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Exhibit 99.1
October 11, 2000
Mr. Thomas F. Hewitt
CEO and Chairman of the Board
Interstate Hotels
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
Dear Mr. Hewitt:
Re: Interstate Offer
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We were extremely disappointed by the Board's rejection of our proposed
acquisition. We would like to make the following points clarifying our position
and respond to certain statements made in the Supplemental Proxy Statement dated
October 6, 2000.
The management of Interstate Hotels Corporation negotiated specific contractual
protection in the Lehman agreement to allow the Board to consider a Superior
Proposal (defined as a price greater than $4 per share).
Based on the Proxy, we understand Interstate has the right in its sole
discretion to extend the Termination Date of the Lehman proposal to November 15,
2000 by a payment to Lehman on/or before October 13 of $250,000 (Proxy, Page 9).
Interstate also has the right in its sole discretion to further extend the
termination date up to 15 additional days to November 30, 2000 by the payment of
$16,667 per day for 15 days or the payment of $250,000 in additional funds.
Interstate has clearly allowed for sufficient time to enter into negotiations
with Shaner Hotel Group to allow for the time and completion of due diligence
for SHG to submit a fully financed tender offer for all the shares of the
company without any financial risk to Interstate whatsoever, provided that our
non-refundable deposit equals or exceeds Interstate's $250,000 cost of the
extension to November 15 or $500,000 cost of an extension to November 30.
Interstate has stated that the Lehman facility will allow the company sufficient
capital to acquire new management contracts or hotels and, therefore, expand the
company's management fee income to improve profitability. However, as we read
the proxy, the company is required to expend the entire proceeds on either fees,
expenses and costs associated with the investment or on an investment in a
limited partnership over which Interstate will have "limited authority and
responsibility" (Proxy, Page 6). The absence of any movement in the company's
stock following the announcement of this transaction speaks volumes about the
investment community's opinion of future shareholder value as a consequence of
this transaction.
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Through our extensive contracts in the franchise and ownership community, we are
confident that we can review the consents required to complete this transaction
from the hotel franchise companies and the hotel owners with which Interstate
does business. In addition, we recognize the substantial termination fees and
expense reimbursements due to the Lehman Group and other costs, and we are
prepared to pay these fees upon the completion of our transaction and have
factored such costs and expenses into the amount we are prepared to offer to the
shareholders.
I had previously sent letters on October 3 and October 6 requesting a meeting to
discuss our proposal. You have failed to contact me to respond to my requests. I
will contact you today to ask again for a meeting to discuss the following
proposal:
1. We are prepared to deposit $1,000,000 in escrow (the Escrow). The
Escrow would be retained by the company if, by the close of business on
November 13, 2000, we do not submit an unconditional bid for the
company at a price equal to or higher than $4.50 per share (such bid to
be in the form of a fully executed and unconditional merger agreement
by an entity which has commitments for all required financing). If we
submit an unconditional bid at or above $4.50 and the company does not
accept it, then the escrow would be returned to us.
2. We are requesting that you immediately give Lehman Brothers the notice
as is your right under the September 15 Proxy filing that you are
exercising your option by delivering written notice to Lehman prior to
October 13 to extend the termination date to November 15, 2000 by the
payment of a $250,000 fee by wire transfer.
3. An unconditional bid would NOT, among other things, be conditioned on
any third party consents, which you claim in your October 6 Supplement
to Proxy Statement as a limiting factor of our offer.
4. Our price of $4.50 per share is subject to increase based upon our
review of the company.
5. Please provide us written wiring instructions and we will wire the
$1,000,000 deposit into Escrow immediately upon execution of an Escrow
Agreement embodying the above terms and conditions.
SHG has a strong reputation of closing transactions in the industry such as a
$300,000,000 partnership with AEW Capital Management and several transactions
with Lehman Brothers including a $75,000,000 credit facility over the last few
years.
Sincerely yours,
/s/ Lance T. Shaner
Lance T. Shaner
Chairman and CEO
Shaner Hotel Group Limited Partnership
Shaner Operating Corp., General Partner
