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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement Confidential, For Use of the Commission
[ ] Definitive proxy statement only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive additional materials
[ ] Soliciting material under Rule 14a-12
INTERSTATE HOTELS CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total Fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement number:
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(3) Filing party:
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(4) Date filed:
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INTERSTATE HOTELS CORPORATION
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
September , 2000
To the Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
Interstate Hotels Corporation, a Maryland corporation (the "Company"), to be
held on , October , 2000 at [2:00 p.m.], Eastern Time, at the
Pittsburgh Marriott City Center Hotel located at 112 Washington Place, Chatham
Center, Pittsburgh, Pennsylvania. The official Notice of Meeting, Proxy
Statement and form of proxy are enclosed with this letter.
At the special meeting, you will be asked to approve the issuance by the
Company of the following: (i) $5 million of convertible preferred shares and $25
million of convertible subordinated notes to an investor led by a subsidiary of
Lehman Brothers Holdings Inc. (the "Investor") and its affiliates; (ii) 225,000
convertible preferred shares to our senior management team; (iii) additional
shares of convertible subordinated notes and convertible preferred shares
issuable as payment-in-kind under the terms of those securities; and (iv) the
underlying common stock into which the convertible preferred shares and the
convertible preferred notes are convertible. This investment will be made in
connection with the Company's commitment to invest $25 million and the
Investor's commitment to invest a further $20 million in a joint venture
that will purchase hotel properties to be managed by the Company.
The Company has been seeking to augment its capital resources since its
1999 spin-off. We believe that this alliance with the Investor is a significant
step for the Company because it provides us with the capital resources to
implement our growth strategy.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE PROPOSAL IS IN
THE BEST INTERESTS OF THE COMPANY, HAS APPROVED THE PROPOSAL AND RECOMMENDS THAT
YOU VOTE "FOR" APPROVAL OF THE PROPOSAL.
Your vote is important. Please sign, date and mail the proxy card promptly
in the enclosed envelope whether or not you plan to attend the meeting. It is
important that you return the proxy card promptly whether or not you plan to
attend the meeting, so that your shares are properly voted.
We hope to see you at the Special Meeting.
Sincerely,
/s/ Thomas F. Hewitt
THOMAS F. HEWITT
Chairman of the Board
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3
INTERSTATE HOTELS CORPORATION
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------------------------------------------------
To the Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of Interstate
Hotels Corporation, a Maryland corporation (the "Company"), will be held at
[2:00 p.m.], Eastern Time, on , October , 2000, at the
Pittsburgh Marriott City Center Hotel located at 112 Washington Place, Chatham
Center, Pittsburgh, Pennsylvania for the following purposes, all as more fully
described in the attached Proxy Statement:
1. To approve the issuance of (i) 500,000 shares of the Company's Series B
Convertible Preferred Stock, par value $.01 per share, for $5.0 million
and 8.75% Convertible Subordinated Notes for $25.0 million to CGLH
Partners I LP and CGLH Partners II LP; (ii) 225,000 shares of the
Company's Series B Convertible Preferred Stock to three members of the
Company's senior management; (iii) additional shares of 8.75%
Convertible Subordinated Notes and Series B Convertible Preferred Stock
issuable as payment-in-kind under the terms of those securities; and
(iv) shares of the Company's Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), issuable upon the conversion of
the Series B Convertible Preferred Stock and the 8.75% Convertible
Subordinated Notes. These securities are convertible into Class A Common
Stock of the Company at $4.00 per share. The terms of these securities
prevent any holder from converting the securities into Class A Common
Stock if that conversion would result in the investor entities or any
other holder of these securities and their affiliates or any group to
which they belong owning more than 49% of the Company's Class A Common
Stock after the conversion. Stockholder approval is being sought in
order to comply with NASDAQ rules.
2. To act upon such other business as may properly come before the Special
Meeting or any postponements or adjournments thereof.
Stockholders of record at the close of business on September , 2000 are
entitled to notice of, and to vote at, the Special Meeting or any postponements
or adjournments thereof.
TIMOTHY Q. HUDAK
Secretary
September , 2000
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 4
INTERSTATE HOTELS CORPORATION
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER , 2000
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
Q. Who may vote at the Special Meeting?
A. You may vote if you were a holder of record of shares of Class A, Class B or
Class C Common Stock of Interstate Hotels Corporation, a Maryland corporation
(the "Company"), par value $.01 per share (respectively the "Class A Common
Stock," the "Class B Common Stock" and the "Class C Common Stock," voting
together as a single class, at the close of business on September , 2000.
Q. What may I vote on?
A. The Special Meeting has been called to consider a proposal to approve the
issuance of:
- 725,000 shares of the Company's Series B Convertible Preferred
Stock to the investor entities and to three members of the
Company's senior management;
- 8.75% Convertible Subordinated Notes;
- any additional securities issued pursuant to the terms of the Series
B Convertible Preferred Stock or the 8.75% Convertible Subordinated
Notes; and
- shares of the Company's Class A Common Stock issuable upon the
conversion of the Series B Convertible Preferred Stock and the 8.75%
Convertible Subordinated Notes.
The Series B Convertible Preferred Stock and the 8.75% Convertible
Subordinated Notes are convertible into Class A Common Stock of the Company
at $4.00 per share. The terms of the Series B Convertible Preferred Stock and
the 8.75% Convertible Subordinated Notes prevent the investor entities or any
other holder of these securities from converting them into Class A Common
Stock if the conversion would result in those entities, their affiliates, or
any group to which any of them belong, holding more than 49% of the Company's
Class A Common Stock outstanding after the conversion. The issuance of
securities to the Investor and Management is part of an integrated
transaction and is therefore being voted on as a single proposal.
Q. What does our Board of Directors of the company (the "Board of Directors")
recommend?
A. The Board of Directors unanimously recommends that you vote "FOR" the
proposal.
Q. Why is the Board of Directors recommending approval of the proposal?
A. The Company has been seeking to augment its capital resources since its 1999
spin-off. The Company has entered into an agreement with an investor led by a
subsidiary of Lehman Brothers Holdings Inc. which will provide the Company
with the capital resources to implement its growth strategy. The Company
believes that the investment of $30 million by the Investor in exchange for
the issuance of the Series B Convertible Preferred Stock and the 8.75%
Convertible Subordinated Notes is a significant step in pursuing that
strategy.
The issuance of Series B Convertible Preferred Stock to senior management is
part of arrangements put in place in exchange for payments otherwise due to
management under existing agreements.
If the proposal is approved by stockholders, the Company will also enter into
a joint venture partnership agreement with the investor which has agreed to
invest at least an additional $20 million in the joint venture. We expect
this joint venture will ensure future management fees for the Company and
allow the Company to expand its portfolio of hotels.
Q. What vote is required to approve the proposals?
A. Approval by the vote of a majority of the total number of shares of Class A,
Class B and Class C Common Stock, voting together as a single class, present
in person or by proxy at the Special Meeting is required to approve the
proposal. Each share of common stock is entitled to one vote. A quorum must
be present or represented at the Special Meeting by proxy for any action to
be taken. A quorum is at least a majority of the total number of issued and
outstanding shares of Class A, Class B and Class C Common Stock.
<PAGE> 5
Q. How are abstentions and broker non-votes counted?
A. Abstentions are counted in determining that a quorum is present for the
Special Meeting and are included in calculating total votes cast on the
proposal, so an abstention will have the same effect as a vote against the
proposal.
Broker non-votes are not treated as being present for the Special Meeting, so
will have no effect on determining whether stockholders have approved the
proposal.
Q. What are broker non-votes?
A. The NASDAQ permits brokers to vote their customers' shares on routine matters
when the brokers have not received voting instructions from their customers.
The election of directors and the election of independent accountants are
examples of routine matters on which brokers may vote in this way. Brokers
may not vote their customers' shares on non-routine matters such as the
proposal you are being asked to consider at the Special Meeting unless they
have received voting instructions from their customers. Non-voted shares on
non-routine matters are broker non-votes. If your shares are held in your
broker's name, you must give your broker instructions or your shares will not
be voted at the Special Meeting.
Q. If my shares are held in "Street Name" by my broker, will my broker vote my
shares for me?
A. Your broker will not be able to vote your shares without instructions from
you (these shares become "broker non-votes" as discussed above). You should
instruct your broker to vote your shares, following the directions provided
by your broker.
Q. What do I need to do now?
A. After reading this document carefully, please vote your shares. You can do
this by just completing and mailing your signed proxy card in the enclosed
return envelope. Please do this as soon as possible so that your shares can
be voted at the Special Meeting. If no instructions are indicated, such
shares will be voted in favor of the proposal, in accordance with the
recommendations of the Board as set forth in this proxy statement. You may
also vote your shares by attending the Special Meeting and voting in person.
Q. Can I change my vote after I have mailed my signed proxy card?
A. Yes, you can change your vote at any time before your proxy card is voted at
the Special Meeting. You can do this in one of three ways. First, you can
send a written notice to us stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card to us. Third, you can
attend the Special Meeting and vote in person. Your attendance alone will
not, however, revoke your proxy. If you have instructed a broker to vote your
shares, you must follow the procedure provided by your broker to change those
instructions.
Q. Do I need to attend the Special Meeting in person?
A. No. It is not necessary for you to attend the Special Meeting in order to
vote your shares, although you are welcome to attend.
Q. Where can I find more information about the Company?
A. We file reports and other information with the Securities and Exchange
Commission. You may read and copy this information at the SEC's public
reference facilities. Please call the SEC at 1-800-SEC-0330 for information
about these facilities. This information is also available at the Internet
site maintained by the SEC at http://www.sec.gov and at the office of the
NASDAQ National Market.
Q. Who can help answer my questions?
A. If you have questions about the Special Meeting or the proposal after reading
this proxy statement, you should contact our Investor Relations department:
Interstate Hotels Corporation,
Investor Relations,
Foster Plaza Ten,
680 Andersen Drive,
Pittsburgh, PA 15220
Tel: (412) 937-0600
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GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of proxies from the holders of Class A , Class B and
Class C Common Stock of the Company for use at the Special Meeting of
Stockholders and at any postponements or adjournments of the meeting. The
Special Meeting will be held at [2:00 p.m.], Eastern Time, on October , 2000,
at the Pittsburgh Marriott City Center Hotel located at 112 Washington Place,
Chatham Center, Pittsburgh, Pennsylvania. This Proxy Statement and the
accompanying form of proxy are being mailed on or about September , 2000 to
stockholders of record on September , 2000.
Stockholders of the Company will consider and vote on the issuance of (i)
500,000 shares of the Company's Series B Convertible Preferred Stock for $5.0
million and 8.75% Convertible Subordinated Notes for $25.0 million to CGLH
Partners I LP and CGLH Partners II LP (collectively, the "Investor"), (ii)
225,000 shares of the Company's Series B Convertible Preferred Stock to three
members of the Company's senior management; (iii) additional shares of 8.75%
Convertible Subordinated Notes and Series B Convertible Preferred Stock
issuable as payment-in-kind under the terms of these securities; and (iv) shares
of the Company's Class A Common Stock, par value $.01 per share (the "Class A
Common Stock"), issuable upon the conversion of the Series B Convertible
Preferred Stock and the 8.75% Convertible Subordinated Notes. These securities
are convertible into Class A Common Stock of the Company at $4.00 per share.
The terms of these securities prevent the Investor or any other holder from
converting the securities into Class A Common Stock if that conversion would
result in them, their affiliates or any group to which they belong, owning more
than 49% of the Company's Class A Common Stock after the conversion. Stockholder
approval is being sought in order to comply with NASDAQ rules.
The Company is seeking approval of the issuance of the Series B Convertible
Preferred Stock and the 8.75% Convertible Subordinated Notes, the shares of
Class A Common Stock issuable upon conversion of the Series B Convertible
Preferred Stock and the 8.75% Convertible Subordinated Notes issuable as
payment-in-kind under the terms of these securities in order to comply with the
rules of the NASDAQ Market which require stockholder approval as a prerequisite
to listing the Class A Common Stock into which the securities are convertible.
Initially, the Preferred Stock and Notes to be issued to the Investor and senior
management will be convertible into an aggregate of 8,062,500 shares of our
Class A Common Stock, subject to the limitations on conversion by individual
holders described above. If the Company pays dividends or interest in additional
securities, the number of shares of Common Stock issuable upon conversion will
increase. The affirmative vote of a majority of the total number of shares of
Class A, Class B and Class C Common Stock, voting together as a single class,
present in person or by proxy at the Special Meeting, is required to approve the
issuance of the Series B Convertible Preferred Stock and the 8.75% Convertible
Subordinated Notes under the NASDAQ rules.
VOTING SECURITIES AND SOLICITATION OF PROXIES
The holders of record of shares of Class A, Class B and Class C Common
Stock of the Company at the close of business on September , 2000 (the "Record
Date") are entitled to receive notice of, and vote such shares at, the Special
Meeting. As of the Record Date, there were 242,555 shares of Class A Common
Stock outstanding, shares of Class B Common Stock outstanding and
60,639 shares of Class C Common Stock outstanding. Holders of such shares as of
the Record Date are entitled to cast one vote per share on the proposal to be
considered at the Special Meeting.
The holders of at least a majority of the issued and outstanding shares of
Class A, Class B and Class C Common Stock as of the Record Date, considered
together, present in person, or represented by proxy, will constitute a quorum
for the transaction of business at the Special Meeting. The affirmative vote of
a majority of the total number of shares of Class A, Class B and Class C Common
Stock, voting as a single class, present or person or by proxy at the Special
Meeting is required to approve the proposal. Abstentions will be included in
determining the number of shares present or represented at the Special Meeting
for purposes of determining whether a quorum exists and will have the effect of
a vote cast against the proposal. Broker non-votes may not be voted on the
proposal and, accordingly, will not be included in determining whether a quorum
exists and will have no effect on the outcome of the vote. There are no rights
of appraisal or similar dissenters' rights with respect to any matter to be
acted on under this Proxy Statement.
All shares of Class A, Class B and Class C Common Stock represented at the
Special Meeting by properly executed proxies received prior to or at the Special
Meeting, unless such proxies previously have been revoked, will be voted at the
Special Meeting in accordance with the instructions on the proxies. If no
instructions are indicated, such shares will be voted in favor of the proposal,
in accordance with the recommendation of the Board of Directors as set forth
herein.
A proxy may be revoked by filing with the Secretary of the Company, prior
to the exercise of the proxy, either a written instrument revoking the proxy or
an executed subsequent proxy or by voting in person at the Special Meeting.
Attendance at the Special Meeting will not, in itself, constitute revocation of
a proxy.
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APPROVAL OF THE ISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK
AND THE 8.75% CONVERTIBLE SUBORDINATED NOTES
OVERVIEW
On August 31, 2000, the Company entered into a Securities Purchase
Agreement with the Investor pursuant to which the Company agreed to sell to the
Investor an aggregate amount of $25,000,000 of its 8.75% Subordinated
Convertible Notes (the "Notes") and 500,000 shares of its Series B Convertible
Preferred Stock, par value $.01 per share (the "Preferred Stock") for an
aggregate amount of $5,000,000. The Preferred Stock accrues cumulative dividends
payable in cash at 8.75% per annum, with up to 25% of the dividends payable in
kind, (at the option of the Company) and must be redeemed by the Company no
later than 2007. The Notes mature no later than 2007 and accrue interest at a
rate of 8.75% per annum, with up to 25% of the interest payable in kind (at the
option of the Company). Both securities are convertible at any time into Class A
Common Stock of the Company at $4.00 per share. Initially, these securities
would be convertible into an aggregate of 7,500,000 shares of Class A Common
Stock, representing approximately 53% of the Company's Class A Common Stock
after conversion. In addition, the 225,000 shares of Preferred Stock proposed to
be issued to members of senior management initially would be convertible into an
aggregate of 562,500 shares of Class A Common Stock, representing approximately
4% of our Class A Common Stock after conversion. However, no holder of either
the Notes or the Preferred Stock may convert these securities if that conversion
would cause the holder and its affiliates or any group of which any of them is a
member to have beneficial ownership of more than 49% of the Company's Class A
Common Stock after the conversion. The issuance of the Preferred Stock and the
Notes, together with the execution of a Registration Rights Agreement, an
Investor Agreement, and the formation of a joint venture, all described herein,
is expected to occur promptly after receipt of stockholder approval for the
issuance of the Preferred Stock, the Notes and the shares of Class A Common
Stock issuable upon conversion of the Preferred Stock and the Notes at the
Special Meeting.
In connection with the transactions contemplated under the Securities
Purchase Agreement, the Company entered into amended and restated employment
agreements with each of Thomas F. Hewitt, J. William Richardson, and Kevin
Kilkeary, members of senior management of the Company. These amended and
restated employment agreements become effective upon the closing of the
transactions contemplated under the Securities Purchase Agreement and provide,
among other things, as described herein, for the issuance of an aggregate of
225,000 shares of Preferred Stock to these individuals in exchange for their
waiver of severance payments owed to them by the Company under their existing
employment agreements.
The Company has amended its Rights Agreement, dated as of July 8, 1999,
between the Company and American Stock Transfer and Trust Company, as transfer
agent, to ensure that the transactions contemplated by the Securities Purchase
Agreement, including the conversion of the Notes or Preferred Stock into Class A
Common Stock, will not result in a distribution of separate rights certificates
or the occurrence of a distribution date under the Rights Agreement.
REASON FOR THE INVESTMENT
The Company has explored various alternatives to allow it to implement its
previously announced growth strategy as a means of increasing shareholder value.
The 1999 spin-off of the Company resulted in a new public Company with a
relatively small market capitalization. The Company has determined that the best
way to augment its capital resources is to align with a capital partner. With
the $30 million equity infusion by the Investor, the Investor's commitment to
provide an additional $20 million in capital to the Joint Venture described
below and the credit facility described below, the Company will be in a position
to implement its previously announced growth strategy.
The Joint Venture is strategically important to the Company because it
ensures future management fees for the Company and allows the Company to expand
its portfolio of hotels. Details of the transactions contemplated by the
Securities Purchase Agreement and related transactions pursued by the Company
as strategic alternatives are discussed below.
SUMMARY OF MATERIAL TERMS OF THE SALE OF NOTES AND PREFERRED STOCK AND
RELATED TRANSACTIONS
The following summary of the material terms of the sale of the Notes and
Preferred Stock is subject to, and qualified in its entirety by, the complete
text of the Securities Purchase Agreement, the Investor Agreement and the other
material documents described below. Copies of the Securities Purchase Agreement,
the Investor Agreement, the Articles Supplementary to the Charter of the Company
and the 8.75% Convertible Subordinated Note are attached as Appendices to this
Proxy Statement. Certain related agreements, including the Joint Venture Limited
Partnership Agreement and Wyndham transaction documents described below, have
been filed as Exhibits to the Company's Current Report on Form 8-K, dated
September __, 2000 and are incorporated in this Proxy Statement by reference.
You should read the full text of the agreements because the agreements, and not
this Proxy Statement, are the legal documents that govern the transactions
described below. In the event of any discrepancy between the terms of the
agreements and the following summary, the agreements will control.
JOINT VENTURE
$25 million of the proceeds raised by the sale of the Notes and the
Preferred Stock will be invested by the Company in a newly formed joint venture
(the "Joint Venture") with the Investor for acquisition of hotel properties that
will be
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managed by the Company. The Investor has committed to invest $20 million of
additional capital to the Joint Venture. The Company believes that the $45
million in capital contributed to the Joint Venture will support $250-$300
million of acquisitions, subject to market conditions. However, there is no
assurance that the Joint Venture will be able to complete acquisitions or
otherwise successfully pursue its strategy.
The Joint Venture is structured as a limited partnership with an affiliate
of the Investor serving as the managing general partner having decision-making
authority and an affiliate of the Company serving as a general partner having
limited authority and responsibility. The limited partnership interests will be
owned by affiliates of the Investor, by affiliates of the Company, and by Thomas
F. Hewitt and J. William Richardson, (collectively, the "Executives"). The
Company will own a minority percentage interest of the Joint Venture. The
decision by the Joint Venture to acquire any hotel property or an interest in
any hotel property will require the unanimous approval of all the partners,
other than the Executives. $11,667,000 of the Company's affiliate investment in
the Joint Venture will be entitled to a 15% per annum preferential return from
available cash before the same return is payable on the remaining capital
investments by the partners.
Pursuant to the amended and restated employment agreements described below,
Hewitt and Richardson will receive limited partnership interests in the joint
venture of 3% and 2.25% respectively. Neither of the Executives will be required
to contribute any capital to the Partnership (except for capital required to
improve or operate any hotels previously acquired by the Joint Venture), but
each Executive will be deemed to have contributed his pro rata share of the
Class A Capital in the Joint Venture for purposes of determining his entitlement
to a distribution in the event of a capital event such as, among other things, a
sale or refinancing of Joint Venture assets). The limited partnership interests
of the Executives will be subject to a vesting period of up to three years
pursuant to which all or a portion of such interest will be under certain
circumstances. The limited partnership interests of the Executives will be
subject to redemption at the option of the Company at such time as the Executive
ceases to be employed by the Company for any reason. The Executives will have no
right to participate in the decision-making for the Joint Venture in their
individual capacities as limited partners.
Under the terms of the partnership agreement for the Joint Venture, an
affiliate of the Company will manage for ten years all hotel properties
acquired, directly or indirectly, by the Joint Venture, except for minority,
non-controlling investments by the Joint Venture in hotel properties. The
manager will be entitled to a base management fee of 2.5% of hotel gross
revenues and an incentive management fee of 10% of net cash flow. An affiliate
of the Investor will serve as the asset manager for all Joint Venture properties
and will receive an annual fee of 0.75% of the amount of capital invested in the
joint venture as of December 31 of every year. The management agreement for each
property is subject to termination in certain circumstances, including the sale
of the property by the Joint Venture, and provides for a termination fee to the
manager in some circumstances.
The Joint Venture has a seven-year term subject to extension by the
Investor. Within two years of a change of control of the Company, the Investor
has a right to require the Company to acquire all the partnership interests
owned by affiliates of the Investor. The Joint Venture interests are also
subject to a buy/sell agreement which may be triggered in certain circumstances
by any partner and may result in the non-triggering partners either buying the
triggering partner's interest or selling their interests to the triggering
partner, provided that the Executives may not be buyers under the buy/sell
agreement, without the consent of the other partners.
SENIOR CREDIT FACILITY
In connection with this transaction with the Investor, the Company has
arranged with Lehman Brothers Inc. ("Lehman") for a $50 million senior secured
revolving credit facility, pursuant to which Lehman has committed to lend $25
million and an affiliate of Lehman has agreed to syndicate an additional $25
million on a best efforts basis. The term of the credit facility will be two
years with an option to extend for an additional year in certain circumstances,
including a reduction of the facility over a period of time. The credit facility
will be secured by a pledge of the Company's equity interests (i.e., stock,
partnership interests and membership interests) in the Company's major current
and future direct and indirect subsidiaries, mortgages on all hospitality
properties owned directly by the Company or by its wholly-owned
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subsidiaries and a security interest in the rights of the Company to receive
payments under hotel management agreements and hotel leases. The Company is
permitted to draw upon the facility for several purposes including to make
investments in hotel properties or loans to obtain management contracts, provide
letters of credit and to satisfy the Company's general working capital needs.
LBH will receive customary fees under the facility, including a commitment fee
of 1.25% of the facility amount, an arrangement fee of $250,000, an
administration fee of $75,000 per year and an annual commitment fee that will
vary depending upon the level of the facility usage.
WYNDHAM TRANSACTION
Also in connection with the Investor's investment in the Preferred Stock
and the Notes, the Company has agreed to cause its principal operating
subsidiary, Interstate Hotels, LLC ("IH, LLC") to redeem from affiliates of
Wyndham International, Inc. (collectively with its affiliates, "Wyndham") their
aggregate 55% non-voting economic interest in IHC, LLC (the "Wyndham Interest").
At the closing of the transaction IH, LLC will cause certain management
agreement assets of IH, LLC to be transferred to Wyndham in partial redemption
of the Wyndham Interest. Additionally, at the closing a portion of the remainder
of the Wyndham Interest will be converted into a preferred membership interest
in IH, LLC. At any time on or after July 1, 2001, both IH, LLC and Wyndham will
have the right to require that IH, LLC redeem the preferred membership interest
for $12,681,818 to be paid with a combination of cash and notes. The portion of
the Wyndham Interest that is not redeemed at the closing or converted into a
preferred membership interest at the closing will remain outstanding after the
preferred membership interest is redeemed. At any time on or after July 1, 2004
both IH, LLC and Wyndham will have the right to require that IH, LLC redeem the
remaining interest at an amount that is the lesser of (a) the product of (i)
five times IH, LLC's EBITDA as of December 31, 2003 and (ii) the percentage of
total equity interest in IH, LLC which is represented by the remaining interest
or (b) $432,883. As additional consideration for the redemption and conversion
of the Wyndham Interest, Wyndham has agreed to cause its current representative
on the Company's Board of Directors to resign, to relinquish all of its right to
appoint a member to the Company's Board of Directors in the future, and to grant
the Company an option, exercisable within 90 days of closing, to acquire all of
Wyndham's stock in the Company. The Company's Bylaws have been amended to remove
the right of the Class B and Class C directors to approve appointments of
members to the committees of the Board of Directors, conditioned upon the
closing of the transactions contemplated under the Securities Purchase
Agreement.
SECURITIES PURCHASE AGREEMENT
The Securities Purchase Agreement sets forth the terms on which the
Investor will make the $30 million investment in the Company. The Securities
Purchase Agreement was executed by the Company and the Investor on August 31,
2000. It is the document by which the Company agreed to issue, and the Investor
agreed to purchase, the Notes and the Preferred Stock. Based upon information
provided by the Investor, CGLH Partners I LP and CGLH Partners II LP, the two
limited partnerships constituting the Investor, are held by entities affiliated
with Lehman Brothers Holdings Inc., Continental Gencom Holdings LLC, and KFP
Holdings, Ltd. Each share of Preferred Stock shall have a liquidation preference
of $10. The Securities Purchase Agreement contains representations, warranties
and covenants that are customary for transactions of this type. It also contains
certain restrictive covenants, including:
- access to information and financial reports for the Investor;
- limitations on Company and subsidiary transactions;
- prohibition against relocation of corporate headquarters outside of
Pittsburgh, Pennsylvania for one year;
- limitations on the Company's conduct of its business during the period
between signing of the Securities Purchase Agreement and closing of the
sale of the Preferred Stock and Notes without the consent of the
Investor;
- maintenance of sufficient liquidity for the Company to contribute
$25,000,000 to the joint venture; and
- prohibition on negotiations or solicitations by the Company of proposals
from other parties involving a merger, consolidation, transfer of
material assets or sale or exchange of securities of the Company
("Competing Transactions") unless the Competing Transaction is a Superior
Proposal (defined below).
After the closing of the sale of the Notes and Preferred Stock, in the
event of breach of the representations, warranties and covenants of the
Securities Purchase Agreement, the non-breaching party is entitled to
indemnification for losses once the losses exceed $100,000. Neither party may be
indemnified for an amount greater than the $30 million purchase price. In lieu
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of receiving cash as payment for an indemnification claim, the Investor has the
right to adjust the conversion price of the Preferred Stock, but not below $3.00
per share.
The closing of the transactions contemplated by the Securities Purchase
Agreement is subject to customary conditions, including:
- execution of the Investor Agreement, the Registration Rights Agreement
and the Joint Venture partnership agreement;
- accuracy, at the time of closing, of the Company's representations and
warranties contained in the Securities Purchase Agreement and performance
by the Company in all material respects of the covenants contained in the
Securities Purchase Agreement;
- receipt of all necessary consents and permits, including consents under
the Company's management agreements and franchise agreements;
- amendment of the Company's Bylaws to remove the right of the Class B and
Class C directors to approve appointments of members to the committees of
the Board of Directors;
- approval for quotation on NASDAQ of the Class A Common Stock into which
the Preferred Stock and the Notes are convertible;
- election to the Board of Directors of the five members nominated by the
Investor (out of a total of eleven members);
- no event shall have occurred prior to the closing which could have a
material adverse effect on the Company; and
- receipt of stockholder approval at the Special Meeting of the issuance of
the Preferred Stock, the Notes and the Class A Common Stock issuable upon
conversion of the Preferred Stock and the Notes in connection with the
transactions contemplated by the Securities Purchase Agreement.
The Company has agreed in the Securities Purchase Agreement not to solicit,
initiate or facilitate any proposal by a third party relating to a Competing
Transaction or negotiate or enter into any agreement relating to a Competing
Transaction. However, the Company may enter into negotiations with, or provide
information to, a third party in connection with a Competing Transaction that is
a Superior Proposal. A Superior Proposal is a bona fide offer made by a third
party to acquire all of the Company's voting securities for a price greater than
$4.00 per share and which in the judgment of the Board of Directors, is likely
to be consummated. If the Company accepts a Superior Proposal, the Securities
Purchase Agreement shall terminate and the Company shall pay to the Investor a
termination fee plus expenses as described below.
The Securities Purchase Agreement may be terminated prior to closing as
follows:
- by mutual consent of the Company and the Investor;
- by the Company, if the closing does not occur before November 1, 2000
although the Company may not terminate if the failure to close results
from the breach of its representations or warranties or the failure to
perform its covenants;
- by the Investor, if the closing does not occur before October 16, 2000
(such date, as extended, the "Termination Date"), subject to extension
until November 15, 2000 at the option of the Company upon payment of
$250,000 to the Investor, and further extension until November 30, 2000
or earlier upon payment of $16,667 for each day of extension, although
the Investor may not terminate if the failure to close results from the
breach of its representations or warranties or the failure to perform its
covenants;
- by the Investor, if the Board of Directors does not recommend approval of
the transaction to the stockholders or withdraws its recommendation or
modifies its recommendation in a manner adverse to the Investor, or
approves any Competing Transaction, or refuses to affirm its
recommendation upon request by the Investor within five days of such
request, or if the Company fails to call the Special Meeting or to mail
this proxy statement to its stockholders or to include the recommendation
of the Board of Directors in this proxy statement or to hold the Special
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<PAGE> 11
Meeting prior to the Termination Date unless in each case the delay is
caused by a temporary restraining order, preliminary injunction or
permanent injunction or other order or decree or regulatory or legal
action or the enactment of any statutes, rules or regulations which
prevent the consummation of the transaction;
- by either the Company or the Investor, if the stockholders of the Company
fail to approve the issuance of the Preferred Stock, the Notes and the
Class A Common Stock issuable upon conversion of the Preferred Stock and
the Notes in connection with the transaction;
- by either the Company or the Investor, if any law prohibits or prevents
the consummation of the transaction;
- by either the Company or the Investor, if the other party materially
breaches its representations, warranties, covenants or agreements under
the Securities Purchase Agreement and the breach would result in a
failure to satisfy the conditions to closing described above and the
breach is not cured within 20 days of written notice; or
- the Company accepts a Superior Proposal.
If the Company and the Investor mutually agree to terminate the Securities
Purchase Agreement, then no termination fee is payable by the Company unless
otherwise agreed. However, the Company is required to pay to the Investor a
termination fee of $2,250,000 plus the Purchaser's Expenses (defined below) in
the event that the Investor terminates the Securities Purchase Agreement for any
of the following reasons:
- the Board of Directors does not recommend approval of this transaction to
the stockholders or withdraws its recommendation or modifies its
recommendation in a manner adverse to the Investor, or approves any
Competing Transaction, or refuses to affirm its recommendation upon
request by the Investor within five days of such request, or the Company
fails to call the Special Meeting or to mail this proxy statement to its
stockholders or to include the recommendation of the Board of Directors
in this proxy statement or to hold the Special Meeting prior to the
Termination Date unless in each case the delay is caused by a temporary
restraining order, preliminary injunction or permanent injunction or
other order or decree or regulatory or legal action or the enactment of
any statutes, rules or regulations which prevent the consummation of the
transaction;
- the Company materially breaches its representations, warranties,
covenants or agreements under the Securities Purchase Agreement and the
breach results in a failure to satisfy the conditions to closing
described above and the breach is not cured with 20 days of written
notice;
- the Company accepts a Superior Proposal; or
- the stockholders of the Company fail to approve the transaction and a
Competing Transaction is publicly announced prior to the Special Meeting
and within 12 months the Company enters into definitive agreements with
respect to, or consummates, a Competing Transaction.
The Company also agrees to pay to the Investor an amount up to a maximum of
$2,250,000 as compensation for its reasonable, documented fees, expenses and
costs incurred in connection with the transaction (the "Purchaser's Expenses"),
but is not obligated to pay a termination fee in the event that the Securities
Purchase Agreement is terminated as follows:
- the Company terminates the Securities Purchase Agreement because the
closing does not occur before November 1, 2000 and such failure to close
does not result from the Company's material breach of its
representations, warranties, covenants or agreements;
- the Investor terminates the Securities Purchase Agreement because the
closing does not occur before the Termination Date and such failure to
close does not result from the Investor's material breach of its
representations, warranties, covenants or agreements; or
- either the Company or the Investor terminates the Securities Purchase
Agreement because any law prohibits or prevents the consummation of the
transaction.
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The Company shall not pay the termination fee or the Purchaser's Expenses
if the Securities Purchase Agreement is terminated because the Investor
materially breaches its representations, warranties, covenants or agreements and
such breach resulted in the failure to close the transaction. The payment of the
termination fee and the Purchaser's Expenses is the sole remedy of the Investor
against the Company for its breach of any provision in the Securities Purchase
Agreement. In no event will more than one payment of the termination fee or
Purchaser's Expenses be payable by the Company if the Securities Purchase
Agreement is terminated. In addition, if the Company fails to pay a termination
fee or Purchaser's Expenses payable by it under the Securities Purchase
Agreement, the Company shall pay to the Investor its costs and expenses
including attorney's fees in connection with any litigation brought by the
Investor to enforce such payment together with interest accrued on the amount of
the termination fee or Purchaser's Expenses at the prime or base rate of The
Chase Manhattan Bank.
In order to secure a portion of any termination fee or Purchaser's Expenses
due, the Company has agreed to deposit the sum of $2,250,000 or, at the
Company's option, a letter of credit for $2,250,000 with State Street Bank &
Trust Company, N.A., as escrow agent, to be held in escrow until the transaction
is consummated. In addition, the Investor agreed to maintain a capitalization of
at least $3,000,000 until the earlier of the closing of the transaction, such
time as the Investor contributes $3,000,000 into a separate account for the sole
benefit of the Company or the termination of the Securities Purchase Agreement
in accordance with its terms unless the Investor had previously materially
breached its representations, warranties, covenants or agreements.
INVESTOR AGREEMENT
Standstill Period. The Investor Agreement grants certain rights to, and
imposes certain restrictions on, the Investor during a period (the "Standstill
Period") which runs until the earliest of:
- four years from the date of purchase of the Notes and the Preferred Stock
(in the case of acquisitions by the Investor of the Company's capital
stock) or three years from the date of the purchase of the Notes and
Preferred Stock (in the case of dispositions by the Investor of the
Company's capital stock);
- the date when the Investor owns less than 20% of the total voting power
of all of the securities of the Company entitled to vote in the general
election of directors, on a converted or unconverted basis (whichever
results in greater voting power) (the "Total Voting Power") and 25% of
the total voting power of all the then-outstanding securities of the
Company;
- any time after 45 calendar days following any twenty consecutive trading
day period for which the average trading sales price for shares of the
Company's common stock is at least $10 (increased annually by 15%); and
- the occurrence of certain default-type events (such as the bankruptcy of
the Company or acceleration of at least $1,500,000 of indebtedness,
etc.).
Restrictions During Standstill Period. During the Standstill Period, for a
period of up to four years, the Investor may not, among other things:
- acquire additional capital stock of the Company with certain exceptions
such as transfers between the Investor and related transferees;
- participate in a group with respect to the capital stock of the Company
(other than with the Investor's partners or affiliates);
- participate in a solicitation of proxies or an election contest;
- solicit stockholders of the Company for the approval of stockholder
proposals or the election of Board members;
- deposit capital stock of the Company into any voting trust;
- make any public announcement regarding any of the foregoing prohibited
activities; or
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<PAGE> 13
- seek control of or influence management of the Board (other than through
the Investor's Board designees).
Also, during the Standstill Period, for a period of up to three years, the
Investor may not, among other things:
- propose a reorganization transaction involving the Company;
- offer, sell or transfer any capital stock of the Company (other than
permitted dispositions);
- make any public announcement regarding any of the foregoing prohibited
activities;
- enter into negotiations with a third party for any of the foregoing
prohibited activities; or
- advise or finance any person with respect to any of the foregoing
prohibited activities.
The foregoing restrictions on the activities of the Investor during the
Standstill Period do not apply to affiliates of the Investor that are related
transferees, do not possess material non-public information about the Company
and do not have voting or disposition power over the Notes, the Preferred Stock
and any Class A Common Stock into which these securities are convertible. The
restrictions also do not apply to Lehman Brothers Holdings Inc. and its
affiliates if the person taking the action does not have non-public information
obtained from the Investor and the transaction does not relate to the securities
purchased by the Investor. Also, the Investor is not prohibited from investing
in other businesses which may compete with the Company. In addition, the
Investor agrees to cause all the entities comprising the Investor to maintain
the role of a passive investor in the Company, including the avoidance of any
role in, or the influence of, the management or operations of the Company or the
use of any corporate or business tradenames in publicly referring to the
Company, subject to specified exceptions.
During the Standstill Period, the Investor may not sell, transfer or
dispose of its investment other than at a date after 6 months following the
purchase of the Notes and Preferred Stock:
- under the Registration Rights Agreement;
- under Rule 144, so long as the disposition is not made to any person who
would thereafter own 12.5% of the Total Voting Power (or 20% in the case
of institutional investors); and
- to any person that would not thereafter own 12.5% of Total Voting Power
(or 20% in the case of certain institutional investors).
Dispositions are also permitted pursuant to a merger or tender offer
recommended by a majority of the Board of Directors or to holders of partnership
or other ownership interests in the Investor or any other person who agrees to
be bound by the Investor Agreement; provided that, the Company must consent to
any such disposition occurring prior to the second anniversary of the Investor
Agreement.
Board Representation. Until such time as the Investor no longer owns at
least 5% of the Total Voting Power and no longer owns at least 10% of its
original $30 million investment in the Company, the Investor, as a holder of
Preferred Stock, will be entitled to representation on the Company's Board,
which will initially be five of the eleven Board members. The Investor's
representation on the Board will be effected through the Preferred Stock, which
entitles its holders to elect up to five members of the Board. However, this
number is subject to adjustment based upon the Investor's percentage ownership
of the total outstanding voting securities of the Company, as follows:
- five Board members so long as the Investor holds 30% or more of the Total
Voting Power;
- four Board members so long as the Investor holds 20% or more but less
than 30% of the Total Voting Power;
- three Board members so long as the Investor holds 10% or more but less
than 20% of the Total Voting Power; and
- one Board member so long as the Investor holds 5% or more but less than
10% of the Total Voting Power.
Additionally, each committee of the Board would initially have four
members, two of which would be designees of the Investor. In the event the
Company fails to pay dividends on the Preferred Stock or interest on
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<PAGE> 14
the Notes for six quarterly dividend periods, the Board of Directors shall be
increased to 13 directors and the Investor will be entitled to elect seven
directors until such time as the payment default has been cured.
Investor Designee Approval. The following activities of the Company will
require approval by a majority of the Investor's Board designees until the later
of (i) expiration or termination of the Standstill Period, (ii) if the
Standstill Period is terminated early under circumstances involving insolvency,
other credit events or a material breach by the Company of its obligations under
the Investor Agreement or the Registration Rights Agreement, (iii) the fourth
anniversary of the purchase of the Notes and Preferred Stock, and (iv) such time
as the Investor no longer beneficially owns securities of the Company having an
aggregate principal amount, liquidation preference or fair market value equal to
at least 51% of the Investor's original $30 million investment (the "Covenant
Period"):
(1) consolidations, mergers, reorganization transactions or
change-in-control situations (except those involving wholly-owned
subsidiaries of the Company);
(2) liquidation, dissolution or wind-up;
(3) the purchase of capital stock or other interest in another entity
(except those involving wholly-owned subsidiaries of the Company) for
an amount exceeding the Threshold Amount (defined below);
(4) the purchase of assets or liabilities of any third party exceeding the
Threshold Amount;
(5) making capital expenditures exceeding the budget by more than the
Threshold Amount;
(6) sale of any equity interest of the Company or its subsidiaries except
for those involving wholly-owned subsidiaries that are in excess of
the Threshold Amount or in accordance with the joint venture;
(7) the formation of joint ventures or partnerships exceeding the
Threshold Amount or competing with the Joint Venture;
(8) the sale or transfer of assets exceeding the Threshold Amount;
(9) the incurrence of debt exceeding the Threshold Amount;
(10) the redemption of the Company's Shareholder Rights Agreement;
(11) the distribution of dividends or redemption of outstanding securities
of the Company;
(12) the issuance of capital stock (with certain exceptions including stock
dividends and the conversion of the Notes or Preferred Stock);
(13) a change in the Company's independent public accountants or retention
by the Company of a financial adviser in connection with a transaction
exceeding the Threshold Amount;
(14) the Company's entry into an agreement that restricts the performance
of its obligations under its agreements with the Investor;
(15) granting of registration rights regarding the Company's securities
which have a value in any year exceeding the lesser of the Threshold
Amount and 5% of the Company's market capitalization;
(16) the amendment of the Company's charter or bylaws having an adverse
effect on the Investor; or
(17) the entering into of affiliate transactions (with certain exceptions
including the compensation of executive officers).
The Threshold Amount is $2,000,000 prior to the first anniversary of the
closing of the sale of the Preferred Stock and the Notes subject to increase by
$1,000,000 on each subsequent anniversary if the EBITDA of the Company equals or
exceeds the EBITDA Target up to a maximum of $5,000,000. The EBITDA of the
Company is the sum of the net income or net loss, net interest expense, income
tax expense, depreciation expense and amortization expense on a consolidated
basis including earnings attributable to management agreements with respect to
hotels owned directly or indirectly by the joint venture. The EBITDA Target is
the EBITDA of the Company for the calendar year 2000 adjusted for revenues and
expenses, including minority interests affected by the Wyndham redemption
described above plus $10 million, $20 million and $30 million for the calendar
year preceding the first,
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<PAGE> 15
second and third anniversaries of the closing respectively. The aggregate
Threshold Amount for all transactions subject to a Threshold Amount may not
exceed the lesser of (i) twice the amount of any individual transaction or (ii)
$10,000,000. In the event that the EBITDA of the Company is less than the EBITDA
Target for any year, the Threshold Amount shall be adjusted by a fraction based
on the EBITDA of the Company for such year divided by the EBITDA Target for such
year.
Termination of Standstill Period. The Standstill Period will terminate upon
the occurrence of any of the following events, among others:
- acceleration of at least $1.5 million of the Company's indebtedness with
payment outstanding 20 days after such acceleration;
- final judgment against the Company in excess of $1.5 million which
remains unsatisfied for 45 days after entry of such judgment;
- a bankruptcy filing by the Company or the filing of a petition to declare
the Company bankrupt that has not been discharged within 60 days;
- material breach that remains uncured by the Company of its obligations
under the Investor Agreement or the Registration Rights Agreement;
- public announcement of an offer by a third party to acquire more than 25%
of the beneficial ownership of the Company which the Company has not
recommended against;
- receipt of a bona fide reorganization proposal or consent solicitation to
change the composition of a majority of the Company's Board of Directors
that has not been rejected by the Company;
- payment default under the terms of the Note or the Preferred Stock; or
- the Company's failure to make capital contributions to the Joint Venture
between the Company and the Investor, pursuant to Section 4.2 of the
Joint Venture partnership agreement.
In connection with the transactions contemplated by the Securities Purchase
Agreement, until such time as the Investor no longer owns at least 5% of the
Total Voting Power or 10% of its original $30 million investment in the Company,
the Company will undertake not to hire other investment banks without first
offering Lehman Brothers Holdings, Inc. and its affiliates the opportunity to
serve in such capacity at market rates.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement, the Investor has an
unlimited right to include its Notes, Preferred Stock (and the shares of Class A
Common Stock of the Company into which they are convertible) in a registration
by the Company. In addition, subject to the limitations on sales described in
the Investor Agreement, the Investor may, on seven occasions, make a demand for
registration of its Notes, Preferred Stock (and the shares of Class A Common
Stock of the Company into which they are convertible), so long as such demand
includes at least 500,000 shares or such lesser number of shares as would yield
gross proceeds of at least $2 million. The Company agrees not to grant
registration rights to any other party that would limit the Investor's priority
for the sale or distribution of securities in connection with a demand
registration. The Investor has the right to receive the most favorable
registration rights the Company makes available to any person in connection with
the registration of securities and the Registration Rights Agreement is
automatically amended to reflect such favorable terms upon grant.
NOTES
Principal Amount, Maturity and Interest. The principal amount of the Notes
is $25 million. The Notes mature in seven years and accrue interest on a daily
basis at a rate of 8.75% per annum, compounded quarterly. Interest on the Notes
is payable in cash; however, up to 25% of the interest owed on any interest
payment date is payable by a payment-in-kind Note at the Company's option. The
terms of the Notes provide that during the continuance of an event of default,
the Notes accrue interest at a default interest rate per annum of 10.75%.
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Conversion. The Notes and any paid-in-kind Notes issued instead of interest
on the Notes are convertible at any time into shares of the Company's Class A
Common Stock at a conversion rate of $4.00 per share, subject to anti-dilution
adjustment. The terms of the Notes prohibit any holder from converting the Notes
if the conversion would cause the holder and its affiliates or any group of
which any of them is a member to have beneficial ownership of more than 49% of
the Company's Class A Common Stock after the conversion. Subject to that
restriction, on the date of issuance, the Notes will be convertible into
6,250,000 shares of the Company's Class A Common Stock.
Redemption. In addition, upon a Change in Control (as defined below) the
Company has an obligation to offer to the Holders, and the Holders have th right
to require the Company to redeem the Notes for cash equal to the greater of:
- the principal amount of the Notes plus accrued interest through the date
of redemption; or
- the fair market value of the cash securities and other property that the
Holder could have received had it converted its Notes, plus accrued
interest payable in cash.
A Change in Control is deemed to occur upon any of the following unless the
required Holders (as defined below) determine otherwise:
- the acquisition by any person (other than the Company, the Investor or a
group that includes the Investor except when the Investor or group that
includes the Investor is acquiring pursuant to a merger or reorganization
approved by the Board) of 35% more of the combined voting power or
economic interests of the securities of the Company entitled to vote for
the election of directors;
- a change in the majority of the Board members within 12 months of an
election contest for persons not recommended by the prior Board;
- stockholder approval of a merger, reorganization or consolidation in
which the owners of securities of the Company prior to such event own
less than 50% of the Company thereafter;
- sale of 50% or more of the Company's assets; or
- disposition by the Company of any part of its interest in the Joint
Venture to a person other than the Investor, except as permitted under
the Joint Venture partnership agreement.
Holders of the Notes may elect not to have their Notes redeemed.
Events of Default. The following events constitute defaults by the Company
which will accelerate the maturity of the Notes:
- principal or interest payment default on any of the Notes;
- a bankruptcy filing by the Company or the filing of a petition to declare
the Company bankrupt that has not been discharged within 60 days;
- acceleration of at least $1.5 million of the Company's indebtedness;
- material breach by the Company of its obligations under the Notes or of
its obligation to nominate to the Board of Directors any designee of the
Investor under the Investor Agreement, which remains uncured for 15 days
after notice to the company; or
- final judgement against the Company in excess of $1.5 million which
remains unsatisfied for 30 days after entry of such judgement.
Holders of more than 50% of the Notes may annul the acceleration of the
maturity of the Notes, if all interests due on the Notes are duly paid and every
event of default is cured or waived. The Company is not required to periodically
report the absence of any defaults to the Holders.
Subordination. Payments under the Notes are subordinated to payments on all
other senior indebtedness of the Company. Upon receipt by the Company of a
notice of default relating to senior indebtedness, for a period of 90 days after
such notice (the "Payment Blockage Period"), the Company shall not pay principal
or interest on the Notes or redeem such Notes until the senior indebtedness has
been paid in full or the default is no longer continuing. The Payment Blockage
Period applies while any of the Notes are outstanding after the Covenant Period
has ended and shall not restrict the holder's conversion rights. There are no
limitations on the issuance of additional senior indebtedness by the Company,
other than the obligation to obtain the consent of the Required Holders (as
defined below) for the incurrence of debt in general exceeding the Threshold
Amount.
Restrictions while Notes are Outstanding. For so long as the Notes are
outstanding, the Company agrees not to engage in the following activities
without the prior written consent of the holders of at least a majority of the
combined voting power of the Notes and the Preferred Stock outstanding (the
"Required Holders"):
- enter into a Change in Control transaction or merge with an entity other
than a wholly-owned subsidiary;
- enter into an agreement which materially restricts the Company's
performance of its obligations under its agreements with the Investor;
- grant any registration rights regarding the Company's securities which
have an aggregate value in any year exceeding the lesser of the Threshold
Amount and 5% of the Company's market capitalization;
- amend the Company's charter, the Notes or bylaws in a manner that
adversely affects the rights of the Investor; or
- redeem any securities of the Company without also offering to redeem the
Notes (except for redemptions of the Company's Class C Common Stock or
the Preferred Stock).
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In addition, during the Covenant Period and for so long as any Notes are
outstanding, the Company must obtain the prior written consent of the Required
Holders before taking certain actions described in paragraphs (2)-(13) and (17)
above under the discussion of the Investor Agreement relating to "Investor
Designee Approval."
Amendments. Amendments to the provisions of the Notes must be approved by
the Required Holders.
PREFERRED STOCK
Dividends. The Company has designated 850,000 shares of Preferred Stock.
The terms of the Preferred Stock are substantially the same as the Notes, except
as noted below. The Preferred Stock accrues cumulative dividends payable in cash
at the rate of 8.75% of the stated amount ($10 per share) on a quarterly basis,
with up to 25% of the dividends payable in additional shares of Preferred Stock
at the Company's option. If the dividends are in arrears for a period of 60 days
or more, then an additional cumulative dividend accrues at an annual rate of 2%
of the stated amount ($10 per share) payable in shares of Preferred Stock. The
Preferred Stock also receives any dividends paid to holders of Class A Common
Stock of the Company on an as-converted basis. The Company is precluded from
paying dividends on or repurchasing capital stock that is on parity with the
Preferred Stock and from repurchasing capital stock that is not ranked senior to
the Preferred Stock, unless all dividends accrued on the Preferred Stock have
been paid.
Voting Rights. The Preferred Stock has the right to elect up to five
members to the Company's Board of Directors as described above under the
Investor Agreement. In addition, if the Company fails to pay dividends on the
Preferred Stock or interest on the Notes for six quarterly periods, then the
size of the Company's Board increases to thirteen directors and the Investor is
entitled to elect seven of the thirteen directors until such time as the payment
default has been cured. Other than for these rights and the rights described
under the discussion of "Restrictions While Preferred Stock is Outstanding"
below, the Preferred Stock has no voting rights.
Conversion. Each share of Preferred Stock, including any shares issued of
Preferred Stock issued instead of dividends, is convertible at any time at the
option of the holder into Class A Common Stock of the Company, whether or not
the Company has given notice of redemption. The conversion price is $4.00 per
share of Class A Common Stock subject to anti-dilution adjustment.
Restrictions While Preferred Stock is Outstanding. For so long as the
Preferred Stock is outstanding, the Company agrees not to engage in the
following activities without the prior written consent of the Required Holders:
- authorize, create, reclassify or issue any senior stock or parity stock
or any stock convertible into senior or parity stock;
- amend any rights of the holders of the Preferred Stock or the Class B or
Class C Common Stock;
- amend the rights of the Class A Common Stock in a manner adverse to the
holders of the Preferred Stock;
- enter into a Change in Control transaction or merge with an entity other
than a subsidiary;
- enter into an agreement which materially restricts the Company's
performance of its obligations under its agreements with the Investor;
- grant any registration rights regarding the Company's securities which
have a value in any year exceeding the lesser of the Threshold Amount and
5% of the Company's market capitalization;
- amend the Company's charter, bylaws or the Notes in a manner that
adversely affects the rights of the Investor; or
- redeem any securities of the Company without also offering to redeem the
Preferred Stock (except for redemptions of the Company's Class C Common
Stock or the Notes).
In addition, during the Covenant Period and for so long as any of the
Preferred Stock is outstanding, the Company must obtain the prior written
consent of the Required Holders before taking certain actions described in
paragraphs (2)-(13) and (17) above under the discussion of the Investor
Agreement relating to "Investor Designee Approval."
Redemption Rights. The Company has an obligation to redeem the Preferred
Stock on the seventh anniversary of the issuance of the Preferred Stock to the
Investor. The redemption price will be $10 per share plus all accrued dividends
on the date of redemption. The Company is not required to provide notice of such
redemption to the holders of Preferred Stock. The holders of the Preferred Stock
may convert their shares of the Preferred Stock at any time prior to the
redemption date. There is no restriction on the redemption of the Preferred
Stock by
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<PAGE> 18
the Company while the Company is in arrearage in the payment of dividends. In
addition, upon a Change in Control, the Company has an obligation to offer to
the holders of Preferred Stock, and the holders of Preferred Stock may require
from the Company to redeem the Preferred Stock on the same basis as the Notes
described above.
Liquidation Preference. Upon issuance, the Preferred Stock will have an
aggregate liquidation preference of $5,000,000. Upon a liquidation of the
Company the holders of Preferred Stock will be entitled to receive the greater
of (a) $10 per share plus any accrued dividends, and (b) the fair market value
of the cash, securities and other property that the holder of Preferred Stock
would have received had it converted, its Preferred Stock plus accrued
dividends.
The terms of the Preferred Stock prohibit any holder from exercising the
right to convert any shares of Preferred Stock if the conversion would cause the
holder and its affiliates or any group of which any of them is a member to have
beneficial ownership of more than 49% of the Company's Class A Common Stock
after the conversion. Subject to that restriction, on the date of issuance, the
shares of Preferred Stock will be convertible into, 1,250,000 shares of the
Company's Class A Common Stock and the shares of Preferred Stock proposed to be
issued to members of senior management will be convertible into 562,500 shares
of Class A Common Stock on the date of issuance.
REASONS FOR SEEKING STOCKHOLDER APPROVAL
The Company's common stock trades on the NASDAQ SmallCap Market. The rules
of the NASDAQ require that a company whose securities are listed on the NASDAQ
receive stockholder approval before selling or issuing securities, such as the
Notes and the Preferred Stock, which are convertible into common stock
representing 20% or more of the Company's outstanding common stock or 20% (or
more of the voting power outstanding before the issuance) for less than the
greater of book or market value of the stock. The Company must obtain
stockholder approval to complete the transactions contemplated under the
Securities Purchase Agreement because the Notes and the Preferred Stock,
together, could be converted into Class A Common Stock representing more than
20% of the Company's then-outstanding capital stock and because the issuance
will be for less than the book value of the Company's common stock and to
approve the issuance of Preferred Stock to members of senior management.
OPINION OF FINANCIAL ADVISOR
Merrill Lynch, Pierce, Fenner & Smith, Incorporated ("Merrill Lynch") was
engaged by the Company to serve as its financial advisor in connection with a
proposed strategic transaction involving the Company. Merrill Lynch delivered
its opinion, dated August 31, 2000, to the Board of Directors that as of that
date, and based on and subject to the assumptions, limitations and
qualifications set forth in the written opinion, the purchase by the Investor of
Notes in an aggregate principal amount of $25 million and 500,000 shares of
Preferred Stock for $5 million is fair from a financial point of view to the
Company.
Merrill Lynch was not authorized by the Company or the Board of Directors
to solicit, nor did they solicit, third-party indications of interest for the
acquisition of the Company and accordingly, Merrill Lynch does not compare the
investment transaction with other possible transactions that may have been
available to the Company. Merrill Lynch's opinion does not address the merits of
the underlying decision of the Company to issue and sell the Notes and the
Preferred Stock. Merrill Lynch expresses no opinion as to the price at which any
class of the Company's stock will trade at any time. Merrill Lynch's opinion
does not constitute a recommendation to any stockholder as to how to vote at the
Special Meeting.
The full text of the written opinion of Merrill Lynch, dated August 31,
2000, which sets forth the assumptions made, matters considered and limits on
the review undertaken, is attached as Appendix E to this proxy statement and is
incorporated herein by reference. Stockholders are urged to read the opinion in
its entirety. The summary of the opinion of Merrill Lynch set forth in the proxy
statement is qualified in its entirety by reference to the full text of such
opinion. Merrill Lynch's opinion is as of its date only and Merrill Lynch has no
obligation to update it. The Company will pay Merrill Lynch a customary fee for
financial advisory matters in connection with its engagement.
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<PAGE> 19
EMPLOYMENT ARRANGEMENTS MADE IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS
We have amended and restated the employment agreements with Mssrs. Hewitt,
Richardson and Kilkeary. The amended and restated agreements will only be
effective upon the closing date under the Securities Purchase Agreement. In the
event the Transaction does not close, our existing employment agreements with
Mssrs. Hewitt, Richardson and Kilkeary will remain in effect and the amended and
restated agreements described below will not become effective.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Amended and Restated Employment Agreement of Thomas F. Hewitt. The
following describes the key terms of Mr. Hewitt's amended and restated
employment agreement which becomes effective upon the closing of the
transactions contemplated by the Securities Purchase Agreement.
-- He serves as the Company's Chairman of the Board and Chief Executive
Officer.
-- Mr. Hewitt is employed for a three-year term beginning on the closing
date of the Securities Purchase Agreement. In addition, on the second
anniversary of the closing date and every even-numbered anniversary
thereafter, Mr. Hewitt's agreement will be automatically extended for
two-years, unless either party gives 90 days' prior written notice
otherwise.
-- Mr. Hewitt was previously issued 181,917 restricted shares of the
Company's Class A Common Stock. Any unvested shares will vest on the
closing date under the Securities Purchase Agreement. However, the
Company and the Executive may agree to defer vesting. In addition, the
Company also loaned Mr. Hewitt $259,254 for payment of his income tax
liabilities associated with the restricted stock grant. If, on the
earlier of February 28, 2003 or the date Mr. Hewitt's employment is
terminated other than for cause, the market value of the stock granted
to Mr. Hewitt is less than $1.5 million, the Company will forgive this
loan in proportion to the amount by which the market value of the
stock granted to Mr. Hewitt is less than $1.5 million.
-- Additionally, the Company loaned Mr. Hewitt $400,000 which is due on
June 18, 2005 or 30 days after the termination of Mr. Hewitt's
employment, whichever is earlier. If Mr. Hewitt's employment is
terminated by the Company other than for cause, the loan will be
forgiven.
-- On the closing date Mr. Hewitt will be granted 100,000 shares of the
Company's Series B Convertible Preferred Stock (the "Hewitt Preferred
Stock"), subject to the vesting requirements described below. In
connection with the grant, Mr. Hewitt is required to execute a
Stockholders Agreement with the Investor which provides for certain
rights and restrictions in connection with Mr. Hewitt's ownership.
-- Mr. Hewitt was also granted a 3% partnership interest in the
joint venture as a limited partner ("Hewitt JV Interest").
-- Upon Mr. Hewitt's termination of employment, he will be
entitled to receive:
- his minimum bonus, if he resigns without good reason;
- his minimum bonus, an amount equal to twice his base pay and minimum
bonus, continuation for 24 months of his health and welfare
benefits, and immediate vesting and nonforfeiture of the Hewitt
Preferred Stock and Hewitt JV Interest, if his employment is
terminated by the Company for any reason other than cause, or death
or disability or if his employment is terminated voluntarily by Mr.
Hewitt for good reason; and
- his minimum bonus for the year of termination of his employment, his
base pay and minimum bonus for a period of 12 months following the
termination of his employment, and immediate vesting and
nonforfeiture of the Hewitt Preferred Stock and Hewitt JV Interest,
if his employment is terminated as a result of his death or
disability.
-- Upon Mr. Hewitt's termination of employment by the Company for cause
or voluntary termination by Mr. Hewitt without good reason,
- prior to the first anniversary of the shareholders' approval of the
transactions contemplated under the Securities Purchase Agreement,
Mr. Hewitt will forfeit the Hewitt Preferred Stock and the Hewitt JV
Interest;
- on or after the first anniversary but prior to the second
anniversary of the shareholders' approval of the transactions
contemplated under the Securities Purchase Agreement, Mr. Hewitt
will forfeit two-thirds of the Hewitt Preferred Stock and the Hewitt
JV Interest;
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<PAGE> 20
- on or after the second anniversary but prior to the third
anniversary of the shareholders' approval of the transactions
contemplated under the Securities Purchase Agreement, Mr.
Hewitt will forfeit one-third of the Hewitt Preferred Stock and
the Hewitt JV Interest;
- on or after the third anniversary of the shareholders' approval of
the transactions contemplated under the Securities Purchase
Agreement, Mr. Hewitt will not be subject to forfeiting either the
Hewitt Preferred Stock or the Hewitt JV Interest.
-- Upon Mr. Hewitt's termination of employment for any reason, the
Company may purchase the vested Hewitt Preferred Stock, to the extent
not subject to forfeiture, for its fair market value and the Joint
Venture may purchase the vested Hewitt JV Interest for an amount which
varies based on the reason for termination.
-- If Mr. Hewitt is taxed on "excess parachute payments"
under the Internal Revenue Code as a result of a change in control of
the Company, Mr. Hewitt will be entitled to a gross-up payment.
-- Mr. Hewitt was previously entitled to certain payments on account of a
change in control of the Company. Under the amended and restated
employment agreement, Mr. Hewitt is no longer entitled to these
payments.
-- Mr. Hewitt has agreed to non-compete and non-solicitation provisions.
-- Mr. Hewitt is obligated to keep in strict confidence any trade secrets
and confidential business and technical information of the Company.
-- Mr. Hewitt is entitled to have his legal fees and related expenses
paid by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER
Amended and Restated Employment Agreement of J. William Richardson. The
following describes the key terms of Mr. Richardson's amended and restated
employment agreement which becomes effective upon the closing of the
transactions contemplated by the Securities Purchase Agreement.
-- He serves as the Company's Vice Chairman and Chief Financial Officer.
-- Mr. Richardson is employed for a three-year term beginning on the
closing date of the Securities Purchase Agreement. In addition, on the
second anniversary of the closing date and every [even-numbered]
anniversary thereafter, Mr. Richardson's agreement will be
automatically extended for one-year, unless either party gives 90
days' prior written notice otherwise.
-- Mr. Richardson was previously issued 150,000 restricted shares of the
Company's Class A Common Stock. Any unvested shares will vest on the
closing date under the Securities Purchase Agreement. However, the
Company and the Executive may agree to defer vesting.
-- The Company forgave a loan in the amount of $354,018 once Mr.
Richardson had remained with the Company for at least 90 days
following the Company's spin-off. The loan forgiveness is being
amortized over a 60-month period beginning on September 16, 1999, so
long as his employment agreement remains in effect.
-- On the closing date Mr. Richardson will be granted 75,000 shares of
the Company's Series B Convertible Preferred Stock (the "Richardson
Preferred Stock"), subject to the vesting requirements described
below. In connection with the grant, Mr. Richardson is required to
execute a Stockholders Agreement with the Investor Group which
provides for certain rights and restrictions in connection with Mr.
Richardson's ownership.
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<PAGE> 21
-- Mr. Richardson was also granted a 2.25% Partnership Interest in the
Partnership as a limited partner ("Richardson JV Interest").
-- Upon Mr. Richardson's termination of employment, he will be
entitled to receive:
- (1) the greater of (a) his salary and bonus for the year preceding
termination and (b) his salary and bonus for the remainder of the
term of the agreement, (2) the continuation of health and welfare
benefits for one year following termination of employment and (3)
immediate vesting and nonforfeiture of the Richardson Preferred
Stock and Richardson JV Interest, if his employment is terminated by
the Company for any reason other than cause, death or disability, or
if his employment is terminated voluntarily by Mr. Richardson for
good reason; and
- his base pay for a period of 12 months following the termination of
his employment, and immediate vesting and nonforfeiture of the
Richardson Preferred Stock and Richardson JV Interest, if his
employment is terminated as a result of his death or disability.
-- Upon Mr. Richardson's termination of employment by the Company for
cause,
- prior to the first anniversary of the shareholders' approval of the
transactions contemplated under the Securities Purchase Agreement,
Mr. Richardson will forfeit the Richardson Preferred Stock and the
Richardson JV Interest;
- on or after the first anniversary but prior to the second
anniversary of the shareholders' approval of the transactions
contemplated under the Securities Purchase Agreement, Mr. Richardson
will forfeit two-thirds of the Richardson Preferred Stock and the
Richardson JV Interest;
- on or after the second anniversary but prior to the third
anniversary of the shareholders' approval of the transactions
contemplated under the Securities Purchase Agreement, Mr. Richardson
will forfeit one-third of the Richardson Preferred Stock and the
Richardson JV Interest; and
- on or after the third anniversary of the shareholders' approval of
the transactions contemplated under the Securities Purchase
Agreement, Mr. Richardson will not be fully vested and not subject
to forfeiture for any amount of the Richardson Preferred Stock or
the Richardson JV Interest.
-- Upon the voluntary termination of Mr. Richardson's employment by Mr.
Richardson without good reason during the nine month period after the
date of the shareholders' approval of the transactions contemplated
under the Securities Purchase Agreement, Mr. Richardson will forfeit
the Richardson Preferred Stock and the Richardson JV Interest.
-- Upon Mr. Richardson's termination of employment for any reason, the
Company may purchase the vested Richardson Preferred Stock, to the
extent not subject to forfeiture, for its fair market value and the
Joint Venture may purchase the vested Richardson JV Interest for an
amount which varies based on the reason for termination.
-- If Mr. Richardson is taxed on "excess parachute
payments" under the Internal Revenue Code as a result of a change in
control of the Company, Mr. Richardson will be entitled to a gross-up
payment.
-- Mr. Richardson was previously entitled to certain payments on account
of a change in control of the Company. Under the amended and restated
employment agreement, Mr. Richardson is no longer entitled to these
payments.
-- Mr. Richardson has agreed to non-compete and non-solicitation
provisions.
-- Mr. Richardson is obligated to keep in strict confidence any trade
secrets and confidential business and technical information of the
Company.
-- Mr. Richardson is entitled to have his legal fees and related expenses
paid by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
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<PAGE> 22
PRESIDENT AND CHIEF OPERATING OFFICER
Amended and Restated Employment Agreement of Kevin P. Kilkeary. The following
describes the key terms of Mr. Kilkeary's amended and restated employment
agreement which becomes effective upon the closing of the transactions
contemplated by the Securities Purchase Agreement.
-- Mr. Kilkeary serves as the Company's President and Chief Operating
Officer.
-- Mr. Kilkeary is employed for a three-year term beginning on the
closing date of the Securities Purchase Agreement. In addition, on the
second anniversary of the closing date and every even-numbered
anniversary thereafter, Mr. Kilkeary's agreement will be automatically
extended for one-year, unless either party gives 90 days' prior
written notice otherwise.
-- The Company previously loaned Mr. Kilkeary $300,000. Fifty percent of
this loan was or will be forgiven over a three-year period, at the
rate of $50,000 per year on June 17, 2000, 2001 and 2002, so long as
his employment is not terminated by the Company for cause prior to
such dates or voluntarily by Mr. Kilkeary without good reason prior to
the first anniversary of the shareholders' approval of the
transactions contemplated under the Securities Purchase Agreement.
-- On the closing date the Company will loan Mr. Kilkeary $500,000. This
loan will be forgiven over the three-year period commencing on the
date of the shareholders' approval of the transactions contemplated
under the Securities Purchase Agreement, at the rate of $166,666.33
per year, so long as his employment is not terminated by the Company
for cause or voluntarily by Mr. Kilkeary without good reason prior to
such dates.
-- On the closing date, Mr. Kilkeary will be granted 50,000 shares of the
Company's Series B Convertible Preferred Stock (the "Kilkeary
Preferred Stock"), subject to the vesting requirements described
below. In connection with the grant, Mr. Kilkeary is required to
execute a Stockholders Agreement with Investor which provides for
certain rights and restrictions in connection with Mr. Kilkeary's
ownership.
-- Upon Mr. Kilkeary's termination of employment, he will be
entitled to receive:
- (1) the greater of (a) his salary and bonus for the year preceding
termination and (b) his salary and bonus for the remainder of the
agreement, (2) the continuation of health and welfare benefits for
one year following termination of employment and (3) immediate
vesting and nonforfeiture of the Kilkeary Preferred Stock, if his
employment is terminated by the Company for any reason other than
cause, death or disability or if his employment is terminated
voluntarily by Mr. Kilkeary for good reason; and
- his base pay for a period of 12 months following the termination of
his employment, and immediate vesting and nonforfeiture of the
Kilkeary Preferred Stock, if his employment is terminated as a
result of his death or disability.
-- Upon the termination of Mr. Kilkeary's employment by the Company for
cause or by Mr. Kilkeary without good reason:
- prior to the first anniversary of the shareholders' approval of the
transactions contemplated under the Securities Purchase Agreement,
Mr. Kilkeary will forfeit the Kilkeary Preferred Stock;
- on or after the first anniversary but prior to the second
anniversary of the shareholders' approval of the transactions
contemplated under the Securities Purchase Agreement, Mr. Kilkeary
will forfeit two-thirds of the Kilkeary Preferred Stock;
- on or after the second anniversary but prior to the third
anniversary of the shareholders' approval of the transactions
contemplated under the Securities Purchase Agreement, Mr. Kilkeary
will forfeit one-third of the Kilkeary Preferred Stock; and
- on or after the third anniversary of the shareholders' approval of
the transactions contemplated under the Securities Purchase
Agreement, Mr. Kilkeary will not be subject to forfeiting the
Kilkeary Preferred Stock.
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<PAGE> 23
-- Upon Mr. Kilkeary's termination of employment for any reason, the
Company, may purchase the Kilkeary Preferred Stock for its fair market
value.
-- If Mr. Kilkeary is taxed on "excess parachute payments"
under the Internal Revenue Code as a result of a change in control of
the Company, Mr. Kilkeary will be entitled to a gross-up payment.
-- Mr. Kilkeary was previously entitled to certain payments on account of
a change in control of the Company. Under the amended and restated
employment agreement, Mr. Kilkeary is no longer entitled to these
payments.
-- Mr. Kilkeary has agreed to non-compete and non-solicitation
provisions.
-- Mr. Kilkeary is obligated to keep in strict confidence any trade
secrets and confidential business and technical information of the
Company.
-- Mr. Kilkeary is entitled to have his legal fees and related expenses
paid by the company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
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<PAGE> 24
The foregoing describes the amended and restated employment agreements
with Mssrs. Hewitt, Richardson and Kilkeary that become effective only if the
shareholders approve the issuance of the Preferred Stock, the Notes and the
Class A Common Stock into which these securities are convertible and the
transactions contemplated under the Securities Purchase Agreement are
consummated. The following discussion summarizes the existing employment
agreements between the Company and certain members of senior management, some of
which may be superceded by the employment arrangements described above.
EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS
We have entered into an employment agreement with Mr. Hewitt pursuant to which:
-- He serves as the Company's Chairman of the Board and Chief Executive
Officer.
-- Mr. Hewitt is employed for a term beginning March 1, 1999 and ending
February 28, 2003 subject to, on the second anniversary of the date of
his employment and every even-numbered anniversary thereafter,
automatic two-year extensions, unless either party gives 90 days prior
written notice otherwise.
-- In the event of termination of Mr. Hewitt's employment, he will be
entitled to receive:
- his minimum bonus, if he resigns without good reason;
- his minimum bonus, an amount equal to twice his base pay and minimum
bonus, continuation for 24 months of his health and welfare
benefits, and acceleration of his restricted stock grant, if his
employment is terminated for any reason other than cause or
disability; and
- his minimum bonus for the year of termination of his employment, his
base pay and minimum bonus for a period of 12 months following the
termination of his employment, and acceleration of his restricted
stock grant, if his employment is terminated as a result of his
death or disability.
-- In the event of a change in control of the Company, Mr. Hewitt will be
entitled to:
- a $2 million cash payment, acceleration of his restricted stock
grant, and health and welfare benefits continuation, in the event
that his employment is terminated by the Company without cause or he
resigns for good reason within 36 months of the change in control or
if he terminates his employment for any reason within the first 24
months immediately following the change in control; and
- a gross-up of his compensation if he is taxed on "excess parachute
payments" under the Internal Revenue Code.
-- Mr. Hewitt has agreed to non-compete and non-solicitation provisions.
-- Mr. Hewitt is obligated to keep in strict confidence any trade secrets
and confidential business and technical information of the Company.
-- Mr. Hewitt is entitled to have his legal fees and related expenses
paid by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
-- Mr. Hewitt was issued 181,917 restricted shares of the Company's Class
A Common Stock, which vests over four years. The Company also loaned
Mr. Hewitt $259,254 for payment of his income tax liabilities
associated with the restricted stock grant. If, on the earlier of
February 28, 2003 or the date Mr. Hewitt's employment is terminated
other than for cause, the market value of the stock granted to Mr.
Hewitt is less than $1.5 million, the Company will forgive such loan
in proportion to the amount by which the market value of the stock
granted to Mr. Hewitt is less than $1.5 million.
-- Additionally, the Company provided Mr. Hewitt with a loan of $400,000
which is due in either six years or 30 days after the termination of
Mr. Hewitt's employment, whichever is earlier. If Mr. Hewitt's
employment is terminated other than for cause, however, the loan will
be forgiven.
We have also entered into employment agreements with Mr. Richardson, Mr.
Kilkeary, Mr. Henry L. Ciaffone and Mr. Charles R. Tomb.
Pursuant to the terms of Mr. Richardson's employment agreement:
-- He serves as the Company's Vice Chairman and Chief Financial Officer.
-- The term of Mr. Richardson's employment is three years, ending June
17, 2002, which will be automatically extended for additional one-year
terms unless terminated by either party by giving written notice to
the other 90 days prior to a scheduled term expiration date.
-- In the event of the termination of Mr. Richardson's employment for any
reason other than cause, disability or a change in control, he will be
entitled to: (1) the greater of (a) his salary and bonus for the
immediately preceding year and (b) his salary and bonus for the
remainder of the term of the agreement and (2) the continuation of
health and welfare benefits for one year following termination of
employment.
-- In the event of a change in control of the Company, Mr. Richardson
will be entitled to:
- a $1.5 million cash payment, acceleration of his restricted stock
grant and health and welfare benefits continuation, in the event
that his employment is terminated by the Company without cause
within 36 months of the change in control or if he terminates his
employment for any reason within the first 12 months immediately
following the change in control; and
- a gross-up of his compensation if he is taxed on "excess parachute
payments" under the Internal Revenue Code.
-- Mr. Richardson has agreed to non-compete and non-solicitation
provisions.
-- Mr. Richardson is obligated to keep in strict confidence any trade
secrets and confidential business and technical information of the
Company.
-- Mr. Richardson is entitled to have his legal fees and related expenses
paid by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
-- Mr. Richardson was issued 150,000 restricted shares of the Company's
Class A Common Stock which vests over three years.
-- The Company forgave a loan in the amount of $354,018 once Mr.
Richardson had remained with the Company for at least 90 days
following the Spin-Off. The loan is being amortized over a 60-month
period beginning on September 16, 1999, so long as his employment
agreement remains in full force and effect.
Pursuant to the terms of Mr. Kilkeary's employment agreement:
-- Mr. Kilkeary serves as the Company's President and Chief Operating
Officer.
-- The term of Mr. Kilkeary's employment is three years ending, June 17,
2002, which will be automatically extended for additional one-year
terms unless terminated by either party by giving written notice to
the other 90 days prior to a scheduled term expiration date.
-- In the event of the termination of Mr. Kilkeary's employment for any
reason other than cause, disability or a change in control, he will be
entitled to: (1) the greater of (a) his salary and bonus for the
immediately preceding year and (b) his salary and bonus for the
remainder of the agreement and (2) the continuation of health and
welfare benefits for one year following termination of employment.
-- In the event of a change in control of the Company, Mr. Kilkeary will
be entitled to:
- a $1 million cash payment and health and welfare benefits
continuation, in the event that his employment is terminated by the
Company without cause within 36 months of the change in control or if
he terminates his employment for any reason within the first 12 months
immediately following the change in control; and
- a gross-up of his compensation if he is taxed on "excess parachute
payments" under the Internal Revenue Code.
-- Mr. Kilkeary has agreed to non-compete and non-solicitation
provisions.
-- Mr. Kilkeary is obligated to keep in strict confidence any trade
secrets and confidential business and technical information of the
Company.
-- Mr. Kilkeary is entitled to have his legal fees and related expenses
paid by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
-- The Company loaned Mr. Kilkeary $300,000, 50% of which will be
forgiven over a three-year period, at the rate of $50,000 per year on
June 17, 2000, 2001 and 2002, so long as his employment is not
terminated by the Company for cause or voluntarily by Mr. Kilkeary
prior to such dates. The loan will be forgiven upon the occurrence of
a change in control.
Pursuant to the terms of Mr. Ciaffone's employment agreement:
-- The term of Mr. Ciaffone's employment is three years, ending November
30, 2001, which will be automatically extended for additional one-year
terms unless otherwise terminated by either party by giving written
notice to the other 90 days prior to a scheduled term expiration date.
-- In the event of the termination of Mr. Ciaffone's employment for any
reason other than cause or disability, he will be entitled to: (1) the
greater of (a) his salary and bonus for the immediately preceding six
months and (b) his salary and bonus for the remainder of the term of
the agreement and (2) the continuation of health and welfare benefits
for six months following termination of employment.
-- Mr. Ciaffone has agreed to non-compete and non-solicitation
provisions.
-- Mr. Ciaffone is obligated to keep in strict confidence any trade
secrets and confidential business and technical information of the
Company.
-- Mr. Ciaffone is entitled to have his legal fees and related expenses
paid by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
Pursuant to the terms of Mr. Tomb's employment agreement:
-- The term of Mr. Tomb's employment is three years, ending June 1, 2001,
which will be automatically extended for additional one-year terms
unless otherwise terminated by either party by giving written notice
to the other 90 days prior to a scheduled term expiration date.
-- As a result of the change in control triggered by the merger of Old
Interstate into Wyndham, Mr. Tomb received 50% of the severance
compensation he was entitled to receive under his severance agreement
with Old Interstate.
-- Mr. Tomb received a loan of $373,857, which was an amount equal to the
remaining 50% of such severance compensation, which amortizes over a
30-month period beginning June 18, 1999, and is automatically forgiven
upon the expiration of his non-compete period following termination of
his employment.
-- If Mr. Tomb terminates his employment for reasons other than a change
in control or a material change in his job responsibilities, he is
required to repay the unamortized portion of the severance loan.
-- In the event the Company terminates Mr. Tomb without cause or either
Mr. Tomb or the Company terminates his employment as the result of a
change in control or a material change in his job responsibilities
during the initial three-year term of his employment, he is entitled
both to forgiveness of the severance loan and continuation of health
and welfare benefits for the greater of 18 months or the remainder of
the term of the agreement.
-- If the Company terminates Mr. Tomb without cause or he terminates his
employment as a result of a change in control or a material change in
his job responsibilities after the expiration of the initial three-
year term of his employment, he is entitled to an amount equal to his
salary and bonus for up to a maximum of six months.
-- Mr. Tomb has agreed to non-compete and non-solicitation provisions.
-- Mr. Tomb is obligated to keep in strict confidence any trade secrets
and confidential business and technical information of the Company.
-- Mr. Tomb is entitled to have his legal fees and related expenses paid
by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
BACKGROUND INFORMATION
The following information relating to director compensation, executive
compensation, stock option grants, compensation plans and arrangements,
compensation committee interlocks and insider participation and beneficial
ownership of the Class A Common Stock of the Company have been disclosed
previously to the Company's stockholders in the Company's Proxy Statement for
the Annual Meeting held on July 18, 2000.
Director Compensation. Directors who are Non-Employee Directors are paid an
annual retainer of $15,000 plus $1,000 for each Board meeting or working session
attended in person, as well as $500 for each Board meeting in which the director
participates by telephone. In addition, members of directorate committees are
paid $1,000 for each committee meeting attended in person on days on which the
Board does not also meet, as well as $500 for each committee meeting in which
the director participates by telephone.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid to Thomas F. Hewitt, who is the Company's Chairman of the
Board and Chief Executive Officer, and each of the four other most highly
compensated executive officers of the Company in 1999 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ----------------------------
-------------------------- SECURITIES LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS PAYOUTS COMPENSATION
--------------------------- ---- -------- -------- ------------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Hewitt(1)............ 1999 $338,462 $450,000 225,000(2) $27,077(3) $ 236,722(4)
Chairman of the Board and 1998 -- -- -- -- --
Chief Executive Officer
J. William Richardson.......... 1999 303,654 400,000 175,000(2) 24,292(3) 140,762(5)
Vice Chairman and 1998 265,123 397,684 -- 853,205(6) 3,292,485(7)
Chief Financial Officer
Kevin P. Kilkeary.............. 1999 287,788 325,000 150,000(2) 23,023(3) 6,700(8)
President and 1998 242,844 273,199 -- -- 2,346,519(9)
Chief Operating Officer
Henry L. Ciaffone.............. 1999 237,404 200,000 50,000(2) 17,515(3) 101,804(10)
Executive Vice President, 1998 181,610 187,567 -- -- 2,016,934(11)
International Operations and
Development
Charles R. Tomb................ 1999 195,885 150,000 35,000(2) 15,671(3) 149,312(12)
Senior Vice President, 1998 160,284 75,000 -- -- 1,113,663(13)
Development and Acquisitions
</TABLE>
---------------
(1) Mr. Hewitt became the Chairman of the Board and Chief Executive Officer in
March 1999. Mr. Hewitt's 1999 compensation is for the period from March 1,
1999 through December 31, 1999.
(2) Consists of shares underlying options granted under the Company's Equity
Incentive Plan, with an exercise price of $4.50 per share.
(3) Consists entirely of compensation under the Company's Executive Retirement
Plan (the "ERP").
(4) Consists of restricted stock compensation under the Company's Equity
Incentive Plan of $123,173, a reimbursement of costs for relocation of
$89,730, imputed interest on a loan by the Company of $15,400, a car
allowance of $7,615 and miscellaneous expense reimbursements of $804.
(5) Consists of restricted stock compensation under the Company's Equity
Incentive Plan of $81,250, compensation for services as a director of the
Company's subsidiary, Northridge Insurance Company, of $25,000,
amortization of loan forgiveness of $23,601 and imputed interest on a loan
by the Company of $10,911.
(6) Consists of compensation under the ERP of $34,466 and a deferred
compensation payment of $818,739.
(7) Consists of stock option proceeds of $1,921,875, loan forgiveness of
$1,060,920, a special bonus of $300,000 and a change-in-control payment of
$9,690.
(8) Consists entirely of imputed interest on a loan by the Company.
(9) Consists of a change-in-control payment of $1,186,394, stock option
proceeds of $1,070,125 and loan forgiveness of $90,000.
(10) Consists of a housing allowance of $61,130, a cost of living allowance of
$30,429 and a car allowance of $10,245.
(11) Consists of a change-in-control payment of $955,314 with a tax gross up of
$479,120, stock option proceeds of $412,500 and loan forgiveness of
$170,000.
(12) Consists of amortization of loan forgiveness of $74,771, a reimbursement of
costs for relocation of $44,752, imputed interest on a loan by the Company
of $21,029 and a car allowance of $8,760.
(13) Consists of a change-in-control payment of $747,713, stock option proceeds
of $155,000, a reimbursement of costs for relocation of $111,212,
restricted stock compensation of $79,844, commissions of $11,134 and a car
allowance of $8,760.
21
<PAGE> 25
1999 STOCK OPTION GRANTS
The following table sets forth certain information with respect to options
granted to the Named Executive Officers during 1999.
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE
SECURITIES % OF TOTAL VALUE AT ASSUMED
UNDERLYING OPTIONS GRANTED ANNUAL RATES OF STOCK
OPTIONS TO EMPLOYEES EXERCISE OR EXPIRATION PRICE APPRECIATION FOR
NAME GRANTED IN 1999(1) BASE PRICE DATE OPTION TERM(2)
---- ----------- ---------------- ----------- ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Hewitt........... 225,000 12.7% $4.50 2009 $636,756 $1,613,664
J. William Richardson...... 175,000 9.9% 4.50 2009 495,255 1,255,072
Kevin P. Kilkeary.......... 150,000 8.5% 4.50 2009 424,504 1,075,776
Henry L. Ciaffone.......... 50,000 2.8% 4.50 2009 141,501 358,592
Charles R. Tomb............ 35,000 2.0% 4.50 2009 99,051 251,014
</TABLE>
---------------
(1) Based on 1,768,000 options granted to all employees during 1999.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the SEC. Our actual stock price appreciation
over the ten-year option term will likely differ from these assumed annual
rates. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to the
executive officers.
The following table sets forth information regarding the values of the
options held by the Named Executive Officers at December 31, 1999.
OPTION VALUES AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NAME DECEMBER 31, 1999(1) DECEMBER 31, 1999(1)(2)
---- ----------------------- -----------------------
<S> <C> <C>
Thomas F. Hewitt................................... 225,000 $--
J. William Richardson.............................. 175,000 --
Kevin P. Kilkeary.................................. 150,000 --
Henry L. Ciaffone.................................. 50,000 --
Charles R. Tomb.................................... 35,000 --
</TABLE>
---------------
(1) All options held by the Named Executive Officers at December 31, 1999 were
unexercisable.
(2) The last sale price as reported on the NASDAQ SmallCap Market on April 27,
2000 was $2.69, which was below the option exercise price of $4.50.
Outstanding Options. Pursuant to the Equity Incentive Plan, the Company has
granted stock options to purchase an aggregate of 1,768,000 shares of Class A
Common Stock at an exercise price of $4.50 per share. Each of the options has a
ten-year term and becomes exercisable as to one-third of the shares covered
thereby on each of the first three anniversaries of the date of grant so long as
the holder thereof remains a full-time employee of the Company, except that the
options become immediately exercisable in the event of the holder's death,
disability or termination of employment by the Company for any reason other than
cause (as defined) or in the event a change in control occurs, including an
event in which any person or group becomes the beneficial owner of more than 50%
of the outstanding shares of Common Stock of the Company entitled generally to
vote in the election of directors. Unexercised options terminate 30 calendar
days after the holder's termination of employment by the Company, except that
such period is 180 days in the event of disability and 360 days in the event of
death.
22
<PAGE> 26
COMPENSATION PLANS AND ARRANGEMENTS
Management Bonus Plan. The Company has established a Management Bonus Plan
under which all key management employees who are directly involved in the
Company's growth and success (other than Messrs. Hewitt, Richardson and
Kilkeary, whose bonuses are to be determined pursuant to their employment
agreements) are eligible to receive bonuses based upon the achievement of
specified targets and goals for the Company and the individual employee. Awards
under the Management Bonus Plan are granted by the Compensation Committee of the
Board of Directors and range from zero to specified levels depending on the
position of the individual. Currently, 85 corporate employees are eligible for
awards under the Management Bonus Plan, with 81 of such employees eligible to
receive a bonus ranging from 10% to 70% of their base salaries and four of such
employees eligible to receive up to 125% of their base salaries.
Executive Loans. Pursuant to Mr. Hewitt's employment agreement, on March 1,
1999 the Company loaned Mr. Hewitt $400,000, which loan is due on the earlier of
March 1, 2005 or 30 days after termination of his employment. If Mr. Hewitt's
employment is terminated for any reason other than cause, the loan will be
forgiven. In addition, the Company has loaned Mr. Hewitt $259,254 for payment of
income tax liabilities associated with a restricted stock grant in 1999. If, on
the earlier of February 28, 2003 or the date Mr. Hewitt's employment is
terminated other than for cause, the market value of the stock granted to Mr.
Hewitt is less than $1.5 million, the Company will forgive such loan in
proportion to the amount by which the market value of the stock granted to Mr.
Hewitt is less than $1.5 million.
In 1996, Old Interstate loaned $1.0 million to Mr. Richardson. The
remaining unpaid balance of this loan was forgiven as of June 2, 1998 in
connection with the merger of Old Interstate into Wyndham and in accordance with
the change of control provisions of his severance agreement with Old Interstate.
In 1998, the Company loaned Mr. Richardson $354,018, which loan was forgiven,
pursuant to his employment agreement, once he remained with the Company for at
least 90 days following the Spin-Off. The loan is being amortized over a 60-
month period beginning on September 16, 1999, so long as his employment
agreement remains in full force and effect.
On June 2, 1998, in connection with the merger of Old Interstate into
Wyndham and in accordance with the change of control provisions of their
respective severance agreements with Old Interstate, the Company forgave loans
in the amount of $90,000 and $170,000 to Messrs. Kilkeary and Ciaffone,
respectively. Pursuant to Mr. Kilkeary's employment agreement, the Company
loaned Mr. Kilkeary $300,000, 50% of which loan will be forgiven at the rate of
$50,000 per year on June 17, 2000, 2001 and 2002, so long as his employment is
not terminated by the Company for cause or voluntarily by Mr. Kilkeary prior to
such dates. The loan will be forgiven upon the occurrence of a change in
control.
Pursuant to Mr. Tomb's employment agreement, Mr. Tomb received a loan of
$373,857 from the Company, which was an amount equal to 50% of the severance
compensation he was entitled to receive under his severance agreement with Old
Interstate. This loan amortizes over a 30-month period beginning on June 18,
1999, and is automatically forgiven upon the expiration of his non-compete
period following termination of his employment. In addition, the Company also
loaned $238,000 to Mr. Tomb in 1998 to cover expenses incurred in his relocation
to Pittsburgh, which loan was repaid in full.
Executive Retirement Plan. Each of the General Managers of the Company's
hotels who are employees of the Company and other employees holding job
classifications of Vice President or above, including the Named Executive
Officers, is eligible to participate in the Company's Executive Retirement Plan.
The plan is intended to be a non-qualified and unfunded plan maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees. Actual participation in the plan
is determined by the Board or the Compensation Committee.
We annually contribute 8.0% of each participant's base salary to the plan
and may make discretionary contributions of up to an additional 5.0% of each
participant's base salary. These discretionary contributions are based on the
Company's net increase in earnings per share in a given year. In addition, plan
participants are eligible to designate a portion (to be specified by the Board
or the Compensation Committee) of their annual cash bonus to be contributed to
the plan.
23
<PAGE> 27
The funds contributed by the Company or participants are held in a grantor
trust established by the Company. Unless the Board or the Compensation Committee
determines that the amounts contributed to the plan on behalf of a participant
are payable earlier, in general, a participant in the plan will receive his plan
benefits one year after his retirement or termination of employment. Plan
benefits are paid out in a lump sum and are deductible by the Company and
taxable to the plan participant as ordinary income upon receipt by the
participant.
Employee Stock Purchase Plan. Under the Employee Stock Purchase Plan, each
full-time employee who has completed 12 consecutive months of employment with
the Company or a predecessor, excluding any employee whose customary employment
is not for more than 20 hours per week or more than five months per calendar
year, is eligible to participate. A participating employee may elect to
authorize the Company to withhold a maximum of 8.0% of such employee's salary.
The withheld amount is held in the participating employee's account and used to
purchase the Company shares on a semi-annual basis at a price equal to a
designated percentage, established semi-annually by the Compensation Committee,
from 85% to 100% of the average closing sale price for the Company shares as
reported by The NASDAQ SmallCap Market on the date the shares are purchased.
Such sale price may not be less than the lesser of (i) 85% of the fair market
value of such shares on the date of the regular offering of the right to
participate in such plan and (ii) 85% of the fair market value of such shares on
the date the shares are purchased. The fair market value of the shares available
for purchase by a participating employee (determined as of the offering date)
generally may not exceed $25,000 per calendar year.
Equity Incentive Plan. The Company's Equity Incentive Plan is designed to
attract and retain qualified officers and other key employees. The Equity
Incentive Plan authorizes the grant of:
- options to purchase Company shares;
- restricted shares;
- unrestricted shares; and
- deferred shares.
The Compensation Committee administers the Equity Incentive Plan and
determines to whom grants will be made and the terms and conditions thereof.
The number of Company shares that may be issued or transferred and covered
by outstanding awards granted under the Equity Incentive Plan is initially
2,300,000 shares. As of December 31, 1999 and each June 30 and December 31
thereafter, an additional positive number equal to 20% of the additional shares
of Common Stock issued during that six-month period will be added to the total
number of Company shares subject to the plan. Officers, directors, and our key
employees and consultants and those of our subsidiaries may be selected to
receive benefits under the Equity Incentive Plan. Shortly after the Spin-Off,
331,917 restricted shares of Class A Common Stock and options to purchase
1,768,000 shares of Class A Common Stock were granted to Company employees, and
approximately 200,000 shares are available for additional awards under the
Equity Incentive Plan.
24
<PAGE> 28
AVAILABILITY OF ACCOUNTANTS
Representatives of Price Waterhouse Coopers LLP, the Company's independent
accountants for the current year and the most recently completed fiscal year
will not be present at the Special Meeting, will not have the opportunity to
make a statement and are not expected to be available to respond to appropriate
questions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was formed in June 1999 and currently is
composed of Benjamin D. Holloway (Chairman), Michael L. Ashner, and Stephen P.
Joyce.
25
<PAGE> 29
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Class A Common Stock, as of the Record Date, by (1) each person
known by the Company to own beneficially more than 5% of the Class A Common
Stock, (2) each director and Named Executive Officer of the Company, and (3) all
directors and executive officers of the Company as a group. Unless indicated
otherwise, the address for each of the persons named in the table is c/o
Interstate Hotels Corporation, Foster Plaza Ten, 680 Andersen Drive, Pittsburgh,
Pennsylvania 15220. For purposes of the table, a person or group of persons is
deemed to have "beneficial ownership" of any shares as of a given date which
such person has the right to acquire within 60 days after such date.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME SHARES OWNED SHARES OWNED
---- ------------- -------------
<S> <C> <C>
Thomas F. Hewitt......................................... 191,434(1) 3.0%
J. William Richardson.................................... 151,476(2) 2.4%
Kevin P. Kilkeary........................................ 166 *
Henry L. Ciaffone........................................ -- --
Charles R. Tomb.......................................... 123 *
Michael L. Ashner........................................ 5,000 *
Benjamin D. Holloway..................................... -- --
Stephen P. Joyce......................................... -- --
Phillip H. McNeill, Sr................................... 36,230 *
Fred J. Kleisner......................................... -- --
KFP Grand, Ltd.(3)....................................... 613,666 9.6%
Gary M. Goldberg and affiliates(4)....................... 432,457 6.8%
Corporate Capital, L.L.C. (5)............................ 360,000 5.6%
All directors and executive officers as a group (11
persons)............................................... 384,429 6.3%
</TABLE>
---------------
* Less than 1%
(1) Includes 181,917 restricted shares, 25% of which vests on each of March 1,
2000, March 1, 2001, March 1, 2002 and February 28, 2003, respectively.
(2) Includes 150,000 restricted shares, 33.33% of which vests on each of June
18, 2000, June 18, 2001 and June 2002, respectively. Also includes 43 shares
held by Mr. Richardson's daughter.
(3) As reported in a Schedule 13D filed with the SEC on July 7, 1999. The
address of KFP Grand, Ltd. is 545 E. John Carpenter Freeway, Suite 1400,
Irving, Texas 75062.
(4) As reported in an amended Schedule 13D filed with the SEC on April 26, 2000.
Represents shares held in managed discretionary and non-discretionary
accounts for clients advised by Gary M. Goldberg & Co., Inc., VIP 100, L.P.
and/or Gary Goldberg VIP 100, Inc. Gary M. Goldberg is a controlling person
of all of these
26
<PAGE> 30
entities and, as such, is deemed to be the beneficial owner of any shares of
the Company's Common Stock of which these entities may be deemed to
beneficially own. This information is based solely upon the contents of
joint filings made by Mr. Goldberg and his affiliates pursuant to Section 13
of the Securities Exchange Act of 1934. The address of the Gary M. Goldberg
group is c/o Gary M. Goldberg, Montebello Park, 75 Montebello Road, Suffern,
New York 10901.
(5) As reported in a Schedule 13D filed with the SEC on April 18, 2000. The
address of Corporate Capital, L.L.C. is 909 Poydras Street, New Orleans,
Louisiana 70112.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Based solely on a review of copies of reports furnished to the Company and
written representations signed by all directors and executive officers that no
other reports were required with respect to their beneficial ownership of Common
Stock during 1999, the Company believes that the directors and executive
officers and all beneficial owners of more than 10% of the Class A Common Stock
outstanding complied with all applicable filing requirements under Section 16(a)
of the Securities Exchange Act of 1934, as amended, with respect to their
beneficial ownership of Class A Common Stock during the year ended December 31,
1999 except that a transaction required to be reported on Form 4 was not
reported by Mr. Ashner until the filing of his Form 5 for the year ended
December 31, 1999.
OTHER MATTERS
The Board knows of no business to be presented for consideration at the
Special Meeting other than that described herein. If any other matters properly
come before the Special Meeting, however, the named proxies will vote on such
matters according to their best judgment.
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Any proposal of a Stockholder intended to be presented at the Company's
2001 Annual Meeting of Stockholders must be received in writing by the Secretary
of the Company at the Company's principal place of business by March 1, 2001
for inclusion in the Company's proxy, notice of meeting and proxy statement
relating to the 100th annual meeting.
SOLICITATION AND TRANSACTION COSTS
The cost of preparing, printing and mailing these proxy materials will be
borne by the Company. In addition to the solicitation of proxies by the use of
the mails, regular employees of the Company may solicit proxies on behalf of the
Board in person or by telephone. The Company will also reimburse brokerage
houses and other nominees for their expenses in forwarding proxy materials to
beneficial owners of the Company's Class A, Class B and Class C Common Stock.
The costs related to this solicitation are estimated to be approximately
$100,000. In addition, the Company will pay approximately $6,000,000 for costs
related to the transactions contemplated under the Securities Purchase Agreement
(including costs of lawyers, accountants and advisers) of which $1,000,000 will
be paid to Lehman Brothers Inc. or its affiliates for advisory services.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote "FOR" the approval of
the issuance of the Notes and the Preferred Stock and the shares of the
Company's Class A Common Stock issuable upon the conversion of the Notes and the
Preferred Stock.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934. Pursuant to the requirements of the Exchange Act, the
Company files annual, quarterly and special reports with the Securities and
Exchange Commission. The following documents or portions of documents filed by
the Company with the SEC are incorporated herein by reference.
(i) The Company's Annual Report on Form 10-K/A for fiscal year ended
December 31, 1999;
27
<PAGE> 31
(ii) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2000 and June 30, 2000;
(iii) The Company's Current Report on Form 8-K, dated September __, 2000;
and
(iv) All other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act after the date of this Proxy Statement and
prior to the date of the Special Meeting.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the date on which the Special
Meeting is held shall be deemed to be incorporated by reference in this Proxy
Statement and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
which also is incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
Copies of all documents incorporated herein by reference (not including the
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in this Proxy Statement) and copies of this Proxy Statement as
amended or supplemented from time to time will be provided without charge to
each person to whom this Proxy Statement is delivered, upon written or oral
request within one business day of receipt of such request. Requests should be
directed to Interstate Hotels Corporation, Attn: Investor Relations, Foster
Plaza Ten, 680 Andersen Drive, Pittsburgh, PA 15220, (412) 937-0600. These
documents are also filed electronically through the SEC's Electronic Data
Gathering, Analysis and Retrieval system, and may be accessed at the SEC's
internet website, which is located at http://www.sec.gov. At that website you
may read and copy any reports, statements or other information that the Company
files.
<TABLE>
<S> <C>
INDEX TO APPENDICES
Appendix A Securities Purchase Agreement
Appendix B Form of Investor Agreement
Appendix C Form of 8.75% Subordinated Convertible Note Due August ,
2007
Appendix D Form of Articles Supplementary to the Charter of Interstate
Hotels Corporation Designating the Series B Convertible
Preferred Stock
Appendix E Opinion of Merrill Lynch
</TABLE>
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN
THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE SPECIAL MEETING OR THE COMPANY THAT DIFFERS FROM OR
ADDS TO THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE DOCUMENTS WE HAVE
PUBLICLY FILED WITH THE SEC. THEREFORE, IF ANYONE SHOULD GIVE YOU ANY DIFFERENT
OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE OF
THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE
APPLIES.
28
<PAGE> 32
INTERSTATE HOTELS CORPORATION
PROXY
The undersigned stockholder of Interstate Hotels Corporation, a Maryland
corporation (the "Company"), hereby appoints Thomas F. Hewitt and J. William
Richardson, or either of them, as proxies for the undersigned, with full power
of substitution in each of them, to attend the Special Meeting of the
Stockholders of the Company to be held at the Pittsburgh Marriott City Center
Hotel located at 112 Washington Place, Chatham Center, Pittsburgh, Pennsylvania
on October , 2000 at [2:00 p.m.], local time, and any adjournment or
postponement thereof, to cast on behalf of the undersigned all votes that the
undersigned is entitled to cast at such meeting and otherwise to represent the
undersigned at the meeting with all powers possessed by the undersigned as if
personally present at the meeting. The undersigned hereby acknowledges receipt
of the Notice of the Special Meeting of Stockholders and the accompanying Proxy
Statement and revokes any proxy heretofore given with respect to such meeting.
THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST AS INSTRUCTED
BELOW. IF THIS PROXY IS EXECUTED BUT NO INSTRUCTION IS GIVEN, THE VOTES ENTITLED
TO BE CAST BY THE UNDERSIGNED WILL BE CAST "FOR" THE PROPOSAL AS DESCRIBED IN
THE PROXY STATEMENT AND IN THE DISCRETION OF THE PROXY HOLDER ON ANY OTHER
MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
1. To approve the issuance of Series B Convertible Preferred Stock, 8.75%
Convertible Subordinated Notes and Class A Common Stock upon conversion thereof.
<TABLE>
<S> <C> <C>
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
2. To vote and otherwise represent the undersigned on any other matter that
may properly come before the meeting or any adjournment or postponement thereof
in the discretion of the Proxy holder.
/ / CHECK HERE ONLY IF YOU PLAN TO ATTEND THE MEETING IN PERSON
<TABLE>
<S> <C>
Please sign exactly as name appears on the
records of the Company and date. If the ----------------------------------------------
shares are held jointly, each holder
should sign. When signing as an attorney, ----------------------------------------------
executor, administrator, trustee, Signature, if held jointly
guardian, officer of a corporation
or other entity or in another Dated: _________________________, 2000
representative capacity, please give
the full title under signature(s).
</TABLE>
29
<PAGE> 33
APPENDIX A
SECURITIES PURCHASE AGREEMENT
DATED AS OF AUGUST 31, 2000
AMONG
INTERSTATE HOTELS CORPORATION
AND
CGLH PARTNERS I LP
AND
CGLH PARTNERS II LP
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS........................................... i
INDEX OF EXHIBITS........................................... iii
INDEX OF ANNEXES............................................ iii
INDEX OF COMPANY DISCLOSURE SCHEDULES....................... iv
DEFINITIONS................................................. 1
SECTION 1. Issuance and Sale of Notes and Series B Preferred
Stock..................................................... 5
1.1. The Issuance and Purchase............................ 5
1.2. Escrow Agreement..................................... 5
1.3. The Closing.......................................... 5
1.4. Conditions to the Closing............................ 5
1.5. Closing Deliveries................................... 7
1.6. Payment of Purchase Price............................ 8
SECTION 2. Representations and Warranties of the Company.... 8
2.1. Organization and Good Standing; Power and Authority;
Qualifications......................................... 8
2.2. Authorization of the Documents; Board
Recommendation......................................... 8
2.3. No Conflict.......................................... 8
2.4. Capitalization; Distributions........................ 9
2.5. Authorization and Issuance of Securities............. 9
2.6. SEC Reports.......................................... 9
2.7. Financial Statements................................. 10
2.8. Absence of Material Changes.......................... 10
2.9. Contracts............................................ 11
2.10. Subsidiaries and Investments........................ 11
2.11. Properties.......................................... 12
2.12. Employee Benefit Plans.............................. 13
2.13. Labor Relations; Employees.......................... 14
2.14. Litigation; Orders.................................. 14
2.15. Compliance with Laws; Permits....................... 14
2.16. Environmental Matters............................... 14
2.17. Taxes............................................... 15
2.18. Insurance........................................... 16
2.19. Affiliated Transactions............................. 16
2.20. Opinion of Financial Advisor........................ 16
2.21. Actions Regarding the Stockholder Rights Plan....... 16
2.22. Consents............................................ 16
2.23. Brokers............................................. 16
2.24. Offering Exemption.................................. 17
2.25. Disclosure.......................................... 17
SECTION 3. Representations and Warranties of the
Purchaser................................................. 17
3.1. Organization and Good Standing; Power and Authority;
Qualifications; Capitalization......................... 17
3.2. Authorization of the Documents....................... 17
3.3. No Conflict.......................................... 17
3.4. Consents............................................. 18
3.5. Purchase for Investment.............................. 18
3.6. Accredited Investor.................................. 18
3.7. Restrictions on Transfer............................. 18
3.8. Current Ownership.................................... 18
3.9. Financial Capacity................................... 18
</TABLE>
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<TABLE>
<S> <C>
SECTION 4. Registration, Exchange and Transfer of Notes...................................................... 18
4.1. The Note Register; Persons Deemed Owners.............................................................. 18
4.2. Issuance of New Notes Upon Exchange or Transfer....................................................... 18
SECTION 5. Covenants......................................................................................... 19
5.1. Access to Records..................................................................................... 19
5.2. Notice of Breach...................................................................................... 19
5.3. No General Solicitation............................................................................... 19
5.4. Financial Reports..................................................................................... 19
5.5. Liquidity............................................................................................. 20
5.6. Conduct of Business Prior to Closing.................................................................. 20
5.7. No Solicitation of Competing Transactions............................................................. 21
5.8. Stockholder Approval; Proxy Statement................................................................. 22
5.9. Reasonable Best Efforts............................................................................... 22
SECTION 6. Additional Agreements............................................................................. 23
6.1. Indenture Relating to the Notes....................................................................... 23
6.2. Lost, Stolen, Damaged and Destroyed Securities........................................................ 23
6.3. Transactions with Affiliates.......................................................................... 23
6.4. Availability of Conversion Shares..................................................................... 23
6.5. Corporate Headquarters................................................................................ 24
6.6. HSR................................................................................................... 24
SECTION 7. Restrictive Legend................................................................................ 24
SECTION 8. Taxes............................................................................................. 24
SECTION 9. Expenses, Termination............................................................................. 24
9.1. Costs and Expenses.................................................................................... 24
9.2. Termination or Abandonment............................................................................ 25
9.3. Effect of Termination................................................................................. 26
9.4. Payments Upon Termination............................................................................. 26
SECTION 10. Indemnification.................................................................................. 27
10.1. Survival of Representations, Warranties, Agreements and Covenants, etc............................... 27
10.2. Indemnification by the Company....................................................................... 27
10.3. Indemnification by the Purchaser..................................................................... 28
10.4. Limitations.......................................................................................... 28
10.5. Procedure............................................................................................ 28
SECTION 11. Further Assurances............................................................................... 29
SECTION 12. Successors and Assigns........................................................................... 29
SECTION 13. Entire Agreement................................................................................. 29
SECTION 14. Notices.......................................................................................... 29
SECTION 15. Amendments....................................................................................... 30
SECTION 16. Counterparts..................................................................................... 31
SECTION 17. Headings......................................................................................... 31
SECTION 18. Nouns and Pronouns............................................................................... 31
SECTION 19. Governing Law.................................................................................... 31
SECTION 20. Enforcement Jurisdiction......................................................................... 31
SECTION 21. Waiver of Jury Trial............................................................................. 31
SECTION 22. Litigation; Prevailing Party..................................................................... 31
SECTION 23. Publicity........................................................................................ 31
SECTION 24. Severability..................................................................................... 31
</TABLE>
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<PAGE> 36
INDEX OF EXHIBITS
Exhibit A -- Form of Note
Exhibit B -- Form of Escrow Agreement
Exhibit C -- Form of Investor Agreement
Exhibit D -- Form of Registration Rights Agreement
Exhibit E -- Form of Joint Venture Partnership Agreement
Exhibit F -- Form of Articles Supplementary
Exhibit G-1 -- Form of Jones Day Opinion
Exhibit G-2 -- Form of Ballard Spahr Opinion
Exhibit G-3 -- Form of Opinion of Counsel to Interstate
Exhibit H -- Form of Officer's Certificate
Exhibit I -- Form of Articles of Amendment and Restatement
Exhibit J -- Information and Reports to be Provided to Purchaser
Exhibit K -- Amendment No. 1 to Rights Agreement
Exhibit L -- Side Letter No. 1
INDEX OF ANNEXES
1.0. Company Knowledge
1.4. Jurisdictions in which the Company is in Good Standing
3.1 Holders of Equity Interest in the Purchaser
3.4. Purchaser Consents
3.8. Current Ownership
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INDEX OF COMPANY DISCLOSURE SCHEDULES
2.3. Conflicts
2.4. Capitalization; Distributions
2.7. Financial Statements
2.8. Material Changes
2.9. Contracts
2.10. Subsidiaries and Investments
2.11. Properties
2.12. Employee Benefit Plans
2.13. Labor Relations; Employees
2.14. Litigation; Orders
2.15. Compliance with Laws; Permits
2.16. Environmental Matters
2.17. Taxes
2.19. Affiliated Transactions
2.22. Consents
2.23. Brokers
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<PAGE> 38
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August
31, 2000 among INTERSTATE HOTELS CORPORATION, a Maryland corporation (the
"Company"), and CGLH PARTNERS I LP, a Delaware limited partnership and CGLH
PARTNERS II LP, a Delaware limited partnership (CGLH PARTNERS I LP and CGLH
PARTNERS II LP, together, the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of providing management,
leasing and related services for hotels owned by third parties in all market
segments (the "Business");
WHEREAS, the Company wishes to issue and sell to the Purchaser and the
Purchaser wishes to purchase from the Company (i) 8.75% Subordinated Convertible
Notes (the "Notes") in the aggregate principal amount of $25,000,000; and (ii)
an aggregate of 500,000 shares of the Company's Series B Convertible Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock"), each
convertible into shares (the "Conversion Shares") of the Company's Class A
Common Stock, par value $.01 per share (the "Common Stock");
WHEREAS, the Purchaser and the Company desire to provide for such purchase
and sale and to establish various rights and obligations in connection
therewith:
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties set forth herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereby
agree as follows:
DEFINITIONS. In addition to terms defined elsewhere in this Agreement, the
following terms when used in this Agreement shall have the meanings indicated
below:
"Affiliate" means, as to any Person, any Person which, directly or
indirectly through one or more intermediaries, is in control of, is controlled
by, or is under common control with, such Person, and any officer or director of
such Person.
"Agreement" has the meaning given to it in the preamble.
"Ancillary Documents" means the Registration Rights Agreement, the Investor
Agreement, the Articles Supplementary, the Notes and all other contracts,
agreements, schedules, certificates and other documents being delivered pursuant
to or in connection with this Agreement by any party hereto at or prior to the
Closing.
"Articles Supplementary" has the meaning given to it in Section 1.4(b) of
this Agreement.
"Bankruptcy Exception" has the meaning given to it in Section 2.2 of this
Agreement.
"Benefit Plan" has the meaning given to it in Section 2.12(a) of this
Agreement.
"Business" has the meaning given to it in the Recitals of this Agreement.
"Bylaws" has the meaning given to it in Section 1.4(b) of this Agreement.
"Charter" has the meaning given to it in Section 1.4(b) of this Agreement.
"Class B Common Stock" has the meaning given to it in Section 2.4(a) of
this Agreement.
"Class C Common Stock" has the meaning given to it in Section 2.4(a) of
this Agreement.
"Closing Date" has the meaning given to it in Section 1.3 of this
Agreement.
"Closing" has the meaning given to it in Section 1.3 of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" has the meaning given to it in Section 2.6 of this Agreement.
"Common Stock" has the meaning given to it in the Recitals of this
Agreement.
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"Company Disclosure Schedule" has the meaning given to it in Section 2 of
this Agreement.
"Company Entity" has the meaning given to it in Section 10.3 of this
Agreement.
"Company" has the meaning given to it in the preamble.
"Competing Transaction" has the meaning given to it in Section 5.7 of this
Agreement
"Contract" means any options, warrants, subscription rights, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, shares of any class of capital stock of the Company, or any
indenture, mortgage, guaranty, lease, license, franchise, management agreement
or other contract, agreement or arrangement, whether written or oral, and any
and all amendments, additions, modifications, or supplements thereto.
"Conversion Shares" has the meaning given to it in the Recitals of this
Agreement.
"Employee Agreement" has the meaning given to it in Section 2.12(a) of this
Agreement.
"Employee" has the meaning given to it in Section 2.12(a) of this
Agreement.
"Encumbrances" has the meaning given to it in Section 1.1 of this
Agreement.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, orders, claims,
Encumbrances, investigations, proceedings or notices of noncompliance or
violations by any Person (including any Governmental Entity) alleging potential
liability (including, without limitation, potential responsibility for or
liability for enforcement, investigatory costs, cleanup costs, governmental
response costs, removal costs, remediation costs, natural resources damages,
property damages, personal injury, bodily injury, wrongful death or penalties)
arising out of, based on or resulting from (A) the presence, Release or
threatened Release of any Hazardous Materials at any location, whether or not
owned, operated, leased or managed by the Company or any of its Subsidiaries; or
(B) circumstances that form the basis of any violation or alleged violation of
any Environmental Law.
"Environmental Laws" means all federal, state and local laws, rules and
regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or protection of human health and safety, including, without limitation,
laws and regulations relating to Releases or threatened Releases of Hazardous
Materials, or otherwise relating to the manufacture, processing, distributions,
use, treatment, storage, disposal, transport or handling of Hazardous Materials.
"ERISA" has the meaning given to it in Section 2.12(a) of this Agreement.
"Escrow Account" has the meaning given to it in Section 1.2 of this
Agreement.
"Escrow Agent" has the meaning given to it in Section 1.2 of this
Agreement.
"Exchange Act" has the meaning given to it in Section 2.6 of this
Agreement.
"GAAP" has the meaning given to it in Section 2.7 of this Agreement.
"Governmental Entity" means any supernational, national, foreign, federal,
state or local judicial, legislative, executive, administrative or regulatory or
self-regulatory body, institution, agency or authority.
"Hazardous Materials" means (A) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation and transformers or other equipment that
contain dielectric fluid containing polychlorinated biphenyls, (B) any
chemicals, materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," or words of similar import under any Environmental Law and
(C) any other chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under any Environmental Law in a jurisdiction
in which the Company or any of its Subsidiaries operate.
"Holder" has the meaning given to it in Section 4.1 of this Agreement.
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"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and the rules and regulations thereunder.
"Indemnification Payment" has the meaning given to it in Section 10.2 of
this Agreement.
"Indemnified Party" has the meaning given to it in Section 10.5(a) of this
Agreement.
"Indemnifying Party" has the meaning given to it in Section 10.5(a) of this
Agreement.
"Indenture" has the meaning given to it in Section 6.1 of this Agreement.
"Intellectual Property" means all trademarks, trade names, patents,
copyrights, and applications therefor, or other similar rights (including,
without limitation, trade secrets, know-how or other confidential business
information).
"Investor Agreement" has the meaning given to it in Section 1.4(a) of this
Agreement.
"Investor Designee" has the meaning given to it in Section 1.4(b) of this
Agreement.
"Joint Venture" has the meaning given to it in Section 1.4(a) of this
Agreement.
"Joint Venture Partnership Agreement" has the meaning given to it in
Section 1.4(a) of this Agreement.
"Knowledge" or "Known" means, with respect to any representation or
warranty or other statement in this Agreement qualified by the knowledge of any
party, the actual knowledge of the directors, officers and executive level
employees of such party without independent investigation or verification by
such persons, provided, however, that where reference is made to the Knowledge
of the Company, such reference shall be deemed to include only Messrs. Hewitt,
Hudak, Killkeary and Richardson and the Controller of the Company, all of whom
shall be deemed to have conducted the investigation specified on Annex 1.0
hereto.
"Law" includes any foreign, federal, state, or local law, statute, rule,
regulation, judgment, order, injunction, ruling decree, stipulation, award or
other restriction of any court, private arbitration tribunal or other
Governmental Entity.
"Legal Opinions" has the meaning given to it in Section 1.4(b) of this
Agreement.
"Lehman Parent Entities" shall mean Lehman Brothers Holdings Inc., Lehman
Brothers Inc., and any Person that, directly or indirectly, Controls or is under
Common Control with Lehman Brothers Holdings Inc. or Lehman Brothers Inc. or is
managed by any such entity.
"Losses" has the meaning given to it in Section 10.2 of this Agreement.
"Material Adverse Effect" means a material adverse effect on the business,
results of operations, performance or the financial condition of the Company and
its Subsidiaries, taken as a whole.
"Note Register" has the meaning given to it in Section 4.1 of this
Agreement.
"Notes" has the meaning given to it in the Recitals of this Agreement.
"Permits" has the meaning given to it in Section 2.15(b) of this Agreement.
"Permitted Encumbrance" means (i) any Encumbrance consisting of zoning or
planning restrictions, easements, permits and other restrictions or limitations
on the use of such property or irregularities in title thereto that,
individually and in the aggregate, do not materially impair the use of such
property, (ii) warehousemen's, mechanics', carriers', landlords', repairmen's or
other similar Encumbrances arising in the ordinary course of business and
securing obligations not yet due and payable and (iii) other Encumbrances which
arise in the ordinary course of business and which, individually and in the
aggregate, do not materially impair its use of such property or its ability to
use such property as collateral to obtain financing or which would otherwise,
individually or in the aggregate, have a Material Adverse Effect.
"Person" means any natural person, corporation, unincorporated
organization, partnership, association, joint stock company, joint venture,
trust or government, or any agency or political subdivision of any government,
or any other entity.
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"Power" has the meaning given to it in Section 2.1 of this Agreement.
"Preferred Stock" has the meaning given to it in Section 2.4(a) of this
Agreement.
"Properties" has the meaning given to it in Section 2.11(a) of this
Agreement.
"Purchase Price" has the meaning given to it in Section 1.1 of this
Agreement.
"Purchaser Entity" has the meaning given to it in Section 10.2 of this
Agreement.
"Purchaser" has the meaning given to it in the preamble.
"Registration Rights Agreement" has the meaning given to it in Section
1.4(a) of this Agreement.
"Related Transferee" has the meaning given to it in the Investor Agreement.
"Release" means any spill, emission, leaking, injection, deposit, disposal,
discharge, dispersal or leaching into the atmosphere, soil, surface water or
groundwater.
"Required Holders" means the holders of Notes or shares of Series B
Preferred Stock representing a majority of the combined (i) aggregate principal
amount of the Notes outstanding and (ii) aggregate stated amount of the Series B
Preferred Stock outstanding, in each case excluding Notes or shares of Series B
Preferred Stock then owned by the Company or any of its Affiliates.
"Required Noteholders" has the meaning given to it in Section 6.1 of this
Agreement.
"Rights Agreement" has the meaning given to it in Section 2.21 of this
Agreement.
"Schedule" has the meaning given to it in Section 2 of this Agreement.
"SEC Reports" has the meaning given to it in Section 2.6 of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Act shall include reference to the
comparable section, if any, of such successor federal statute.
"Series B Preferred Stock" has the meaning given to it in the Recitals of
this Agreement.
"Subsidiary" has the meaning given to it in Section 2.10 of this Agreement.
"Stockholder Proposal" has the meaning given to it in Section 5.8 of this
Agreement.
"Superior Proposal" has the meaning given to it in Section 5.7 of this
Agreement.
"Tax Return" means a report, return or other information required to be
supplied to a Governmental Entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes the Company or any of its Subsidiaries.
"Taxes" means any federal, state, county, local or foreign taxes, charges,
fees, levies or other assessments, including all net income, gross income, sales
and use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any Governmental
Entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes.
"Third Party" has the meaning given to it in Section 5.7 of this Agreement.
"Third Party Leases" has the meaning given to it in Section 2.11(b) of this
Agreement.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is quoted, listed or admitted to trading is
open for the transaction of business or, if the Common Stock is not quoted,
listed or admitted to trading on any national securities exchange (including the
NASDAQ), any day other than a Saturday, 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.
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SECTION 1. ISSUANCE AND SALE OF NOTES AND SERIES B PREFERRED STOCK.
1.1. The Issuance and Purchase.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing, the Purchaser shall purchase from the Company, and
the Company shall issue and sell to the Purchaser, free and clear of any
mortgages, judgments, claims, liens, security interests, pledges, escrows,
charges or other encumbrances of any kind or character whatsoever
("Encumbrances") other than Encumbrances imposed by or through Purchaser or any
of its Affiliates, the Notes and 500,000 shares of Series B Preferred Stock in
accordance with this Section 1.1, for an aggregate purchase price of $30,000,000
(the "Purchase Price"). The Notes (including any PIK Note issued pursuant to
Section 1.3 of such Notes) shall be in the form of Exhibit A.
(b) The number of shares of Series B Preferred Stock to be issued to the
Purchaser shall be 500,000, each with a liquidation preference of $10.
(c) The parties agree that the fair market value of the Notes is
$25,000,000 and the fair market value of the Series B Preferred Stock is
$5,000,000. Each party agrees to file all Tax Returns consistent with such
allocation and to take no position inconsistent with such allocation, unless
required by Law.
1.2. Escrow Agreement. Simultaneously with the execution of this Agreement,
the Company and the Purchaser shall execute an escrow agreement (the "Escrow
Agreement"), substantially in the form set forth in Exhibit B hereto, with the
escrow agent identified therein (the "Escrow Agent"), and the Company shall
deposit, pursuant to the Escrow Agreement, with the Escrow Agent the sum of
$2,250,000, or at the Company's option provide a letter of credit reasonably
acceptable to the Escrow Agent securing payment of that amount, such amount
being on account of any Termination Fee or Purchaser's Expenses payable by the
Company pursuant to Section 9.4.
1.3. The Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Jones, Day, Reavis
& Pogue, 599 Lexington Avenue, New York, New York 10022, or at such other place
as shall be mutually agreed by the Company and the Purchaser as promptly as
practicable following the satisfaction or waiver of all of the conditions to the
parties' respective obligations set forth in Section 1.4 below, or on such other
date or at such other place as shall be mutually agreed by the Company and the
Purchaser. The date of the Closing is referred to herein as the "Closing Date."
1.4. Conditions to the Closing.
(a) The obligations of the Company and the Purchaser to consummate the
transactions contemplated hereby at the Closing are subject to the satisfaction
or waiver by both parties on or before the Closing Date of the following
conditions:
(i) no temporary restraining order, preliminary or permanent
injunction or other order or decree which prevents the consummation of the
transactions contemplated hereby shall have been issued and remain in
effect, and no statutes, rule or regulation shall have been enacted by any
governmental authority (of the United States or otherwise) which prevents
the consummation of the transactions contemplated hereby; provided,
however, that the parties shall use their reasonable best efforts to cause
any such decree, ruling, injunction or other order to be vacated or lifted;
(ii) the Company and the Purchaser shall have duly executed the
Investor Agreement (the "Investor Agreement") in the form of Exhibit C
attached hereto;
(iii) the Company and the Purchaser shall have duly executed the
Registration Rights Agreement (the "Registration Rights Agreement") in the
form of Exhibit D attached hereto;
(iv) Interstate Investment Corporation, a Delaware corporation, and
Interstate Property Partnership, L.P., a Delaware limited partnership, and
CGLH Partners III LP and CGLH Partners IV LP, each a Delaware limited
partnership, shall have duly executed the Agreement of Limited Partnership
of CGLH-IHC Fund I, L.P. (the "Joint Venture Partnership Agreement")
establishing the "Joint Venture" in the form of Exhibit E attached hereto;
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<PAGE> 43
(b) The obligation of the Purchaser to consummate the transactions
contemplated hereby at the Closing is subject to the satisfaction or waiver by
the Purchaser, on or prior to the Closing Date of the following conditions:
(i) the representations and warranties of the Company set forth in
this Agreement shall be true and correct in all material respects as of the
date when made and (unless made as of a specified date) as of the Closing
Date, other than representations and warranties which are by their terms
qualified by materiality which shall be true in all respects as of the date
when made and (unless made of as of a specified date) as of the Closing
Date;
(ii) the Company shall have performed in all material respects its
covenants set forth in this Agreement to be performed prior to the Closing
Date;
(iii) the Company shall have obtained all Permits, authorizations,
consents and approvals required to be obtained in connection with the
consummation of the transactions contemplated hereby which are (x) listed
on Schedule 2.15 hereto or (y) necessary to enable the Business and
operations of the Company, after consummation of the transactions
contemplated hereby, to continue to be conducted in substantially the same
manner as currently conducted, except for such Permits, authorizations,
consents and approvals, the failure of which to obtain would not result in
a Material Adverse Effect, and provided that none of which shall have been
obtained with the imposition of any adverse terms or conditions or with the
imposition of any material cost;
(iv) the Company shall have obtained all necessary approvals of its
stockholders to the Stockholder Proposal;
(v) the Charter of the Company (the "Charter") in the form of Exhibit
I hereto shall have been supplemented by the Articles Supplementary to the
Charter in the form of Exhibit F attached hereto setting forth the rights
and preferences of the Series B Preferred Stock (the "Articles
Supplementary") and the Articles Supplementary shall have been accepted for
record by the State Department of Assessments and Taxation of the State of
Maryland;
(vi) the bylaws of the Company shall have been amended to remove the
right of the Class B Director and the Class C Director (as such terms are
defined in the Charter) to approve appointments to committees of the board
of directors;
(vii) the Conversion Shares shall have been approved for quotation on
NASDAQ, subject to official notice of issuance;
(viii) the Company shall have delivered to the Purchaser an officer's
certificate satisfactory in form and substance to the Purchaser certifying
as to the Company's compliance with the conditions set forth in clauses (i)
through (vii) above;
(ix) the Company shall have delivered to the Purchaser certificates of
good standing from the jurisdictions set forth on Annex 1.4 with respect to
the Company dated as of a date no earlier than ten days prior to the
Closing Date;
(x) the Company shall have delivered to the Purchaser a certificate
duly executed by its Secretary, satisfactory in form and substance to the
Purchaser, certifying (A) a copy of its organizational documents including
the Charter and the Articles Supplementary and the bylaws of the Company
(the "Bylaws"), (B) resolutions authorizing the transactions contemplated
by this Agreement and the Ancillary Documents (including resolutions of
Interstate Investment Corporation authorizing the transactions to be
entered into by that entity and resolutions and consents of members of
Interstate Property Partnership, L.P. and authorizing the transactions to
be entered into by that entity) and (C) incumbency matters of the persons
executing this Agreement and the Ancillary Documents;
(xi) the Purchaser shall have received (A) from Jones Day, counsel for
the Company, an opinion addressed to the Purchaser, dated as of the Closing
Date (the "Jones Day Opinion"), which shall be in the form of Exhibit G-1
attached hereto, (B) from Ballard Spahr, Maryland counsel for the Company,
an opinion addressed to the Purchaser, dated as of the Closing Date (the
"Ballard Spahr Opinion"), which shall
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<PAGE> 44
be in the form of Exhibit G-2 attached hereto and (C) from the General
Counsel of the Company, an opinion addressed to the Purchaser, dated as of
the Closing Date (the "Interstate Opinion", and together with the Jones Day
Opinion and the Ballard Spahr Opinion, the "Legal Opinions"), which shall
be in the form of Exhibit G-3 attached hereto;
(xii) Karim Alibhai, Joseph Flannery, Mahmood Khimji, Sherwood Weiser
and Alan Kanders (each such person, an "Investor Designee"), or any five
other persons that the Purchaser may select and who meet the criteria set
forth in the Investor Agreement for nomination to the Board of Directors of
the Company as Investor Designees, shall have been elected to the Board of
Directors of the Company by the unanimous vote of the whole Board of
Directors as the initial designees of the Purchaser pursuant to the
Articles Supplementary, effective, without any further action, as of the
Closing Date;
(xiii) without limiting the generality of clause (b)(i), no event that
could, individually or in the aggregate, have a Material Adverse Effect
shall have occurred since the date hereof nor shall any event or events
have occurred since the date hereof which could reasonably be expected to
have a Material Adverse Effect.
(c) The obligation of the Company to consummate the transactions
contemplated hereby at the Closing is subject to the satisfaction or waiver by
the Company, on or prior to the Closing Date of the following conditions:
(i) the representations and warranties of the Purchaser set forth in
this Agreement shall be true and correct in all material respects as of the
date when made and (unless made as of a specified date) as of the Closing
Date, other than representations and warranties which are by their terms
qualified by materiality which shall be true in all respects as of the date
when made and (unless made of as of a specified date) as of the Closing
Date; and
(ii) the Purchaser shall have performed in all material respects its
covenants set forth in this Agreement to be performed prior to the Closing
Date.
1.5. Closing Deliveries. At the Closing, the Company shall deliver to the
Purchaser, against receipt at the Closing by the Company from the Purchaser of
the Purchase Price in accordance with Section 1.6:
(a) a duly executed Note in the principal amount of $25,000,000 or duly
executed Notes in the aggregate principal amount of $25,000,000 in such names
and denominations as designated by the Purchaser prior to the Closing;
(b) a certificate or certificates representing the shares of Series B
Preferred Stock purchased by the Purchaser, registered in the name of the
Purchaser or its nominees;
(c) a duly executed copy of the Investor Agreement;
(d) a duly executed copy of the Registration Rights Agreement;
(e) a duly executed Joint Venture Partnership Agreement;
(f) a certificate duly executed by an officer of the Company, dated as of
the Closing Date, in the form of Exhibit H attached hereto;
(g) a certificate duly executed by its Secretary, satisfactory in form and
substance to the Purchaser, certifying the matters set forth in Section
1.4(b)(x);
(h) the Legal Opinions;
(i) evidence, satisfactory to the Purchaser, that the Company's Charter
have been amended and supplemented by the Articles Supplementary; and that the
Articles Supplementary has been accepted for record by the State Department of
Assessments and Taxation of the State of Maryland;
(j) evidence, satisfactory to the Purchaser, that the Common Stock to be
issued as the Conversion Shares has been approved for quotation on NASDAQ,
subject to official notice of issuance; and
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(k) evidence, satisfactory to the Purchaser that the provisions of Section
2.21 relating to the Rights Agreement have been complied with.
1.6. Payment of Purchase Price. The Purchase Price shall be paid by the
Purchaser in cash by wire transfer to an account designated at least two
business days prior to the Closing by the Company.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchaser that, except as described in an
SEC Report filed by the Company prior to the date hereof or in the disclosure
schedule furnished by the Company to the Purchaser simultaneously herewith (the
"Company Disclosure Schedule" and each separately numbered section thereof a
"Schedule" so numbered):
2.1. Organization and Good Standing; Power and Authority;
Qualifications. The Company and each of its Subsidiaries (a) is duly organized,
validly existing and in good standing under the laws of its state of
incorporation or organization and (b) has the requisite corporate power and
authority ("Power") to own, lease and operate its properties and to carry on the
Business as presently conducted and as proposed by it to be conducted. The
Company has all requisite Power to enter into and carry out the transactions
contemplated by this Agreement and the Ancillary Documents to which it is a
party. The Company and each of its Subsidiaries is qualified to transact
business as a foreign corporation in, and is in good standing under the laws of
all of the jurisdictions wherein the character of the property owned or leased
or the nature of the activities conducted by it makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
The Company has made available to the Purchaser true, correct and complete
copies of its organizational documents, including the Charter, its Bylaws, and
any amendments or supplements thereto, and all minutes and resolutions of the
Board of Directors of the Company.
2.2. Authorization of the Documents; Board Recommendation. The execution,
delivery and performance by the Company of this Agreement, and each of the
Ancillary Documents to which it is a party has been duly authorized by all
requisite corporate action on the part of the Company. The affirmative vote of
the holders of a majority of the shares of Common Stock, Class B Common Stock
and Class C Common stock present in person or by proxy at the Company Meeting
(as defined in Section 5.8), voting as a single class, is required for the
approval of the Stockholder Proposal. No other approval or consent of the
stockholders of the Company is required by Law, the Charter or bylaws of the
Company or otherwise in order for the Company to consummate the transactions
contemplated hereby and by the Ancillary Documents. Each of this Agreement and
the Ancillary Documents constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms except to
the extent that enforceability may be limited by bankruptcy, solvency or other
similar laws affecting creditors' rights generally and subject to limitations on
the availability of equitable remedies (the foregoing exception, the "Bankruptcy
Exception"). The Board of Directors of the Company, at a meeting duly called and
held at which a quorum was present throughout, has unanimously determined that
the transactions contemplated hereby and by the Ancillary Documents are in the
best interest of the Company and its stockholders and to recommend to such
stockholders that they vote in favor of the Stockholder Proposal (the "Board
Recommendation"). The Board Recommendation has not been revoked or modified.
2.3. No Conflict. Except as set forth on Schedule 2.3 hereto, the execution
and delivery by the Company of this Agreement and each of the Ancillary
Documents to which it is a party and the consummation by the Company of the
transactions contemplated hereby and thereby and its compliance with the
provisions hereof and thereof (including, without limitation, the issuance, sale
and delivery by the Company of the Notes and the Series B Preferred Stock and
the Conversion Shares) will not (a) violate any provision of any federal, state,
local or foreign law, statute, rule or regulation, or any ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other governmental body applicable to it, or any of its Subsidiaries or any of
their respective properties or assets, (b) conflict with, or result in any
violation or breach of, or constitute (with due notice or lapse of time, or
both) a default or loss of a benefit under, or cause or permit the acceleration
or cancellation under, the terms, conditions or provisions of any Contract to
which it or any of its Subsidiaries is a party to which any of their respective
properties or assets is subject, (c) result in the creation or imposition of any
Encumbrance upon any of its or any of its Subsidiaries' properties or assets,
except for Permitted Encumbrances or (d) violate the Charter or the Bylaws,
other than, in the case of clauses (a), (b) and (c), any such violations,
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<PAGE> 46
conflicts, breaches, defaults, losses of benefits or Encumbrances that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
2.4. Capitalization; Distributions.
(a) The authorized capitalization of the Company consists solely of: (i)
62,000,000 shares of Common Stock, of which 6,091,802 are issued and
outstanding, (ii) 1,500,000 shares of Class B Common Stock, par value $.01 per
share ("Class B Common Stock"), of which 242,555 are issued and outstanding,
(iii) 1,500,000 shares of Class C Common Stock, par value $.01 per share ("Class
C Common Stock"), of which 60,639 are issued and outstanding and (iv) 10,000,000
shares of preferred stock, par value $.01 per share ("Preferred Stock"), 70,000
of which have been designated the Series A Preferred Stock, and none of which
are issued and outstanding. All of the issued and outstanding shares of Common
Stock, Class B Common Stock and Class C Common Stock are validly issued, fully
paid and nonassessable and free and clear of all Encumbrances, other than
Encumbrances, if any, arising as a result of actions taken by the purchaser
thereof. No class of capital stock of the Company is entitled to preemptive
rights. The Company has duly, validly and irrevocably reserved 600,000 shares of
Preferred Stock for issuance as the Series B Preferred Stock and has duly,
validly and irrevocably reserved sufficient shares of Common Stock for issuance
as the Conversion Shares.
(b) Except as set forth on Schedule 2.4 hereto, there are no outstanding
Contracts by which the Company is or may become bound to issue additional shares
of its capital stock or options, warrants or other rights to purchase or acquire
any shares of its capital stock.
(c) Except as set forth on Schedule 2.4 hereto, since June 8, 1999, the
Company has not declared or paid any dividend or made any other distribution of
cash, stock or other property to its stockholders. Other than (i) the rights of
holders of Class B Common Stock and Class C Common Stock pursuant to the
existing Charter to each elect separately, as a class, one director, (ii) as
contemplated by this Agreement or the Ancillary Documents and (iii) the right of
each stockholder of the Company to vote its shares of Common Stock for the
election of directors and exercise other rights as stockholder of the Company
generally, no person has the right to elect one or more directors of the Company
or to cause the Company to include its nominee in any slate of directors
proposed by the Company.
2.5. Authorization and Issuance of Securities. The authorization, issuance,
sale and delivery of the Notes and the Series B Preferred Stock pursuant to this
Agreement and the authorization, reservation, issuance, sale and delivery of the
Conversion Shares have been duly authorized by all requisite corporate action on
the part of the Company, and when issued, sold and delivered in accordance with
this Agreement and/or any Ancillary Document against payment therefor as herein
or therein provided, the Notes will be validly issued, and the Series B
Preferred Stock and the Conversion Shares will be validly issued and
outstanding, fully paid and nonassessable, with no personal liability attaching
to the ownership thereof, free and clear of any Encumbrances other than
Encumbrances imposed by or through the Purchaser or any of its Affiliates. The
terms, designations, powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions,
of any series of Preferred Stock of the Company are as stated in the Charter.
The Company has reserved a sufficient number of shares of (i) Common Stock for
issuance upon conversion of the Series B Preferred Stock, (ii) Common Stock for
issuance upon conversion of any shares of Series B Preferred Stock that may be
issued as dividends on the Series B Preferred Stock pursuant to the Articles
Supplementary, (iii) Common Stock for issuance upon conversion of the Notes,
(iv) Common Stock for issuance upon conversion in connection with any interest
payment under the Notes and (v) Common Stock for issuance upon conversion or
exercise of all other common stock equivalents outstanding on the date hereof.
2.6. SEC Reports. The Company has filed all proxy statements, reports and
other documents required to be filed by it with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and after December 31, 1999 and the Company
has furnished the Purchaser true and complete copies of all annual reports,
quarterly reports, proxy statements and other reports under the Exchange Act
filed by the Company from and after such date, each as filed with the Commission
(collectively, the "SEC Reports"). Each SEC Report complied as to form in all
material respects with the requirements of the applicable report form and did
not on the date of filing contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements
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<PAGE> 47
therein, in the light of the circumstances under which they were made, not
misleading, and, as of the date hereof, there is no fact or facts not disclosed
in the SEC Reports which relate specifically to the Company and which
individually or in the aggregate could have a Material Adverse Effect.
2.7. Financial Statements. The financial statements (including any related
schedules and/or notes) included in the SEC Reports have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied throughout the periods presented and fairly present, in all material
respects, the consolidated financial condition, results of operations and
changes in stockholders' equity of the Company as of the respective dates
thereof and for the respective periods then ended (in each case subject, as to
interim statements, to changes resulting from normal year-end adjustments, none
of which will be material in amount or effect). Except as set forth on Schedule
2.7 hereto or arising under this Agreement or any Ancillary Agreement, the
Company has no liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise, whether or not Known, whether due or to
become due and regardless of when asserted), except (i) liabilities and
obligations in the respective amounts reflected in or reserved against in the
Company's balance sheet or the footnotes thereto as of December 31, 1999
included in the SEC Reports or (ii) liabilities and obligations incurred after
December 31, 1999 in the ordinary course of business consistent (in amount and
kind) with past practice (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit) and that do
not exceed $100,000 in the aggregate or which are not otherwise insured or to
which the Company is otherwise entitled to indemnification from third parties.
2.8. Absence of Material Changes. Except as set forth on Schedule 2.8 or
otherwise disclosed in the SEC Reports, since December 31, 1999, the Business
has been conducted in all material respects in the ordinary course, consistent
with past practice and there has not occurred any:
(a) Material Adverse Effect;
(b) waiver or cancellation of any material right of the Business, the
Company or any of its Subsidiaries or the cancellation of any material debt or
claim held by the Business, the Company or any of its Subsidiaries;
(c) payment, discharge or satisfaction of any claim, liability or
obligation of the Business, the Company or any of its Subsidiaries other than in
the ordinary course of business;
(d) Encumbrance upon the assets of the Business, the Company or any
Subsidiary other than Permitted Encumbrances;
(e) declaration or payment of dividends on, or other distribution with
respect to, or any direct or indirect redemption or acquisition of, any
securities of the Company or any of its Subsidiaries;
(f) issuance of any stock, bonds or other securities of the Company or any
of its Subsidiaries;
(g) sale, assignment or transfer of any material tangible or intangible
assets of the Business, the Company or any of its Subsidiaries except in the
ordinary course of business;
(h) loan by the Company or any of its Subsidiaries to any officer,
director, employee, consultant or stockholder of the Company or any Subsidiary
(other than advances to such persons in the ordinary course of business in
connection with Business related expenses);
(i) damage, destruction or loss (whether or not covered by insurance)
materially and adversely affecting the assets, property, condition (financial or
otherwise), results of operations or prospects of the Business, the Company or
any Subsidiary;
(j) increase, direct or indirect, in the compensation paid or payable to
any officer, director, employee, consultant or agent of the Company or any
Subsidiary, other than in the ordinary course of business, consistent with past
practices;
(k) except as required by a change in GAAP, change in the accounting
methods, practices or policies of the Business, the Company or any Subsidiary;
(l) indebtedness incurred for borrowed money by the Business, the Company
or any Subsidiary other than in the ordinary course of business;
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<PAGE> 48
(m) termination, threatened termination, or material amendment of any
material Contract, lease or management agreement to which the Business, the
Company or any Subsidiary is a party, other than in the ordinary course of
business;
(n) material change in the laws or regulations governing the Business, the
Company or any Subsidiary;
(o) material change in the manner of business or operations of the
Business, the Company or any of its Subsidiaries (including, without limitation,
any material accelerations or deferral of the payment of accounts payable or
other current liabilities or material deferral of the collection of accounts or
notes receivable);
(p) capital expenditures or commitments therefor by the Business, the
Company or any Subsidiary that aggregate in excess of $150,000 more than those
already provided for in the annual budget of the Company, a copy of which has
been provided to the Purchaser;
(q) any amendment of the Charter, or Bylaws of the Company, or of the
organizational documents of any Subsidiary;
(r) any other material transactions entered into by the Business, the
Company or any Subsidiary whether or not in the ordinary course of business; or
(s) any agreement or commitment (contingent or otherwise) by the Business,
the Company or any Subsidiary to do any of the foregoing.
2.9. Contracts.
(a) Except as set forth on Schedule 2.9, neither the Company nor any
Subsidiary is a party to, and the Business is not bound or subject to, any
Contract other than any Contract that (i) pursuant to its terms, has expired,
been terminated or fully performed by the parties, and in each case, under which
neither the Company, nor any Subsidiary nor the Business have any liability,
contingent or otherwise, or (ii) does not involve a commitment by either the
Company or the other party thereto of more than $50,000 per year or $75,000 over
the term of such Contract or the performance of which by the Company or any of
its Subsidiaries does not exceed one year (unless it is cancelable by the
Company or the Subsidiary upon not more than 90 days notice without a penalty in
excess of $20,000). The Company has delivered to the Purchaser a true, correct
and complete copy of each of the Contracts set forth on Schedule 2.9, and each
of the Contracts heretofore provided by the Company to the Purchaser is a true,
correct and complete copy of such Contract. Neither the Company nor any
Subsidiary is a party to or otherwise subject to any Contract that was or is
required to be filed as exhibits to, or otherwise disclosed in, the SEC Reports
that have not been so filed or disclosed.
(b) Each of such Contracts is, as of the date hereof, and will continue
after the Closing to be, as to the Company or any Subsidiary, as the case may
be, legal, valid, binding and in full force and effect and enforceable in
accordance with its terms. There is no material breach, violation or default by
the Company or any Subsidiary (or, to the Knowledge of the Company, any other
party) under any such Contract and no event (including, without limitation, the
consummation of the transactions contemplated by this Agreement or the issuance
of the Conversion Shares) which, with notice or lapse of time or both, would (i)
constitute a material breach, violation or default by the Company or any
Subsidiary (or, to the best Knowledge of the Company, any other party) under any
such Contract or (ii) give rise to any Encumbrance, or right of termination,
right of first offer, right of first refusal or any other right of purchase,
modification, cancellation, prepayment, "put," suspension, limitation,
revocation or acceleration against the Company or any Subsidiary, or create
material additional obligations of, material restrictions on, or materially
reduce the benefits derived by, the Company (by reason of a "change of control"
or otherwise) under any such Contract. Except as set forth on Schedule 2.9,
neither the Company nor any Subsidiary nor, to the Knowledge of the Company, any
other party to any of such Contracts is materially in arrears in respect of the
performance or satisfaction of the terms and conditions on its part to be
performed or satisfied under any of such Contracts or has granted or has been
granted any waiver or indulgence under any of such Contracts or has repudiated
any provision thereof.
2.10. Subsidiaries and Investments. Set forth on Schedule 2.10 hereto is a
list of each subsidiary of the Company (each a "Subsidiary"). Except as set
forth on Schedule 2.10 hereto, the Company does not presently have any
subsidiaries nor does it presently own, directly or indirectly, any capital
stock or other equity interests,
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<PAGE> 49
directly or indirectly, in any corporation, association, limited liability
company, trust, partnership, joint venture or other entity. Except as set forth
on Schedule 2.10 hereto, all of the outstanding shares of capital stock or other
equity interests of each class of each Subsidiary (a) are owned beneficially and
of record by the Company free and clear of any Encumbrances, (b) constitute 100%
of such Subsidiary's outstanding shares and (c) have been validly issued, are
fully paid and non-assessable. Neither the Company nor any of its Subsidiaries
has any material obligation or material liability in respect of any subsidiary
it previously owned, but which is no longer a subsidiary.
2.11. Properties. Except as set forth in Schedule 2.11 hereto, neither the
Company nor any of its Subsidiaries owns any real property or any interests
therein.
(a) Except as set forth on Schedule 2.11 hereto, the leases of any real
property (including all improvements thereon) held under lease, as lessee, by
the Company or any Subsidiary (the "Properties") are in full force and effect,
and neither the Company nor any Subsidiary is materially in default in respect
of any of the terms or provisions of such leases or has received notice of the
assertion of any claim adverse to its rights as lessee under such leases, or
affecting or questioning its right to the continued possession or use of the
real property and buildings held under such leases or of a default under such
leases. There is no material breach, violation or default by the Company or any
Subsidiary (or, to the Knowledge of the Company, any other party) under any such
lease and no event (including, without limitation, the consummation of the
transactions contemplated by this Agreement) which, with notice or lapse of time
or both, would (A) constitute a material breach, violation or default by the
Company or any Subsidiary (or, to the Knowledge of the Company, any other party)
under any such lease or (B) give rise to any Encumbrance, or right of
termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration against the Company or any Subsidiary under any such
lease. The Properties are listed in Schedule 2.11 hereto and constitute all the
real estate properties leased by the Company and its Subsidiaries.
(b) Schedule 2.11 hereto lists all leases (excluding inter-company leases
and leases entered into in the ordinary course of business with third party
vendors for space at the Properties involving less than 10,000 square feet)
pursuant to which the Company or any Subsidiary, as lessor, leases its
Properties (the "Third Party Leases"). Neither the Company or any Subsidiary or,
to the Knowledge of the Company, any tenant of any of the Properties is in
material default under any of the Third Party Leases (and there exists no event
which, with the lapse of time or giving of notice, or both, would constitute a
material default under any of such Leases).
(c) Except as disclosed on Schedule 2.11 hereto, (i) no Person has an
option or right of first refusal to purchase all or part of any Properties or
any interest therein, (ii) as of the date hereof, neither the Company nor any
Subsidiary has any commitments to make, directly or indirectly, investments in,
or extend loans in connection with, any real estate properties and (iii) neither
the Company nor any Subsidiary nor any of their respective Affiliates are, nor
immediately following the Closing shall they be, subject to any non-competition,
geographical restriction or similar agreement.
(d) Except as disclosed on Schedule 2.11 hereto, each of the Properties
complies with all applicable codes, laws and regulations (including, without
limitation, building and zoning codes, laws and regulations and laws relating to
access to the Properties, including, without limitation, the Americans with
Disabilities Act), except for such of the foregoing as, individually and
together with any related matters, would not have a Material Adverse Effect.
(e) Except as disclosed on Schedule 2.11 hereto, there are no pending or,
to the Knowledge of the Company, threatened condemnation proceedings, zoning
changes or other proceedings or actions that will in any manner adversely affect
the size of, use of, improvements on, construction on or access to the
Properties.
(f) Except as disclosed on Schedule 2.11 hereto, to the Company's Knowledge
(i) there are no structural defects relating to any of the Properties, (ii) the
building systems for the Properties are in good working order and (iii) there is
no physical damage to the Properties, in each case with such exceptions as would
not have a material adverse impact on the operation of the affected Property or
otherwise be fully and completely covered by insurance.
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<PAGE> 50
(g) Schedule 2.11 sets forth (i) a comprehensive list of all management,
franchise and similar Contracts wherein the Company or any Subsidiary has
contracted with a third party, (ii) the Properties subject to such agreements,
(iii) the term of each of such agreements, and (iv) any commitments by the
Company or any of its Subsidiaries thereunder to satisfy any shortfalls or
otherwise guarantee any payments. Except as set forth on Schedule 2.11, the
Company and each of its Subsidiaries has entered into valid, binding and
enforceable subordination and non-disturbance Contracts with respect to each of
the Properties with each lender that has extended financing with respect to any
of the Properties.
(h) Except as set forth on Schedule 2.11 hereto, neither the Company nor
any Subsidiary has entered into any binding Contract, letter of intent or other
instrument or listing arrangement to purchase, sell or invest in, or to lend or
borrow money in connection with, real property, whether or not such real
property is currently owned by the Company or any Subsidiary.
2.12. Employee Benefit Plans.
(a) Schedule 2.12 hereto contains a true and complete list of (i) each
plan, program, material policy, payroll practice, contract, agreement or other
arrangement, or commitment providing for compensation, severance, termination
pay, performance awards, stock or stock-related awards, fringe benefits or other
employee benefits of any kind, whether formal or informal, funded or unfunded,
written or oral, and whether or not legally binding, which is or pursuant to
which the Company or any Subsidiary has or may have any liability, contingent or
otherwise, including, but not limited to, any "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (each, a "Benefit Plan"); and (ii) each management,
employment, bonus, option, equity (or equity related), severance, consulting, or
similar Contract (each, an "Employee Agreement"), pursuant to which the Company
or any Subsidiary has any liability, contingent or otherwise, between the
Company or any Subsidiary and any current, former or retired employee, officer,
consultant, independent contractor, agent or director of the Company or any
Subsidiary (an "Employee").
(b) With respect to each Benefit Plan, the Company has delivered or made
available to Purchaser current, accurate and complete copies of each Benefit
Plan and Employee Agreement (including all other instruments relating thereto)
and summary plan descriptions therefor and, to the extent applicable, copies of
the most recent (i) Internal Revenue Service determination letter and any
outstanding request for a determination letter, (ii) Form 5500 and attached
Schedule B (including any related actuarial valuation report) with respect to
the last three plan years for each plan, (iii) certified financial statements,
(iv) collective bargaining agreements or other such contracts and (v) Form S-8
(including any amendments thereto).
(c) With respect to each Benefit Plan and Employee Agreement: (i) each
Benefit Plan and Employee Agreement has been administered in all material
respects in compliance with its terms and all applicable law, (ii) each such
Plan which is an employee pension benefit plan (as such term is defined in ERISA
Section 3(2)) intended to qualify under Sections 401(a) and 501(a) of the Code
has received a favorable determination letter as to its qualification under the
Code and nothing has occurred, whether by action or failure to act, which may
cause the loss of such qualification, (iii) there are no actions, suits, claims,
investigations or governmental audits pending, or to the Knowledge of the
Company, threatened, and the Company has no Knowledge of any facts which could
give rise to any such actions, suits, claims, investigations or governmental
audits, and (iv) none of the Company nor any employee or director of the Company
or any fiduciary of any Plan has, with respect to any such Plan, engaged in a
prohibited transaction, as such term is defined in Code Section 4975 or ERISA
Section 406, which would subject the Company or other plan sponsor to any taxes,
penalties or other liabilities resulting from prohibited transactions under Code
Section 4975 or under ERISA Sections 409 or 502(i).
(d) Neither the Company nor any of its Subsidiaries has, or has ever had,
any obligation or liability (contingent or otherwise) with respect to an
employee benefit plan subject to Title IV of ERISA.
(e) Neither the Company nor any of its Subsidiaries has any obligations for
retiree health and life benefits under any Benefit Plan or Employee Agreement
(other than those health benefit continuation rights mandated by COBRA or other
applicable law).
(f) The consummation of the transaction contemplated by this Agreement, in
and of itself or together with any subsequent event, will not (x) entitle any
Employee to severance pay, (y) accelerate the time of payment or
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<PAGE> 51
vesting, or trigger any material payment or funding of compensation of benefits,
or materially increase the amount payable or trigger any other material
obligation pursuant to any Benefit Plan or Employee Agreement or (z) result in
payments under any Benefit Plan or Employee Agreement which may not be
deductible under Section 162(m) or Section 280G of the Code.
2.13. Labor Relations; Employees. Except as set forth on Schedule 2.13
hereto or as could not reasonably be expected to have a Material Adverse Effect,
(a) neither the Company nor any of its Subsidiaries is delinquent in payments to
any of its employees, for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed by the date hereof or amounts
required to be reimbursed by them to the date hereof (except for items being
contested in good faith), (b) each of the Company and its Subsidiaries is in
compliance in all material respects with all applicable federal, state and local
laws, rules and regulations respecting employment, employment practices, labor,
terms and conditions of employment and wages and hours, (c) neither the Company
nor any of its Subsidiaries is bound by or subject to (and none of its assets or
properties is bound by or subject to) any Contract with any labor union, and no
labor union has requested or, to the Knowledge of the Company, has sought to
represent any of the employees, representatives or agents of the Company or the
Subsidiaries, (d) there is no labor strike, dispute, slowdown or stoppage
actually pending, or, to the Knowledge of the Company, threatened against or
involving the Company or any of its Subsidiaries. Except as set forth on
Schedule 2.13, to the Knowledge of the Company, no salaried Employee at
management level or above has any plans to terminate his or her employment with
the Company or its Subsidiaries.
2.14. Litigation; Orders. Except as set forth on Schedule 2.14, there is no
civil, criminal or administrative action, suit, claim, notice, hearing, inquiry,
audit, proceeding or investigation at law or in equity by or before any court,
arbitrator or similar panel, Governmental Entity now pending or, to the
Knowledge of the Company, threatened against the Company or any Subsidiary,
except for such of the foregoing as, individually and together with any related
matters, would not have a Material Adverse Effect. Except as set forth on
Schedule 2.14, neither the Company nor any Subsidiary is subject to any order,
writ, injunction or decree of any court of any federal, state, municipal or
other domestic or foreign governmental department, commission, board, bureau,
agency or instrumentality, except for such of the foregoing as, individually and
together with any related matters, would not have a Material Adverse Effect.
2.15. Compliance with Laws; Permits.
(a) Except as provided in Schedule 2.15 or as could not reasonably be
expected to have a Material Adverse Effect, the Business, the Company and its
Subsidiaries are in compliance, and have been conducted in compliance with, in
all material respects, all applicable federal, state, local and foreign laws,
rules, ordinances, codes, consents, authorizations, registrations, regulations,
decrees, directives, judgments and orders.
(b) The Company and each Subsidiary has all federal, state, local and
foreign governmental licenses, permits, qualifications and authorizations
("Permits") necessary for the conduct of the Business as currently conducted,
except for such of the foregoing as, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. All such Permits are
in full force and effect, and no violations have been recorded in respect of any
such Permits; no proceeding is pending or, to the best Knowledge of the Company,
threatened to revoke or limit any such Permit; and no such Permit will be
suspended, canceled or adversely modified as a result of the execution and
delivery of this Agreement or the Ancillary Documents and the consummation of
the transactions contemplated hereby or thereby, except for such of the
foregoing as could not reasonably be expected to have a Material Adverse Effect
and which are set forth on Schedule 2.15, together with the expiration dates
thereof.
2.16. Environmental Matters. Except as set forth on Schedule 2.16 hereto:
(a) The Company and each Subsidiary has been and is in material compliance
with all applicable Environmental Laws except as could not reasonably be
expected to have a Material Adverse Effect. To the knowledge of the Company,
neither the Company nor any Subsidiary has received any written communication
from any Person that alleges that any of them has not been or is not in
compliance with applicable Environmental Laws.
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(b) To the knowledge of the Company, there is no Environmental Claim
pending (i) against the Company or any of its Subsidiaries, (ii) against any
Person whose liability for any Environmental Claim either the Company or any of
its Subsidiaries has retained or assumed either contractually or by operation of
law or (iii) against any real or personal property or operations which the
Company or any of its Subsidiaries own, lease or manage, in whole or in part.
(c) Except as would not have a Material Adverse Effect, there have been no
Releases of any Hazardous Material that could reasonably form the basis of any
Environmental Claim against the Company or any of its Subsidiaries or against
any person or entity whose liability for any Environmental Claim any of them has
retained or assumed either contractually or by operation of law.
(d) Except as would not have a Material Adverse Effect, no remediation of
Releases has occurred on any property owned, leased or managed by the Company or
any of its Subsidiaries that could result in the assertion or creation of an
Encumbrance on such property by any governmental body pursuant to an applicable
Environmental Law, nor has any such assertion of an Encumbrance been made with
respect thereto.
(e) Except as would not have a Material Adverse Effect, to the Knowledge of
the Company, there are no past, present or anticipated future events,
conditions, circumstances, activities, practices, incidents, actions, or plans
relating to the Company or any of its Subsidiaries that may interfere with or
prevent compliance or continued compliance with applicable Environmental Laws or
which may give rise to any liability under the Environmental Laws, or otherwise
form the basis of any Environmental Claim.
(f) The Company has heretofore delivered to the Purchaser a list of all of
the environmental reports prepared, to its Knowledge, in the last five years
relating to any of the properties currently owned by the Company or any of its
Subsidiaries and have delivered or made available to the Purchaser for review
copies of said environmental reports.
2.17. Taxes. Except as set forth on Schedule 2.17 hereto:
(a) The Company and each Subsidiary has timely filed (or there has been
filed on its behalf) all Tax Returns required to be filed by it under applicable
law, and has (or had when filed) substantial authority within the meaning of the
Internal Revenue Code Section 6662(d)(2)(B)(i) for all positions taken on all
such Tax Returns. All Taxes shown to be due on such Tax Returns by the Company
or any Subsidiary have been timely paid in full.
(b) There are no Encumbrances in respect of Taxes upon any of the assets of
the Company or any Subsidiary except Encumbrances in respect of Taxes not yet
due or which are being contested by the Company in good faith.
(c) The Company and each Subsidiary has complied with the provisions of the
Code relating to the withholding of Taxes, as well as similar provisions under
any other laws, and have, within the time and in the manner prescribed by law,
withheld, collected and paid over to the proper Governmental Entities all
amounts required.
(d) To the knowledge of the Company, neither the Company nor any of its
Subsidiaries has received a written ruling of a taxing authority relating to
Taxes or entered into a written and legally binding agreement with a Taxing
authority relating to Taxes. There are no unresolved issues of law or fact
arising out of a notice of deficiency, proposed deficiency or assessment from
the Internal Revenue Service or any other governmental Taxing authority with
respect to Taxes of the Company or any of its Subsidiaries which could
reasonably be expected to have, singly or in the aggregate, a Material Adverse
Effect.
(e) Neither the Company nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return, which Tax Return has not
since been filed, and that statute of limitations for the assessment of federal,
state, local and foreign income Taxes has expired for all applicable returns of
the Company and its Subsidiaries or those returns have been examined by the
appropriate taxing authorities for all periods.
(f) Neither the Company nor any Subsidiary is a party to any Contract
providing for the allocation or sharing of Taxes or indemnification by the
Company or any Subsidiary of any other person in respect of Taxes.
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(h) Neither the Company nor any Subsidiary is party to any Contract that
would result, individually or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code.
2.18. Insurance. The Company and each of its Subsidiaries maintains
primary, excess and umbrella insurance of types and amounts customary for the
business against general liability, fire, workers' compensation, products
liability, theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect
and with respect to property insurance for assets for which it is customary to
have replacement cost sufficient to provide for such coverage or to prevent the
application of the coinsurance provision.
2.19. Affiliated Transactions. Except as set forth on Schedule 2.19 hereto,
there is no transaction to which the Company or any of its Subsidiaries is or is
to be a party in which any Person (beneficially owning (as defined in Rule 13d-3
under the Exchange Act) (i) in excess of 5% of any of the Company's Class A
Common Stock or any securities convertible into or exchangeable for such
securities, or (ii) any Class B Common Stock or Class C Common Stock or any
securities convertible into or exchange for such securities), director or
executive officer of the Company or any of its Subsidiaries has a direct or
indirect interest that would be required to be disclosed pursuant to Item 404 of
Regulation S-K under the Securities Act that has not previously been disclosed
in a Company SEC Report.
2.20. Opinion of Financial Advisor. The Company has received the opinion of
Merrill Lynch & Co., Inc., dated the date hereof, to the effect that the
transactions contemplated hereby are fair, from a financial point of view, to
the Company.
2.21. Actions Regarding the Stockholder Rights Plan. The Company has taken
all actions necessary pursuant to its Shareholder Rights Agreement (the "Rights
Agreement") to ensure that this Agreement and the Ancillary Documents and the
consummation of the transactions contemplated hereby and thereby, including the
acquisition of Common Stock upon conversion of the Notes or Series B Preferred
Stock in accordance with the terms thereof and the transfers of securities
permitted by the Investors Agreement, will not result in a distribution of
separate rights certificates or the occurrence of a Distribution Date, as
defined in the Rights Agreement and has provided Purchaser with a true and
complete copy of the Rights Agreement and any amendments thereto, including
amendments entered into in relation to this Agreement and the Ancillary
Documents and the transactions contemplated hereby and thereby, in the form
attached hereto as Exhibit K.
2.22. Consents. Other than the approval by the stockholders of the Company
of the Stockholder Proposal and except as set forth on Schedule 2.22 and except
for such of the following, the failure to obtain of which would not result in a
Material Adverse Effect, no Permit, authorization, consent, waiver of
contractual right or obligation, or approval of or by, or any notification of or
filing with, any Person is required by the Company or any of its Subsidiaries in
connection with the execution, delivery and performance of this Agreement and
the Ancillary Documents to which it is a party, the consummation by the Company
of the transactions contemplated hereby or thereby, or the issuance, sale or
delivery of the Notes, the Series B Preferred Stock or the Conversion Shares
(other than such notifications or filings required under applicable federal or
state securities laws, if any, which shall be made on a timely basis). The
Company and each of its Subsidiaries shall use commercially reasonable efforts
to obtain all of the Permits, authorizations, consents and approvals listed on
Schedule 2.22 hereto and any of the foregoing necessary to enable the Business
and operations of the Company and its Subsidiaries, after consummation of the
transactions contemplated hereby, to continue to be conducted in the same manner
as currently conducted, each of which shall have been obtained without the
imposition of any adverse terms or conditions and without the imposition of any
significant cost. The Company has provided to the Purchaser true, correct and
complete copies of the consents to this Agreement and the transactions
contemplated hereby set forth on Schedule 2.22, each of which is in full force
and effect and has not been amended or supplemented.
2.23. Brokers. No agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any broker's or finder's fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement or any of the Ancillary Documents, except for the
firms identified on Schedule 2.23 hereto, complete and accurate copies of whose
engagement letters have been provided to the Purchaser and which will not be
amended without the consent of the Purchaser to (a) increase the fees and
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expenses payable thereunder or (b) extend the period for which services are to
be performed beyond the Closing Date.
2.24. Offering Exemption. Neither the Company nor any Person acting on its
behalf has offered any of the Notes or any of the Series B Preferred Stock or
any similar securities of the Company for sale to, solicited any offers to buy
any of the Notes or any of the Series B Preferred Stock or any similar
securities of the Company from or otherwise approached or negotiated with
respect to the Company with any Person other than the Purchaser and other
"accredited investors" (as defined in Rule 501(a) under the Securities Act).
Neither the Company nor any Person acting on its behalf has taken or, except as
contemplated by the Registration Rights Agreement will take any action
(including, without limitation, any offering of any securities of the Company
under circumstances which would require the integration of such offering with
the offering of any of the Notes or any of the Series B Preferred Stock under
the Securities Act) which could reasonably be expected to subject the offering,
issuance or sale of the Securities to the registration requirements of Section 5
of the Securities Act or violate the provisions of any securities, "blue sky",
or similar law of any applicable jurisdiction.
2.25. Disclosure. To the Company's Knowledge, neither this Agreement nor
any certificate, instrument or written statement furnished or made to the
Purchaser by or on behalf of the Company in connection with this Agreement or
the Ancillary Documents contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. To the Company's Knowledge, there
is no fact which the Company has not disclosed to the Purchaser or their counsel
in writing and of which the Company is aware which materially affects or which
could reasonably be expected to materially affect the Business or the business,
financial condition, operations, property, affairs or prospects of the Company
or any of its Subsidiaries or the ability of the Company to perform its
obligations under the Agreement or any of the Ancillary Documents.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company as follows:
3.1. Organization and Good Standing; Power and Authority; Qualifications;
Capitalization. The Purchaser is duly organized, validly existing and in good
standing under the laws of its state of incorporation or organization. The
Purchaser has the Power to enter into and carry out the transactions
contemplated by this Agreement and the Ancillary Documents to which it is a
party. The Purchaser has been capitalized with cash or cash equivalents in the
amount of at least $3 million. The direct and indirect holders of equity
interests in the Purchaser and the percentage of their holdings and the voting
power of such holders is set forth on Schedule 3.1 hereto, provided that such
Schedule 3.1 shall exclude Lehman Parent Entities other than LB Interstate GP
LLC and LB Interstate LP LLC. Other than as disclosed to the Company in writing
or pursuant to agreements of Lehman Parent Entities (other than LB Interstate GP
LLC or LB Interstate LP LLC) or as permitted in the limited partnership
agreements of entities comprising the Purchaser, the Purchaser is not a party to
any options, subscription rights, calls, commitments of any character whatsoever
relating to, the equity interests in the Purchaser or any other contract
agreement or arrangement, whether oral or written (and any amendments,
modifications or supplements thereto), that permit any third parties to purchase
an equity interest in the Purchaser or to obtain voting control over such equity
interests. The Purchaser has made available to the Company for its review true,
correct and complete copies of the formation documents and operating agreements
of the Purchaser and any amendments or supplements thereto.
3.2. Authorization of the Documents. The execution, delivery and
performance by the Purchaser of this Agreement, and each of the Ancillary
Documents to which it is a party has been duly authorized by all requisite
corporate action on the part of the Purchaser and do not or will not require the
approval or consent of the partners of the Purchaser. Each of this Agreement and
the Ancillary Documents constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms except to
the extent that enforceability may be limited by the Bankruptcy Exception.
3.3. No Conflict. The execution and delivery by the Purchaser of the
Agreement and each of the Ancillary Documents to which it is a party and the
consummation by the Purchaser of the transactions contemplated hereby and
thereby and its compliance with the provisions hereof and thereof will not (a)
violate any provision of any federal, state, local or foreign law, statute, rule
or regulation, or any ruling, writ, injunction, order, judgment or
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decree of any court, administrative agency or other governmental body applicable
to it, or any of its subsidiaries or any of their respective properties or
assets or (b) violate its organizational documents.
3.4. Consents. Except for any filings required pursuant to Section 13(d) of
the Exchange Act, and otherwise except as set forth on Annex 3.4 hereto, no
Permit, authorization, consent or approval of or by, or any notification of or
filing with, any Person is required by the Purchaser in connection with the
execution, delivery and performance by the Purchaser of the Agreement and the
Ancillary Documents to which it is a party, or the consummation by the Purchaser
of the transactions contemplated hereby or thereby.
3.5. Purchase for Investment. The Purchaser is acquiring (or will acquire)
the Notes and the Series B Preferred Stock and the Conversion Shares for its own
account for investment purposes and not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof in violation of
applicable securities laws. The Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same other than as
permitted by applicable securities laws.
3.6. Accredited Investor. The Purchaser is an "accredited investor" within
the meaning of Rule 501 of Regulation D under the Securities Act, as presently
in effect. The Purchaser has knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of Purchaser's
investment in the Company.
3.7 Restrictions on Transfer. The Purchaser understands that the Notes and
the Series B Preferred Stock and the Conversion Shares will be characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being or will be acquired from the Company in a transaction not involving a
public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Act only in certain
limited circumstances. In this connection, the Purchaser represents that it is
familiar with Rule 144 under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
3.8. Current Ownership. Except as set forth on Annex 3.8 hereto, as of the
date hereof, the Purchaser does not beneficially own and is not the member of
any "group" (as such term is used in Section 13(d)(3) of the Exchange Act) that
beneficially owns any capital stock of the Company.
3.9. Financial Capacity. The Purchaser has cash on hand or commitments from
its partners or other financially responsible third parties, or a combination
thereof, in an aggregate amount sufficient to enable the Purchaser to timely
perform its obligations hereunder, including to pay in full (i) the Purchase
Price and (ii) all fees and expenses payable by the Purchaser in connection with
this Agreement and the transactions contemplated thereby.
SECTION 4. REGISTRATION, EXCHANGE AND TRANSFER OF NOTES.
4.1. The Note Register; Persons Deemed Owners. The Company shall maintain,
at its office designated for notices in accordance with Section 14, a register
for the Notes (the "Note Register"), in which the Company shall record the name
and address of the Person in whose name each Note has been issued and the name
and address of each transferee and prior owner of each Note. The Company may
deem and treat the Person in whose name a Note is so registered as the holder
and owner thereof (the "Holder") for all purposes and shall not be affected by
any notice to the contrary, until due presentment of such Note for registration
of transfer as provided in this Section 4.
4.2. Issuance of New Notes Upon Exchange or Transfer. Upon surrender for
exchange or registration of transfer of any Note at the office of the Company
designated for notices in accordance with Section 14 of this Agreement, the
Company shall execute and deliver, at its expense, one or more new Notes
substantially in the form of Exhibit A as requested by the Holder of the
surrendered Note, each dated the date to which interest has been paid on the
Note so surrendered (or, if no interest has been paid, the date of such
surrendered Note), but in the same aggregate unpaid principal amount as such
surrendered Note, and registered in the name of such Person or Persons as shall
be designated in writing by such holder. Every Note surrendered for registration
of transfer shall be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the Holder of such Note or by his attorney duly
authorized in writing, and shall be accompanied by a signature guarantee from
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a bank or brokerage firm. The Company may also condition the issuance of any new
Note or Notes to a Person other than the Holder thereof on the payment of a sum
sufficient to cover any stamp tax or other governmental charge imposed in
respect of such transfer. Notes shall be transferred in denominations of $1,000
and integral multiples thereof; provided that if necessary to enable the
registration of transfer by a Holder of its entire holding of Notes, one Note
may be in a denomination of any amount.
SECTION 5. COVENANTS.
5.1. Access to Records. For so long as at least 10% of the Notes and shares
of Series B Preferred Stock issued on the date hereof remain outstanding
(calculated on an as-converted basis), the Company shall afford the Purchaser
and its employees, counsel and other authorized representatives reasonable
access, during normal business hours, upon reasonable advance notice, with due
regard to its ongoing operations, to the assets, properties, offices and other
facilities, Contracts and books and records of the Business and of the Company
and its Subsidiaries, and to the outside auditors of the Company and their work
papers relating thereto, in each case, as the Purchaser may from time to time
reasonably request, provided, however, that the Company shall not be required to
provide access to, or disclose, information where such access or disclosure
would contravene applicable laws, rules, regulations, orders or decrees or
result in the waiver of the attorney-client privilege or the protection afforded
attorney work product. Each of the Company and the Purchaser will hold and will
cause its respective officers, employees, accountants, counsel, financial
advisors and other representatives and Affiliates to hold, any nonpublic
information in confidence in accordance with Section 3.5 of the Investor
Agreement between the Company and the Purchaser, Annexed hereto as Exhibit C.
The parties hereto agree that no investigation by the Purchaser or its
representatives shall affect or limit the scope of the representations and
warranties of the Company contained herein or in any Ancillary Document
delivered pursuant hereto or limit liability for breach of any such
representation or warranty.
5.2. Notice of Breach. For so long after the Closing Date as any Note or
any shares of the Series B Preferred Stock are issued and outstanding, as
promptly as practicable, and in any event not later than five business days
after the Company becomes aware thereof, the Company shall provide the Purchaser
with written notice of any breach by the Company of any provision of this
Agreement, including, without limitation, this Section 5, specifying the nature
of such breach and any actions proposed to be taken by the Company to cure such
breach.
5.3. No General Solicitation, etc. None of the Company, the Purchaser, nor
any of their respective Affiliates or any person acting on their behalf will (i)
offer to sell or solicit any offer to buy any of the Notes or any shares of
Series B Preferred Stock by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act that would require the registration of any Note or the
Series B Preferred Stock under the Securities Act unless the Note or the Series
B Preferred Stock, as applicable, is so registered or (ii) take any other action
which could reasonably be expected to require the registration under any
securities Laws of the issuance of the Notes, the shares of Series B Preferred
Stock provided for herein or the sale of any such Notes or shares of Series B
Preferred Stock or any of the Conversion Shares.
5.4. Financial Reports. The Company agrees that, so long as any of the
Notes, any of the shares of Series B Preferred Stock, or any of the Conversion
Shares are issued and outstanding, until the end of the Investor Designee Period
(as defined in the Investor Agreement):
(a) Promptly after such documents are prepared, the Company shall furnish
the Purchaser with a copy of such information and reports as are set forth on
Exhibit J hereto, together with a copy of any letter or memorandum of the
Company discussing such information or report.
(b) The Company shall furnish the Purchaser with all information which it
provides or has an obligation to provide to any other stockholder of the Company
in such Person's capacity as a stockholder, pursuant to any agreement with such
stockholder or otherwise.
(c) The Company shall make available adequate current public information
regarding itself so that the requirements of Rule 144(c)(1) of the Securities
Act are satisfied for so long as any of the Notes, Series B Preferred Stock or
Conversion Shares are not freely saleable under the federal securities laws.
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(d) Any other information that the Purchaser may reasonably request.
The Purchaser hereby acknowledges that it is aware, and that the officers,
partners, directors, employees, representatives and agents of the Purchaser have
been, or will be prior to receiving any information furnished to the Purchaser
pursuant to this Section 5.4, advised by the Purchaser that applicable
securities laws may prohibit any person who has material, non-public information
from purchasing or selling securities of the Company or from communicating the
information to any other person or entity.
5.5. Liquidity. The Company shall maintain sufficient liquidity so that
$25,000,000 of the Purchase Price shall be available to meet the Company's
obligations to contribute capital to the Joint Venture pursuant to Section 4.2
of the Joint Venture Partnership Agreement.
5.6. Conduct of Business Prior to Closing. During the period from the date
of this Agreement to the Closing Date, the Company shall, and shall cause its
Subsidiaries to, operate their respective businesses only in the ordinary and
usual course consistent with past practices and the Company shall not, and shall
cause each of its Subsidiaries not to, without the consent of the Purchaser:
(a) take any action which, if taken following the execution and delivery of
all of the Ancillary Documents at the Closing, would require the consent or
approval of the Purchaser, any holders of Notes or any holders of shares of
Series B Preferred Stock;
(b) take any action which, if taken following the execution and delivery of
all of the Ancillary Documents at the Closing, would violate any provision of
the Company's Charter (including the Articles Supplementary), the Notes, the
Investor Agreement, or this Agreement
(c) waive or cancel any material right of the Business, the Company or any
of its Subsidiaries or cancel any material debt or claim held by the Business,
the Company or any of its Subsidiaries;
(d) pay, discharge or satisfy any material claim, liability or obligation
of the Business, the Company or any of its Subsidiaries other than in the
ordinary course of business;
(e) create, incur or suffer to exist any Encumbrance upon the assets of the
Business, the Company or any Subsidiary other than Permitted Encumbrances;
(f) increase, directly or indirectly, the compensation paid or payable to
any officer, director, employee, consultant or agent of the Company or any
Subsidiary, other than in the ordinary course of business, consistent with past
practices;
(g) enter into any employment agreement providing for annual compensation
in excess of $150,000, or providing for any right or benefit in the event of
severance or a change in control of the Company, or amend any of the employment
agreements between the Company and Messrs. Hewitt, Killkeary and Richardson;
(h) change the accounting methods, practices or policies of the Business,
the Company or any Subsidiary except for any such change which is not material
or which is required by reason of a concurrent change in GAAP;
(i) amend, terminate or fail to prevent the expiration without renewal
(other than following good faith efforts to effect such renewal) of any material
Contract to which the Business, the Company or any Subsidiary is a party,
including any of the Contracts set forth on Schedule 2.22;
(j) make any material change in the manner of business or operations of the
Business, the Company or any of its Subsidiaries (including, without limitation,
any accelerations or deferral of the payment of accounts payable or other
current liabilities or deferral of the collection of accounts or notes
receivable);
(k) make any capital expenditures or commitments therefor by the Business,
the Company or any Subsidiary that aggregate in excess of $500,000;
(l) enter into any other material transaction other than in the ordinary
course of business; or
(m) enter into any agreement or commitment (contingent or otherwise) to do
any of the foregoing.
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5.7. No Solicitation of Competing Transactions.
(a) Except as expressly permitted in writing by the Purchaser, the Company
shall not, nor shall it authorize or permit any of its Subsidiaries or any of
the Company's or any Subsidiary's directors, officers, employees,
representatives, agents and advisors (including any investment banker, financial
advisor, attorney, accountant or other representative retained by any of them),
directly or indirectly, to (i) solicit, initiate, encourage (including by way of
furnishing nonpublic information), respond to (other than by bare statement,
without any further detail or explanation, that they are not permitted to
respond), or take any other action designed to facilitate, any inquiries or the
making of any proposal by a third party (a "Third Party") with respect to any
merger, consolidation, transfer of material assets, sale or exchange of
securities or similar transaction (collectively, a "Competing Transaction"),
(ii) participate in any substantive discussions or negotiations regarding any
Competing Transaction or (iii) enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to any
Competing Transaction. Upon execution of this Agreement, the Company and its
Subsidiaries shall immediately cease any existing activities, discussions or
negotiations with any parties heretofore conducted with respect to any of the
foregoing.
(b) Notwithstanding anything to the contrary in this Agreement, (i) the
Company may, in response to an unsolicited written offer or proposal with
respect to a potential or proposed Competing Transaction engage in negotiations
or discussions with, or provide information or data to, any Third Party relating
to any Competing Transaction if the Competing Transaction is a Superior
Proposal. Any information furnished to any Third Party in connection with any
Competing Transaction shall be provided pursuant to a confidentiality and
standstill agreement on customary terms (including without limitation
prohibitions on unsolicited tender offers, acquisitions of equity interests in
the Company, proposals to acquire stock or assets, formation of Section 13(d)
groups, public request for release from the standstill, actions that would
require the Company to make a public announcement, engaging in proxy contests,
etc.).
(c) The Company shall promptly (but in any event by the next business day)
advise the Purchaser in writing of any inquiries, discussions, negotiations,
proposals or requests for information received on or after the date of this
Agreement relating to any Competing Transaction, the material terms and
conditions thereof and the identity of the person making such request or
proposing such Competing Transaction. The Company shall promptly advise the
Purchaser of any development on or after the date hereof relating to any
inquiries, discussions, negotiations, proposals or requests for information
relating to a Competing Transaction, whether the original inquiries,
discussions, negotiations, proposals or requests for information occurred
before, on or after the date of this Agreement.
(d) In the event the Board of Directors of the Company has determined that
a potential or proposed Competing Transaction constitutes a Superior Proposal
that the Company intends to accept, the Company shall promptly deliver to the
Purchaser notice thereof and of its intention to terminate this Agreement not
fewer than five business days after delivery of such notice. After such five
business day period, the Board of Directors of the Company may then (and only
then) terminate this Agreement and enter into an agreement with respect the
Superior Proposal.
(e) "Superior Proposal" means any bona fide written offer made by a Third
Party to acquire, directly or indirectly, for consideration consisting of cash
and/or securities, all of the shares of Common Stock, Class B Common Stock and
Class C Common Stock then outstanding (i) at a price greater than $4.00 per
share and (ii) that constitutes a transaction that, in the judgment of the Board
of Directors of the Company, is reasonably likely to be consummated on the terms
set forth, taking into account all legal, financial, regulatory and other
aspects of such proposal.
(f) Nothing contained in this Agreement shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Securities Exchange Act of 1934 or from making
any disclosure to the Company's stockholders (including with respect to the
delivery by the Company to the Purchaser of a Notice of Superior Proposal) if,
in the judgment of the Board of Directors of the Company, after consultation
with outside counsel, failure so to disclosure would be inconsistent with its
obligations under applicable law.
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5.8. Stockholder Approval; Proxy Statement. (a) Subject to the terms and
conditions contained herein, the Company shall submit the proposed issuance of
Common Stock in the transactions contemplated hereby (the matter submitted, the
"Stockholder Proposal") for approval to the holders of shares of Common Stock,
Class B Common Stock and Class C Common Stock, voting together as a single
class, at a meeting to be duly held for this purpose by the Company (the
"Company Meeting"). The Company shall take all action in accordance with the
federal securities Laws, the Maryland General Corporations Law, its Charter and
Bylaws necessary to duly convene the Company Meeting, and shall use its
reasonable best efforts to hold such meeting as soon as reasonably practicable
after the date hereof.
(b) The Company shall, as soon as practicable, prepare and file a
preliminary Proxy Statement (such proxy statement, and any amendments or
supplements thereto, the "Proxy Statement") with the SEC with respect to the
Company Meeting and shall use its reasonable efforts to respond to any comments
of the SEC or its staff and to cause the Proxy Statement to be cleared by the
SEC as soon as practicable. The Proxy Statement shall include the Board
Recommendation. The Company shall notify the Purchaser of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Proxy Statement or for additional
information and shall supply the Purchaser with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement of the
transactions contemplated hereby. The Company shall give the Purchaser and its
counsel (who shall provide any comments thereon as soon as practicable, and the
Company shall incorporate any such comments that are reasonable into the Proxy
Statement) the opportunity to review the Proxy Statement prior to its being
filed with the SEC and shall give the Purchaser and its counsel (who shall
provide any comments thereon as soon as practicable, and the Company shall
incorporate any such comments that are reasonable into the Proxy Statement) the
opportunity to review all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. Each of the Company and
the Purchaser agrees to use its reasonable efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of and requests
by the SEC. As promptly as practicable after the Proxy Statement has been
cleared by the SEC, the Company shall mail the Proxy Statement to the
stockholders of the Company. If at any time prior to the approval of the
Stockholder Proposal by the Company's stockholders there shall occur any event
that should be set forth in an amendment or supplement to the Proxy Statement,
the Company shall prepare and mail to its stockholders such an amendment or
supplement.
(c) The Company represents and warrants that the Proxy Statement will
comply as to form in all material respects with the Exchange Act and, at the
respective times filed with the SEC and distributed to stockholders of the
Company, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, that the Company makes no representation or
warranty as to any information included in the Proxy Statement which was
provided by the Purchaser. The Purchaser represents and warrants that none of
the information supplied by the Purchaser for inclusion in the Proxy Statement
will, at the respective times filed with the SEC and distributed to stockholders
of the Company, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
5.9 Reasonable Best Efforts. Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties agrees to use its reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Closing and the other transactions
contemplated by this Agreement and the Ancillary Documents, including using
reasonable efforts to accomplish the following: (i) the taking of all reasonable
acts necessary to cause the conditions to Closing to be satisfied as promptly as
practicable, (ii) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by any
Governmental Entity, (iii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iv) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the Ancillary Documents or the
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consummation of the Closing, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated or
reversed and (v) the execution and delivery of any additional instruments
necessary to consummate the Closing and the other transactions contemplated by,
and to fully carry out the purposes of, this Agreement and the Ancillary
Documents. This Section 5.9 shall be deemed not to have been breached by the
Company as a result of any action taken by the Company with respect to a
Superior Proposal that is expressly permitted under Section 5.7.
SECTION 6. ADDITIONAL AGREEMENTS.
6.1 Indenture Relating to the Notes. Upon the written request of the
Holders of at least 51% of the outstanding principal amount of the Notes at the
time outstanding (exclusive of Notes then owned by the Company or any of its
Affiliates) (the "Required Noteholders") in connection with a sale or offering
of the Notes pursuant to the Registration Rights Agreement, the Company, at its
expense, shall cause to be prepared, executed and delivered within 30 days after
such request an indenture (including a new form of note, any necessary related
documentation and, from time to time thereafter, any necessary supplements
thereto) (the "Indenture") with respect to the Notes, which Indenture shall
contain terms and provisions substantially the same as those set forth in
Sections 5, 6 and 7 hereof, and the substantive provisions of the Note,
including but not limited to, redemption, conversion, subordination, and
interest payment, in form and substance no less favorable to the Holders of the
Notes than as set forth in this Agreement and the Note, and such other terms and
provisions as are required under the Trust Indenture Act of 1939 and such other
items and provisions as are customary in indentures relating to publicly traded
senior secured debt securities having such terms. In such event, the Company
shall also appoint as trustee under the Indenture a national banking association
reasonably acceptable to the Required Noteholders having its principal offices
in New York, New York, and having capital, surplus, and undivided profits of at
least $50,000,000. In connection with the execution of the Indenture, the
Holders shall exchange all outstanding Notes for new notes in the form
contemplated by the Indenture, and upon such exchange such new notes shall be
deemed to be "Notes" for purposes hereof.
6.2. Lost, Stolen, Damaged and Destroyed Securities. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any certificate representing shares of Common Stock, Series B
Preferred Stock or a Note and in the case of loss, theft or destruction, upon
delivery of an indemnity satisfactory to the Company (which, in the case of the
Purchaser, may be an undertaking by the Purchaser to so indemnify the Company
and which, in the case of any Person other than the Purchaser, shall be delivery
of an indemnity bond), or, in the case of mutilation, upon surrender and
cancellation thereof, the Company will issue a new share certificate of like
tenor for a number of shares of Common Stock or Series B Preferred Stock, as
applicable, equal to the number of shares of such stock represented by the
certificate lost, stolen, destroyed or mutilated, or a new Note of like tenor in
an amount equal to the amount of such Note lost, stolen, destroyed or mutilated.
6.3. Transactions with Affiliates. The Company agrees that, so long as any
of the Notes or any shares of Series B Preferred Stock are issued and
outstanding, without the consent of the Required Holders the Company will not,
and will not permit any of its Subsidiaries to, engage in any transaction or
group of related transactions (including, without limitation, the purchase,
lease, sale or exchange of any Properties, Personal Property or Intellectual
Property of any kind or the rendering of any service) involving an expected
payment by or to the Company or any Subsidiary in excess of $60,000 with any
Affiliate, except (i) compensation and employee benefit matters by the
Compensation Committee of the Board or (ii) any transaction approved by the
Board or any committee of the Board.
6.4. Availability of Conversion Shares. The Company shall at all times that
any of the Notes or any shares of Series B Preferred Stock are issued and
outstanding reserve and keep available out of its authorized but unissued Common
Stock, for the purpose of effecting the conversion of Notes and the Series B
Preferred Stock, the full number of shares of Common Stock then issuable upon
the conversion of the Notes and the Series B Preferred Stock. The Company will
from time to time in accordance with the Maryland General Corporation Law
increase the authorized amount of Common Stock if at any time the number of
shares of Common Stock remaining unissued and available for issuance shall be
insufficient to permit full conversion of Notes and the Series B Preferred
Stock.
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6.5. Corporate Headquarters. For a period of not less than one year after
the Closing Date, the Company shall not relocate its corporate headquarters
outside of Pittsburgh, Pennsylvania.
6.6. HSR. If at any time after the date hereof, the Purchaser or any
Related Transferee reasonably determines that the filing of a notification under
the HSR Act is required in connection with the conversion or possible conversion
of all or any portion of the Notes and/or Series B Preferred Stock, then the
Company shall as soon as reasonably practicable reimburse such person for the
costs of filing such notification. The Company agrees to make any filing
required under the HSR Act reasonably promptly after the filing of such person's
notification. Each of the Company and the Purchaser agree to provide the other
with such information as is reasonably required to make such filings.
SECTION 7. RESTRICTIVE LEGEND.
(a) It is understood that each of the Notes and each certificate
representing any (i) shares of Series B Preferred Stock, (ii) Conversion Shares
or (iii) any other securities issued in respect of the Notes, the Series B
Preferred Stock or the Conversion Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event shall bear the
following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF A REGISTRATION STATEMENT
THEREUNDER AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE SECURITIES
LAWS OR AN EXEMPTION THEREFROM.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF AN
INVESTOR AGREEMENT BETWEEN INTERSTATE HOTELS CORPORATION AND CERTAIN
INVESTORS NAMED THEREIN AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE
THEREWITH. A COPY OF SAID AGREEMENT IS ON FILE AT THE OFFICE OF THE
CORPORATE SECRETARY OF THE COMPANY.
The Company will promptly, upon request, remove the foregoing legend,
provided the securities represented by the certificate may, in the Company's
discretion upon the advice of legal counsel, be sold without registration under
the Securities Act, or pursuant to an exemption therefrom.
(b) The Purchaser acknowledges that the Notes, the Series B Preferred Stock
and the Conversion Shares are transferable only pursuant to (i) offerings
registered under the Securities Act, (ii) Rule 144 or Rule 144A under the
Securities Act (or any similar rule or rules then in force) if such rule is
available and (iii) pursuant to any other exemption from the registration
requirements of the Securities Act. Except as described in this Section 7(b),
the Purchaser agrees not to transfer any of the Notes or any shares of Series B
Preferred Stock to any other Person without the prior written consent of the
Company.
SECTION 8. TAXES. The Company agrees that it will pay, and will hold the
Purchaser harmless from any and all liability with respect to any stamp or
similar Taxes which may be determined to be payable in connection with the
execution and delivery and performance of this Agreement, and that it will
similarly pay and hold the Purchaser harmless from all Taxes in respect of the
issuance of the Notes, the Series B Preferred Stock, any Exchange Notes issued
pursuant to the terms of the Series B Preferred Stock, and the Conversion Shares
(including any shares issuable upon conversion of any Exchange Note) to the
Purchaser.
SECTION 9. EXPENSES, TERMINATION.
9.1. Costs and Expenses. Except as set forth in this Section 9, each of the
Company and the Purchaser shall pay all the costs and expenses incurred by it or
on its behalf in connection with this Agreement and the consummation of the
transactions contemplated hereby.
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9.2. Termination or Abandonment. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing (notwithstanding any approval of the Stockholder Proposal by the
stockholders of the Company):
(a) by mutual written consent of the Purchaser and the Company;
(b) by the Company, if the Closing shall not have occurred before November
1, 2000; provided, however, that the right to terminate this Agreement under
this Section 9.2(b) shall not be available if the Company's breach of any
representation or warranty or the Company's failure to perform any covenant or
agreement under this Agreement has been the cause of or resulted in the failure
of the transactions contemplated hereby to occur on or before such date;
(c) by the Purchaser, if the Closing shall not have occurred on or before
October 16, 2000 (the "Termination Date"); provided, however, that the right to
terminate this Agreement under this Section 9.2(c) shall not be available if the
Purchaser's breach of any representation or warranty or the Purchaser's failure
to perform any covenant or agreement under this Agreement has been the cause of
or resulted in the failure of the transactions contemplated hereby to occur on
or before such date, provided, however:
(i) the Company may, in its sole discretion, elect to extend the
Termination Date to November 15, 2000 by both (x) delivering written notice
to the Purchaser prior to October 13, 2000 of its intent to do so and (y)
paying to the Purchaser, on or before October 13, 2000, $250,000 by wire
transfer of immediately available funds to an account designated by the
Purchaser (which account will be designated by the Purchaser within one
business day of the Company's request for such designation), and
(ii) following such extension pursuant to Section 9.2(c)(i), the
Company may, in its sole discretion, elect to further extend the
Termination Date by up to 15 days (to any specified date on or prior to
November 30, 2000) by both (x) delivering written notice to the Purchaser
prior to November 13, 2000 of its intent to do so and (y) paying to the
Purchaser, on or before November 14, 2000, an amount equal to $16,667 for
each day the Termination Date is so extended, such payment to be made by
wire transfer of immediately available funds to an account designated by
the Purchaser (which account will be designated by the Purchaser within one
business day of the Company's request for such designation).
The Company acknowledges that time is of the essence for compliance with any
requirement of this Section 9.2(c).
(d) by the Purchaser, if (i) the Board of Directors of the Company shall or
shall resolve to (A) either not recommend that the Company's stockholders vote
in favor of the Stockholder Proposal or withdraw the Board Recommendation, (B)
modify the Board Recommendation in a manner adverse to the Purchaser, or (C)
approve, recommend or fail to take a position that is adverse to any proposed
Competing Transaction involving the Company or any of its Subsidiaries within
five days after a request from the Purchaser that it do so, or (ii) the Board of
Directors of the Company shall have refused to affirm the Board Recommendation
as promptly as practicable (but in any case within five days) after receipt of
any reasonable written request for such affirmation from the Purchaser or (iii)
the Company shall have failed to call the Company Meeting, failed to mail the
Proxy Statement to its stockholders, failed to include the Board Recommendation
in the Proxy Statement or failed to hold the Company Meeting, in each case prior
to the Termination Date (including any extensions thereof by exercise of the
Company's options granted in Sections 9.2(c)(i) and (ii)), unless in each case,
the failure to take such action is caused by a temporary restraining order,
preliminary or permanent injunction or other order or decree or regulatory or
legal action or the enactment of any statutes, rules or regulations which
prevent the consummation of the transactions contemplated hereby;
(e) by either the Purchaser or the Company, if at the Company Meeting
(including any adjournment or postponement thereof) the requisite vote of the
stockholders of the Company to approve the Stockholder Proposal shall not have
been obtained;
(f) by either the Purchaser or the Company, if there shall be any Law that
prohibits or makes illegal the consummation of the transactions contemplated
hereby, or if any Law enjoining the Purchaser or the Company
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from consummating the transactions contemplated hereby shall have been entered
and become final and nonappealable;
(g) by either the Purchaser or the Company, if there shall have been a
material breach by the other of any of its representations, warranties,
covenants or agreements contained in this Agreement, which breach would result
in the failure to satisfy one or more of the conditions set forth in Section
1.4(a) (in the case of a breach by either the Company or the Purchaser) or
Section 1.4(b) (in the case of a breach by the Company) or Section 1.4(c) (in
the case of a breach by the Purchaser), and such breach shall be incapable of
being cured or, if capable of being cured, shall not have been cured within 20
days after written notice thereof shall have been received by the party alleged
to be in breach; and
(h) by the Company pursuant to, but only in compliance with Section 5.7.
Notwithstanding anything herein to the contrary, no termination by the Company
pursuant to this Section 9.2 under circumstances requiring payment of a
Termination Fee and/or Purchaser's Expenses (as defined below) shall be
effective unless, concurrently with such termination, such amount is paid in
full by the Company in accordance with Section 9.3.
9.3. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.2, this Agreement, except for the provisions of
the second sentence of Section 5.1, this Section 9.3 and Sections 9.4, and 19,
shall become void and have no effect, without any liability on the part of any
party or any of its affiliates. Notwithstanding the foregoing, nothing in this
Section 9.3 shall relieve any party to this Agreement of liability for any
willful breach of any provision of this Agreement.
9.4. Payments Upon Termination. (a) Upon a termination of this Agreement
pursuant to Section 9.2, the Company shall pay to the Purchaser (or to any
Subsidiary of the Purchaser designated in writing by the Purchaser to the
Company) from the Escrow Account the amount of the Termination Fee and
Purchaser's Expenses, set forth below:
(i) in the event of a termination of this Agreement by the Purchaser
and the Company pursuant to Section 9.2(a) no Termination Fee or Expenses
shall be payable, unless otherwise agreed in writing;
(ii) in the event of a termination of this Agreement by the Purchaser
pursuant to Section 9.2(d), 9.2(g) or 9.2(h), or pursuant to Section 9.2(e)
if both (A) any Competing Transaction is publicly proposed or announced on
or after the date hereof and prior to the Company Meeting being held and
(B) within 12 months of a termination pursuant to Section 9.2(e) the
Company enters into a definitive agreement with respect to, or consummates,
a Competing Transaction, the Termination Fee shall be the amount of
$2,250,000 plus the amount of the Purchaser's Expenses (as defined below);
and
(iii) in the event of a termination of this Agreement pursuant to any
other provision of Section 9.2 (other than a termination by the Company
pursuant to Section 9.2(g)), no Termination Fee shall be payable, but the
Company shall pay to the Purchaser the Purchaser's Expenses.
(b) The parties agree that the "Purchaser's Expenses" shall be the amount
of the Purchaser's reasonable, documented costs and expenses incurred in
connection with this transaction (including, without limitation, the fees and
expenses of counsel retained by the Purchaser in connection with the negotiation
and preparation of this Agreement and the Ancillary Documents and the
consummation of the transactions contemplated hereby and thereby); provided,
however, that the Purchaser's Expenses shall not exceed the sum of $2,250,000.
(c) Payment of the Termination Fee and the Purchaser's Expenses shall, to
the extent of the funds in the Escrow Account, be made by the Escrow Agent in
accordance with the terms of the Escrow Agreement. In no event shall more than
one Termination Fee or more than one amount in payment of the Purchaser's
Expenses be payable under this Agreement.
(d) The Company acknowledges that the agreements contained in paragraph (a)
of this Section 9.4 are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, the Purchaser would not
enter into this Agreement; accordingly, if the Company fails to pay promptly any
Termination Fee or Purchaser's Expenses payable by it pursuant to this Section
9.4, then the Company shall pay
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to the Purchaser its costs and expenses (including attorneys' fees) in
connection with any litigation brought by the Purchaser to obtain payment of
such Termination Fee or Purchaser's Expenses, together with interest on such
amounts at the prime or base rate of The Chase Manhattan Bank from the date such
payment was due under this Agreement until the date of payment.
(e) The payment of a Termination Fee and/or Purchaser's Expenses hereunder
will constitute the sole and exclusive remedy of the Purchaser prior to the
Closing or the termination of this Agreement in accordance with its terms
regardless of any breach or alleged breach of this Agreement by the Company. In
no event will a Termination Fee or Purchaser's Expenses be payable pursuant to
this Section 9.4 if, prior to the termination of this Agreement, the Purchaser
shall have materially breached any of its representations, warranties, covenants
or agreements contained in this Agreement, which breach would result in a
failure to satisfy one or more of the conditions set forth in Section 1.4(a) or
1.4(c) and such breach shall be incapable of being cured or, if capable of being
cured, shall not have been cured within 20 days after written notice thereof
shall have been received by the Purchaser.
(f) In the event that the Closing occurs, the Purchaser agrees to instruct
the Escrow Agent in writing to release to the Company as soon as practicable all
funds held by the Escrow Agent pursuant to the Escrow Agreement.
SECTION 10. INDEMNIFICATION.
10.1. Survival of Representations, Warranties, Agreements and Covenants,
etc. All representations and warranties in this Agreement and in the Ancillary
Documents shall survive the execution and delivery of this Agreement and the
Closing for a period of 18 months and shall in no way be affected by any
investigation or knowledge of the subject matter thereof made by or on behalf of
any Purchaser; provided, however, that the representations and warranties set
forth in Sections 2.1 through 2.4, 2.19, 3.1 and 3.2 and 3.6 shall survive
indefinitely. All agreements and covenants contained herein shall survive the
Closing until, by their respective terms, they are no longer operative. The
Closing shall not be deemed in any way to constitute a waiver by any party of
any powers, rights or remedies that it may have with respect to any obligations
of the other parties hereunder, including, without limitation with respect to
any misrepresentation or breach of warranty Known to such party at the time of
Closing. No claim shall be made with respect to any representation, warranty,
covenant or agreement after it ceases to survive except that in the event that
any Purchaser Entity receives notice or identifies a matter which provides a
reasonable basis for indemnification hereunder and provides notice to the
Company within the applicable period provided for in this Section 10.1 of the
receipt of such notice or of the matter so identified and such claim shall not
have been finally resolved before the expiration of the applicable period
referred to in this Section 10.1 any representation, warranty, covenant or
agreement that is the basis for such claim shall continue to survive with
respect to such claim and shall remain a basis for indemnity as to such claim
until such claim is finally resolved.
10.2. Indemnification by the Company.
(a) From and after the Closing, the Company shall indemnify, defend and
hold the Purchaser, its Affiliates, their respective officers, directors,
partners, employees, attorneys, agents, representatives, successors and assigns
(each a "Purchaser Entity") harmless from and against all claims, losses
(including, without limitation, losses of earnings), liabilities, obligations,
payments, damages (actual, punitive or consequential), charges, judgments,
fines, penalties, amounts paid in settlement, costs and expenses (including,
without limitation, interest which may be imposed in connection therewith, costs
and expenses of investigation, actions, suits, proceedings, demands, assessments
and fees, expenses and disbursements of counsel, consultants and other experts)
("Losses") incurred or suffered by a Purchaser Entity (whether incurred or
suffered directly or indirectly through ownership of capital stock of the
Company) based upon, arising out of, or in connection with (i) the breach of any
of the representations, warranties or covenants of the Company in this Agreement
or in any Ancillary Document or (ii) claims by third parties relating to the
Agreement or any Ancillary Document or any of the transactions contemplated
hereby or thereby, the use of the proceeds thereof or any related transaction or
claim, litigation, investigation or proceeding relating to any of the foregoing,
regardless of whether the Purchaser Entity is a party thereto. Any
indemnification payment (the "Indemnification Payment") by the Company to a
Purchaser in connection with a (x) breach of the representations, warranties and
covenants of the Company or (y) claims by
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third parties shall include an additional amount such that the Purchaser suffers
no loss as a result of any diminution in the as-converted value of the
Purchaser's equity related to its investment in the Company as a result of such
Indemnification Payment.
(b) If the Purchaser in its sole discretion determines that any
Indemnification Payment need not be paid in cash, then such Indemnification
Payment shall, at the option of the Purchaser, be effected by decreasing the
Conversion Price (as defined in the Articles Supplementary) of Purchaser's
shares of the Series B Preferred Stock by an amount equal to the Indemnification
Payment divided by the number of Conversion Shares into which such shares of
Series B Preferred Stock are then convertible; provided, however, that Purchaser
shall not have the right to decrease the Conversion Price below $3.00 and any
Indemnification Payment shall be paid in cash to the extent it would result in a
decrease of the Conversion Price below $3.00.
10.3. Indemnification by the Purchaser. From and after the Closing, the
Purchaser and any Related Transferee shall jointly and severally indemnify,
defend and hold the Company, its Affiliates, their respective officers,
directors, employees, attorneys, agents, representatives, successors and assigns
(each a "Company Entity") harmless against all Losses incurred or suffered by a
Company Entity (whether incurred or suffered directly or indirectly through the
Purchaser's investment in the Company) arising from the breach of any of its
representations, warranties or covenants in this Agreement or in any Ancillary
Documents.
10.4. Limitations. Notwithstanding anything to the contrary in this
Agreement, no Indemnification Payment by the Company pursuant to this Section 10
with respect to any Losses otherwise payable hereunder pursuant to clause (i) of
Section 10.2 as a result of a breach of the Company's representations,
warranties and covenants (other than any Losses resulting from breaches of the
representation and warranty in Sections 2.1 through 2.4 and 2.19) and no
Indemnification Payment by the Purchaser pursuant to Section 10.3, in each case,
shall be payable until the time as such Losses shall aggregate to more than
$100,000 at which point the Indemnifying Party (as hereinafter defined) shall be
obligated to indemnify the Indemnified Party (as hereinafter defined) from and
against all Losses. In no event shall the Company's obligations in respect of
indemnification exceed the Purchase Price. Except as provided in Section 9, this
Section 10 constitutes the exclusive remedy for the breach of covenants,
agreements, representations or warranties set forth in this Agreement; provided,
however, that the provisions of this Section 10 will not prevent the parties
hereto from seeking specific performance or injunctive relief in connection with
the breach of a covenant or an agreement of any party hereto; provided, further,
that any breach of covenants, agreements, representations or warranties set
forth in this Agreement by either party hereto shall not excuse performance
under the Ancillary Documents or the Joint Venture Partnership Agreement.
10.5. Procedure.
(a) A party or parties responsible for indemnifying another party against
any matter pursuant to this Agreement is referred to herein as the "Indemnifying
Party," and a party or parties entitled to indemnity is referred to as the
"Indemnified Party."
(b) An Indemnified Party under this Agreement shall, with respect to claims
asserted against such party by any third party, give written notice to each
Indemnifying Party of any liability which might give rise to a claim for
indemnity under this Agreement within 60 business days of the receipt of any
written claim from any such third party, and with respect to other matters for
which the Indemnified Party may seek indemnification, give prompt written notice
to each Indemnifying Party of any liability which might give rise to a claim for
indemnity; provided, however, that any failure to give such notice will not
result in a waiver of any rights of the Indemnified Party except to the extent
Indemnifying Party was deprived of its rights to recover any payment under its
applicable insurance coverage or was otherwise materially prejudiced as a result
of such failure by the Indemnified Party.
(c) As to any claim, action, suit or proceeding by a third party, the
Indemnifying Party shall be entitled to assume the defense, compromise or
settlement of any such matter through the Indemnifying Party's own attorney (who
shall be reasonably satisfactory to the Indemnified Party); provided, however,
that if the Indemnifying Party reasonably determines that an adequate and proper
defense is not being provided by the Indemnified Party or if the Indemnified
Party elects not to assume such defense, then the Indemnifying Party shall
assume such defense.
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<PAGE> 66
The Indemnified Party shall provide such cooperation and such access to its
books, records and properties as the Indemnifying Party shall reasonably request
with respect to such matter; and the parties hereto agree to cooperate with each
other in order to ensure the proper and adequate defense thereof, it being
understood that the Indemnified Party shall control any such defense unless the
Indemnifying Party has assumed such defense in accordance with the terms hereof.
(d) Neither an Indemnified Party nor an Indemnifying Party shall make any
settlement of any claims without the written consent of the other party, which
consent shall not be unreasonably withheld. Without limiting the generality of
the foregoing, it shall not be deemed unreasonable to withhold consent to a
settlement involving injunctive or other equitable relief against the other
party or its assets, employees or business.
(e) With regard to claims of third parties for which indemnification is
payable hereunder, such indemnification shall be paid by the Indemnifying Party
upon the earliest to occur of: (i) the entry of a judgment against the
Indemnified Party and the expiration of any applicable appeal period, or if
earlier, five days prior to the date that the judgment creditor has the right to
execute the judgment or if earlier the date that the Indemnified Party must post
any bond with respect to any judgment or other judicial ruling, (ii) the date
payment is due in respect of the entry of an unappealable judgment or final
appellate decision against the Indemnified Party, (iii) the date payment is due
in respect of a settlement of the claim or (iv) with respect to indemnities for
Tax liabilities, upon the issuance of any resolution by a taxation authority.
Notwithstanding the foregoing, expenses of counsel to the Indemnified Party
shall be reimbursed on a current basis by the Indemnifying Party if such
expenses are a liability of the Indemnifying Party. With regard to other claims
for which indemnification is payable hereunder, such indemnification shall be
paid promptly by the Indemnifying Party upon demand by the Indemnified Party.
SECTION 11. FURTHER ASSURANCES. At any time or from time to time after the
Closing, the Company, on the one hand, and the Purchaser, on the other hand,
agree to cooperate with each other, and at the request of the other party, to
execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby.
SECTION 12. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the Company and the Purchaser and the respective successors,
permitted assigns, heirs and personal representatives of the Company and the
Purchaser except that the Company may not assign its rights and obligations
under this Agreement to any person without the prior written consent of the
Purchaser. The parties hereby agree that, upon a transfer of any interest in
this Agreement to a permitted assign, such transferring party will, at or prior
to such transfer, ensure that such permitted assign becomes a party to the
Investor Agreement. In addition, and whether or not any express assignment has
been made, the provisions of this Agreement which are for the Purchaser's
benefit as a purchaser or holder of the Notes and the Series B Preferred Stock
are also for the benefit of, and enforceable by, any subsequent holder of any of
such Notes or any of the Series B Preferred Stock and/or the Conversion Shares.
SECTION 13. ENTIRE AGREEMENT. This Agreement, the side letter between the
Company and the Purchaser attached hereto as Schedule 13 and the irrevocable
undertaking to capitalize the Purchaser attached hereto as Schedule 13, and the
other writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all prior and contemporaneous
arrangements or understandings with respect thereto, including the
confidentiality agreements between the parties dated November 8, 1999 and
December 17, 1999.
SECTION 14. NOTICES. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by facsimile,
nationally recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to the Company, to:
Interstate Hotels Corporation
680 Andersen Drive, Foster Plaza Ten
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<PAGE> 67
Pittsburgh, Pennsylvania 15220
Facsimile: (412) 920-5733
Attention: General Counsel
with a copy to:
Jones, Day, Reavis & Pogue
North Point,
901 Lakeside Avenue
Cleveland, Ohio 44114-1190
Facsimile: (216) 759-0212
Attention: Zachary Paris, Esq.
(ii) if to the Purchaser, to
CGLH Partners I LP and CGLH Partners II LP
c/o Lehman Brothers Holdings Inc.
200 Vesey Street
12th Floor
New York, New York 10285
Facsimile: (212) 526-7006
Attention: Joseph Flannery
with a copy to:
Continental Gencom Holdings
3250 Mary Street
Suite 500
Miami, Florida 33133
Facsimile: (305) 445-4255
Attention: Mr. K. Alibhai and Mr. S. Weiser
with a copy to:
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.
150 West Flagler Street, Suite 2200
Miami, Florida 33130
Facsimile: (305) 789-3395
Attention: Richard E. Schatz, Esq.
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Facsimile: (212) 859-8582
Attention: Jonathan Mechanic, Esq.
All such notices, requests, consents and other communications shall be
deemed to have been given: at the time delivered if delivered in person, when
receipt is confirmed if sent by facsimile, on the next business day if timely
delivered to a nationally recognized overnight courier and five days after being
deposited in the mail, postage prepaid.
SECTION 15. AMENDMENTS. The terms and provisions of this Agreement may be
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company and the Required
Holders. No waiver of any of the provisions of this Agreement shall be deemed to
or shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
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<PAGE> 68
SECTION 16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 17. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
SECTION 18. NOUNS AND PRONOUNS. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice versa.
SECTION 19. GOVERNING LAW. This Agreement has been entered into and shall
be construed and enforced in accordance with the laws of the State of Maryland
without reference to the conflict of law principles thereof.
SECTION 20. ENFORCEMENT JURISDICTION. The parties agree that irreparable
damage would occur and that the parties would not have any adequate remedy at
law in the event that any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Maryland or in Maryland state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Federal court located in the State of Maryland or any Maryland state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal court sitting in the State of
Maryland or a Maryland state court.
SECTION 21. WAIVER OF JURY TRIAL. Each of the parties hereto hereby waives
any right it may have to a trial by jury in respect of any action, proceeding or
litigation directly or indirectly arising out of, under or in connection with,
this Agreement or any of the other Ancillary Documents.
SECTION 22. LITIGATION; PREVAILING PARTY. In the event of any litigation
with regard to this Agreement, the prevailing party shall be entitled to receive
from the non-prevailing party (as determined by the court) and the
non-prevailing party shall pay upon demand all reasonable fees and expenses of
counsel for the prevailing party.
SECTION 23. PUBLICITY. Each of the parties hereto agrees that the initial
public statement regarding the transactions contemplated hereby will be in the
form previously agreed by the parties. Notwithstanding the foregoing, each of
the parties hereto may, in documents required to be filed by it with the
Commission or other regulatory bodies, make such statements with respect to the
transactions contemplated hereby as each may be advised is legally necessary
upon advice of its counsel; provided, however, that the party making such
determination shall immediately notify the other party that it intends to make a
public announcement and the parties hereto shall, in good faith, attempt to
agree on any public announcements or publicity statements with respect thereto.
SECTION 24. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 69
IN WITNESS WHEREOF, the parties hereto have duly executed this Securities
Purchase Agreement as of the date first above written.
THE COMPANY:
INTERSTATE HOTELS CORPORATION
By: /s/ THOMAS F. HEWITT
------------------------------------------------------------
Name: Thomas F. Hewitt
Title: Chief Executive Officer
PURCHASER:
CGLH PARTNERS I LP
By: MK/CG-GP LLC
General Partner
By: CG Interstate Associates, LLC
a Managing Member
By: Continental Gencom Holdings, LLC
its Sole Member
By: /s/ SHERWOOD WEISER
---------------------------------------------------------------------
Name: Sherwood Weiser
Title: Authorized Signatory
By: LB INTERSTATE GP LLC
General Partner
By: PAMI LLC
its Sole Member
By: /s/ JOSEPH J. FLANNERY
------------------------------------------------------------------
Name: Joseph J. Flannery
Title: Authorized Signatory
CGLH PARTNERS II LP
By: MK/CG-GP LLC
General Partner
By: CG Interstate Associates, LLC
a Managing Member
By: Continental Gencom Holdings, LLC
its Sole Member
By: /s/ SHERWOOD WEISER
---------------------------------------------------------------------
Name: Sherwood Weiser
Title: Authorized Signatory
<PAGE> 70
By: LB INTERSTATE GP LLC
General Partner
By: PAMI LLC
its Sole Member
By: /s/ JOSEPH J. FLANNERY
------------------------------------------------------------------
Name: Joseph J. Flannery
Title: Authorized Signatory
<PAGE> 71
APPENDIX B
EXHIBIT C TO SECURITIES PURCHASE AGREEMENT
INVESTOR AGREEMENT
DATED AS OF [ ], 2000
AMONG
INTERSTATE HOTELS CORPORATION
AND
CGLH PARTNERS I LP
AND
CGLH PARTNERS II LP
<PAGE> 72
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article 1 Definitions; Representations and Warranties....... 1
1.1. Definitions.......................................... 1
1.2. Representations and Warranties of the Company........ 4
1.3. Representations and Warranties of Investor........... 4
Article 2 Standstill........................................ 5
2.1. Standstill........................................... 5
2.2. Early Termination of Standstill...................... 8
2.3. Modification Upon Subsequent Agreement............... 9
Article 3 Board Representation and Voting................... 9
3.1. Board Representation................................. 9
3.2. Voting............................................... 12
3.3. Required Board Approval.............................. 12
3.4. Notices of Dispositions of Voting Securities......... 14
3.5. Access to Information................................ 14
Article 4 Transfer Restrictions............................. 15
4.1. Restrictions on Dispositions......................... 15
4.2. Rights Agreement..................................... 16
Article 5 Miscellaneous..................................... 16
5.1. Notices.............................................. 16
5.2. Legends.............................................. 17
5.3. Enforcement.......................................... 18
5.4. Entire Agreement..................................... 18
5.5. Severability......................................... 18
5.6. Headings............................................. 18
5.7. Counterparts......................................... 18
5.8. No Waiver............................................ 18
5.9. Successors and Assigns............................... 18
5.10. Governing Law....................................... 18
5.11. Further Assurance................................... 19
5.12. Consent to Jurisdiction and Service of Process...... 19
5.13. Investment Banking Services......................... 19
</TABLE>
EXHIBITS
Exhibit A -- Market Rate Fees (section 5.13)
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<PAGE> 73
APPENDIX B
INVESTOR AGREEMENT
This Investor Agreement, dated as of [ ], 2000 (this
"Agreement"), by and between Interstate Hotels Corporation, a Maryland
corporation (the "Company"), on the one hand, and CGLH Partners I LP, a Delaware
limited partnership and CGLH Partners II LP, a Delaware limited partnership
(together, the "Investor"), on the other hand.
WHEREAS, pursuant to the Securities Purchase Agreement dated August [ ],
2000 between the Company and the Investor (the "Purchase Agreement") pursuant to
which, (i) upon the terms and subject to the conditions set forth in the
Purchase Agreement, the Investor shall purchase a subordinated convertible note
(the "Note") having a principal amount of $25,000,000 and shares of Series B
Convertible Preferred Stock, par value $.01 per share, of the Company having an
aggregate stated amount of $5,000,000 ("Series B Preferred Stock"), each of
which shall be convertible into shares of Class A Common Stock, par value $.01
per share, of the Company ("Common Stock"), subject to certain limitations, and
(ii) the Company and the Investor shall, simultaneously with the execution of
this Agreement, enter into a Registration Rights Agreement (the "Registration
Rights Agreement") granting certain registration rights;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the Purchase Agreement, and in the Registration
Rights Agreement and intending to be legally bound hereby, the parties agree as
follows, effective upon the closing of the purchase of the Series B Preferred
Stock and the Note pursuant to the Purchase Agreement (the "Closing"):
ARTICLE 1
Definitions; Representations and Warranties
SECTION 1.1 DEFINITIONS. Unless otherwise specified all references to
"days" shall be deemed to be references to calendar days. For purposes of this
Agreement, the following terms shall have the following meanings:
"Actual Voting Power" shall mean, as of the date of determination, the
total voting power of all of the outstanding securities of the Company at the
time then entitled to vote for the general election of directors, without giving
effect to securities issuable upon exercise or conversion of such outstanding
securities.
"Affiliate" of a Person shall have the meaning set forth in Rule 12b-2 of
the Exchange Act as in effect on the date of this Agreement, but shall not
include (i) any investment fund in which a Person has invested if the Person
does not otherwise Control the investment fund or have, directly or indirectly,
voting or dispositive power over any securities owned by such fund or (ii) any
investor or limited partner of any Person who does not otherwise have voting or
dispositive power over securities owned by that Person and is not Controlled by
that Person; provided, however, for the purposes of this Agreement, neither the
Company nor any Person Controlled by the Company shall be deemed an Affiliate of
any Investor.
"Beneficial Ownership" by a Person of any Voting Securities shall be
determined in accordance with the term "beneficial ownership" as defined in Rule
13d-3 under the Exchange Act as in effect on the date of this Agreement and, in
addition, "beneficial ownership" shall include securities which such Person has
the right to acquire (irrespective of whether such right is exercisable
immediately or only after the passage of time, including the passage of time in
excess of sixty (60) days) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise. For purposes of this Agreement, an Investor
shall be deemed to Beneficially Own any Voting Securities Beneficially Owned by
its Affiliates or any Group of which such Investor or any such Affiliate is a
member.
"Board of Directors" shall mean the Board of Directors of the Company.
"Class B Common Stock" shall mean the Company's Class B Common Stock, par
value $0.01 per share.
<PAGE> 74
"Class C Common Stock" shall mean the Company's Class C Common Stock, par
value $0.01 per share.
"Control" (including the term "Controlled by") shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise.
"Conversion Shares" shall mean the shares of Common Stock into which the
Note and/or shares of Series B Preferred Stock have been converted.
"EBITDA" shall mean, with respect to any person for any period, the sum
without duplication, determined on a consolidated basis, of such person's (a)
net income (or net loss), (b) net interest expense, (c) income tax expense, (d)
depreciation expense and (e) amortization expense, determined in accordance with
generally accepted accounting principles consistently applied.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Group" shall mean a "group" as such term is used in Section 13(d)(3) of
the Exchange Act as in effect on the date of this Agreement.
"Investor Designee" shall mean a person designated for election to the
Board of Directors by the Investor as provided in the Series B Preferred Stock
or in Section 3.1.
"Investor Partners" shall mean parties which have invested in the Investor.
"Joint Venture" shall mean the Joint Venture as defined in the Purchase
Agreement.
"Joint Venture Partnership Agreement" shall mean the Joint Venture
Partnership Agreement as defined in the Purchase Agreement.
"Law" shall mean all applicable foreign, federal, state and local laws,
statutes, rules, regulations, codes and ordinances.
"Lehman Parent Entities" shall mean Lehman Brothers Holdings Inc., Lehman
Brothers Inc., and any Person that, directly or indirectly, Controls or is under
common Control with Lehman Brothers Holdings Inc. or Lehman Brothers Inc. or is
managed by any such entity.
"Original Investment Amount" shall mean $30,000,000.
"Person" shall mean any individual, Group, corporation, general or limited
partnership, limited liability company, governmental entity, joint venture,
estate, trust, association, organization or other entity of any kind or nature.
"Related Person" shall mean, (i) with respect to any Person, (A) any
Affiliate of such Person, (B) any investment manager, investment advisor or
partner of such Person or an Affiliate of such Person, and (C) any investment
fund, investment account or investment entity whose investment manager,
investment advisor or general partner is such Person or a Related Person of such
Person;
"Reorganization Transaction" shall mean: (i) any merger, consolidation,
recapitalization, liquidation or other business combination transaction
involving the Company; (ii) any tender offer or exchange offer for any
securities of the Company; or (iii) any sale or other disposition of assets of
the Company or any of its Subsidiaries in a single transaction or in a series of
related transactions in each of the foregoing cases constituting individually or
in the aggregate 50% or more of the assets or Voting Securities (as applicable)
of the Company.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiary" of any Person shall mean any corporation or other entity of
which a majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person. In respect of the
Company, Subsidiary shall also specifically include Interstate Hotels, LLC and
Northridge Holdings, Inc.
"Target Price" shall mean $10 per share of Common Stock for any measurement
period commencing prior to the first anniversary of the date of this Agreement
and shall thereafter increase by 15% on each anniversary of such date for
measurement periods starting on or after such anniversary.
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<PAGE> 75
"Total Voting Power" shall mean the total combined Voting Power, on a fully
diluted basis, of all the Voting Securities then outstanding.
"Voting Power" shall mean, as of the date of determination, the voting
power in the general election of directors of the Company, and shall be
calculated for each Voting Security by reference to the maximum number of votes
such Voting Security is or would be entitled to cast in the general election of
directors and, in the case of convertible (or exercisable or exchangeable)
securities, by reference to the maximum number of votes such Voting Security
would be entitled to cast in unconverted or converted (or exercised,
unexercised, exchanged or unexchanged) status. For purposes of determining
Voting Power under this Agreement, a Voting Security which is convertible into
or exchangeable for a Voting Security shall be counted as having the greater of
(i) the number of votes to which such Voting Security is entitled prior to
conversion or exchange and (ii) the number of votes to which the Voting Security
into which such Voting Security is convertible or exchangeable is entitled.
Notwithstanding anything else to the contrary contained in this Agreement, there
shall not be included in calculating Voting Power any votes which a Person shall
have upon and by reason of the non-payment of dividends on preferred shares in
accordance with the terms of such preferred shares.
"Voting Securities" shall mean (i) any securities entitled, or which may be
entitled, to vote generally in the election of directors of the Company
including shares of Common Stock, Class B Common Stock and Class C Common Stock
(ii) any securities, including the Note and the Series B Preferred Stock,
convertible or exercisable into or exchangeable for such securities (whether or
not the right to convert, exercise or exchange is subject to the passage of time
or contingencies or both), or (iii) any direct or indirect rights or options to
acquire any such securities; provided that unexercised options granted pursuant
to any employment benefit or similar plan and rights issued pursuant to any
shareholder rights plan shall be deemed not to be Voting Securities (or to have
Voting Power).
In addition, the following terms have the definitions specified in the
Sections noted:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Acquiror Percentage...................................... 2.3
Agreement................................................ preamble
Applicable Number........................................ 3.1(b)
Beneficial Ownership Threshold........................... 3.1(b)
Charter.................................................. 1.2(b)
Closing.................................................. recitals
Common Stock............................................. recitals
Company.................................................. preamble
Company EBITDA........................................... 3.3
Compensation Committee................................... 3.1(b)
Competing Businesses..................................... 3.1(h)
Dilutive Issuance........................................ 2.1(a)
Disposition.............................................. 4.1
Documents................................................ 3.3(n)
EBITDA Target............................................ 3.3
Exempt Affiliates........................................ 2.1(b)
Financial Institution.................................... 5.13
Future Major Investor.................................... 2.3
Information.............................................. 3.5
Investor................................................. preamble and 4.1(f)
Investor Designee Period................................. 3.1(b)
Investor Material Adverse Effect......................... 1.3(b)
Lehman Brothers.......................................... 5.13
Material Adverse Effect.................................. 1.2(b)
Maximum Ownership........................................ 4.1
Moving Party............................................. 5.3
Nominating Committee..................................... 3.1(b)
</TABLE>
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<PAGE> 76
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Note..................................................... recitals
Notice................................................... 5.13
Offer.................................................... 2.2(g)
Purchase Agreement....................................... recitals
Registration Rights Agreement............................ recitals
Related Transferee....................................... 4.1(f)
Rights Agreement......................................... 3.3(j)
Series B Preferred Stock................................. recitals
Shares................................................... 3.1(b)
Standstill Period........................................ 2.1(a)
Threshold Amount......................................... 3.3
Unaffiliated Directors................................... 3.1(b)
</TABLE>
SECTION 1.2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Investor as follows:
(a) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby are within its corporate powers and have been duly authorized by all
necessary corporate action on its part. This Agreement constitutes a legal,
valid and binding agreement of the Company enforceable against the Company in
accordance with its terms, subject, as to enforcement, to bankruptcy, and
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditor's rights and to general
equity principles.
(b) The execution, delivery and performance of this Agreement by the
Company does not and will not (i) contravene or conflict with or constitute a
default under the Company's charter (the "Charter") or Bylaws, (ii) except as
set forth on Schedule 2.3 of the Company Disclosure Schedule which forms part of
the Securities Purchase Agreement, dated August [ ], 2000, between the Company
and the Investor contravene or conflict with or constitute a default under any
agreement to which the Company is a party or is bound, or result in a breach of
or default under any instrument or agreement to which the Company is a party or
is bound, which violation, breach or default would have a material adverse
effect on the Company's business taken as a whole or would adversely affect the
consummation of the transactions contemplated by this Agreement or the Purchase
Agreement (a "Material Adverse Effect"), (iii) violate any judgment, order,
injunction, decree or award against or binding upon the Company as of the date
of this Agreement, the violation of which, individually or in the aggregate,
would have a Material Adverse Effect, (iv) violate any Law relating to the
Company, the violation of which, individually or in the aggregate, would have a
Material Adverse Effect or (v) constitute a "change of control," or result in
the acceleration of rights, under any material debt instrument to which the
Company is a party.
(c) Except for applicable requirements of the Exchange Act or as disclosed
in the Purchase Agreement, the Company is not required to make any filing or
registration with, or obtain any permit, authorization, consent or approval of,
any governmental entity or any other Person in connection with this Agreement,
the Purchase Agreement, or any of the transactions contemplated hereby and
thereby.
(d) As of the date of this Agreement, there is no action, suit or
proceeding pending or, to the knowledge of the Company, threatened against the
Company that relates to this Agreement, the Purchase Agreement, or any of the
transactions contemplated hereby or thereby.
SECTION 1.3. REPRESENTATIONS AND WARRANTIES OF INVESTOR. The Investor
represents and warrants to the Company as follows:
(a) The execution, delivery and performance by the Investor of this
Agreement and the consummation by the Investor of the transactions contemplated
by this Agreement are within its powers and have been duly authorized by all
necessary action on its part. This Agreement constitutes a legal, valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject, as to enforcement, to
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<PAGE> 77
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditor's rights
and to general equity principles.
(b) The execution, delivery and performance of this Agreement by the
Investor does not and will not (i) contravene or conflict with or constitute a
default under the Investor's partnership agreement, (ii) contravene or conflict
with or constitute a default under any agreement to which the Investor is a
party or is bound, or result in a breach of or default under any instrument or
agreement to which the Investor is a party or is bound, which violation, breach
or default would have a material adverse effect on the Investor's business taken
as a whole or would adversely affect the consummation of the transactions
contemplated by this Agreement or the Purchase Agreement (an "Investor Material
Adverse Effect"), (iii) violate any judgment, order, injunction, decree or award
against or binding upon the Investor as of the date of this Agreement, the
violation of which, individually or in the aggregate, would have an Investor
Material Adverse Effect, (iv) violate any Law relating to the Investor, the
violation of which, individually or in the aggregate, would have an Investor
Material Adverse Effect, or (v) result in the acceleration of rights, under any
material debt instrument to which the Investor is a party.
(c) Except for applicable requirements of the Exchange Act or as disclosed
in the Purchase Agreement, the Investor is not required to make any filing or
registration with, or obtain any permit, authorization, consent or approval of,
any governmental entity or any other Person in connection with this Agreement,
the Purchase Agreement or any of the transactions contemplated hereby and
thereby.
(d) As of the date of this Agreement, there is no action, suit or
proceeding pending or, to the knowledge of the Investor, threatened against the
Investor that relates to this Agreement, the Purchase Agreement, or any of the
transactions contemplated hereby or thereby.
ARTICLE 2
Standstill
SECTION 2.1. STANDSTILL. (a) Until the earliest to occur of (A) the fourth
anniversary (or, in the case of any of the actions set forth in clauses (a)(ii),
(vii), (ix), (x) and (xi) hereof, the third anniversary) of the Closing, (B) the
date on which the Investor owns Voting Securities which would represent (i) less
than 20% of the Total Voting Power and (ii) less than 25% of the Actual Voting
Power, (C) at any time after 45 calendar days following any twenty consecutive
trading day period for which the average sales price for shares of Common Stock
is at least the Target Price, and (D) termination under Section 2.2 (such
period, the "Standstill Period"), Investor will not, and will cause its
Affiliates (other than the Lehman Parent Entities) not to, directly or
indirectly:
(i) acquire, offer to acquire, or agree to acquire, by purchase or
otherwise, any Voting Securities or voting rights or direct or indirect
rights or options to acquire any Voting Securities of the Company or any of
its Affiliates other than (A) the exercise of convertible securities
acquired in compliance with the terms of this Agreement (including the
acquisition of shares of Common Stock upon conversion of the Note or Series
B Preferred Stock), or an acquisition as a result of a stock split, stock
dividend or similar recapitalization, (B) the acquisition of shares of
Series B Preferred Stock and the Note pursuant to the Purchase Agreement or
(C) stock options or similar rights granted by the Company to an Affiliate
of Investor as compensation for performance as a director or officer of the
Company or its subsidiaries (and any shares issuable upon exercise
thereof), (D) transfers between Investor and Related Transferees as
permitted under Section 4.1(f), (E) any rights which are granted to all
stockholders of the Company (and any shares issuable upon exercise
thereof), (F) if the Company shall issue any Voting Securities which issue
has the effect of reducing, as a percentage of Total Voting Power, the
Voting Power of Voting Securities Beneficially Owned by Investor (a
"Dilutive Issuance"), the acquisition by the Investor of such number of
Voting Securities as restore the Investor's Voting Power to the percentage
of Total Voting Power of Voting Securities Beneficially Owned by the
Investor immediately prior to such Dilutive Issuance or (G) any or all
outstanding shares of Class C Common Stock unless the acquisition of Class
C Common Stock, together with any shares of Common Stock into which Series
B Preferred Stock or the Note have been converted at the time of such
acquisition (but not including for this purpose any shares of Series B
Preferred Stock or any portion of the Note that has not theretofore been
converted into Common Stock), would cause the Investor to Beneficially
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Own more than 49% of the Company's outstanding Voting Securities; provided,
however, that if the Investor in good faith inadvertently acquires Voting
Securities representing, convertible into, or having votes not more than
50,000 shares of Common Stock in violation of these provisions and within
15 days after the first date on which the Investor has actual knowledge
(including by way of written notice given by the Company) that a violation
has occurred Investor shall have transferred any Voting Securities held in
violation of these provisions to unrelated third parties so that the
Investor no longer Beneficially Owns any such shares or Voting Securities
or has any agreement or understanding relating to such shares, this Section
2.1 shall be deemed to not have been violated; and provided, further, that
no violation of this provision shall be deemed to have occurred by reason
of the indirect acquisition of Beneficial Ownership of securities resulting
from (x) investments in investment funds as to which no Investor or
Affiliate thereof has Control or power to Control with respect to voting or
investment decisions or (y) acquisitions of securities by a limited partner
in any Investor or Affiliates thereof as to which limited partner the
Investor or its Affiliates has Control or power to Control;
(ii) make or cause to be made any proposal for a Reorganization
Transaction;
(iii) form, join or in any way participate in a Group with respect to
any securities of the Company or its Affiliates, other than with Investor
Partners or their Affiliates;
(iv) make, or in any way cause or participate in, any "solicitation"
(other than solicitations of Investor or Affiliates of Investor) of
"proxies" to vote (as those terms are defined in Regulation 14A under the
Exchange Act) with respect to the Company or its Affiliates, or communicate
with, seek to advise, encourage or influence any Person, in any manner,
with respect to the voting of, securities of the Company or its Affiliates,
or become a "participant" in any "election contest" (as those terms are
defined or used in Rule 14a-11 under the Exchange Act) with respect to the
Company or its Affiliates (other than non-public communications which would
not require public disclosure by any Person or solicitation of proxies in
support of the election of Investor Designees or other persons nominated by
the Board of Directors in accordance with Section 3.1 hereof in
circumstances in which a third party is soliciting parties for the election
of nominees not nominated by the Board of Directors);
(v) initiate, propose or, except with the prior approval of a majority
of the Unaffiliated Directors (which approval is requested in a manner
which does not require disclosure publicly or to any third parties),
otherwise solicit stockholders for the approval of one or more stockholder
proposals with respect to the Company or its Affiliates or induce or
attempt to induce any other Person to initiate any stockholder proposal or
seek election to or seek to place a representative on the Board of
Directors of the Company (except pursuant to Section 3.1 of this Agreement)
or its Affiliates or seek the removal of any member of the Board of
Directors of the Company or its Affiliates (for this purpose, the actions
of the Investor Designees in communicating (without public disclosure or
disclosure to third parties) with the Board of Directors in their capacity
as directors of the Company, and non-public communication which would not
require public disclosure by any Person, shall not be deemed to be in
contravention of this paragraph (v));
(vi) in any manner, agree, attempt, seek or propose (other than making
any request for permission with respect thereto which would not require
disclosure publicly or to any third party) to deposit any securities of the
Company or its Affiliates in any voting trust or similar arrangement or to
subject any securities of the Company or its Affiliates to any other voting
or proxy agreement, arrangement or understanding (other than any such
agreements or understandings with other Investor Partners or their
Affiliates) provided, however, that Investor and its Affiliates may enter
into such voting trusts, agreements, arrangements or understandings for the
purpose of a monetization of all or part of the securities of the Company
Beneficially Owned by Investor or its Affiliates;
(vii) offer, sell or transfer any Voting Securities or rights to
receive Voting Securities except for Dispositions in accordance with
Article 4;
(viii) other than as required by law, disclose any intention, plan or
arrangement, or make any public announcement (or request permission to make
any such announcement other than making any request for
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permission which would not require disclosure publicly or to any third
party), or induce any other Person to take any action, inconsistent with
the foregoing clauses (a)(i), (iii), (iv), (v) and (vi);
(ix) other than as required by law, disclose any intention, plan or
arrangement, or make any public announcement (or request permission to make
any such announcement other than making any request for permission which
would not require disclosure publicly or to any third party), or induce any
other Person to take any action, inconsistent with the foregoing clauses
(a)(ii) and (vii);
(x) enter into any negotiations, arrangements or understandings with
any third party with respect to any of the foregoing;
(xi) advise, assist or encourage or finance (or assist or arrange
financing to or for) any other Person in connection with any of the
foregoing; or
(xii) otherwise act in concert with others, to seek to Control or
influence the management, Board of Directors or policies of the Company or
its Affiliates (for this purpose, the actions of the Investor Designees in
their capacity as directors of the Company shall not be deemed to be in
contravention of this paragraph (xii));
provided, that this Section 2.1 shall not restrict or inhibit the rights of an
Investor to exercise its voting rights as a stockholder of the Company (subject
to Section 3.2).
(b) Affiliates of Investor who (i) are not Related Transferees of any
Investor, (ii) are not in possession of any material non-public Information
provided to Investor by the Company, its subsidiaries or representatives
pursuant to Section 3.4 hereof or otherwise, and (iii) do not have voting or
dispositive power over any shares of Series B Preferred Stock, any of the Notes
or any Conversion Shares (such Affiliates being "Exempt Affiliates") shall not
be subject to this Section 2.1.
(c) The Company also agrees that the Lehman Parent Entities and their
Affiliates (other than (i) the Investor and (ii) Affiliates of the Investor to
the extent that such Affiliates are not also either the Lehman Parent Entities
or Affiliates of the Lehman Parent Entities) shall be deemed Exempt Affiliates,
provided, however that no such person will be deemed an Exempt Affiliate (x) if
any person involved in making the decision to enter into any transaction or take
any action that is prohibited during the Standstill Period was, at the time of
such decision, in possession of any material non-public Information provided to
Investor by the Company, its subsidiaries or representatives pursuant to Section
3.4 hereof or otherwise, (y) with respect to any action or transaction by such
person involving the Note, the Series B Preferred Stock, or any Conversion
Shares or (z) if such person is a Related Transferee.
(d) Except as expressly set forth herein or in any other Documents, or as
otherwise agreed to by the Company, the Investor agrees that it will, and will
cause all of the entities comprising the Investor and the principals and all
Affiliates of such entities comprising the Investor (other than Lehman Parent
Entities and their Affiliates (and their successors and assigns), but excluding
any non Lehman Parent Entities-affiliated Investor Partners), to (i) maintain
Investor in the role of a passive investor in the Company so as not to, directly
or indirectly, assert active involvement in the day-to-day management or
operations of the Company, (ii) not, directly or indirectly, utilize any
corporate or business tradename of the Company (including, without limitation,
in press releases, publications or interviews); provided, however, that nothing
in the foregoing clauses (i)-(ii) shall restrict (1) Investor and their
designees on the Board of Directors of the Company from engaging in the usual
and customary actions to be taken by members of boards of directors of public
companies in carrying out the fiduciary duties that such directors owe to
shareholders of a public company, (2) such Persons from carrying out their
respective duties as member(s) of any committees of the Board of Directors of
the Company, or (3) Investor or any of the entities comprising Investor from
disclosing in press releases, publications or interviews any information (a)
required by law, (b) reasonably necessary and appropriate in the ordinary course
of business to describe the investment or interests of such Person on the
Company or (c) reasonably consistent with ordinary, prudent and customary
business practices within the hospitality industry.
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SECTION 2.2. EARLY TERMINATION OF STANDSTILL. The obligations of Investor
under Section 2.1 may, at the sole option of the Investor, which option shall be
exercised by prior written notice delivered to the Company, terminate early upon
the occurrence of any of the following events:
(a) At least $1,500,000 in indebtedness for monies borrowed by the Company
or its subsidiaries shall have been accelerated and payment therefor shall not
have been made within 20 days after such acceleration, and the Company shall not
in good faith be contesting whether such amount is owed.
(b) A final judgment or judgments (not subject to appeal) for the payment
of money shall have been entered against the Company or its subsidiaries in an
aggregate amount in excess of $1,500,000 (exclusive of any amounts fully covered
by insurance (less any applicable deductible) or indemnification) by a court or
courts of competent jurisdiction, which judgments remain unsatisfied,
undischarged, unstayed or unbonded for a period of 45 days after the entry of
such judgment or judgments.
(c) The Company shall file a petition in bankruptcy or for reorganization
or for an arrangement or any composition, readjustment, liquidation, dissolution
or similar relief pursuant to Title 11 of the United States Code or under any
similar present or future federal law or the law of any other jurisdiction or
shall be adjudicated a bankrupt or insolvent, or consent to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Company or for all or any
substantial part of its property, or shall make a general assignment for the
benefit of its creditors.
(d) A petition or answer shall be filed proposing the adjudication of the
Company as bankrupt or its reorganization or arrangement, or any composition,
readjustment, liquidation, dissolution or similar relief with respect to it
pursuant to Title 11 of the United States Code or under any similar present or
future federal law or the law of any other jurisdiction, and the Company shall
consent to or acquiesce in the filing thereof, or such petition or answer shall
not be discharged or denied within 60 days after the filing thereof.
(e) The Company shall be in material breach of its obligations to Investor
under the Registration Rights Agreement and such breach shall not have been
cured within 20 days after receipt by the Company from Investor of a written
notice specifying such breach and requiring it to be remedied, and the Company
shall not in good faith be contesting whether such breach has occurred.
(f) If (i) the Company shall, in breach of its obligations under this
Agreement, fail to nominate for election to the Board of Directors any Investor
Designee who satisfies the requirements for designation to the Board of
Directors set forth in Section 3.1(d), (ii) the Company shall otherwise be in
material breach of any of its obligations under Section 3.3 hereof and such
breach shall not have been cured within 20 days after receipt by the Company
from the Investor of a written notice specifying such breach and requiring it to
be remedied, or (iii) the applicable number of Investor Designees shall not be
elected or appointed to serve on the Board or Directors.
(g) The public announcement by or on behalf of any Person or Group (other
than the Investor and its Affiliates) of the commencement of an offer to acquire
Beneficial Ownership of outstanding shares of Common Stock such that after such
acquisition such Person or Group would Beneficially Own more than 25% of the
outstanding shares of Voting Stock (an "Offer"), but only if (A) the Company has
not, within 10 business days after announcement of such Offer (or such longer
period as may then be permitted under applicable law for the Company's initial
recommendation with respect to such Offer), publicly recommended that such Offer
not be accepted, or (B) all of the material conditions to such Offer relating to
the elimination or satisfaction of the material defensive provisions established
by the Company, including any rights plan or similar defensive provision of the
Company, have been satisfied or waived.
(h) The receipt by the Company of a bona fide proposal relating to a
Reorganization Transaction from any Person or Group (other than the Investor and
its Affiliates) reasonably expected to have the financial resources to complete
the Reorganization Transaction, but only if the Company has not, within 20 days
after receipt of such proposal, rejected such proposal.
(i) The public announcement by or on behalf of any Person or Group (other
than the Investor and its Affiliates) of the commencement of a bona fide proxy
or consent solicitation subject to Section 14 of the Exchange Act (or any
successor provision) to elect or remove a majority of the directors of Company
which is
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not, within 10 business days after the announcement of such proxy or consent
solicitation (or such longer period as may then be permitted under applicable
law for the Company's initial recommendation with respect to such solicitation
if such a period is specified), publicly opposed by the Company's Board of
Directors and which would, if successful, result in a change in the composition
of a majority of the Board of Directors of the Company.
(j) The acceptance or approval by the Company of a proposal relating to a
Reorganization Transaction or recommendation by the Company that an Offer be
accepted.
(k) The execution of a definitive agreement with any Person or Group (other
than the Investor or its Affiliates) to acquire Voting Securities from the
Company such that, as a result of such acquisition such Person or Group would
Beneficially Own more than 25% of the shares of the Common Stock then issued and
outstanding.
(l) The Company shall be in default in respect of the payment of interest
on the Note or dividends on the Series B Preferred Stock and such default has
not been cured within 30 days.
(m) The Company shall not have made any of the capital contributions to the
Joint Venture (as such term is defined in the Purchase Agreement) as required by
the partnership agreement relating thereto.
The Company shall provide the Investor with prompt written notice of the
occurrence of any of the events set forth in (i) this Section 2.2, or (ii) the
receipt by the Company of a proposal for a Reorganization Transaction from any
Person or Group (such notice to be provided within 10 days after receipt
thereof, but without disclosing the terms thereof or the identity of such Person
or Group).
SECTION 2.3. MODIFICATION UPON SUBSEQUENT AGREEMENT. If (a) the Company
enters into any agreement, understanding or arrangement with any other Person or
Group who has made a proposal for a Reorganization Transaction or the
acquisition of the Acquiror Percentage or more (or owns the Acquiror Percentage
or more) of any class of equity securities of the Company (each a "Future Major
Investor") relating to the Company's obligation, whether absolute, contingent,
current or future, to support or cause the nomination of one or more Persons to
the Board of Directors at the request of the Future Major Investor, and (b) such
agreement, understanding or arrangement contains any terms with respect to the
matters covered by this Article 2 that are more favorable to the Future Major
Investor than those provided to the Investor hereunder, then this Article 2
shall be automatically modified to include the more favorable terms and thereby
provide the Investor with rights at least as favorable and obligations no more
burdensome as those given to the Future Major Investor. The "Acquiror
Percentage" means (i) 10% in the case of a Person or Group who would, following
such acquisition, be required to file an information statement on Schedule 13G
pursuant to Rules under the Exchange Act, and (ii) 5% in the case of a Person or
Group who would, following such acquisition, be required to file an information
statement on Schedule 13D pursuant to Rules under the Exchange Act.
ARTICLE 3
Board Representation and Voting
SECTION 3.1. BOARD REPRESENTATION. (a) The Company agrees to the
provisions set forth in Section 3(b) of the Articles Supplementary relating to
the Series B Preferred Stock as if such provisions were included herein so long
as shares of Series B Preferred Stock are outstanding. After both (i) 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, (C) September 30, 2003, and (D) such other time as the number
of Directors of the Company otherwise may be validly fixed by a resolution
adopted by the Board of Directors and (ii) the end of the Investor Designee
Period, the Board of Directors shall consist of no more than eleven directors.
During the Investor Designee Period, the Investor shall be entitled to
nominate Investor Designees who shall serve on one-half of the seats on each
committee of the Board of Directors other than any committee formed for the
purpose of considering matters relating to the Investor provided, however, that
if the Applicable Number is less than one-half of the number of seats on any
committee of the Board of Directors, then the Investor shall be entitled to
nominate Investor Designees only to the Applicable Number of seats on such
committee.
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(b) Immediately following the Closing, the Company will cause the five
persons designated by the Investor to be elected or appointed to the Board of
Directors to serve as the Series B Preferred Directors and as the Investor
Designees pursuant to this Agreement and shall take all action required to cause
the election or appointment to the Board of Directors of the Investor Designees
nominated by the Company, as contemplated by the next sentence. At all times
until the Investor and its Related Transferees both (i) no longer Beneficially
Own at least 5% of the Total Voting Power and (ii) no longer Beneficially Own
shares of Series B Preferred Stock and Notes which have an aggregate liquidation
preference or outstanding principal amount of at least 10% of the Original
Investment Amount (the "Investor Designee Period"), the Company agrees, subject
to Section 3.1(d), to support the nomination of, and the Company's Nominating
Committee shall recommend to the Board of Directors the inclusion in the slate
of nominees recommended by the Board of Directors to stockholders for election
as directors at each annual meeting of stockholders of the Company: (i) the
Applicable Number of Investor Designees (as defined in the next sentence) and
(ii) the number of other persons obtained by subtracting the Applicable Number
of Investor Designees from eleven, each of whom is (A) recommended by the
Nominating Committee and (B) not a partner, employee, director, officer,
Affiliate or associate (as defined in Rule 12b-2 under the Exchange Act) of
Investor or any Affiliate of Investor or as to which the Investor or its
Affiliates own at least ten percent of the voting equity securities
("Unaffiliated Directors"). The "Applicable Number" of Investor Designees shall
be (A) five Investor Designees so long as the Investor and Related Persons
Beneficially Own Voting Securities representing at least 30% or more of the
Total Voting Power (without taking into account any limitation on the conversion
of such Voting Securities in determining such Beneficial Ownership or the number
of shares issuable upon complete conversion) ("Shares"), (B) four Investor
Designees, so long as the Investor and Related Persons Beneficially Own at least
20% or more but less than 30% of the Shares, (C) three Investor Designees, so
long as the Investor and Related Persons Beneficially Own at least 10% or more
but less than 20% of the Shares, and (D) one Investor Designee, so long as the
Investor and Related Persons Beneficially Own at least 5% or more but less than
10% of the Shares (each a "Beneficial Ownership Threshold"). If, during the
Investor Designee Period, any vacancy (whether by death, retirement,
disqualification, removal from office or other cause, or by increase in number
of directors) occurs prior to a meeting of the Company's stockholders, the Board
(i) shall appoint, subject to Section 3.1(d), a person designated by the
Investor to fill a vacancy created by an Investor Designee ceasing to serve as a
director (except as a result of the reduction of the number of Investor
Designees entitled to be included on the Board of Directors by reason of a
decrease in the Investor's Beneficial Ownership of Shares below any Beneficial
Ownership Threshold), and (ii) may appoint a person who qualifies as an
Unaffiliated Director and is recommended by the Nominating Committee pursuant to
the procedures set forth in the following paragraph to fill a vacancy created by
an Unaffiliated Director ceasing to serve as a director (provided, however, that
in the case of a vacancy relating to an Unaffiliated Director, if a majority of
the Nominating Committee is unable to recommend a replacement, then the Board
seat with respect to this vacancy shall remain vacant), and each such person
shall be an Investor Designee or Unaffiliated Director, as the case may be, for
purposes of this Agreement.
At all times during the Investor Designee Period, Unaffiliated Directors
shall be designated exclusively by a majority of a nominating committee (the
"Nominating Committee"), which shall at all times during the Investor Designee
Period consist of not more than four persons, two (or such lesser number of
Investor Designees as are then required to be included on the Board of
Directors) of whom shall be Investor Designees and the remainder of whom shall
be Unaffiliated Directors. If the Nominating Committee is unable to recommend
one or more persons to serve as Unaffiliated Directors (except with respect to
any vacancy created by an Unaffiliated Director ceasing to serve as such) for a
period of 180 days from the date the Nominating Committee first meets to
consider such recommendation, then upon, and only upon, the expiration of such
180-day period the Board of Directors may nominate and recommend for election by
stockholders one or more persons to serve as such Unaffiliated Directors.
At all times during the Investor Designee Period, the Board of Directors
shall maintain in existence a "Compensation Committee" consisting of four
directors of which two (or such lesser number of Investor Designees as are then
required to be included on the Board of Directors) shall be Investor Designees.
The Compensation Committee shall have the exclusive responsibility of
administering the Company's stock option and incentive plans and of determining
the compensation of executive officers of the Company.
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The foregoing provisions shall be effected pursuant to an amendment to the
Company's Bylaws in a form reasonably acceptable to the parties to this
Agreement, which shall not be further amended by the Board of Directors during
the Investor Designee Period.
(c) Upon any decrease in the Investor's Beneficial Ownership of Shares
below any Beneficial Ownership Threshold, the Investor shall cause a number of
Investor Designees to offer to immediately resign from the Company's Board of
Directors such that the number of Investor Designees serving on the Board of
Directors immediately thereafter will be equal to the number of Investor
Designees which the Investor would then be entitled to designate under Section
3.1(b). Upon termination of the Investor Designee Period, the Investor shall
promptly cause all of the Investor Designees to offer to resign immediately from
the Board of Directors and any committees thereof and the Company's obligations
under this Section 3.1 shall terminate.
(d) Notwithstanding the provisions of this Section 3.1, the Investor shall
not be entitled to designate any person to the Company's Board of Directors (or
any committee thereof) in the event (i) that the Company receives a written
opinion of its outside counsel that an Investor Designee would not be qualified
under any applicable law, rule or regulation to serve as a director of the
Company, (ii) if the Company objects to an Investor Designee because such
Investor Designee has been involved in any of the events enumerated in Item 2(d)
or (e) of Schedule 13D or such person is currently the target of an
investigation by any governmental authority or agency relating to felonious
criminal activity or is subject to any order, decree, or judgment of any court
or agency prohibiting service as a director of any public company or providing
investment or financial advisory services or (iii) such Investor Designee is an
employee of a Lehman Parent Entity but is not an officer of such Lehman Parent
Entity and, in any such event, the Investor shall withdraw the designation of
such proposed Investor Designee and designate a replacement therefor (which
replacement Investor Designee shall also be subject to the requirements of this
Section). The Company shall use its reasonable best efforts to notify the
Investor of any objection to an Investor Designee sufficiently in advance of the
date on which proxy materials are mailed by the Company in connection with such
election of directors to enable the Investor to propose a replacement Investor
Designee in accordance with the terms of this Agreement.
(e) Each Investor Designee serving on the Board of Directors shall be
entitled to all compensation and stock incentives granted to directors who are
not employees of the Company on the same terms provided to, and subject to the
same limitations applicable to, such directors.
(f) The Company shall obtain and cause to be maintained in effect, with
financially sound insurers, a policy of directors' and officers' liability
insurance in an amount and upon such terms as, from time to time, are reasonably
and customary for a public company, after taking into account the size and
nature of business of the Company.
(g) The Charter or Bylaws, or both, shall to the fullest extent permitted
by law provide for indemnification of, and advancement of expenses to, and
limitation of the personal liability of, the directors of the Company or such
other person or persons, if any, who, pursuant to a provision of such
Certificate of Incorporation, exercise or perform any of the powers or duties
otherwise conferred or imposed upon such directors, which provisions shall not
be amended, repealed or otherwise modified in any manner adverse to the
directors until at least six (6) years following the date that the Investor is
no longer entitled to designate directors pursuant to this Section 3.1.
(h) The parties acknowledge that Affiliates of the Investor and Investor
Partners and their Affiliates have investments in other business similar to and
which may compete with the Company's businesses ("Competing Businesses") and
reserve the right to make additional investments in other Competing Businesses
independent of their investments in the Company. By virtue of the Investor
holding securities of the Company or by having persons designated by or
affiliated with such Investor serving on the Board or any Subsidiary's Board of
Directors (or the functional equivalent thereof in the case of non-corporate
Subsidiaries) or otherwise, neither the Investor nor any of the Investor's
Affiliates and Investor Partners and their Affiliates shall have any obligation
to the Company, or any Subsidiary to refrain from competing with the Company or
any Subsidiary, making investments in Competing Businesses, otherwise engaging
in any commercial activity, and the Company and its Subsidiaries hereby waive
any right which they otherwise would have with respect to any such investments
or activities undertaken by Investor and Investor Partners and their Affiliates,
provided that nothing herein will affect the Company's rights under Section 3.5.
Without limitation of the foregoing, the Investor or any of the Investor's
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Affiliates and Investor Partners and their Affiliates may engage in or possess
an interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business of the
Company or any Subsidiary, and none of the Company, nor any Subsidiary shall
have any rights or expectancy by virtue of Investor's relationships with the
Company, any Subsidiary, this Agreement or otherwise in and to such independent
ventures or the income of profits derived therefrom; and the pursuit of any such
venture, even if such investment is in a Competing Business, shall not be deemed
wrongful or improper, provided that nothing herein will affect the Company's
rights under Section 3.5. Neither the Investor nor any of its Affiliates and
Investor Partners and their Affiliates shall be obligated to present any
particular investment opportunity to the Company or any Subsidiary even if such
opportunity is of a character that, if presented to the Company or a Subsidiary,
could be taken by the Company or such Subsidiary, and the Investor and its
Affiliates and Investor Partners and their Affiliates shall continue to have the
right to take for their own respective account or to recommend to others any
such particular investment opportunity.
(i) The Company shall pay all reasonable travel expenses and other
out-of-pocket disbursements incurred by the directors to attend meetings of the
Board, of any Subsidiary board of directors or of any committees thereof in
accordance with the procedures from time to time in effect for Unaffiliated
Directors.
SECTION 3.2. VOTING. (a) Investor agrees that during the Standstill Period
Investor shall be present in person or represented by proxy, at all meetings of
stockholders of the Company so that all Conversion Shares Beneficially Owned by
Investor and entitled to vote at that meeting shall be counted for the purpose
of determining the presence of a quorum at such meetings. Investor agrees that
during the Standstill Period:
(i) In connection with the election of directors of the Company,
Investor shall vote or cause to be voted all Conversion Shares Beneficially
Owned by such Investor to elect those individuals nominated in accordance
with the provisions of Section 3.1.
(ii) In connection with other proposals submitted to stockholders of
the Company, Investor shall be free to vote or cause to be voted, or
consent with respect to, all Voting Securities Beneficially Owned by such
Investor in its discretion.
SECTION 3.3. REQUIRED BOARD APPROVAL. In addition to any other required
vote of the Board of Directors, the Company agrees that until the later of (i)
the expiration or termination of the Standstill Period, (ii) if the Standstill
Period is terminated by reason of the occurrence of any of the events specified
in Section 2.2(a) through (f) or Section 2.2(l), the fourth anniversary of the
Closing and (iii) such time as the Investor and its Affiliates no longer
Beneficially Own securities of the Company having an aggregate principal amount,
liquidation preference or Fair Market Value, as the case may be, of at least 51%
of the Original Investment Amount, each of the following actions also shall
require the affirmative vote of at least a majority of the Investor Designees:
(a) except for any transaction or series of transactions involving only
wholly-owned subsidiaries of the Company, (i) consolidate or merge into or with
any other Person, or (ii) enter into any other Reorganization Transaction (or
any transaction constituting a Change in Control, as such term is defined in the
Notes);
(b) voluntarily liquidate, dissolve or wind up;
(c) purchase, acquire or obtain any capital stock or other proprietary
interest, directly or indirectly, in any other entity, except for (i) any
transaction or series of transactions involving only wholly-owned subsidiaries
of the Company as of the date hereof, or (ii) the purchase of all or
substantially all of the capital stock or other proprietary interest of other
entities for an aggregate purchase price, including without limitation, any
liabilities of the acquired entities, of less than the Threshold Amount;
(d) purchase, acquire or obtain assets of any third party in an aggregate
amount (as to the Company and all of its subsidiaries), including without
limitation, any liabilities of the acquired entities, in excess of the Threshold
Amount;
(e) make or commit to make capital expenditures which exceed the amount set
forth in the Budget by more than the Threshold Amount;
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<PAGE> 85
(f) sell, transfer or otherwise dispose of any equity interest of the
Company or any of its subsidiaries, except for transactions involving only
wholly-owned subsidiaries of the Company which either (i) is in excess of the
Threshold Amount, or (ii) relates to the Joint Venture;
(g) enter into or commit to enter into any joint ventures or any
partnerships, establish any non-wholly-owned subsidiaries or form any joint
venture (other than the Joint Venture) either (i) in excess of the Threshold
Amount, or (ii) in activity or business competitive with the Joint Venture;
(h) sell, lease, transfer or otherwise dispose of any assets of the Company
or any of its subsidiaries in excess of the Threshold Amount;
(i) create, incur, assume or suffer to exist any indebtedness for borrowed
money (including any capital leases) of the Company or any of its subsidiaries
at any one time outstanding in excess of the Threshold Amount;
(j) redeem the Rights issued pursuant to the Shareholder Rights Agreement,
dated as of July 8, 1999, between the Company and American Stock Transfer and
Trust Company, as Rights Agent (the "Rights Agreement") or any successor
agreement thereto or otherwise render the Rights Agreement inapplicable to any
person who would otherwise be an "Acquiring Person" as defined in the Rights
Agreement, except, in either case, (i) for any conversion of the Notes or the
Series B Preferred Stock into Common Stock or any Disposition by the Investor
permitted by this Agreement, (ii) in connection with a transaction approved or
recommended by unanimous vote of the Board members present and voting thereon
(in all events including at least a majority of the Investor Designees as are
then required to be included on the Board of Directors), and (iii) as reasonably
determined by the Board to be required by law or the requirements of a National
Securities Exchange;
(k) pay, or set aside any sums for the payment of, any dividends, or make
any distribution on, any shares of its common stock or redeem, repurchase or
otherwise acquire any outstanding shares of its common stock or any other of its
outstanding securities (other than indebtedness at maturity in accordance with
the terms thereof);
(l) issue, sell or amend the rights of any capital stock or other
securities of the Company or any of its subsidiaries except for (i) dividends or
other distributions payable on the Common Stock solely in the form of additional
shares of Common Stock; (ii) in connection with the issuance of Common Stock
upon conversion of the Notes or Series B Preferred Stock or otherwise in
accordance with the provisions of the Notes and the Series B Preferred Stock;
(iii) for the issuance of shares of Common Stock or the issuance of options to
purchase Common Stock approved by the Compensation Committee to employees,
advisors, consultants or outside directors of the Company directly or pursuant
to an employee benefit plan of the Company; and (iv) acquisitions and other
transactions permitted under other provisions of this Section 3.3;
(m) change the Company's independent public accountants (unless the Audit
Committee shall determine that they are no longer "independent" within the
meaning of Independence Standards Board Standard No. 1) or, other than as
provided by Section 5.13, retain a financial advisor to the Company in
connection with a merger, consolidation, recapitalization, an acquisition or
divestiture involving or expected (in the opinion of the Board) to involve,
gross proceeds in excess of the Threshold Amount or a public offering of
securities;
(n) become a party to any agreement which by its terms restricts the
Company's performance of the terms of the Purchase Agreement, the Registration
Rights Agreement, the Notes, the Series B Preferred Stock or this Agreement
(together, the "Documents");
(o) grant any registration rights in respect of securities of the Company
which have an aggregate value, in any year ending on the anniversary of the date
of this Agreement, greater than the lesser of (i) the Threshold Amount and (ii)
5% of the market capitalization of the Company that would be inconsistent with
the rights granted to the holders of Registrable Securities under the
Registration Rights Agreement or otherwise conflict with or violate the
provisions thereof;
(p) amend, modify or waive the Charter, the Notes or the Bylaws in any
manner which adversely affects the rights of any of the Investors thereunder,
including, without limitation, any change in the number of directors comprising
the Board, or become a party to any agreement which conflicts in any material
respect with the Documents; and
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<PAGE> 86
(q) enter into any transaction (except (i) as expressly permitted by this
Agreement or the Purchase Agreement or (ii) relating to compensation of
executive officers as determined by the Compensation Committee) with any
"affiliate" or "associate" (as such terms are defined under Rule 12b-2 under the
Exchange Act) of the Company or any stockholder of the Company (other than the
Investor or its Affiliates).
For the purposes of this section the term "Threshold Amount" shall mean,
(a) with respect to any individual transaction, action or instance, the amount
of $2,000,000 at any time prior to the first anniversary of the Closing, which
amount shall increase by $1,000,000 from the amount then in effect on each
anniversary of the Closing if the Company EBITDA (as defined below) is greater
than or equal to the EBITDA Target (as defined below) for such anniversary, (b)
provided that (i) if the Company EBITDA for such anniversary is less than the
EBITDA Target for such anniversary, the Threshold Amount shall be the increased
Threshold Amount that would otherwise apply pursuant to clause (a) above
multiplied by the Company EBITDA for such anniversary divided by the EBITDA
Target for such anniversary, and (ii) the Threshold Amount shall not exceed
$5,000,000, and further provided, however, that all such transactions subject to
this limitation shall not, in the aggregate for any year ending on an
anniversary of the Closing, exceed the lesser of (x) two times the amount
applicable to any individual transaction, action or instance during such period
and (y) $10,000,000.
"Company EBITDA" for any anniversary of the date of the Closing shall mean
the EBITDA of the Company for the prior calendar year, including earnings
attributable to management agreements with respect to hotels owned directly or
indirectly by CGLH-IHC Fund I, L.P.
The "EBITDA Target" shall mean the EBITDA of the Company for calendar year
2000 adjusted for the revenues and expenses, including minority interest,
affected by the Wyndham Redemption Agreement as though such agreement had been
in effect throughout the entire year, plus: (i) for the first anniversary of the
date of the Closing, $10,000,000; (ii) for the second anniversary of the date of
the Closing, $20,000,000; and (iii) for the third anniversary of the date of the
Closing, $30,000,000.
SECTION 3.4 NOTICES OF DISPOSITIONS OF VOTING SECURITIES. Not later than
the tenth day following the end of any calendar month during the Standstill
Period in which one or more Dispositions of Voting Securities by Investor or any
of its Affiliates shall have occurred, Investor shall give written notice of all
such Dispositions by Investor, and shall use its reasonable best efforts to
cause its Affiliates to give written notice of all such Dispositions by its
Affiliates, to the Company unless any such Disposition has been reflected in a
public filing that was delivered to the Company on or in advance of the date
upon which notice thereof under this Section 3.4 would have been due. Such
notice shall state the date upon which each such Disposition was effected, the
number and type of Voting Securities involved in each such Disposition, the
means by which each such Disposition was effected and, to the extent known, the
identity of the Person acquiring Voting Securities.
SECTION 3.5. ACCESS TO INFORMATION. The Company will provide Investor
during normal business hours upon reasonable prior notice with (i) access to the
books and records of the Company and information relating to the Company, its
properties, operations, financial condition and affairs (together with the
reports specified in the following sentence, the "Information") and (ii) the
opportunity to consult with management of the Company, at least once each month,
regarding the Company, its properties, operations, finances and affairs, in the
case of each of clauses (i) and (ii), in accordance with and subject to the
limitations in Section 5.4 of the Purchase Agreement. The Company will provide
Investor, on a timely basis, with the financial and other information required
to be delivered to the Purchaser pursuant to Section 5.4 of the Purchase
Agreement. Certain of the parties who may hold partnership interests in Investor
may request the Information and consultation rights provided herein to enable
the securities held by such person to qualify as a "venture capital investment"
as to which such persons have "management rights," in each case as such terms
are defined in Department of Labor Regulation Section 2510.3-101(d) in which
event the Company shall provide such access; provided, however, that nothing
herein shall require the Company to furnish such person with more than rights of
access to Information and consultation provided herein regardless of whether
such rights are sufficient for such person to comply with venture capital
operating company requirements. In furtherance of the foregoing, and in addition
to the rights of Investor Designees under Section 3.3 for so long as the
Investor Beneficially Owns any of the Notes, shares of Series B Preferred Stock
or Conversion Shares, the Company agrees to inform the Investor in advance of
any corporate actions which the Company considers to be major or significant,
including, without limitation,
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<PAGE> 87
extraordinary dividends, mergers, acquisitions or dispositions of significant
assets, issuances of significant amounts of debt or equity, the signing,
acquisition or termination of any hotel management contract, and material
amendments to the Charter or Bylaws of the Company, and (subject to the
limitations specified in the proviso in the preceding sentence) to provide the
Investor with the opportunity to consult with management of the Company with
respect to such matters. The Investor and such other persons exercising rights
under this Section agree to hold in strict confidence all nonpublic Information
furnished to them and to use all Information only in connection with the
management of their investment in the Company, except that they may disclose any
information that (i) is or becomes generally available to the public other than
as a result of disclosure by them, and (ii) is or becomes available to them from
a source other than the Company; provided, however, that, to their knowledge,
the source is not bound by a confidentiality obligation with the Company in
respect thereof. If any person is required by a court or administrative agency
to disclose any of the nonpublic Information, such person shall promptly notify
the Company of such requirement so that the Company may at its own expense
oppose such requirement or seek a protective order and request confidential
treatment of such Information. It is agreed that if such person is nonetheless
compelled to disclose the Information, the Investor may disclose such portion of
the Information which is legally required without liability hereunder. In any
event, such person will not oppose action by the Company to obtain a protective
order or other reliable assurance that confidential treatment will be accorded
the Information. Nothing herein shall permit any such person to disclose
material non-public Information to permit such person to purchase or sell
securities of the Company in compliance with the federal securities laws. The
Investor hereby acknowledges that it is aware, and that such other persons, and
the officers, partners, directors, employees, representatives and agents of such
other persons and the Investor, have been, or will be prior to receiving
Information, advised by the Investor that applicable securities laws may
prohibit any person who has material, non-public information from purchasing or
selling securities of the Company or from communicating the information to any
other person or entity.
ARTICLE 4
Transfer Restrictions
SECTION 4.1. RESTRICTIONS ON DISPOSITIONS. During the Standstill Period,
Investor shall not directly or indirectly, sell, assign, donate, transfer,
pledge, hypothecate, grant any option with respect to or otherwise dispose of
any interest in (or enter into an agreement or understanding with respect to the
foregoing) any Voting Securities acquired pursuant to the Purchase Agreement or
upon conversion of such securities (a "Disposition"), except as set forth below
in this Section 4.1.
Dispositions may be effected by an Investor during the Standstill Period as
follows:
(a) No Dispositions of any nature may be made prior to the date that is six
months after the Closing, except pursuant to Sections 4.1(e) and (f).
(b) After six months after the Closing, Dispositions of Voting Securities
may be made at any time in compliance with the Registration Rights Agreement.
(c) After six months after the Closing, Dispositions of Voting Securities
may be made pursuant to sales effected in accordance with Rule 144 under the
Securities Act; provided that such Dispositions shall not be made to any Person
who or which would immediately thereafter, to the knowledge of Investor, any of
its Affiliates, or Investor's broker, Beneficially Own Voting Securities
representing more than the Maximum Ownership.
(d) After six months after the Closing, Dispositions may be made to any
Person (other than pursuant to a Reorganization Transaction) that would,
following such Disposition, Beneficially Own no more than the Maximum Ownership.
(e) Dispositions may be made pursuant to a merger transaction or other
business combination or a tender offer for outstanding shares of Common Stock
which is recommended to the stockholders of the Company generally by at least a
majority of the entire Board of Directors.
(f) Dispositions may be made by Investor to (i) any holder of partnership
or other ownership interests in Investor or (ii) any other Person (provided,
that, in respect of any such disposition to any other Person before the
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<PAGE> 88
second anniversary of the date hereof, the Company must consent in writing to
such disposition, such consent not to be unreasonably withheld) that, in either
case, executes an instrument in form and substance satisfactory to the Company
in which it makes the representations and warranties set forth in Section 1.3(b)
as of the date of the execution of such instrument and agrees to be bound by the
terms of this Agreement as if an original signatory to this Agreement (each such
transferee, a "Related Transferee"), in which case such Related Transferee shall
thereafter be an "Investor" for all purposes of this Agreement.
(g) With respect to Voting Securities which are, by their terms,
convertible into or exercisable or exchangeable for other Voting Securities such
conversion, exercise or exchange shall not be deemed a Disposition. Without
limiting the foregoing, the Company acknowledges that the conversion of the Note
or shares of Series B Preferred Stock into Conversion Shares shall not be a
Disposition.
As used herein, the term "Maximum Ownership" shall mean 20% of the Total
Voting Power in the case of a Person who is eligible to report such ownership on
Schedule 13G under the Exchange Act and 12.5% of the Total Voting Power in the
case of any other Person.
SECTION 4.2. RIGHTS AGREEMENT. The Company represents that it has amended
its Rights Agreement to permit the Dispositions permitted by this Agreement such
that the acquisition of the Maximum Ownership by any transferee shall not result
in such transferee becoming an Acquiring Person as defined in the Rights
Agreement. The Company agrees that it shall not adopt any amendment to the
Rights Agreement inconsistent with the foregoing.
ARTICLE 5
Miscellaneous
SECTION 5.1. NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, telex, fax or air courier
guaranteeing delivery:
(a) If to the Company, to:
Interstate Hotels Corporation
680 Andersen Drive, Foster Plaza Ten
Pittsburgh, Pennsylvania 15220
Attn: General Counsel
Fax: (412) 920-5733
with a copy to:
Jones, Day, Reavis & Pogue
North Point,
901 Lakeside Avenue
Cleveland, Ohio 44114-1190
Attn: Zachary Paris, Esq.
Fax: (216) 759-0212
or to such other person or address as the Company shall furnish to Investor in
writing;
(b) If to Investor, to:
CGLH Partners I LP and CGLH Partners II LP
c/o Lehman Brothers Holdings Inc.
200 Vesey St
12th Floor
New York, New York 10285
Attn: Joseph Flannery
Fax: (212) 526-7006
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<PAGE> 89
with a copy to:
Continental Gencom Holdings
3250 Mary Street
Suite 500
Miami, Florida 33133
Attn: Mr. K. Alibhai and Mr. S. Weiser
Fax: (305) 445-4255
with a copy to:
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.
150 West Flagler Street
Suite 2200
Miami, Florida 33130
Attn.: Richard E. Schatz, Esq.
Fax: (305) 789-3395
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Attn: Jonathan Mechanic, Esq.
Fax: (212) 859-8582
or to such other person or address as Investor shall furnish to the Company in
writing.
All such notices, requests, demands and other communications shall be
deemed to have been duly given: at the time of delivery by hand, if personally
delivered; five (5) Business Days after being deposited in the mail, postage
prepaid, if mailed domestically in the United States (and seven (7) Business
Days if mailed internationally); when answered back, if telexed; when receipt
acknowledged, if telecopied; and on the Business Day for which delivery is
guaranteed, if timely delivered to an air courier guaranteeing such delivery.
SECTION 5.2. LEGENDS. (a) If requested in writing by the Company, Investor
shall present or cause to be presented promptly all certificates representing
Voting Securities Beneficially Owned by Investor for the placement thereon of a
legend substantially to the following effect, which legend will remain thereon
so long as such legend is required under applicable securities laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. SUCH SHARES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF SUCH A REGISTRATION THEREUNDER OTHER THAN PURSUANT TO AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS AND DELIVERY TO INTERSTATE
HOTELS CORPORATION OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THOSE
LAWS."
(b) Investor shall present or cause to be presented promptly all
certificates representing Voting Securities Beneficially Owned by Investor, for
the placement thereon of a legend substantially to the following effect, which
legend will remain thereon during the Standstill Period as long as such Voting
Securities are Beneficially Owned by Investor:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF AN INVESTOR AGREEMENT, DATED AS OF AUGUST [ ],
2000, BETWEEN INTERSTATE HOTELS CORPORATION ("INTERSTATE") AND THE PARTY
NAMED THEREIN AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHER-
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<PAGE> 90
WISE DISPOSED OF EXCEPT IN ACCORDANCE THEREWITH. A COPY OF SAID AGREEMENT
IS ON FILE AT THE OFFICE OF THE CORPORATE SECRETARY OF INTERSTATE."
(c) The Company may enter a stop transfer order with the transfer agent or
agents of Voting Securities against any Disposition not in compliance with the
provisions of this Agreement.
SECTION 5.3. ENFORCEMENT. Investor, on the one hand, and the Company, on
the other hand, acknowledge and agree that irreparable injury to the other party
would occur in the event any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached and
that such injury would not be adequately compensable in damages. It is
accordingly agreed that, in addition to any other remedies which may be
available at law or in equity, each party hereto (the "Moving Party") shall be
entitled to specific enforcement of, and injunctive relief to prevent any
violation of, the terms of this Agreement, and the other parties hereto will not
take action, directly or indirectly, in opposition to the Moving Party seeking
such relief on the grounds that any other remedy or relief is available at law
or in equity. The parties further agree that no bond shall be required as a
condition to the granting of any such relief.
SECTION 5.4. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding of the parties with respect to the transactions
contemplated hereby. This Agreement may be amended only by a written instrument
duly executed by the parties or their respective successors or assigns;
provided, however, that any amendment or waiver by the Company shall be made
only with the prior approval of a majority of the directors of the Company other
than Investor Designees.
SECTION 5.5. SEVERABILITY. Whenever possible, each provision or portion of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision or portion of any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable Law, rule or regulation in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or portion of
any provision in such jurisdiction, and this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision shall have been replaced
with a provision which shall, to the maximum extent permissible under such
applicable Law, rule or regulation, give effect to the intention of the parties
as expressed in such invalid, illegal or unenforceable provision.
SECTION 5.6. HEADINGS. Descriptive headings contained in the Agreement are
for convenience only and will not control or affect the meaning or construction
of any provision of this Agreement.
SECTION 5.7. COUNTERPARTS. For the convenience of the parties, any number
of counterparts of this Agreement may be executed by the parties, and each such
executed counterpart will be an original instrument.
SECTION 5.8. NO WAIVER. Any waiver by any party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
SECTION 5.9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the Company and Investor, and to their respective
successors and assigns other than, in the case of Investor, transferees that are
not Related Transferees, including any successors to the Company or Investor or
their businesses or assets as the result of any merger, consolidation,
reorganization, transfer of assets or otherwise, and any subsequent successor
thereto, without the execution or filing of any instrument or the performance of
any act; provided that no party may assign this Agreement without the other
party's prior written consent, except by the Investor to a Related Transferee as
expressly provided in this Agreement (and that nothing herein restricts the
transfer of any of the rights of Investor under the Registration Rights
Agreement in accordance the terms of the Registration Rights Agreement).
SECTION 5.10. GOVERNING LAW. This Agreement will be governed by and
construed and enforced in accordance with the internal laws of the State of
Maryland, without giving effect to the conflict of laws principles thereof.
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<PAGE> 91
SECTION 5.11. FURTHER ASSURANCE. From time to time on and after the date
of this Agreement, the Company and Investor, as the case may be, shall deliver
or cause to be delivered to the other party hereto such further documents and
instruments and shall do and cause to be done such further acts as the other
parties hereto shall reasonably request to carry out more effectively the
provisions and purposes of this Agreement, to evidence compliance herewith or to
assure that it is protected in acting hereunder.
SECTION 5.12. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Any legal
action or proceeding with respect to this Agreement or any matters arising out
of or in connection with this Agreement, and any action for enforcement of any
judgment in respect thereof shall be brought exclusively in the state or federal
courts located in the State of Maryland, and, by execution and delivery of this
Agreement, the Company and Investor each irrevocably consent to service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, or by recognized international express carrier or delivery service, to
the Company or Investor at their respective addresses referred to in this
Agreement. The Company and Investor each hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Agreement brought in the courts referred to above and hereby further irrevocably
waives and agrees, to the extent permitted by applicable law, not to plead or
claim in any such court that any such action or proceeding brought in any such
court has been brought in an inconvenient forum. Nothing in this Agreement shall
affect the right of any party hereto to serve process in any other manner
permitted by law.
SECTION 5.13. INVESTMENT BANKING SERVICES. Until the end of the Investor
Designee Period, if the Company seeks to retain an investment bank or similar
financial institution ("Financial Institution") other than one of the Lehman
Parent Entities, the Company shall deliver written notice of such intended
retention of another Financial Institution (the "Notice") to a Senior Vice
President of the Principal Transactions Group of Lehman Brothers Holdings Inc
("Lehman Brothers"), setting forth the identity of such other Financial
Institution, the nature of the engagement or Investment Banking Services sought
and offered, a description (including timing) of the contemplated
transaction(s), and the fees charged by, or payable to, such Financial
Institution. For a period of fifteen days after the date that Lehman Brothers
shall have received such notice, Lehman Brothers shall have the right to advise
the Company that Lehman Brothers will perform such Investment Banking Services
on the terms set forth in the notice; provided, however, that if the fees to be
paid such Financial Institution are less than the market rate fees charged for
the contemplated transaction, the fees payable to Lehman Brothers shall be the
"market rate fees." The Partners agree, for the purposes of this Agreement, that
listed on Exhibit A annexed hereto and made a part hereof are "market rate fees"
for certain transactions. If Lehman Brothers declines the engagement set forth
in the Notice, the Company may engage (i) the Financial Institution set forth in
the Notice on the terms set forth therein or (ii) such other Financial
Institution to provide the Investment Banking Services set forth in the Notice
in connection with the contemplated transaction(s) described therein for fees
not in excess of "market rate fees." Lehman Brothers shall be a third party
beneficiary of this Section and shall have the right to enforce the terms of
this Section to their fullest extent.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 92
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first referred to above.
INTERSTATE HOTELS CORPORATION
By:
------------------------------------------------------------
Name:
Title:
CGLH PARTNERS I LP
By: MK/CG-GP LLC
General Partner
By: CG Interstate Associates, LLC
a Managing Member
By: Continental Gencom Holdings, LLC
its Sole Member
By:
---------------------------------------------------------------------
Name:
Title:
By: LB INTERSTATE GP LLC
General Partner
By: PAMI LLC
its Sole Member
By:
------------------------------------------------------------------
Name:
Title:
CGLH PARTNERS II LP
By: MK/CG-GP LLC
General Partner
By: CG Interstate Associates, LLC
a Managing Member
By: Continental Gencom Holdings, LLC
its Sole Member
By:
---------------------------------------------------------------------
Name:
Title:
<PAGE> 93
By: LB INTERSTATE GP LLC
General Partner
By: PAMI LLC
its Sole Member
By:
------------------------------------------------------------------
Name:
Title:
<PAGE> 94
EXHIBIT A
MARKET RATE FEES
<TABLE>
<CAPTION>
GROSS SPREAD
(AS A PERCENTAGE OF
THE AGGREGATE VALUE
TRANSACTION OF THE TRANSACTION(S))
----------- ----------------------
<S> <C>
Equity
Common Stock.............................................. 6.00%
Preferred Stock........................................... 6.00%
Convertible Debt.......................................... 6.00%
Investment Grade Debt....................................... 0.625%
Non-Investment Grade Debt
BB+ or higher rating...................................... 2.25%
BB rating................................................. 2.50%
BB- rating................................................ 2.75%
B+ rating................................................. 3.00%
B rating.................................................. 3.25%
B- or lower rating........................................ 3.50%
Merger and Acquisition Advisory (1)
Value between $0 and $50 million.......................... 2.00%
Value between $50 million and $250 million................ 1.00%
Value over $250 million................................... 0.75%
Commercial Mortgaged-Backed Securities
Agented................................................... 2.00%
Principal Transaction..................................... N/A
</TABLE>
---------------
(1) The M&A fee schedule accumulates (e.g. the fee for a $125 million
transaction equals the sum of (a) $50 million * 2.00% and (b) $75 million*
1.00%).
<PAGE> 95
APPENDIX C
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF A REGISTRATION STATEMENT THEREUNDER AND REGISTRATION OR
QUALIFICATION UNDER APPLICABLE SECURITIES LAWS OR AN EXEMPTION THEREFROM.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF AN INVESTOR
AGREEMENT BETWEEN INTERSTATE HOTELS CORPORATION AND CERTAIN INVESTORS NAMED
THEREIN AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE THEREWITH. A COPY OF
SAID AGREEMENT IS ON FILE AT THE OFFICE OF THE CORPORATE SECRETARY OF THE
COMPANY.
INTERSTATE HOTELS CORPORATION
8.75% CONVERTIBLE SUBORDINATED NOTE DUE [ ], 2007
No. ______
$ ____________________ New York, New York
[ ], 2000
INTERSTATE HOTELS CORPORATION (the "Company"), a Maryland corporation, for value
received, hereby unconditionally promises to pay to , or its
registered assigns, the principal amount of $ on
[ ], 2007 (the "Due Date"), with interest payable on the
unpaid balance of such principal amount in accordance with the terms and
conditions set forth below.
SECTION 1. PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES.
1.1. Payment of Principal. The entire unpaid principal balance of this Note
(together with all Accrued Interest) shall be paid in full by the Company on the
Due Date. Payment of all or any portion of the principal amount due hereunder
shall be made in such coin or currency of the United States of America as at the
time of payment shall be legal tender therein for the payment of public and
private debts.
1.2. Interest. The unpaid principal balance of this Note outstanding at any
time shall accrue cumulative interest, at the rate per annum equal to 8.75% from
the date hereof, until such unpaid balance shall become due and payable (whether
at maturity or at a date fixed for redemption or by declaration or otherwise).
Interest shall be paid by the Company (in cash or up to 25% by PIK Note as
provided in Section 1.3) in arrears on each Interest Payment Date until this
Note has been fully paid or converted as hereafter provided. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months. Interest shall
accrue on a daily basis and compound quarterly on the Interest Payment Dates.
1.3. Payment of Interest. The Company shall pay interest on this Note on
each Interest Payment Date. Subject to Section 1.4, the Company shall pay the
interest due hereunder in such coin or currency of the United States of America
as at the time of payment shall be legal tender therein for the payment of
public and private debts; provided, however, that the Company, at its sole
option, may elect to pay up to 25% of interest then due and payable by "payment
in kind" by the delivery to the Holder of an additional note (a "PIK Note")
identical in all respects to this Note except (a) registered in the name of the
Holder and (b) in the principal amount equal to the amount of interest then due
and payable for which the PIK Note is being issued. As used in this Note, the
term "Note" or "Notes" includes any PIK Note or PIK Notes executed and delivered
by the Company in payment of interest.
1.4. Default Interest. During the continuance of any Event of Default, the
Company shall pay interest ("Default Interest") on the outstanding principal of,
and any other amounts (other than interest), if any, due on this Note and (to
the extent legally enforceable) on any overdue installment of interest, at the
rate per annum equal to 10.75% (computed on the same basis as above) until such
overdue amount is paid or until such Event of
<PAGE> 96
Default is cured. Default Interest shall be computed on the basis of a 360-day
year of twelve 30-day months. The Company shall pay such Default Interest in
cash on demand from time to time, and shall not have the option to pay Default
Interest by issuance of a PIK Note.
1.5. Home Office Payment. The Company will pay to the Purchaser or any
transferee thereof all sums becoming due on this Note (including all sums which
become due on this Note at the maturity hereof) which are made in coin or
currency at the account/address to be specified by the Purchaser for such
purpose by notice to the Company not less than three nor more than seven
Business Days before such payment is due, by wire transfer of immediately
available funds no later than 2:00 p.m. on the due date of such payment. Before
selling or otherwise transferring this Note, the Holder will make a notation
hereon of the aggregate amount of all payments of principal, if any, theretofore
made, and of the date to which interest has been paid.
1.6. Limitation on Interest. No provision of this Note shall require the
payment or permit the collection of interest in excess of the maximum rate which
is permitted by Law. If any such excess interest is provided for herein, or
shall be adjudicated to be so provided for, then the Company shall not be
obligated to pay such interest in excess of the maximum rate permitted by Law,
and the right to demand payment of any such excess interest is hereby waived,
any other provisions in this Note or in the Securities Purchase Agreement to the
contrary notwithstanding.
1.7. Securities Purchase Agreement. This Note is the Company's 8.75%
Convertible Note due 2007 (the "Note", and collectively with any notes issued
pursuant to the terms of this Note or the Securities Purchase Agreement, the
"Notes") in the aggregate principal amount of $25,000,000 issued pursuant to a
Securities Purchase Agreement, dated as of August , 2000 (the "Securities
Purchase Agreement"), among the Company and CGLH Partners I LP, a Delaware
limited partnership and CGLH Partners II LP, a Delaware limited partnership
(CGLH Partners I LP and CGLH Partners II LP together, the "Purchaser"), and is
entitled to the benefits, and is subject to the terms and conditions thereof as
if included herein.
1.8. Deemed Ownership. The Company may deem and treat the person in whose
name this Note is registered in the Note Register as the Holder and owner hereof
for the purpose of receiving payments and for all other purposes whatsoever,
notwithstanding any notations of ownership or transfer hereon and
notwithstanding that this Note is overdue, and the Company shall not be affected
by any notice to the contrary until presentation of this Note for registration
of transfer as provided in Section 4 of the Securities Purchase Agreement. This
Note may be transferred or exchanged and, if lost, stolen, damaged or destroyed,
this Note may be replaced, only in the manner and upon the conditions set forth
in the Securities Purchase Agreement.
1.9 Withholding. The Holder hereby authorizes the Company to withhold from
or pay on behalf of or with respect to the Holder any amount of federal, state,
local or foreign taxes that the Company reasonably determines it is required by
law to withhold or pay with respect to any amount payable to the Holder pursuant
to this Note. Any amount withheld or paid pursuant to the foregoing sentence
shall be treated as having been paid to the Holder pursuant to this Note.
SECTION 2. COVENANTS.
2.1 Covenants. So long as any of the Notes is outstanding the Company shall
not, nor shall it permit any of its Subsidiaries to, without first obtaining the
written consent or approval of at least the Required Holders:
(a) except for any transaction or series of transactions involving only
wholly-owned subsidiaries of the Company, (i) consolidate or merge into or with
any other Person (except where the Company is the surviving entity), or (ii)
enter into any other Reorganization Transaction or any transaction constituting
a Change in Control;
(b) become a party to any agreement which by its terms materially restricts
the Company's performance of the terms of the Securities Purchase Agreement, the
Registration Rights Agreement, the Notes, the Series B Preferred Stock or the
Investor Agreement (together the "Transaction Documents");
(c) grant any registration rights in respect of securities of the Company
which have an aggregate value, in any year ending on the anniversary of the date
of the Investor Agreement, greater than the lesser of (i) the Threshold Amount
and (ii) 5% of the market capitalization of the Company that would be
inconsistent with the
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rights granted to the holders of Registrable Securities under the Registration
Rights Agreement or otherwise conflict with or violate the provisions thereof;
(d) amend, modify or waive any provisions of the charter of the Company
(the "Charter"), the Notes or the bylaws of the Company in any manner which
adversely affects the rights of any of the Investors thereunder, including,
without limitation, any change in the number of directors comprising the Board;
and
(e) except for the repurchase of Class C Common Stock or redemptions
pursuant to the terms of the Series B Preferred Stock, redeem or purchase or
otherwise acquire for consideration any securities of the Company unless the
Company shall concurrently offer to redeem from the Holder such portion of this
Note as such securities redeemed, purchased or acquired (on an as-converted
basis) bear to the total of the then-outstanding securities of the Company (on
an as-converted basis).
For the purposes of this Section 2 the term "Threshold Amount" shall mean, (a)
with respect to any individual transaction, action or instance, the amount of
$2,000,000 at any time prior to the first anniversary of the Closing, which
amount shall increase by $1,000,000 from the amount then in effect on each
anniversary of the Closing if the Company EBITDA (as defined below) is greater
than or equal to the EBITDA Target (as defined below) for such anniversary, (b)
provided that (i) if the Company EBITDA for such anniversary is less than the
EBITDA Target for such anniversary, the Threshold Amount shall be the increased
Threshold Amount that would otherwise apply pursuant to clause (a) above
multiplied by the Company EBITDA for such anniversary divided by the EBITDA
Target for such anniversary, and (ii) the Threshold Amount shall not exceed
$5,000,000, and further provided, however, that all such transactions subject to
this limitation shall not, in the aggregate for any year ending on an
anniversary of the Closing, exceed the lesser of (x) two times the amount
applicable to any individual transaction, action or instance during such period
and (y) $10,000,000.
"Company EBITDA" for any anniversary of the date of the Closing shall mean
the EBITDA of the Company for the prior calendar year, including earnings
attributable to management agreements with respect to hotels owned directly or
indirectly by CGLH-IHC Fund I, L.P.
The "EBITDA Target" shall mean the EBITDA of the Company for calendar year
2000 adjusted for the revenues and expenses, including minority interest,
affected by the Wyndham Redemption Agreement as though such agreement had been
in effect throughout the entire year, plus: (i) for the first anniversary of the
date of the Closing, $10,000,000; (ii) for the second anniversary of the date of
the Closing, $20,000,000; and (iii) for the third anniversary of the date of the
Closing, $30,000,000.
2.2 Further Covenants. For so long as both (x) any of the Notes is
outstanding and (y) the later of (i) the expiration or termination of the
Standstill Period, (ii) if the Standstill Period is terminated by reason of the
occurrence of any of the events specified in Section 2.2(a) through (f) or
Section 2.2(l) of the Investor Agreement, the fourth anniversary of the Closing
and (iii) such time as the Investor and its Affiliates no longer Beneficially
Own securities of the Company having an aggregate principal amount, liquidation
preference or Fair Market Value, as the case may be, of at least 51% of the
Original Investment Amount, (such period, the "Covenant Period") the Company
shall not, nor shall it permit any of its Subsidiaries to, without first
obtaining the written consent or approval of at least the Required Holders:
(a) voluntarily liquidate, dissolve or wind up;
(b) purchase, acquire or obtain any capital stock or other proprietary
interest, directly or indirectly, in any other entity, except for (i) any
transaction or series of transactions involving only wholly-owned subsidiaries
of the Company as of the date hereof, or (ii) the purchase of all or
substantially all of the capital stock or other proprietary interest of other
entities for an aggregate purchase price, including without limitation, any
liabilities of the acquired entities, of less than the Threshold Amount;
(c) purchase, acquire or obtain assets of any third party in an aggregate
amount (as to the Company and all of its subsidiaries), including without
limitation, any liabilities of the acquired entities, in excess of the Threshold
Amount;
(d) make or commit to make capital expenditures which exceed the amount set
forth in the Budget by more than the Threshold Amount;
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<PAGE> 98
(e) sell, transfer or otherwise dispose of any equity interest of the
Company or any of its subsidiaries, except for transactions involving only
wholly-owned subsidiaries of the Company which either (i) is in excess of the
Threshold Amount, or (ii) relates to the Joint Venture;
(f) enter into or commit to enter into any joint ventures or any
partnerships, establish any non-wholly-owned subsidiaries or form any joint
venture (other than the Joint Venture) either (i) in excess of the Threshold
Amount, or (ii) in activity or business competitive with the Joint Venture;
(g) sell, lease, transfer or otherwise dispose of any assets of the Company
or any of its subsidiaries in excess of the Threshold Amount;
(h) create, incur, assume or suffer to exist any indebtedness for borrowed
money (including any capital leases) of the Company or any of its subsidiaries
at any one time outstanding in excess of the Threshold Amount;
(i) redeem the Rights issued pursuant to the Rights Plan or otherwise
render the Rights Agreement inapplicable to any person who would otherwise be an
"Acquiring Person" as defined in the Rights Plan, except, in either case, (i)
for any conversion of the Notes or the Series B Preferred Stock into Class A
Common Stock or any Disposition by the Investor permitted by the Investor
Agreement, (ii) in connection with a transaction approved or recommended by
unanimous vote of the Board members present and voting thereon (in all events
including at least a majority of the Investor Designees as are then required to
be included on the Board of Directors), and (iii) as reasonably determined by
the Board to be required by law or the requirements of a National Securities
Exchange;
(j) pay, or set aside any sums for the payment of, any dividends, or make
any distribution on, any shares of its Class A Common Stock or redeem,
repurchase or otherwise acquire any outstanding shares of its Class A Common
Stock or any other of its outstanding securities (other than indebtedness at
maturity in accordance with the terms thereof);
(k) issue, sell or amend the rights of any capital stock or other
securities of the Company or any of its subsidiaries except for (i) dividends or
other distributions payable on the Class A Common Stock solely in the form of
additional shares of Class A Common Stock; (ii) in connection with the issuance
of Class A Common Stock upon conversion of the Notes or Series B Preferred Stock
or otherwise in accordance with the provisions of the Notes and the Series B
Preferred Stock; (iii) for the issuance of shares of Class A Common Stock or the
issuance of options to purchase Class A Common Stock approved by the
Compensation Committee to employees, advisors, consultants or outside directors
of the Company directly or pursuant to an employee benefit plan of the Company;
and (iv) acquisitions and other transactions for which approval of the Required
Holders is given under other provisions of this Section 2.1;
(l) change the Company's independent public accountants (unless the Audit
Committee shall determine that they are no longer "independent" within the
meaning of Independence Standards Board Standard No. 1) or, other than as
provided by Section 5.13 of the Investor Agreement, retain a financial advisor
to the Company in connection with a merger, consolidation, recapitalization, an
acquisition or divestiture involving or expected (in the opinion of the Board)
to involve, gross proceeds in excess of the Threshold Amount or a public
offering of securities;
(m) enter into any transaction (except (i) as expressly permitted by the
Investor Agreement or the Securities Purchase Agreement or (ii) relating to
compensation of executive officers as determined by the Compensation Committee
of the Board of Directors) with any Affiliate or Associate of the Company or any
stockholder of the Company (other than the Investor or its Affiliates).
2.3 Specific Enforcement. The Company agrees that irreparable injury would
occur if the provisions of this Section 2 are breached and that such injury
would not be adequately compensable in damages. Accordingly, the Company agrees
that, in addition to any other remedies which may be available, Holders of the
Note shall be entitled to specific enforcement of this Section.
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SECTION 3. REDEMPTION OF NOTES.
3.1 Mandatory Redemption Offer.
(a) In the event there occurs a Change in Control, the Company shall offer
to purchase from each Holder all of the Notes held by such Holder for an amount
in cash equal to the greater of (i) the principal amount of the Notes held by
such Holder plus Accrued Interest through the date of purchase, and (ii) the
Fair Market Value (as defined below) of the cash, securities and other property
that such Holder of the Notes would have received had it converted its Notes
(including for such purposes any Notes issuable in respect of Accrued Interest)
into shares of Common Stock immediately prior to such Change in Control, plus
Accrued Interest payable in cash to the extent not otherwise reflected pursuant
to the parenthetical phrase of this clause (ii), (the greater of (i) and (ii)
above being referred to as the ("Change in Control Redemption Price"), in each
case by delivery of a notice in accordance with Section 3.1(b). In the event of
a Change in Control, each Holder of Notes shall have the right (but not the
obligation) to require the Company to purchase any or all of the Notes held by
such Holder for an amount in cash equal to the Change in Control Redemption
Price. Each Holder of Notes shall also be permitted, until 20 Business Days
following the date of the mailing to it of the Company's notice described in
Section 3.1(b)(i), to convert all, and not less than all, of the Notes held by
such Holder (including Notes issuable to such Holder as Accrued Interest that
have accelerated or will accelerate as a result of a Change in Control) pursuant
to Section 4 below; provided that any shares of Common Stock issuable upon
conversion of any Notes converted pursuant to this sentence after a Change in
Control has occurred shall be entitled to receive the same amount of cash,
securities and other property in connection with such Change in Control as the
Common Stock outstanding prior to the Change in Control. In the event a Holder
of Notes does not elect to have all of its Notes either (i) redeemed by the
Company pursuant to this Section 3 or (ii) converted pursuant to Section 4
below, in each case in connection with a specific Change in Control event, then
no interest shall be deemed to have been accelerated in connection with such
Change in Control. In the event that any Holder does not elect to convert or
redeem such Holder's Notes pursuant to the foregoing sentence, such Holder shall
retain any rights it has to convert or redeem its Notes in connection with any
subsequent Change in Control. "Fair Market Value" with respect to any securities
shall be the Current Market Price thereof as of the close of business on the
date of measurement. The Fair Market Value of any asset other than cash and
securities shall be determined jointly and in good faith by the Company and the
Required Noteholders. In the event any dispute between the Company and the
Required Noteholders as to the Fair Market Value or Current Market Price (which
dispute remains unresolved for 10 Business Days), such dispute shall be
submitted for final determination to a mutually acceptable investment banking
firm of national reputation familiar with the valuation of companies in the
hospitality and lodging industry ("Investment Banking Firm"). In the event that
the Company and the Required Noteholders cannot agree on a mutually acceptable
Investment Banking Firm within 10 Business Days, the Company, on the one hand,
and the Required Noteholders, on the other hand, shall each select one
Investment Banking Firm, which two investment banking firms shall jointly make
such determination within 20 business days after the date of such event, or, if
such two Investment Banking Firms are unable to agree on such determination, the
two Investment Banking Firms shall, by the end of the 20th business day after
the date of such event, select a third Investment Banking Firm and notify such
third Investment Banking Firm in writing (with a copy to the Company and the
Holders) of their respective determinations of the Fair Market Value or Current
Market Price following which such third Investment Banking Firm shall, within 15
business days after the date of its selection, notify the Company and the
Holders in writing of its selection of one or the other of the two original
determinations of the Fair Market Value or Current Market Price, which
determination shall be final and binding on the Company and the Holders. The
fees and expenses of any such determination shall be borne by the Company.
(b) (i) Within five Business Days following an event giving a Holder of
Notes the right, pursuant to Section 3.1(a), to require the Company to redeem
all of such Notes, the Company shall give notice by mail to each Holder of
Notes, at such Holder's address as it appears on the Note Register, of such
event, which notice shall set forth each Holder's right to convert all, and not
less than all of the Notes held by such Holder, or to require the Company to
redeem all, but not less than all, of the Notes held by such Holder which are
eligible for redemption pursuant to the terms of Section 3.1(a), the redemption
date (which date shall be no more than 30 Business Days following the date of
such mailed notice), and the procedures to be followed by such Holder in
exercising its right to cause such redemption or effect such conversion. In the
event a record Holder of Notes shall
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elect to require the Company to redeem all such Notes pursuant to Section
3.1(a), such Holder shall deliver, within 20 Business Days of the mailing to it
of the Company's notice described in this Section 3.1(b)(i), a written notice to
the Company so stating, specifying the principal amount of Notes to be redeemed
pursuant to Section 3.1(a). The Company shall, in accordance with the terms
hereof, redeem the principal amount of Notes so specified on the date fixed for
redemption. Failure of the Company to give any notice required by this Section
3.1(b)(i), or the formal insufficiency of any such notice, shall not prejudice
the rights of any Holders of Notes to cause the Company to redeem or to convert
all such Notes held by them. Notwithstanding the foregoing, the Board of
Directors of the Company may modify any offer pursuant to this Section 3.1(b)(i)
to the extent necessary to comply with the Exchange Act and the rules and
regulations thereunder.
(ii) The Company shall publish the fact that it is redeeming, or offering
to redeem, Notes through a nationally prominent newswire service on or before
the date of mailing any notice of redemption or right of redemption. At any time
after a notice of redemption shall have been mailed and before such date of
redemption the Company may deposit for the benefit of the Holders of the Notes
called for redemption the funds necessary for such redemption with a bank or
trust company doing business in the Borough of Manhattan, the City of New York,
and having a capital and surplus of at least $1,000,000,000. Any interest
allowed on moneys so deposited shall be paid to the Company. Upon the deposit of
such funds or, if no such deposit is made, upon the date fixed for redemption
(unless the Company shall default in making payment of the appropriate
redemption amount), whether or not Notes so called for redemption have been
surrendered for cancellation, the Notes to be redeemed shall be deemed to be no
longer outstanding and the Holders thereof shall cease to be Holders with
respect to such Notes and shall have no rights with respect thereto, except for
the rights to receive the amount payable upon redemption, but without interest,
and, up to the close of business on the date immediately preceding the date
fixed for such redemption, the right to convert such Notes pursuant to Section 4
hereof. Such deposit in trust shall be irrevocable except that any funds
deposited by the Company which shall not be required for the redemption for
which they were deposited because of the exercise of conversion rights shall be
returned to the Company forthwith, and any funds deposited by the Company which
are unclaimed at the end of one year from the date fixed for such redemption
shall be paid over to the Company upon its request, and upon such repayment the
Holders of the Notes so called for redemption shall look only to the Company for
payment of the appropriate amount. Any such unclaimed amounts paid over to the
Company shall, for a period of six years from the date fixed for such
redemption, be set apart and held by the Company in trust for the benefit of the
Holders of such Notes, but no such Holder shall be entitled to interest thereon.
At the expiration of such six-year period, all right, title, interest and claim
of such Holders in or to such unclaimed amounts shall be extinguished,
terminated and discharged, and such unclaimed amounts shall become part of the
general funds of the Company free of any claim of such Holders.
SECTION 4. CONVERSION OF NOTES.
4.1. Holder's Option to Convert Notes into Common Stock.
(a) This Note or any portion of the outstanding principal amount of such
Note, including any Notes issued as PIK Notes under Section 1.3 of this Note,
shall be convertible at the option of the Holder at any time after the Closing
into a number of shares of Class A Common Stock, on the terms and conditions set
forth in this Section 4.
(b) Subject to the provisions for adjustment hereinafter set forth, each
Note shall be convertible in the manner hereinafter set forth into a number of
fully paid and nonassessable shares of Class A Common Stock equal to the product
obtained by multiplying the Applicable Conversion Rate by the outstanding
principal amount of this Note or portion thereof being converted. The
"Applicable Conversion Rate" means the quotient obtained by dividing the
Conversion Value on the date of conversion by the Conversion Price as adjusted
pursuant to Section 4.1(c) on the date of conversion.
(c) The Conversion Price shall be subject to adjustment from time to time
as follows:
(i) In case the Company shall at any time or from time to time after
the original issuance of the Notes declare a dividend, or make a
distribution, on the outstanding shares of Common Stock in either case, in
shares of Common Stock, or effect a subdivision, combination, consolidation
or reclassification of the
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outstanding shares of Common Stock into a greater or lesser number of
shares of Common Stock, then, and in each such case, the Conversion Price
in effect immediately prior to such event or the record date therefor,
whichever is earlier, shall be adjusted by multiplying such Conversion
Price by a fraction, the numerator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this Section
4.1(c)(i) shall become effective (x) in the case of any such dividend or
distribution, immediately after the close of business on the record date
for the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (y) in the case of any such
subdivision, reclassification, consolidation or combination, at the close
of business on the day upon which such corporate action becomes effective.
(ii) In case the Company shall issue (other than upon the exercise of
options, rights or convertible securities) shares of Common Stock (or
options, rights, warrants or other securities convertible into or
exchangeable for shares of Common Stock) at a price per share (or having an
exercise or conversion price per share) less than the Current Market Price
as of the Measurement Date, other than (x) in a transaction to which
Section 1.3 applies, (y) pursuant to options or other securities under any
employee or director benefit plan or program of the Company approved by the
Board of Directors of the Company or shares of Common Stock issued upon the
exercise thereof, (z) pursuant to the conversion of the Notes, the Series B
Preferred Stock, or the Class B Common Stock or Class C Common Stock (the
issuances under clauses (x), (y) and (z) being referred to as "Excluded
Issuances"), then, and in each such case, the Conversion Price in effect
immediately prior to the Measurement Date shall be reduced so as to be
equal to an amount determined by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common
Stock of all classes outstanding at the close of business on the
Measurement Date plus the number of shares of Common Stock (or the number
of shares of Common Stock issuable upon the conversion, exchange or
exercise of such options, rights, warrants or other securities convertible
into or exchangeable for shares of Common Stock) which the aggregate
consideration receivable by the Company in connection with such issuance
would purchase at such Current Market Price and the denominator shall be
the number of shares of Common Stock of all classes outstanding at the
close of business on the Measurement Date plus the number of shares of
Common Stock (or the number of shares of Common Stock issuable upon the
conversion, exchange or exercise of such options, rights, warrants or other
securities convertible into or exchangeable for shares of Common Stock) so
issued. For purposes of this Section 4.1(c)(ii), the aggregate
consideration receivable by the Company in connection with the issuance of
shares of Common Stock or of options, rights, warrants or other convertible
securities shall be deemed to be equal to the sum of the gross offering
price (before deduction of customary underwriting discounts or commissions
and expenses payable to third parties) of all such securities plus the
minimum aggregate amount, if any, payable upon conversion or exercise of
any such options, rights, warrants or other convertible securities into
shares of Common Stock, less any original issue discount, premiums and
other similar incentives which have the effect of reducing the effective
price per share. For purposes of this Section 4.1(c)(ii), such adjustment
shall become effective immediately prior to the opening of business on the
Business Day immediately following the Measurement Date.
(iii) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 0.1% of
the Conversion Price; provided, that any adjustments which by reason of
this Section 4.1(c)(iii) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 4 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
(d) In case of any capital reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered by
Section 4.1(c)(i)), or in case of any consolidation or merger of the Company
with or into another Person, or in case of any sale or conveyance to another
Person of the property of the Company as an entirety or substantially as an
entirety (each of the foregoing being referred to as a "Transaction"), each Note
then outstanding shall thereafter be convertible into, in lieu of the Common
Stock issuable upon such conversion prior to the consummation of such
Transaction, the kind and amount of shares of stock and other securities and
property (including cash) receivable upon the consummation of such Transaction
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by a holder of that number of shares of Common Stock into which such Note was
convertible immediately prior to such Transaction (including, on a pro rata
basis, the cash, securities or property received by holders of Common Stock in
any tender or exchange offer that is a step in such Transaction). In any such
case, if necessary, appropriate adjustment (as determined in good faith by the
Board of Directors) shall be made in the application of the provisions set forth
in this Section 4 with respect to rights and interests thereafter of the Holders
of Notes to the end that the provisions set forth herein for the protection of
the conversion rights of the Notes shall thereafter be applicable, as nearly as
reasonably may be, to any such other shares of stock and other securities and
property deliverable upon conversion of the Notes remaining outstanding (with
such adjustments in the Conversion Price and number of shares issuable upon
conversion and such other adjustments in the provisions hereof as the Board of
Directors shall determine in good faith to be appropriate). In case securities
or property other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all references in this Section 4 shall be deemed
to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
Notwithstanding anything contained herein to the contrary, the Company will
not effect any Transaction unless, prior to the consummation thereof, the
Surviving Person thereof, if other than the Company, shall assume, by written
instrument mailed to each record Holder of Notes, at such Holder's address as it
appears in the Note Register, the obligation to deliver to such Holder such
cash, property and securities to which, in accordance with the foregoing
provisions, such Holder is entitled. Nothing contained in this Section 4.1(d)
shall limit the rights of Holders of the Notes to convert the Notes in
connection with the Transaction or to exercise their rights to require the
redemption of the Notes under Section 3.
(e) Conversion of this Note may be effected by the Holder upon the
surrender to the Company at the office of the Company designated for notices in
accordance with Section 8.4 or at the office of any agent or agents of the
Company, as may be designated by the Board of Directors, of this Note,
accompanied by a written notice (a "Note Holder Conversion Notice") stating that
such Holder elects to convert all or a specified portion of the outstanding
principal amount of this Note in accordance with the provisions of this Section
4.1 and specifying the name or names in which such Holder wishes the certificate
or certificates for shares of Common Stock to be issued. In case the Holder's
Note Holder Conversion Notice shall specify a name or names other than that of
such Holder, such notice shall be accompanied by payment of all transfer Taxes
payable upon the issuance of shares of Common Stock in such name or names that
would not have been incurred had such shares of Common Stock been issued in the
name of the Holder. Other than such Taxes, the Company will pay any and all
issue and other Taxes, whether or not imposed on the Company (other than taxes
based on income) that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of this Note pursuant hereto. As promptly
as practicable, and in any event within five (5) Business Days after the
surrender of such Note and, if applicable, the receipt of a Note Holder
Conversion Notice relating thereto by the Company and, if applicable, payment of
all transfer Taxes (or the demonstration to the satisfaction of the Company that
such taxes have been paid), the Company shall deliver or cause to be delivered
(i) certificates representing the number of validly issued, fully paid and
nonassessable full shares of Common Stock to which the Holder of the Note shall
be entitled and (ii) if less than the entire outstanding principal amount of
this Note is being converted, a new Note in the principal amount which remains
outstanding upon such partial conversion. The date of delivery of this Note
after or together with the delivery of a Note Holder Conversion Notice shall be
deemed to be the date of conversion.
(f) Notes may be converted at any time up to the close of business on the
last Business Day immediately preceding the Due Date.
(g) In connection with the conversion of any Notes, no fractions of shares
of Common Stock shall be issued, but in lieu thereof the Company shall pay a
cash adjustment in respect of such fractional interest in an amount equal to
such fractional interest multiplied by the Current Market Price per share of
Common Stock on the day on which such Notes are deemed to have been converted.
(h) In case at any time or from time to time the Company shall pay any
dividend or make any other distribution to the holders of its Common Stock in
additional shares of stock of any class, or shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock of any
class or any other right, other than pursuant to the Rights Plan, or there shall
be any capital reorganization or reclassification of the Common Stock of the
Company or consolidation or merger of the Company with or into another company,
or any
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sale or conveyance to another company of the property of the Company as an
entirety or substantially as an entirety, or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company, then, in any
one or more of said cases the Company shall give at least 20 days' prior written
notice (the time of mailing of such notice shall be deemed to be the time of
giving thereof) to the Holders of the Notes at the addresses of each as shown in
the Note Register of the date on which (i) the books of the Company shall close
or a record shall be taken for such stock dividend, distribution or subscription
rights or (ii) such reorganization, reclassification, consolidation, merger,
sale or conveyance, dissolution, liquidation or winding up shall take place, as
the case may be, provided that in the case of any Transaction to which Section
4.1(d) applies the Company shall give at least 30 days' prior written notice as
aforesaid. Such notice shall also specify the date, if known, as of which the
holders of the Common Stock and the Holders of the Notes shall participate in
said dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock or Notes for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale or conveyance, or participate in such dissolution, liquidation or winding
up, as the case may be.
(i) Notwithstanding the provisions of this Section 4.1, no Holder of Notes
shall be permitted to convert all or any portion of the principal amount of its
Notes which shall result in such Holder and its Affiliates or any group (as such
term is used in Section 13(d)(3) of the Exchange Act) of which any of them is a
member having Beneficial Ownership, after giving effect to such conversion, of
more than 49% of the then-outstanding Common Stock. If a Holder requests
conversion of Notes which would result in ownership by such Holder and its
Affiliates or any group (as such term is used in Section 13(d)(3) of the
Exchange Act) of which any of them is a member of more than 49% of the
outstanding Common Stock after giving effect to such conversion, then such
Holder's conversion request shall be deemed to represent a request to convert up
to the maximum principal amount of Notes permitted under the prior sentence and
the Company shall deliver or cause to be delivered, along with the Common Stock
certificates and the new Note representing the remaining unconverted principal
amount of such Notes, a calculation in reasonable detail setting forth the
maximum principal amount of such Notes convertible by such holder pursuant to
the provisions of this Section 4.1(i). If a Holder is subject to the limitation
on conversion set forth in the first sentence of this Section 4.1(i), then such
Holder shall not be permitted to convert Notes which were rendered
non-convertible by the first sentence hereof and have subsequently become
convertible under the first sentence hereof for a period of 75 days after such
Notes would otherwise first have become convertible under the first sentence
hereof (it being understood that transferees of the Note whose Beneficial
Ownership of Common Stock would not exceed 49% of the then-outstanding Common
Stock, after giving effect to the conversion of their Notes, shall not be
subject to any of the foregoing limitations on the amount or timing of the
conversion of the Note).
(j) If the Company issues any securities convertible into any equity
security of the Company which contains any provisions that protect the holder
thereof against dilution upon the occurrence of certain events in a manner more
favorable to such holder than those set forth in this Section 4.1 (other than a
provision specifying an initial exercise or conversion price), such provisions
shall be deemed to be incorporated herein with respect to such events as if
fully set forth herein and to the extent any existing provision herein is
inconsistent with such provision, such incorporated provision shall be
substituted therefor.
4.2. Reports as to Adjustments and Outstanding Shares.
(a) Whenever the number of shares of Common Stock into which each Note is
convertible is adjusted as provided in Section 4.1, the Company shall promptly
mail to the Holders of the outstanding Notes at their respective addresses as
the same shall appear in the Note Register a notice stating that the number of
shares of Common Stock into which the Notes are convertible has been adjusted
and setting forth the new number of shares of Common Stock (or describing the
new stock, securities, cash or other property) into which each Note is
convertible, as a result of such adjustment, a brief statement of the facts
requiring such adjustment and the computation thereof, and when such adjustment
became effective.
(b) At the request of any Holder the Company shall reasonably promptly
issue to such Holder, in any reasonable manner requested by such Holder, a
notice setting forth the number of shares of Common Stock then outstanding and
the maximum number of shares into which the Note is then convertible.
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4.3. Reservation of Stock; Listing Rights.
(a) The Company shall at all times reserve and keep available for issuance
upon the conversion of the Notes, free from any preemptive rights, such number
of its authorized but unissued shares of Common Stock as will from time to time
be sufficient to permit the conversion of the entire outstanding principal
amount of the Notes into Common Stock, and shall take all action required to
increase the authorized number of shares of Common Stock, if necessary, to
permit the conversion of the entire outstanding principal amount of the Notes.
(b) If at the time of conversion of any Notes, the Common Stock of the
Company is listed on a national securities exchange, or is designated as a
"national market system security" or "small cap market security" on NASDAQ, the
Company shall take all action necessary to cause the shares of Common Stock
issuable upon conversion of such Notes to be listed on such exchange, subject to
official notice of issuance.
(c) If the Company shall issue shares of Common Stock upon conversion of
the Notes as contemplated by this Section 4, the Company shall issue together
with each such share of Common Stock one Right (as such term is defined in the
Rights Plan) (or other securities in lieu thereof), or any rights issued to
holders of Common Stock in addition thereto or in replacement therefor, whether
or not such rights shall be exercisable at such time, but only if such rights
are issued and outstanding and held by other holders of Common Stock at such
time and have not expired, and only if the Person to whom such shares of Common
Stock are issued is not an "Acquiring Person" under the Rights Plan or such
other agreement pursuant to which such rights are issued; provided, however,
that, in such event such rights shall be issued to such Person promptly after
such time at which such Person is no longer an "Acquiring Person."
SECTION 5. EVENTS OF DEFAULT AND REMEDIES.
5.1. Events of Default. Each of the following shall constitute an Event of
Default with respect to this Note:
(a) Nonpayment of Principal of the Notes. If the Company fails to pay the
principal of or any other sum (other than interest), if any, due on any of the
Notes, when and as the same becomes due and payable, whether at the maturity
thereof, on a date fixed for a redemption, or otherwise;
(b) Nonpayment of Interest. If the Company fails to pay interest on any of
the Notes in full, when and as the same becomes due and payable, and such
failure shall be continuing for five (5) Business Days;
(c) Voluntary Bankruptcy and Insolvency Proceedings. If the Company or any
Subsidiary shall file a petition in bankruptcy or for reorganization or for an
arrangement or any composition, readjustment, liquidation, dissolution or
similar relief pursuant to the Bankruptcy Code, or under any similar present or
future federal law or the law of any other jurisdiction or shall be adjudicated
a bankrupt or become insolvent, or consent to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of the Company or such Subsidiary or for all or any
substantial part of its respective property, or the Company or any of its
Subsidiaries shall make an assignment for the benefit of its creditors, or shall
admit in writing its inability to pay its debts generally as they become due, or
shall take any corporate action, as the case may be, in furtherance of any of
the foregoing;
(d) Adjudication of Bankruptcy. If a petition or answer shall be filed
proposing the adjudication of the Company or any of its Subsidiaries as a
bankrupt or its reorganization or arrangement, or any composition, readjustment,
liquidation, dissolution or similar relief with respect to it pursuant to the
Bankruptcy Code or under any similar present or future federal law or the law of
any other jurisdiction applicable to the Company or any of its Subsidiaries, and
the Company or such Subsidiary (as applicable) shall consent to or acquiesce in
the filing thereof, or such petition or answer shall not be discharged or denied
within 60 days after the filing thereof;
(e) Receivership or Sequestration. If a decree or order is rendered by a
court having jurisdiction (i) for the appointment of a receiver or custodian or
liquidator or trustee or sequestrator or assignee (or similar official) in
bankruptcy or insolvency of the Company or any of its Subsidiaries or of all or
a substantial part of its property, or for the winding-up or liquidation of its
affairs, and such decree or order shall have remained in force undischarged and
unstayed for a period of 60 days, or (ii) for the sequestration or attachment of
any property of the Company or any of its Subsidiaries without its return to the
possession of the Company or such Subsidiary (as applicable) or its release from
such sequestration or attachment within 60 days thereafter;
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(f) Acceleration of Other Indebtedness. If, during the Covenant Period,
default shall be made with respect to any Indebtedness of the Company (other
than the Notes) with a principal amount outstanding in excess of $1,500,000 with
the result that such Indebtedness can be accelerated so that the same will
become due and payable prior to the date on which the same would otherwise have
become due and payable;
(g) Covenant Defaults. The Company shall have breached in any material
respect any of the covenants of the Company set forth in this Note or it shall
have breached its obligation, if any, to appoint or nominate for election to the
Company's Board of Directors any designee of the Investor under Section 3.1 of
the Investor Agreement; provided that, if capable of being remedied, such breach
continues for 15 days after notice to the Company in writing by any Holder of
this Note or other party entitled to the benefit of such covenant;
(h) Judgments. A final judgment or judgments entered by a court of
competent jurisdiction for the payment of money aggregating in excess of
$1,500,000 is or are outstanding against the Company or any Subsidiary and any
one such judgment in excess of $1,500,000 has, or such judgments aggregating in
excess of $1,500,000 have, remained unpaid, unvacated, unbonded, or unstayed by
appeal or otherwise for a period of 30 days from the date of entry.
5.2. Acceleration of Maturity. If any Event of Default shall have occurred
and be continuing, the Holders of a majority of the outstanding principal amount
of Notes may, by notice to the Company, declare the entire outstanding principal
balance of the Notes, and all accrued and unpaid interest thereon, to be due and
payable immediately, and upon any such declaration the entire outstanding
principal balance of this Note, and said accrued and unpaid interest shall
become and be immediately due and payable, without presentment, demand, protest
or other notice whatsoever, all of which are hereby expressly waived, anything
in this Note or the Securities Purchase Agreement to the contrary
notwithstanding; provided that if an Event of Default under clause (c), (d), or
(e) of Section 5.1 with respect to the Company shall have occurred, the
outstanding principal amount of this Note, and all accrued and unpaid interest
thereon, shall immediately become due and payable, without any declaration and
without presentment, demand, protest or other notice whatsoever, all of which
are hereby expressly waived, anything in this Note or the Securities Purchase
Agreement to the contrary notwithstanding.
5.3. Other Remedies. If any Event of Default shall have occurred and be
continuing, from and including the date of such Event of Default to but not
including the date such Event of Default is cured or waived, the Holder may
enforce its rights by suit in equity, by action at law, or by any other
appropriate proceedings, whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in this Note or the
Securities Purchase Agreement or in aid of the exercise of any power granted in
this Note or the Securities Purchase Agreement, and the Holder may enforce the
payment of this Note and any of its other legal or equitable rights.
5.4. Conduct No Waiver; Collection Expenses. No course of dealing on the
part of the Holder, nor any delay or failure the part of the Holder to exercise
any of its rights, shall operate as a waiver of such right or otherwise
prejudice the Holder's rights, powers and remedies. If the Company fails to pay,
when due, the principal or the interest on this Note, the Company will pay to
the Holder to the extent permitted by law, on demand, all costs and expenses
incurred by the Holder in the collection of any amount due in respect of this
Note, including reasonable legal fees incurred by the Holder in enforcing its
rights hereunder.
5.5 Annulment of Acceleration. If a declaration is made in accordance with
Section 5.2, then and in every such case, the Holders of at least a majority of
the outstanding principal amount of the Notes may, by an instrument delivered to
the Company, annul such declaration and the consequences thereof, provided that
at the time such declaration is annulled:
(a) all arrears of interest on the Notes and all other sums payable on the
Notes and pursuant to the Securities Purchase Agreement (except any principal of
or interest or premium on the Notes which has become due and payable by reason
of such declaration) shall have been duly paid; and
(b) every other Event of Default under each of the Notes shall have been
duly waived or otherwise made good or cured;
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provided, however, that only the Purchaser or an Affiliate of the Purchaser (but
not any transferee thereof other than an Affiliate of the Purchaser) that is a
Holder of the Note or Notes with respect to which the declaration permitted by
the last proviso of Section 5.2 was made may annul such declaration; and
provided, further, that no such annulment shall extend to or affect any
subsequent Event of Default or impair any right consequent thereon.
5.6. Remedies Cumulative, Etc. No right or remedy conferred upon or
reserved to the Holder of this Note is intended to be exclusive of any other
right or remedy, and every right and remedy shall be cumulative and in addition
to every other right and remedy given hereunder or now and hereafter existing
under applicable Law. Every right and remedy given by this Note or by applicable
Law to the Holder may be exercised from time to time and as often as may be
deemed expedient by such Holder. Notwithstanding the foregoing or any other
provision of this Section 5, the rights and obligations in this Note will be
subordinate as set forth in Section 6.
SECTION 6. SUBORDINATION OF NOTES.
6.1. Subordination of Notes to Senior Indebtedness. The Indebtedness
evidenced by the Notes shall at all times be wholly subordinate and junior in
right of payment to any and all Senior Indebtedness of the Company (including
any claims by the holders of such Senior Indebtedness for interest accruing
after any assignment for the benefit of creditors by the Company or the
institution by or against the Company of any proceedings under the Bankruptcy
Code or any law for the relief of or relating to debtors, or any other claim by
such holders for any such interest which would have accrued in the absence of
such assignment or the institution of such proceedings) in the manner and with
the force and effect hereafter set forth:
(a) In the event of any liquidation, dissolution or winding up of the
Company, or of any execution, sale, receivership, insolvency, bankruptcy,
liquidation, readjustment, reorganization or other similar proceeding relative
to the Company or its property, all sums owing on all Senior Indebtedness of the
Company (including cash collateral and amounts not yet due and payable) shall
first be paid in full in cash, or provision shall be made for such payment in
money or money's worth, before any payment is made upon the Notes; and if in any
such event any payment or distribution, whether in cash, property, or securities
shall be made upon or in respect of the Notes at a time when such payment is
prohibited under this Section 6, the same shall be paid over to the holders of
the Senior Indebtedness of the Company, pro rata, for application in payment
thereof unless and until such Senior Indebtedness shall have been paid or
satisfied in full in cash, or provision shall be made for such payment in money
or money's worth.
In case of any assignment for the benefit of creditors by the Company or in
case any proceedings under the Bankruptcy Code or any other law for the relief
of or relating to debtors are instituted by or against the Company, or in case
of the appointment of any receiver for the Company's business or assets, or in
case of any dissolution or winding up of the affairs of the Company, the Company
and any assignee, trustee in bankruptcy, receiver, debtor in possession or other
person or persons in charge are hereby directed to pay to the holders of the
Senior Indebtedness of the Company the full amount of such holders' claims
against the Company (including interest to the date of payment) in cash, or
provision shall be made for such payment in money or money's worth, before
making any payments to the Holders of Notes, and insofar as may be necessary for
that purpose, the Holder hereby assigns and transfers to the holders of Senior
Indebtedness of the Company all rights to any payments, dividends or other
distributions.
(b) In the event that all or any part of the Indebtedness evidenced by the
Notes is declared or becomes due and payable because of the occurrence of any
Event of Default or otherwise than at the option of the Company (other than
pursuant to its terms at its final maturity or upon a Change in Control), under
circumstances when the foregoing clause (a) shall not be applicable, the Holders
of the Notes consent, subject to Section 6.5, to the payment to holders of
Senior Indebtedness (or the provision, in a manner satisfactory to the holders
of Senior Indebtedness, for such payment) of such amounts as are then due and
payable pursuant to such Senior Indebtedness prior to the payment to the Holders
of Notes of any amount due and payable in respect of the Notes.
(c) For purposes of this Section 6 only, the words "cash, property or
securities" shall (so long as the effect of this paragraph is not to cause the
Note to be treated in any case or proceeding or other event described in this
Section 6 as part of the same class of claims as any Senior Indebtedness or any
class of claims on a parity with or senior to any Senior Indebtedness for any
payment or distribution) not be deemed to include shares of stock of the
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Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment which are
subordinated in right of payment to all Senior Indebtedness which may at the
time be outstanding to substantially the same extent as, or to a greater extent
than, the Notes are so subordinated as provided in this Section 6.
(d) All payments, cash, or noncash distributions made to the Holders of
Notes which should have been made to the holders of Senior Indebtedness of the
Company shall be received and held by the former in trust for the benefit of the
latter, and the Holders of Notes shall forthwith remit each such payment, cash,
or noncash distribution to the holders of the Senior Indebtedness of the
Company, pro rata, in the form in which it was received, together with such
endorsements or documents as may be necessary to effectively negotiate or
transfer the same to the holders of the Senior Indebtedness of the Company.
(e) The Company shall not, at any time after the end of the Covenant
Period, pay the principal of, premium (if any) or interest on the Notes or make
any other payment to Holders of the Notes or repay, repurchase, redeem, defease
or otherwise retire any Notes (collectively, "pay the Notes") if (i) both (y)
any Senior Indebtedness is not paid when due in cash and (z) provision has not
been made for payment in full in a manner satisfactory to the holders of such
Senior Indebtedness or (ii) any other default on Senior Indebtedness occurs and
the maturity of such Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, (x) the default has been cured or waived and any
such acceleration has been rescinded in writing or (y) such Senior Indebtedness
has been paid in full in cash or provision has been made for payment in full in
a manner satisfactory to the holders of such Senior Indebtedness; provided,
however, that the Company may pay the Notes without regard to the foregoing if
the Company and the Purchaser receive written notice approving such payment from
the representative of the Senior Indebtedness with respect to which either of
the events set forth in clause (i) or (ii) of this sentence has occurred or is
continuing. During the continuance of any Payment Blockage Period, the Company
may not pay the Notes. Notwithstanding the provisions of the immediately
preceding sentence, unless the holders of Senior Indebtedness which initiated
the Payment Blockage Period or the representative of such holders shall have
accelerated the maturity of the Senior Indebtedness, the Company may resume
payments on the Note after the end of such Payment Blockage Period. A "Payment
Blockage Period" commences on the receipt by the Company of a written notice (a
"Blockage Notice") from the representative of the holders of such Senior
Indebtedness of a default, other than a default set forth in clause (i) or (ii)
of the first sentence of this Section 6.1(e), on any Senior Indebtedness that
permits the holders of the Senior Indebtedness to accelerate its maturity
immediately without either further notice (except such notice as may be required
to effect such acceleration) or the expiration of any applicable grace periods,
specifying an election to effect a Payment Blockage Period and ends 90 days
thereafter. The Payment Blockage Period will end earlier if such Payment
Blockage Period is terminated (1) by written notice to the Company from the
Person or Persons who gave such Blockage Notice, (2) because the default giving
rise to such Blockage Notice is no longer continuing or (3) because such Senior
Indebtedness has been repaid in full or provision has been made for payment in
full in a manner satisfactory to the holders of such Senior Indebtedness. Not
more than one Blockage Notice may be given in any 360-day period, irrespective
of the number of defaults with respect to Senior Indebtedness during such
period.
Notwithstanding anything set forth in this Section 6.1, nothing set forth
herein shall restrict Holders of the Notes from exercising their rights of
conversion hereunder.
6.2. Proofs of Claim of Holders of Senior Indebtedness; Voting. Each Holder
of Notes undertakes and agrees for the benefit of each holder of Senior
Indebtedness of the Company to execute, verify, deliver and file any proofs of
claim relating to the Notes which any holder of such Senior Indebtedness may at
any time require in order to prove and realize upon any rights or claims
pertaining to the Notes and to effectuate the full benefit of the subordination
contained herein. Upon failure of any Holder of Notes to file the required proof
or proofs of claim prior to 30 days before the expiration of the time to file
claims in such proceeding, each holder of Senior Indebtedness of the Company is
hereby irrevocably appointed by such Holder to be such Holder's agent to file
the appropriate claim or claims and if such holder of Senior Indebtedness elects
at its sole discretion to file such claim or claims (i) to accept or reject any
plan of reorganization or arrangement on behalf of such Holder, and (ii) to
otherwise vote such Holder's claim in respect of the Notes in any manner deemed
appropriate for the benefit and protection of the holders of the Senior
Indebtedness of the Company.
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6.3. Rights of Holders of Senior Indebtedness Unimpaired. No right of any
holder of any Senior Indebtedness to enforce subordination as herein provided
shall at any time or in any way be affected or impaired by any failure to act on
the part of the Company or the holders of Senior Indebtedness, or by any
noncompliance by the Company with any of the terms, provisions and covenants of
this Note, regardless of any knowledge thereof that any such holder of Senior
Indebtedness may have or be otherwise charged with.
6.4. Effects of Event of Default. The Company agrees, for the benefit of
the holders of Senior Indebtedness, that in the event that any Note is declared
due and payable before its maturity because of the occurrence of an Event of
Default, the Company will give prompt notice in writing of such happening to the
holders of Senior Indebtedness.
6.5. Company's Obligations Unimpaired. The provisions of this Section 6 are
solely for the purpose of defining the relative rights of the holders of Senior
Indebtedness on the one hand, and the Holders of Notes on the other hand, and
nothing herein shall impair, as between the Company and the Holders of Notes,
the obligation of the Company which is unconditional and absolute, to pay the
principal, premium, if any, and interest on the Notes in accordance with the
Securities Purchase Agreement and the terms of the Notes, nor shall anything
herein prevent any Holder of Notes from exercising all remedies otherwise
permitted by applicable law or under the Securities Purchase Agreement or the
Notes upon the occurrence of an Event of Default, subject to the rights of the
holders of Senior Indebtedness as herein provided for.
6.6. Subrogation.
(a) Upon the indefeasible payment in full in cash of all amounts payable
under or in respect of the Senior Indebtedness, the rights of the Holder shall
be subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Company made on such Senior
Indebtedness (until this Note shall be paid in full or converted as provided
herein); and for the purposes of such subrogation, no distributions in respect
of such Senior Indebtedness of any cash, property or securities to which the
Holder would be entitled except for the provisions of this Section 6, and no
payment pursuant to the provisions of this Section 6 to such holders of Senior
Indebtedness by the Holder, shall, as between the Company, its creditors other
than such holders of Senior Indebtedness and the Holder, be deemed to be a
payment by the Company to or on account of such Senior Indebtedness, it being
understood that the provisions of this Section 6 are solely for the purpose of
defining the relative rights of the holders of Senior Indebtedness, on the one
hand, and the Holder, on the other hand.
(b) If any payment or distribution to which the Holder would otherwise have
been entitled but for the provisions of this Section 6 shall have been applied,
pursuant to the provisions of this Section 6, to the payment of all amounts
payable under the Senior Indebtedness, then and in such case, the Holder shall
be entitled to receive from such holders of Senior Indebtedness at the time
outstanding any payments or distributions received by such holders of Senior
Indebtedness in excess of the amount sufficient to pay all amounts payable under
or in respect of the Senior Indebtedness in full in cash.
SECTION 7. INTERPRETATION.
7.1. Definitions.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Securities Purchase Agreement.
"Accrued Interest" to a particular date (the "Applicable Date") means (i)
all interest accrued but not paid on this Note pursuant to Section 1.2, accrued
to the Applicable Date, provided that if a Change in Control or Event of Default
occurs at any time on or prior to the Due Date, Accrued Interest payable on the
date of the Change in Control or Event of Default shall be deemed to include all
interest on the entire amount of the Notes outstanding on the date of the Change
in Control or Event of Default which have not been previously paid but which
otherwise would accrue through and including the Due Date (assuming that all
interest was paid solely in additional Notes rather than cash), which interest
shall be deemed to have been accelerated, recalculated and paid on their
respective Interest Payment Dates, in each case payable solely in additional
Notes; provided, however, that with respect to any Holder of this Note, no such
interest shall be deemed to have been accelerated,
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recalculated or paid in connection with a Change in Control in the event such
Holder has not elected, in connection with such Change in Control, to have all
of its Notes either (i) redeemed by the Company pursuant to Section 3 or (ii)
converted pursuant to Section 4.
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated by
the Commission under the Exchange Act.
"Applicable Conversion Rate" has the meaning ascribed thereto in Section
4.1(b).
"Associate" shall have the meaning set forth in Rule 12b-2 promulgated by
the Commission under the Exchange Act.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto.
"Beneficially Own" with respect to any securities means having "beneficial
ownership" of such securities (as determined pursuant to Rule 13d-3 under the
Exchange Act), including pursuant to any agreement, arrangement or
understanding, whether or not in writing.
"Blockage Notice" has the meaning ascribed thereto in Section 6.1(e).
"Board" and "Board of Directors" means the Board of Directors of the
Company.
"Business Day" means any day other than a Saturday, Sunday, or a day on
which commercial banks in the City of New York are authorized or obligated by
law or executive order to close.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing person.
"Capitalized Lease Obligation" of any Person means and includes, as of any
date as of which the amount thereof is to be determined, the amount of the
liability capitalized or disclosed (or which should be disclosed) in a balance
sheet of such Person in respect of a Capitalized Lease of such Person.
"Capitalized Lease" means, with respect to any Person, any lease or any
other agreement for the use of property which, in accordance with generally
accepted accounting principles, should be capitalized on the lessee's or user's
balance sheet.
"Change in Control" means any of the following:
(a) the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act, a "Group"), other than the
Company, or any of its wholly owned Subsidiaries or any Investor or Excluded
Group, of Beneficial Ownership of 35% or more of the combined voting power or
economic interests of the then-outstanding Voting Securities (a "Control
Interest"); provided, however, that (i) any transfer of Notes or shares of
Series B Preferred Stock or other securities from any Investor or Excluded Group
will not result in a Change in Control unless such transfer is pursuant to a
Reorganization Transaction, merger proposal or tender offer in respect of the
Company which has been approved by (or participated in by) the Board of
Directors of the Company or by a majority of the Voting Securities, and (ii) in
no event shall the conversion of any or all of the Notes in accordance with the
terms of this Note constitute a Change in Control; or
(b) there is a change in a majority of the members of the Board within 12
months of an "election contest" (as defined in Rule 14a pursuant to the Exchange
Act) relating to the election of persons not recommended by the Board of
Directors at the time of the first public announcements of such election contest
and in which a Person not an Affiliate of the Investor or any Related Person
obtained valid proxies or consents to effect such change; or
(c) the approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the Voting Securities immediately prior to such
reorganization, merger or consolidation do
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not, following such reorganization, merger or consolidation, Beneficially Own
more than 50% of the combined voting power of the then-outstanding Voting
Securities resulting from such reorganization, merger or consolidation;
(d) the sale or other disposition of assets representing 50% or more of the
assets of the Company in one transaction or series of related transactions; or
(e) the disposition by the Company of any of its interest in the Joint
Venture to a third party that is not a Subsidiary of the Company (other than a
disposition to Purchaser or its Affiliates) except as otherwise permitted under
the Joint Venture Partnership Agreement;
provided, that the occurrence of any event identified in subparagraphs (a)
through (e) above that would otherwise be treated as a Change in Control shall
not constitute a Change in Control hereunder if the Required Holders, by vote
duly taken, shall so determine.
"Change in Control Redemption Price" has the meaning ascribed thereto in
Section 3.1(a).
"Class A Common Stock" means the Class A Common Stock, par value $0.01 per
share, of the Company.
"Class B Common Stock" means the Class B Common Stock, par value $0.01 per
share, of the Company.
"Class C Common Stock" means the Class C Common Stock, par value $0.01 per
share of the Company.
"Closing" means the closing of the purchase of the Series B Preferred Stock
and the Note pursuant to the Securities Purchase Agreement.
"Closing Price" per share of Common Stock on any date shall be the last
sale price, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, in either case as reported on the Nasdaq Small Cap
Market or the Nasdaq National Market or in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or American Stock Exchange, as the case
may be, or, if the Common Stock is listed or admitted to trading on the New York
Stock Exchange or American Stock Exchange, or, if the Common Stock is not listed
or admitted to trading on any national securities exchange, the last quoted sale
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 National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Common Stock is not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors and reasonably acceptable to the Required
Noteholders.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Class A Common Stock and the Class B Common Stock
and the Class C Common Stock or, if there shall no longer be separate classes,
the common stock, par value $0.01 per share, of the Company.
"Company" has the meaning ascribed thereto in the recitals and includes all
Subsidiaries of the Company.
"Company EBITDA" has the meaning ascribed thereto in Section 2.1.
"Conversion Price" shall initially be equal to $4.00 in principal amount of
this Note per share of common stock, subject to adjustment as provided in
Section 4.1(c).
"Conversion Value" per Note shall be an amount equal to the principal
amount plus all Accrued Interest thereon to the date of conversion or
redemption, as the case may be.
"Current Market Price" per share of Common Stock on any date means the
average of the Closing Prices of a share of Common Stock for the five
consecutive Trading Days selected by the Company commencing not less than 10
Trading Days nor more than 20 Trading Days before the date in question. If on
any such Trading Day the Common Stock is not quoted by any organization referred
to in the definition of Closing Price, the Current Market Price of the Common
Stock on such day shall be determined by agreement between the Company and the
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Required Noteholders, provided that if such agreement is not reached within 10
Business Days, such Current Market Price shall be determined as set forth in
Section 3.1(a).
"Default Interest" has the meaning ascribed thereto in Section 1.4.
"Due Date" has the meaning ascribed thereto in the recitals.
"EBITDA" means, with respect to any person for any period, the sum without
duplication, determined on a consolidated basis, of such person's (a) net income
(or net loss), (b) net interest expense, (c) income tax expense, (d)
depreciation expense and (e) amortization expense, determined in accordance with
generally accepted accounting principles consistently applied.
"EBITDA Target" has the meaning ascribed thereto in Section 2.1.
"Event of Default" means each of the happenings or circumstances enumerated
in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include reference to the comparable section, if any, of any such successor
federal statute.
"Excluded Group" means any Group in which (A) the Voting Securities either
Beneficially Owned by such Group after the applicable acquisition or
Beneficially Owned by such Group and being transferred by such Group, as the
case may be, multiplied by (B) the percentage of the Investor's interest in the
Beneficial Ownership of such Group, represent a Control Interest.
"Excluded Issuances" has the meaning ascribed thereto in Section
4.1(c)(ii).
"Fair Market Value" has the meaning ascribed thereto in Section 3.1(a).
"Guarantee" by any Person means all obligations (other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection) of any Person guaranteeing, or in effect guaranteeing, any
Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or obligation and (y)
to maintain working capital or other balance sheet condition or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, (iii) to lease property or to purchase securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of such Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of any computations made under this Agreement, a
Guarantee in respect of any Indebtedness for borrowed money shall be deemed to
be Indebtedness equal to the outstanding amount of the Indebtedness for borrowed
money which has been guaranteed, and a Guarantee in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Holder" means, at any time of reference, a Person in whose name a Note is
registered in the Note Register at such time.
"Indebtedness" means, with respect to any Person, (i) all obligations of
such Person for borrowed money, or with respect to deposits or advances of any
kind, (ii) all obligations of such Person evidenced by bonds, debentures, notes
or similar instruments, (iii) all obligations of such Person under conditional
sale or other title retention agreements relating to property purchased by such
Person including sale leasebacks, (iv) all obligations of such Person issued or
assumed as the deferred purchase price of property or services (other than
accounts payable to suppliers and similar accrued liabilities incurred in the
ordinary course of business and paid in a manner consistent with industry
practice), (v) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any lien or security interest on property owned or acquired by such Person
whether or not the obligations secured thereby have been assumed,
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(vi) all Capitalized Lease Obligations of such Person, (vii) all Guarantees of
such Person, (viii) all obligations (including but not limited to reimbursement
obligations) relating to the issuance of letters of credit for the account of
such Person, (ix) all obligations arising out of foreign exchange contracts, and
(x) all obligations arising out of interest rate and currency swap agreements,
cap, floor and collar agreements, interest rate insurance, currency spot and
forward contracts and other agreements or arrangements designed to provide
protection against fluctuations in interest or currency exchange rates.
"Interest Payment Date" means March 31, June 30, September 30 and December
31.
"Interest Period" means the period from the Issuance Date to the first
Interest Payment Date (but without including such Interest Payment Date) and,
thereafter, each Interest Payment Date to the next following Interest Payment
Date (but without including such later Interest Payment Date).
"Investment Banking Firm" has the meaning ascribed thereto in Section
3.1(a).
"Investor" means the Purchaser, and such other persons as are included
within the definition of Investor in the Investor Agreement by virtue of Section
4.1(f) of the Investor Agreement.
"Investor Agreement" means the Investor Agreement by and among the Company
and the Purchaser dated [ ], 2000.
"Investor Designee" has the meaning ascribed thereto in section 3.1 of the
Investor Agreement.
"Issuance Date" means the original date of issuance of the Notes to the
Investors.
"Joint Venture" has the meaning ascribed thereto in the Securities Purchase
Agreement.
"Joint Venture Partnership Agreement" has the meaning ascribed thereto in
the Securities Purchase Agreement.
"Measurement Date" means, for purposes of Section 4.1(c)(ii), (i) in the
case of an offering of rights, warrants or options to all or substantially all
of the holders of the Common Stock or any other issuance contemplated by such
Section where a record date is fixed for the determination of stockholders
entitled to participate in such issuance, such record date and (ii) in all other
cases, the Business Day immediately preceding the date of issuance of shares of
Common Stock (or options, rights, warrants or other securities convertible into
or exchangeable for shares of Common Stock) contemplated by such Section.
"Note Holder Conversion Notice" has the meaning ascribed thereto in Section
4.1(e).
"Note" and "Notes" have the meanings ascribed thereto in Section 1.7.
"Original Investment Amount" means the sum of $30,000,000.
"Outstanding" means when used with reference to the Notes at a particular
time, all Notes theretofore issued as provided in the Securities Purchase
Agreement, except (i) Notes theretofore reported as lost, stolen, damaged or
destroyed, or surrendered for transfer, exchange or replacement, in respect to
which replacement Notes have been issued, (ii) Notes theretofore paid in full,
and (iii) Notes theretofore canceled by the Company, except that, for the
purpose of determining whether Holders of the requisite principal amount of
Notes have made or concurred in any waiver, consent, approval, notice or other
communication under this Agreement, Notes registered in the name of, or
Beneficially Owned by, the Company or any Subsidiary of any thereof, shall not
be deemed to be outstanding.
"Payment Blockage Period" has the meaning ascribed thereto in Section
6.1(e).
"PIK Note" has the meaning ascribed thereto in Section 1.3.
"Purchaser" has the meaning ascribed thereto in Section 1.7.
"Registration Rights Agreement" means that registration rights agreement
entered into between the Company and Investor dated [ ],
2000.
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<PAGE> 113
"Related Person" means, with respect to any person, (A) any Affiliate of
such person, (B) any investment manager, investment advisor or partner of such
person or an Affiliate of such person, and (C) any investment fund, investment
account or investment entity whose investment manager, investment advisor or
general partner is such person or a Related Person of such person.
"Reorganization Transaction" means: (i) any merger, consolidation,
recapitalization, liquidation or other business combination transaction
involving the Company; (ii) any tender offer or exchange offer for any
securities of the Company; or (iii) any sale or other disposition of assets of
the Company or any of its Subsidiaries in a single transaction or in a series of
related transactions in each of the foregoing cases constituting individually or
in the aggregate 50% or more of the assets or Voting Securities (as applicable)
of the Company.
"Required Noteholders" means the Holders of at least a majority of the
combined value of the aggregate principal amount of the Notes Outstanding on the
record date for such vote or, if no such record date is established, on the date
any written consent of Holders is solicited.
"Required Holders" means the holders of Notes or shares of Series B
Preferred Stock representing a majority of the combined (i) aggregate principal
amount of the Notes Outstanding and (ii) aggregate stated amount of the Series B
Preferred Stock outstanding, on the record date for such vote or, if no such
record date is established, on the date any written consent of such holders is
solicited, in each case excluding Notes or shares of Series B Preferred Stock
then owned by the Company or any of its Affiliates.
"Rights Plan" means the Shareholder Rights Agreement, dated as of July 8,
1999, between the Company and American Stock Transfer and Trust Company, as
Rights Agent, and any successor shareholder rights plan of a similar nature.
"Securities Purchase Agreement" has the meaning ascribed thereto in Section
1.7.
"Senior Indebtedness" means any Indebtedness of the Company approved by the
Board of Directors the terms of which provide that such Indebtedness will rank
senior to the Notes as to payment distributions and distributions upon
liquidation, winding-up and dissolution of the Company; provided, that in no
event shall Senior Indebtedness include intercompany Indebtedness obligations
and/or receivables.
"Series B Preferred Stock" means the Series B Preferred Stock, par value
$0.01 per share, of the Company.
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person. Subsidiary shall also
specifically include Interstate Hotels, LLC and Northridge Holdings, Inc.
"Surviving Person" means the continuing or surviving Person of a merger,
consolidation or other corporate combination, the Person receiving a transfer of
all or a substantial part of the properties and assets of the Company, or the
Person consolidating with or merging into the Company in a merger, consolidation
or other corporate combination in which the Company is the continuing or
surviving Person, but in connection with which the Notes or Common Stock of the
Company is exchanged, converted or reinstated into the securities of any other
Person or cash or any other property; provided, however, if such Surviving
Person is a direct or indirect Subsidiary of a Person, the parent entity also
shall be deemed to be a Surviving Person.
"Taxes" means any federal, state, county, local or foreign taxes, charges,
fees, levies or other assessments, including all net income, gross income, sales
and use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any Governmental
Entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes.
"Threshold Amount" has the meaning ascribed thereto in Section 2.1.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is quoted, listed or admitted to trading is
open for the transaction of business or, if the Common Stock is not quoted,
listed or admitted to trading on any national securities exchange (including the
NASDAQ), any day other than a Saturday, 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.
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"Transaction" has the meaning ascribed thereto in Section 4.1(d).
"Transaction Documents" has the meaning ascribed thereto in Section 2.1(b).
"Voting Securities" means (i) any securities entitled, or which may be
entitled, to vote generally in the election of directors of the Company, (ii)
any securities, including the Note and the Series B Preferred Stock, convertible
or exercisable into or exchangeable for such securities (whether or not the
right to convert, exercise or exchange is subject to the passage of time or
contingencies or both), or (iii) any direct or indirect rights or options to
acquire any such securities; provided, that unexercised options granted pursuant
to any employment benefit or similar plan and rights issued pursuant to any
shareholder rights plan shall be deemed not to be Voting Securities.
"Wyndham Redemption Agreement" means the Conversion and Redemption
Agreement among PAH-Interstate Holdings, Inc, Wyndham International, Inc.,
Northridge Holdings, Inc, Interstate Hotels, LLC and Interstate Hotels
Corporation, dated August [ ], 2000.
7.2. Accounting Principles. The character or amount of any asset,
liability, capital account or reserve and of any item of income or expense
required to be determined pursuant to this Note, and any consolidation or other
accounting computation required to be made pursuant to this Note, and the
construction of any definition in this Note containing a financial term, shall
be determined or made, as the case may be, in accordance with GAAP, to the
extent applicable, unless such principles are inconsistent with the express
requirements of this Note.
7.3. Severability. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid, but if any provision of
this Note is held to be invalid or unenforceable in any respect, such invalidity
or unenforceability shall not render invalid or unenforceable any other
provision of this Note.
7.4. Headings. The headings of the sections of this Note have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Note.
7.5. Nouns and Pronouns. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and vice
versa.
SECTION 8. MISCELLANEOUS.
8.1. Payment. If the date on which any payment under this Note is required
to be made occurs on a day other than a Business Day, such payment shall be due
and payable on the next succeeding Business Day.
8.2. Successors and Assigns. This Note shall bind and inure to the benefit
of the Company and the Holder and the respective successors, permitted assigns,
heirs and personal representatives of the Company and the Holder except that the
Company may not assign its rights and obligations under this Note to any person
without the prior written consent of the Holder. In addition, and whether or not
any express assignment has been made, the provisions of this Note which are for
the Holder's benefit are also for the benefit of, and enforceable by, any
subsequent holder of the Conversion Shares.
8.3. Entire Agreement. This Note and the Securities Purchase Agreement
(including the Schedules and Exhibits hereto and thereto) contain the entire
understanding of the parties with respect to the transactions contemplated
hereby and thereby.
8.4. Notices and Other Communications. All notices, requests, consents and
other communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by facsimile,
nationally recognized overnight courier or first class registered or certified
mail, return receipt
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requested, postage prepaid, addressed to such party at the address set forth
below or such other address as may hereafter be designated in writing by such
party to the other parties:
(i) if to the Company, to:
Interstate Hotels Corporation
680 Andersen Drive, Foster Plaza Ten
Pittsburgh, Pennsylvania 15220
Facsimile: (412) 920-5733
Attention: General Counsel
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
32nd Floor
New York, New York 10022
Facsimile: (212) 755-7306
Attention: Robert A. Profusek, Esq.
(ii) if to the Purchaser, to
CGLH Partners I LP and CGLH Partners II LP,
c/o Lehman Brothers Holdings Inc.
200 Vesey Street
12th Floor
New York, New York 10285
Facsimile: (212) 526-7006
Attention: Joseph Flannery
with a copy to:
Continental Gencom Holdings
c/o Mr. K. Alibhai and Mr. S. Weiser
3250 Mary Street
Suite 500
Miami, FL 33133
Facsimile: (305) 445-4255
with a copy to:
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.
150 West Flagler Street, Suite 2200
Miami, Florida 33130
Facsimile: (305) 789-3395
Attention: Richard E. Schatz, Esq.
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Facsimile: (212) 859-8582
Attention: Jonathan Mechanic, Esq.
All such notices, requests, consents and other communications shall be
deemed to have been given at the time delivered if delivered in person, when
receipt is confirmed if sent by facsimile, on the next Business Day if timely
delivered to a nationally recognized overnight courier and five days after being
deposited in the U.S. mail, postage prepaid.
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8.5. Amendments. No amendment or waiver of any provision of this Note, nor
consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Required
Noteholders and then such amendment, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given. No
alteration of the amount of principal or interest due under this Note shall in
any event be effective unless the same shall be in writing and signed by the
Holder or this Note.
8.6. Governing Law. THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT REFERENCE TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
8.7. Submission to Jurisdiction. The Company and the Holder agree that
irreparable damage would occur and that the Holder would not have any adequate
remedy at law in the event that any of the provisions of this Note were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the Holder shall be entitled to an injunction or
injunctions to prevent breaches of this Note and to enforce specifically the
terms and provisions of this Note in any federal court located in the State of
Maryland or in Maryland state court, this being in addition to any other remedy
to which they are entitled at law or in equity. In addition, the Company (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Maryland or any Maryland state court in the event any
dispute arises out of this Note or any of the transactions contemplated by this
Note, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action relating to this Note or any of the
transactions contemplated by this Note in any court other than a federal court
sitting in the State of Maryland or a Maryland state court.
8.8. Service of Process. Nothing herein shall affect the right of the
Holder to serve process in any other manner permitted by Law or to commence
legal proceedings or otherwise proceed against the Company in any other
jurisdiction.
8.9. Waiver of Jury Trial. THE COMPANY HEREBY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY
OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS NOTE OR ANY OF
THE OTHER TRANSACTION DOCUMENTS
8.10. Enforcement Costs. The Holder shall be entitled to reasonable
attorney's fees and disbursements incurred by such Holder in enforcing its
rights under this Note or the Securities Purchase Agreement in the event the
Company shall default in its performance hereof or thereof.
INTERSTATE HOTELS CORPORATION
By:
------------------------------------
Name:
Title:
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APPENDIX D
ARTICLES SUPPLEMENTARY TO THE CHARTER OF
INTERSTATE HOTELS CORPORATION
DESIGNATING A SERIES OF PREFERRED STOCK
AS SHARES OF
SERIES B CONVERTIBLE PREFERRED STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
Interstate Hotels Corporation, a corporation organized and existing under
the laws of Maryland (the "Corporation"), does hereby certify to the State
Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority contained in the Charter of the
Corporation (the "Charter"), and in accordance with the provisions of Section
2-208 of the Maryland General Corporation Law, the Board of Directors of the
Corporation duly adopted a resolution on [ ], 2000 creating and
classifying a series of preferred stock, par value $.01 per share (the
"Preferred Stock"), designated as Series B Convertible Preferred Stock (the
"Series B Preferred Stock") with the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of shares
of Series B Preferred Stock as set forth below.
SERIES B CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT; RANK.
(a) Designation and Amount. The shares of such series shall be designated
as the "Series B Convertible Preferred Stock" and the number of shares
constituting such series shall be 850,000 shares of Series B Preferred Stock.
Section 9 contains the definitions of certain defined terms used herein.
(b) Rank. The Series B Preferred Stock shall, with respect to dividend
distributions and distributions upon liquidation, winding-up and dissolution of
the Corporation, rank (i) senior (to the extent set forth herein) to all Junior
Stock; (ii) on a parity with Parity Stock; provided that any such stock that was
not approved by the holders in accordance with Section 3(d) shall be deemed to
be Junior Stock and not Parity Stock; and (iii) junior to all Senior Stock;
provided, that any such stock that was not approved by the holders in accordance
with Section 3(d) shall be deemed to be Junior Stock and not Senior Stock.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(a) The holders of shares of Series B Preferred Stock shall be entitled to
receive on each Dividend Payment Date in respect of the Dividend Period ending
on such Dividend Payment Date (but without including such Dividend Payment
Date), commencing on the first Dividend Payment Date, cumulative dividends
payable in cash on each such Dividend Payment Date at a rate per annum equal to
8.75% of the Stated Amount of each share of the then outstanding Series B
Preferred Stock. Up to 25% of the cumulative dividends payable on each Dividend
Payment Date may be paid in additional shares of Series B Preferred Stock. If
dividends on the Series B Preferred Stock are in arrears and unpaid for a period
of 60 days or more, then an additional amount of dividends shall accrue at a
rate per annum, equal to 2.00% of the Stated Amount of each share of the then
outstanding Series B Preferred Stock from the last Dividend Payment Date on
which cash dividends were to be paid in full until such time as all dividends in
arrears have been paid in full, such additional dividends to be cumulative and
payable in shares of Series B Preferred Stock (including fractional shares) at
the Stated Amount. Any reference herein to "cumulative dividends" or "accrued
dividends" or similar phrases means that such dividends are fully cumulative and
accumulate and accrue on a daily basis (computed on the basis of a 360-day year
of twelve 30-day months) and compound quarterly on the Dividend Payment Dates at
the rate indicated above and in the manner set forth herein, whether or not they
have been declared and whether or not there are profits, surplus or other funds
of the Corporation legally available for the payment of dividends. All dividends
payable in additional
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shares of Series B Preferred Stock shall be paid through the issuance of
additional shares of Series B Preferred Stock (including fractional shares) at
the Stated Amount.
(b) In case the Corporation shall at any time or from time to time declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of stock or other securities or property or rights
or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spin off on the Common Stock), other than any
dividend or distribution of shares of Common Stock covered by Section 7(b)(i) or
any issuance of rights pursuant to the Rights Plan, as it may be amended from
time to time, then, and in each such case (a "Triggering Distribution"), the
holders of shares of Series B Preferred Stock shall be entitled to receive from
the Corporation, with respect to each share of Series B Preferred Stock held, in
addition to the dividends payable under Section 2(a), the same dividend or
distribution received by a holder of the number of shares of Common Stock into
which such share of Series B Preferred Stock is convertible on the record date
for such dividend or distribution, after giving effect to the contemporaneous
issuance of any additional shares of Series B Preferred Stock as described in
Section 2(a) above with respect to Accrued Dividends. Any such dividend or
distribution shall be declared, ordered, paid or made on the Series B Preferred
Stock at the same time such dividend or distribution is declared, ordered, paid
or made on the Common Stock and shall be in addition to any dividends payable
under Section 2(a).
(c) (ii) No dividends shall be authorized by the Board of Directors or paid
or Set Apart for Payment by the Corporation on any Parity Stock for any period
unless the Accrued Dividends have been or contemporaneously are authorized and
declared and paid in full, or declared and, if payable in cash, a sum in cash
Set Apart for Payment, on the Series B Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of such dividends on such Parity
Stock. If any dividends are not so paid, all dividends declared upon shares of
the Series B Preferred Stock and any other Parity Stock shall be declared pro
rata so that the amount of dividends declared per share on the Series B
Preferred Stock and such Parity Stock shall in all cases bear to each other the
same ratio that the Accrued Dividends per share on the Series B Preferred Stock
and the accrued dividends on such Parity Stock bear to each other.
(ii) So long as any share of the Series B Preferred Stock is
outstanding, the Corporation shall not declare, pay or Set Apart for
Payment any dividend on any of the Junior Stock (other than dividends in
Junior Stock to the holders of Junior Stock), or make any payment on
account of, or Set Apart for Payment money for a sinking or other similar
fund for, the purchase, redemption or other retirement of, any of the
Junior Stock or any warrants, rights, calls or options exercisable for or
convertible into any of the Junior Stock whether in cash, obligations or
shares of the Corporation or other property (other than in exchange for
Junior Stock), and shall not permit any corporation or other entity
directly or indirectly controlled by the Corporation to purchase or redeem
any of the Junior Stock or any such warrants, rights, calls or options
(other than in exchange for Junior Stock) unless the Accrued Dividends on
the Series B Preferred Stock for all Dividend Periods ended on or prior to
the date of such payment in respect of Junior Stock have been or
contemporaneously are paid in full.
(iii) So long as any share of the Series B Preferred Stock is
outstanding, the Corporation shall not (except with respect to dividends as
permitted by Section 2(c)(i)) make any payment on account of, or Set Apart
for Payment money for a sinking or other similar fund for, the purchase,
redemption or other retirement of, any of the Parity Stock or any warrants,
rights, calls or options exercisable for or convertible into any of the
Parity Stock, and shall not permit any corporation or other entity directly
or indirectly controlled by the Corporation to purchase or redeem any of
the Parity Stock or any such warrants, rights, calls or options unless the
Accrued Dividends on the Series B Preferred Stock for all Dividend Periods
ended on or prior to the date of such payment in respect of Parity Stock
have been or contemporaneously are paid in full.
SECTION 3. VOTING RIGHTS.
(a) Other than as expressly set forth herein, the Series B Preferred Stock
shall have no voting rights.
(b) Except in the case of a Payment Default (in which case the Board of
Directors of the Corporation shall consist of thirteen directors), after both
(i) the earliest to occur of (A) such time that there are no shares of
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Class B Common Stock outstanding, (B) such time that there are no shares of
Class C Common Stock outstanding, (C) September 30, 2003, and (D) such other
time as the number of Directors of the Corporation otherwise may be validly
fixed by a resolution adopted by the Board of Directors and (ii) the end of the
Investor Designee Period, the Board of Directors shall consist of no more than
eleven directors. During the Investor Designee Period, the holders of Series B
Preferred Stock shall have, in addition to the other voting rights set forth
herein, the exclusive right, voting separately as a single class, (i) prior to a
Payment Default, to elect the Applicable Number of directors of the Corporation
(as defined in the next sentence), (the "Series B Preferred Directors") and (ii)
after an occurrence of a Payment Default, to elect seven directors (which number
shall include the Series B Preferred Directors) such that the directors elected
by the holders of Series B Preferred Stock constitute a majority of the maximum
number of directors of the Board of Directors of the Corporation (such
additional directors elected during a Payment Default being referred to as, the
"Default Series B Preferred Directors"). The "Applicable Number" of directors
shall be (A) five directors so long as the Investor and Related Persons
Beneficially Own Voting Securities representing at least 30% or more of the
Total Voting Power (without taking into account any limitation on the conversion
of such Voting Securities in determining such Beneficial Ownership or the number
of shares issuable upon complete conversion) ("Shares"), (B) four directors, so
long as the Investor and Related Persons beneficially own at least 20% or more
but less than 30% of the Shares, (C) three directors, so long as the Investor
and Related Persons Beneficially Own at least 10% or more but less than 20% of
the Shares, and (D) one director, so long as the Investor and Related Persons
Beneficially Own at least 5% or more but less than 10% of the Shares. The right
of the holders of Series B Preferred Stock to vote for the election of directors
may be exercised at any annual meeting or at any special meeting called for such
purpose or at any adjournment thereof, or by the written consent, delivered to
the Secretary of the Corporation, of the holders of a majority of all shares of
Series B Preferred Stock outstanding as of the record date of such written
consent.
(c) (i) With respect to the Series B Preferred Directors, immediately after
the date of the Issuance Date, and (ii) with respect to the Default Series B
Preferred Directors, immediately after such Payment Default has occurred, the
Board of Directors of the Corporation shall call for a special meeting or
written consent of the holders of shares of Series B Preferred Stock to elect
the Series B Preferred Directors or Default Series B Preferred Directors, as the
case may be. If the Corporation fails to send a notice, the meeting may be
called by any such holder. Each director, and any subsequent director elected
pursuant to this paragraph, shall serve as a director until his successor is
elected and qualified. In the event of a vacancy in respect of any directorship
elected by the holders of shares of Series B Preferred Stock pursuant to this
clause (c), the Corporation agrees to call a special meeting of the holders of
shares of Series B Preferred Stock at the request of the majority of the holders
of outstanding Series B Preferred Stock, in order that the holders of the Series
B Preferred Stock may elect a successor director, and at which meeting the
holders of Series B Preferred Stock shall be entitled to the same voting rights
as provided in the second sentence of the prior paragraph. The voting rights
with respect to the Default Series B Preferred Directors will terminate at such
time as all cumulative dividends in respect of all previously completed full
Dividend Periods that are in arrears on the Series B Preferred Stock have been
paid regularly for at least one year. Simultaneously with the termination of
such voting rights, the terms of office of the Default Series B Preferred
Directors (but not the Series B Preferred Directors) shall terminate; and the
remaining directors shall constitute the directors of the Corporation and the
size of the Board of Directors shall be reduced to nine. The holders of the
Series B Preferred Stock will continue to be entitled to vote for the Series B
Preferred Directors after a Payment Default has been cured.
(d) For so long as both (x) any share of Series B Preferred Stock is
outstanding and (y) the later of (i) the expiration or termination of the
Standstill Period (as such term is defined in the Investor Agreement), (ii) if
the Standstill Period is terminated by reason of the occurrence of any of the
events specified in Section 2.2(a) through (f) or Section 2.2(l) of the Investor
Agreement, the fourth anniversary of the Closing and (iii) such time as the
Investor and its Affiliates no longer Beneficially Own securities of the
Corporation having an aggregate principal amount, liquidation preference or Fair
Market Value, as the case may be, of at least 51% of the Original Investment
Amount, the Corporation shall not, nor shall it permit any of its Subsidiaries
to, without first obtaining the written consent or approval of at least the
Requisite Holders:
(i) voluntarily liquidate, dissolve or wind up;
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(ii) purchase, acquire or obtain any capital stock or other
proprietary interest, directly or indirectly, in any other entity, except
for (i) any transaction or series of transactions involving only
wholly-owned subsidiaries of the Corporation as of the date hereof, or (ii)
the purchase of all or substantially all of the capital stock or other
proprietary interest of other entities for an aggregate purchase price,
including without limitation, any liabilities of the acquired entities, of
less than the Threshold Amount;
(iii) purchase, acquire or obtain assets of any third party in an
aggregate amount (as to the Corporation and all of its subsidiaries),
including without limitation, any liabilities of the acquired entities, in
excess of the Threshold Amount;
(iv) make or commit to make capital expenditures which exceed the
amount set forth in a budget approved by the Board of Directors by more
than the Threshold Amount;
(v) sell, transfer or otherwise dispose of any equity interest of the
Corporation or any of its subsidiaries, except for transactions involving
only wholly-owned subsidiaries of the Corporation which either (i) is in
excess of the Threshold Amount, or (ii) relates to the Venture Fund;
(vi) enter into or commit to enter into any joint ventures or any
partnerships, establish any non-wholly-owned subsidiaries or form any joint
venture (other than the Venture Fund) either (i) in excess of the Threshold
Amount, or (ii) in activity or business competitive with the Venture Fund;
(vii) sell, lease, transfer or otherwise dispose of any assets of the
Corporation or any of its subsidiaries in excess of the Threshold Amount;
(viii) create, incur, assume or suffer to exist any indebtedness for
borrowed money (including any capital leases) of the Corporation or any of
its subsidiaries at any one time outstanding in excess of the Threshold
Amount;
(ix) redeem the Rights issued pursuant to the Rights Plan or any
successor agreement thereto or otherwise render the Rights Plan
inapplicable to any person who would otherwise be an "Acquiring Person" as
defined in the Rights Plan, except, in either case, (i) for any conversion
of the Notes or the Series B Preferred Stock into Common Stock or any
Disposition by the Investor permitted by the Investor Agreement, (ii) in
connection with a transaction approved or recommended by unanimous vote of
the Board members present and voting thereon (in all events including at
least a majority of the Investor Designees as are then required to be
included on the Board of Directors), and (iii) as reasonably determined by
the Board to be required by law or the requirements of a National
Securities Exchange;
(x) pay, or set aside any sums for the payment of, any dividends, or
make any distribution on, any shares of its Common Stock or redeem,
repurchase or otherwise acquire any outstanding shares of its Common Stock
or any other of its outstanding securities (other than indebtedness at
maturity in accordance with the terms thereof);
(xi) issue, sell or amend the rights of any capital stock or other
securities of the Corporation or any of its subsidiaries except for (i)
dividends or other distributions payable on the Common Stock solely in the
form of additional shares of Common Stock; (ii) in connection with the
issuance of Common Stock upon conversion of the Notes or Series B Preferred
Stock or otherwise in accordance with the provisions of the Notes and the
Series B Preferred Stock; (iii) for the issuance of shares of Common Stock
or the issuance of options to purchase Common Stock approved by the
Compensation Committee to employees, advisors, consultants or outside
directors of the Corporation directly or pursuant to an employee benefit
plan of the Corporation; and (iv) acquisitions and other transactions for
which the approval of Holders of Series B Preferred Stock has been given
under this Section 3(d);
(xii) change the Corporation's independent public accountants (unless
the Audit Committee shall determine that they are no longer "independent"
within the meaning of Independence Standards Board Standard No. 1) or,
other than as provided by Section 5.13 of the Investor Agreement, retain a
financial advisor to the Corporation in connection with a merger,
consolidation, recapitalization, an acquisition or divestiture involving or
expected (in the opinion of the Board) to involve, gross proceeds in excess
of the Threshold Amount or a public offering of securities;
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(xiii) enter into any transaction (except (i) as expressly permitted
by the Investor Agreement or the Securities Purchase Agreement or (ii)
relating to compensation of executive officers as determined by the
Compensation Committee of the Board of Directors) with any Affiliate or
Associate of the Corporation or any stockholder of the Corporation (other
than the Investor or its Affiliates).
For the purposes of this section the term "Threshold Amount" shall mean,
(a) with respect to any individual transaction, action or instance, the amount
of $2,000,000 at any time prior to the first anniversary of the Closing, which
amount shall increase by $1,000,000 from the amount then in effect on each
anniversary of the Closing if the Corporation EBITDA (as defined below) is
greater than or equal to the EBITDA Target (as defined below) for such
anniversary, (b) provided that (i) if the Corporation EBITDA for such
anniversary is less than the EBITDA Target for such anniversary, the Threshold
Amount shall be the increased Threshold Amount that would otherwise apply
pursuant to clause (a) above multiplied by the Corporation EBITDA for such
anniversary divided by the EBITDA Target for such anniversary, and (ii) the
Threshold Amount shall not exceed $5,000,000, and further provided, however,
that all such transactions subject to this limitation shall not, in the
aggregate for any year ending on an anniversary of the Closing, exceed the
lesser of (x) two times the amount applicable to any individual transaction,
action or instance during such period and (y) $10,000,000.
"Corporation EBITDA" for any anniversary of the date of the Closing shall mean
the EBITDA of the Corporation for the prior calendar year, including earnings
attributable to management agreements with respect to hotels owned directly or
indirectly by CGLH-IHC Fund I, L.P.
The "EBITDA Target" shall mean the EBITDA of the Corporation for calendar year
2000 adjusted for the revenues and expenses, including minority interest,
affected by the Wyndham Redemption Agreement as though such agreement had been
in effect throughout the entire year, plus: (i) for the first anniversary of the
date of the Closing, $10,000,000; (ii) for the second anniversary of the date of
the Closing, $20,000,000; and (iii) for the third anniversary of the date of the
Closing, $30,000,000.
(e) So long as any share of Series B Preferred Stock is outstanding the
Corporation shall not, nor shall it permit any of its Subsidiaries to, without
first obtaining the consent or approval of at least the Requisite Holders,
voting as a single class:
(i) authorize, create or issue any class or series, or any shares of
any class or series, of Senior Stock;
(ii) authorize, create or issue any class or series, or any shares of
any class or series, of Parity Stock;
(iii) reclassify any shares of stock of the Corporation into shares of
Senior Stock or Parity Stock;
(iv) authorize any security exchangeable for, convertible into, or
evidencing the right to purchase any shares of Senior Stock or Parity
Stock;
(v) alter or change the rights, preferences or privileges of the
Series B Preferred Stock or the rights of the Class B Common Stock or the
Class C Common Stock;
(vi) alter or change the rights of the Class A Common Stock in a
manner adverse to the holders of the Series B Preferred Stock.
(vii) except for any transaction or series of transactions involving
only wholly-owned subsidiaries of the Corporation, (i) consolidate or merge
into or with any other Person (except where the Corporation is the
surviving entity), or (ii) enter into any other Reorganization Transaction
(including any transaction constituting a Change in Control;
(viii) become a party to any agreement which by its terms materially
restricts the Corporation's performance of the terms of the Purchase
Agreement, the Registration Rights Agreement, the Notes, the Series B
Preferred Stock or the Investor Agreement (together, the "Documents");
(ix) grant any registration rights in respect of securities of the
Corporation which have an aggregate value, in any year ending on the
anniversary of the date of the Investor Agreement, greater than the lesser
of (i) the Threshold Amount and (ii) 5% of the market capitalization of the
Corporation that would be
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inconsistent with the rights granted to the holders of Registrable
Securities under the Registration Rights Agreement or otherwise conflict
with or violate the provisions thereof;
(x) amend, modify or waive the Articles of Amendment and Restatement,
any Articles Supplementary thereto, the Notes or the bylaws in any manner
which adversely affects the rights of any of the Investors thereunder,
including, without limitation, any change in the number of directors
comprising the Board; and
(xi) except for the repurchase of Class C Common Stock or redemptions
pursuant to the terms of the Notes, redeem or purchase or otherwise acquire
for consideration any securities of the Corporation unless the Corporation
shall concurrently offer to purchase, at a price per share equal to the
liquidation preference, from the holders of Series B Preferred Stock
(ratably amongst such holders) such portion of the outstanding Series B
Preferred Stock as such securities redeemed, purchased or otherwise
acquired for consideration (on an as-converted basis) bear to the total of
the then-outstanding securities of the Corporation (on an as-converted
basis).
SECTION 4. REDEMPTION
(a) The Corporation shall, on the seventh anniversary of the Issuance Date
and subject to applicable law, redeem (the "Mandatory Redemption") all remaining
issued and outstanding shares of Series B Preferred Stock, at a price per share
in cash equal to the Stated Amount thereof together with all Accrued Dividends
thereon to the date of redemption. The Corporation shall not be required to
provide written notice to holders of Series B Preferred Stock of the Mandatory
Redemption, and the redemption date with respect to the Mandatory Redemption
shall be the seventh anniversary of the Issuance Date. The holders shall be
permitted to convert their Series B Preferred Stock at any time prior to the
redemption date.
(b) In the event there occurs a Change in Control, the Corporation shall
offer to purchase from each holder all of the Series B Preferred Stock held by
such holder for an amount in cash equal to the greater of (i) the Liquidation
Preference of the shares of Series B Preferred Stock held by the holder, and
(ii) the Fair Market Value (as defined below) of the cash, securities and other
property that such holder of the Series B Preferred Stock would have received
had it converted its Series B Preferred Stock (including for such purposes any
shares of Series B Preferred Stock issuable in respect of Accrued Dividends)
into shares of Common Stock immediately prior to such Change in Control, plus
Accrued Dividends payable in cash to the extent not otherwise reflected pursuant
to the parenthetical phrase of this clause (ii) (the greater of (i) and (ii)
above being referred to as the "Change in Control Redemption Price"), in each
case by delivery of a notice in accordance with Section 4(c). In the event of a
Change in Control, each holder of Series B Preferred Stock shall have the right
(but not the obligation) to require the Corporation to purchase any or all of
the Series B Preferred Stock held by such holder for an amount in cash equal to
the Change in Control Redemption Price. Each holder of Series B Preferred Stock
shall also be permitted, until 20 Business Days following the date of the
mailing to it of the Corporation's notice described in Section 4(c)(i), to
convert all, and not less than all, of the shares of Series B Preferred Stock
held by such holder (including shares of Series B Preferred Stock issuable to
such holder as Accrued Dividends that have accelerated or will accelerate as a
result of a Change in Control) pursuant to Section 7 below; provided that any
shares of Common Stock issuable upon conversion of any Series B Preferred Stock
converted pursuant to this sentence after a Change in Control has occurred shall
be entitled to receive the same amount of cash, securities and other property in
connection with such Change in Control as the Common Stock outstanding prior to
the Change in Control. In the event a holder of Series B Preferred Stock does
not elect to have all of its shares of Series B Preferred Stock either (i)
redeemed by the Corporation pursuant to Section 4 or (ii) converted pursuant to
Section 7 below, in each case in connection with a specific Change in Control
event, then no dividends shall be deemed to have been accelerated in connection
with such Change in Control. In the event that any holder does not elect to
convert or redeem such holder's shares of Series B Preferred Stock pursuant to
the foregoing sentence, such holder shall retain any rights it has to convert or
redeem its shares of Series B Preferred Stock in connection with any subsequent
Change in Control. "Fair Market Value" with respect to any securities shall be
the Current Market Price thereof as of the close of business on the date of
measurement. The Fair Market Value of any asset other than cash and securities
shall be determined jointly and in good faith by the Corporation and the
Requisite Stockholders. In the event any dispute between the Corporation and the
Requisite Stockholders as to the Fair Market Value or Current Market Price
(which dispute remains unresolved for 10 Business Days), such dispute
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shall be submitted for final determination to a mutually acceptable Investment
Banking Firm of national reputation familiar with the valuation of companies in
the hospitality and lodging industry ("Investment Banking Firm"). In the event
that the Corporation and the Requisite Stockholders cannot agree on a mutually
acceptable Investment Banking Firm within 10 Business Days, the Corporation, on
the one hand, and the Requisite Stockholders, on the other hand, shall each
select one Investment Banking Firm which two Investment Banking Firms shall
jointly make such determination within 20 business days after the date of such
event, or, if such two Investment Banking Firms are unable to agree on such
determination, the two Investment Banking Firms shall, by the end of the 20(th)
business day after the date of such event, select a third Investment Banking
Firm and notify such third Investment Banking Firm in writing (with a copy to
the Corporation and the holders of Series B Preferred Stock) of their respective
determinations of the Fair Market Value or Current Market Price following which
such third Investment Banking Firm shall, within 15 business days after the date
of its selection, notify the Corporation and the holders of Series B Preferred
Stock in writing of its selection of one or the other of the two original
determinations of the Fair Market Value or Current Market Price, which
determination shall be final and binding on the Corporation and the holders. The
fees and expenses of any such determination shall be borne by the Corporation.
(c) (i) Within five Business Days following an event giving a holder of
shares of Series B Preferred Stock the right, pursuant to Section 4(b), to
require the Corporation to redeem all of such shares, the Corporation shall give
notice by mail to each holder of Series B Preferred Stock, at such holder's
address as it appears on the transfer books of the Corporation, of such event,
which notice shall set forth each holder's right to convert all, and not less
than all, of the shares of Series B Preferred Stock held by such holder, or to
require the Corporation to redeem all, but not less than all, shares of Series B
Preferred Stock held by it which are eligible for redemption pursuant to the
terms of Section 4(b), the redemption date (which date shall be no more than 30
Business Days following the date of such mailed notice), and the procedures to
be followed by such holder in exercising its right to cause such redemption or
effect such conversion. In the event a record holder of shares of Series B
Preferred Stock shall elect to require the Corporation to redeem all such shares
of Series B Preferred Stock pursuant to Section 4(b), such holder shall deliver
within 20 Business Days of the mailing to it of the Corporation's notice
described in this Section 4(c)(i), a written notice to the Corporation so
stating, specifying the number of shares to be redeemed pursuant to Section
4(b). The Corporation shall, in accordance with the terms hereof, redeem the
number of shares so specified on the date fixed for redemption. Failure of the
Corporation to give any notice required by this Section 4(c)(i), or the formal
insufficiency of any such notice, shall not prejudice the rights of any holders
of shares of Series B Preferred Stock to cause the Corporation to redeem or to
convert all such shares held by them. Notwithstanding the foregoing, the Board
of Directors of the Corporation may modify any offer pursuant to this Section
4(c)(i) to the extent necessary to comply with the Exchange Act and the rules
and regulations thereunder.
(ii) The Corporation shall publish the fact that it is redeeming, or
offering to redeem, shares of Series B Preferred Stock through a nationally
prominent newswire service on or before the date of mailing any notice of
redemption or right of redemption. At any time after a notice of redemption
shall have been mailed and before such date of redemption the Corporation
may deposit for the benefit of the holders of the Series B Preferred Stock
called for redemption the funds necessary for such redemption with a bank
or trust company doing business in the Borough of Manhattan, the City of
New York, and having a capital and surplus of at least $1,000,000,000. Any
interest allowed on moneys so deposited shall be paid to the Corporation.
Upon the deposit of such funds or, if no such deposit is made, upon the
date fixed for redemption (unless the Corporation shall default in making
payment of the appropriate redemption amount), whether or not certificates
for shares so called for redemption have been surrendered for cancellation,
the shares of Series B Preferred Stock to be redeemed shall be deemed to be
no longer outstanding and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with
respect thereto, except for the rights to receive the amount payable upon
redemption, but without interest, and, up to the close of business on the
date immediately preceding the date fixed for such redemption, the right to
convert such shares pursuant to Section 7 hereof. Such deposit in trust
shall be irrevocable except that any funds deposited by the Corporation
which shall not be required for the redemption for which they were
deposited because of the exercise of conversion rights shall be returned to
the Corporation forthwith, and any funds deposited by the Corporation which
are unclaimed at the end of one year from the date fixed for such
redemption shall be
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paid over to the Corporation upon its request, and upon such repayment the
holders of the shares of Series B Preferred Stock so called for redemption
shall look only to the Corporation for payment of the appropriate amount.
Any such unclaimed amounts paid over to the Corporation shall, for a period
of six years from the date fixed for such redemption, be set apart and held
by the corporation in trust for the benefit of the holders of such shares
of Series B Preferred Stock, but no such holder shall be entitled to
interest thereon. At the expiration of such six-year period, all right,
title, interest and claim of such holders in or to such unclaimed amounts
shall be extinguished, terminated and discharged, and such unclaimed
amounts shall become part of the general funds of the Corporation free of
any claim of such holders.
SECTION 5. REACQUIRED SHARES. Any shares of Series B Preferred Stock
converted, redeemed, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof, and, if necessary to provide for the lawful redemption or purchase of
such shares, the capital represented by such shares shall be reduced in
accordance with the Maryland General Corporation Law. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock, par
value $.01 per share, of the Corporation and may be reissued as part of another
series of Preferred Stock, par value $.01 per share, of the Corporation subject
to the conditions or restrictions on authorizing, creating or issuing any class
or series, or any shares of any class or series, set forth in Section 3(d).
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING-UP. If the Corporation
shall adopt a plan of liquidation or of dissolution, or commence a voluntary
case under the Federal bankruptcy laws or any other applicable state or Federal
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in any involuntary case under any such law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or state bankruptcy, insolvency or similar
law, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 90 consecutive days and on account of such event the Corporation shall
liquidate, dissolve or wind up, or upon any other liquidation, dissolution or
winding-up of the Corporation (a "Liquidation"), the holders shall be entitled
to receive the greatest of (i) the Liquidation Preference of the shares of
Series B Preferred Stock held by the holder, and (ii) the Fair Market Value of
the cash, securities and other property that such holder of the Series B
Preferred Stock would have received had they converted their Series B Preferred
Stock (including for such purposes any shares of Series B Preferred Stock
issuable in respect of Accrued Dividends) into shares of Common Stock
immediately prior to such Liquidation, plus Accrued Dividends payable in cash to
the extent not otherwise reflected pursuant to the parenthetical phrase of this
clause (ii) (including for such purposes any shares of Series B Preferred Stock
issuable in respect of Accrued Dividends through the date of the Liquidation),
before any distribution shall be made or any assets distributed in respect of
Junior Stock to the holders of any Junior Stock including, without limitation,
Common Stock of the Corporation. After payment of the full amount of the
greatest of the amounts set forth in clause (i) or (ii) above to which they are
entitled, the holders of shares of Series B Preferred Stock will not be entitled
to any further participation in any distribution of assets of the Corporation.
For the purposes of this Section 6 the voluntary sale, conveyance, exchange or
transfer of all or substantially all of the property or assets of the
Corporation or the consolidation or merger of the Corporation with or into one
or more other corporations shall not be deemed to be a liquidation, winding-up
or dissolution of the Corporation.
SECTION 7. CONVERSION INTO COMMON STOCK. Each share of Series B Preferred
Stock, including any shares of Series B Preferred Stock issued as Accrued
Dividends (including Accrued Dividends that have been accelerated in connection
with a Change in Control and assuming any shares of Common Stock into which such
shares are converted will be treated in all respects as shares of Common Stock
outstanding prior to the Change in Control), may, subject to the provisions of
paragraph (h) below, at the option of the holder thereof, be converted into
shares of Common Stock at any time, whether or not the Corporation has given
notice of redemption under Section 4, on the terms and conditions set forth in
this Section 7.
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(a) Subject to the provisions for adjustment hereinafter set forth, each
share of Series B Preferred Stock shall be convertible in the manner hereinafter
set forth into a number of fully paid and nonassessable shares of Common Stock
equal to the product obtained by multiplying the Applicable Conversion Rate (as
defined below) by the number of shares of Series B Preferred Stock being
converted. The "Applicable Conversion Rate" means the quotient obtained by
dividing the Conversion Value on the date of conversion by the Conversion Price
as adjusted pursuant to Section 7(b) on the date of conversion.
(b) The Conversion Price shall be subject to adjustment from time to time
as follows:
(i) In case the Corporation shall at any time or from time to time
after the original issuance of the Series B Preferred Stock declare a
dividend, or make a distribution, on the outstanding shares of Common Stock
in either case, in shares of Common Stock, or effect a subdivision,
combination, consolidation or reclassification of the outstanding shares of
Common Stock into a greater or lesser number of shares of Common Stock,
then, and in each such case, the Conversion Price in effect immediately
prior to such event or the record date therefor, whichever is earlier,
shall be adjusted by multiplying such Conversion Price by a fraction, the
numerator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event and the denominator of which is
the number of shares of Common Stock outstanding immediately after such
event. An adjustment made pursuant to this Section 7(b)(i) shall become
effective (x) in the case of any such dividend or distribution, immediately
after the close of business on the record date for the determination of
holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, reclassification,
consolidation or combination, at the close of business on the day upon
which such corporate action becomes effective.
(ii) In case the Corporation shall issue (other than upon the exercise
of options, rights or convertible securities) shares of Common Stock (or
options, rights, warrants or other securities convertible into or
exchangeable for shares of Common Stock) at a price per share (or having an
exercise or conversion price per share) less than the Current Market Price
as of the Business Day immediately preceding the Measurement Date, other
than (x) in a transaction to which Section 2(a), 2(b) or 7(b)(i) applies,
(y) pursuant to options or other securities under any employee or director
benefit plan or program of the Corporation approved by the Board of
Directors of the Corporation or shares of Common Stock issued upon the
exercise thereof, (z) pursuant to the conversion of the Series B Preferred
Stock or the Class B Common Stock or Class C Common Stock (the issuances
under clauses (x), (y) and (z) being referred to as "Excluded Issuances"),
then, and in each such case, the Conversion Price in effect immediately
prior to the Measurement Date shall be reduced so as to be equal to an
amount determined by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock of all
classes outstanding at the close of business on the Measurement Date plus
the number of shares of Common Stock (or the number of shares of Common
Stock issuable upon the conversion, exchange or exercise of such options,
rights, warrants or other securities convertible into or exchangeable for
shares of Common Stock) which the aggregate consideration receivable by the
Corporation in connection with such issuance would purchase at such Current
Market Price and the denominator shall be the number of shares of Common
Stock of all classes outstanding at the close of business on the
Measurement Date plus the number of shares of Common Stock (or the number
of shares of Common Stock issuable upon the conversion, exchange or
exercise of such options, rights, warrants or other securities convertible
into or exchangeable for shares of Common Stock) so issued. For purposes of
this Section 7(b)(ii), the aggregate consideration receivable by the
Corporation in connection with the issuance of shares of Common Stock or of
options, rights, warrants or other convertible securities shall be deemed
to be equal to the sum of the gross offering price (before deduction of
customary underwriting discounts or commissions and expenses payable to
third parties) of all such securities plus the minimum aggregate amount, if
any, payable upon conversion or exercise of any such options, rights,
warrants or other convertible securities into shares of Common Stock, less
any original issue discount, premiums and other similar incentives which
have the effect of reducing the effective price per share. For purposes of
this Section 7(b)(ii), such adjustment shall become effective immediately
prior to the opening of business on the Business Day immediately following
the Measurement Date.
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(iii) In the event the Purchaser (as such term is defined in the
Securities Purchase Agreement) exercises its option, pursuant to Section
10.2(b) of the Securities Purchase Agreement, to decrease the Conversion
Price of its shares of Series B Preferred Stock, the Conversion Price of
such shares shall be decreased in the manner and to the extent set forth in
Section 10.2(b) of the Securities Purchase Agreement.
(iv) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 0.1% of
the Conversion Price; provided, that any adjustments which by reason of
this Section 7(b)(iv) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this Section 7 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
(c) In case of any capital reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered by
Section 7(b)(i)), or in case of any consolidation or merger of the Corporation
with or into another Person, or in case of any sale or conveyance to another
Person of the property of the Corporation as an entirety or substantially as an
entirety (each of the foregoing being referred to as a "Transaction"), each
share of Series B Preferred Stock then outstanding shall thereafter be
convertible into, in lieu of the Common Stock issuable upon such conversion
prior to the consummation of such Transaction, the kind and amount of shares of
stock and other securities and property (including cash) receivable upon the
consummation of such transaction by a holder of that number of shares of Common
Stock into which one share of Series B Preferred Stock was convertible
immediately prior to such Transaction (including, on a pro rata basis, the cash,
securities or property received by holders of Common Stock in any tender or
exchange offer that is a step in such Transaction). In any such case, if
necessary, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions set forth in this
Section 7 with respect to rights and interests thereafter of the holders of
shares of Series B Preferred Stock to the end that the provisions set forth
herein for the protection of the conversion rights of the Series B Preferred
Stock shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable upon
conversion of the shares of Series B Preferred Stock remaining outstanding (with
such adjustments in the conversion price and number of shares issuable upon
conversion and such other adjustments in the provisions hereof as the Board of
Directors shall determine in good faith to be appropriate). In case securities
or property other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all references in this Section 7 shall be deemed
to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
Notwithstanding anything contained herein to the contrary, the Corporation
will not effect any Transaction unless, prior to the consummation thereof, (i)
the Surviving Person thereof, if other than the Corporation, shall assume, by
written instrument mailed to each record holder of shares of Series B Preferred
Stock, at such holder's address as it appears on the transfer books of the
Corporation, the obligation to deliver to such holder such cash, property and
securities to which, in accordance with the foregoing provisions, such holder is
entitled. Nothing contained in this Section 7(c) shall limit the rights of
holders of the Series B Preferred Stock to convert the Series B Preferred Stock
in connection with the Transaction or to exercise their rights to require the
redemption of the Series B Preferred Stock under Section 4(b).
(d) The holder of any shares of Series B Preferred Stock may exercise its
right to convert such shares into shares of Common Stock by surrendering for
such purpose to the Corporation, at its principal office or at such other office
or agency maintained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series B Preferred Stock to be converted
duly endorsed to the Corporation in blank accompanied by a written notice
stating that such holder elects to convert all or a specified whole number of
such shares in accordance with the provisions of this Section 7. The Corporation
will pay any and all documentary, stamp or similar issue or transfer tax and any
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series B Preferred Stock pursuant hereto. As
promptly as practicable, and, in any event, within three Business Days after the
surrender of such certificate or certificates and the receipt of such notice
relating thereto and, if applicable, payment of all transfer taxes (or the
demonstration to the satisfaction of the Corporation that such taxes are
inapplicable), the Corporation shall deliver or cause to be delivered (i)
certificates registered in the name of such holder representing the number of
validly issued, fully paid and nonassessable full shares of Common Stock to
which the holder of shares of Series B Preferred Stock so
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converted shall be entitled and (ii) if less than the full number of shares of
Series B Preferred Stock evidenced by the surrendered certificate or
certificates are being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Such conversion shall be
deemed to have been made at the close of business on the date of receipt of such
notice and of such surrender of the certificate or certificates representing the
shares of Series B Preferred Stock to be converted so that the rights of the
holder thereof as to the shares being converted shall cease except for the right
to receive shares of Common Stock, and the person entitled to receive the shares
of Common Stock shall be treated for all purposes as having become the record
holder of such shares of Common Stock at such time.
(e) Shares of Series B Preferred Stock may be converted at any time and, if
subject to Mandatory Redemption, up to the close of business on the last
Business Day immediately preceding the date fixed for such Mandatory Redemption
of such shares.
(f) In connection with the conversion of any shares of Series B Preferred
Stock, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Current Market Price per share of Common Stock on the day on which such
shares of Series B Preferred Stock are deemed to have been converted.
(g) In case at any time or from time to time the Corporation shall pay any
dividend or make any other distribution to the holders of its Common Stock in
additional shares of stock of any class, or shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock of any
class or any other right, other than pursuant to the Rights Plan, or there shall
be any capital reorganization or reclassification of the Common Stock of the
Corporation or consolidation or merger of the Corporation with or into another
corporation, or any sale or conveyance to another corporation of the property of
the Corporation as an entirety or substantially as an entirety, or there shall
be a voluntary or involuntary dissolution, liquidation or winding-up of the
Corporation, then, in any one or more of said cases the Corporation shall give
at least 20 days' prior written notice (the time of mailing of such notice shall
be deemed to be the time of giving thereof) to the registered holders of the
Series B Preferred Stock at the addresses of each as shown on the books of the
Corporation of the date on which (i) the books of the corporation shall close or
a record shall be taken for such stock dividend, distribution or subscription
rights or (ii) such reorganization, reclassification, consolidation, merger,
sale or conveyance, dissolution, liquidation or winding-up shall take place, as
the case may be, provided that in the case of any Transaction to which Section
7(c) applies the Corporation shall give at least 30 days' prior written notice
as aforesaid. Such notice shall also specify the date, if known, as of which the
holders of the Common Stock and of the Series B Preferred Stock of record shall
participate in said dividend, distribution or subscription rights or shall be
entitled to exchange their Common Stock or Series B Preferred Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance, or participate in
such dissolution, liquidation or winding-up, as the case may be.
(h) Notwithstanding the provisions of this Section 7, no holder of Series B
Preferred Stock shall be permitted to convert a number of its shares of Series B
Preferred Stock which shall result in such holder and its Affiliates or any
group (as such term is used in Section 13(d)(3) of the Exchange Act) of which
any of them is a member having Beneficial Ownership, after giving effect to such
conversion, of more than 49% of the then-outstanding Common Stock. If a holder
requests conversion of shares of Series B Preferred Stock which would result in
ownership by such holder and its Affiliates or any group (as such term is used
in Section 13(d)(3) of the Exchange Act) of which any of them is a member of
more than 49% of the outstanding Common Stock after giving effect to such
conversion, then such holder's conversion request shall be deemed to represent a
request to convert up to the maximum number of shares of Series B Preferred
Stock permitted under the prior sentence and the Corporation shall deliver or
cause to be delivered, along with the Common Stock certificates and the new
certificate or certificates represent the remaining unconverted shares of Series
B Preferred Stock, a calculation in reasonable detail setting forth the maximum
number of shares convertible by such holder pursuant to the provisions of this
Section 7(h). If a holder of Series B Preferred Stock requests conversion of
such stock at the time it also requests conversion of any convertible debt of
the Corporation which it holds, then any limitation on conversion set forth in
such debt shall be applied first so as to permit the conversion of the maximum
amount of Series B Preferred Stock, subject to the beneficial ownership
limitation set forth above. If a holder is subject to
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the limitation on conversion set forth in the first sentence of this Section
7(h), then such holder shall not be permitted to convert shares of Series B
Preferred Stock which were rendered non-convertible by the first sentence hereof
and have subsequently become convertible under the first sentence hereof for a
period of 75 days after such shares would otherwise first have become
convertible under the first sentence hereof (it being understood that
transferees of such shares whose beneficial ownership of Common Stock would not
exceed 49% of the then-outstanding Common Stock after giving effect to
conversion of their convertible securities, including the Series B Preferred
Stock, shall not be subject to any of the foregoing limitations on the amount or
timing of the conversion of shares of Series B Preferred Stock).
(i) If the Corporation issues any securities convertible into any equity
security of the Corporation which contains any provisions that protect the
holder thereof against dilution upon the occurrence of certain events in a
manner more favorable to such holder than those set forth in this section (other
than a provision specifying an initial exercise or conversion price), such
provisions shall be deemed to be incorporated herein with respect to such events
as if fully set forth herein and to the extent any existing provision herein is
inconsistent with such provision, such incorporated provision shall be
substituted therefor.
(j) If at the time of conversion of shares of Series B Preferred Stock, the
Common Stock of the Corporation is listed on a national securities exchange, or
is designated as a "national market system security" or "small cap market
security" on NASDAQ, the Corporation shall take all action necessary to cause
the shares of Common Stock issuable upon conversion of such shares of Series B
Preferred Stock to be listed on such exchange, subject to official notice of
issuance.
(k) If the Corporation shall issue shares of Common Stock upon conversion
of the shares of Series B Preferred Stock as contemplated by this Section 7, the
Corporation shall issue together with each such share of Common Stock one Right
(as such term is defined in the Rights Plan) (or other securities in lieu
thereof), or any rights issued to holders of Common Stock in addition thereto or
in replacement therefor, whether or not such rights shall be exercisable at such
time, but only if such rights are issued and outstanding and held by other
holders of Common Stock at such time and have not expired, and only if the
Person to whom such shares of Common Stock are issued is not an "Acquiring
Person" under the Rights Plan or such other agreement pursuant to which such
rights are issued; provided, however, that, in such event such rights shall be
issued to such Person promptly after such time at which such Person is no longer
an "Acquiring Person."
SECTION 8. REPORTS AS TO ADJUSTMENTS AND OUTSTANDING SHARES. Whenever the
number of shares of Common Stock into which each share of Series B Preferred
Stock is convertible (or the number of votes to which each share of Series B
Preferred Stock is entitled) is adjusted as provided in Section 7, the
Corporation shall promptly mail to the holders of record of the outstanding
shares of Series B Preferred Stock at their respective addresses as the same
shall appear in the Corporation's stock records a notice stating that the number
of shares of Common Stock into which the shares of Series B Preferred Stock are
convertible has been adjusted and setting forth the new number of shares of
Common Stock (or describing the new stock, securities, cash or other property)
into which each share of Series B Preferred Stock is convertible, as a result of
such adjustment, a brief statement of the facts requiring such adjustment and
the computation thereof, and when such adjustment became effective.
At the request of any holder of Series B Preferred Stock the Corporation
shall reasonably promptly issue to such holder, in any reasonable manner
requested by such holder, a notice setting forth the number of shares of Common
Stock then outstanding and the maximum number of shares into which the holder's
shares of Series B Preferred Stock are then convertible.
SECTION 9. DEFINITIONS.
For the purposes of the Certificate of Designation of Series B Convertible
Preferred Stock which embodies this resolution:
"Accrued Dividends" to a particular date (the "Applicable Date") means (i)
all dividends accrued but not paid on the Series B Preferred Stock pursuant to
Section 2(a), whether or not earned or declared, accrued to the Applicable Date,
plus (ii) all dividends or distributions payable pursuant to Section 2(b) for
which the Triggering Distribution was declared, ordered, paid or made on or
prior to the Applicable Date.
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"Affiliate" shall have the meaning set forth in Rule l2b-2 promulgated by
the Securities and Exchange Commission under the Exchange Act.
"Associate" shall have the meaning set forth in Rule l2b-2 promulgated by
the Securities and Exchange Commission under the Exchange Act.
"Beneficial Ownership" by a Person of any Voting Securities shall be
determined in accordance with the term "beneficial ownership" as defined in Rule
13d-3 under the Exchange Act as in effect on the date hereof and, in addition,
"beneficial ownership" shall include securities which such Person has the right
to acquire (irrespective of whether such right is exercisable immediately or
only after the passage of time, including the passage of time in excess of sixty
(60) days) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise. For purposes of these Articles Supplementary, an Investor shall be
deemed to beneficially own any Voting Securities beneficially owned by its
Affiliates or any Group (as such term is used in Section 13(d)(3) of the
Exchange Act) of which such Investor or any such Affiliate is a member.
"Business Day" means any day other than a Saturday, Sunday, or a day on
which commercial banks in the City of New York are authorized or obligated by
law or executive order to close.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing person.
"Change in Control" means any of the following:
(a) the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act, a "Group"), other than the
Corporation, or any of its wholly owned Subsidiaries or any Investor or Excluded
Group, of Beneficial Ownership of 35% or more of the combined voting power or
economic interests of the then-outstanding Voting Securities (a "Control
Interest"); provided, however, that (i) any transfer of Notes or shares of
Series B Preferred Stock or other securities from any Investor or Excluded Group
will not result in a Change in Control unless such transfer is pursuant to a
Reorganization Transaction, merger proposal or tender offer in respect of the
Corporation which has been approved by (or participated in by) the Board of
Directors of the Corporation or by a majority of the Voting Securities, and (ii)
in no event shall the conversion of any or all of the Notes in accordance with
the terms of the Notes constitute a Change in Control; or
(b) there is a change in a majority of the members of the Board within 12
months of an "election contest" (as defined in Rule 14a pursuant to the Exchange
Act) relating to the election of persons not recommended by the Board of
Directors at the time of the first public announcements of such election contest
and in which a Person not an Affiliate of the Investor or any Related Person
obtained valid proxies or consents to effect such change; or
(c) the approval by the stockholders of the Corporation of a
reorganization, merger or consolidation, in each case, with respect to which all
or substantially all of the individuals and entities who were the respective
beneficial owners of the Voting Securities immediately prior to such
reorganization, merger or consolidation do not, following such reorganization,
merger or consolidation, Beneficially Own more than 50% of the combined voting
power of the then-outstanding Voting Securities of the Corporation resulting
from such reorganization, merger or consolidation; or
(d) the sale or other disposition of assets representing 50% or more of the
assets of the Corporation in one transaction or series of related transactions;
or
(e) the disposition by the Corporation of any of its interest in the Joint
Venture to a third party that is not a subsidiary of the Corporation (other than
a disposition to the Investor or its Affiliate) except as otherwise permitted
under the Joint Venture Partnership Agreement;
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provided, that the occurrence of any event identified in subparagraphs (a)
through (e) above that would otherwise be treated as a Change in Control shall
not constitute a Change in Control hereunder if a majority of the Series B
Preferred Directors, by vote duly taken, shall so determine.
"Class A Common Stock" means the Class A Common Stock, par value $0.01 per
share, of the Corporation.
"Class A Directors" has the meaning set forth in the Articles of Amendment
and Restatement.
"Class B Common Stock" means the Class B Common Stock, par value $0.01 per
share, of the Corporation.
"Class C Common Stock" means the Class C Common Stock, par value $0.01 per
share.
"Closing" means the closing of the purchase of the Note and the Series B
Preferred Stock pursuant to the Securities Purchase Agreement.
"Closing Price" per share of Common Stock on any date shall be the last
sale price, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, in either case as reported on the Nasdaq Small Cap
Market or the Nasdaq National Market or in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or American Stock Exchange, as the case
may be, or, if the Common Stock is listed or admitted to trading on the New York
Stock Exchange or American Stock Exchange, or, if the Common Stock is not listed
or admitted to trading on any national securities exchange, the last quoted sale
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 National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Common Stock is not quoted by
any such organization, the average of the Closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors and reasonably acceptable to the Requisite
Stockholder.
"Common Stock" means the Class A Common Stock and the Class B Common Stock
and the Class C Common Stock or, if there shall no longer be separate classes,
the common stock, par value $0.01 per share, of the Corporation.
"Conversion Price" shall initially be equal to $4.00, subject to adjustment
as provided in Section 7(b).
"Conversion Value" per share of Series B Preferred Stock shall be an amount
equal to the Stated Amount plus all Accrued Dividends thereon to the date of
conversion or redemption, as the case may be.
"Current Market Price" per share of Common Stock on any date shall be the
average of the Closing Prices of a share of Common Stock for the five
consecutive Trading Days selected by the Corporation commencing not less than 10
Trading Days nor more than 20 Trading Days before the date in question. If on
any such Trading Day the Common Stock is not quoted by any organization referred
to in the definition of Closing Price, the Current Market Price of the Common
Stock on such day shall be determined by agreement between the Corporation and
the Requisite Stockholders, provided that if such agreement is not reached
within 10 business days, such Current Market Price shall be determined as set
forth in Section 4(b).
"Dividend Payment Date" means the following dates: (i) the date that is
three months after the Issuance Date; (ii) the date that is six months after the
Issuance Date; (iii) the date that is nine months after the Issuance Date; (iv)
the date that is first anniversary of the Series B Preferred Stock Issuance
Date; and the anniversaries of the foregoing dates.
"Dividend Period" means the period from the Issuance Date to the first
Dividend Payment Date (but without including such Dividend Payment Date) and,
thereafter, each Dividend Payment Date to the next following Dividend Payment
Date (but without including such later Dividend Payment Date).
"EBITDA" means, with respect to any person for any period, the sum without
duplication, determined on a consolidated basis, of such person's (a) net income
(or net loss), (b) net interest expense, (c) income tax expense, (d)
depreciation expense and (e) amortization expense, determined in accordance with
generally accepted accounting principles consistently applied.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Excluded Group" means any Group in which (A) the Voting Securities either
Beneficially Owned by such Group after the applicable acquisition or
Beneficially Owned by such Group and being transferred by such Group, as the
case may be, multiplied by (B) the percentage of the Investor's interest in the
Beneficial Ownership of such Group, represent a Control Interest.
"Investor" has the meaning ascribed to it in the Investor Agreement.
"Investor Agreement" means the Investor Agreement to be entered into
between the Corporation and the Investor pursuant to the Securities Purchase
Agreement, in the form attached to the Securities Purchase Agreement.
"Investor Designee Period" has the meaning ascribed to it in the Investor
Agreement.
"Issuance Date" means the original date of issuance of Series B Preferred
Stock to the Investors.
"Joint Venture" means the Joint Venture as defined in the Securities
Purchase Agreement.
"Junior Stock" means all classes of Common Stock of the Corporation and
each other class of Capital Stock of the Corporation or series of Preferred
Stock of the Corporation currently existing or hereafter created the terms of
which do not expressly provide that it ranks senior to, or on a parity with, the
Series B Preferred Stock as to dividend distributions and distributions upon
liquidation, winding-up and dissolution of the Corporation.
"Liquidation Preference" means, in the event of a liquidation or winding-up
of the Corporation, an amount per share of Series B Preferred Stock equal to the
greater of (i) the amount the holders of the Series B Preferred Stock would have
received had they converted their Series B Preferred Stock (including for such
purposes any shares of Series B Preferred Stock issuable in respect of Accrued
Dividends through the date of liquidation) into Common Stock immediately prior
to such liquidation or winding-up and (ii) the Stated Amount of their Series B
Preferred Stock plus any Accrued Dividends.
"Measurement Date" means, for purposes of Section 7(b)(ii), (i) in the case
of an offering of rights, warrants or options to all or substantially all of the
holders of the Common Stock or any other issuance contemplated by such Section
where a record date is fixed for the determination of stockholders entitled to
participate in such issuance, such record date and (ii) in all other cases, the
Business Day immediately preceding the date of issuance of shares of Common
Stock (or options, rights, warrants or other securities convertible into or
exchangeable for shares of Common Stock) contemplated by such Section.
"Note" and "Notes" means the 8.75% Convertible Notes issued by the
Corporation pursuant to the Securities Purchase Agreement.
"Original Investment Amount" means the sum of $30,000,000.
"Parity Stock" means any class of Capital Stock of the Corporation or
series of preferred stock of the Corporation hereafter created the terms of
which expressly provide that such class or series will rank on a parity with the
Series B Preferred Stock as to dividend distributions, redemptions and
distributions upon liquidation, winding-up and dissolution.
"Payment Default" means (i) dividends on the Series B Preferred Stock are
in arrears and unpaid for six quarterly Dividend Periods, whether or not
consecutive and such failure thereafter continues or (ii) payments of interest
pursuant to any of the Notes are in arrears and unpaid for six quarterly
Interest Periods (as such term is defined in the Notes), whether or not
consecutive and such failure thereafter continues.
"Person" means an individual, partnership, corporation, limited liability
company or partnership, unincorporated organization, trust or joint venture, or
a governmental agency or political subdivision thereof, or other entity of any
kind.
"Preferred Stock" means the preferred stock, par value $0.01 per share, of
the Corporation.
"Related Person" means with respect to any Person, (A) any Affiliate of
such Person, (B) any investment manager, investment advisor or partner of such
Person or an Affiliate of such Person, and (C) any investment
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fund, investment account or investment entity whose investment manager,
investment advisor or general partner is such Person or a Related Person of such
Person.
"Reorganization Transaction" means: (i) any merger, consolidation,
recapitalization, liquidation or other business combination transaction
involving the Corporation; (ii) any tender offer or exchange offer for any
securities of the Corporation; or (iii) any sale or other disposition of assets
of the Corporation or any of its Subsidiaries in a single transaction or in a
series of related transactions in each of the foregoing cases constituting
individually or in the aggregate 50% or more of the assets or Voting Securities
(as applicable) of the Corporation.
"Registration Rights Agreement" means that registration rights agreement to
be entered into between the Corporation and the Investor pursuant to the
Securities Purchase Agreement, in the form attached to the Securities Purchase
Agreement.
"Requisite Holders" means the holders of Notes or shares of Series B
Preferred Stock representing a majority of the combined (i) aggregate principal
amount of the Notes outstanding and (ii) aggregate stated amount of the Series B
Preferred Stock outstanding, on the record date for such vote or, if no such
record date is established, on the date any written consent of such holders is
solicited, in each case excluding Notes or shares of Series B Preferred Stock
then owned by the Corporation or any of its Affiliates, voting as a single
class.
"Requisite Stockholders" means the holders of at least a majority of the
shares of Series B Preferred Stock outstanding (excluding any shares of Series B
Preferred Stock Beneficially Owned by the Corporation) on the record date for
such vote or, if no such record date is established, on the date any written
consent of stockholders is solicited.
"Rights Plan" means the Shareholder Rights Agreement, dated as of July 8,
1999, between the Corporation and American Stock Transfer and Trust Company, as
Rights Agent, and any successor shareholder rights plan of a similar nature.
"Securities Purchase Agreement" means the securities purchase agreement
entered into among the Corporation and CGLH Partners I LP, a Delaware limited
partnership and CGLH Partners II LP, a Delaware limited partnership, dated
August [ ], 2000.
"Senior Stock" means each other class of Capital Stock of the Corporation
or series of Preferred Stock of the Corporation hereafter created that has been
approved by the holders in accordance with Section 3(d) hereof and the terms of
which expressly provide that such class or series will rank senior to the Series
B Preferred Stock as to dividend distributions, redemptions and distributions
upon liquidation, winding-up and dissolution of the Corporation.
"Set Apart for Payment" means the Corporation shall have irrevocably
deposited with a bank or trust company doing business in the Borough of
Manhattan, the City of New York, and having a capital and surplus of at least
$1,000,000,000 in trust for the exclusive benefit of the holders of shares of
Series B Preferred Stock, funds sufficient to satisfy the Corporation's payment
obligation.
"Stated Amount" means $10.00 per share.
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person. Subsidiary, with respect to
the Corporation, shall specifically include Interstate Hotels, LLC and
Northridge Holdings, Inc.
"Surviving Person" means the continuing or surviving Person of a merger,
consolidation or other corporate combination, the Person receiving a transfer of
all or a substantial part of the properties and assets of the Corporation, or
the Person consolidating with or merging into the Corporation in a merger,
consolidation or other corporate combination in which the Corporation is the
continuing or surviving Person, but in connection with which the Series B
Preferred Stock or Common Stock of the Corporation is exchanged, converted or
reinstated into the securities of any other Person or cash or any other
property; provided, however, if such Surviving Person is a direct or indirect
Subsidiary of a Person, the parent entity also shall be deemed to be a Surviving
Person.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is quoted, listed or admitted to trading is
open for the transaction of business or, if the Common Stock is
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not quoted, listed or admitted to trading on any national securities exchange
(including the Nasdaq Stock Market), any day other than a Saturday, 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.
"Voting Securities" means (x) any securities entitled, or which may be
entitled, to vote generally in the election of directors of the Corporation (y)
any securities, including the Note and the Series B Preferred Stock, convertible
or exercisable into or exchangeable for such securities (whether or not the
right to convert, exercise or exchange is subject to the passage of time or
contingencies or both), or (z) any direct or indirect rights or options to
acquire any such securities; provided that unexercised options granted pursuant
to any employment benefit or similar plan and rights issued pursuant to any
shareholder rights plan shall be deemed not to be Voting Securities.
"Wyndham Redemption Agreement" means the Conversion and Redemption
Agreement among PAH-Interstate Holdings, Inc., Wyndham International, Inc. and
Northridge Holdings, Inc. dated August [ ], 2000.
SECOND: The Series B Preferred Stock have been classified and designated by
the Board of Directors under the authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FOURTH: The undersigned Chief Executive Officer of the Corporation
acknowledges these Articles Supplementary to be the corporate act of the
Corporation and, as to all matters or facts required to be verified under oath,
the undersigned 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.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be executed under seal in its name and on its behalf by its Chief Executive
Officer and attested to by its secretary on [ ], 2000.
INTERSTATE HOTELS CORPORATION
By: (SEAL)
------------------------------------
Thomas F. Hewitt
Chief Executive Officer
Witnessed by:
------------------------------------------
--------------------------------Secretary
<PAGE> 135
(LOGO) APPENDIX E
August 31, 2000
Board of Directors
Interstate Hotels Corporation
680 Anderson Drive, Foster Plaza Ten
Pittsburgh, Pennsylvania 15220
Members of the Board of Directors:
Interstate Hotels Corporation (the "Company") and CGLH Partners I LP and
CGLH Partners II LP (CGLH Partners I LP and CGLH Partners II LP, together, the
"Investor"), propose to enter into a transaction (the "Transaction") evidenced
by a Securities Purchase Agreement dated August 31, 2000 (the "Purchase
Agreement") pursuant to which (i) the Investor, directly or through an
affiliate, would purchase the 8.75% Convertible Subordinated Notes (the "Notes")
in the aggregate principal amount of $25,000,000 and 500,000 shares of the
Series B Convertible Preferred Stock, par value $.01 per share (the "Series B
Preferred Stock") in the aggregate amount of $5,000,000; each of which shall be
convertible into shares of the Company's Class A Common Stock, par value $.01
per share (the "Common Stock"), at a conversion price of $4.00 per share of
Class A Common Stock, for an aggregate purchase price of $30,000,000, and (ii)
at the Closing, as defined in the Purchase Agreement, the Company would enter
into a Registration Rights Agreement (the "Registration Rights Agreement") and
an Investor Agreement (the "Investor Agreement") substantially in the form
attached to the Purchase Agreement (the Purchase Agreement, the Investor
Agreement and the Registration Rights Agreement are together referred to as the
"Agreements"). The terms of the Notes and the Series B Preferred Stock prevent
any holder from converting such securities into Common Stock if that conversion
would result in that holder and its affiliates or any group to which they belong
owning more than 49% of the Common Stock after the conversion. In addition, upon
closing of the Transaction contemplated under the Agreements, pursuant to the
Purchase Agreement the Company and the Investor, through an affiliate, have
agreed to enter into a Limited Partnership Agreement (the "Partnership
Agreement"), a form of which is attached to the Purchase Agreement, pursuant to
which the Investor would contribute an aggregate amount of $20,000,000 and the
Company would contribute an aggregate amount of $25,000,000 from the proceeds of
the Transaction to a newly formed joint venture in the form of a limited
partnership (the "Partnership").
You have asked us whether, in our opinion, the Transaction is fair from a
financial point of view to the Company.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company that we deemed to be relevant;
(2) Reviewed certain information furnished to us by the Company,
including financial forecasts, relating to the business, earnings,
cash flow, assets, liabilities and prospects of the Company;
(3) Conducted discussions with members of senior management and
representatives of the Company concerning the matters described in
clauses (1) and (2) above, as well as the Company's business and
prospects before and after giving effect to the Transaction;
(4) Reviewed the market prices and valuation multiples for the common
stock of the Company and compared them with those of certain
publicly traded companies that we deemed to be relevant;
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(5) Reviewed the historical results of operations of the Company and
the Company's business plan for the years ended 2000-2003;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions which we deemed to
be relevant;
(7) Reviewed the potential pro forma impact of the Transaction on the
Company, including the agreed upon use of $25 million of the
proceeds as per the Partnership Agreement;
(8) Reviewed drafts of the Agreements dated August 23, 2000 and the
Partnership Agreement dated August 30, 2000; and
(9) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In connection with the preparation of our opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited third-party indications of interest for the acquisition of the Company
nor have we compared the Transaction with other possible transactions that the
Company could have considered.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available and have further
relied on the assurances of management of the Company that they are not aware of
any facts that would make such information inaccurate or misleading. We have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of the Company. With respect
to the financial information furnished to or discussed with us by the Company,
including prospective financial information, we have assumed that they have been
reasonably prepared and, with respect to the prospective financial information,
reflect the best currently available estimates and judgment of the Company's
management as to the expected future financial performance of the Company. We
express no opinion as to such financial information or the assumptions on which
they were based. We have also assumed that the final forms of the Agreements and
the Partnership Agreement will be substantially similar to the last drafts
reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that the representations and
warranties of each party to the Agreements and the Partnership Agreement and all
related documents or instruments contained therein (collectively, the
"Documents") are true and correct, that each party to the Documents will perform
all covenants and agreements required to be performed by such party under the
Documents and that all conditions to the consummation of the Transaction will be
satisfied without waiver thereof. We have also assumed that all governmental,
regulatory or other consents and approvals (contractual or otherwise), if any,
will be obtained and that in the course of obtaining any such consents or
approvals, no restrictions will be imposed or amendments or modifications made
that would have a material adverse effect on the contemplated benefits of the
Transaction to the Company.
We are acting as financial advisor to the Company in connection with the
Transaction and will receive a fee from the Company for our services, which fee
is contingent upon the consummation of the Transaction. In addition, the Company
has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past provided financial advisory and financial
services to the Company and may continue to do so and have received, and may
receive, fees for the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the shares of the Company's common
stock for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
This opinion is solely for the use and benefit of the Board of Directors of
the Company in its evaluation of the Transaction and shall not be used for any
other purpose. Our opinion does not address the merits of the underlying
decision by the Company or the Investor to engage in the Transaction and we are
not expressing any opinion herein as to the prices at which any class of the
Company's stock will trade at any time.
This opinion is not intended to be relied upon or confer any rights or
remedies upon any employee, creditor, shareholder or other equity holder of the
Company, or any other party. This opinion shall not be reproduced,
<PAGE> 137
disseminated, quoted, summarized or referred to at any time, in any manner or
for any purpose, nor shall any public references to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") or any of its affiliates be made
by the Company, the Investor or any of their affiliates, without the prior
consent of Merrill Lynch, which will not be unreasonably withheld or delayed.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Transaction is fair from a financial point of view to
the Company.
Very truly yours,
/s/ MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
----------------------------------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
