided that the transferee agrees in
writing with the Company to be bound by all of the terms and conditions of this
Plan and the applicable Option.
SECTION 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
Award entitling the recipient to acquire, at par value or such other higher
purchase price determined by the Administrator, shares of Stock subject to such
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Stock"). Conditions may be based on continuing employment (or
other business relationship) and/or achievement of
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pre-established performance goals and objectives. The grant of a Restricted
Stock Award is contingent on the participant executing a Restricted Stock Award
agreement. The terms and conditions of each such agreement shall be determined
by the Administrator, and such terms and conditions may differ among individual
Awards and participants.
(b) Rights as a Stockholder. Upon execution of a written instrument
setting forth the Restricted Stock Award and payment of any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 6(d) below, and the participant shall be
required, as a condition of the grant, to deliver to the Company a stock power
endorsed in blank.
(c) Restrictions. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the Restricted Stock Award agreement. If a
participant's employment (or other business relationship) with the Company and
its Subsidiaries terminates for any reason, the Company shall have the right to
repurchase Restricted Stock that has not vested at the time of termination at
its original purchase price, from the participant or the participant's legal
representative.
(d) Vesting of Restricted Stock. The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." Except as may otherwise be
provided by the Administrator either in the Award agreement or, subject to
Section 12 below, in writing after the Award agreement is issued, a
participant's rights in any shares of Restricted Stock that have not vested
shall automatically terminate upon the participant's termination of employment
(or other business relationship) with the Company and its Subsidiaries and such
shares shall be subject to the Company's right of repurchase as provided in
Section 6(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends. The Restricted
Stock Award agreement will require the immediate payment or investment of
dividends paid on the Restricted Stock.
SECTION 7. DEFERRED STOCK AWARDS
(a) Nature of Deferred Stock Awards. A Deferred Stock Award is an Award
of phantom stock units to a participant, subject to restrictions and conditions
as the Administrator may determine at the time of grant. Conditions may be based
on continuing employment (or other business relationship) and/or achievement of
pre-established performance goals and
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objectives. The grant of a Deferred Stock Award is contingent on the participant
executing a Deferred Stock Award agreement. The terms and conditions of each
such agreement shall be determined by the Administrator, and such terms and
conditions may differ among individual Awards and participants. At the end of
the deferral period, the Deferred Stock Award, to the extent vested, shall be
paid to the participant in the form of shares of Stock.
(b) Election to Receive Deferred Stock Awards in Lieu of Compensation.
The Administrator may, in its sole discretion, permit a participant to elect to
receive a portion of the cash compensation or Restricted Stock Award otherwise
due to such participant in the form of a Deferred Stock Award. Any such election
shall be made in writing and shall be delivered to the Company no later than the
date specified by the Administrator and in accordance with rules and procedures
established by the Administrator. The Administrator shall have the sole right to
determine whether and under what circumstances to permit such elections and to
impose such limitations and other terms and conditions thereon as the
Administrator deems appropriate.
(c) Rights as a Stockholder. During the deferral period, a participant
shall have no rights as a stockholder; provided, however, that the participant
may be entitled to receive dividends paid on the Deferred Stock in accordance
with Section 7(e) below.
(d) Restrictions. A Deferred Stock Award may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of during the deferral
period.
(e) Waiver, Deferral and Reinvestment of Dividends. The Deferred Stock
Award Agreement may require or permit the immediate payment, waiver, deferral or
investment of dividends paid on the Deferred Stock.
(f) Termination. Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 12 below, in
writing after the Award agreement is issued, a participant's right in all
Deferred Stock Awards that have not vested shall automatically terminate upon
the participant's termination of employment (or cessation of business
relationship) with the Company and its Subsidiaries for any reason.
SECTION 8. UNRESTRICTED STOCK AWARDS
Grant or Sale of Unrestricted Stock. The Administrator may, in its sole
discretion, grant (or sell at par value or such higher purchase price determined
by the Administrator) an Unrestricted Stock Award to any participant pursuant to
which such participant may receive shares of Stock free of any restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
or sold as described in the preceding sentence in respect of past services or
other valid consideration, or in lieu of cash compensation due to such
participant.
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SECTION 9. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES
Notwithstanding anything to the contrary contained herein, if any
Restricted Stock Award or Deferred Stock Award granted to a Covered Employee is
intended to qualify as "Performance-based Compensation" under Section 162(m) of
the Code and the regulations promulgated thereunder (a "Performance-based
Award"), such Award shall comply with the provisions set forth below:
(a) Performance Criteria. The performance criteria used in performance
goals governing Performance-based Awards granted to Covered Employees may
include any or all of the following: (i) the Company's return on equity, assets,
capital or investment, (ii) pre-tax or after-tax profit levels of the Company or
any Subsidiary, a division, an operating unit or a business segment of the
Company, or any combination of the foregoing; (iii) cash flow, funds from
operations or similar measure; (iv) total shareholder return; (v) changes in the
market price of the Stock; (vi) sales or market share; or (vii) earnings per
share.
(b) Grant of Performance-based Awards. With respect to each
Performance-based Award granted to a Covered Employee, the Administrator shall
select, within the first 90 days of a Performance Cycle (or, if shorter, within
the maximum period allowed under Section 162(m) of the Code) the performance
criteria for such grant, and the achievement targets with respect to each
performance criterion (including a threshold level of performance below which no
amount will become payable with respect to such Award). Each Performance-based
Award will specify the amount payable, or the formula for determining the amount
payable, upon achievement of the various applicable performance targets. The
performance criteria established by the Administrator may be (but need not be)
different for each Performance Cycle and different goals may be applicable to
Performance-based Awards to different Covered Employees.
(c) Payment of Performance-based Awards. Following the completion of a
Performance Cycle, the Administrator shall meet to review and certify in writing
whether, and to what extent, the performance criteria for the Performance Cycle
have been achieved and, if so, to also calculate and certify in writing the
amount of the Performance-based Awards earned for the Performance Cycle. The
Administrator shall then determine the actual size of each Covered Employee's
Performance-based Award, and, in doing so, may reduce or eliminate the amount of
the Performance-based Award for a Covered Employee if, in its sole judgment,
such reduction or elimination is appropriate.
(d) Maximum Award Payable. The maximum Performance-based Award payable
to any one Covered Employee under the Plan for a Performance Cycle is 300,000
shares (subject to adjustment as provided in Section 3(b) hereof).
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SECTION 10. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later than the
date as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant. The Company's obligation to deliver stock certificates
to any participant is subject to and conditioned on tax obligations being
satisfied by the participant.
(b) Payment in Stock. Subject to approval by the Administrator, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 11. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 12. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent. If and to the extent determined by the Administrator to be
required by the Code to ensure that Incentive Stock Options granted under the
Plan are qualified under Section 422 of the Code or to ensure that compensation
earned under Awards qualifies as performance-based compensation under Section
162(m) of the Code, if and to the extent intended to so qualify, Plan amendments
shall be subject to approval by the
12
<PAGE> 13
Company stockholders entitled to vote at a meeting of stockholders. Nothing in
this Section 12 shall limit the Administrator's authority to take any action
permitted pursuant to Section 3(c).
SECTION 13. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised
and any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 14. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section
14:
(a) Except as otherwise provided in the applicable Award agreement,
each outstanding Stock Option shall automatically become fully exercisable.
(b) Except as otherwise provided in the applicable Award Agreement,
conditions and restrictions on each outstanding Restricted Stock Award and
Deferred Stock Award which relate solely to the passage of time and continued
employment will be removed. Performance or other conditions (other than
conditions and restrictions relating solely to the passage of time and continued
employment) will continue to apply unless otherwise provided in the applicable
Award Agreement.
(c) Except as otherwise provided in the applicable Award agreement,
"Change of Control" shall mean the occurrence of any one of the following
events:
(i) any "Person," as such term is used in Sections 13(d) and
14(d) of the Act (other than the Company, any of its Subsidiaries, or
any trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of the Company or any of its
Subsidiaries), together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Act) of such person, shall
become the "beneficial owner" (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power
of the Company's then outstanding securities having the right to vote
in an election of the Company's Board of Directors ("Voting
Securities") (in such case other than as a result of an acquisition of
securities directly from the Company); or
13
<PAGE> 14
(ii) persons who, as of the Effective Date, constitute the
Company's Board of Directors (the "Incumbent Directors") cease for any
reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of
the Company subsequent to the Effective Date shall be considered an
Incumbent Director if such person's election was approved by or such
person was nominated for election by either (A) a vote of at least a
majority of the Incumbent Directors or (B) a vote of at least a
majority of the Incumbent Directors who are members of a nominating
committee comprised, in the majority, of Incumbent Directors; but
provided further, that any such person whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of members of the Board of Directors or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board, including by reason of
agreement intended to avoid or settle any such actual or threatened
contest or solicitation, shall not be considered an Incumbent Director;
or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company where the stockholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as
such term is defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate more than 50 percent
of the voting shares of the corporation issuing cash or securities in
the consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of shares of Voting Securities outstanding, increases the proportionate
number of shares of Voting Securities beneficially owned by any person to 25
percent or more of the combined voting power of all then outstanding Voting
Securities; provided, however, that if any person referred to in this sentence
shall thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company), then a "Change of Control" shall be deemed to have occurred for
purposes of the foregoing clause (i).
SECTION 15. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The
Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
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<PAGE> 15
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to participants
under this Plan shall be deemed delivered for all purposes when the Company or a
stock transfer agent of the Company shall have mailed such certificates in the
United States mail, addressed to the participant, at the participant's last
known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards
under the Plan shall be subject to such Company's insider trading policy, as in
effect from time to time.
SECTION 16. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a
majority of the votes cast at a meeting of stockholders at which a quorum is
present. Subject to such approval by the stockholders and to the requirement
that no Stock may be issued hereunder prior to such approval, Stock Options and
other Awards may be granted hereunder on and after adoption of this Plan by the
Board.
SECTION 17. GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed
by, and construed in accordance with, the laws of the State of Pennsylvania,
applied without regard to conflict of law principles.
DATE APPROVED BY BOARD OF DIRECTORS: June 9, 1999
DATE APPROVED BY STOCKHOLDERS: June 9, 1999
15
<PAGE> 1
Exhibit 10.9.1
INTERSTATE HOTELS CORPORATION
EMPLOYEE'S NONQUALIFIED STOCK OPTION AGREEMENT
RECITALS:
A. *(the "Optionee") is an officer, employee, independent
director or other key person (including consultants and prospective employees)
of Interstate Hotels Corporation (the "Company") or a Subsidiary.
B. The Optionee has been selected as a participant in the
Interstate Hotels Corporation 1999 Equity Incentive Plan (the "Plan").
C. The Board of Directors of the Company (the "Board") has
authorized the execution of a stock option agreement in the form hereof as of
_________________, 1999 (the "Date of Grant").
D. The option granted hereby is intended to be a nonqualified
stock option and will not be treated as an "incentive stock option" within the
meaning of that term under Section 422 of the Internal Revenue Code of 1986.
NOW, THEREFORE, pursuant to the Plan and subject to the terms
and conditions thereof and to the terms and conditions herein set forth, the
Company hereby grants to the Optionee a Nonqualified Option (the "Option") to
purchase * shares of Class A Common Stock of the Company (the "Option Shares")
at an exercise price per Option Share equal to $____ (the "Exercise Price").
1. VESTING OF OPTION. (a) Unless terminated as hereinafter
provided, the Option will become exercisable cumulatively to the extent of
one-third of the Option Shares after each of the first three anniversaries of
the Date of Grant for so long as the Optionee remains in the continuous employ
of the Company or a Subsidiary. For the purposes of this Agreement, the
continuous employment of the Optionee with the Company or a Subsidiary will not
be deemed to have been interrupted, and the Optionee will not be deemed to have
ceased to be an employee of the Company or a Subsidiary, by reason of the
transfer of his or her employment among the Company and its Subsidiaries or a
leave of absence approved by the Company.
(b) Notwithstanding the provisions of Section 1(a) hereof, if
the Optionee's employment with the Company or a Subsidiary terminates prior to
the third anniversary of the Date of Grant by reason of his or her death or
disability, or if the Optionee's employment with the Company or a Subsidiary is
terminated by the Company or a Subsidiary prior to the third anniversary of the
Date of Grant for any reason other than Cause, the Option will become fully
exercisable.
(c) Notwithstanding the provisions of Sections 1(a) and 1(b)
hereof, if a Change in Control (as defined in the Plan) occurs while the
Optionee is employed by the Company or a Subsidiary and prior to the termination
of the Option as provided in Section 2 hereof, the Option will thereupon become
fully exercisable.
<PAGE> 2
(d) To the extent that the Option becomes exercisable in
accordance with the terms of this Section 1, it may be exercised in whole or in
part from time to time thereafter.
2. TERMINATION OF OPTION. The Option will terminate automatically
and without further action on the earliest of the following dates:
(a) the date of the voluntary termination by the Optionee of
his or her employment with the Company or a Subsidiary;
(b) the date of the termination by the Company or a Subsidiary
of the Optionee's employment for Cause;
(c) 360 days after the termination of the Optionee's
employment with the Company or a Subsidiary by reason of his or her death;
(d) 180 days after the termination of the Optionee's
employment with the Company or a Subsidiary by reason of his or her disability;
(e) 30 days after the termination by the Company or a
Subsidiary of the Optionee's employment therewith for any reason other than as
described in Section 2(b) hereof; or
(f) ten years after the Date of Grant, if the Optionee remains
in the continuous employ of the Company or a Subsidiary during that ten-year
period.
3. PAYMENT OF EXERCISE PRICE. The Exercise Price may be paid (a)
in cash, by certified or bank check or other cash equivalent acceptable to the
Board of Directors of the Company or the committee thereof responsible for the
administration of the Plan (in either case, the "Administrator"), (b) by actual
or constructive transfer to the Company of nonforfeitable, nonrestricted shares
of Class A Common Stock of the Company ("Stock") that have been purchased by the
Optionee on the open market or that have been owned by the Optionee for at least
six months prior to the date of exercise, or (c) by any combination of the
foregoing methods of payment. Nonforfeitable, nonrestricted shares of Stock that
are transferred by the Optionee in payment of all or any part of the Exercise
Price will be valued on the basis of their fair market value as determined by
the Administrator from time to time. The requirement of payment in cash will be
deemed satisfied if the Optionee makes arrangements that are satisfactory to the
Administrator with a broker that is a member of the National Association of
Securities Dealers, Inc. to sell a sufficient number of the Option Shares that
are being purchased pursuant to the exercise so that the net proceeds of the
sale transaction will at least equal the amount of the aggregate Exercise Price
and pursuant to which the broker undertakes to deliver to the Company the amount
of the aggregate Exercise Price not later than the date on which the sale
transaction will settle in the ordinary course of business.
4. COMPLIANCE WITH LAW. The Company will make reasonable efforts
to comply with all applicable securities laws; provided, however, that
notwithstanding any other provision of this agreement, the Option will not be
exercisable if the exercise thereof would result in a violation of any such law.
- 2 -
<PAGE> 3
5. RIGHT TO TERMINATE EMPLOYMENT AND ADJUST COMPENSATION. No
provision of this agreement will limit in any way whatsoever any right that the
Company or a Subsidiary may otherwise have to terminate the employment or adjust
the compensation of the Optionee at any time.
6. RELATION TO OTHER BENEFITS. Any economic or other benefit to
the Optionee under this Agreement or the Plan will not be taken into account in
determining any benefits to which the Optionee may be entitled under any
profit-sharing, retirement or other benefit or compensation plan maintained by
the Company or a Subsidiary and will not affect the amount of any life insurance
coverage available to any beneficiary under any life insurance plan covering
employees of the Company or a Subsidiary.
7. THE PLAN. The Option evidenced hereby will be subject to the
provisions of the Plan, including without limitation the provisions thereof
relating to the transferability and exercisability of Option rights (including
the Option), adjustments and withholding taxes, as the Plan may from time to
time be amended, provided, however, that no such amendment adversely affects the
rights of the Optionee hereunder without the Optionee's written consent thereto.
8. SEVERABILITY. In the event that one or more of the provisions
of this Agreement may be invalidated for any reason by a court, any provision so
invalidated will be deemed to be separable from the other provisions hereof, and
the remaining provisions hereof will continue to be valid and fully enforceable.
9. GOVERNING LAW. This Agreement is made under, and will be
construed in accordance with, the laws of the Commonwealth of Pennsylvania,
without giving effect to the principle of conflict of laws of such Commonwealth.
10. CERTAIN DEFINITIONS. "Cause" means any act or omission by the
Optionee that constitutes cause for termination of employment under any
employment agreement or employment letter between the Optionee and the Company
or any Subsidiary.
This Agreement is executed by the Company on this ____ day of
_______________, 1999, effective as of the Date of Grant.
INTERSTATE HOTELS CORPORATION
By____________________________________
The undersigned Optionee hereby acknowledges receipt of an executed original of
this Agreement and accepts the Option granted hereunder, subject to the terms
and conditions of the Plan and the terms and conditions hereinabove set forth.
Date:_____________________ ______________________________________
Optionee
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<PAGE> 1
Exhibit 10.9.2
INTERSTATE HOTELS CORPORATION
EMPLOYEE'S NONQUALIFIED STOCK OPTION AGREEMENT
----------------------------------------------
RECITALS:
--------
A. *(the "Optionee") is an officer, employee, independent director or
other key person (including consultants and prospective employees) of Interstate
Hotels Corporation (the "Company") or a Subsidiary.
B. The Optionee has been selected as a participant in the Interstate
Hotels Corporation 1999 Equity Incentive Plan (the "Plan").
C. The Board of Directors of the Company (the "Board") has authorized
the execution of a stock option agreement in the form hereof as of ____________,
1999 (the "Date of Grant").
D. The option granted hereby is intended to be a nonqualified stock
option and will not be treated as an "incentive stock option" within the meaning
of that term under Section 422 of the Internal Revenue Code of 1986.
NOW, THEREFORE, pursuant to the Plan and subject to the terms and
conditions thereof and to the terms and conditions herein set forth, the Company
hereby grants to the Optionee a Nonqualified Option (the "Option") to purchase *
shares of Class A Common Stock of the Company (the "Option Shares") at an
exercise price per Option Share equal to $____ (the "Exercise Price").
1. VESTING OF OPTION. (a) Unless terminated as hereinafter provided, the
Option will become exercisable cumulatively to the extent of one-third of the
Option Shares after each of the first three anniversaries of the Date of Grant
for so long as the Optionee remains in the continuous employ of the Company or
a Subsidiary. For the purposes of this Agreement, the continuous employment of
the Optionee with the Company or a Subsidiary will not be deemed to have been
interrupted, and the Optionee will not be deemed to have ceased to be an
employee of the Company or a Subsidiary, by reason of the transfer of his or
her employment among the Company and its Subsidiaries or a leave of absence
approved by the Company.
(b) Notwithstanding the provisions of Section 1(a) hereof, if the
Optionee's employment with the Company or a Subsidiary terminates prior to the
third anniversary of the Date of Grant by reason of his or her death or
disability, or if the Optionee's employment with the Company or a Subsidiary is
terminated by the Company or a Subsidiary prior to the third anniversary of the
Date of Grant for any reason other than Cause, the Option will become fully
exercisable.
<PAGE> 2
(c) Notwithstanding the provisions of Sections 1(a) and 1(b) hereof,
if a Change in Control occurs while the Optionee is employed by the Company or
a Subsidiary and prior to the termination of the Option as provided in Section
2 hereof, the Option will thereupon become fully exercisable. As used herein,
the term "Change in Control" has the meaning ascribed to it in the Plan unless
the Optionee has entered into a written employment agreement with the Company
or a Subsidiary and such employment agreement contains a definition of "Change
in Control," "Change of Control" or similar term that is different from that
contained in the Plan, in which case, during the term of such employment
agreement, the term "Change in Control" as used in this Agreement will have the
meaning ascribed to such term (or similar term) in the employment agreement.
(d) To the extent that the Option becomes exercisable in accordance
with the terms of this Section 1, it may be exercised in whole or in part from
time to time thereafter.
2. TERMINATION OF OPTION. The Option will terminate automatically and
without further action on the earliest of the following dates:
(a) the date of the voluntary termination by the Optionee of his or
her employment with the Company or a Subsidiary;
(b) the date of the termination by the Company or a Subsidiary of the
Optionee's employment for Cause;
(c) 360 days after the termination of the Optionee's employment with
the Company or a Subsidiary by reason of his or her death;
(d) 180 days after the termination of the Optionee's employment with
the Company or a Subsidiary by reason of his or her disability;
(e) 30 days after the termination by the Company or a Subsidiary of
the Optionee's employment therewith for any reason other than as described in
Section 2(b) hereof; or
(f) ten years after the Date of Grant, if the Optionee remains in the
continuous employ of the Company or a Subsidiary during that ten-year period.
3. PAYMENT OF EXERCISE PRICE. The Exercise Price may be paid (a) in
cash, by certified or bank check or other cash equivalent acceptable to the
Board of Directors of the Company or the committee thereof responsible for the
administration of the Plan (in either case, the "Administrator"), (b) by actual
or constructive transfer to the Company of nonforfeitable, nonrestricted shares
of Class A Common Stock of the Company ("Stock") that have been purchased by
the Optionee on the open market or that have been owned by the Optionee for at
least six months prior to the date of exercise, or (c) by any combination of
the foregoing methods of payment. Nonforfeitable, nonrestricted shares of Stock
that are transferred by the Optionee in payment of all or any part of the
Exercise Price will be valued on the basis of their fair market value as
determined by the Administrator from time to time. The requirement of payment
in cash will be deemed satisfied if the Optionee makes arrangements that are
satisfactory to the Administrator with a broker that is a member of the
National Association of Securities Dealers, Inc. to sell a sufficient number of
the Option Shares that are being
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<PAGE> 3
purchased pursuant to the exercise so that the net proceeds of the sale
transaction will at least equal the amount of the aggregate Exercise Price and
pursuant to which the broker undertakes to deliver to the Company the amount of
the aggregate Exercise Price not later than the date on which the sale
transaction will settle in the ordinary course of business.
4. COMPLIANCE WITH LAW. The Company will make reasonable efforts to
comply with all applicable securities laws; provided, however, that
notwithstanding any other provision of this agreement, the Option will not be
exercisable if the exercise thereof would result in a violation of any such law.
5. RIGHT TO TERMINATE EMPLOYMENT AND ADJUST COMPENSATION. No provision
of this agreement will limit in any way whatsoever any right that the Company
or a Subsidiary may otherwise have to terminate the employment or adjust the
compensation of the Optionee at any time.
6. RELATION TO OTHER BENEFITS. Any economic or other benefit to the
Optionee under this Agreement or the Plan will not be taken into account in
determining any benefits to which the Optionee may be entitled under any
profit-sharing, retirement or other benefit or compensation plan maintained by
the Company or a Subsidiary and will not affect the amount of any life insurance
coverage available to any beneficiary under any life insurance plan covering
employees of the Company or a Subsidiary.
7. THE PLAN. The Option evidenced hereby will be subject to the
provisions of the Plan, including without limitation the provisions thereof
relating to the transferability and exercisability of Option rights (including
the Option), adjustments and withholding taxes, as the Plan may from time to
time be amended, provided, however, that no such amendment adversely affects
the rights of the Optionee hereunder without the Optionee's written consent
thereto.
8. SEVERABILITY. In the event that one or more of the provisions of this
Agreement may be invalidated for any reason by a court, any provision so
invalidated will be deemed to be separable from the other provisions hereof,
and the remaining provisions hereof will continue to be valid and fully
enforceable.
9. GOVERNING LAW. This Agreement is made under, and will be construed in
accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to the principle of conflict of laws of such Commonwealth.
10. CERTAIN DEFINITIONS. "Cause" means any act or omission by the
Optionee that constitutes cause for termination of employment under any
employment agreement or employment letter between the Optionee and the Company
or any Subsidiary.
This Agreement is executed by the Company on this____day of_____________,
1999, effective as of the Date of Grant.
INTERSTATE HOTELS CORPORATION
BY___________________________
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<PAGE> 4
The undersigned Optionee hereby acknowledges receipt of an executed original of
this Agreement and accepts the Option granted hereunder, subject to the terms
and conditions of the Plan and the terms and conditions hereinabove set forth.
Date:_____________________ ______________________________
Optionee
- 4 -
<PAGE> 1
Exhibit 10.10
INTERSTATE HOTELS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Interstate Hotels Corporation Employee Stock
Purchase Plan ("the Plan") is to provide eligible employees of Interstate Hotels
Corporation (the "Company") and certain of its subsidiaries with opportunities
to purchase shares of the Company's Class A common stock, par value $.01 per
share (the "Common Stock"). Four hundred thousand (400,000) shares of Common
Stock in the aggregate have been approved and reserved for this purpose. The
Plan is intended to constitute an "employee stock purchase plan" within the
meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), and shall be interpreted in accordance with that intent.
1. Administration. The Plan will be administered by the person or
persons (the "Administrator") appointed by the Company's Board of Directors (the
"Board") for such purpose. The Administrator has authority to make rules and
regulations for the administration of the Plan, and its interpretations and
decisions with regard thereto shall be final and conclusive. No member of the
Board or individual exercising administrative authority with respect to the Plan
shall be liable for any action or determination made in good faith with respect
to the Plan or any option granted hereunder.
2. Offerings. The Company will make one or more offerings to eligible
employees to purchase Common Stock under the Plan ("Offerings"). Unless
otherwise determined by the Administrator, the initial Offering will begin on
October 1, 1999 and will end on December 31, 1999 (the "Initial Offering").
Thereafter, unless otherwise determined by the Administrator, an Offering will
begin on the first business day occurring on or after each January 1 and July 1
and will end on the last business day occurring on or before the following June
30 and December 31, respectively. The Administrator may, in its discretion,
designate a different period for any Offering, provided that no Offering shall
exceed one year in duration or overlap any other Offering.
3. Eligibility. All employees of the Company (including employees who
are also directors of the Company) and all employees of each Designated
Subsidiary (as defined in Section 11) are eligible to participate in any one or
more of the Offerings under the Plan, provided that as of the first day of the
applicable Offering (the "Offering Date") they are customarily employed by the
Company or a Designated Subsidiary for more than twenty (20) hours a week or
five (5) months a year and have completed at least twelve (12) consecutive
months of employment.
4. Participation. An employee eligible on any Offering Date may
participate in such Offering by submitting an enrollment form to his appropriate
payroll location at least fifteen (15) business days before the Offering Date
(or by such other deadline as shall be
<PAGE> 2
established for the Offering). The form will (a) state a whole percentage to be
deducted from his Compensation (as defined in Section 11) per pay period, (b)
authorize the purchase of Common Stock for him in each Offering in accordance
with the terms of the Plan and (c) specify the exact name or names in which
shares of Common Stock purchased for him are to be issued pursuant to Section
10. An employee who does not enroll in accordance with these procedures will be
deemed to have waived his right to participate. Unless an employee files a new
enrollment form or withdraws from the Plan, his deductions and purchases will
continue at the same percentage of Compensation for future Offerings, provided
he remains eligible. Notwithstanding the foregoing, participation in the Plan
will neither be permitted nor be denied contrary to the requirements of the
Code.
5. Employee Contributions. Each eligible employee may authorize payroll
deductions at a minimum of one percent (1%) up to a maximum of eight percent
(8%) of his Compensation for each pay period. The Company will maintain book
accounts showing the amount of payroll deductions made by each participating
employee for each Offering. No interest will accrue or be paid on payroll
deductions.
6. Deduction Changes. Except as may be determined by the Administrator
in advance of an Offering, an employee may not increase or decrease his payroll
deduction during any Offering, but may increase or decrease his payroll
deduction with respect to the next Offering (subject to the limitations of
Section 5) by filing a new enrollment form at least fifteen (15) business days
before the next Offering Date (or by such other deadline as shall be established
for the Offering). The Administrator may, in advance of any Offering, establish
rules permitting an employee to increase, decrease or terminate his payroll
deduction during an Offering.
7. Withdrawal. An employee may withdraw from participation in the Plan
by delivering a written notice of withdrawal to his appropriate payroll
location. The employee's withdrawal will be effective as of the next business
day. Following an employee's withdrawal, the Company will promptly refund to him
his entire account balance under the Plan (after payment for any Common Stock
purchased before the effective date of withdrawal). Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Offering, but may enroll in a subsequent Offering in accordance with
Section 4.
8. Grant of Options. On each Offering Date, the Company will grant to
each eligible employee who is then a participant in the Plan an option
("Option") to purchase on the last day of such Offering (the "Exercise Date"),
at the Option Price hereinafter provided for, a maximum of twenty-five thousand
(25,000) shares of Common Stock reserved for the purposes of the Plan, or such
other maximum number of shares as shall have been established by the
Administrator in advance of the Offering. The purchase price for each share
purchased under such Option (the "Option Price") will be established by the
Administrator on or before each Offering Date, but will not be less than 85% of
the Fair Market Value of the Common Stock on the Offering Date or the Exercise
Date, whichever is less.
2
<PAGE> 3
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and all stock which the employee
has a contractual right to purchase shall be treated as stock owned by the
employee. In addition, no employee may be granted an Option which permits his
rights to purchase stock under the Plan, and any other employee stock purchase
plan of the Company and its Parents and Subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such stock (determined on the option
grant date or dates) for each calendar year in which the Option is outstanding
at any time. The purpose of the limitation in the preceding sentence is to
comply with Section 423(b)(8) of the Code.
9. Exercise of Option and Purchase of Shares. Each employee who
continues to be a participant in the Plan on the Exercise Date shall be deemed
to have exercised his Option on such date and shall acquire from the Company
such number of whole shares of Common Stock reserved for the purpose of the Plan
as his accumulated payroll deductions on such date will purchase at the Option
Price, subject to any other limitations contained in the Plan. Any amount
remaining in an employee's account at the end of an Offering solely by reason of
the inability to purchase a fractional share will be carried forward to the next
Offering; any other balance remaining in an employee's account at the end of an
Offering will be refunded to the employee promptly.
10. Issuance of Certificates. Certificates representing shares of
Common Stock purchased under the Plan may be issued only in the name of the
employee, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship, or in the name of a broker authorized by
the employee to be his, or their, nominee for such purpose.
11. Definitions.
The term "Compensation" means the amount of base pay (including
vacation and sick pay), prior to salary reduction pursuant to either Section 125
or 401(k) of the Code, overtime, commissions and service charges paid to an
hourly or salaried employee, including any adjustments which occur during a
calendar year, but excluding incentive or bonus awards, allowances and
reimbursements for expenses such as relocation allowances or travel expenses,
income or gains on the exercise of Company stock options, and similar items.
The term "Designated Subsidiary" means any present or future Subsidiary
(as defined below) that has been designated by the Board to participate in the
Plan. The Board may so designate any Subsidiary, or revoke any such designation,
at any time and from time to time, either before or after the Plan is approved
by the stockholders.
3
<PAGE> 4
The term "Fair Market Value of the Common Stock" means (i) if the
Common Stock is admitted to trading on a national securities exchange or the
Nasdaq National Market, the closing price reported for the Common Stock on such
exchange or system for such date or, if no sales were reported for such date,
for the next preceding date for which a sale was reported, or (ii) if clause (i)
does not apply but the Common Stock is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
average of the highest bid and lowest asked prices reported.
The term "Parent" means a "parent corporation" with respect to the
Company, as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to
the Company, as defined in Section 424(f) of the Code.
12. Rights on Termination of Employment. If a participating employee's
employment terminates for any reason before the Exercise Date for any Offering,
no payroll deduction will be taken from any pay due and owing to the employee
and the balance in his account will be paid to him or, in the case of his death,
to his designated beneficiary as if he had withdrawn from the Plan under Section
7. An employee will be deemed to have terminated employment, for this purpose,
if the corporation that employs him, having been a Designated Subsidiary, ceases
to be a Subsidiary, or if the employee is transferred to any corporation other
than the Company or a Designated Subsidiary.
13. Special Rules. Notwithstanding anything herein to the contrary, the
Administrator may adopt special rules applicable to the employees of a
particular Designated Subsidiary, whenever the Administrator determines that
such rules are necessary or appropriate for the implementation of the Plan in a
jurisdiction where such Designated Subsidiary has employees; provided that such
rules are consistent with the requirements of Section 423(b) of the Code. Such
special rules may include (by way of example, but not by way of limitation) the
establishment of a method for employees of a given Designated Subsidiary to fund
the purchase of shares other than by payroll deduction, if the payroll deduction
method is prohibited by local law or is otherwise impracticable. Any special
rules established pursuant to this Section 13 shall, to the extent possible,
result in the employees subject to such rules having substantially the same
rights as other participants in the Plan.
14. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a holder
of the shares of Common Stock covered by an Option under the Plan until such
shares have been purchased by and issued to him.
15. Rights Not Transferable. Rights under the Plan are not transferable
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
4
<PAGE> 5
16. Application of Funds. All funds received or held by the Company
under the Plan may be combined with other corporate funds and may be used for
any corporate purpose.
17. Adjustment in Case of Changes Affecting Common Stock. In the event
of a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for the Plan, and the
share limitation set forth in Section 8, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the
Administrator. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Administrator to give
proper effect to such event.
18. Amendment of the Plan. The Board may at any time, and from time to
time, amend the Plan in any respect, except that without the approval, within
twelve (12) months of such Board action, by the holders of a majority of the
shares of stock of the Company present or represented and entitled to vote at a
meeting of stockholders, no amendment shall be made increasing the number of
shares approved for the Plan or making any other change that would require
stockholder approval in order for the Plan, as amended, to qualify as an
"employee stock purchase plan" under Section 423(b) of the Code.
19. Insufficient Shares. If the total number of shares of Common Stock
that would otherwise be purchased on any Exercise Date plus the number of shares
purchased under previous Offerings under the Plan exceeds the maximum number of
shares issuable under the Plan, the shares then available shall be apportioned
among participants in proportion to the amount of payroll deductions accumulated
on behalf of each participant that would otherwise be used to purchase Common
Stock on such Exercise Date.
20. Termination of the Plan. The Plan may be terminated at any time by
the Board. Upon termination of the Plan, all amounts in the accounts of
participating employees shall be promptly refunded.
21. Governmental Regulations. The Company's obligation to sell and
deliver Common Stock under the Plan is subject to obtaining all governmental
approvals required in connection with the authorization, issuance, or sale of
such stock.
The Plan shall be governed by Pennsylvania law except to the extent
that such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Tax Withholding. Participation in the Plan is subject to any
required tax withholding on income of the participant in connection with the
Plan. Each employee agrees, by entering the Plan, that the Company and its
Subsidiaries shall have the right to deduct any
5
<PAGE> 6
such taxes from any payment of any kind otherwise due to the employee, including
shares issuable under the Plan.
24. Notification Upon Sale of Shares. Each employee agrees, by entering
the Plan, to give the Company prompt notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
25. Effective Date and Approval of Shareholders. The Plan shall take
effect on the later of the date it is adopted by the Board and the date it is
approved by the holders of a majority of the shares of stock of the Company
present or represented and entitled to vote at a meeting of stockholders, which
approval must occur within twelve (12) months of the adoption of the Plan by the
Board.
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 38,164
<SECURITIES> 2,880
<RECEIVABLES> 17,482
<ALLOWANCES> (492)
<INVENTORY> 0
<CURRENT-ASSETS> 59,841
<PP&E> 8,638
<DEPRECIATION> (4,965)
<TOTAL-ASSETS> 172,829
<CURRENT-LIABILITIES> 41,427
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 65,294
<TOTAL-LIABILITY-AND-EQUITY> 172,829
<SALES> 0
<TOTAL-REVENUES> 117,685
<CGS> 0
<TOTAL-COSTS> 122,962
<OTHER-EXPENSES> (1,563)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (155)
<INCOME-PRETAX> (4,435)
<INCOME-TAX> (1,376)
<INCOME-CONTINUING> (3,059)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,063)
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>THE COMPANY DOES NOT BELIEVE THAT HISTORICAL EARNINGS PER SHARE FOR THE PARTIAL
12-DAY PERIOD FROM JUNE 18, 1999 THROUGH JUNE 30, 1999 IS MEANINGFUL. PRO FORMA
BASIC AND DILUTED EARNINGS PER SHARE FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
IS $(0.31).
</FN>
</TABLE>
